The last two weeks have seen a massive rally into cyclical stocks, and a purge of growth stocks. Massive! Whether this trend will continue is anyone’s guess.

The good news for the Cabot Profit Booster portfolio is we have a relatively diverse portfolio. And as I eyeball our portfolio, I would say we have five cyclical stocks (AZEK, JCI, SONO, GS, APHA) and “only” two growth stocks (DT, AMKR), and the premiums we collected via our covered call sales have partially buffered us from big losses on those stocks that have been hit hard.

Current Market Outlook


The selling pressure that we saw emerge two weeks ago really picked up last week, with the vast majority of leading growth stocks cracking intermediate-term support. That said, the rest of the market has refused to follow the Nasdaq’s lead; there’s been some damage and plenty of wobbles, but so far the broader indexes have held up, and buying in many cyclical areas has picked up. Just going with the evidence, we’d be shying away from growth stocks while looking for opportunities in the strong sectors should they rest or shakeout. Our biggest thought, though, is that making money has become much harder during the past month and a half, with wild moves, rotation and volatility, so now’s a time to go slow and give some thought to capital preservation until we see the buyers really flex their muscles. We’re moving our Market Monitor to a level 5.

As expected, this week’s list is heavy on cyclical and re-opening themes, with many names showing excellent action. Our Top Pick is Marriott Vacations (VAC), which has soaring earnings estimates and a stock that just lifted out of a three-year base on huge volume.

Stock Name	Price	Buy Range	Loss Limit
Abercrombie & Fitch (ANF)	32	28.5-30.5	24.5-25.5
Affiliated Managers Group, Inc. (AMG)	139	134-140	119-123
Applied Materials (AMAT)	106	102-107	92-94
Diamondback Energy (FANG)	84	76-80	66-68
Lyft (LYFT)	64	58-62	51-53.5
Marriott Vacations (VAC)	184	177-183	154-158
The Middleby Corporation (MIDD)	166	162-167	144-147
Nucor Corporation (NUE)	66	63-65	56.5-57.5
PDC Energy (PDCE)	38	34-36.5	28-29.5
Texas Roadhouse (TXRH)	95	91.5-94	82.5-84

The Dow was up big today but growth stocks are still having a rough time, and I’m growing increasingly concerned that the broad market will eventually roll over, too. The news has been so good, and investors have become so bullish, that eventually we’re going to need a big correction.

Last week I recommended selling four stocks and this week I’m recommending selling two more.



In the meantime, I’ve got to recommend something to buy; that’s the name of the publication! So today’s recommendation is a little-known small company in a solid industry that will likely be substantially larger in years to come.



Details inside.

As we march toward spring it appears real-world risks are decreasing (more vaccines, lower case count, etc.) while the market risk for growth stocks has gone up (higher yields, volatility, etc.), at least in the short term.

As I scanned through dozens of charts and evaluated stories for this month’s addition my focus was repeatedly drawn to one stock. The chart is compelling, the story is enticing, and the recent Q4 report and forward guidance illustrate sound fundamentals, supported by long-term demand growth.



The stock appropriately balances the potential risks and rewards in the current market.



Enjoy!

Tech stocks are having a tough week as interest rates and inflation fears creep up. This is uncomfortable for many because five companies, Microsoft, Apple, Amazon, Alphabet and Facebook, make up almost 25% of the market value of the S&P 500. My view is that this pullback is providing new entry points for some tech stocks that have been on a good run. For perspective, most non-tech stocks are weathering the increase in bond yields quite well.

Today, we’re selling two profitable ideas that have lost some momentum, and our new Explorer recommendation centers on turbulence on the high seas.

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

As value investors, we follow the goings-on at Berkshire Hathaway, and comment briefly on its earnings and Warren Buffett’s annual shareholder letter, released this past Saturday. Your chief analyst owns some Berkshire shares (the lower-priced Class B shares), but isn’t a full-fledged Berkshire “groupie.”



We also discuss our new Buy recommendation – British insurance company Aviva, Plc (AVVIY). This company is emerging from a period of global sprawl and weak leadership, led by a new and impressive CEO.



Currently-recommended Dow (DOW) is a strong beneficiary of the global economic re-opening, with higher earnings likely ahead, so we are raising our price target to reflect this still-undervalued stock’s potential.



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!

Fears of rising inflation, and what that would mean for interest rates, weighed on the market last week, especially growth stocks, which were crushed. Fortunately, the Cabot Profit Booster portfolio is well diversified, and our stocks held up spectacularly for the most part, and some even made new all-time highs.

The markets have been mostly positive in the past month, with the Dow rising about 1,000 points. The economy is rolling along nicely. Consumer confidence is up, employment is steadily rising, and the housing market is still booming.

That bodes well for the next few months, and we remain bullish on the markets, albeit with a dose of caution.



We are expecting—once this first Biden stimulus package gets underway—that Infrastructure spending will be next on the new president’s agenda, and that is where our Feature Recommendation should shine. The company is already seeing double-digit sales and earnings increases, as the economy recovers, and rising Infrastructure outlays should exponentially boost its profits.



We are taking some profits this month with the sale of Clean Energy Fuels Corp. (CLNE), which has gained 388%. We’ll be looking at some additional opportunities to cash in, and we’ll make sure to alert you should we make those decisions or any other portfolio changes between issues.



