Markets have been resilient driven by earnings, hopes of a Hormuz deal, and a ramping up of share buybacks by big tech this year.

Explorer stocks had a good week. Brookfield Renewable (BEP) shares were up 7.5% this week as attention was riveted on clean energy in the wake of the Middle East conflict.

Small businesses drive a lot of U.S. job growth – yet many can’t get the loans they need from paper-bound, cautious banks.

Today’s featured company aims to change that. It is a digital lending specialist that’s transforming into a full-scale bank. By leveraging over two decades of data, it is capturing market share while maintaining impressively low default rates.

All the details are inside the May issue of Cabot Small-Cap Confidential.

Soaring oil prices ground airline stocks to a halt in March, and most of them have yet to recover as crude oil remains in the triple-digit range. And yet, most airlines are still on track for another year of record sales and passenger numbers. That includes this month’s new addition to the Cabot Value Investor portfolio, which expects double-digit revenue and triple-digit earnings growth this year, and yet the stock trades 37% below its 2017 highs. Shares had momentum before the Iran war. Now they’re trading at a rarely seen discount. That spells opportunity and perfectly fits our growth-at-value-prices mandate.

Details inside.

The bulls had another strong week as the Magnificent Seven reported mostly strong earnings, the Fed held steady (as expected), Q1 GDP came in at a solid 2.0%, and Apple capped the week with a top- and bottom-line earnings beat that sent shares up more than 3% on Friday. The one fly in the ointment? Inflation — the PCE price index surged at a 3.5% annualized rate in Q1, a sharp acceleration driven by elevated energy costs tied to the Iran conflict.

We continue to see and hear about many uncertainties, not the least of which is the continued back-and-forth in the Middle East—but despite that, stocks have continued to handle themselves very well, oftentimes actually advancing despite the supposed fundamental headwinds. Of course, near term, some sort of pothole is possible, and the next two weeks are actually prime time when it comes to earnings season for growth stocks, so we’ll see how it goes. But we’ll bump our Market Monitor to a level 8 given the positive evidence.

This week’s list features a lot of recent earnings winners as well as some good setups. Our Top Pick has solid growth and free cash flow, and the stock just emerged from a huge base after earnings.

Booming earnings vs. a damaging war. That’s the tug-of-war investors are grappling with right now.

In March, the sudden war in Iran sent stock prices tumbling; in April, stocks rebounded with a fury, thanks in part to double-digit earnings growth and hopes of peace. Where the market goes in May will depend on how long the war drags out – and how long the Strait of Hormuz remains closed. In the meantime, though, artificial intelligence is clearly back in favor, so today we add a new AI name courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon. It’s a name that’s hitting fresh all-time highs as I write this – with potentially much greater upside ahead.

Details inside.

The bulls had another strong week as the Magnificent Seven reported mostly strong earnings, the Fed held steady (as expected), Q1 GDP came in at a solid 2.0%, and Apple capped the week with a top- and bottom-line earnings beat that sent shares up more than 3% on Friday. The one fly in the ointment? Inflation — the PCE price index surged at a 3.5% annualized rate in Q1, a sharp acceleration driven by elevated energy costs tied to the Iran conflict.

The bulls had another strong week as the Magnificent Seven reported mostly strong earnings, the Fed held steady (as expected), Q1 GDP came in at a solid 2.0%, and Apple capped the week with a top- and bottom-line earnings beat that sent shares up more than 3% on Friday. The one fly in the ointment? Inflation — the PCE price index surged at a 3.5% annualized rate in Q1, a sharp acceleration driven by elevated energy costs tied to the Iran conflict.

The bulls had another strong week as the Magnificent Seven reported mostly strong earnings, the Fed held steady (as expected), Q1 GDP came in at a solid 2.0%, and Apple capped the week with a top- and bottom-line earnings beat that sent shares up more than 3% on Friday. The one fly in the ointment? Inflation — the PCE price index surged at a 3.5% annualized rate in Q1, a sharp acceleration driven by elevated energy costs tied to the Iran conflict.

The past month has gone about as well as any bull could have hoped, with the market stampeding off the late March low -- and with nearly all of the top-down evidence looking positive today. Individual stocks have been a bit trickier, with leadership concentrated in AI names and with earnings season causing some gyrations; we’re standing pat and holding our still-large cash position tonight because of that. But don’t get us wrong -- we’re optimistic, and looking to extend our line as more leaders (preferably outside of AI) emerge during earnings season.

Back on April 23 at the market close, I suggested buying cannabis stocks in the sharp pullback that day right after the federal government announced cannabis rescheduling.

From opening prices the next day, cannabis stocks were recently up 18%. Not only that, but for the moment, cannabis stocks seem to have found a stable footing.

