Current Market Outlook


The holiday-shortened week was a relatively quiet one, with most indexes and sectors mostly meandered in tight ranges. After the prior two and a half weeks of constructive action, we consider the lack of selling a positive; to this point, the bears haven’t really come around for many names despite some decent rallies and a few breakouts. But now the real test will begin—if the former leaders that have run right into some tough resistance can hold firm, if recent breakouts can build on their gains and fresh breakouts can emerge, this rally could gain steam ... but if the sellers return, things could go back in the soup within a few days. Right now, we’re still in the trust-but-verify mode of the rally, slowly increasing exposure but also keeping a close eye to see if cracks show up.

This week’s list has a wide array of stocks, including a few cyclical names that are pushing up after a few weeks of consolidation. Our Top Pick is Marathon Oil (MRO), which showed some real power last week as oil stocks came to life.

Stock Name	Price	Buy Range	Loss Limit
Apellis Pharmaceuticals (APLS)	59	54-56.5	48-49.5
Callon Petroleum (CPE)	48	45.5-48	40-41.5
Discover Financial Services (DFS)	124	118-122	108-110
General Motors Company (GM)	63	62-64	56-57
Jabil Inc. (JBL)	58	55.5-57	51-52
Logitech (LOGI)	133	126-130	112-115
Marathon Oil (MRO)	14	13.0-14.0	11.5-12.0
SeaWorld Entertainment Inc. (SEAS)	58	56-58.5	50-51
United Parcel Service (UPS)	213	209-214	193-196
Vale S.A. (VALE)	22	21.5-22.5	19.3-19.8

The bull market is looking healthier this week, as growth stocks have strengthened after a few months wandering in the wilderness, so I’m happy today to recommend a leader in the hot semiconductor machinery industry.

This addition brings our portfolio to fully invested status, and the good news today is that there’s nothing that needs selling; all our stocks are working!



That, of course, will change, but for now you should enjoy it!



Details inside.

Growth stocks have taken a series of small, positive baby steps during the past three weeks, which, given where things were at early last month, we’ll take. It’s been enough for us to put some money to work.

That said, the environment has a lot of room for improvement; we’re going slow, but will be happy to put more money to work if we see further progress. In the Model Portfolio, we’re averaging up in one of our stocks tonight, but that will still leave us with around 57% in cash.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the June 2021 issue.

Many of our recommended names are at or approaching our price targets. The decision to keep or sell isn’t easy in a strong market. Our patience is being tested (in a good way).



Few people would attend the Indy 500 and think about investment horizons. But, such is the world that your chief analyst inhabits. The race itself was a thrill, as always. It was also a showcase of different investment horizons, featuring that of new track owner Roger Penske.



Earning season has concluded, so it has been a slow period for company-specific news, although Tyson (TSN) announced the surprise departure of its new CEO. Some companies, including Bristol-Myers (BMY), Cisco (CSCO) and Dow (DOW) are presenting at various investor conferences. These can be worthwhile to watch and are free to the public, with replays available in addition to the live presentations.



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.



Thanks!

This month we’re jumping into a little-known company that makes and sells pop culture products.

It’s sort of an odd duck, but when you dig below the surface you find compelling products and interesting market exposures, including to the nascent Non-Fungible Token (NFT) market, which has exploded in trading value over the last year.



Revenue growth is above 30%, and the chart is strong.



Enjoy!

The market has strengthened again, which is great for our three open covered call positions, all of which are trading above the strike price of the call we sold. That being said, a sideways market is also fine for our volatility selling strategy, that is focused on buying the strongest stocks, while keeping the portfolio diversified.

It’s been a good spring in the markets and the economy. Unemployment claims are declining, housing is staying steady, and consumer confidence—as well as consumer spending—are rising.

And as we begin to emerge from the pandemic, economic growth looks healthy, with the latest GDP quarterly estimates coming in at 8.2%.



Our Feature Recommendation this month is a Financial company that participates in both the insurance and asset management industries. It pays an attractive dividend, and is seeing healthy growth, especially in Asia.



Our portfolio is sailing along, and we think this addition to our holdings will be a profitable move.



We hope to see you on our June Platinum Club webinar; it’s scheduled for June 8 at 2pm. In the meantime, don’t hesitate to contact us with any questions or comments.



Happy Investing!



Nancy Zambell and Kate Stalter

I hope you enjoyed the long weekend!

Investors in our stocks certainly did, as more and more of them have been hitting new highs. In fact, they’re doing so well that I’m selling none today.



As for today’s recommendation, it’s a young growth stock trading 50% off its recent high—a great opportunity for aggressive investors.



Details inside.

Current Market Outlook


If you had told us three weeks ago that growth stocks would bounce decently, a collection of names would show some big-volume upmoves and other names would start to tighten up, we’d have taken it in a heartbeat. As we’ve written in recent days, the action is encouraging, though not decisive yet, and the next week or two will be key—many prior winners have pushed into resistance, while in recent months most good-looking names have quickly found sellers, so if the buying pressures can continue it would be a sign that the market’s character has changed. As it stands now, the evidence has improved, so you can start putting more money to work if you’ve been relatively defensive. But we think going slow and building as you develop profits is the way to go.

