Interest rates are heading higher.

In normal and efficient markets, a strong economy and steeply rising prices would drive interest rates much higher. But rates have been held down and distorted by the Fed’s hyper-aggressive accommodation.



The Fed dismissed inflation in the early stages as “transitory” and now realizes it missed the boat and inflation is getting out of hand. Behind the curve and embarrassed, the Central Bankers will have to make up for lost time by reversing course, ending its bond buying program and raising the Fed Funds rate.



The main force preventing economic growth and rising prices from pushing interest rates higher is about to be removed, and perhaps quickly. Under the circumstances, it is quite reasonable to expect interest rates to move higher.



In this issue, I highlight an investment in the financial sector. Many companies in the sector benefit from higher rates as they earn higher spreads and profits. This company stands to benefit not only from higher interest rates but a change in consumer behavior as well.

Today, we are making a “jockey bet”. In other words, we are betting primarily on the management team. The management team that we are betting on is responsible for some incredibly value creation in public markets (hint: it’s the same management team as P10 Holdings (PX), a stock that is up over 300% since or original recommendation in 2020).
Other key points:

• Trades at a cheap valuation.
• Paid a special dividend worth over twice its current stock price last year.
• High insider ownership.

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

After pushing into correction territory towards the latter part of January, the broad market seems, if only temporarily, to have found a foundation, as it rose four of the five days last week. The Dow gained 1.0%, the S&P 500 bounced 1.5% and the tech-heavy Nasdaq pushed higher by 2.4%. Year-to-date the Dow, S&P 500 and Nasdaq are lower by 3.4%, 5.6% and 9.9%, respectively.
Today, I’m adding specialty metals company Allegheny Technologies (ATI).

Weakening Dollar Boosts Base Metals
Industrial metals got another boost last week when the U.S. dollar index suddenly and swiftly reversed a prior rally. Gold barely budged, but a recent development in the stock market suggests the yellow metal could soon get another buying bid. In the white metals, silver slept but palladium is on the rise once again.

In the portfolio, we recently added a new position in our favorite commodity-tracking fund and have initiated four additional new buys in various industrial and precious metal plays.

With the markets in a cyclical rally, rebounding from January lows, it’s an excellent time to review your ETF holdings to make sure you’re invested properly for the current market conditions.

In this issue of the Cabot ETF Strategist, you’ll find fully diversified portfolios tailored for aggressive, moderate and conservative risk tolerances.



We’ve also rolled out a tactical “undiscovered” portfolio consisting of smaller or lesser-known ETFs, allocated specifically to the current market cycle. This portfolio is designed to rotate more than a strategic allocation. You’ll be receiving alerts when a change is made here, or in one of the more traditional portfolios.



Use whichever portfolio matches your risk tolerance and goals. Happy investing!



Details inside.

For many weeks the selling pressure was overwhelming, so the first thing we needed to see was the bulls at least put up a fight—and they did two weeks ago, with lots of hectic action after some oversold extremes. And then we saw some lift for the first time in a while, with many beaten-down names finally getting off their knees and a few stocks pop on earning. All in all, we consider it a good start, with the January 24 likely representing a workable low that the market can build off of.



We’ll take it, but in terms of the overall picture, the bulls still have more work to do: The intermediate-term trend of the major indexes remains down, and most individual stocks are still buried beneath major resistance (just 37% of NYSE and 19% of Nasdaq stocks came into today above their 200-day lines). Near-term, we do think the odds favor some further upside, but the rest test will come as indexes and potential leaders run into resistance; as has been the case, we’re not opposed to starting positions in a potential leader or two, but we continue to think a defensive stance remains mostly appropriate until we see some “real” buying and positive trend changes. Our Market Monitor remains at a level 4.



This week’s list has a variety of recent earnings winners and other setups ahead of their reports. Our Top Pick is Stifel Financial (SF), which (interestingly) is part of a strong Bull Market stock sector and recent surged back to its peaks after a solid Q4 report.

The past week’s rally has lifted all the stocks in our portfolio (in fact, two have hit recent highs!) and thus I have no sell ratings today. But I do think caution is still important, as the market’s main trend is now down.

Holding some cash is advisable, but there are definitely overlooked bargains out there, and I think today’s recommendation is one of them.



Details inside.

With the bulls and bears continuing to fight it out in the growth arena, we’re moving into a more cyclical industry with today’s addition.

The company is a leading maker of semiconductor manufacturing equipment. This industry is growing rapidly as the current innovation wave requires smaller, faster and more durable chips.



