Current Market Outlook


The big-cap indexes remain in rarified air, as they continue to levitate and the sellers refuse to put up a fight. Even more encouraging is that many stocks that took the prior few weeks off (generally building tight ranges) have resumed their advances, a good sign. That said, the upmove has become a bit more selective (small- and mid-cap indexes haven’t participated lately) and numerous yellow flags among secondary indicators are still in place. All of that is a longwinded way of saying that not much has really changed—it’s a strong bull market that should go higher down the road, but the risk of near-term potholes is elevated. Thus, you should remain bullish and continue to hold most of your strong performers, but picking your spots on the buy side makes sense as well.

This week’s list includes a bunch of names that have shown excellent strength after resting for a few weeks—or in some cases, months. Our Top Pick is blue chip Salesforce.com (CRM), which has accelerated to new highs after a 15 months of base-building.

Stock Name	Price	Buy Range	Loss Limit
Aecom Technology (ACM)	0.00	45.5-47	42-43
Axsome Therapeutics (AXSM)	0.00	83-88	71-75
Dexcom (DXCM)	421.36	225-235	202-206
Dynatrace (DT)	36.59	27.5-29	24-25
Fortinet Inc. (FTNT)	137.53	112-115	103-105
Guess (GES)	0.00	21-22	19-19.5
JD.com (JD)	39.58	38-39.5	34.5-35.5
Qorvo (QRVO)	129.47	112-116	101-102
Salesforce.com (CRM)	0.00	178-182	164-167
Western Digital Corporation (WDC)	0.00	65-67	59-60

As we head into 2020, emerging markets are at the top of the Cabot Global Stocks Explorer menu after developing a nice uptrend in the fourth quarter of 2019. In addition, they are cheap - trading at a substantial discount to U.S. markets on a valuation basis. Today’s new idea is at the sweet spot of several powerful trends in China and has delivered steady and substantial profits to shareholders over the past five years.

We enter 2020 in a tricky situation. It is very late in the recovery and bull market and the market is near an all time high. While the bull market is likely to last a while longer, this still isn’t a great place to be in general. However, while the overall market is expensive there are rare pockets of great value.

In this issue I highlight a shipping stock that has remained profitable and paid dividends every single quarter through an industry depression. That company is yielding a massive 9.6%. And industry conditions are improving. It may be 2020 in the overall market, but I found a place where it’s 2009 again.

Today’s featured stocks are those that I sense are most likely to rise this month. We’ll probably see near-term strength in energy companies, alongside rising oil prices; and insurance companies, as their fourth quarter results include capital gains from investment portfolio performance. Earnings season kicks off this month with banks reporting fourth quarter results. It’s not too late to sell the worst stock in your portfolio and replace it with shares of a high quality, growing company that has a bullish price chart.

Spot charter rates have begun to boom and most expect the good times to continue for many quarters if not longer—while Q3 results were still sour, this company’s stock moves on perception of the future, and it’s pretty much established now that 2020 will be a banner year (analysts see earnings of $3.61 per share!).

The broad market remains strong, and all Cabot’s market timing indicators are currently positive, so I remain optimistic that we’ll see higher prices in the month ahead.

This week’s recommendation is a growth-oriented medical stock with great potential; it was originally recommended by Mike Cintolo last November and it’s currently hitting new highs.



And as for the current portfolio, most of our stocks look fine, but because I limit the portfolio to 20 stocks, one has to go—and it’s the weakest.



Details in the issue.

Current Market Outlook


Usually when the market is stretched and sentiment is complacent, the market latches onto a reason to retreat, and last week provided it, with the Middle East conflict offering an excuse for sellers to get active and buyers to pull in. The good news is, thus far, the retreat has been reasonable—the major indexes are still even above their 25-day lines, and few stocks have cracked key support or flashed any abnormal action. That said, we’re leaning toward the view that, Iran or not, the short-term is likely to remain tricky, with rotation, potholes and news-driven moves likely to be the norm for a while. Thus, we remain bullish, but continue to advise picking your spots—many stocks have etched nice month-long rest periods, though some others probably need time to consolidate.

