Overall, the market’s action remains as close to pristine as you could hope for. Under the hood, there has been a touch of rotation, with some growth stocks chopping around while cyclical, construction and materials names perk up. All in all, we wouldn’t be surprised if growth continued to catch its breath, as the recent pullback was very brief, but that’s short-term nitpicking: While dips and potholes will come, the bottom line is that the vast majority of evidence is bullish, so you should be, too. We’ll bump our Market Monitor up to a level 8, and think adding exposure (ideally on dips) makes sense.

This week’s list reflects the broadening we’re seeing out there, with a few tech names but many others from other corners of the market. Our Top Pick is a long-term winner in the aerospace and defense field whose stock just broke out.

You are receiving the typical Monday morning update today as the Cabot office will be closed on Monday, and then the stock market is closed on Tuesday. Have a great Fourth of July weekend!

You are receiving the typical Monday morning update today as the Cabot office will be closed on Monday, and then the stock market is closed on Tuesday. Have a great Fourth of July weekend!

It’s not a perfect picture, but the vast majority of evidence out there remains bullish, and that’s especially true for the vital leading index (Nasdaq) and leading growth stocks, which have rested normally after beefy, big-volume advances. We’re putting a bit more money to work today by averaging up in a current name, and will ideally put more to work when either (a) a couple of our current holdings overcome resistance (to average up), and/or (b) when some names on our watch list consolidate a bit longer.

In tonight’s issue, we talk about some of the confusion we’re hearing out there about sentiment (not a worry at all in our book), talk about one non-growth sector that reminds us a lot of oil stocks a couple of years ago (before that big run) and go in-depth on some new ideas and, of course, all our holdings.

Fed Chairman Jerome Powell’s continued warnings of future rate hikes weighed on markets as did the Biden Administration’s suggestion that there should be new restrictions on selling advanced chips to China. Despite this, chip stocks such as Nvidia (NDVA) and the PHLX Semiconductor index were down by less than 1%.

Artificial intelligence (AI) calculations largely take place in data centers full of servers with graphics processing units (GPU)s from Nvidia and its competitors. It is estimated that 20% to 25% of the company’s revenue from Nvidia’s AI chips have been coming from China. To avoid further upsetting Beijing, no action is expected until after Treasury Secretary Janet Yellen’s visit to China in July. Washington is also preparing legislation to screen China-bound investments by U.S. companies. AI, quantum computing, biotechnology and large-capacity batteries are at the top of the list.

There is a potentially nice trading opportunity setting up in cannabis near-term.

When Washington, D.C. lawmakers return from their July 4th break on July 10, they are likely to get down to serious business on the SAFE Banking Act.

This proposed law would boost investor interest in the space because it would allow banks to work with cannabis companies. This would help cannabis companies in several ways.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2023 issue.

While much of our emphasis is on mid-cap and large-cap turnarounds, there are often attractive turnarounds in the small-cap segment of the market. Companies in this group, with market values generally below $1 billion, can offer worthwhile investment opportunities. This month, we are focusing our research exclusively on small-cap turnarounds and discuss eight names with interesting potential.

Our feature recommendation this month is L. B. Foster Company (FSTR), a small-cap manufacturing and distribution company focused on the railroad, precast concrete structures and customized steel fabrication, coatings and measurement industries. After years of difficulties, a diligent and impressive turnaround effort is underway and starting to show progress, even as investors overly discount its prospects.

The market’s steady advance came to a halt last week, though given the recent run higher, the losses felt “normal.” For the week the S&P 500 fell 1.4%, the Dow lost 1.67%, and the Nasdaq declined by 1.45%.

Few stocks have participated in the YTD rally. In fact, just ten large-cap technology stocks accounted for just about all the market gains this year. The market has so far shunned defense and favored growth. But that situation is unlikely to persist.

