Issues
Congratulations to our Top Picks for 2019! For the first half of the year, the Dow Jones Industrial Average was up 11.8%; the S&P 500 gained 14.3%, and the NASDAQ has returned 16.1%. Our Top Five picks averaged gains of 68.02%!
The broad market remains in fine health, with all major indexes trending higher and sentiment measures still telling us this market has not yet reached the stage where amateurs are sucked in to buying at the top. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.
However, I will note that the fact that the Cabot Stock of the Week portfolio is now full, and that it is difficult to choose a stock to sell, is a sign that, at least in the short term, the market is high and thus ripe for a correction. If that makes sense to you, you might want to hold off on new investments.
In any case, today’s recommendation is a true diversification play, a small but high-potential Indian company that is destined to benefit from that country’s growth and the growth of tourism in the years ahead.
However, I will note that the fact that the Cabot Stock of the Week portfolio is now full, and that it is difficult to choose a stock to sell, is a sign that, at least in the short term, the market is high and thus ripe for a correction. If that makes sense to you, you might want to hold off on new investments.
In any case, today’s recommendation is a true diversification play, a small but high-potential Indian company that is destined to benefit from that country’s growth and the growth of tourism in the years ahead.
Current Market OutlookThere remain some imperfections in the market’s armor, including a continued lack of pep from small- and mid-cap indexes. And there are still plenty of uncertainties, including the upcoming earnings season and the ongoing U.S.-China trade negotiation/battle. But you can always find things to worry about in the stock market—the key is to focus on a handful of time-tested indicators and let them guide you. For us, that involves the trends of the major indexes (intermediate- and longer-term trends are pointed up), the action of Top Ten stocks (vast majority look solid) and, to a lesser extent, sentiment (which remains neutral at best). You should still be following your loss limits and stops, and on the buy side, picking your stocks (and your spots) carefully, especially if something has earnings coming up in a couple of weeks. But overall, you should remain in a constructive stance.
Impressively, this week’s list has a nice batch of growth-oriented stocks with solid stories. Our Top Pick is Sunrun (RUN), which is a bit thin and wild, but has shown fantastic action lately and has a solid growth story.
| Stock Name | Price | ||
|---|---|---|---|
| Amarin (AMRN) | 14.06 | ||
| Arconic (ARNC) | 17.00 | ||
| Avalara (AVLR) | 102.00 | ||
| Baozun (BZUN) | 44.24 | ||
| First Solar (FSLR) | 83.74 | ||
| Illumina Inc. (ILMN) | 289.74 | ||
| MercadoLibre, Inc. (MELI) | 980.83 | ||
| Royal Gold, Inc. (RGLD) | 129.66 | ||
| Sunrun (RUN) | 38.40 | ||
| Zscaler (ZS) | 126.22 |
As we begin the second half of the year, the odds continue to favor higher prices for the market down the road, so we remain in a generally bullish stance. Of course, the short-term will likely be news driven (trade talk, war fears and earnings season), but the big picture is looking sunny.
Individual growth stocks are a bit more divergent, with some looking tired but other, newer leaders looking peppy.
Individual growth stocks are a bit more divergent, with some looking tired but other, newer leaders looking peppy.
It was a great month for the markets, with the Dow Jones Industrial Average gaining more than 1,400 points. The economy remains sound; housing prices have mitigated somewhat; unemployment is healthy; and consumers are still confident.
That’s a nice setting for our Top Picks issue. Our contributors—so far in 2019—have had a banner year.
I have to brag a bit here about our Cabot contributors, as they took the top three spots!
But, seriously, the thriving market—and some good stock picking—served us well.
That’s a nice setting for our Top Picks issue. Our contributors—so far in 2019—have had a banner year.
I have to brag a bit here about our Cabot contributors, as they took the top three spots!
But, seriously, the thriving market—and some good stock picking—served us well.
The broad market remains in fine health, with all major indexes trending higher and sentiment measures telling us this market has not yet reached the stage where amateurs are sucked in to buy at the top. 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 very large company in an industry that has major ebbs and flows due to circumstances that are beyond this company’s control. But right now, conditions are excellent, and the 4.3% yield is an indication that the stock is cheap as well.
