Here is the August 2020 issue of Cabot Undervalued Stocks Advisor.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. It’s earnings season, and in this issue we review fresh reports from MKS Instruments (MKSI), Tyson Foods (TSN), Columbia Sportswear (COLM), Amazon.com (AMZN) and Marathon Petroleum (MPC). Marathon also announced a deal to sell their Speedway retail gas station business for $21 billion in an all-cash deal, which we discuss.



As a newsletter looking for undervalued stocks in a market full of enthusiasm for only a select few mega-sized tech companies, we almost feel a moral obligation to highlight contrarian ideas. In this issue, we recommend a stable but meaningfully out-of-favor company that has the potential to provide solid long-term returns. “Out-of-favor” implies that it doesn’t have the immediate profit potential of a “digital economy” stock, but that lack of zest produces the opportunity. With low expectations comes upside surprises. We believe global beverage company Molson Coors (TAP) fits the bill.



You may notice that we are tweaking some of the components of the Cabot Undervalued Stocks Advisor letter. For example, we’re bringing back the portfolio tables to every weekly and monthly issue. A “Hold” rating means that we believe the stock is fine to hold in the portfolio, but that the risk/return trade-off isn’t compelling enough to warrant a “Buy” nor unfavorable enough to warrant a “Sell.” Also, for the monthly issue, we may not always have a “Feature” stock in each portfolio – that doesn’t mean we don’t like any of the names, it probably just means that we featured it recently and want to avoid being repetitive to save you time and effort.



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.

People are flocking to the company’s hobby photo- and video-sharing application, posting pics and videos of their cooking masterpieces, children’s activities, business décor ideas and just about any other creative task you can imagine.

Current Market Outlook


The market had been a bit wobbly, but last week brought a bunch of good-looking earnings reactions (not just the mega-cap names on Friday), which has put the sellers back on their heels—the Nasdaq actually kissed new high ground today! Of course, earnings season isn’t over, so it’s possible we see some air pockets emerge, and some of the blemishes we’ve been writing about still exist (the number of new highs continue to dry up a bit even as the Nasdaq pushes ahead). Because of all that, we still think picking your stocks and buy points is important; try to avoid chasing any old thing just because it’s going up. But there’s no question most of the evidence remains bullish, so we advise you to stick with a heavily invested position and buy fresh leaders either on initial pullbacks or powerful earnings moves.

This week’s list has a growth-ier feel as we highlight many of the recent earnings winners. Our Top Pick is Qualcomm (QCOM), which won’t be the fastest horse but just emerged from a huge consolidation and has giant earnings estimates thanks to a huge deal and the 5G boom.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	72.5-75.5	63-65
Fortune Brands Home & Security (FBHS)	81.02	74-77	66-68
GenMark Diagnostics (GNMK)	15.47	17-18.5	14.5-15.5
Kirkland Lake Gold (KL)	51.30	49-52	43.5-45.5
Pinduoduo (PDD)	87.53	91-96	78-81
Penn National Gaming (PENN)	45.38	34-36.5	29.5-30.5
Pinterest (PINS)	35.86	33.5-37	28.5-30
QUALCOMM Incorporated (QCOM)	106.36	106-110	94-96
Qorvo (QRVO)	129.47	127-131	114-116
Scotts Miracle-Gro (SMG)	155.72	154-159	139-142

The market remains in good health and trending higher, spurred on by some very impressive second quarter reports.

This week’s recommendation is a high-risk stock with high potential in the energy industry, and I’m trying to get in near a short-term low here.



As for the current portfolio, many of our stocks are hitting new highs today and there’s only one change—a downgrade of Columbia Sportswear (COLM) to hold.



Full details in the issue.

This year, individual stock performance has largely been driven by a single narrative: how well the underlying companies are positioned for a pandemic-striken world. Those with strong digital-economy businesses have surged, while those with physical-economy businesses have stalled, or worse.

In this issue we recommend a life insurance stock and talk about Dow laggards with rebound potential.

The Nasdaq and growth stocks have a lost a little steam since early July, with fewer stocks moving up and the indexes doing more chopping than trending. That’s a good reason to take your foot off the accelerator, but most of the big-picture evidence remains positive, so we’re holding our strong, profitable stocks and remaining mostly bullish.

In tonight’s issue, we review some of that bullish longer-term evidence, talk a bit about gold stocks and, as always, go over our latest thoughts on the stocks we own and are watching.

The broad market remains healthy (climbing a wall of worry) and the marijuana sector is even stronger!

Leading the way are the big U.S. producers (we own them all), but there’s more, including the Canadian volume leader’s earnings report of today and a surprisingly strong performance from our (totally legal nationwide) hydroponics growing supply store, whose stock was up more than 10% just this morning!



Full details in the issue.

Extreme sector rotation has been the story of the last week as red-hot growth sectors came under some pressure, while out of favor value stocks finally found some buying. This is a fine situation for our diversified portfolio as we are selling expensive calls that help offset any short-term stock/sector weakness. This brings me to our pick of the week, which is in a red-hot sector and recently reported very strong earnings.

