Issues
In the last issue we thought growth stocks could easily have a few hiccups, and that’s generally what we’ve seen, with many well-known, extended titles hitting some turbulence. And, looking at the entire market, it lost some steam over the past three weeks, with the news-driven selling of the past two days doing some damage.
Bigger picture, our views haven’t changed at all -- this is a bull market that’s likely to move meaningfully higher in the months ahead. We remain heavily invested (88% in the Model Portfolio), but we’re watching things closely to see if this is more of a shakeout or the start of a sustained selling wave.
In tonight’s issue we write about one sector that appears to be breaking free of very long launching pad, with most components doing the same. (Our favorite name in the sector reports earnings tonight.) And we also run through all of our stocks, sharing our thoughts on many of them pre- and post-earnings.
Bigger picture, our views haven’t changed at all -- this is a bull market that’s likely to move meaningfully higher in the months ahead. We remain heavily invested (88% in the Model Portfolio), but we’re watching things closely to see if this is more of a shakeout or the start of a sustained selling wave.
In tonight’s issue we write about one sector that appears to be breaking free of very long launching pad, with most components doing the same. (Our favorite name in the sector reports earnings tonight.) And we also run through all of our stocks, sharing our thoughts on many of them pre- and post-earnings.
By their nature, turnaround stocks involve a fair amount of risk. One way to help reduce that risk is to find out-of-favor stocks that offer high dividend yields. This puts hard cash in your pocket while you wait for the turnaround to take effect.
In this issue, we list six additional out-of-favor stocks that have high dividend yields which we believe are sustainable and also have turnaround potential:
In this issue, we list six additional out-of-favor stocks that have high dividend yields which we believe are sustainable and also have turnaround potential:
The markets keep sailing along, although at a slower pace. The Dow Jones Industrial Average gained about 400 points since the last issue. The economy remains strong, with both new home and pending house sales rising. Unemployment continues to decline. Overall, a nice, sound economy.
And as you’ll see in our Market Views section, our contributors continue to be bullish.
After a fantastic showing for our 2019 Top Picks last month, our contributors are continuing to find some great stocks with big potential for you.
And as you’ll see in our Market Views section, our contributors continue to be bullish.
After a fantastic showing for our 2019 Top Picks last month, our contributors are continuing to find some great stocks with big potential for you.
The market continues to slowly slog higher in the dog days of the summer. It’s a time of year when investors are more focused on squeezing more fun out of the last days of the summer than investing. Markets seem to behave the same way they did when investors stopped paying attention. In this case it likely means a higher crawl until Labor Day.
Of course, an outside event can always change things. We’ll see what happens with today’s Fed rate decision. But unless something rocks the boat, markets will probably remain on autopilot for the next month or so.
Of course, an outside event can always change things. We’ll see what happens with today’s Fed rate decision. But unless something rocks the boat, markets will probably remain on autopilot for the next month or so.
The broad market remains in fine health, with the major indexes trending higher and sentiment measures still bullish. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.
Last week’s recommendation was an undervalued cyclical business, and this week we swing back to a fast-growing cloud software stock with strong momentum and big upward potential.
Last week’s recommendation was an undervalued cyclical business, and this week we swing back to a fast-growing cloud software stock with strong momentum and big upward potential.
Current Market OutlookThe overall market remains in good shape, with the major indexes and most leading stocks in uptrends. That said, today was a very bad day for growth stocks, as big investors hit the sell button almost from the get-go, leaving most of this year’s winners down sharply. Given the monstrous runs in many of these names and (in some cases) some recent stalling out action, we do take this as a yellow flag—however, to be fair, few have broken any key support and most non-growth issues look completely fine. Bottom line, if you have some good-sized profits and positions, we’re OK booking a couple of partial profits and honoring stops and loss limits going forward. On the buy side, we continue lean toward “fresher” titles, including many steadier growers that have come into favor.
