This month’s Cabot Value Model contains a diversified list of high-quality Buy recommendations. Many of these companies have been neglected by investors in 2017 and are now poised to rise dramatically. Buying blue-chip companies seems prudent when the stock market is noticeably overvalued!

In tonight’s Cabot Growth Investor, we review all our stocks and highlight some names we’re watching, including one that’s set up very well ahead of earnings. We also dive into some details about how we run our ship—we’ve gotten a few questions about this lately, and we think this will clear up any questions you may have.

In choosing today’s recommendation, I returned to a sector that was white-hot a few years ago, bringing big profits to investors who got out before the sector collapsed. But now the sector is back in favor and my selection is the leading Chinese stock in the industry.

We have two new additions to the portfolios in today’s issue, one of our stocks has changed its name, and one stock is now rated Sell.

Current Market Outlook


Individual stocks have been somewhat tricky in recent weeks, with some doing great and others chopping around, while earnings season has done its usual job of helping some names while cutting others off at the knees. Even so, there are far more stocks in good shape than not, and the market itself is in fine shape, with all the major indexes we track above intermediate-term support. Things can always change, but with most of the evidence we see bullish, we’re sticking with a positive stance. Moreover, we see a ton of setups out there (especially among growth-oriented stocks and sectors that have consolidated during the past two months or longer) that should do well if the market continue to push higher.

This week’s list has a solid collection of recent earnings winners from a variety of different groups. There are many strong names to choose from, but our Top Pick is Align Technologies (ALGN), which has a great long-term growth story and a strong chart. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	316.20	164-169	152-155
Brink’s (BCO)	0.00	75-79	68-70
Caterpillar Inc. (CAT)	0.00	111-113	150-107
Expedia Group (EXPE)	0.00	153-157	145-147
First Solar (FSLR)	83.74	46-48.5	42-44.5
iRobot (IRBT)	103.17	101-107	92-96
Lending Tree (TREE)	411.51	207-217	190-195
Novocure (NVCR)	0.00	19-21	16-17
Proofpoint (PFPT)	113.79	84-86.5	80-82.5
YY Inc. (YY)	0.00	70-73	64-66

Our market timing indicator is positive and our stocks are doing well. We’re heading into earnings season with a powerful wave of momentum providing the power. In this issue I do a little basic review of earnings season and list all the firm dates for companies we own. I also have a new/old stock that boasts very strong numbers and will be reporting in a couple of weeks.

I’m adding a 31-year dividend payer to the Safe Income Tier, and cover all our stocks that have reported earnings so far. You’ll also find some important information on REITs at the end of the issue which you should find valuable if you bought last month’s High Yield Tier addition.

In selecting today’s stock, I swung back to the conservative side, and selected an undervalued stock in the energy/industrial sector that has recently resumed its upward trend as institutions climb back on board.

While flashier, more star-studded teams like Lionel Messi’s Argentina, Kylian Mbappe’s France and Erling Haaland’s Norway garnered most of the headlines at the just-completed World Cup, Spain was the best team. There was nothing flashy about Spain: no mega-stars, not a ton of goals, no relentless attack. Instead, they dominated the tournament with precision passing, immaculate ball control and near-impenetrable (just one goal allowed all tournament!) defense.

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 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.

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.

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.

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.

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 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.

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.

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.

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.

eMagin (EMAN) and Chembio (CEMI) reported earnings and are rated Hold.

PFSweb (PFSW) reported a better-than-expected quarter with revenue up 22%. Let’s keep it at Hold until we can assess the stock’s reaction

We’re selling Ligand Pharmaceuticals (LGND), which, despite reporting a fine quarter last week, has come under severe selling pressure and broken down decisively. We’ll cut the loss tonight. That move will leave us with three empty slots and a cash position of around 23%. That seems high given the market environment, so we will add one stock—Amazon (AMZN).

Tonight I’m recommending selling National Storage Affiliates (NSA) (ideally tomorrow on a bounce), and redeploying the profits into one of my other buy-rated stocks.

NanoString (NSTG), Aerohive (HIVE) and Q2 Holdings (QTWO) reported earnings.

Blackbaud (BLKB), Mitek (MITK) and Primo Water (PRMW) announce earnings . BLKB is now rated Sell.

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.