There is still lots of risk. Inflation could be stickier, and the Fed could be more hawkish than currently anticipated. Even if a recession never happens, it’s reasonable to expect that the economy will slow in the second half of the year. And overall market earnings have already contracted for the last two quarters.

The relative performance of defensive stocks historically thrives in a slowing economy. If the rally broadens in such an environment, it will need participation from the defensive sectors. If the market pulls back, defense should be the best place to be.

I highlight a new buy-recommended stock in the issue. It is a legendary income stock that pays dividends on a monthly basis. It’s also near the lowest price level of the past two years.

The much-anticipated market dip finally arrived last week, and so far, when you look at the leadership of this market—the Nasdaq and leading individual stocks—the action has been completely normal, and in fact, seems to be producing some higher-odds entry points as names dip toward support. Once again, though, we need to keep a close eye on the broad market—the intermediate-term trend remains up, but it’s getting close to the edge, with another bad week possibly putting the broad market back in the soup. We’ll leave our Market Monitor at a level 7 today but we’re watching things closely in case weak breadth causes the selling pressures to build.

This week’s list has a growing number of pullback-related setups. Our Top Pick quacks like a new technology leader that’s pulled back reasonably after a strong rally. It’s volatile, so start small and use a loose leash.

The market has pulled back after a huge run-up, which is normal action and likely not a product of renewed Fed fears that didn’t exist a week ago. These types of pullbacks in bull markets, like the new one we’ve just entered, are buying opportunities. And so today, we add a high-profile growth stock that is already up more than 80% year to date but may be just scratching the surface of its artificial intelligence potential, which could open up new revenue streams. It’s a new recommendation from Tyler Laundon in Cabot Early Opportunities.

The eight-week rally in the market-leading Nasdaq 100 (QQQ) ended last week as the tech-heavy index finally surrendered to short-term overbought conditions. Makes sense…because over that period of time QQQ saw returns of just under 15%, well over a third of the 37.9% year-to-date returns.

The pullback led us to lock in profits in our August 18, 2023 SPY 465/470 bear call spread and our July 21, 2023 IWM 196/191 – 156/151 iron condor. We locked in 10.1% and 6.2%, respectively, to bring our total returns to 159.9%. Our win ratio stands at 88.6% (31/35 winning trades) since we launched Quant Trader on June 2, 2022.

I am making one change to the four-ETF Undiscovered model. I am selling the Direxion Daily S&P 500 Bear 1X Shares (SPDN), a 20% position, and replacing it with the ALPS Medical Breakthroughs ETF (SBIO) in the 20% portfolio slot.

FTX, the cryptocurrency exchange founded by Sam Bankman Fried, remains well capitalized and has been stepping in to provide liquidity to other firms such as Voyager Digital and BlockFi. The FTX US exchange continues to be a great option for our traders to utilize. Other exchanges that I recommend are Coinbase and Binance. These “big three” crypto trading platforms have significantly less liquidity issues and better risk profiles when compared to other niche players.

This week’s Friday Update includes comments on our companies. There were no ratings changes or earnings reports. Look for the July edition of the Cabot Turnaround Letter next week, where we update our semi-annual Equity Market Outlook and our High Yield Bond outlook and offer up our July feature recommendation.

The major indexes are up today, led by the Nasdaq, while growth stocks are beginning to perk up. As of 3 pm EST, the Dow is up 46 points and the Nasdaq is 132 points, while some growth funds are up 2% to 4% today.

It continues to be a sloppy market but we’re working through it and there will be big opportunities in small-cap stocks on the other side of this.

The market has deteriorated over the past couple weeks. The S&P 500 fell into a bear market on June 13th. The combination of continuing high inflation and a more aggressive than previously expected Fed has led to widespread expectations of recession over the next year.

Recessions are bad for stocks for obvious reasons. But there is something worse than recession, looming recession. Stocks generally recover during a recession. Because the market anticipates, it tends to rebound before the economy. The worst environment for stocks tends to be prior to recession, upon expectation, to part of the way through it.

