Issues
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the December issue.
With the year-end approaching, investors often sell for reasons unrelated to a stock’s outlook. This month we describe some of these reasons, including tax-loss selling, window-dressing, performance bonus protection and the desire for a fresh start in the new year. We discuss seven stocks that look vulnerable to this type of selling yet seem likely to bounce once the selling pressure relents.
We also look at the airline industry – now in the throes of a near-term depression. We believe the outlook for a recovery is improving despite the recent “third wave” of rising Covid case counts. Clearly these stocks carry risks, most prominently that passengers don’t return to flying as much, even after a vaccine and other safety protocols should make flying safe again. Our discussion delves into some of the industry’s arcane metrics, as these help clarify (at least for those with a wonkish interest, like me) the drivers of the downturn and a likely recovery. We highlight five promising discount airline stocks.
Our feature recommendation is the office equipment company Xerox Holdings Corporation (XRX). The market tends to dismiss this company, but its robust cash flow, cash-heavy balance sheet, low valuation and 4.6% dividend yield offer strong value.
The letter also includes a summary of our recent sales of Peabody Energy (BTU), Weyerhaeuser (WY) and Barrick Gold (GOLD), our price target increase for Freeport-McMoran (FCX) and the full roster of our current recommendations.
Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your 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.
With the year-end approaching, investors often sell for reasons unrelated to a stock’s outlook. This month we describe some of these reasons, including tax-loss selling, window-dressing, performance bonus protection and the desire for a fresh start in the new year. We discuss seven stocks that look vulnerable to this type of selling yet seem likely to bounce once the selling pressure relents.
We also look at the airline industry – now in the throes of a near-term depression. We believe the outlook for a recovery is improving despite the recent “third wave” of rising Covid case counts. Clearly these stocks carry risks, most prominently that passengers don’t return to flying as much, even after a vaccine and other safety protocols should make flying safe again. Our discussion delves into some of the industry’s arcane metrics, as these help clarify (at least for those with a wonkish interest, like me) the drivers of the downturn and a likely recovery. We highlight five promising discount airline stocks.
Our feature recommendation is the office equipment company Xerox Holdings Corporation (XRX). The market tends to dismiss this company, but its robust cash flow, cash-heavy balance sheet, low valuation and 4.6% dividend yield offer strong value.
The letter also includes a summary of our recent sales of Peabody Energy (BTU), Weyerhaeuser (WY) and Barrick Gold (GOLD), our price target increase for Freeport-McMoran (FCX) and the full roster of our current recommendations.
Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your 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.
The euphoric vaccine rally has driven the market indexes to all time highs. A vaccine likely means the end of the pandemic, sooner rather than later. The removal of the remaining lockdown restrictions should unshackle the economy and bring on a full and robust recovery.
A full recovery will lift those stocks and sectors that depend on the Main Street economy. It will lift cyclical sectors like energy, finance and hospitality that had not participated in the partial recovery. It’s already happening. The losers of the earlier stock market recovery are on fire.
In this issue I highlight one of the best banks in the country. It is a highly desired stock that should be very quick to recover. The stock has strong momentum and is still priced well below the 52-week high. This issue also highlights two covered call opportunities to cash in on the market rally.
A full recovery will lift those stocks and sectors that depend on the Main Street economy. It will lift cyclical sectors like energy, finance and hospitality that had not participated in the partial recovery. It’s already happening. The losers of the earlier stock market recovery are on fire.
In this issue I highlight one of the best banks in the country. It is a highly desired stock that should be very quick to recover. The stock has strong momentum and is still priced well below the 52-week high. This issue also highlights two covered call opportunities to cash in on the market rally.
The past month has been the best of the year for our marijuana stocks, and while there’s a chance the sector could top out now (there’s so much good news out there), I learned long ago that it doesn’t pay to fight the trend.
The fact is, this sector strength could easily run to the end of the year as investors rush into this high-growth sector. So, we’ll now become fully invested, adding one new stock at the same time.
Full details in the issue.
The fact is, this sector strength could easily run to the end of the year as investors rush into this high-growth sector. So, we’ll now become fully invested, adding one new stock at the same time.
Full details in the issue.
Last Friday all three of our November covered calls expired for full profits.
This is a short week, with my last update just a few days ago, but our Explorer portfolio is doing well. In the last few days, Sea (SE), NovoCure (NVCR) and Alibaba (BABA) are each up 10 points and ElectraMeccanica (SOLO) has increased 20%. As the clouds lift with the flurry of positive vaccine announcements and election uncertainty gone, markets will go into December with more confidence but with lingering doubts about the strength of the economy. Our new recommendation is a leader in critical cancer diagnostics highlighting the benefits of a sharp focus on one market.
Current Market OutlookFirst off, a heads up: Our offices will be closed Thursday and Friday, and next week is one of the two scheduled weeks that we take a break from Top Ten all year. We’re likely to send a brief update this Wednesday with updated stops, but after that, your next update will come Friday, December 4. Have a great long weekend!
