Issues
Today’s Cabot Small-Cap Confidential addition isn’t a cloud-based software provider. But it is a perfect example of what I’ve been talking about – a company in an established industry that’s shaking things up largely because cloud-based technologies are at the center of its DNA. The company’s platform is helping it grow roughly 10 times faster than its industry average, while delivering profits.
It’s an exciting story that I’ve been looking forward to sharing with you. Enjoy!
It’s an exciting story that I’ve been looking forward to sharing with you. Enjoy!
The general trend in emerging market stocks has gone from bad to worse, and we have responded by moving heavily into cash. And although this isn’t as much fun as picking out the big winners from among a stampeding herd of strong stocks, it’s the price we have to pay to play profitably in a volatile market. Today we’re featuring a relatively conservative stock that sports strong fundamentals and a tidy dividend.
The market’s main trends remain up, and thus I remain bullish, while continuing to remind you that a balanced portfolio with attention to risk management is always smart.
Current Market OutlookAfter what was basically a straight-up move for the major indexes and many leading stocks during the past three weeks (including a few names that got out of trend on the upside), big investors came back from the beach today and took some profits. And short-term, further retrenchment is possible, so don’t be surprised to see a few potholes or rotation show up. But bigger picture, the trends of the indexes are pointed up, leading stocks are acting well and we’re pleased to see buying pressures broadening (more new highs) and selling pressure fading (relatively few new lows). It’s still a good idea to pick your spots and take a partial profit or two on the way up, but we remain bullish and see the odds favoring higher prices in the weeks ahead.
This week’s list has a wide mix of stocks and sectors, reflecting the broadening of the market’s advance. Our Top Pick is Semtech (SMTC), a smaller chip maker with a pretty chart and excellent growth.
| Stock Name | Price | ||
|---|---|---|---|
| Allison Transmission (ALSN) | 51.79 | ||
| Ciena (CIEN) | 44.25 | ||
| DSW Inc. (DSW) | 31.82 | ||
| Exact Sciences (EXAS) | 116.91 | ||
| HCA Healthcare (HCA) | 137.60 | ||
| iRobot (IRBT) | 103.17 | ||
| NVIDIA Corporation (NVDA) | 242.42 | ||
| Semtech (SMTC) | 51.09 | ||
| Veeva Systems (VEEV) | 180.23 | ||
| Wayfair (W) | 167.03 |
We’re up to 31 stocks in the portfolios, and that’s too many! I’m hoping for a surge in the broader market so that half a dozen of our stocks reach their target prices, and I can then pare back the portfolios a bit.
As marijuana stocks have blasted off over the past couple of weeks, it’s become clear that institutional money is entering the sector—and this is good. We like having institutions confirm our early judgment that the cannabis industry is a great place to invest, probably the greatest growth sector of our time.
The market overall and growth stocks in particular have shown great improvement during the past two to three weeks, with the major indexes hitting new highs and selling pressure drying up.
Granted, it’s late August, so we’ll see what big investors do when they come back from the beach next week, but given the evidence we’re continuing to put money to work. Tonight, we’re adding one new name, leaving us with around 17% in cash.
Granted, it’s late August, so we’ll see what big investors do when they come back from the beach next week, but given the evidence we’re continuing to put money to work. Tonight, we’re adding one new name, leaving us with around 17% in cash.
The most bullish thing a market can do is hit new highs, and that’s what we’ve seen from this market in recent days, with most indexes and stocks participating on the upside. And with interest rates remaining tame, our dividend stocks have been doing well, too.
All of this is good, though it makes this month’s choice of a featured stock a bit more difficult, as many names are a bit extended to the upside. In the end, I went with a strong stock that gives us leverage to the strong U.S. economy—both the stock and dividend payment are likely to head higher over time.
All of this is good, though it makes this month’s choice of a featured stock a bit more difficult, as many names are a bit extended to the upside. In the end, I went with a strong stock that gives us leverage to the strong U.S. economy—both the stock and dividend payment are likely to head higher over time.
Updates
The market rolls sideways amidst a slew of conflicting forces.
The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.
The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.
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.
Alerts
Our first idea is a transportation company that beat Wall Street’s estimates by a nickel last quarter.
. Our second recommendation is a sale of a previous idea.
Crista writes about earnings for two stocks, a management change and a $300MM share repurchase.
This stock reported first-quarter earnings that beat expectations last night. However, the stock declined in after-hours trading.
In the last thirty days, six analysts have increased their earnings forecasts for this industrial company’s next quarter.
An update on one of our stocks, and a rating change on another.
This small semiconductor company beat analysts’ estimates by $0.02 last quarter, and Wall Street is forecasting double-digit growth for the next five years.
One of our stocks reported yesterday after the close and nearly all the analysts following the company are disappointed, including me.
The shares of this food repurposing company are rated 1.6 (Buy) by Wall Street Analysts. The company has strong cash flow and is reducing its debt.
This fitness company has opportunities to expand its mission, but it is in the midst of a turnaround.
An update on one of our stocks, and ratings changes on two others.
This aircraft product maker’s shares are trading at a heavy discount due to an ongoing dispute with Bombardier.
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.