Looking at the weekly charts, last week created some damage, technically. The S&P 500, tech-heavy Nasdaq 100 and the Greentech ETFs all gapped lower with last week’s action. A price gap typically creates resistance, and the pushback here is made even sturdier because the gap coincides with the 40-day moving average for Greentech (the S&P and Nasdaq 100 are well below their 40-day averages today). That means that even while we’re looking at posting the third straight up-day in the Greentech sector for the week, it’s not a time to get overly optimistic.

It was a quiet week last week, but there was one update that I wanted to highlight.

Years ago, on a visit to New York City, I was invited to participate in a wine tasting seminar. My knowledge of wine was rudimentary at best when I attended, and so it remains today.

While our Undiscovered Portfolio continues to lead the broader market, the dynamics have changed since the most recent ETF Strategist issue.

Last week marked the worst weekly return for the S&P 500 since March 2020, a move sparked by the most significant Federal Reserve interest-rate hike in a decade. The index is down 23.39% from its record close of 4,796.56 on Jan. 3, 2022.



Every sector has suffered losses since June 8. Energy, utilities, and materials have been the S&P 500’s worst-performing sectors recently.

Just when it looked like stocks might be rounding a corner, sellers have returned in force and pushed the major indexes into bear market territory. While this was bad for Wall Street, gold finally got some much-needed relief as “risk-off” is clearly back with a vengeance.

Last week, we discussed the “golden opportunity” for bullion in the wake of investors’ cratering confidence in the economic outlook. Gold was at first slow to respond to the rush to the exits in the equity market. But gold’s latest refusal to fall under the $1,800 an ounce level showed that hedging demand has replaced interest in bargain hunting for stocks.

This week’s Friday Update includes comments on our companies. There were no ratings changes or earnings reports.

The shares of this construction company were just upgraded at RBC Capital to ‘Outperform.’

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

After the close yesterday, SiTime (SITM) reported Q4 results that handily beat expectations. Revenue of $75.7 million was up 88% and beat by $4.7 million while adjusted EPS of $1.32 was up 207% and beat by $0.23. Gross margins increased 2.5% to 69.4%. The company ended the quarter with $559 million in cash (partially thanks to $460 million raised through equity offerings in 2021) and no debt.

This energy company will report earnings on February 15. Current estimates are for EPS of $1.06 on revenues of 3.59 billion. The shares have a current dividend yield of 5.31%, paid quarterly.

This closed-end fund’s annual dividend yield is 5.77%, paid monthly.

Metal stocks have had a stellar run of late—especially considering the relative weakness of other segments of the broad U.S. equity market. But if experience teaches us any lesson, it’s that when things look great, we should be on our toes and anticipating a possible reversal of fortunes (especially considering the cyclical nature of the industry group).

This energy company is raising its dividend to $0.73 per share as of March 1. The current annual dividend yield is 3.07%, paid quarterly.

Shares of this REIT have recently taken a hit, giving it a nice entry point. The current annual dividend yield is 4.31%, paid monthly.

The shares of this medical device company have recently been upgraded at UBS to ‘Buy.’

After the close yesterday, SiTime (SITM) reported Q4 results that handily beat expectations. Revenue of $75.7 million was up 88% and beat by $4.7 million while adjusted EPS of $1.32 was up 207% and beat by $0.23. Gross margins increased 2.5% to 69.4%. The company ended the quarter with $559 million in cash (partially thanks to $460 million raised through equity offerings in 2021) and no debt.

Conoco’s earnings report, released earlier today, displayed the company’s strengths. Fourth-quarter profits of $3.0 billion compared to a $(0.2) billion loss a year ago and were 25% higher than the impressive third-quarter profits of $2.4 billion. Rising oil prices combined with restrained spending helped drive earnings higher.

The shares of this medical device company have recently been upgraded at UBS to ‘Buy.’

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.