Issues
Despite weakness in the broad market today’s addition is holding up very well. The company specializes in simulation software – programs that tell users what a physical object, or process, may or may not do.
The action of the last couple of days has been a smack in the face for all investors, U.S. and emerging markets alike. As always, the Cabot growth disciplines tell us not to panic, but also not just to sit there and let the market take away your money. While we don’t have any changes to the portfolio tonight, this issue of Cabot Emerging Markets Investor shows a distinctly defensive tone, with a very heavy cash position and just two stocks rated Buy. We also have a new stock this week that’s perfectly suited to conditions. It’s a commodity play with a generous dividend, attractive valuation and a simple story. Read on for all the details.
The latest issue of Cabot Marijuana Investor is now available, with my current advice on the twelve stocks in the portfolio, as well as one new addition and profit-taking advice on one of our early investments.
As the fastest-growing industry in America, marijuana presents many exciting investment opportunities.
But I do want to caution you, especially if you’re one of my newer readers; for all the potential, there is also substantial short-term risk in all these stocks, as they tend to be lower-priced and more volatile than our typical recommendations. So take care to understand the risks before you act.
My goal is to make you a successful long-term investor in the sector, and the best way to do that is to get off on the right foot.
As the fastest-growing industry in America, marijuana presents many exciting investment opportunities.
But I do want to caution you, especially if you’re one of my newer readers; for all the potential, there is also substantial short-term risk in all these stocks, as they tend to be lower-priced and more volatile than our typical recommendations. So take care to understand the risks before you act.
My goal is to make you a successful long-term investor in the sector, and the best way to do that is to get off on the right foot.
Today I wrote about a company that announced a new CEO! I then went back and added to the story. My conclusion remains unchanged: I expect the stock to perform poorly through year-end and possibly quite a ways into 2019.
The market’s main trend remains up, but the crosscurrents are getting fierce! So today I’m selling four stocks (two for good profits and two for small losses), all in an effort to keep the portfolio full of stocks whose potential upside justifies their potential downside.
As to this week’s recommendation, I’m happy to say that it’s a company headquartered in India, which is relatively free of the political turmoil that’s gripped the U.S. recently. Furthermore, given that foreign stocks have underperformed dramatically this year, I’m optimistic about getting on board somewhere near the beginning of a renewed uptrend.
As to this week’s recommendation, I’m happy to say that it’s a company headquartered in India, which is relatively free of the political turmoil that’s gripped the U.S. recently. Furthermore, given that foreign stocks have underperformed dramatically this year, I’m optimistic about getting on board somewhere near the beginning of a renewed uptrend.
Current Market OutlookThe big-cap indexes started strong today on news of a new NAFTA deal, but under the surface, we’re seeing continued rotation and signs of degradation. Small- and mid-cap indexes took hits today and remain below their 50-day lines, while most growth stocks continue to act iffy. To be fair, the start of a new quarter often sees many crosscurrents, and most leading stocks, while choppy, remain in uptrends. But we’ve now seen funky action and lots of rotation for over a month, which has our antennae up. We’re moving our Market Monitor to a level 6 and feel the next few days will be telling—if leaders are OK, we expect to see support show up, but if not, the odds of a longer pullback will increase.
As for our screens, we’re still finding a good number of good charts, albeit in a variety of sectors. Our Top Pick today is Allegheny Technologies (ATI), a specialty metals firm that is showing signs of getting going after months of base-building.
| Stock Name | Price | ||
|---|---|---|---|
| Alarm.com (ALRM) | 71.33 | ||
| Allegheny Technologies (ATI) | 27.78 | ||
| Ecopetrol (EC) | 22.17 | ||
| Intelsat (I) | 25.46 | ||
| Paycom Software (PAYC) | 0.00 | ||
| PetIQ (PETQ) | 30.82 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Vale S.A. (VALE) | 15.40 | ||
| WPX Energy (WPX) | 0.00 | ||
| Zendesk (ZEN) | 82.19 |
September has been tricky and tedious for growth stocks, with lots of volatility and some high-volume selloffs. It’s fair to say the evidence has worsened a bit, and we’ve placed a couple of stocks on hold and raised some mental stops.
That said, the majority of evidence is still bullish, very few growth stocks have actually broken down and the market’s trends are still positive. Net-net, then, we’re still mostly bullish, but are keeping our eyes open should things change.
