Issues
This week’s Cabot Growth Investor issue is two days early, because the rest of the week is filled by the Cabot Wealth Summit, which brings all our analysts to Salem to meet subscribers face-to-face and fix all the world’s problems—or at least help them become better investors.
The market remains news driven, with some soothing U.S.-China trade news sending the major indexes back up. Even so, the intermediate-term trend remains unsupportive, so we’re still playing some defense—we’ve pruned our worst performers and losers, but are also holding our resilient performers. From here, we’re just taking it day to day, willing to buy some fresh leadership if the bulls retake control, but content to sit tight with some cash until that happens.
In tonight’s letter, we write a bit about the type of stocks we’re honing in on for the next sustained advance (early stage), touch on the bottom dropping out of investor sentiment (good for the longer-term outlook) and dive into all our stocks and plenty of new ideas as well.
The market remains news driven, with some soothing U.S.-China trade news sending the major indexes back up. Even so, the intermediate-term trend remains unsupportive, so we’re still playing some defense—we’ve pruned our worst performers and losers, but are also holding our resilient performers. From here, we’re just taking it day to day, willing to buy some fresh leadership if the bulls retake control, but content to sit tight with some cash until that happens.
In tonight’s letter, we write a bit about the type of stocks we’re honing in on for the next sustained advance (early stage), touch on the bottom dropping out of investor sentiment (good for the longer-term outlook) and dive into all our stocks and plenty of new ideas as well.
This week’s update is a day early, because the rest of the week is filled by the Cabot Wealth Summit, which brings all our analysts to Salem to meet subscribers face-to-face and fix all the world’s problems—or at least help them become better investors.
In the meantime, the market remains under pressure, with our intermediate-term market timing now negative. Thus I’m continuing to raise cash, by selling our worst performers, and you should too, so you’ll have ammunition to use on the new leaders when the market turns up again. This week that means selling four stocks.
As for the new recommendation, it’s a small-cap stock in the communications software industry that you probably haven’t heard of, but it’s shrugged off the market volatility lately, trending slowly higher, and its long-term prospects are great.
In the meantime, the market remains under pressure, with our intermediate-term market timing now negative. Thus I’m continuing to raise cash, by selling our worst performers, and you should too, so you’ll have ammunition to use on the new leaders when the market turns up again. This week that means selling four stocks.
As for the new recommendation, it’s a small-cap stock in the communications software industry that you probably haven’t heard of, but it’s shrugged off the market volatility lately, trending slowly higher, and its long-term prospects are great.
Current Market OutlookLast week’s action was encouraging, with the major indexes snapping back decently from Monday’s selloff and with many individual growth stocks either acting resiliently and/or reacting well to earnings. That said, three up days (Tuesday-Thursday last week) are not enough to reverse the prior meltdown—right now, all major indexes are below their 50-day moving averages and, generally speaking, the overall intermediate-term trend is neutral-to-negative. We’re not advising you to hole up in your bunker, but the onus is on the bulls to prove that the tariff-induced decline was a shakeout; until then, it’s best to remain cautious by holding some cash, keeping new buys small and making sure your losers and laggards don’t slip much further.
Going along with the action in growth stocks, this week’s list is chock-full of recent earnings winners. Our Top Pick is TransDigm (TDG), a solid 20%-ish grower in the aerospace field that gapped on earnings and is set to pay a huge one-time dividend.
| Stock Name | Price | ||
|---|---|---|---|
| Carvana (CVNA) | 82.90 | ||
| Insulet (PODD) | 175.69 | ||
| Lattice Semi (LSCC) | 23.92 | ||
| Martin Marietta Materials (MLM) | 261.52 | ||
| Medpace (MEDP) | 76.28 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Shake Shack (SHAK) | 92.08 | ||
| SolarEdge Technologies Inc. (SEDG) | 124.37 | ||
| TransDigm (TDG) | 599.41 | ||
| Wingstop (WING) | 121.52 |
The back-and-forth between the US and China rattled markets early this week as our emerging market signal turned negative. But stocks have bounced back with investors taking advantage of some emerging market bargains. Nevertheless, our portfolio is in a conservative posture with sizable cash allocation. We put some of this to work in a high quality idea from the land of the rising sun.
After reaching record highs this past month, volatility set in and we had a few days of losses following the Fed meeting, as well as Trump’s latest Chinese tariff action. But yesterday, markets calmed, regaining some of their losses. Advisor and consumer sentiment remain very bullish, as you’ll see in our Advisor Sentiment Barometer and Market Views.
The broad market has now begun a well-needed correction, which is likely to go on at least a little longer, and our job is to adjust our portfolio, on a continuing basis, so that we are always invested in a diversified portfolio of stocks that fit your investment needs.
This week that means selling three stocks. But it also means that there are buying opportunities in some of our stocks.
As for the new recommendation, I’m leaning conservative once again, with a low-risk petroleum infrastructure stock that has great recurring business and is decently valued as well.
Note: Because of the Cabot Investors Summit, which will bring all the Cabot analysts together in Salem late next week, the next issue of Cabot Stock of the Week will come out a day early next week, on Monday.
This week that means selling three stocks. But it also means that there are buying opportunities in some of our stocks.
As for the new recommendation, I’m leaning conservative once again, with a low-risk petroleum infrastructure stock that has great recurring business and is decently valued as well.
Note: Because of the Cabot Investors Summit, which will bring all the Cabot analysts together in Salem late next week, the next issue of Cabot Stock of the Week will come out a day early next week, on Monday.
Since we’re in the midst of a sudden stock market correction, I decided to feature three stocks today that seem to offer the best opportunities while their prices are temporarily low.