Making those chips at scale can only be done with specialized measurement and process control equipment. Which is exactly what this company specializes in.



Enjoy!

The Facebook/Meta stumble will weigh on markets today as we await earnings on Amazon (AMZN) and Ford (F). Explorer stocks did well this week as markets continue to be volatile. Total electric vehicle sales in 2021 including hybrid vehicles doubled the number from 2020, which brings us to the Explorer’s new recommendation.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the February 2022 issue.



Word puzzle Wordle is the latest craze, but it isn’t the most popular parlor game. This title is held by “What Is Russian President Vladimir Putin Going to Do With Ukraine?”



We provide our theory which is not found anywhere else yet could readily explain his motivation. Related to this crisis, we move shares of ConocoPhillips (COP) from Buy to Hold, as they have surged above our recently raised 89 price target.



Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

It’s a bear market but there are still good stocks. This issue we add two to our Real Money Portfolio. One is a little-known company that with a niche in transporting renewable energy parts, like turbine blades. Its stock, technically, looks great and a management turnaround is taking hold. Our other pick is a Greentech special purpose acquisition company that will preserve our capital while giving us multiple options down the line to score big profits.



Also inside: our ESG Three, Greentech Timer and a full update on our Real Money and Excelsior portfolios.

Inflation fears, COVID and Russia have roiled the markets since the beginning of the year. Now that the Fed has made clear that interest rates are going to move up, I think some of the volatility will level out a bit.

The market seems oversold right now, so we can expect a few up days in the near future. But we remain stock pickers, not dart throwers.



The economy is certainly continuing to gain strength. Unemployment is steadily declining, and Fed Chairman Powell said this week that he believes moderate inflation will not disturb that scenario.



Meanwhile, housing continues at a robust pace. Inventories are still depleted, and home building is exploding all over the country. Sales of existing homes, housing starts, and permits are climbing, and the demand is continuing to boost prices. Once rates begin rising, we may see some pullback in demand, but even with rate increases, rates will still be at incredibly low levels, so I don’t see a significant slowdown in home demand.



This month, I’m adding a marine shipper to our portfolio–a company that is benefiting from the shipping demand/supply equation.



I look forward to hearing from you, so please keep your emails coming.



Happy Investing!

But the market is rising back faster than it fell. The solid economy and low interest rates are continuing to drive stocks higher, for now.

As far as the market goes, there’s no doubt this coronavirus has thrown a wrench into things.

The market seems to be a bit complacent given the risks of the virus spreading rapidly in China and elsewhere but we need to remain a bit cautious. There is some suspicion that China is downplaying the numbers.

News of the spread from China of a brand new virus roiled markets earlier this week. Although the market has bounced back somewhat, I don’t think we’re out of the woods yet by a darn sight.

The stock market’s uptrend finally cracked late last week. Is this the beginning of the official market correction, or a prelude, or just a hiccup?

The message this week is to stay invested but don’t go crazy on the buy side and don’t get scared on the sell side. Just be measured and try not to do anything that’s uncharacteristic of what you would do in a “normal” market.

The environment hasn’t changed. It’s a very strong bull trend in the major indexes and most stocks, with our trend-following measures solidly positive.

Here we are in an up leg of a bull market that began three months ago. Since early October the S&P 500 has climbed 14%. With trade issues and Iran out of the headlines, the strong economy and low interest rates are driving stocks higher with technology leading the charge.

There are five holdings in this fund.

As the semiconductor industry heats up again, this equipment maker is estimated to grow at an annual rate of 176.8% over the next five years.

The S&P 500 has had a tremendous run-up. It’s due for a correction, although it’s not yet indicating that the correction is imminent. Be cautious. Use stop-loss orders and/or pare back positions on stocks that have retraced early 2020 highs.

Our first idea today, an instrument maker, beat analysts’ estimates by $0.30 last quarter.

The company is currently building homes, primarily for first-time home buyers, in 19 U.S. states from coast to coast and the District of Columbia.

Tyler updates six stocks in the Cabot Early Opportunities Portfolio

Coronavirus sent this high-quality grocer’s same store sales up more than 10%, providing a $0.24 earnings beat last quarter.

This Chinese AI/internet company beat analysts’ estimates by $0.68 last year, and Wall Street is forecasting 30.9% growth for 2020.

The first issue of Cabot Income Advisor just came out yesterday. The idea is to sell a covered call, meaning you already own or you just purchased IIPR on the buy recommendation.

Our second recommendation is a sale of a previous idea.

The top five holdings are listed in our first recommendation,

Analysts expect this cloud company to grow by 58.3% this year.

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.