Issues
This month we’re adding a high-growth biotech name that has just begun to commercialize a unique compound for fighting aggressive cancers and other diseases including, potentially, COVID-19.
The company just began booking revenue from its first cancer treatment. That launch significantly de-risks the stock and raises the potential for future approval of the same compound for other indications.
The stock has retreated lately because prescription sales were curbed during the COVID-19 outbreak. This should be a temporary dip as there are many potential stock-moving catalysts coming this year. We’re hoping to sneak in and buy the dip on this high-potential name.
All the details are inside this month’s Issue. Enjoy!
The company just began booking revenue from its first cancer treatment. That launch significantly de-risks the stock and raises the potential for future approval of the same compound for other indications.
The stock has retreated lately because prescription sales were curbed during the COVID-19 outbreak. This should be a temporary dip as there are many potential stock-moving catalysts coming this year. We’re hoping to sneak in and buy the dip on this high-potential name.
All the details are inside this month’s Issue. Enjoy!
The overall market remains mixed, with most of the market doing just OK but growth stocks acting very well, especially this week, which has brought with it a ton of powerful gaps. Divergent environments lend themselves to rotation and potholes, so we don’t think it’s a time to floor the accelerator, but we are adding one more name to the Model Portfolio tonight, leaving us with around 36% in cash.
Elsewhere in tonight’s letter, we write about the importance of being patient soon after you buy a stock, as well as some very encouraging action from our old Two-Second Indicator. We also review some enticing names and give a full view of all our stocks.
Elsewhere in tonight’s letter, we write about the importance of being patient soon after you buy a stock, as well as some very encouraging action from our old Two-Second Indicator. We also review some enticing names and give a full view of all our stocks.
Three of today’s featured companies seem most obviously ready to begin or continue run-ups in the coming days Yesterday’s earnings report made it clear that a fourth’s dividend is safe, with a current yield of 8.4%. Plus, energy stocks are acting well recently.
The stock is strong today thanks to a solid quarterly report last week; earnings came in at $0.15 per share, beating analyst estimates by a penny (the third time in the last four quarter it’s topped expectations) and up 36% over last year. Revenues were $97.3 million, though results there were mixed; the consumer segment saw revenues plunge 24% from a year ago (partly due to the virus), but communications/computing was up 8% (including far faster growth in 5G-related products) and the industrial and auto markets saw sales leap 14%.
Current Market OutlookAfter a nice five-week recovery rally that saw the S&P 500 recoup 63% of its crash (the Nasdaq got 72% back), some sort of retreat wasn’t uncalled for, and that began last week. How this pullback unfolds will be key: If the intermediate-term uptrend cracks (would likely take another 3% down in some indexes) and many leaders do the same, it will be a sign to back off and/or tighten stops, but to this point, the retreat has been normal for both the major indexes and individual stocks. Thus, we’re obviously watching closely, but we have no change in our stance right here, thinking the path of least resistance remains generally up, but potholes and news-driven moves (especially on earnings) are likely given the recent run-up and the overhead resistance from February. It’s fine to do some buying, but don’t go wild until the buyers really flex their muscles. We’re keeping our Market Monitor at a level 6.
This week’s list has a bunch of intriguing stories, though a few have earnings coming up soon. Our Top Pick is Bandwidth (BAND), a lesser-known outfit whose offering is key to many fast-growing companies.
| Stock Name | Price | ||
|---|---|---|---|
| Bandwidth Inc. (BAND) | 129.19 | ||
| Bill.com Holdings (BILL) | 88.76 | ||
| Coupa Software (COUP) | 262.20 | ||
| Datadog (DDOG) | 81.52 | ||
| Dexcom (DXCM) | 421.36 | ||
| DraftKings Inc. (DKNG) | 38.26 | ||
| Halozyme Therapeutics (HALO) | 24.82 | ||
| Lattice Semi (LSCC) | 23.92 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| West Pharmaceutical (WST) | 210.25 |
The market has pulled back a bit in recent days, but not enough to change our stance. By our measurements, the market’s intermediate-term trend remains up, while the long-term trend is still working to turn up.
