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.

We sold put premium in PFE and (covered) call premium in GDX and KO last week. And with the market pulling back last week and out of a short-term overbought state, I intend to add even more premium to our plate. We will be adding one, if not two, positions to the mix.

Last week I stated my goal was to bring in total potential returns of roughly 10% to 12.5% per expiration cycle. By adding a few stocks/ETFs we should be able to reach that target.

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%.

As we get closer and closer to the unofficial launch date of earnings season (July 14), a few decent opportunities still remain on the calendar. That being said, per the usual during earnings offseason, I’m going to keep it short today.

This week Walgreens Boots Alliance (WBA), Micron (MU), and Nike (NKE) are due to announce. And then we hit a dry spell until July 14 when many of the big banks are due to announce, the same day I’ll be hosting my first webinar of the earnings season.

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%.

In the June Issue of Cabot Early Opportunities we talk Artificial Intelligence (AI) and break down the technology into a few buckets of opportunity that make it a little easier to understand.

I also profile five ways investors can put their money to work in companies with AI exposure.

Enjoy!

The good times for the bulls continued as the S&P 500 rose for a fifth consecutive week, its longest such streak since November 2021, and it was also the best week for the S&P 500 since March.

After a rough week last week small caps have bounced back over the last two sessions and have the potential to close at a three-week high today. I’d like to see the S&P 600 Index close back above 1230 (at 1224 now) before turning more bullish.

The market is having one of its better days in a few weeks—as of 2 pm ET, the Dow is up 578 points and the Nasdaq is up 329 points

It’s a bear market and there’s a lot of confusion among the various pundits about what’s next. As tempting as it may be to say we’ve hit bottom and are rebounding, it’s just too risky right now to say so. When things get confusing and sentiment swings too much one way or the other, I like to simplify my decision process.
For Greentech, I’m looking at where prices are relative to the 200-day moving average, my favorite gauge of long-term sentiment, as well as the 40-day average, which is quick enough to suggest a turnaround while filtering out near-term noise.

It’s one step forward and two steps back in this crummy market.
The indexes seem to stage an impressive rally at some point every week. But the S&P 500 has fallen for seven consecutive weeks, the longest such streak since 2001. It came within a whisker of a bear market (down 20% from the high on a closing basis) before the latest temporary rally on Monday.

The S&P 500 has almost officially entered a bear market. The somewhat arbitrary definition of a bear market is a 20% decline. The S&P 500 peaked on January 3, 2022 at 4,797. Therefore, if the Index closes at or below 3,837, we will officially be in a bear market.

The media, including highly reputable sources like Bloomberg, Barron’s and The Wall Street Journal, have written that “real” interest rates are now positive. As such, they imply that the Fed’s interest rate policy is already restrictive and so interest rates may not need to be raised much more. Our view is that the journalists are mistaken.

With Friday’s action in the broad market undercutting the prior May 12 low, we have a clear signal that the uncertainty is continuing. That’s despite the S&P 500 and the Nasdaq rallying to end the session above their earlier lows.

As I noted in a Cabot Wealth Daily article last week, we’re at a unique juncture in the investment markets. Friday’s action underscores that point.

According to a recent study published by the Federal Reserve, 12% of U.S. adults have used cryptocurrency as either an investment or a way to transact in 2021. This number has increased from the prior year, when only 5% of the population were counted as users.

One of our most bullish theses is the continuation of user adoption. More people globally will turn to cryptocurrency as both a medium of exchange and as an investment.

Earlier this week, we moved shares of a consumer staples company from Buy to Sell. We comment on earnings from two recommended stocks and comment on other recommended names. Some thoughts on the ESG trend.

The volatility continues but we’ve seen most of our stocks hold above previous lows (so far). The S&P 600 Small Cap Index is also holding above its lows from last week.

The markets continue to be challenging to say the least, with the S&P 500 off 18% so far this year, but like everyone I see some amazing companies posting strong numbers being pulled down over a blend of macro issues. These range from inflation and interest rates to the slowdown in China and conflict in Ukraine. Current Explorer recommendations still managed to outperform the market, with some up and most holding their ground in the past week. SQM (SQM) of Chile reported first-quarter profits up 10X over 2021.

The market has rallied strongly off last week’s lows. Buy I’m not buying into it. Stocks are already floundering badly again today.
The S&P 500 came to within close to 1% of a bear market last week, down 20% from the high on a closing basis before several up days and a better than 4% rally off the low. The index has posted six consecutive weeks of decline, the longest such streak in more than a decade.

Shares of Arena (ARNA) are up over 80% today to around 92 on news that Pfizer (PFE) is seeking to acquire the company for $6.7 billion in cash. The implied takeout price is 100 a share.

This medical device company beat earnings estimates by $0.08 in its most recent quarter. As COVID eventually subsides, demand for its products should continue to grow.

Today Everbridge (EVBG) is trading sharply lower following an out-of-the blue announcement that the CEO is leaving. Not only is David Meredith leaving his post as CEO but also as a member of the Board of Directors.

This Ohio bank beat analysts’ EPS estimates by a nickel last quarter. The bank just raised its dividend by 27%. The shares have a current dividend yield of 3.06%, paid quarterly.

At the end of last quarter, 64 hedge funds entered this exchange stock—the highest number ever. That has pushed the shares up; you may want to wait for a brief pullback before buying.

SentinelOne (S) is one of our newer positions and has been hit hard during the recent market retreat. Part of this is because it is a recent IPO, part is because the broader group of security stocks has sold off (NET, ZS, OKTA, CRWD, etc.).

Our first idea is a fun whose top five positions are: MSCI Inc (MSCI, 8.36% of assets); Penn National Gaming Inc (PENN, 7.56%); Vail Resorts Inc (MTN, 6.74%); CoStar Group Inc (CSGP, 5.70%); and Ansys Inc (ANSS, 5.00%). Our second recommendation is a sale of a previous pick.

This tech company beat analysts’ estimates by two cents last quarter, but weaker forward guidance has provided an opportunity to buy at a discount.

This morning, GCP Applied Technologies (GCP) announced a definitive agreement to be acquired by French construction materials company St. Gobain for $32/share in cash. This price is 14% above our $28 price target.

This business services company is forecast to grow 24.8% annually over the next five years.

Suffice to say it’s been a tough week. As we head into a weekend that can’t come quickly enough, the main market indices are down over 2.5% and many, many stocks are 20%, 30% or 40% off their highs (some are better, some are worse).

JOANN (JOAN) reported Q3 fiscal 2022 results after the close yesterday. This quarter was for the period ending on October 30. Revenue missed expectations slightly but adjusted EBITDA and adjusted EPS surpassed expectations. The high-level take away is that supply-chain challenges persist (no surprise there) but JOANN is doing what it can and appears to have the pricing power necessary to maintain a strong underlying business and pursue the growth strategy it has embarked upon to extend its lead in the arts and crafts retail market.

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.