Issues
Current Market OutlookThere are no sure things, especially in this unprecedented environment, but we think it’s a decent bet that last Monday represents a workable low in the indexes, bolstered by short-term positive divergences in the broad market and some encouraging snapback action among a good number of growth stocks. Given that the evidence is slightly better, we’re open to some nibbles here or there, especially among the stocks that have shown strong signs of accumulation. That said, we still believe it’s best to be mostly defensive—the intermediate-term trend remains strongly down, and even if a bottoming process has begun, the odds favor a volatile, news-driven few weeks (and, of course, there’s always the chance stocks break their lows down the road). Long story short, the rain has stopped for now, but the overall storm system hasn’t yet moved out to sea.
Encouragingly, for the second straight week, Top Ten is finding a lot of growth-oriented stocks that are showing peppy action. Our Top Pick is Seattle Genetics (SGEN), which has a nice four-month launching pad and isn’t far from new highs.
| Stock Name | Price | ||
|---|---|---|---|
| Atlassian (TEAM) | 182.16 | ||
| Barrick Gold (GOLD) | 27.20 | ||
| Dexcom (DXCM) | 421.36 | ||
| GDS Holdings Limited (GDS) | 80.15 | ||
| Netflix, Inc. (NFLX) | 423.92 | ||
| NVIDIA Corporation (NVDA) | 242.42 | ||
| Okta, Inc. (OKTA) | 148.41 | ||
| Quidel Corp. (QDEL) | 93.49 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Slack (WORK) | 24.12 |
As the market gets back on its feet after the recent 33% drawdown, all Cabot analysts are looking for opportunities—with the growth-oriented analysts looking for strength and the value-oriented analysts looking for value—and it’s value that describes today’s featured stock perfectly. A well-known pharmaceutical giant, the stock is a bargain today.
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We’re beginning to see some short-term signs of spring in the market, first via some resiliency in the broad market, and now from buyers actually stepping up to the plate. We think there’s a decent chance the market has found a workable low, and we’re encouraged to see a decent number of growth stocks bounce back. All of that is good to see, but the primary evidence -- the trends of the market and most stocks --are still pointed down. We’re not ruling out a nibble or two if the buyers keep at it, but it’s best to remain defensive until we see more than a modest bounce.
In tonight’s issue we talk about one group that has seen some very big-volume buying of late, a sign big investors were eager to jump in on weakness. And we also review our remaining positions and a few other top-notch names we think could put on big runs once the market enters a new uptrend.
In tonight’s issue we talk about one group that has seen some very big-volume buying of late, a sign big investors were eager to jump in on weakness. And we also review our remaining positions and a few other top-notch names we think could put on big runs once the market enters a new uptrend.
These are harrowing times to be an investor but we’re always on the hunt for emerging opportunities, regardless of market conditions. As always we’re spreading things around this month, with the focus on two defensive names (including one larger company), two beaten and battered names that seem miss-priced (depends on what happens) and one stock that seems to be in high demand, despite the market conditions. Suffice to say, there’s little incentive to place big bets right now. But we’d be remiss not so send some ideas your way. These new names will come with a short leash!
On Monday, the market completed the quickest 30% pullback in history.
Since then, it’s completed one of the quickest rebounds!
Interesting times.
Equally interesting for investors in the young and fast-growing marijuana sector is that marijuana stocks actually bottomed a week ago, and they’ve been advancing every day since, which is a very good sign.
Because of that, I’m recommending a little averaging up in the portfolio today, taking our cash level down to 50%.
Full details in the issue.
Since then, it’s completed one of the quickest rebounds!
Interesting times.
Equally interesting for investors in the young and fast-growing marijuana sector is that marijuana stocks actually bottomed a week ago, and they’ve been advancing every day since, which is a very good sign.
Because of that, I’m recommending a little averaging up in the portfolio today, taking our cash level down to 50%.
Full details in the issue.
China was the first country to be devastated by coronavirus, and although the pandemic there is not completely over (and there are doubts about the accuracy of that country’s daily virus count), it’s almost surely on a downhill swing. That’s helped the Shanghai composite to fare better than the S&P this year, and not surprisingly, many (not all) Chinese stocks have shown some interesting resilience during this crisis
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Current Market OutlookWith all of the measures (both in real life, and in the financial markets) taken during the past month, one thing has remained the same: The trend of the major indexes and the vast majority of stocks has been down since late February, which has kept us cautious and holding lots of cash. And until that changes, your top priority is to remain defensive and patient as we wait for the buyers to show up for more than a couple of hours. That said, we’re always on the lookout for rays of light, and we are seeing one from the broad market, as fewer stocks are participating on the downside during the last week. That’s a plus, though we need to see it backed up by real buying and a break of at least some shorter-term moving averages (10-day, etc.) to think a workable low could be in. Right here, we remain cautious.