As for the other stocks in the portfolio, they look great, with six at or near their all-time highs. Details inside.
Today’s recommendation is a very large company in an industry that has major ebbs and flows due to circumstances that are beyond this company’s control. But right now, conditions are excellent, and the 4.3% yield is an indication that the stock is cheap as well.
As for the other stocks in the portfolio, they look great, with six at or near their all-time highs. Details inside.
A large number of our portfolio stocks are experiencing bullish price action right now. Unless something ugly hits news headlines in the next few days, we’re probably going to enjoy a strong stock market in the first half of July. I hope you’re not sitting on the sidelines!
Today’s recommendation is another company tapping into the explosive growth in genomic testing. It makes diagnostic tests, which pits it against larger rivals like Illumina (ILMN) and Gardant Health (GH). But this small company plays in three very specific markets where its next-gen products are emerging as market leaders. And new collaborations with the likes of Johnson and Johnson (JNJ) and Loxo Oncology, now part of Eli Lilly (LLY), are further evidence that it’s on the right path. All the details are inside. Enjoy, and Happy 4th of July!
Current Market OutlookIt’s not perfect, but from a top-down perspective, the market remains in good shape—today’s stretch toward new highs for many indexes (the S&P 500 made it, though most others didn’t) keeps the intermediate- and longer-term trends pointed up. That said, under the surface, things are a bit disjointed, with selling on strength seen in some extended growth leaders and buying picking up in names that are either cyclical (oils, financials) or fresher (those that haven’t had huge runs). That doesn’t mean you should chase every stock and sector that’s moving and ditch those that are wobbling, but it is important to avoid complacency with your winners (honor stops and take partial profits when offered) and, on the buy side, focus on stocks showing outstanding accumulation in recent weeks.
Those are just the type of charts we’re honing in on these days, and this week’s list has another batch of (mostly) newer names showing excellent action. Our Top Pick is Anaplan (PLAN), which looks like a new leader in the software space.
| Stock Name | Price | ||
|---|---|---|---|
| AGCO Corporation (AGCO) | 76.24 | ||
| Anaplan (PLAN) | 47.52 | ||
| eHealth (EHTH) | 122.74 | ||
| Inphi (IPHI) | 120.16 | ||
| Kratos Defense (KTOS) | 24.08 | ||
| Novocure (NVCR) | 0.00 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Shake Shack (SHAK) | 92.08 | ||
| Smartsheet (SMAR) | 44.12 | ||
| Snap Inc. (SNAP) | 16.68 |
Part of what makes turnaround mutual funds an inefficient and therefore profitable investing niche is that most investors avoid these securities. Managers of this small group of funds are comfortable with the contrarian approach of owning stocks that are avoided by more conventional mutual fund managers.
In this issue, we highlight seven of these turnaround-oriented mutual funds we’ve watched over the years.
In this issue, we highlight seven of these turnaround-oriented mutual funds we’ve watched over the years.
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
These two banks are a great entrée into participating in the ADR markets.
The shares of this automotive systems supplier just hit their 52-week high. The company beat analysts’ estimates by $0.05 last quarter, perhaps a harbinger of growth to come as it takes on a leading role in autonomous vehicles.
The shares of this optical sensor company were just initiated at Dougherty, with a ‘Buy’ rating.
One stock moves from Strong Buy to Buy, one moves from Strong Buy to Hold, and one moves from Buy to Hold.
This banking group beat earnings estimates by $0.20 last quarter, and four analysts have increased their forecasts for next quarter.
This bank may be a sleeper, and the shares are beginning to take off.
Coverage of our first Top Pick’s shares were recently initiated at H.C. Wainwright with a ‘Buy’ rating.
Our second idea is profit-taking on a previous Top Pick.
Our market timing indicators remain positive, so we remain overall bullish, but we are seeing some wild moves both up and down among some of our stocks.
Despite weak analyst sentiment, this biotech is looking healthy for the new year.
This stock is up 30% since joining the Buy Low Opportunities Portfolio on November 7, and it has achieved my full price goal.
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.