Issues
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.
Current Market OutlookBigger picture, nothing has changed with the market’s stance—the intermediate- and longer-term trends of the major indexes and most leading stocks look solid, sentiment (while heating up a bit) isn’t stretched and many background measures (like our 7.5% Rule) bode well for the months ahead. Short-term, though, things continue to look tricky, as earnings season combined with all the news/rumors out there surrounding the Fed, trade negotiations and even Iran is leading to daily wiggles and a ton of under-the-surface rotation. As we’ve been writing for a while, you shouldn’t get caught up in the day-to-day gyrations, but taking partial profits when offered and being choosy on the buy side (keeping positions small ahead of earnings, looking for good setups near support) makes sense as the myriad crosscurrents continue.
Reflecting the environment, this week’s list produced much more diverse than in recent weeks. Our Top Pick is ASML Inc. (ASML), a chip equipment maker that just broke out on earnings from a year-long base.
| Stock Name | Price | ||
|---|---|---|---|
| Ally Financial (ALLY) | 30.44 | ||
| Arrowhead Pharmaceuticals (ARWR) | 32.16 | ||
| ASML Holding (ASML) | 350.01 | ||
| CrowdStrike (CRWD) | 105.02 | ||
| EPAM Systems (EPAM) | 188.24 | ||
| Generac Holdings (GNRC) | 86.60 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| Match (MTCH) | 0.00 | ||
| Proofpoint (PFPT) | 113.79 | ||
| Wheaton Precious Metals (WPM) | 34.43 |
In tonight’s letter, we share a couple of ideas for those of you that don’t like to hold all your stocks though earnings; we review a couple of new names that are on our watch list (ESTC is one we’re very intrigued by) and go over all our current Model Portfolio stocks as many are set to report earnings during the next two weeks.
The broad market remains in fine health, with all 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 leader in its field, with great long-term growth prospects—as well as dependable recurring revenue—as the U.S. transitions away from fossil fuels to renewable energy sources.
As for the current portfolio, most of our stocks are doing great, but we’ve got to sell one, and it’s a tough choice. Details inside.
Today’s recommendation is a leader in its field, with great long-term growth prospects—as well as dependable recurring revenue—as the U.S. transitions away from fossil fuels to renewable energy sources.
As for the current portfolio, most of our stocks are doing great, but we’ve got to sell one, and it’s a tough choice. Details inside.
Current Market OutlookThe most bullish thing the stock market can do is go up, so by that measure, the market looks pretty bullish right here—most major indexes, advance-decline lines and a bunch of leading stocks have hit new highs in recent days, keeping the major trends pointed up. Short-term, things are a bit too quiet, so some wobbles wouldn’t shock us, but the next two or three weeks will likely see stocks being pushed and pulled by earnings season, which is getting underway now. All in all, our advice remains the same: Hold your strong stocks (though booking partial profits on the way up makes sense) and remain mostly invested, but for new buying, focus on stocks that have shown strong recent accumulation and look for decent entry points, especially if the firm is reporting earnings soon.
This week’s list has a bevy of potential leaders, including a few names that are trying to emerge from multi-month rest periods. Our Top Pick is Elastic (ESTC), an IPO from last year that’s racing up the right-hand side of a four-month consolidation. Start small and look for dips.
| Stock Name | Price | ||
|---|---|---|---|
| Beyond Meat (BYND) | 132.87 | ||
| Blackstone Group (BX) | 49.12 | ||
| Boston Beer Company (SAM) | 459.16 | ||
| Carvana (CVNA) | 82.90 | ||
| Cornerstone OnDemand (CSOD) | 51.01 | ||
| Dexcom (DXCM) | 421.36 | ||
| Elastic (ESTC) | 86.17 | ||
| Haemonetics (HAE) | 136.59 | ||
| Sarepta Therapeutics (SRPT) | 120.93 | ||
| Yeti Holdings (YETI) | 42.80 |
Emerging and global markets had a good week with some standout performers such as NIO and SEA. Zero progress on U.S.-China talks was overshadowed by anticipated interest rate cuts. Today we recommend a stock from the Watch List and upgrade an idea in the portfolio.
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
This auto seat supplier just formed a joint venture with Boeing to make airplane seats.
It remains a strong bull market, but below the surface, there are many crosscurrents, as some stocks run into trouble and others pile on big gains.
Updates on several of our stocks and one rating change.
In the past 30 days, seven analysts have increased their earnings forecasts for this drug maker.
In the past 30 days, 11 analysts have increased their earnings forecasts for this homebuilder.
The top five holdings of this mutual fund are: Abiomed Inc (ABMD, 3.31%); Seattle Genetics Inc (SGEN, 3.23%); Eli Lilly and Co (LLY, 3.08%); Alibaba Group Holding Ltd ADR (BABA, 2.84%) and American Airlines Group Inc (AAL, 2.80%).
The shares of this medical device company were just upgraded by JP Morgan to ‘Overweight’, and eight analysts have increased their earnings estimates for the company in the past 30 days.
Comments on one of our stocks, one stock rejoins the Growth Portfolio, and one of our companies reported a fourth-quarter earnings beat.
The top five sectors in this fund are Financials (42.66% of assets); Communications (18.77%), and Consumer Cyclical (13.32%).
Updates on three of our stocks that reported quarterly earnings, plus updates on two stocks with Strong Buy ratings.
In the last few weeks, this energy company has also attracted Wall Street’s attention, with coverage of the shares initiated at both Credit Suisse (Outperform) and Citigroup (Buy).
Analysts expect growth of 70% for this industrial company next year.
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.