For investors in UnitedHealth Group (UNH), the last 18 months have probably felt like an eternity. After hitting a lifetime high north of 600 a share in late 2024, a rapid succession of shocks—ranging from leadership turmoil to compressed margins to Medicare policy changes—combined to crush the company’s stock over the next year-and-a-half, cutting its value by more than half.

But after the seemingly endless turbulence of that period, the stock has begun to stabilize while UnitedHealth’s turnaround is gaining significant traction, with the firm’s recent financial results showing better-than-expected recovery signs. For this and other reasons I’ll describe here, the stock appears worthy of our consideration.

If you have the feeling that this year’s boom in the tech sector—and the corresponding record highs in the major averages—isn’t being felt on a market-wide basis, you’re not imagining it.

As it turns out, the record lift in the Nasdaq and S&P is being driven by a troublingly small number of stocks. The result of this narrowing market is that value-focused investors like us have been forced to exercise patience while waiting for the boom to visit our corner of the market (more on that in a minute).

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.

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.

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.”

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.

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.

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.

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 30^th. 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

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.

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.

Today’s buy idea is an out-of-favor value play from one of our newest contributors, Carl Delfeld.

Royal Gold (RGLD)
from The Value Bounce

A number of events have brought gold stocks, and RGLD with them, down sharply, as its share price is down 38.8% so far in 2013. Some reasons include:

• The pullback in...

Today’s Daily Alert features a new small-cap recommendation and an update on one of our Top Picks for 2013.

Solta Medical (SLTM)
from The Cheap Investor

Solta Medical is a global leader in the medical aesthetics market providing ... aesthetic energy devices for skin resurfacing and rejuvenation, acne reduction, body contouring and skin...

Update

Google (GOOG)
from $100k Portfolio, chosen as a Top Pick for 2013 at $733 in Investment Digest issue 734, dated January 9, 2013.

Google shares are finally getting the respect they deserve.

On October 17, the company reported a great quarter. The results sent shares soaring 14% in a single trading session. And the stock...

Today we have a new buy and a sell from Stephen Leeb.

Twenty-First Century Fox (FOXA)
from The Complete Investor

Twenty-First Century Fox is one of the two companies created when Rupert Murdoch’s News Corp. split itself into two, and it got all the fast-growing media and content assets. It’s arguably the most...

NVR Inc. (NVR)
from The Complete Investor, recommended at $903 in Investment Digest issue 729, dated October 24, 2012.

We’re selling three picks whose performance hangs more on macro considerations than on hard metrics like free cash flow. ... NVR, whose business model makes it a standout among housing stocks, was the...

Today John Reese recommends a stock that scores well on his tests of both earnings growth and value characteristics.

Bridgepoint Education (BPI)
from Validea Hot List

Strategy: Price/Sales Investor

Based on: Kenneth Fisher

Bridgepoint Education is a provider of postsecondary education services. The company’s academic institutions include Ashford University and University of the Rockies. Its...

Today we have a concise retail sector recommendation, followed by updates on Eagle Bancorp (EGBN) and DreamWorks (DWA).

Ulta Salon, Cosmetics & Fragrance (ULTA)
from US Investment Report

In retailing our newest pick is oddly-named Ulta Salon Cosmetics & Fragrance (ULTA) of Bolingbrook, IL. Call it a beauty retailer, if you will. With...

Update

Eagle Bancorp (EGBN)
from Upside, recommended at $15 in Investment Digest issue 715, dated March 14, 2012

Eagle Bancorp retreated 4.3% today despite posting solid September-quarter results. Per-share earnings were $0.44, up 10% and a penny above the consensus. Revenue, which consists of net interest income and noninterest income, also rose 10% and...

Sell Alert

DreamWorks Animation (DWA)
from The Primary Trend, recommended at $24 in Investment Digest issue 696, dated June 1, 2011.

We have sold DreamWorks Animation (DWA). Its 50%-plus move since the spring, culminating with “good news” on its Netflix deal, gave us an opportunity to get out while the getting’s good. Sell...

Today’s new buy idea is an energy stock that just surged higher after reporting better-than-expected third quarter results. The stock has pulled back slightly from its post-earnings high, creating a good buying opportunity for new investors.

Core Laboratories (CLB)
from Blue Chip Growth

Oil companies are finding it increasingly difficult to extract...

Today’s new idea comes from value guru J. Royden Ward. You’ll receive your October Investment Digest issue this afternoon.

Portfolio Recovery Associates (PRAA)
from Cabot Benjamin Graham Value Investor

Portfolio Recovery Associates (PRAA) purchases, manages and collects defaulted consumer receivables from credit originators such as banks. The company either buys the receivables...

Today Michael Cintolo recommends a strong and fast-growing oil exploration and production stock.

Bonanza Creek Energy (BCEI)
from Cabot Top Ten Trader

Bonanza Creek is another in a long line of energy exploring stocks that have morphed into powerful leaders. The company is making most of its hay in Colorado, thanks to an...

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.