Issues
Successful short-selling is more complex than just being “the opposite of long investing.” Shorting goes against the general upward trend in stock prices and against human nature that strives for making companies run better. But as long investors, we can use these short-selling risks to our advantage.
In this issue, we feature six stocks that have large short interest yet have pending turnarounds that could force short-covering.
In this issue, we feature six stocks that have large short interest yet have pending turnarounds that could force short-covering.
August has featured one big whipsaw after another, with the major indexes breaking down early in the month and making many dramatic moves since. But the overall evidence really hasn’t changed much—the intermediate-term trend still isn’t up for the market or most stocks, while the longer-term evidence is still mostly bullish. Thus, we’re sticking with a cautious stance. Tonight, we’re selling a small chunk of Okta (OKTA), which leaves us with a cash position of around 36%.
Elsewhere in tonight’s issue, we write about all of our current holdings (including newer addition Carvana) and discuss one major indicator to watch closely and how to find resilient stocks in the market. If today’s rally is for real, we could be putting money to work soon, but we’re content to patiently wait for a decisive green light.
Elsewhere in tonight’s issue, we write about all of our current holdings (including newer addition Carvana) and discuss one major indicator to watch closely and how to find resilient stocks in the market. If today’s rally is for real, we could be putting money to work soon, but we’re content to patiently wait for a decisive green light.
The cannabis sector remains in a correction, but many of our stocks are doing considerably better than the sector. And the sector itself is very likely near a bottom—which I why today’s issue is titled “Buying Opportunity.”
For new investors, it’s a great time to get started.
However, I’m also recommending reducing positions in four of our holdings, always working to put more of our money in the leading stocks—and with these sales, our cash level will rise—hopefully briefly—to 30%.
For new investors, it’s a great time to get started.
However, I’m also recommending reducing positions in four of our holdings, always working to put more of our money in the leading stocks—and with these sales, our cash level will rise—hopefully briefly—to 30%.
We are in the late stages of a recovery and bull market. The economy is still strong and the bull market could continue for a while. But the escalation of trade frictions with China is disrupting the situation.
Since the trade war escalated a month ago, the market has fallen every week since. And things might get worse before they get better. The trade war takes a small toll on the economy but it hurts the global economy much more. A faltering global economy would come back and bite us, and perhaps draw the next recession closer.
With no catalyst in sight to fix the current situation and a recession looming somewhere in the not-too-distant future, it makes sense to play defense. Defensive dividend paying stocks are the stars of the market now and may continue to be for a long while.
In this issue I highlight one of the very best defensive dividend stocks on the market. It has rock solid earnings in any environment and the stock should perform well in just about any market.
Since the trade war escalated a month ago, the market has fallen every week since. And things might get worse before they get better. The trade war takes a small toll on the economy but it hurts the global economy much more. A faltering global economy would come back and bite us, and perhaps draw the next recession closer.
With no catalyst in sight to fix the current situation and a recession looming somewhere in the not-too-distant future, it makes sense to play defense. Defensive dividend paying stocks are the stars of the market now and may continue to be for a long while.
In this issue I highlight one of the very best defensive dividend stocks on the market. It has rock solid earnings in any environment and the stock should perform well in just about any market.
The market remains under pressure in the short-term, for all the well-publicized reasons, but long-term, the market trend remains up, and many of our stocks are acting well. Today’s recommendation is a repeat, a stock we made money in last year that subsequently had a big correction and is now ready to run again. And it’s got a great story, too!
Current Market OutlookThe market came close to giving an all-clear signal last week, but the endless U.S.-China trade flareup knocked the market back on Friday. Despite the headlines, we still don’t see the environment as a total disaster—the indexes themselves are still holding above their recent lows, and many individual stocks (and most we’re following) are actually more resilient than that. But the bottom line is that little money is being made, and with the intermediate-term trend continuing to point down, you should remain in a cautious stance, keeping new buying on the small side and holding some cash. From here, we’re open to anything—given the pervasive pessimism, a new uptrend wouldn’t shock us, but the onus remains on the bulls to prove they are retaking control before we become more constructive.
This week’s list has a wide mix of stocks that have resisted the market’s downward pull—with some actually advancing despite the environment. Our Top Pick is MasTec (MTZ), a stock we missed a couple of weeks ago but think it can have a sustained advance due to its exposure to many strong markets.
| Stock Name | Price | ||
|---|---|---|---|
| Allakos (ALLK) | 77.83 | ||
| Blackstone Group (BX) | 49.12 | ||
| D. R. Horton (DHI) | 66.55 | ||
| HubSpot (HUBS) | 582.89 | ||
| Keysight Technologies, Inc. (KEYS) | 97.20 | ||
| LivePerson (LPSN) | 58.55 | ||
| MasTec, Inc. (MTZ) | 66.65 | ||
| Pinduoduo (PDD) | 87.53 | ||
| Synopsys (SNPS) | 137.53 | ||
| Target (TGT) | 124.77 |
This has been a busy week with earnings reports—the bulk of them on the positive side. China and other emerging and international companies seem to be posting good numbers but macro headwinds are weighing on markets for now.
The Hong Kong situation is one issue causing concern so this week we head back to Singapore for a high quality financial play on Asia
The Hong Kong situation is one issue causing concern so this week we head back to Singapore for a high quality financial play on Asia
The market has been all over the place so far in August, with some huge daily declines and advances depending on the news of the day. While the continued rebounds are a good sign buyers are lurking out there, the fact is the intermediate-term trend isn’t up, so we think it’s best to stick with a cautious stance—jettisoning your portfolio of losers and laggards (as we’ve done in recent weeks) while looking for either undervalued or resilient stocks to take their place. Our choice this week is a blue chip that’s cheap, near support, pays a nice dividend and is in position to benefit from any bounce in interest rates.
Updates
With war being one of the most dominant themes of the last four years, it stands to reason that investors should position their portfolios to account for this conspicuous (and unwelcome) trend.
And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.
And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.
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.
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.
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 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.
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.
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.
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.
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 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.
Alerts
Coverage of the shares of this oil and natural gas company were just initiate by several brokerages: Deutsche Bank, to ‘Buy’; Baird, to ‘Outperform’; and Credit Suisse, to ‘Outperform’.
Our first idea is a retailer with a lot of momentum and 10 analysts who have recently raised their EPS forecasts.
Our second recommendation is profit-taking on a recent pick.
This fitness equipment maker is due to release earnings tomorrow, now estimated at $0.31 per share. The company beat estimates last quarter, by three cents.
The shares of this real estate company were recently upgraded by Raymond James to ‘Outperform’ and seven analysts have raised their EPS estimates for the company in the past 30 days.
This oil producer just announced a merger deal with SandRidge Energy, Inc., which should result in one of the largest oil players in the Mississippian Lime shale formation.
A small-cap jumps on earnings and a second has announced a voluntary cash offer to acquire all shares of another company.
There are several rating changes today due to earnings.
Five analysts have increased their EPS estimates for our first pick, a midwestern bank, and our second recommendation is the sale of a previous idea.
Our second recommendation is the sale of a previous idea.
This trucking company handily beat analysts’ earnings estimates, and forecasts are for double-digit growth this year.
This airline manufacturer has seen fantastic results, beating analysts’ earnings estimates by $0.17 last quarter.
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.