Issues
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.
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.
In this month’s issue of Cabot Early Opportunities we serve up a diverse group of stocks with exposure to vastly different areas of the economy.
There’s some software and biotech, and plenty of IPOs, but also a few ways to play rising strength in cyclical stocks.
Enjoy!
There’s some software and biotech, and plenty of IPOs, but also a few ways to play rising strength in cyclical stocks.
Enjoy!
A lot has happened with our marijuana stocks in recent weeks, with the most important being the release of excellent quarterly reports by all the major U.S. multi-state operators that explained why the sector had been so strong in recent months.
However, growth stocks in general—and marijuana stocks in particular—have now begun a well-deserved correction, so I’m now getting a bit more cautious.
Full details in the issue.
However, growth stocks in general—and marijuana stocks in particular—have now begun a well-deserved correction, so I’m now getting a bit more cautious.
Full details in the issue.
It’s time to look beyond the pandemic. It may seem like it will drag on forever. And it may still be a while yet before it’s behind us. But it will pass. In the grand scheme of things, it is a very temporary situation.
The overwhelming majority of your investing career from here will be in the post pandemic environment. And the virus has created opportunities. While the market indexes are at all time highs, many of the more cyclical and real economy stocks are still historically very cheap. But these stocks will be lifted by the inevitable recovery ahead.
In this issue, I identify two industry leaders with stock prices that are temporarily depressed in the current environment. Yet, they present fantastic opportunities if we look beyond the haze.
The overwhelming majority of your investing career from here will be in the post pandemic environment. And the virus has created opportunities. While the market indexes are at all time highs, many of the more cyclical and real economy stocks are still historically very cheap. But these stocks will be lifted by the inevitable recovery ahead.
In this issue, I identify two industry leaders with stock prices that are temporarily depressed in the current environment. Yet, they present fantastic opportunities if we look beyond the haze.
For now our positions remain in great shape, and this week we are adding a stock that we successfully traded in March, and has shown no signs of pulling back after an earnings blowout last week.
Current Market OutlookThere’s not much negative to say about the market if you’re looking at the major indexes—all remain in solid intermediate-term uptrends, and longer-term, there are many bullish signposts for the overall market. But it’s also a fact that this rally has become awfully thin—the number of stocks hitting new highs is half (or less) of what we saw earlier this month, and the rotation between extended growth (those that got going back in April/May), fresher growth (those that got going in the past month or so) and cyclicals is becoming more frequent and intense. Once again, none of this necessarily portends doom, but there’s little doubt that making money has become tougher, so factor that into your plan—possibly buying smaller positions, entering on weakness, and focusing on what’s attracting buyers.
That’s just what our screens do, and this week’s list has another batch of in-favor stocks. For our Top Pick, we’ll go with JD.com (JD), a well-traded name that just reacted positively to earnings, and whose group (China) is picking up steam.
| Stock Name | Price | ||
|---|---|---|---|
| The AZEK Company (AZEK) | 39.88 | ||
| Big Lots (BIG) | 53.65 | ||
| DaQo New Energy Corp (DQ) | 124.59 | ||
| Elastic (ESTC) | 103.35 | ||
| Emergent BioSolutions, Inc. (EBS) | 125.55 | ||
| Etsy (ETSY) | 128.74 | ||
| JD.com (JD) | 76.18 | ||
| Natera (NTRA) | 65.49 | ||
| Trade Desk (TTD) | 466.66 | ||
| Whirlpool (WHR) | 181.38 |
The market remains in good health and trending higher, though the rotation from previously hot growth stocks continues, to some degree.
This week’s recommendation is a well-known consumer name whose stock is truly cheap, in part because the company recently discontinued dividend payments (they had been 6%) in response to the pandemic shutdown.
As for the current portfolio, I will now drop Nvidia (which has been very successful but is now sky-high), and downgrade GFL Environmental (GFL) to hold.
Full details in the issue.
This week’s recommendation is a well-known consumer name whose stock is truly cheap, in part because the company recently discontinued dividend payments (they had been 6%) in response to the pandemic shutdown.
As for the current portfolio, I will now drop Nvidia (which has been very successful but is now sky-high), and downgrade GFL Environmental (GFL) to hold.
Full details in the issue.
The market remains in good health and trending higher, though there is some rotation going on from growth stocks to cyclicals—not unusual for this stage of a bull market.
This week’s recommendation is a big cap global technology stock benefitting from both the spread of communications technology and the company’s dominant position in the global supply chain.
As for the current portfolio, there are no stocks that look like they should be sold, but I must sell one to respect my portfolio cap, and the victim will be Brookfield Infrastructure Partners (BIP), where we have a modest profit.
Full details in the issue.
This week’s recommendation is a big cap global technology stock benefitting from both the spread of communications technology and the company’s dominant position in the global supply chain.
As for the current portfolio, there are no stocks that look like they should be sold, but I must sell one to respect my portfolio cap, and the victim will be Brookfield Infrastructure Partners (BIP), where we have a modest profit.
Full details in the issue.
