Issues
The past few weeks have been choppy and challenging for many growth stocks, but we’re happy to see some of the yellow flags from last week be addressed--our Cabot Tides, which were on the fence, are again positive, and most growth stocks that dipped to support have found buyers. Of course, there remain some worries (earnings season is coming up; relatively few stocks are hitting new highs), but most of the evidence remains bullish
Tonight, in fact, we’re putting some of our sidelined cash back to work by averaging up in one stock and starting with a half-sized position in another, which will leave us with 17% cash.
In tonight’s Cabot Growth Investor, we talk about all our current holdings, highlight one beaten-down sector we’re keeping a distant eye on for a new upturn, as well as look at some little-known names that are on our watch list.
Tonight, in fact, we’re putting some of our sidelined cash back to work by averaging up in one stock and starting with a half-sized position in another, which will leave us with 17% cash.
In tonight’s Cabot Growth Investor, we talk about all our current holdings, highlight one beaten-down sector we’re keeping a distant eye on for a new upturn, as well as look at some little-known names that are on our watch list.
I’ve just spent two glorious days cleaning out my flower beds and planting my annuals. Cleaning up my yard reminds me that it would also be a good time to review your portfolio—get rid of the non-performers and make room for some more profitable investments.
The volatility in the market has abated—for now—with the Dow Jones Industrial Average gaining about 600 points since the last issue. And as you’ll see in Market Views and our Advisor Investment Barometer, the investment pros continue to be bullish. The economy continues to be strong, with decent housing and manufacturing numbers, as well as low unemployment.
The volatility in the market has abated—for now—with the Dow Jones Industrial Average gaining about 600 points since the last issue. And as you’ll see in Market Views and our Advisor Investment Barometer, the investment pros continue to be bullish. The economy continues to be strong, with decent housing and manufacturing numbers, as well as low unemployment.
The market remains in good health, though selectivity remains important.
For today’s recommendation we swing back to the more conservative side of the market with a very big, very well known company whose stock has just begun a new uptrend.
As for the current portfolio, we have five stocks hitting new highs in recent days, and none doing poorly, so overall, progress is being made! There are no sells today. Details in the issue.
For today’s recommendation we swing back to the more conservative side of the market with a very big, very well known company whose stock has just begun a new uptrend.
As for the current portfolio, we have five stocks hitting new highs in recent days, and none doing poorly, so overall, progress is being made! There are no sells today. Details in the issue.
Current Market OutlookLast week saw a continuation of the market’s rally, with most major indexes (save small caps) lifting to new recovery highs, led by many “old world” sectors like financials, mining, transports and the like. Meanwhile, many hot growth stocks (mostly technology) lagged, with a bunch falling to key intermediate-term support. What does it mean? As we wrote in Friday’s update, you should take things on a stock-by-stock basis—most stocks still look great, and if you have some winners, you should continue giving them a chance to crank higher. But it’s important not to be complacent, either, so be sure to honor your loss limits and stops in case the selling in growth stocks continues and/or the selling spreads to other corners of the market. Overall, we remain mostly bullish as most of the evidence continues to point up.
Not surprisingly, this week’s list has many newer names to the publication as the buying power rotates to other areas. Our Top Pick is Wynn Resorts (WYNN), which, along with many gaming peers, looks to have changed character last week. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Acacia Communications (ACIA) | 51.83 | ||
| Advanced Micro Devices (AMD) | 82.24 | ||
| Amphenol (APH) | 91.75 | ||
| Autohome (ATHM) | 98.65 | ||
| Cabot Microelectronics (CCMP) | 156.17 | ||
| Delta Air Lines (DAL) | 54.28 | ||
| Lennox International (LII) | 270.56 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| Rio Tinto plc (RIO) | 57.05 | ||
| Wynn Resorts (WYNN) | 121.08 |
This month we’re wading deeper into the MedTech space with a life sciences company that’s commercializing a disruptive technology that could diagnose disease in seemingly healthy people.
It’s an exciting story of a young company that appears to be in the early innings of its growth curve, but has made it far enough with respect to technology development, customers and strategic partnerships to attract attention from larger investors.
