Thank you to everyone who joined us last week for our virtual Cabot Summit. We really missed seeing you in person, but were so happy that we could at least share some of our investing ideas and strategies during this strange time in which we are living. I hope you enjoyed the Summit!

We are keeping our fingers crossed that the coronavirus trend seems to be improving. Unemployment is still dismal, but there are some very bright spots in the economy—both housing starts, building permits, and manufacturing are rising.

And as you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment continues to be bullish.

Growth stocks remain mostly hit or miss, but the evidence has improved somewhat during the past couple of weeks. We’re not flooring the accelerator, but we are doing a little new buying tonight, though still keeping about one-quarter of the Model Portfolio in cash.

Elsewhere in tonight’s issue, we talk about the thinning out of the advance and dive into all our stocks (a couple of which have earnings coming up), as well as talk about our new recommendations and game plan going forward.

Thank you to everyone who joined us last week for our virtual Cabot Summit. We really missed seeing you in person, but were so happy that we could at least share some of our investing ideas and strategies during this strange time in which we are living. I hope you enjoyed the Summit!

We are keeping our fingers crossed that the coronavirus trend seems to be improving. Unemployment is still dismal, but there are some very bright spots in the economy—both housing starts, building permits, and manufacturing are rising.



And as you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment continues to be bullish.

In this month’s issue of Cabot Early Opportunities we serve up a diverse group of stocks with exposure to vastly different areas of the economy.

There’s some software and biotech, and plenty of IPOs, but also a few ways to play rising strength in cyclical stocks.

Enjoy!

It’s time to look beyond the pandemic. It may seem like it will drag on forever. And it may still be a while yet before it’s behind us. But it will pass. In the grand scheme of things, it is a very temporary situation.

The overwhelming majority of your investing career from here will be in the post pandemic environment. And the virus has created opportunities. While the market indexes are at all time highs, many of the more cyclical and real economy stocks are still historically very cheap. But these stocks will be lifted by the inevitable recovery ahead.



In this issue, I identify two industry leaders with stock prices that are temporarily depressed in the current environment. Yet, they present fantastic opportunities if we look beyond the haze.

A lot has happened with our marijuana stocks in recent weeks, with the most important being the release of excellent quarterly reports by all the major U.S. multi-state operators that explained why the sector had been so strong in recent months.

However, growth stocks in general—and marijuana stocks in particular—have now begun a well-deserved correction, so I’m now getting a bit more cautious.



Full details in the issue.

For now our positions remain in great shape, and this week we are adding a stock that we successfully traded in March, and has shown no signs of pulling back after an earnings blowout last week.

Current Market Outlook


There’s not much negative to say about the market if you’re looking at the major indexes—all remain in solid intermediate-term uptrends, and longer-term, there are many bullish signposts for the overall market. But it’s also a fact that this rally has become awfully thin—the number of stocks hitting new highs is half (or less) of what we saw earlier this month, and the rotation between extended growth (those that got going back in April/May), fresher growth (those that got going in the past month or so) and cyclicals is becoming more frequent and intense. Once again, none of this necessarily portends doom, but there’s little doubt that making money has become tougher, so factor that into your plan—possibly buying smaller positions, entering on weakness, and focusing on what’s attracting buyers.

That’s just what our screens do, and this week’s list has another batch of in-favor stocks. For our Top Pick, we’ll go with JD.com (JD), a well-traded name that just reacted positively to earnings, and whose group (China) is picking up steam.

Stock Name	Price	Buy Range	Loss Limit
The AZEK Company (AZEK)	39.88	37-38.5	33.5-35
Big Lots (BIG)	53.65	48.5-51	42.5-43.5
DaQo New Energy Corp (DQ)	124.59	119-125	101-104
Elastic (ESTC)	103.35	99-103	89-91
Emergent BioSolutions, Inc. (EBS)	125.55	120-125	105-108
Etsy (ETSY)	128.74	121-125	106-108
JD.com (JD)	76.18	72.5-75	65-66.5
Natera (NTRA)	65.49	60-63	52-53.5
Trade Desk (TTD)	466.66	445-467	395-410
Whirlpool (WHR)	181.38	171-176	153-156

The market remains in good health and trending higher, though the rotation from previously hot growth stocks continues, to some degree.