This week’s list has a bunch of names that haven’t appeared in Top Ten for a long time (if ever). Our Top Pick is Alibaba (BABA), which has finally kicked back into gear after a long time in the wilderness. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	254.81	208-216	192-196
Bilibili (BILI)	28.71	20.5-22	18.5-19.5
Coupa Software (COUP)	262.20	157.5-162.5	143-146
Eldorado Resorts (ERI)	0.00	56-58	51-52
Global Blood Therapeutics (GBT)	0.00	76.5-80	66.5-68.5
Lumentum (LITE)	87.00	76-79	69.5-71
SolarEdge Technologies Inc. (SEDG)	124.37	95-97.5	86-87.5
Tenet Healthcare (THC)	0.00	35.5-37	32.5-33.5
WPX Energy (WPX)	0.00	13.2-13.7	11.7-12.0
Scorpio Tankers (STNG)	0.00	37.5-39	33.5-34.5

Today’s addition is a familiar story – a small software company with a purpose-built solution that works better than the patchwork of legacy solutions many companies still rely on, but which don’t work very well.

But there is another angle. This company is transitioning from an on-premise to a Software-as-a-Service (SaaS) business model. The switch should accelerate growth and make the stock a lot more attractive to investors.



Shares did very well in 2019. And there should be plenty more gas left in the tank.



All the details are inside.

Many Smart Investing portfolio stocks are trading in narrow, sideways price ranges, since having a strong initial rebound from the winter’s stock market correction. Those trading ranges give us good guidance on how to proceed with stocks.

If market trends continue to improve, I’ll consider taking on more risk in the portfolio—but only if I think we’ll be well compensated for it. There are no ratings changes this week, and none of our stocks reported.

Continue to lean bullish, but keep some powder dry. Selling pressures remain light, but we still want to see more strength among growth stocks before getting heavily invested. There are no changes in the Model Portfolio tonight; we own six stocks and hold a cash position near 40%.

Overall, the market looks healthy, and we think you can continue to get a little more aggressive, putting cash to work and taking on a little more risk if you’re comfortable with it.

Occasionally, I will lower ratings on stocks that rose too far, too fast, and raise ratings on the stocks that present the best opportunities. Today, I’m raising the ratings on Carnival (CCL) and Vulcan Materials (VMC) to Strong Buy, and I’m lowering the rating on FedEx (FDX) to Hold.

Another week of modest gains has investors moving back into stocks, and the major indices are around breakeven for the year.

The Cabot Emerging Markets Timer continues to give a buy signal, so we’re maintaining our strategy of increasing our exposure. Today, we are increasing our half position in SBGL to a full Buy.

The broad market strengthened further this week, and I’m putting Equifax (EFX) back on Buy today for investors with cash to put to work.

There are no new earnings reports, dividend changes or stock repurchase news to report, but I’m raising the rating on Adobe Systems (ADBE) from Hold to Buy, after the stock pulled back a little, and I’m lowering the rating on Universal Electronics (UEIC) from Strong Buy to Buy because the stock has had an aggressive run-up.

As compared to the last month, this was a relatively subdued week. Stocks fell modestly, with large caps giving back a mere 0.1% and small caps giving back 0.7%.

Continue to play things halfway. The market has made solid progress during the past two weeks, increasing the odds that a low has been formed. That said, few growth stocks have kicked into gear, and the longer-term trend is still down. We continue to fine-tune our watch list, but tonight, we’re standing pat in the Model Portfolio with five stocks and a cash position near 52%.

Given the generally improving health of the broad market, I’m putting General Motors (GM) and CVS Health (CVS) back on Buy today. We have no other changes to the portfolio.

The top five sectors of this small cap fund are: Industrials, 28.7% of assets; Technology, 18.0%; Health Care, 16.1%; Financials, 13.6%; and Consumer Discretionary, 11.3%.

This is an unscheduled interim update with three goals. Most importantly, keep in mind this is a marathon not a sprint.

Our second recommendation is a sale of an RV stock that is suffering from industry woes.

Our first idea today is a tech company that beat Wall Street’s estimates by $0.19 last quarter.

Analysts are looking for 30% annual growth for this cloud-based education company over the next five years.

The top five holdings of this small cap fund are: Emin Russell 2000 Jun18 Rtym8 N/A (0.63% of assets); Nektar Therapeutics Inc (NKTR, 0.59%); GrubHub Inc (GRUB, 0.41%); bluebird bio Inc (BLUE, 0.39%); and Aspen Technology Inc (AZPN, 0.30%).

Our second recommendation is a sale on a company that is not living up to its promise.

Though the shares of this marijuana-related company have retreated a bit, its new collaboration offers an opportunity to participate in this growing sector at a discounted value.

This is an unscheduled interim update to give you some guidelines to deal with the current strength of marijuana stocks.

The shares of this railway company were recently upgraded at Cowen & Co. to ‘Outperform’.

During the last 30 days, Colfax has received 10 upward earnings estimate revisions for both its current year and fiscal 2019.

Several catalysts have brought the price of gold down; here are a couple of ways to get in at discounted prices.

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.