As for the market, there remain a couple of flies in the ointment (the Nasdaq still hasn’t reached a new high; sentiment is a bit bubbly), but it’s fair to say the recent action has been constructive, with leading stocks avoiding another bout of selling so far and more individual names perking up. You should still go slow, but we’re increasingly optimistic.
This week’s list has a wide variety of names (big, small, growth, cyclical) that are all finding strength, another good sign for the market. Our Top Pick is Halozyme (HALO), which acts powerfully and has terrific metrics. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Alcoa (AA) | 19.82 | ||
| Bilibili (BILI) | 63.31 | ||
| Celsius Holdings (CELH) | 33.73 | ||
| Halozyme Therapeutics (HALO) | 40.00 | ||
| Huazhu Group (HTHT) | 51.33 | ||
| II-VI Incorporated (IIVI) | 66.45 | ||
| Inspire Medical Systems (INSP) | 183.30 | ||
| Moderna (MRNA) | 100.92 | ||
| Omnicell (OMCL) | 106.80 | ||
| Sonos (SONO) | 21.41 |
The bull market remains alive and well, and I continue to recommend that you be heavily invested in a diversified portfolio of stocks.
Last week’s recommendation was well-known Coca-Cola (a true value stock) while this week’s is a fast-growing company that’s never made a profit, but is expected to make bundles, someday. You know its name too!
As for our current portfolio, most trends are good, but we do need to sell one stock, just to keep the portfolio at twenty stocks. That’s a process that ensures we always own the best!
Last week’s recommendation was well-known Coca-Cola (a true value stock) while this week’s is a fast-growing company that’s never made a profit, but is expected to make bundles, someday. You know its name too!
As for our current portfolio, most trends are good, but we do need to sell one stock, just to keep the portfolio at twenty stocks. That’s a process that ensures we always own the best!
October was a surprisingly good month for the markets, until the very end, when investors took a rest. But since the election, they’ve come in off the sidelines and the markets are now close to all-time highs. Investors love the idea of a divided Congress.
As well, the unemployment picture continues to improve, although with the coronavirus causing more widespread shutdowns, we may see a temporary rise—at least until the vaccinations begin distribution. And that certainly looks promising, with both Pfizer and Moderna sharing terrific stats this past week.
Housing continues to be a mixed report. Inventories continue to decline, down 38.3% in October, and prices rose 12.2%. Mortgage rates are at a 5-year low. Once the pandemic eases, I expect the number of listed houses to rebound and sales to rise precipitously, at least until inventory is normalized.
Our issue this month, is focused primarily on growth companies, although we certainly offer plenty of dividend opportunities. We begin with our Spotlight Stock, a provider of technology, primarily to the U.S. Defense Department. This company is right on the cutting-edge of advanced technologies—the future of defense. In my Feature article, I discuss the coming technologies and CACI’s potential to harness and profit from them.
Moving on, our Growth stocks include companies from the payments, construction, and virtual healthcare arenas. In Growth & Income, we offer ideas in the equipment, tools, building products, toys, consumer goods, e-tail, and media sectors.
Our Financial picks are both from the insurance industry, and our Healthcare offerings include a contract research organization, a testing business, and biopharma. In Technology, you’ll find ideas from the cloud, cybersecurity, CRM, e-commerce, hardware, and streaming industries.
We have one Low-Priced Stock—a hybrid trading or emerging biotech, and a couple of banking ideas, as well as a company that serves the marijuana industry, in Preferred Stocks & REITs.
Our contributors still like High Yield, and here, we add companies from the insurance, banking, pest control, hardware, and communication sectors. And this month, we also feature a Short-Sale opportunity.
Lastly, our Funds & ETFs focus on growth, banking, energy MLP’s, and marijuana.
I wish you and your families a healthy and happy Thanksgiving, and look forward to hearing from you. Please don’t hesitate to email me with your feedback and questions.My address is nancy@financialfreedomfederation.com.
As well, the unemployment picture continues to improve, although with the coronavirus causing more widespread shutdowns, we may see a temporary rise—at least until the vaccinations begin distribution. And that certainly looks promising, with both Pfizer and Moderna sharing terrific stats this past week.
Housing continues to be a mixed report. Inventories continue to decline, down 38.3% in October, and prices rose 12.2%. Mortgage rates are at a 5-year low. Once the pandemic eases, I expect the number of listed houses to rebound and sales to rise precipitously, at least until inventory is normalized.
Our issue this month, is focused primarily on growth companies, although we certainly offer plenty of dividend opportunities. We begin with our Spotlight Stock, a provider of technology, primarily to the U.S. Defense Department. This company is right on the cutting-edge of advanced technologies—the future of defense. In my Feature article, I discuss the coming technologies and CACI’s potential to harness and profit from them.
Moving on, our Growth stocks include companies from the payments, construction, and virtual healthcare arenas. In Growth & Income, we offer ideas in the equipment, tools, building products, toys, consumer goods, e-tail, and media sectors.
Our Financial picks are both from the insurance industry, and our Healthcare offerings include a contract research organization, a testing business, and biopharma. In Technology, you’ll find ideas from the cloud, cybersecurity, CRM, e-commerce, hardware, and streaming industries.
