Issues
The past month has brought great performances from many of our marijuana stocks, but right now, there’s a risk that the market is turning down, preparing to take some of our profits.
Long-term, however, trends toward increased legalization mean prospects for the marijuana sector are brighter than ever; next week’s election will tell us a lot about what the next few years might bring.
How do we balance this short-term risk with this long-term opportunity? By remaining invested in the best-performing stocks, of course.
Long-term, however, trends toward increased legalization mean prospects for the marijuana sector are brighter than ever; next week’s election will tell us a lot about what the next few years might bring.
How do we balance this short-term risk with this long-term opportunity? By remaining invested in the best-performing stocks, of course.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November issue.
This month we look at the oil refining industry. Unlike many technology stocks, this group is the opposite of “priced for perfection.” The industry’s products will remain relevant for a long time, despite investors’ enthusiasm for a shift to electric-powered vehicles. Also, the pandemic will eventually pass and demand for refined products (gasoline, diesel, heating oil and jet fuel) will return, lifting these company’s earnings and stock prices. We acknowledge the tax and regulatory risks but see real value in the higher quality and better-financed refinery companies.
We also look at technology turnarounds. Successful tech turnarounds are rare, so our discussion briefly explores why this is the case and identifies six that have interesting turnaround potential.
Our feature recommendation is the oil refining company Valero Energy (VLO), offering what we see as the best risk/reward traits among a group with strong cyclical turnaround potential.
The letter also includes a summary of our recent sale of Amplify Energy (AMPY) and our change to a Sell rating on Consolidated Communications (CNSL), as well as 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.
This month we look at the oil refining industry. Unlike many technology stocks, this group is the opposite of “priced for perfection.” The industry’s products will remain relevant for a long time, despite investors’ enthusiasm for a shift to electric-powered vehicles. Also, the pandemic will eventually pass and demand for refined products (gasoline, diesel, heating oil and jet fuel) will return, lifting these company’s earnings and stock prices. We acknowledge the tax and regulatory risks but see real value in the higher quality and better-financed refinery companies.
We also look at technology turnarounds. Successful tech turnarounds are rare, so our discussion briefly explores why this is the case and identifies six that have interesting turnaround potential.
Our feature recommendation is the oil refining company Valero Energy (VLO), offering what we see as the best risk/reward traits among a group with strong cyclical turnaround potential.
The letter also includes a summary of our recent sale of Amplify Energy (AMPY) and our change to a Sell rating on Consolidated Communications (CNSL), as well as 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.
These are crazy times. This pandemic-riddled year isn’t done with us yet. In fact, Covid cases are rising and many states are reinstating new batches of lockdown restrictions. At the same time, we’re less than a week away from an election with a high risk of a contested result and the ensuing uncertainty.
At some point, we will get past the election and the pandemic. The economy should boom and the market will be free to rise. But things could still get awfully dicey in the weeks and months before we get to the Promised Land.
In this issue, I highlight a high-income stock that is ideal for the current situation. The business is benefitting mightily from the pandemic. It’s a defensive stock that should continue to perform well amidst the volatility. Yet, it should also be a star in the post-pandemic market.
Not only does this stock pay a high dividend, but it attracts high call premiums as well. It is one of the very few stocks that is well worth buying in the current situation.
At some point, we will get past the election and the pandemic. The economy should boom and the market will be free to rise. But things could still get awfully dicey in the weeks and months before we get to the Promised Land.
In this issue, I highlight a high-income stock that is ideal for the current situation. The business is benefitting mightily from the pandemic. It’s a defensive stock that should continue to perform well amidst the volatility. Yet, it should also be a star in the post-pandemic market.
Not only does this stock pay a high dividend, but it attracts high call premiums as well. It is one of the very few stocks that is well worth buying in the current situation.
This week’s covered call idea is a play on an old-fashioned car company that has been taking bold steps to change the company, and investors’ perceptions of the stock.