In tonight’s issue, we introduce our new Real Money Index, which is replacing the Two-Second Indicator on page 8; we think it will help us lean against the wind in many circumstances. (We’ll still be following the Two-Second Indicator in house.) And we also take a deep dive into all of our stocks, letting you know what we’re thinking as many have consolidated of late.
That said, the majority of evidence is still bullish, very few growth stocks have actually broken down and the market’s trends are still positive. Net-net, then, we’re still mostly bullish, but are keeping our eyes open should things change.
In tonight’s issue, we introduce our new Real Money Index, which is replacing the Two-Second Indicator on page 8; we think it will help us lean against the wind in many circumstances. (We’ll still be following the Two-Second Indicator in house.) And we also take a deep dive into all of our stocks, letting you know what we’re thinking as many have consolidated of late.
The market continues to make progress, despite the dramatic headlines gracing the front page every day (and popping up online throughout the day). Today I’m adding a well-known restaurant stock to the Dividend Growth tier of our portfolio, to take advantage of rising consumer spending and the strong American economy. I also have updates on all our stocks, most of which are rated Buy, and at the end of the issue I take a look at the importance of diversification.
This week’s recommendation is a low-risk financial stock with decent prospects that is temporarily low because it lost what investors mistakenly believed was a key client. If you buy now you can get capital appreciation plus a modest dividend.
Current Market OutlookThe third week of September brought another bout of sharp rotation, with leading growth stocks trading lower while other areas of the market firmed up. To this point, the action has been acceptable given the big runs in so many stocks during the summer, but some indexes and many stocks are approaching key levels—if the buyers show up here, all could be well, and we wouldn’t be shocked to see another leg up develop. But if not, the odds that a deeper and longer retreat among leading stocks will increase. Today, we’ll keep our Market Monitor at a 7 (out of 10), and it’s good to see some new leaders emerge. But the next few days will likely be important for the intermediate-term outlook.
This week’s list is still heavy on growth ideas (though some are turnaround-type plays), but our Top Pick is Rowan Drilling (RDC), which is showing great strength by lifting out of a big bottoming area.
| Stock Name | Price | ||
|---|---|---|---|
| Aaron’s (AAN) | 74.35 | ||
| Atlassian (TEAM) | 182.16 | ||
| CF Industries (CF) | 45.23 | ||
| Dave & Buster’s (PLAY) | 57.01 | ||
| Omnicell (OMCL) | 81.03 | ||
| Pacira Biosiences (PCRX) | 54.85 | ||
| Paylocity (PCTY) | 97.34 | ||
| Rowan Drilling (RDC) | 15.52 | ||
| Wingstop (WING) | 121.52 | ||
| Yelp (YELP) | 41.30 |
Updates
The market has gone sideways since May. It seems to be deciding what to do.
It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.
It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.
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.
Alerts
One of our stocks moves from Buy to Hold. The company cut the dividend and is implementing a new business plan. The outlook is positive.
We’re starting to see a little uptick in trading ranges, especially among our technology stocks. Given that market risks seem to be on the rise and there is some rotation out of tech stocks (at least for the moment), I’m advising that you take partial profits in two of our outperforming software positions today. Plus, I suggest stepping away from one underperforming position.
Our first idea is a medical device company that is growing at a double-digit rate. The shares are rated ‘Strong Buy’ by Zack’s, citing the company’s growth and rising estimates.
Our second recommendation is a sale of a previous idea.
This medical device company beat analysts’ estimates by $0.07 last quarter.
This pool-based business beat analysts’ estimates by $0.12 last quarter.
For the first time in months, we’re seeing a few signs of abnormal action from a variety of growth stocks, though on a positive note, few have actually broken down through key support.
Here’s my assessment of the high flying technology stocks, which now look vulnerable.
I’m selling one of our stocks and adding a new bank stock to the Growth Portfolio. I also describe a big June catalyst for banks’ share prices and highlight 11 other bank stocks.
The top five holdings of this fund are: iShares Russell 2000 Growth (IWO, 3.16%); Six Flags Entertainment Corp (SIX, 2.40%); j2 Global Inc (JCOM, 2.39%); FirstCash Inc (FCFS, 2.02%) and Ligand Pharmaceuticals Inc (LGND, 1.96%).
Analysts are forecasting double-digit growth for this turnaround auto company in the next five years.
Crista is selling one stock, moving another from Hold to Strong Buy, and names 15 great stocks to buy today.
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.