The overall market has started to pull back, and the encouraging news is that, from a top-down perspective, things are under control--our trend-following indicators are positive and the retreat to this point has shown little, if any, abnormal qualities. The problem, though, is growth stocks, as many of them haven’t just fallen, but decisively cracked their intermediate-term uptrends, often after quarterly results--that’s not something we can ignore, and so we’ve been selling and have quickly built up a big (50%-ish) cash position. Near-term, we expect this correction to go further, but the odds continue to favor a resumption of the bull trend once the selling finishes up.

In tonight’s issue, we write a lot about this earnings season and some slightly different tactics we may use going ahead, aiming to still give us long-term upside but better protect ourselves against trends that don’t persist. We also review a bunch of new names and offer plenty of commentary about the good, bad and ugly of the stocks we own and are watching.

In this week’s Cabot Explorer issue, Novo Nordisk (NVO) stock surges on the back of positive data on its best-selling weight loss drug Wegovy, U.S.-China tensions rise again, and we add one of the signature growth stocks on the market to our portfolio. Enjoy!

The markets traded sideways through most of April. But since then, the choppiness has returned—along with worries about the uncertainty regarding the debt ceiling, the expiration of the immigration-limiting legislation, and ongoing debate about the possibility of a recession.

Yet, economically speaking, the trends are still healthy. Manufacturing has held up, employment continues to rise, and job openings are still underutilized (as you can tell if you’ve been in a restaurant lately!).

The market looks great right now. Inflation is falling fast, the Fed is just about done hiking rates, and there is no recession in sight. It looks like we will get through the steepest rate-hike cycle in decades without much economic pain.

But nothing is certain. Inflation could rise again. The Fed may keep rates high for longer than the market expects. The economy may turn south in the quarters ahead. There could be more trouble with bank failures or the war in Ukraine. S&P earnings have been contracting for three straight quarters.

We’ll see if the market can add to the 30% rally from the low, or if it turns south again. A reasonable argument can be made for either scenario. Instead of trying to guess the possible short-term gyrations, let’s look to investments that should be longer-term winners no matter what.

In this issue, I highlight a stock that diversifies the portfolio into the consumer space. The company operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to outperform the market in every measurable period over the last 15 years. The company is positioned for strong growth in the years ahead and the stock has a long track record of delivering stellar returns in all kinds of markets.

Today, I’m recommending a company that has been on my watch list for several months. It looks too compelling to ignore.

Key points:

• No debt and 37% of its market cap in cash.
• Cheap valuation. Good dividend yield and share buyback program.
• High insider ownership.

All the details are inside this month’s Issue. Enjoy!

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

After two-plus months where sellers really couldn’t make a dent in the market, last week was a change, with the major indexes down and, more important to us, many growth stocks decisively cracked near- to intermediate-term support. On the flip side, the vast majority of the top-down evidence remains positive, some growth names are holding their own and a bunch of industry, energy, transport and other cyclical names are still acting fine. Put it together and we think it makes sense to pull in your horns a bit for now, but we’re also not selling wholesale, as the odds continue to strongly favor the market (and many leaders) working its way higher once this selling squall passes. We’re moving our Market Monitor down to a level 6.

Interestingly, despite the market’s hiccup, it wasn’t hard to find a bunch of solid charts (and some solid setups) in a variety of sectors, as you’ll see in this week’s list. Our Top Pick is a cookie-cutter retailer that looks to have finally emerged from a long bottoming effort.

The new bull market encountered its first real hiccup last week, as second-quarter earnings season hasn’t been kind to growth stocks in particular – even ones that blow estimates out of the water. So, a few of our stocks retreated after earnings, only one of which was enough to warrant selling. I view most of the earnings-induced pullbacks as buying opportunities. And today, we add a stock that has something for everyone – it’s a big-cap technology company with an artificial intelligence tilt, plenty of momentum and it pays a dividend. It’s a longtime holding of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

The S&P 500 and every other major index finally decided to take a reprieve last week. The pullback not only helped our August 462/466 bear call spread move into profitable territory, it also led to a return in implied volatility (IV) which has a direct impact on the options premium we sell. Now, with volatility once again at reasonable levels, we are greeted with far more opportunities to sell options premium. The question is, how long will it last?

Our good fortune continues!

Last week we locked in our fourth straight gain for returns of 25%. Our total win rate now stands at 75.7% (25/33 winning trades).

With a win rate of just 60% (9/15 winning trades) in 2022 and total returns reaching a paltry 8.1%, our win rate in 2023 stands at 88.9% (16/18 winning trades) with total returns now reaching 75%. What a difference a year makes! Hopefully, our good fortune continues, and it should if we continue to stick with the mechanics and, more importantly, a disciplined set of risk management guidelines, starting with appropriate and consistent position size.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Other than Citigroup’s earnings release and Barrick Gold’s release of preliminary sales data, no other company produced meaningful news. Perhaps this is to be expected when investors are putting immense weight on company-specific results and their respective outlooks.

The beauty of dividends is that cash keeps rolling in no matter how bad the market stinks.

The market has rebounded off the lows of June, for now. There is a window where investors can focus on earnings. The bad 9.1% inflation number came out last week and the Fed appears to have tipped its hand on a 0.75% rate hike later this month. That’s an improvement form speculation of a 1.0% hike after the inflation report.

A recent addition to the Undiscovered Portfolio is the Renaissance IPO ETF (IPO).

The name and the ticker are pretty much dead giveaways as to the nature of this fund. It tracks the largest, most liquid, newly listed U.S. IPOs.

It’s no secret that gold is, historically, the world’s most widely preferred safe-haven asset in times of economic turmoil. Gold’s polar opposite is copper, which typically benefits the most when the global economy is strong.

By looking at both metals—separately and together—we can get a “snap shot” view of the market’s expectations for the economy’s near-term (six-to-12-month) performance. We can also get some potentially useful trading clues for both metals—and even for silver—when we look at the copper-to-gold ratio.

This note includes our review of earnings from Wells Fargo (WFC) and our ratings change from yesterday for Credit Suisse (CS) from Buy to Sell.

Next week, Mattel (MAT) and Nokia (NOK) report earnings, followed by the earnings deluge which starts the week of July 25^th when 13 companies report.

The Cabot Turnaround Letter is traveling this week, so we will not be including a podcast in this update.

Things were looking up until we received this week’s inflation report courtesy of the June CPI data.

There are a lot of high-quality stocks trading at value prices out there. For next week’s recommendation, I’m looking at semiconductor companies worldwide and will try to pick the stock with the most upside and lowest downside risk. This is as Congress wrangles over the $52 billion CHIPS act to support the domestic semiconductor supply chain.

It remains a very weak market, and there are plenty of reasons to remain skeptical of near-term improvement. We’re still under the moving averages and the bearish trendline from November’s peak. Greentech and the broader technology sector (the Nasdaq 100) are both sitting just over areas of technical support that would probably signal a fresh round of sharp sell-offs if breached. For Greentech, a 10% drop here would test the pre-pandemic, nine-year high.

Although it’s already a bear market, there is a good chance that stocks fall to new lows before the market recovers.

The broader S&P 500 hit a low in mid-June on recession fears resulting from persistent high inflation and the Fed’s aggressive actions to tame it. The market has since bounced off the lows, but the issues that drove the market to those lows haven’t really improved.

This industrial machinery company will report earnings on March 2. The company is expected to post EPS of $0.62 on revenues of $768.71 million.

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.

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.