Current Market OutlookEarnings season. The upcoming U.S. elections. Spiking COVID positives and accompanying Europe lockdowns. All told, what was a cleaner situation a couple of weeks ago has turned into one with a lot of crosscurrents, and that has caused a buyers’ strike of sorts, with the major indexes and many leaders pulling back of late. It’s not a disaster, but today’s action has put the intermediate term back on the fence; basically, it looks like the market is still in a consolidation phase after the big March-through-August rally. It’s a similar deal with leading stocks, as many have taken on water, though few have cracked. (In fact, we see a lot of good setups out there should buyers step up soon.) All in all, we’re not making any huge moves, but we’ll knock our Market Monitor down a notch and keep a close eye on things.
This week’s list is an interesting mix of growth and turnaround situations, including a couple that have their hands in both cookie jars. Our Top Pick is Align Technology (ALGN), which just galloped out of a two-year base after earnings. Aim to buy on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Align Technology (ALGN) | 448.51 | ||
| AAXN (AAXN) | 101.69 | ||
| Exact Sciences (EXAS) | 107.06 | ||
| The Gap, Inc. (GPS) | 17.75 | ||
| General Motors Company (GM) | 36.83 | ||
| GrowGeneration (GRWG) | 17.75 | ||
| MercadoLibre, Inc. (MELI) | 1270.86 | ||
| NIO Limited (NIO) | 25.86 | ||
| Shift4 Payments (FOUR) | 55.98 | ||
| Square, Inc. (SQ) | 176.77 |
With the election just around the corner, there’s a lot of uncertainty in the air. Nevertheless, the bull market is alive and well, as both of Cabot’s trend-following market-timing indicators remain positive, so I continue to recommend that you be heavily invested.
Today’s recommendation is an old friend that is back in the limelight as the online world is increasingly hungry for software that enables machines to understand human voices. It’s a good story, and the stock is on a good pullback now.
As for the current portfolio, there’s just one sell (for a small profit), to make room for the new recommendation.
Today’s recommendation is an old friend that is back in the limelight as the online world is increasingly hungry for software that enables machines to understand human voices. It’s a good story, and the stock is on a good pullback now.
As for the current portfolio, there’s just one sell (for a small profit), to make room for the new recommendation.
The overall evidence continues to lean bullish, but growth stocks are on a wild ride, first selling off in August/early September, then rallying for a few weeks before backing off again in recent days. We remain optimistic, but are still taking things on a stock-by-stock basis, pulling the plug on laggards while aiming to put money to work in potential new leaders. This week, we let go of Wingstop on Monday, leaving us with around one-quarter of the portfolio in cash.
In tonight’s issue, we write more about our thoughts on the market and our stocks, talk about one recent sell we wish we had back and dive into two secondary indicators we’re watching closely to tell us when the market (and growth stocks) will decisively break out.
In tonight’s issue, we write more about our thoughts on the market and our stocks, talk about one recent sell we wish we had back and dive into two secondary indicators we’re watching closely to tell us when the market (and growth stocks) will decisively break out.
In October’s Issue of Cabot Early Opportunities we zero in on four software and internet companies that are benefiting from a variety of tailwinds, including two that are finding success after years of less-than-stellar performance. We also revisit an old MedTech friend that helps deliver drugs and vaccines around the world.
Enjoy!
Enjoy!
This week’s idea is a stock in a hot sector, though can be volatile day-to-day.
Current Market OutlookWe like to go with the evidence that’s in front of us at any given time, and if you do that today, you’ll see that most of the key evidence continues to look solid—the intermediate-term trend of the major indexes is tilted higher (though there’s still some resistance at the early-September highs to chew through), while more and more leading stocks are acting constructively; most have pulled back reasonably (so far) after heady runs during the prior three-plus weeks. Of course, we’re not leaving our brains at the door either, as earnings season (which ramps up this week in a big way) and the upcoming U.S. elections certainly have the potential to carve out a few potholes, while sentiment has picked back up after the August/September dip. Thus, we remain flexible and think picking buy points is vital, but overall, we remain mostly bullish.