Current Market Outlook


After an impressive four-month rebound, many investors are nervously expecting the return of volatility during earnings season. But despite some recent choppiness among the leading stocks, the market remains largely unperturbed. Growth stocks are holding up well, while the major indices remain above their key trend lines. And while there are signs lately of increased demand in defensive areas of the market (like consumer staples and precious metals mining), the more aggressive segments remain strong. Finally, a healthy number of stocks are still making new 52-week highs on both major exchanges (especially the NYSE), while new lows have been remarkably sparse. All of this tells us that the intermediate-term trend still favors the bulls. While volatility may yet rear its head, we’ll continue to follow the weight of evidence.

This week’s list contains a nice mix of some of today’s leading themes: healthcare, internet, real estate/home improvement and education. Our Top Pick is Owens & Minor (OMI), which has a solid story and has broken out of an extended base on more than 10 times normal volume.

Stock Name	Price	Buy Range	Loss Limit
Farfetch (FTCH)	26.23	21-22.75	19.5-20
Floor & Décor (FND)	68.03	69-72	62.5-63
GSX Techedu (GSX)	97.59	85-88	74-75
Invitae (NVTA)	32.06	30-32.5	27-27.5
Meritage Homes (MTH)	102.20	92-98	84-85
Owens & Minor (OMI)	17.01	15-16	13-13.5
SailPoint Technologies (SAIL)	31.60	30-32	28.5-29
Sea Limited (SE)	132.86	110-116	99.5-100
Watsco (WSO)	237.50	220-230	210-212
Wix.com (WIX)	302.53	262-275	248-250

The market remains in good health and trending higher, though as always, fine-tuning of your portfolio is required to continue to stay in the right stocks.

This week, that means selling two stocks (SLQT and VRTX), as well as upgrading one (ZM) to buy.



As for the new recommendation, it’s tailor-made for investors looking to maximize income from dividends (it pays a 7.3% yield) and get capital appreciation potential too.



Full details in the issue.

The market could be a bit vulnerable in the short-term, but our market timing indicators remain bullish. In the Model Portfolio, we’re putting one stock on Hold, but we’re adding a new stock. That will leave us with about 20% in cash.

Most of the outperformers of the last two months—including financials, energy stocks and industrials—are consolidating, but we haven’t seen significant pullbacks.

Here are a few things that I’m noticing among various stock sectors. Semiconductor stocks look extremely bullish. Make sure you have one of those in your portfolios! Good choices today include Applied Materials (AMAT) and ASML Holdings (ASML).

No Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. However, I recommend that two companies be sold: Gildan Activewear (GIL) and Team Health (TMH). I also include questions from subscribers along with my answers.

The Emerging Markets Timer is now flashing a new buy signal, as the iShares Emerging Markets Fund (EEM) has risen above both its 25- and 50-day moving averages and the lower (25-day) has turned up. Our only portfolio move today is to return TAL Education (TAL) to a Buy rating.

Stock markets started the New Year with a nice pop yesterday, after closing out the last week of 2016 marginally lower. While one day of action isn’t enough to indicate a trend, we’re optimistic that 2017 could bring a strong market rally.

Remain optimistic, but for growth stocks, you should wait for your pitch. The market is consolidating normally following its heady post-election run, and with our market timing indicators positive, we expect higher prices ahead. Tonight, though, we’ll stand pat, with the Model Portfolio 70% invested.

With this week’s light trading volume, most of our holdings have been treading water, so we’ll keep this week’s update short and focused on stocks that reported some news over the past week.

The price charts on the S&P 500 and the Dow Jones Industrial Average are looking more and more like they’re just resting before beginning another run-up. Insurance and bank stocks’ price charts look identical, while energy stocks’ charts are more actively bullish.

On average, our portfolio is outperforming the Russell 2000 Small Cap Index (the most common benchmark for small caps) in 2016. We have a few stocks lagging the index, largely because of a drop in a few stocks over the past few days.

In this Weekly Update, I summarize information for four Cabot Benjamin Graham Value Investor 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 now fully negative, as the iShares Emerging Markets Fund (EEM) has gapped down to near its November lows. Our only additional move today is to move Pampa Energia (PAM) to a Hold.

We’ve held on to quarter-sized stakes in a few positions in the event that the market firms up and turns north. That hasn’t happened, so it’s time to step completely aside from two stocks in the portfolio.

Our second recommendation is a sale of an underperforming stock.

Our first idea is a B2B company that is a leader in several industries.

Our second recommendation is some very nice-profit-taking on a previous pick.

As reported by Zacks, the EPS estimates on our first pick today “have surged 266.7% to 11 cents.”

The three largest sectors for this Japanese fund are: Industrials (26.4% of assets); Consumer Cyclicals (19.38%); and Technology (16.08%).

Our portfolio includes a few stocks that we took partial gains on a while back and which haven’t been able to get going in the right direction since. And one that never got going in the first place.

This electronics manufacturer beat Wall Street’s earnings estimates by $0.09 last quarter, and five analysts have raised their EPS forecasts in the past 30 days.

This building products company’s EPS forecasts have just been increased by one analyst, and consensus estimates expect the company to grow by an annual rate of 15.76% over the next five years.

Wall Street expects this pharma to grow by 19.9% annually over the next five years.

Analysts for this retailer are increasing quarterly and yearly earnings guidance.

This defense contractor has a bright future with hefty new military contracts, but shares are very sold-off.

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 Momentum 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 Momentum Trader features.