Issues
As the bear market continues and stocks swing wildly we have some sage advice regarding what to expect over the coming weeks. The first part of this months Issue is all about understanding the environment. We’ll get into stock talk tomorrow.
There’s obviously a lot of uncertainty when it comes to all earnings forecasts for 2020, and it’s pretty much a given that this stock itself will miss initial forecasts in Q1. But the company looks poised to be one of the blue-chips best positioned to rebound whenever the virus storm passes.
Just when you start to think this coronavirus crash will never end—it will. And our goal is to have a portfolio of healthy stocks when that day arrives. In the meantime, our selling has increased our cash position significantly—and there are two more recommended sales today.
As for new buying—there aren’t a lot of healthy stocks to choose from, regardless of whether you’re looking for low-risk or high-risk, but one that stands out is today’s recommendation, which benefits from the booming growth in working-from-home (WFH).
Full details in the issue.
As for new buying—there aren’t a lot of healthy stocks to choose from, regardless of whether you’re looking for low-risk or high-risk, but one that stands out is today’s recommendation, which benefits from the booming growth in working-from-home (WFH).
Full details in the issue.
Current Market OutlookFirst and foremost, with the virus now affecting most everyone, all of us here at Cabot are hoping you stay safe (and if you’re home with your kids, sane!). As for the market, there’s not much to say except the obvious: We remain in a very steep selloff, with bounces limited to a couple of hours, though we’re seeing such crazy extremes (price and sentiment) that a near-term low is possible at any time. Our advice really hasn’t changed despite the once-in-a-lifetime action of the past couple of weeks: You should remain cautious, holding plenty of cash and keeping any new buying on the small side. Eventually, there will be huge opportunities, but we need to see the market and potential leading stocks find support before thinking a workable low could be in.
In the meantime, we’re mostly focused on eying stocks that are showing some resilience—if something can hold up in this disaster, it’s definitely worth at least keeping a close eye on. Our Top Pick is Masimo (MASI), which could be a port in the virus storm.
| Stock Name | Price | ||
|---|---|---|---|
| Acceleron Pharma (XLRN) | 75.11 | ||
| Apple (AAPL) | 248.94 | ||
| Bilibili (BILI) | 28.71 | ||
| DocuSign (DOCU) | 107.98 | ||
| Equinix, Inc. (EQIX) | 547.73 | ||
| FTI Consulting (FCN) | 120.09 | ||
| Inphi (IPHI) | 120.16 | ||
| Masimo (MASI) | 159.56 | ||
| Repligen (RGEN) | 91.34 | ||
| TAL Education (TAL) | 50.49 |
The market has crashed during the past three weeks, with the major indexes down 25%-plus and many stocks down much more than that. We’re seeing some truly historic oversold extremes, which tell us a bounce could get underway at any time, but we’re also not seeing the market able to bounce from those extremes. The bottom line is the same as it’s been since late February: The sellers remain in control of the market and the vast majority of stocks, so we’re holding plenty of cash and paring back as need be.
Bigger picture, the market (and the country) will get through this pandemic in time, so it’s important not to lose your cool. There will be big money to be made down the road, and we’re on the hunt for stocks showing some minor relative strength and studying up on some new stories (a couple of which we highlight in the issue). But the goal is to get to the next uptrend in one piece--right now, you should respect the action and remain defensive.
Bigger picture, the market (and the country) will get through this pandemic in time, so it’s important not to lose your cool. There will be big money to be made down the road, and we’re on the hunt for stocks showing some minor relative strength and studying up on some new stories (a couple of which we highlight in the issue). But the goal is to get to the next uptrend in one piece--right now, you should respect the action and remain defensive.
The coronavirus is sending the market into a tailspin. It took a thriving bull market from all-time highs to the cusp of a bear market in a matter of weeks.
It is likely that this market will not significantly recover until there is more clarity on the extent of the economic disruptions it is causing and how long they will last. That seems unlikely for several weeks at least. In the meantime, the market is vulnerable to constant headline risks.
It is likely that the market has not found a bottom.
That said, this too shall pass. The coronavirus is a black swan event that is singularly responsible for the market crash. When the panic and emergency subsides, and it will, the market will likely recover and make up for lost time.
In this issue I discuss the ramifications and measures to protect your investments. As well, I identify rare securities that are timely opportunities while the market is down. These stocks have limited downside if the market continues to fall and huge upside leverage when it recovers.
It is likely that this market will not significantly recover until there is more clarity on the extent of the economic disruptions it is causing and how long they will last. That seems unlikely for several weeks at least. In the meantime, the market is vulnerable to constant headline risks.
It is likely that the market has not found a bottom.
That said, this too shall pass. The coronavirus is a black swan event that is singularly responsible for the market crash. When the panic and emergency subsides, and it will, the market will likely recover and make up for lost time.
In this issue I discuss the ramifications and measures to protect your investments. As well, I identify rare securities that are timely opportunities while the market is down. These stocks have limited downside if the market continues to fall and huge upside leverage when it recovers.
Amazon and others have a lock on the market for large-scale e-commerce, but this stock leads a different niche, as it’s the go-to place for buyers (46 million of them at year-end, up 16% from a year ago) and sellers (2.7 million, up 20%) of homemade, handcrafted goods.
This morning’s market crash will go down in history as a big one—biggest by point drop and one of the biggest by percentage drop. But this is no time to panic. Instead, it’s time to recognize that the market is increasingly offering its wares at bargain prices, and all you need to do is have cash on hand when the climate improves.
For our portfolio, that means selling one more stock today, Endava (DAVA).