More important, however, is how the stocks in our portfolio are acting, and the answer is “pretty good!” In fact, we’ll continue to hold them all today.
As for today’s recommendation, it’s a very well-known U.S. meat company that reported earnings just this morning—and the dip that followed that report now makes the stock an even better bargain!
Full details in the issue.
More important, however, is how the stocks in our portfolio are acting, and the answer is “pretty good!” In fact, we’ll continue to hold them all today.
As for today’s recommendation, it’s a very well-known U.S. meat company that reported earnings just this morning—and the dip that followed that report now makes the stock an even better bargain!
Full details in the issue.
Like most consumer industries, residential housing construction is declining sharply in the wake of the Covid-19 shutdown. The industry’s recovery, which was accelerating at the beginning of the year, is now reversing rapidly.
In this issue, we review five homebuilders whose valuations appear to overly discount the industry’s recovery prospects.
In this issue, we review five homebuilders whose valuations appear to overly discount the industry’s recovery prospects.
The market rebound continues as the Nasdaq 100 (QQQ) is now in positive territory for 2020 and the S&P 500 is up 32% from its March 23 lows. The Fed continues to insist it will accommodate any liquidity concerns and is now even investing in corporate debt. Japan’s central bank is going so far as to purchase Japan equity ETFs. Today, we follow up last week’s focus on big tech and big data with a cybersecurity theme and two new investment ideas.
Updates
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.
Stock-specific news flow is still relatively light, but we’re marching toward the beginning of the second-quarter earnings season. A few of our companies have already announced their earnings release dates. We have no ratings changes this week, meaning there are still plenty of stocks rated Buy.
Four Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news.
The Emerging Markets Timer remains effectively neutral as the market hacks around in its three-month trading range. We have no changes to the portfolio today.
It’s an interesting time to be an income investor, to say the least. Interest rates have plummeted post-Brexit, as investors flee to the safety of fixed income just as central bankers are promising more stimulus for shaky markets. The yields on U.S. 10-year and 30-year treasuries are at record lows, while yields on more and more global bonds are going negative.
Three of my Benjamin Graham companies reported quarterly financial results or other noteworthy news.
With our Cabot Tides negative, we’ve moved to a half-in, half-out stance—we’ve sold three stocks during the past week (one before Brexit, two after), which leaves us with five stocks and a cash position near 50%. The powerful bounce of the past two days is very encouraging, but the odds favor some backing and filling at the very least (if not further weakness) before a sustained uptrend gets underway. We have no changes in the Model Portfolio tonight.
I don’t have a sense that the current market correction will last very long. I am comfortable buying now, as opposed to waiting a few weeks, as I did in the early 2016 market correction. I have two rating changes today: Johnson Controls (JCI) moves from Hold to Buy, and Robert Half (RHI) moves from Buy to Hold.
Alerts
The shares of this athletic apparel manufacturer were recently upgraded by Susquehanna, to Positive and PiperJaffray, to Overweight, and were initiated at Morgan Stanley, to Overweight.
Our other recommendations are selling previous ideas, with some profit-taking.
Our other recommendations are selling previous ideas, with some profit-taking.
Shares of our first idea today jumped overnight on news that the company received good results on a drug for central nervous system disorders. You might want to watch for a bit of a pullback before buying.
Blackstone Group, an alternative asset manager, held an Investor Day on September 21 for the first time in four years.
This insurance company beat analysts’ earnings estimates by $0.25 last quarter.
This medical device company beat analysts’ EPS estimates by $0.18 last quarter.
The Marijuana Index is trending upwards, as it has been since mid-August, but is still short of exceeding its January high, and thus the advance is likely to continue.
This party retailer just announced it would acquire a master franchise group representing 21 franchise stores in the Minnesota, North Dakota and Texas markets.
In the past 30 days, 10 analysts have increased the earnings estimates for this consumer company.
In the last 30 days, six analysts have raised their 2019 EPS forecasts and nine have increased their 2020 forecasts for this beauty company.
This pharma company just announced its intention to acquire Biscayne Neurotherapeutics, a privately-held company developing a novel treatment for epilepsy.
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 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.