Large-cap stocks are starting to show some cracks. But small caps aren’t.

After years of underperformance, small-cap stocks appear to finally be poised for a breakout 2026 thanks to a combination of lower interest rates and soaring earnings. So in this month’s Cabot Value Investor issue, we present a small-cap company that is already coming off a very strong quarter, whose sales and earnings have more than doubled since Covid, but whose shares were overly punished last fall and are just now starting the long climb back. The combination of double-digit earnings growth and a well-below-average valuation makes this small cap ripe for our Buy Low Opportunities Portfolio.

Details inside.

Industrial stocks are hot. So today we’re jumping into a small-cap precision‑engineering and motion‑technology company that has both a self-help and an improving end-market story.

This company has spent the past several years transforming itself from a niche motor supplier into a vertically integrated engineering platform. After a strong start to 2025, it looks like 2026 will be even better.

All the details are inside the February issue of Cabot Small‑Cap Confidential.

Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.

The market hasn’t completely changed character at this point, but the recent action suggests that we’re at a key juncture here: After testing its October high, the Nasdaq has been fading, dragging down most other indexes while the number of new lows has picked up right off the recent high, all while defensive areas perk up—though, we’re also seeing many growth stocks hang in there well, with a few testing new high ground. All told, we’re again leaving our Market Monitor at a level 7, but we think the next few days will tell the tale of whether some new leadership can emerge … or whether a more general corrective phase gets underway. Stay tuned.

This week’s list has lots of strong names, including a few early earnings winners. Our Top Pick has a solid aerospace story but, like other names in this issue, is moving into the AI power space with some big future deals. We think nibbling on some here or on a further pullback makes sense.

Stocks continue to prove resilient in the face of myriad economic and geopolitical fears. And the U.S. consumer – despite declining sentiment and confidence – is doing enough to make those fears seem overblown, pushing large-cap companies toward their fifth consecutive quarter of double-digit earnings growth. So today, we add a stock that’s well-known to the U.S. consumer – and one that’s making a strong comeback after being overly punished by investors. It’s a recent addition by Clif Droke to his Cabot Turnaround Letter portfolio.

Details inside.

Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.

Despite a rally midweek to new all-time highs, last week finished on a soft note as profit-taking and macro uncertainty crept back into equities. Investors grappled with cooling tech leadership, mixed earnings reactions, and a fresh focus on monetary policy. By week’s end the S&P 500 was up 0.3%, the Dow Jones Industrial Average had slipped 0.4%, the Nasdaq Composite had fallen 0.9%, and the Russell 2000 had lost 1.5%.

Explorer stocks had a good week. MercadoLibre (MELI) shares were up 10.2% in their second week as an Explorer recommendation. Coeur Mining (CDE) shares are a juggernaut, up another 11.8% this week and more than 308% over the last year. TransAlta Corporation (TAC) shares were up 12.8% this week as the focus on energy stocks intensifies. Archer Aviation (ACHR) shares, however, declined 8.7% this week as the market is looking for clear signs the company is on track for FAA certification, so I’m moving this stock to a hold.

The last few years have been turbulent ones for passenger airliner JetBlue (JBLU) which, in spite of an industry-wide recovery, hasn’t experienced the lift that many of its peers have since 2024.

On an industry-wide basis, domestic passenger airlines fully recovered in 2024, even surpassing pre-Covid levels, with last year showing continued profitability, record traffic and strong demand. For JetBlue, however, the last couple of years have witnessed operational headwinds—underscored by a failed $3.8 billion merger with Spirit Airlines—forcing the airline to turn its focus inward to improve profitability.

Cannabis investors continue to await a significant catalyst which may hit inside the next month or two.

I expect Attorney General Pam Bondi to implement President Donald Trump’s executive order to reschedule cannabis in that time frame. That’s my best guess based on analysis from people close to the process. No one knows for sure, however.

The news would spark a sellable rally for traders. Long-term investors should hold through.

Rescheduling means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. That will save the larger publicly traded cannabis companies tens of millions of dollars each in annual tax expenses. That’s because rescheduling neutralizes an IRS rule that bars the deduction of operating expenses against the sale of Schedule I substances.

Critical metals like copper, aluminum and even silver are commanding headlines, thanks to their uses in high-demand applications pertaining to the AI datacenter/infrastructure buildout trends. But lost in the shuffle is what some analysts are calling the “forgotten metal”—nickel. The base metal is heavily used in high-energy battery applications, including for its use in boosting range in EV lithium-ion batteries—particularly with long-range or premium vehicles—with high-nickel batteries currently dominating EV markets in North America and Europe.