Revenue was up 60% in 2018, and is projected to keep growing at a rapid rate. All the details are inside this month’s Issue.
It’s an exciting story of a young company that appears to be in the early innings of its growth curve, but has made it far enough with respect to technology development, customers and strategic partnerships to attract attention from larger investors.
Revenue was up 60% in 2018, and is projected to keep growing at a rapid rate. All the details are inside this month’s Issue.
After a fairly quiet March, emerging markets came to life this week after the revelation of unexpectedly strong manufacturing growth in China, progress on trade talks and lower interest rates—which always help emerging markets.
This week we have a new recommendation that helps power emerging market consumer spending, a key driver as these markets transition from exports to consumer spending to fuel their growth.
This week we have a new recommendation that helps power emerging market consumer spending, a key driver as these markets transition from exports to consumer spending to fuel their growth.
Here in Tennessee, the Bradford pears, forsythia, and daffodils are in bloom. And so is the market! We had a good market month, with the Dow Jones Industrial Average gaining more than 500 points since our last issue.
The economy continues to be strong, with unemployment low and housing still favorable. And sentiment, as you’ll see in our Market Views, remains bullish overall.
The economy continues to be strong, with unemployment low and housing still favorable. And sentiment, as you’ll see in our Market Views, remains bullish overall.
Various portfolio companies are in the midst of changes and volatility related to a spin-off, a name change, the Boeing Max 737 problem and the ongoing effects of Midwest flooding. In addition, U.S. stock markets decided that they’re ready to rise again, so I itemized several opportunities in this issue ranging from blue chip stocks to a microcap stock.
I expect 2019 to continue being a year that offers great opportunities for stock traders. While my investment style of identifying undervalued growth stocks is not conducive to day trading, investors will likely find lots of opportunities to achieve capital gains of 10% or more over several-month periods.
I expect 2019 to continue being a year that offers great opportunities for stock traders. While my investment style of identifying undervalued growth stocks is not conducive to day trading, investors will likely find lots of opportunities to achieve capital gains of 10% or more over several-month periods.
The market’s weakness didn’t last long; the indexes snapped quickly back, though breadth is not quite as good as previously. Still, the market strength restores my confidence that we’ll see higher highs in the months ahead, and I recommend that you invest accordingly.
For today’s recommendation we swing back to the aggressive side. Remember those promises of DNA-based personalized medical treatments from a decade ago? We’re getting closer and today’s recommendation is a leading force in the field.
For today’s recommendation we swing back to the aggressive side. Remember those promises of DNA-based personalized medical treatments from a decade ago? We’re getting closer and today’s recommendation is a leading force in the field.
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
Our second recommendation is a sale of a previous idea.
This cyclical company has beaten analysts’ estimates for the past four quarters, and four analysts have raised their 2017 earnings estimates for the company in the past 30 days.
Two third-quarter earnings beats and news on two other stocks.
This hardware company topped analysts’ EPS estimates by ten cents in its latest quarter, and seven analysts have raised their earnings forecasts for the company in the past 30 days.
Three ratings changes and one stock looks strong.
The top five investments in this German fund are Bayer AG (BAYZF.DE, 7.97% of assets); Siemens AG (SMAWF.DE, 7.63%); SAP SE (SAPGF.DE, 7.62%); Allianz SE (ALIZF.DE, 7.26%) and Basf SE (BFFAF.DE, 6.92%).
Three of our stocks reported earnings.
This big tech company beat analysts’ estimates by $0.10 last quarter, and Wall Street now expects the stock to rise between $177 and $213.
Quarterly earnings beats from three of our stocks, and an earnings miss from another.
Needham just initiated coverage of this big data company’s shares with a ‘Buy’ rating. The company is expected to grow at more than 42% per year over the next five years.
Alexion Pharmaceuticals (ALXN) receives drug approval, Ameriprise (AMP) and XL Group (XL) report third-quarter results, and ratings changes on two of our stocks.
This consulting firm beat analysts’ estimates by $0.05 in the past quarter and Wall Street is expecting double-digit growth for the company over the next five years.
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.