With the exception of another nice gain by NovoCure (NVCR), this was a quiet week for the Cabot Explorer portfolio as the Nasdaq continues its march, up almost 35% so far in 2020. Our Emerging Markets timer (EEM) stays positive as some of these markets bounce back against the backdrop of very weak economies. Perhaps the worst is India with its latest quarterly GDP falling 24%. This issue’s new recommendation is a high quality stock in a growth sector with a wonderful high margin, low risk business model.

This month we’re jumping back into the pure-play software space with an up and coming SaaS company that has remained under the radar since going public in December, just a few months before the market tanked.

It specializes in social media management solutions, which are increasingly important as the trend toward digital transformation strategies gets stronger. Organizations increasingly recognize they must market to consumers through social networks.



Revenue growth is hovering around 30% and first profits are still a couple years away, meaning we’re still early to the table.



All the details are inside this month’s Issue. Enjoy!

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the September 2020 issue.

With earnings season mostly completed, the markets have drifted upwards in the waning days of this otherwise unusual summer. Some splashy IPOs and stock splits have provided some excitement, but the bigger and more enduring news came from the Fed’s official change in its priorities. We discuss our thoughts on this shift in the letter.



We also introduce price targets for several recommended stocks. Over the next few weeks, we will provide targets for the remaining stocks and all newly recommended stocks. Price targets help stay the course when our stocks weaken on noise, and provide a tangible exit point. The assumptions behind the price targets provide a roadmap to gauge the company’s recovery process.



Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

The Turnaround Letter has been acquired by the Cabot Wealth Network, a family-owned business based in nearby Salem, Massachusetts. Founded in 1970 by Carlton Lutts, Cabot is celebrating its 50th year in business, having served hundreds of thousands of investors. The company focuses exclusively on publishing high-quality investment newsletters and currently has a portfolio of 20 advisory services.

In this issue you’ll read about an energy company and a powerful catalyst for turnarounds.

Today’s recommendation had been in a slow, steady uptrend for years, though it got dented with everything else in March of this year.

Current Market Outlook


We don’t want to repeat ourselves too much, but the environment has remained mostly the same during the past few weeks. First, overall, this is a bull market that’s likely to carry nicely higher when looking out a few months; there remains plenty of doubt and uncertainty, which is (contrarily) a good thing. Second, though, making money has become trickier—there are far more news-driven moves, buying pressures seem to come and go for many leading stocks (as opposed to the sustained upmoves seen earlier this year) and there’s no question most indexes are extended to the upside. That’s no reason to get overly worried (most stocks are still acting normally), and in fact, we’re nudging our Market Monitor up a notch this week as leading stocks have perked up a bit. But it remains important to look for good entry points, honor your stops and take some partial profits when the opportunity arises.

Encouragingly, this week’s list is very broad, with all different types of sectors, sizes and growth/value outlook represented. There are many good names to choose from, but our Top Pick is Horizon Pharmaceuticals (HZNP), which has huge earnings estimates and a tight chart.

Stock Name	Price	Buy Range	Loss Limit
Anaplan (PLAN)	61.25	59.5-62.5	53-55
Enphase Energy (ENPH)	77.23	72-76	64-66
FedEx (FDX)	219.84	206-213	184-188
Futu Holdings (FUTU)	32.17	30-32	26-27
Horizon Therapeutics (HZNP)	75.12	72-76	65-67
Lithia Motors Inc. (LAD)	248.96	238-250	215-220
Roku, Inc. (ROKU)	173.48	167-174	147-150
Salesforce.com (CRM)	272.65	263-273	233-239
Trupanion (TRUP)	62.73	60.5-63	53-55
Tupperware Brands (TUP)	16.29	14.5-15.5	12-12.5

The market remains in fine health, with the major indexes regularly hitting new highs as investors look forward to a recovery from the intentional recession. At some point, that means we’ll have a top, but it’s hard to predict when.

In the meantime, the portfolio continues to recommend a well-diversified group of high-potential stocks, including this week’s—a well-known pharmaceutical giant that is coming off a normal correction.



As for our current stocks, most look great, but something’s got to be sold to keep the portfolio under 21 holdings, and the victim is our weakest stock, GFL Environmental (GFL).



Full details in the issue.