We have one Low-Priced Stock—a hybrid trading or emerging biotech, and a couple of banking ideas, as well as a company that serves the marijuana industry, in Preferred Stocks & REITs.
Our contributors still like High Yield, and here, we add companies from the insurance, banking, pest control, hardware, and communication sectors. And this month, we also feature a Short-Sale opportunity.
Lastly, our Funds & ETFs focus on growth, banking, energy MLP’s, and marijuana.
I wish you and your families a healthy and happy Thanksgiving, and look forward to hearing from you. Please don’t hesitate to email me with your feedback and questions.My address is nancy@financialfreedomfederation.com.
There remain a ton of crosscurrents and news-driven action out there, but after a vicious rotation a week and a half ago, growth stocks have firmed up and the overall market is in good shape. Thus, we’re starting to put some money to work, averaging up in one of our stocks and starting a half-sized position in another. And if the good vibes continue, it shouldn’t take us long to get heavily invested.
In tonight’s issue, we review all of our stocks, talk about a couple of rare, blastoff-type measures that flashed that bode well for the major indexes and highlight a couple of smaller names in one growth sector that have great stories, numbers and charts.
In tonight’s issue, we review all of our stocks, talk about a couple of rare, blastoff-type measures that flashed that bode well for the major indexes and highlight a couple of smaller names in one growth sector that have great stories, numbers and charts.
Updates
All investors should be aware of the quality-control scandal emanating from Kobe Steel, in which the company admitted falsifying data on its steel products for a currently-vague amount of time between one and 10 years. On October 11, I predicted that the scandal would be more extensive in reach than initially reported.
The past week was relatively subdued in small-cap land; the asset class, as measured by the S&P 600 Small Cap Index, dropped a modest 0.8%. The biggest declines were seen in the energy, consumer discretionary and healthcare sectors. The latter is likely due to disruption from Hurricane Maria and renewed chatter about reducing federal subsidies that were part of the Affordable Care Act (ACA).
The iShares EM Fund (EEM) has been trending up, keeping the Cabot Emerging Markets Timer a bright green. Our stocks are generally doing well, and we have no changes to the portfolio tonight.
The stock market’s advance slowed a little this week, but the major indexes are still at all-time highs. Strangely enough, after declining for most of September, utilities have been one of the best-performing sectors over the past five days. Technology and real estate are also outperforming.
Notice that the S&P 500 has a very specific pattern this year: advance-rest-pullback-recover, then repeat the cycle, continuing to rise as months pass. The market just completed another advance. Therefore, odds are strong that the market’s now ready for some sideways trading.
After weeks of consultation with Roy Ward, I’ve decided to make the following changes to the Cabot Benjamin Graham Value Investor. I also include updates on two of our stocks.
The general market picture continues to look bright. All three of our key market timing indicators remain bullish—both the market’s intermediate- and longer-term trends are pointed up, and the broad market is in great shape, with the Two-Second Indicator continuing to record fewer than 20 new lows day after day.
The rotation into the year’s underperformers that started last week has continued, while taking on some aspects of a generic risk-on trade. Financial stocks have outperformed all others since our last update, and tech stocks are up again this week. Materials and industrials also continue to do well.
What a week! I’ve been asked a few times by friends and family members (but no subscribers, c’mon guys!) why small caps have suddenly sprung to life. Check out the one-year chart below of the S&P 600 Small Cap Index.
This is my last Weekly Update. I am retiring today after 50 years in the investment business, including 15 years writing the Cabot Benjamin Graham Value Investor.
The iShares EM Fund (EEM) has been in a downtrend since September 22, turning the Cabot Emerging Markets Timer neutral. We will continue to manage our stocks individually, but will curtail new buying and keep stocks on a shorter leash until momentum improves.
Delegates from OPEC and Russia decided last week that they will not make any decisions regarding a possible extension of oil production cuts until January. Some people expect oil production to beginning rising again in March 2018. Conversely, Iraq and Ecuador are leaning toward further production cuts.
Alerts
The market’s larger, longer-term trend remains up, and the odds are that the market will be higher later this year. But short-term, the market remains in a correction, and marijuana stocks, as a whole, are not fighting the trend.
This health insurer beat analysts’ earnings estimates by $0.22 last quarter.
Today, we are recommending the purchase of a semiconductor equipment company and selling two previous ideas.
This global technology fund is benefiting from doubled-digit returns in many of its holdings.
This real estate software/analytics company is setting a pace for double-digit earnings (estimated at 24.11% annually) for the next five years.
Today, I’m creating a fourth portfolio category within Cabot Undervalued Stocks Advisor: Special Situations. This will be a portfolio for capital gain opportunities that do not conveniently fit into the other three portfolios.
Here’s a fund that employs a ‘smart beta’ style to increase performance.
Investing in up markets is easy. From the December low until recently, the strong market provided a huge tailwind that sent marijuana stocks soaring—and had our portfolio, at the peak, up 57.2% year-to-date.
Five analysts have raised their earnings estimates for this biopharma in the past 30 days.
Portfolios
Strategy
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.