This week’s list has a bunch of names that, until recently, have been marking time, but now look to have begun steady uptrends. Our Top Pick is Teradyne (TER), which leapt out of a huge base on earnings last week.
| Stock Name | Price | ||
|---|---|---|---|
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| Etsy (ETSY) | 112.97 | ||
| Kirkland Lake Gold (KL) | 51.30 | ||
| Lithia Motors Inc. (LAD) | 146.30 | ||
| Meritage Homes (MTH) | 102.20 | ||
| New Oriental Education (EDU) | 113.97 | ||
| Sherwin-Williams (SHW) | 526.09 | ||
| Snap Inc. (SNAP) | 16.68 | ||
| Teradyne (TER) | 82.83 | ||
| TransUnion (TRU) | 83.09 |
Our emerging market signal stays in positive territory. With our new global mandate in place, we move beyond emerging markets to a European quality play on technology. We also explore what the new Fortune Global 500 rankings can tell us about the changing landscape of investment opportunities.
The cannabis sector remains in a correction, with both marijuana and CBD stocks trending lower, giving up some of their early-year gains—and perhaps building a bottom here.
In the meantime, more and more peripheral companies are getting in on the action, and we have been increasing our exposure to these in recent weeks while still holding substantial cash.
This week we’re selling one more of the pure-play marijuana companies, raising the portfolio’s cash level to about 27%.
Full details in the issue.
In the meantime, more and more peripheral companies are getting in on the action, and we have been increasing our exposure to these in recent weeks while still holding substantial cash.
This week we’re selling one more of the pure-play marijuana companies, raising the portfolio’s cash level to about 27%.
Full details in the issue.
The broad market remains in fine health, with the major indexes trending higher and sentiment measures still bullish. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.
Today’s recommendation is a well-known name on the consumer side, the biggest airline on the west coast. And, interestingly enough, it will be replacing our current airline stock, which is now being sold for a decent profit after less than four months.
Beyond that, there’s only one change to the portfolio today. Last week’s recommendation, which was bought at an unfortunately high point, will now be downgraded to Hold. Details in the issue.
Today’s recommendation is a well-known name on the consumer side, the biggest airline on the west coast. And, interestingly enough, it will be replacing our current airline stock, which is now being sold for a decent profit after less than four months.
Beyond that, there’s only one change to the portfolio today. Last week’s recommendation, which was bought at an unfortunately high point, will now be downgraded to Hold. Details in the 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
Coverage of the shares of this global payments processor was just initiated by Bernstein with an ‘Outperform’ rating.
The market had another volatile day, with a big dip early but then with buyers showing up in the afternoon. The Model Portfolio has been holding a good-sized cash position recently, and came into this week with a cash position of 44%. And tonight we’re making a couple more moves that will boost our cash position further.
One of the stocks in our portfolio is involved in a merger. I virtually always advise investors to sell upon receiving buyout offers. However, I admit that owning a debt-free oilfield service company in today’s stock market is enticing. I’ll make my recommendation within a few days.
Today’s pick is a leader in recycling systems for the food retail industry in Europe and the U.S.
One of our portfolio stocks reported a huge earnings beat and moves from Strong Buy to Hold.
This cloud software company’s shares have been receiving Wall Street attention for the past couple of months: BTIG Research upgraded the shares to ‘Buy’.
CNBC is reporting that Boeing (BA) is close to announcing that KLX Inc. (KLXI) is agreeing to be acquired.
Yesterday’s $83 run-up in the share price of this stock outpaced analysts’ projected increase in 2018 and 2019 earnings, which resulted from the strong first quarter earnings report.
Wall Street is forecasting annual growth of 19.98% over the next five years for this homebuilder.
Four of the stocks in our portfolio reported first quarter results today. There are two rating changes.
This manufacturer of leisure boats beat analysts’ estimates by $.09 per share last quarter, and the company is expected to grow 22.3% this year.
The shares of this cloud-based storage company are getting lots of new analyst coverage: ‘Overweight’ at KeyBanc’ ‘Buy’ atDeutsche Bank; and ‘Overweight’ at PiperJaffray.
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.