Growth stocks remain mostly hit or miss, but the evidence has improved somewhat during the past couple of weeks. We’re not flooring the accelerator, but we are doing a little new buying tonight, though still keeping about one-quarter of the Model Portfolio in cash.

Elsewhere in tonight’s issue, we talk about the thinning out of the advance and dive into all our stocks (a couple of which have earnings coming up), as well as talk about our new recommendations and game plan going forward.

Thank you to everyone who joined us last week for our virtual Cabot Summit. We really missed seeing you in person, but were so happy that we could at least share some of our investing ideas and strategies during this strange time in which we are living. I hope you enjoyed the Summit!

We are keeping our fingers crossed that the coronavirus trend seems to be improving. Unemployment is still dismal, but there are some very bright spots in the economy—both housing starts, building permits, and manufacturing are rising.



And as you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment continues to be bullish.

Trim your sails a bit and see how the market handles itself going forward. Today’s whopping decline isn’t the end of the world for growth stocks, but the broad market is more worrisome, with the Cabot Tides now neutral and our Two-Second Indicator turning negative.

The major indexes pulled back late last week, then rallied Monday after Saudi Arabia and Russia said they would extend oil production cuts. Crude prices surged to their highest level in two weeks, and energy stocks led the market higher. Things cooled off again on Tuesday, as housing starts disappointed and the U.S. dollar fell to its lowest level since before the election.

It’s no secret that I’ve favored energy, financial and construction materials stocks for many months. That’s because many stocks in those sectors are expected to achieve very strong, multi-year profit growth.

It’s been a wild week, much more so than a high-level look at the small-cap index would imply. According to the index, we’re just moving sideways with a little wiggle here and there. But when you look within our portfolio—wow! This was anything but a quiet week. Stocks were jumping all over the place as earnings reports came out.

In this Weekly Update, I include summaries for 10 companies that reported quarterly financial results or other noteworthy news during the past week. I also include questions from subscribers along with my answers.

The Emerging Markets Timer is in great shape, as the iShares EM Fund has pushed out to new highs in recent days. We’re holding on tight to our winners, but we are downgrading one stock to Hold tonight.

The S&P 500 and Dow finally joined the Nasdaq at new highs this week, although they continue to underperform the tech-oriented index. Despite this divergence, most signals continue to point to further gains for the stock market in the months ahead. I have one rating change today.

We’re on the tail end of earnings seasons for companies that wrapped up their quarters in March. Almost every one of our portfolio companies that reported earnings delivered an upside earnings surprise, especially in the integrated oil and construction materials industries.

This Weekly Update includes summaries for 11 Cabot Benjamin Graham Value Investor companies that reported quarterly financial results or other noteworthy news during the past week.

Most of the market’s evidence remains bullish, so we remain optimistic that higher prices are ahead; the Model Portfolio is more than 80% invested in nine strong stocks. That said, it’s not all peaches and cream, as some key indexes are again testing their 50-day lines and we’re still in the thick of earnings season.

This Weekly Update includes earnings updates and expectations on all our portfolio companies. I have no rating changes this week, and most of our holdings are acting quite well.

If you have any exposure at all to small-cap cloud-based software stocks, you’re likely singing in the shower these days. It has been hard to miss with this class of stocks. In our portfolio, our small business cloud software stocks are driving overall portfolio returns with weekly gains of 5% to 10% not uncommon.

One stock reports strong fourth quarter and moves from Strong Buy to Hold.

Two recommendations today—an energy company with an improving future, and some profit-taking.

Our second recommendation will be taking some profit.

This gold company is expecting double-digit growth next year.

Last week, we began to see selling begin to appear in some leaders, either through stalling action (selling on the way up) or, more importantly, via some selling on good news. Today we saw the sellers really come out of the woodwork, with many leading growth stocks taking big hits on volume.. As a result, we placing three of our stocks on Hold.

This resource company mines a key ingredient for electric vehicles—a booming market.

One stock moves from Hold to Strong Buy.

The shares of this defense company were recently initiated with a ‘Positive’ rating at Susquehanna.

One stock moves from Buy to Hold and there is price action and/or news on three more.

This potato company beat Wall Street’s earnings forecasts by $0.08 last quarter.

Two of our portfolio stocks reported Q4 2018 results.

Two stocks reported fourth-quarter results; plus price action on two more.

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.