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.

It’s a New Year, but the market’s evidence remains unchanged--big picture, it’s a strong bull market, though short-term risks are rising, telling us to be choosy on the buy side and to hold a chunk of cash. That said, we’re still holding on tightly to our winners and think a few of our current stocks can enjoy sustained runs from here.

In tonight’s issue, we write about how many stocks that have recently had big moves actually look to be early in their overall advances; pullbacks, in other words, should offer buying opportunities. We also dive into our stocks and write about a couple of names on our watch list could be our next buys.

The stock market’s strong and resilient upward march this year to a 32% total return was great. Yet, few, including us, expected such an uplifting outcome in 2019.

In this issue, we give our turnaround market outlook for 2020.

This stock has always had a great story—the company looks like one of the best cookie-cutter stories in construction-related retail, operating large (75,000 square feet on average) warehouse-style locations that specialize in hard flooring (tile, wood, stone, laminate and the like).

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

However, there’s always room for portfolio improvement, and as we head into January, there are a number of laggards in the portfolio that may be cut soon if they don’t shape up. Additionally, there is one stock you can sell this week for a quick five-week profit—though you can hold for longer-term gains if you choose.



As for the new addition, it’s an English stock (which is rare), but it has a good story as well as a good chart, so prospects are good. The stock was originally recommended by Tyler Laundon in Cabot Early Opportunities.



Details in the issue.

Current Market Outlook


As the year winds to a close, nothing has changed with the market’s overall stance—big picture, it’s a bull market, and numerous factors tell us that the uptrend has farther to go; the odds favor higher prices when looking months down the road. Shorter-term, though, there are also many signs that tell us risk is elevated—that doesn’t necessarily mean a huge correction is on tap, but we think it’s safe to say that the next few weeks are likely to be more challenging than the past few weeks, with potholes, rotation and news-driven moves possible. As we’ve been writing, that’s no reason to bail out, but being discerning on the buy side (good entry points, starting small, etc.) and booking some partial profits makes sense.

Our last list of 2019 is a broad mix of strong stocks, including turnarounds, recent breakouts and fresh setups. Our Top Pick is Crocs (CROX), which is benefiting from some rotation into retail titles and a string of solid quarterly reports.

Stock Name	Price	Buy Range	Loss Limit
Bed Bath & Beyond (BBBY)	0.00	16-17	14.3-14.9
Cardlytics (CDLX)	0.00	58-61	51-52.5
Carvana (CVNA)	82.90	91-94	83-85
Crocs (CROX)	0.00	39-41	35.5-36.5
Floor & Décor (FND)	68.03	49-51	45.5-46.5
GSX Techedu (GSX)	97.59	19.5-20.5	17-18
Luckin Coffee (LK)	0.00	34-36.5	30-31.5
Paycom Software (PAYC)	0.00	257-267	237-241
Sea Limited (SE)	132.86	38-39.5	34-35
United Rentals, Inc. (URI)	0.00	163-167	150-152

The latest issue of Cabot Marijuana Investor is now available, with my current advice on the fourteen stocks in the portfolio.

The cannabis sector remains in a correction, but the new year brings the promise of a great rebound, and I want you to be in the stocks that will benefit most, so, while there hasn’t been much news over the past week, I do include full updates on each stock in the portfolio so you can best decide which stocks fit your own portfolio.

Also, the portfolio remains 25% in cash, waiting for the sector’s main trend to turn up.

Full details in the issue.

All Explorer positions except Grupo Televisa (TV) advanced this past week and the emerging markets timer (EEM) is positive in an uptrend and above both its 20-day and 50-day moving averages.

Today’s recommendation is a company showing some relative strength that offers a nice blend of emerging growth and Western management. It’s a business with a diversified portfolio of fuel distribution, sugar production, ethanol and electricity, rail transportation and warehousing as well as the distribution of natural gas.

Price targets are standard practice on Wall Street. But sometimes, they can act as an artificial ceiling.

For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.

WHAT TO DO NOW: Continue to trim your sails. In the Model Portfolio, we’ve been getting closer and closer to shore as growth funds and indexes are under pressure and AI stocks cascade lower. Tonight we’re going to further trim Marvell (MRVL) given its ugly action, selling a third of what we have left. That will leave the portfolio with a big 58% cash position. We could put some of that to work if growth names find support, but we want to see key growth measures firm up before buying.

After a brief pause last week, small caps are once again leading the pack.

Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.

Its earnings season again! That’s a good thing. Earnings just might save the day in an otherwise confusing and uncertain market.

The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.

The peace deal may be on hold again. But stocks are hanging in there so far.

The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.

It’s no surprise that summer often brings lower market volatility levels as Wall Street heads to the Hamptons and participation rates diminish.

Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.

The divide between value and growth stocks is widening, as the Nasdaq is now more than 5% off its highs after peaking in early June while the Vanguard Value Index ETF (VTV) is hovering near its late-June apex and is up 3% in the last month.

That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.

After a very strong run from the March lows, the market appears to be going through an uncomfortable but healthy rotation. Many of the biggest winners from the AI and semiconductor trade have come under pressure, while value stocks, equal-weight indexes and other areas that had lagged earlier in the year have held up much better.

Markets are facing more inflation as the Iran mess gets messier. Concerns over high AI capital spending are a cloud over a resilient market. On the bright side for our portfolio, however, International Business Machines (IBM) shares were up 7.4% this week following last week’s 8.9% gain. Sea Limited (SE) shares leapt 9.6% this week and are up about 20% over the past month. MercadoLibre (MELI) shares are up 11.6% over the last two weeks.

I remain bullish on stocks, but I am turning more cautious, winding down leverage, and letting some cash build up in my non-marginable accounts.

The reason is that spooky season lies just around the corner. September and October are typically the weakest months of the year. We also often see weakness in July and August, perhaps as investors get nervous about those looming difficult months.

After a very strong run since the March lows, the market appears to be going through a healthy, albeit somewhat uncomfortable, rotation.

The biggest winners from the AI and semiconductor trade are finally seeing some profit-taking, with Goldman Sachs (GS) noting that momentum stocks recently suffered their worst two-day decline since 2020. UBS (UBS) just said that the momentum factor is down roughly 20% from its June peak, marking the seventh-largest drawdown of the last decade and the fastest decline of that magnitude on record.

The S&P 500 was down in June after rising sharply in April and May. But that doesn’t tell the whole story.

Most stock sectors had a strong month in June. The four best-performing sectors and their returns over the last month include the following: health care (11.2%), financials (8.44%), industrials (6.87%), and utilities (6.64%). Information technology, which drove the S&P higher in April and May, is the worst-performing sector over the last month with a negative 8.75% return.

Analysts expect this medical device company to post 20% annual growth for the next five years.

Analysts expect this blockchain company to grow at 19.5% annually over the next five years.

One stock is being sold, one is moving from Strong Buy to Buy and there’s price action on several others.

This Chinese human resources company beat analysts’ estimates by $0.15 in its latest quarter and Wall Street expects the company to grow by more than 24% in the next year.

Only lost 27 cents per share in the latest quarter.

This emerging markets fund is trading at a discount and is an opportunity to gain exposure to some large tech stocks.

Tonight we’re going to sell our remaining half position in one stock and hold the cash. (We sold the first half of our position on April 20 for a small profit.)

This homebuilder is on track for recovery, or perhaps, a buyout.

One stock moves from Strong Buy to Hold, and another moves from Strong Buy to Buy

This ETF offers an opportunity to invest in the lesser known midcap oil companies.

I’ve been pounding the table on “takeover stocks” for half a year now.

Our second idea is a sale of a stock experiencing seasonal weakness.

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.