Happy Investing!

Current Market Outlook


The market staged a nice-looking rebound today, especially given that both the S&P 500 and Nasdaq were hanging around their 50-day lines coming into today. Up is definitely good, but when examining the evidence, we see a tale of two markets. Growth stocks still look ragged, as many cracked key support last week and have been extraordinarily choppy during the past month (a sign bulls and bears are fighting it out after big runs). However, the broad market is largely fine, with small- and mid-cap indexes perched near their highs and many sectors acting fine. All in all, the evidence has worsened, so we’re knocking our Market Monitor down a notch, but we’re mostly taking things on a stock-by-stock basis, ditching those that break down while targeting new buying at resilient names.

This week’s list is heavy on cyclical and re-opening plays, though chip stocks remain a bastion of resilience. Our Top Pick is Kulicke & Soffa (KLIC), which staged a long-term breakout in November, has huge growth and has been unaffected by the market’s wobbles.

Stock Name	Price	Buy Range	Loss Limit
Ameriprise Financial, Inc. (AMP)	229	218-225	200-204
Amkor Technology (AMKR)	25	23-25	19-20
Avis Budget Group (CAR)	58	53.5-56.5	46-48
Bausch Health Companies (BHC)	32	29.5-31	26.5-27.5
The Cheesecake Factory (CAKE)	55	51.5-54	45-46.5
HubSpot (HUBS)	527	490-510	430-440
Kulicke and Soffa Industries (KLIC)	52	48.5-52	41-43
Pioneer Natural Resources (PXD)	149	141-146	125-128
Shake Shack (SHAK)	118	113-118	100-103
Valmont Industries (VMI)	244	226-236	203-208

Last Tuesday the market sold off big-time. Today it recovered equally big. But many stocks haven’t bounced as much as they fell, and some of them are in our portfolio. That’s the general reason for my four sell recommendations today.

Still, while there are growing divergences, the bull market is not dead yet, and today’s recommendation is a mass-market retail name whose stock looks great as investors look forward to more expansion.

One of the Cabot Benjamin Graham Value Investor subscribers asked me about a few stocks that were formerly in this portfolio, so here’s an update on those stocks.

Although the market remains volatile, the action in the major indexes improved this week. The S&P 500, for example, bounced off its 200-day moving average again Friday, its third time retesting that level and finding support since the start of the year. As a result, I have three rating changes today including one sell.

If you are an investor who owns mutual funds or ETFs, either in taxable accounts, IRA accounts, children’s custodial accounts, variable annuities, pension funds, 401(k) plans or 403(b) plans, you probably own AAPL as part of those funds’ portfolios.

It’s been my experience that the more an investor can lower their portfolio risk, the more enjoyable and lucrative their investing experience will be. When researching stocks, select the ones with strong future earnings per share (EPS) growth, relatively low price-earnings ratios (P/Es) and relatively low debt levels.

Remain cautious. The market is doing more chopping than declining in recent weeks, and because of that, a couple of good days on the upside could actually turn the intermediate-term trend up.

The major indexes have mostly moved sideways since our last update, but volatility remains high. The past week also brought a slew of earnings reports, and some big reactions, so I have three rating changes today.

With rapid adoption of cloud-based technologies, subscription software and online advertising, communication, commerce, etc., it’s apparent that technology companies play an increasingly important role in the global economy.

The iShares EM Fund (EEM) has been through a bad week, pulling it decisively below its 25- and 50-day moving averages. It’s a clear red light, and we’re taking action to reduce our exposure while we await both quarterly earnings reports from our holdings and a return of the buyers to emerging market stocks.

The stock market correction continues. It’s a normal correction that arrived after a 15-month bull run. As you hear newscasters attribute the market’s ups and downs to daily news stories, please know that the market bounces around, regardless of what topics are being highlighted en masse by the media.

I find myself shaking my head when I read the words Efficient Market Theory or Efficient Market Hypothesis (EMH), because my experience doesn’t jive with that concept.

Small caps have recovered nicely over the last three weeks and the S&P 600 Small Cap Index is bumping up against resistance at 980 for the third time in 2018.

In today’s portfolio one stock moves from Buy to Hold. Another rose to its target sale price of 14 and is now a sell, and one moves from Hold to Sell at 84.

The second recommendation is a sale of a previous tech pick.

Our first idea today was just upgraded to ‘Buy’ at Loop Capital.

This contract research company beat analysts’ EPS estimates by $0.18 last quarter and six analysts have recently increased their earnings forecasts for the company.

We’re selling two stocks today.

This regional supermarket also gets a nod from Zacks, scoring an ‘A’ on its VGM (value, growth, momentum score)

One of our portfolio stocks moves from Strong Buy to Hold.

Despite the apparent death of the AMGN/ALXN merger, this stock continues to be a prime candidate for acquisition.

Three retail stocks reported earnings.

This technology company focusing on energy and water beat analysts’ estimates by a whopping $0.40 last quarter, and eight analysts have recently increased their EPS forecasts for the company.

This specialty measurement company beat analysts’ estimates by $0.03 last quarter.

This time share company is forecasted to grow 27.4% this year.

Nine analysts have increased their earnings estimates for this royalty company in the past 30 days, and they forecast the company will grow by 21.9% annually over the next five years.

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.