This week’s recommendation is a well-known consumer name whose stock is truly cheap, in part because the company recently discontinued dividend payments (they had been 6%) in response to the pandemic shutdown.



As for the current portfolio, I will now drop Nvidia (which has been very successful but is now sky-high), and downgrade GFL Environmental (GFL) to hold.



Full details in the issue.

The odds of a June interest rate increase have now fallen to 47%, from 60% earlier this month. A December rate hike is seen as even less likely, with odds currently at 37%, down from 56%. That’s led to additional gains in bond alternatives like utilities.

A Bloomberg article implies that Chipotle Mexican Grill (CMG) is struggling financially. Yet the fact is that Chipotle is a wildly profitable company, with aggressive earnings growth, and without a trace of long-term debt. That’s quite a feat in corporate America.

Small caps continue to trend sideways as they have since the beginning of 2017. In the S&P 600 Small Cap Index, this means trading mostly in the 820 to 860 range with a few spikes above and a few below. There’s no doubt the market rally has lost momentum as the small cap index has traded mostly below its intermediate trend line over the last five weeks.

None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but today’s update includes subscriber questions about two Enterprising Model stocks with my responses.

The Emerging Markets Timer is in relatively good shape, as the iShares EM Fund is staying in contact with its 25-day moving average. Many of our stocks are acting great. We sold three laggards in last week’s issue and our only action today will be to move one stock back to a Buy rating.

Mike Cintolo, our market timing expert, wrote earlier this week that he wouldn’t be surprised to see this correction develop one more leg down, and it looks like that’s what we’re getting. All the major indexes opened significantly lower yesterday, and while they rebounded partially in the afternoon, the turbulence sent the VIX surging to its highest level since the U.S. election.

I’m not an energy industry wonk, but the 2017 crude oil export situation is so vastly different than it has been for most of our adult lifetimes that it’s worth paying renewed and inquisitive attention to energy stocks.

None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but I have analyzed the automotive industry for you and present my advice here. I also include complete instructions on how to access the Top 275 Value Stock spreadsheet on Google Drive.

Remain optimistic, but keep some powder dry, too. We’re pleased to see our Two-Second Indicator improve, but our Cabot Tides are still on the fence and few stocks are moving out to new highs. We believe the market’s next major move will be up, but near-term, we’re going to wait for confirmation that the buyers are back after a five-week pause.

We’re still cautiously bullish, and focused on the action of individual holdings. Sell any stocks that break down, prune your laggards, and focus new buying on outperformers. We have no rating changes today.

The market hit an air pocket last week but has since stabilized. It didn’t hurt that revised U.S. GDP figures for Q4 came in 0.2% higher than previously reported. That improvement bumped growth up to 2.1%. On the back of that good news, small caps regained their 50-day moving average line (they’re now up four straight days).

The U.S. stock market is beginning to show signs of gaining momentum to the upside, as evidenced by the Nasdaq’s new all-time high set yesterday.

Seven analysts have increased their EPS estimates for this financial stock in the past 30 days.

Trends remain good for investors in the marijuana industry.

One of our portfolio stocks reported Q4 2018 results the other night that were better than expected.

One stock reports strong fourth quarter and moves from Strong Buy to Hold; a second falls on temporary problems.

This digital entertainment and e-commerce company is expected to grow at double-digit rates this quarter, boosting its shares’ momentum.

The shares of this payment company were recently initiated by Jefferies with a ‘Buy’ rating and were upgraded by UBS to ‘Buy’

This medical equipment company beat earnings estimates by $0.04 last quarter.

This apparel company is seeing tremendous growth, with some very high-end brand names.

Three stocks are updated due to Earnings Reports.

The simplest reason is an imbalance of supply and demand; if supply is insufficient to meet demand, as it often is in a brand new industry, prices rise. That’s one reason marijuana stocks have been rising, overall, for the past few years.

This biopharma is expected to grow by 44.3% next year.

One stock reports fourth-quarter results, another moves from Hold to Buy and we reiterate the Buy recommendation on a third.

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.