The market has been bouncy but slightly higher for the year so far, but it’s a different story under the hood.

Eight of the eleven S&P stock sectors are outperforming the market, and none of them is technology. That’s a stark difference from most of this bull market, where technology and AI drove the market higher while most other sectors underperformed. Now, the rally is broadening.

The market isn’t as expensive as it may seem, as the valuations of many stocks are below that of the overall market and don’t reflect the index returns of the bull market so far. Most of the expensive stocks are in technology, but those stocks are getting cheaper as well.

In this issue, I highlight two of the most promising dividend stocks for 2026. Both stocks have been in the portfolio before and have provided great income and total returns in a short period of time. They also can generate huge call premiums.

It was another stellar year for the market. The S&P is up between 17% and 18% with just a couple of trading days left. After two years of 20%-plus returns in 2023 and 2024, the S&P has put together the best three-year run this century.

*Note: Due to the New Year’s holiday, there will be no Cabot Dividend Investor update next Wednesday, December 31. I will be back with our next weekly update on Wednesday, January 7. Have a safe and happy holiday season!

Another strong year in the market is closing out. The S&P 500 is up over 17% for 2025 with about a week to go. This follows two straight years of 20%-plus returns for the market in 2023 and 2024. That’s the best three-year run this century.

Of course, the upside has been overwhelming due to technology. Without that sector, market returns would be rather lame. Now that technology is sputtering, what can we expect in 2026?

It’s been another productive year for the market, with the S&P 500 up more than 17% with a few trading days to spare. Growth stocks continue to carry the day despite recent weakness, advancing more than 22% this year. Value stocks have held their own, up more than 13% and picking up the slack of late as momentum in the growth space has waned. But ultimately, it was yet another year of growth outpacing value.

[Note: Due to the Christmas holiday, there will be no Cabot Turnaround Letter weekly update next Friday. The next monthly issue of the newsletter will be published on December 31.]

The Fed has reversed a long-standing balance sheet tightening phase with its recent decision to expand its balance sheet—a move that has largely fallen under the news radar.

Housekeeping: As the holidays get underway, just a heads up that we’re going to send the next issue of Cabot Growth Investor next Wednesday, Christmas Eve, December 24, likely midday.

WHAT TO DO NOW: Remain cautious. Growth stocks tried to come out of their corrective phase following the mid-November low—but that bounce has faded, with our Growth Tides and Aggression Index still struggling. We’ve gone slow of late, holding half the portfolio in cash, and tonight we’re going to mostly stand pat and look for signs the correction will end. Our only change tonight is placing CrowdStrike (CRWD) on Hold.

A quick Holiday schedule note. We won’t publish our regular weekly update next Thursday since it will be Christmas and our office will be closed. Also, with the New Year’s holiday the following Thursday – and the first Thursday of January – we will push the January 2026 issue of Cabot Small Cap Confidential back a week, to January 8.

Happy Holidays! On to the market.

For a second straight fall, the Federal Reserve has slashed interest rates three times from September through December. The result? What was a two-decade-high federal funds rate (5.25%-5.5%) 15 months ago is now down to a far more palatable 3.50-3.75% range. That’s still higher than at any point since before the Great Recession, so from a 21st-century perspective, interest rates aren’t exactly “low.” Usually, when interest rates are this high, stocks underperform their historical norm. In fact, prior to this recent stretch, it had only occurred two other times this century. Here were the results …

The artificial intelligence trade was under pressure last month. But it recovered over the last three weeks. The back and forth has again taken a negative turn after AI bellwethers Oracle (ORCL) and Broadcom (AVGO) reported earnings that didn’t impress investors.

Technology is getting a comeuppance. But other sectors are getting a boost.

The artificial intelligence trade was under pressure last month. But it recovered over the last three weeks. The back and forth has again taken a negative turn after AI bellwethers Oracle (ORCL) and Broadcom (AVGO) reported earnings that didn’t impress investors.

It’s no secret that a conspicuous presence of activist investors in an ailing company has proven to be one of the most powerful, and reliable, catalysts for a successful turnaround. For that reason, I’m always on the lookout for companies that have recently become the target of activism.

But if the Trump Administration gets its way, the activist investor catalyst could soon be of diminished importance.

This week was all about the Fed. But those of us watching small caps noticed some major news too – the S&P 600 has broken out to its highest level in just over a year.