This week’s list has a ton of potential pullback buys, though you have to be aware of earnings dates. Our Top Pick is Beyond Meat (BYND), which is enjoying a normal breather and looks to be approaching a good risk-reward entry point.
| Stock Name | Price | ||
|---|---|---|---|
| Avalara (AVLR) | 153.44 | ||
| Beyond Meat (BYND) | 183.98 | ||
| Bill.com Holdings (BILL) | 116.15 | ||
| Carvana (CVNA) | 213.52 | ||
| Deckers Outdoor Corp. (DECK) | 253.08 | ||
| Invitae (NVTA) | 48.38 | ||
| Monolithic Power (MPWR) | 312.85 | ||
| Paycom Software (PAYC) | 383.11 | ||
| Plug Power (PLUG) | 16.39 | ||
| SunPower (SPWR) | 17.62 |
Updates
The stock market has begun to recover from last week’s war of words-induced selloff, and I’m moving one stock back to Buy today. However, it’s not time for the all-clear yet; last week’s selloff was preceded by significant deterioration under the surface of the market, so we’ll need to see more proof that the bulls are back before jumping back in the water.
We’ve seen before how Trump’s shoot-from-the-hip approach to foreign policy has marked a significant departure from that of his predecessors. But clearly this latest exchange is different. Understandably, the market reacted negatively to the very mention of military conflict with North Korea.
U.S. stock market indexes tumbled yesterday, August 10, in reaction to the escalating rhetoric between President Donald Trump and North Korean Premier Kim Jong-un. I expect the war on words to continue for a while longer, which will keep investors on edge. The stock market could face further deterioration until President Trump and Premier Kim cool off.
Tonight, we’ll continue to stand pat in the Model Portfolio (though we are placing one stock on Hold) with eight stocks and a cash position near 20%.
The market continues to lean bullish, with warning signs. While the Dow has been hitting all-time highs, the S&P has gone nowhere for two weeks and the Nasdaq has actually lost ground. Investors seem to be deserting “risk-on” assets, leading to underperformance in the Russell 2000 (IWM) and high-growth sectors including Semiconductors (SMH) and Biotechs (XBI).
Twenty-three of our portfolio companies reported June quarter results. Among those companies, 14 reported EPS that exceeded analysts’ consensus estimates; seven of which exceeded all analysts’ estimates.
Summaries of the latest news for 12 companies. One stock, which has advanced 29.6% in the past 26 months, is now a Sell because the company is being acquired.
The iShares EM Fund has been trading sideways since July 19, but is holding well above its rising moving averages, so our Buy signal is in good shape. We have one portfolio move tonight.
I’m making three portfolio moves today. I’m putting one stock on Hold due to an earnings miss and taking half our profits in another stock off the table, as the stock has stalled out. We’re also selling one stock, as planned, due to significant technical erosion in the chart.
Despite the pullback yesterday (specifically in tech stocks) the market appears to be in bull mode. Small caps have been toying with breaking out of their 2017 trading range, but haven’t made a convincing move just yet. Keep an eye on the 870 level on the S&P 600 Small Cap Index.
I summarize the latest news for 21 companies. I also include an important question on Ulta Beauty from a subscriber along with my answer. One stock is now a SELL.
Alerts
This engineering and consulting firm is eating up its competition.
This gene therapy company has been getting lots of good attention from analysts, with coverage of the shares being initiated at Evercore ISI Group, with an ‘Outperform’ rating.
The shares of this cosmetic company were recently upgraded by JP Morgan to ‘Overweight’.
This fast food giant beat earnings estimates by $0.04 last quarter, and three analysts recently raised their EPS forecasts for the company.
It’s not entirely unusual for a new CEO at a company to change the dividend policy due to having a different idea of how the company should be using its cash flow.
In the past 30 days, seven analysts have raised their earnings forecast for this restaurant company.
Two stocks are moving up and a third stock is moving from Buy to Strong Buy.
This auto parts supplier beat analysts’ estimates by a whopping $1.53 per share last quarter.
The top five institutional holders of our first idea, a technology fund, are: Yakira Capital Management, Inc., 0.91% of shares; Ladenburg Thalmann Financial Services Inc., 0.58%; Royal Bank of Canada, 0.55%; Herzfeld (Thomas J.) Advisors, Inc, 0.52%; and INTL FCSTONE INC., 0.39%.
Our second recommendation today is a sale of a previous holding.
Looking at the revenues of the 14 companies in our Marijuana Portfolio, the average growth rate in the latest quarter, relative to the previous year, was 409%. The median, for you statistical fans, was 255%. This is one fast-growing sector!
Crista has several portfolio updates and changes today.
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.