In the meantime, Cabot analysts continue to find stocks that are attractive for one reason or another and today’s featured stock is one of them—a leading chipmaker with great prospects as the world goes increasingly online and digital.
Full details in the issue.
For our portfolio, that means selling one more stock today, Endava (DAVA).
In the meantime, Cabot analysts continue to find stocks that are attractive for one reason or another and today’s featured stock is one of them—a leading chipmaker with great prospects as the world goes increasingly online and digital.
Full details in the issue.
Current Market OutlookAfter two weeks of dreadful action, the perfect storm crashed down on Wall Street this morning, with imploding oil prices and more virus/economic fears causing a panic, though the damage was limited after the open. Short-term, today brought many truly extreme readings (more than 2,800 stocks hit new lows on the NYSE and Nasdaq combined!), so short-term, some sort of bounce or relief rally is possible (even probable). That said, (a) the nature of this decline has been breaking some rules, so there are no sure things, and (b) our focus remains on the intermediate-term, where the trends of just about everything are pointed down. Thus, while we’re keeping our eyes open, we’re focusing mostly on capital preservation and hunting for the potential big winners for the next uptrend.
This week’s list is a great place to start, whether you’re building a watch list or looking to nibble. Our Top Pick is Vipshop (VIPS), which is one of many Chinese stocks that is acting very well.
| Stock Name | Price | ||
|---|---|---|---|
| eHealth (EHTH) | 122.74 | ||
| Etsy (ETSY) | 112.97 | ||
| Everbridge (EVBG) | 107.90 | ||
| GSX Techedu (GSX) | 97.59 | ||
| iRhythm Technologies (IRTC) | 51.15 | ||
| Newmont Mining (NEM) | 57.31 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Tradeweb Markets (TW) | 51.44 | ||
| Vipshop Holdings (VIPS) | 14.25 | ||
| ZTO Express (ZTO) | 28.84 |
Updates
Remain bullish. We’ve seen some wiggles from individual stocks during the past two weeks, and more are likely as earnings season progresses. But the major trends of the market and most stocks are up, so we advise you to remain heavily invested. There are no changes in the Model Portfolio tonight.
Many of our portfolio stocks either just completed a run-up or they’re trading sideways in synch with the S&P 500 index. A couple of them look capable of continuing their run-ups this week, and cruise company stocks also appear ready to climb. However, the stock that seems most obviously ready to rise is Johnson Controls (JCI) in the Buy Low Opportunities Portfolio.
Eighteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news. I have one new sell recommendation: Fortive (FTV).
We may look to exit a few positions on strength over the coming weeks/months, but those moves will depend on share price momentum and/or earnings results. More companies have announced their earnings release dates, and three companies report next week. We have no ratings changes this week.
The Emerging Markets Timer is flashing a buy signal and our stocks are behaving well. Our only move tonight is buying a half position in New Oriental Education (EDU).
Earnings season is well underway and is causing some divergences among stock market sectors. Financials, always among the first companies to report, are finally seeing some investors return after most of the major U.S. banks posted solid earnings numbers late last week.
The S&P 500 index had a nice breakout last week. I consider the move to be the beginning of a trend that could easily last for many months. Along the way, there will be pullbacks that will provide good buying opportunities.
Almost everything is up over the past week. The S&P 600 small cap index jumped 4.8% higher to hit 738. It is now up 10% in 2016, sits just four points below its 2015 high, and is officially above my year-end target of 730. None of our stocks were down over the past week.
Fastenal (FAST 43.30) reported sluggish second-quarter results. Sales inched ahead 2% and EPS fell 4%, after increasing 4% and 2% respectively during the prior quarter. Sell (FAST)
All of our market timing indicators are now positive, and yesterday brought yet another “blastoff” signal, so the odds strongly favor higher prices during the next few months. In the Model Portfolio, we’re adding Ligand Pharmaceuticals (LGND) and averaging up on ProShares Ultra S&P 500 Fund (SSO) tonight. Combined with Monday morning’s new buys, that will leave us with about 8% in cash.
We have one portfolio change today: we’re finally putting Costco (COST) back on Buy, after the stock broke out of its trading range to the upside last week. Elsewhere, I encourage you to do a little buying if you’re underinvested, taking advantage of pullbacks to start new positions in stocks that are acting well.
The S&P 500 appears to be breaking past price resistance, which it has repeatedly pushed up against since early 2015. This is great news! I expect the stock market to surprise people by rising to new highs and establishing a new, higher trading range.
Alerts
This healthcare ETF is also rated ‘Strong Buy’ by Zacks.
I expect a traders’ market through year end. Be wary: just because a stock rebounds nicely this week does not mean that it will maintain those share price gains.
The sell-off in this medical diagnostic company is providing a buying opportunity.
Earnings season has taken its first bite out of one of our holdings.
This global automaker is seeing a resurgence in its brands, yet the shares trade at a P/E of just 6.
Our portfolio’s earnings season kicked off with a bang last night with three companies opening their books from Q3. As I expected the reactions were significant and unpredictable. We took partial profits on all positions ahead of earnings and have kept them rated hold into the events.
One of our positions reported middling third-quarter results this morning, and the stock opened 6% lower, although it’s already making up some of those losses. As a result, we’re moving it to Hold.
In the last 30 days, 25 analysts have increased their EPS estimates for this insurer.
Following Friday’s meltdown, the market attempted to bounce this morning, but was overwhelmed with selling pressures again, resulting in another round of huge losses. As a result, this caused one of our positions to dive below long-term support on big volume and it’s time to sell. This sale will raise our cash position to around 78%, which is obviously a highly defensive stance.
This convenience store business beat analysts’ estimates by $0.06 last quarter.
Portfolios
Strategy
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.