The catalyst was the Fed’s fully expected 25 bps cut yesterday. It was less of a hawkish cut than expected and included a commitment to buy $40 billion in short-term Treasuries to ease money-market strains that emerged after halting balance-sheet runoff.

Prior to that announcement, the index was toying with a breakout, but afterward it shot up and closed 2.4% higher on the day.

As expected, the Fed cut interest rates for the third time this year on Wednesday, but officials remain divided over the future and signaled that cuts next year are likely to be limited.

Two Explorer stocks stand out. Those are Banco Santander (SAN), up 153% so far this year so I recommend taking partial profits if you have not already done so. And there’s Coeur Mining (CDE), whose shares that are now up 179% so far in 2025.

Sportradar (SRAD), Unity (U) and Triple Flag (TFPM) Report

Shares of Xometry (XMTR) are up double digits to new highs today after the company smashed Q3 expectations and raised full-year guidance. Here are the headline numbers:

Sensient Technologies (SXT) Reports: Moving to Sell

FTAI Infrastructure (FIP) Reports

Microsoft (MSFT) and Alamos Gold (AGI) Report

WHAT TO DO NOW: As we write about in tonight’s issue, there are many crosscurrents out there, with some growth names cracking while others emerge on the upside, so we’re selling laggards while aiming to add fresher, stronger names. In the Model Portfolio, we sold MP and GEV last week, and today we’re going to sell Oracle (ORCL), which tripped our mental stop today. That said, we’re also going to fill out our position in CrowdStrike (CRWD), adding another half-sized stake, and start a new half position in Vertiv Holding (VRT), all of which will leave us with around 38% in cash.

Shares of Perpetua Resources (PPTA) are bucking the weak day for gold this Monday on news that the company has secured a $225 equity investment from JPMorgan Chase (JPM) and Agnico Eagle Mines (AEM).

We’re going to take a modest profit of around 8% on Doximity (DOCS) today

GE Vernova (GEV) reported this morning, with revenue, EBITDA, margins and Free Cash Flow all coming in ahead of expectations, while GAAP EPS missed. Management reaffirmed full-year guidance and said its Power and Electrification segments continue to lead growth while Wind remains soft but is improving on an operational level. Orders and backlog hit records with 20 gas turbines sold in Q3. The company acquired the remaining 50% stake in Prolec GE for $5.275 billion (expected to close mid-2026).

WHAT TO DO NOW: Yesterday we took our tiny profit MP as that stock has continued to tumble, and now we’re going to sell our stake in GE Vernova (GEV), which reported a very solid quarter this morning—but investors took the opportunity to sell into the move, creating a breakdown from a big double top. We’ll sell and hold the cash, leaving us with around 43% on the sideline.

My stock-picking strategy has been refined over the course of 28 years, and has been quite stable for the last six years. My investment goals are (1) minimize stock market risk, (2) achieve capital gains, with dividends as a welcome addition to total return and (3) outperform the U.S. stock markets.

Our market timing indicators are discussed in every issue of Cabot Growth Investor. Here are detailed explanations of what they are and how we use them.

Changing interest rates affect all income investors, but since they can have a wide variety of effects, figuring out whether changes in rates are going to help you or hurt you can be a complex problem.

These rules are the foundation of the Cabot Market Letter investment philosophy.

These are the six fundamental characteristics that correlated most highly with profits in a 10-year study of stocks bought for the Model Portfolio of the Cabot Growth Investor.

Our instincts warn us that stocks reaching all-time highs are invariably overdue to fall. Sometimes yes, sometimes no. We examine two common scenarios involving stocks that are about to rise—or fall—from new high prices.

Here are two points to bear in mind when you’re setting a target price for your small-cap stock stop-loss.

Here’s exactly what I look for in dividend-paying stocks, whether they’re joining the High Yield, Dividend Growth or Safe Income tiers of our portfolio.

If professional investment companies are not making their decisions based on the price of the stock, neither should you.

Here are some common-sense, down-to-earth ways to control your risk, so that the market’s inevitable potholes never cause fatal damage to your portfolio.

More than six years after the Fed lowered the Federal Funds rate to 0%-0.25% in December 2008, the economy has strengthened to the point that the Fed is considering raising rates to prevent inflation.

I created Cabot Dividend Investor’s three-tiered portfolio to address the needs of the widest possible variety of investors with some combination of these goals. But this variety means that you need to figure out how to mix and match my recommendations to best fit your goals.