Be brave! If you saved up portfolio cash with which to buy low at moments like this, now is the time to buy something! You don’t have to spend it all in one day, of course.
If you are new at buying low during stock market corrections, and you’re feeling excited and scared and tentative and unconfident, send me an email. You’re going to be okay, and I’d love to hear about your experience. Learning to buy low is an important step toward increasing your future stock portfolio success.
Be brave! If you saved up portfolio cash with which to buy low at moments like this, now is the time to buy something! You don’t have to spend it all in one day, of course.
If you are new at buying low during stock market corrections, and you’re feeling excited and scared and tentative and unconfident, send me an email. You’re going to be okay, and I’d love to hear about your experience. Learning to buy low is an important step toward increasing your future stock portfolio success.
Current Market OutlookThe market had become vulnerable to a short-term pullback in recent weeks, and now the normal post-Fed wobbles have turned into an abnormal selloff after the new round of Chinese tariffs, with today’s market plunge decisively cracking the intermediate-term uptrends of the major indexes and many leading stocks. Bigger picture, this is still a bull market until proven otherwise, but after some huge runs, many stocks that have been running for months likely need time to repair the damage. Interestingly, the fresher stocks (those that got going in May, June and July) are mostly hanging in there, and we’re not opposed to nibbling on them if you have some cash on the sideline. But at this point, your focus should be more on preserving capital (honoring stops, holding cash, cutting back on new buying) and waiting for bottoms to be formed. Our Market Monitor is back down to a level 4.
This week’s list is full of those fresher names, if you feel like taking a stab at a name or two. Our Top Pick is Inphi (IPHI), a high-potential stock that’s holding up well after earnings.
| Stock Name | Price | ||
|---|---|---|---|
| Agnico Eagle Mines (AEM) | 79.05 | ||
| Anaplan (PLAN) | 47.52 | ||
| Casey’s General Store (CASY) | 165.73 | ||
| Inphi (IPHI) | 120.16 | ||
| MasTec, Inc. (MTZ) | 66.65 | ||
| PagSeguro Digital (PAGS) | 35.09 | ||
| Pinterest (PINS) | 35.86 | ||
| SunPower (SPWR) | 12.26 | ||
| Survey Monkey (SVMK) | 19.97 | ||
| Twitter (TWTR) | 40.37 |
Today’s recommendation is a software and infrastructure company specializing in communications. It just reported Wednesday night, and results were better than expected, which is great for two reasons.
First, the latest numbers support my thesis that this company has what it takes to grow over the long haul.
And second, we don’t need to stress about the company reporting right after we buy in! We have the latest data. And it looks good.
All the details are inside this month’s Issue.
First, the latest numbers support my thesis that this company has what it takes to grow over the long haul.
And second, we don’t need to stress about the company reporting right after we buy in! We have the latest data. And it looks good.
All the details are inside this month’s Issue.
Updates
For value-focused investors, this year’s prologue has been a welcome change from the turmoil experienced in early 2025.
In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.
In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.
The market rotation continues to be the main story out there this week, though rumblings of a potential strike on Iran, an update from the January FOMC meeting, and a slew of earnings reports and economic data releases have been giving investors plenty to think about.
In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.
Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.
In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.
Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.
Happy Chinese New Year! The year of the horse is upon us.
China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.
China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.
As U.S. investors have shifted from risk-on to risk-off mode in recent months, a clear disparity between the “haves” and the “have-nots” has materialized.
Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.
Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.
Cyclical stocks are soaring and technology is floundering in the transformed market.
The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.
The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.
Strong fourth-quarter earnings are confirming what the market was already doing.
Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.
Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.
Like many coffee aficionados, I have something of a love/hate relationship with Starbucks (SBUX). My main gripe is that the company’s food and beverage offerings have always been pricey compared to the fare served in most fast-food restaurants and run-of-the-mill coffee houses.
The outperformance of small caps continues.
Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.
All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).
Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.
All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).
Let’s talk about the power of staying invested.
Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.
Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.
NOTE: We’re sending this a day early as I’m soon to embark on a trip with the kiddos over the next week. I will be working a good amount from the road, though, and will have updates if need be. Also, next week’s issue will be published as scheduled.
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WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.
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WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.
Today could be a big day for cannabis stocks.
The reason: We may get an important update on the rescheduling timeline.
Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.
The reason: We may get an important update on the rescheduling timeline.
Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.
I’m excited to share a couple of enhancements to Cabot Early Opportunities —improvements designed to sharpen our focus and better help you stay on top of the stocks we own.
Alerts
In the past month, seven analysts have boosted their earnings forecasts for our first idea.
Three of our stocks reported first quarter earnings. There are no rating changes.
The top five sectors of this fund are: Info Technology 49.2% of net assets; Consumer Discretionary, 21.4%; Health Care, 9.5%; Industrials, 7.9%’ and Financials, 5.1%.
Analysts expect this conglomerate to grow by more than 26% this year.
We have one rating change from Strong Buy to Hold and several earnings announcements coming up.
Motley Fool also likes this restaurant stock, citing its “increasing foot traffic (better than its competition) and its expanding locations (recently added 33).
Analysts expect this company to grow by 39.8% this year.
Dutch auction tender offer on one of the stocks in the Growth portfolio.
The second is a short idea, based on lower earnings.
These two recommendations are Special Situations. The first, is a medical marijuana company, expected to post growth of more than 59% next year.
Four of our stocks reported first quarter earnings.
Apple (AAPL) has a good earnings report and a stock moves from Hold to Strong Buy.
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.