Current Market OutlookThe market continues to look fine, with both primary (trend) and secondary (new lows, etc.) evidence boding well—not to mention many of the longer-term signposts like blastoff indicators telling us this is a bull market. But for leading growth stocks, it’s tricky out there; while there haven’t been a rash of breakdowns, there’s plenty of iffy action, with low volume rallies, selling on strength and relatively few stocks hitting new highs. (While the Nasdaq tested new-high ground today, the number of stocks doing so was half of what we saw a week and a half ago.) We certainly don’t think you should be holed up in your bunker, and we’re staying flexible, but given the prolonged run and the recent sloppiness, we think moving closer to shore makes sense, especially if you own some sluggish performers.
Interestingly, while the leaders of the April-July move rest, we’re seeing other names (both growth and cyclical) perk up. This week’s list has plenty of both, and our Top Pick is Quanta Services (PWR), which has decisively broken out on the upside.
| Stock Name | Price | ||
|---|---|---|---|
| Berry Global (BERY) | 64.22 | ||
| Builders FirstSource (BLDR) | 44.12 | ||
| Cerence (CRNC) | 107.77 | ||
| First Solar (FSLR) | 83.74 | ||
| HubSpot (HUBS) | 582.89 | ||
| Innovative Industrial Properties (IIPR) | 214.38 | ||
| iRhythm Technologies (IRTC) | 51.15 | ||
| L Brands (LB) | 79.48 | ||
| Quanta Services (PWR) | 91.45 | ||
| Shift4 Payments (FOUR) | 89.97 |
Updates
At about half way through earnings season, the results look good. Average sales gains for our 27 stocks that have reported thus far are 13%. In today’s Weekly Update, I provides summaries for 16 of our companies that reported quarterly financial results or other noteworthy news during the past week.
The Emerging Markets Timer is in great shape, as the iShares EM Fund is sitting well above its 25- and 50-day moving averages. We have no changes to the portfolio tonight.
It looks like we’re in for an up week in the stock market. Stocks are reacting well to election results in France, in which a moderate candidate took the lead, with an outsider standing in second place. It seems like voters around the world are weary of their recent political regimes, choosing instead to either vote for moderates or vote for opposite political extremes from what they recently experienced.
Small caps got their mojo back this week. The asset class jumped 3.2%, driven by strong performance in consumer discretionary (up 5%), tech (up 4%) and industrials (up 3.7%). In fact, everything was up except energy (down 5%).
Thirteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. This update also includes two Sell alerts.
Our Cabot Tides turned negative last week, though we didn’t take any action in the Model Portfolio as we already had 29% in cash. We’ve seen a modest bounce this week, and with our Cabot Trend Lines and Two-Second Indicator still positive, we think the next big move is up. But until we get a new Tides buy signal, we’re holding some cash and taking things on a stock-by-stock basis.
The odds of a June interest rate increase have now fallen to 47%, from 60% earlier this month. A December rate hike is seen as even less likely, with odds currently at 37%, down from 56%. That’s led to additional gains in bond alternatives like utilities.
A Bloomberg article implies that Chipotle Mexican Grill (CMG) is struggling financially. Yet the fact is that Chipotle is a wildly profitable company, with aggressive earnings growth, and without a trace of long-term debt. That’s quite a feat in corporate America.
Small caps continue to trend sideways as they have since the beginning of 2017. In the S&P 600 Small Cap Index, this means trading mostly in the 820 to 860 range with a few spikes above and a few below. There’s no doubt the market rally has lost momentum as the small cap index has traded mostly below its intermediate trend line over the last five weeks.
None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but today’s update includes subscriber questions about two Enterprising Model stocks with my responses.
The Emerging Markets Timer is in relatively good shape, as the iShares EM Fund is staying in contact with its 25-day moving average. Many of our stocks are acting great. We sold three laggards in last week’s issue and our only action today will be to move one stock back to a Buy rating.
Mike Cintolo, our market timing expert, wrote earlier this week that he wouldn’t be surprised to see this correction develop one more leg down, and it looks like that’s what we’re getting. All the major indexes opened significantly lower yesterday, and while they rebounded partially in the afternoon, the turbulence sent the VIX surging to its highest level since the U.S. election.
Alerts
This cybersecurity company is expected to grow by 53.2% this year.
In the past 30 days, nine analysts have raised their EPS estimates for this DNA sequencing company.
This medical device company beat analysts’ EPS estimates by $0.09 last quarter, and the shares were recently initiated at Deutsche Bank with a ‘Buy’ rating.
Two stocks have rating changes today.
Seven analysts have increased their EPS estimates for this financial stock in the past 30 days.
Trends remain good for investors in the marijuana industry.
One of our portfolio stocks reported Q4 2018 results the other night that were better than expected.
One stock reports strong fourth quarter and moves from Strong Buy to Hold; a second falls on temporary problems.
This digital entertainment and e-commerce company is expected to grow at double-digit rates this quarter, boosting its shares’ momentum.
The shares of this payment company were recently initiated by Jefferies with a ‘Buy’ rating and were upgraded by UBS to ‘Buy’
This medical equipment company beat earnings estimates by $0.04 last quarter.
This apparel company is seeing tremendous growth, with some very high-end brand names.
Portfolios
Strategy
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.