This week’s list has many interesting names, including a few more growth-y titles than we’ve seen recently. For our Top Pick, we’ll take another swing at Nvidia (NVDA)—it’s had two failed breakouts this year, but we think the 3rd time could be the charm.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	53	51-53	45.5-47
Bentley Systems (BSY)	58	54.5-56.5	49.5-50.5
BioCryst Pharmaceuticals (BCRX)	16	14-15.2	12-12.7
CrowdStrike (CRWD)	222	215-224	190-195
Dicks’s Sporting Goods (DKS)	97	93.5-96.5	85-86.5
Ford Motor Co. (F)	15	13.6-14.3	12.2-12.6
NVIDIA Corporation (NVDA)	650	630-655	575-590
Range Resources (RRC)	15	13.7-14.5	12-12.5
Sea Limited (SE)	257	248-260	220-225
Toll Brothers Inc. (TOL)	65	63.5-66	58.5-59.5

Emerging market stocks, as tracked by the MSCI Emerging Market ETF (EEM) aren’t making much progress. But, and this is important, they aren’t losing much ground either.

The stock market slump that started last week has intensified in recent days, bringing the major indexes back to their October lows. I do have one rating change today, selling one third of a position, but the rest of the portfolio is in good shape given the housekeeping we did during last month’s selloff.

The S&P 500 index continues to bounce near recent lows, as it slowly works its way through its second 10% U.S. stock market correction of 2018

The major market indexes have been retracing their steps back to their late-October lows. With the trend down, it should come as no surprise that most of our stocks lost ground over the last five trading days, too.

There’s been plenty of volatility in recent weeks, but nothing has really changed with the market (trends are down) or our stance (highly defensive). We’re not heading to our Panic Room, though, as a strong rally from here could actually produce a Cabot Tides buy signal. In the Model Portfolio, we have no changes tonight, with three stocks and a cash position of around 76%.

After spiking last Wednesday, the major indexes have, predictably, pulled back over the past week. The market is likely to try to shake out weak hands a few more times before starting a sustained new uptrend. I have no rating changes today, but read on for brief updates on all our holdings.

Our portfolio stocks achieved another successful quarter of results, generally pleasing Wall Street with upside surprises as opposed to earnings disappointments or news of corporate difficulties. Nevertheless, 2018 has been a difficult year for stock investors, with the S&P 500 index delivering two 10% corrections. The best of companies can easily have their share prices languish for months on end, as we’ve seen all year.

The market’s volatility is a relatively normal correction. But for now, my plan is to keep making incremental moves to try to limit risk and pursue opportunities. Hopefully that will mean a number of positions move back to buy in November but there is one exception noted in today’s update.

The Cabot Emerging Markets Timer is heading in the direction of a new buy signal, but isn’t there yet.

The market has rallied since the last update; all sectors except for utilities are higher over the last five days. Materials, energy, financial and consumer discretionary stocks have led the rebound. While it’s certainly possible that the end of October marked the end of the correction, most corrections don’t end that neatly. No changes to the portfolio, but we do have plenty of good candidates lined up for when the market continues its advance.

The market has finally gotten off its knees, but our two main trend-following indicators are bearish and most stocks are still in rough shape. I advise you to remain patient and defensive but we could nibble on a stock if the market continues to power ahead. Since we sold a position on Monday, no rating changes to the portfolio tonight.

As we continue marching through earnings season, we’ve had 15 companies report thus far, with only one missing consensus estimates by any appreciable amount.

Three analysts have recently increased their EPS estimates for this Mexican media company, and are forecasting growth of 33.3% for the company next year.

This space technology company has had its ups and downs but recent moves to deleverage are stoking investors’ interest.

This BDC is a recent IPO and has a current dividend yield of 6.81%, paid quarterly.

This gold company beat analysts’ EPS estimates by $0.04 last quarter and raised its quarterly dividend by 25%, to $0.05 per share.

A leading provider of financial advice joins the Special Situation Stock Portfolio as a Strong Buy.

This regional bank is expected to grow by 22.6% this year.

I’m making four changes to the portfolio today.

Coverage of the shares of this pharma was just initiated by SunTrust Robinson Humphrey, with a ‘Buy’ rating.

One portfolio stock reports good earnings and another moves to Hold.

The top five holdings of this fund are: Googl Call Usd 1275 15/Nov/2019 (7.84% of assets); Fidelity National Information Services Inc (FIS, 7.16%); Microsoft Corp (MSFT, 4.27%); IHS Markit Ltd (INFO.PA, 4.14%); and Air Liquide SA (AI, 4.00%).

This entertainment/media company beat analysts’ estimates by $0.12 last quarter, and five analysts have recently increased their EPS forecasts for the company.

This media and internet company is considering a major spin-off, with the remaining company being the most attractive investment.

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.