As we steamroll toward the holidays, the market remains in great shape, and bigger picture, we continue to expect good things in 2020. Near-term, we are finally seeing a few signs of complacency, so some rocky trading is likely at some point; being choosy on the buy side makes sense. But we’re thinking bigger, aiming to hold our strong leaders with the goal of developing some bigger winners.

In tonight’s issue, we’re adding one half-sized position to the Model Portfolio; that will leave us with 19% in cash, which we’re looking to put to work as opportunities arise. We also review three initial lessons learned from this year, highlight some intriguing names that are setting up well and give you our latest thoughts on all our holdings.

In this Month’s Issue of Cabot Early Opportunities we take a closer look at recent recommendations and evaluate their Q3 earnings reports. I also show why I think the Small cap index is going higher in the near term. Finally, I feature five early-stage growth stocks going after totally different markets that look poised to deliver big gains in 2020 and beyond.

We’ve had a decent month in the markets—despite all the impeachment hoopla. It looks like the China trade issue is improving, housing starts and building permits are healthy, and unemployment remains low. Sounds like the making of a great holiday season!

We begin this issue with our Spotlight Stock, a company that has been in business for 67 years, residing in the defense and aerospace sectors. As I note in my Feature article, both of those arenas are experiencing fantastic growth, which bodes well for our Spotlight Stock.

There is a brand new industry just coming of age.

New industries only come along once in a while and they almost always present an array of investments that will be superstars of tomorrow. We dream of going back in time and buying Microsoft (MSFT) or Starbucks (SBUX) or Netflix (NFLX) when they were new, upstart companies. But we might get another bite of a similar apple in 2020.

Precious metal stocks (and their underlying commodities) have become a mixed bag, especially with some global uncertainties seemingly cleared up, but this stock is pushing ahead nonetheless thanks to some company-specific catalysts in addition to higher gold and silver prices.

The major indexes continue to hit new highs, all Cabot’s market timing indicators remain positive, and our portfolio is solid, overall, though I’m downgrading three stocks to Hold today for various reasons.

As for today’s new recommendation, it’s a very familiar name—a dividend-paying Wall Street Blue Chip—that Mike Cintolo says now has great growth potential because of its new business.



Details in the issue.

Current Market Outlook


As we steamroll toward the end of the decade, the overall market remains in good shape—the intermediate-term trend is firmly up, the number of stocks hitting new highs is expanding and many longer-term studies tell us that 2020 is likely to be another solid year. That said it’s not all peaches and cream out there—short-term, huge number of new highs often leads to some retrenchment, and we’re also seeing a bit more divergent action among individual stocks, with some growth titles hitting potholes while investors rotate elsewhere. None of that is “bad,” per se, but it is a reminder to honor and update your stops as time goes by, and to take a couple of partial profits if you score a decent profit.

This week’s list has a wide variety of newer names, from construction to precious metals to biotech to chips. Our Top Pick is Synaptics (SYNA), which has the makings of an intriguing turnaround as it’s riding a few powerful growth trends.

Stock Name	Price	Buy Range	Loss Limit
Aecom Technology (ACM)	0.00	42-43.5	39-40
GDS Holdings Limited (GDS)	80.15	47-48.5	43-44
Inphi (IPHI)	120.16	71.5-73.5	65-66
Pan American Silver (PAAS)	27.28	20-21	18-18.5
Planet Fitness (PLNT)	0.00	71.5-74	64.5-66
PTC Therapeutics (PTCT)	0.00	47-49	42.5-43.5
Reata Pharmaceuticals (RETA)	0.00	197-210	178-183
Shopify (SHOP)	585.00	368-383	335-345
Skyworks Solutions (SWKS)	0.00	107-111	96-98
Synaptics (SYNA)	0.00	63-66	55-56.5

Last week’s recommendation, Virgin Galactic (SPCE), took off like a rocket and this week we go underground to recommend a premier global company that provides the backbone for future-oriented technologies such as green energy and electric vehicles.

Looking at the big picture impacting global stocks, U.S.-China haggling continues but the NAFTA redo looks like a done deal as we head into the end-of-year rush. As a result, our Emerging Markets Timer (EEM) moved into a stronger bullish position, putting some distance between its 25- and 50-day averages as it moves back towards 44.

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.

Our first recommendation is a small-cap fund.

One of the stocks in the portfolio reported strong earnings and a revenue beat—it moves from Buy Low Opportunities Portfolio to Growth Portfolio.

And our second recommendation is to bank some profits.

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.

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.