Issues
This month’s Cabot Value Model contains a diversified list of Buy recommendations, with a bias toward high quality companies in the Technology and Financial sectors.
Writing this Top Picks Mid-Year Update issue is sort of like opening a Christmas present. While I continually keep my eyes on the stocks, I’m always excited to find out the final results—which contributors—and stocks—not only came in on top in terms of returns but also beat the averages.
Today’s recommendation is a doozy. It may go to the moon, or it may fall flat on its face, but it’s got a good story, and I think we’ve got a decent entry point here.
Current Market OutlookOn an intermediate-term basis, the overall market remains stuck in the middle—many areas are still looking ragged, and most major indexes are hanging around their 50-day moving averages. Our screens this weekend did reveal a number of solid five- to six-week setups among growth stocks, as well as lots of solid action in other areas that have recently come to life. If the market gets going from here, there should be plenty of stocks to jump on. We’re not opposed to buying small amounts of a couple of these potential leaders today, but until we see more than just a day or two of rallying, you should play things carefully. We have our Market Monitor at a level 6 (out of 10), and will simply let the market tell us (through its own action) whether the next big move is up or down.
In the meantime, we’re laser-focused on stocks that have either just blasted out of bases or uptrending stocks that have resisted the Nasdaq’s wobbles since early June. Our Top Pick is Medidata Solutions (MDSO), which remains in good shape after lifting from a two-year base in April. Keep positions small.
| Stock Name | Price | ||
|---|---|---|---|
| Alibaba (BABA) | 254.81 | ||
| Align Technology (ALGN) | 316.20 | ||
| American Airlines Group Inc. (AAL) | 0.00 | ||
| Exact Sciences (EXAS) | 116.91 | ||
| First Republic Bank (FRC) | 0.00 | ||
| Medidata Solutions (MDSO) | 0.00 | ||
| Puma Biotech (PBYI) | 0.00 | ||
| RingCentral (RNG) | 238.73 | ||
| Tesoro (TSO) | 0.00 | ||
| WellCare Health Plans, Inc. (WCG) | 271.83 |
This month’s selection is a small company in the health care space given the strength in this group of stocks. The company has a very specific focus on products to treat peripheral nerve injuries, and it’s growing revenue north of 50% annually.
In tonight’s issue, we write about what we’re seeing in the market’s recent rotation as well as another batch of studies that portend higher prices for the market down the road. We also dive into all our recommendations and present some of our favorite ideas for the next market upleg.
Today’s featured stocks include a bank and its CCAR results, a retailer and its prognosis in the wake of the Amazon-Whole Foods merger, and a new addition to the Growth & Income Portfolio.
Current Market OutlookThe Nasdaq and leading growth stocks were whacked again last week, extending the correction in that group to just over three weeks. At this point, the major trend is still up, but intermediate-term, the onus is on the bulls, as many stocks (and the Nasdaq itself) have fallen toward key support—a couple of big selloffs from here would be a red flag, especially for names that have had big runs during the past year, though a strong sign of support could arrest the decline. Right now, we remain mostly bullish because many stocks are still in good shape, especially early-stage growth stocks that are trading resiliently and new leadership is emerging as money rotates into other areas.
This week’s list is a mix of both categories. Our Top Pick this week is Citigroup (C), which, despite its huge size, has great potential thanks to industry trends and recent news flow. The stock was the first big bank to leap to new highs recently, too.
| Stock Name | Price | ||
|---|---|---|---|
| Carvana (CVNA) | 82.90 | ||
| Citigroup Inc. (C) | 0.00 | ||
| Exelixis (EXEL) | 27.35 | ||
| iRhythm Technologies (IRTC) | 51.15 | ||
| Nintendo Co., Ltd. (NTDOY) | 0.00 | ||
| Packaging Corp (PKG) | 0.00 | ||
| Square, Inc. (SQ) | 91.04 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Wayfair (W) | 167.03 | ||
| Winnebago (WGO) | 48.56 |
The recommended stock, unusually, is not a U.S. company; it’s a Canadian company. But it trades on the NYSE, and it has a great growth story.
Updates
WHAT TO DO NOW: Big picture, the market and most leaders look great, and our market timing indicators are in fine shape. Near-term, though, there’s little doubt things have gotten a bit giddy, with many names and indexes extended to the upside. Tonight, we’re placing Cava (CAVA) on Hold as that stock has been caught up in some group weakness; we’ll hold our 45% cash position for now, but stay tuned, as we’d like to add some new names (or add to existing names) in the near future.
What a difference a month can make! What an April! The S&P rose 9.6% in April, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
The results are in for the month of April. It was fabulous. The S&P rose 9.6%, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Now before you call me crazy concerning today’s newsletter headline, hear me out.
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
The market is digesting the push and pull of higher oil prices, a deeply divided Federal Reserve, prospects for a prolonged blockade of the Strait of Hormuz and fading momentum from the AI trade that helped push markets to all‑time highs earlier this month.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Yesterday, four tech giants, Alphabet, Amazon, Meta and Microsoft, representing 22% of the S&P 500’s market value, reported strong quarterly earnings that highlighted the importance of AI.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
It’s been a glorious April following a miserable March for the market. What happens in May may determine which direction stocks are headed for the rest of the year.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
What war? This market is moving on. We may not be out of the woods yet, but investors are looking beyond the Iran war.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
The other day I was paid a visit by a roving ISP salesman who was pitching his company’s fledgling internet service over the local monopoly’s. We struck up a conversation and he asked what I did for a living. When I told him, his eyes lit up and he asked, “Got any good stocks you can recommend?”
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Note: I’m out of town this week, so I’ll be a bit briefer on the update today—but I’m still checking my laptop a couple of times a day if you have any questions or comments. I’ll be back at my desk come Monday. Cheers.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
Despite all the headline noise lately we’re marching deeper into first‑quarter earnings season with the market’s path of least resistance still pointing higher.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
The old saying, “History doesn’t repeat itself, but it rhymes,” is an apt one for the stock market these last two years.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
Alerts
We will place ProShares S&P 500 Ultra Fund (SSO) on Hold to respect the message from our Tides.
Five Below (FIVE) has been unable to pull out of its tailspin following a good-but-not-great quarterly report last week, so we’re selling the stock today and booking our small profit.
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 Top Ten 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 Top Ten features.