Encouragingly, though, this week’s list is fairly heavy on the growth side of the equation, including many stocks that found big-volume support on earnings last week. Our Top Pick is Chewy (CHWY), a defensive growth stock that’s executing well and has seen some major accumulation.
| Stock Name | Price | ||
|---|---|---|---|
| Adobe Inc. (ADBE) | 315.23 | ||
| Chewy (CHWY) | 43.92 | ||
| Cloudflare (NET) | 39.32 | ||
| Coupa Software (COUP) | 262.20 | ||
| Gilead Sciences (GILD) | 75.10 | ||
| JD.com (JD) | 39.58 | ||
| Moderna (MRNA) | 29.39 | ||
| Smartsheet (SMAR) | 44.12 | ||
| Vertex Pharmaceuticals (VRTX) | 230.36 | ||
| Zoom Communications (ZM) | 155.83 |
Bottoms bring bargains, but identifying bottoms is devilishly difficult—which is why it’s better not to try but to simply reduce your risk-taking until the environment is more constructive. Last week’s recommendation of Zoom Video is off to a great start (though risk in the stock is higher now), and this week’s recommendation is a smaller Software-as-a-Service (SaaS) company with decent growth prospects in the corporate finance sector.
As for the current portfolio, we now hold eleven stocks out of a possible twenty, and many of them look like they are building a bottom here. Thus the only change is a downgrade of our weakest stock, Brookfield Infrastructure Partners (BIP) to Sell
Full details in the issue.
As for the current portfolio, we now hold eleven stocks out of a possible twenty, and many of them look like they are building a bottom here. Thus the only change is a downgrade of our weakest stock, Brookfield Infrastructure Partners (BIP) to Sell
Full details in the issue.
Updates
The Emerging Markets Timer is technically positive, but the intermediate-term trend remains mostly neutral.
Most of our holdings are healthy, and several are hitting new highs or positioned to do so soon. Several more names are well positioned to begin new rallies if the market gets in gear. One dark cloud is CVS Health (CVS), which I’m putting on Hold today as the stock’s slump intensifies.
The S&P 500 index traded up near all-time highs in early June, then had an orderly pullback, partly encouraged by investor worries over the Brexit vote. The index seems to have completed its correction, and could easily retrace recent highs. Many of our portfolio stocks mirrored that pullback and are also rebounding.
A number of our stocks were on the verge of all-time highs last week. They pulled back this week so we’ll have to be a little more patient. There are no ratings changes this week.
Remain bullish, but stay tuned. The market’s recent Brexit-induced dip has put our Cabot Tides back on the fence, though our Two-Second Indicator and Cabot Trend Lines are still bullish. A Tides sell signal would cause us to raise more cash, but tonight we’re mostly standing pat; our only change is moving Facebook (FB) to Hold. The Model Portfolio is holding about 20% in cash.
The broad market pulled back sharply this week, dragging the S&P 500 through the 2,100 level once again. Today’s Fed meeting, the shooting in Orlando over the weekend and the upcoming Brexit vote are all contributing to a heightened sense of uncertainty and a “risk-off” mood on Wall Street.
The S&P 500 index is having an orderly pullback, after rising for three weeks. In that light, we’re not likely to see a lot of portfolio action this week. Looking out over the next four weeks or so, these buy-rated portfolio stocks appear best-positioned to rise 5% or more.
It’s been a good five months for small cap investors after a rough end to 2015 and an extremely tough start to 2016. But since mid-February, the asset class, along with the broader market, has rallied hard. A healthy pullback in the S&P 600 Small Cap Index in early May set the stage for a burst through resistance, and we’re now sitting just 2.7% below the 52-week high.
Seven Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news.
The Emerging Markets Timer has turned positive, and we did some buying in a Special Hotline on Tuesday. We will wait to see how the portfolio reacts before we put our remaining 20% cash to work. We’re shifting CTRP to a Hold rating ahead of next week’s earnings.
I recommend you take rate hike expectations and macro-economic predictions with a grain of salt (they’re fickle things), focus on stocks that are working well, and keep your goals and risk tolerance in mind.
Alerts
The market opened higher yesterday thanks to good news on the trade front, but sellers were active after the open, especially with growth stocks. Our longer-term indicators are still up, but the intermediate-term indicator is on the fence. We’re going to sell one position today and place another on hold.
Our first idea today is a medical device company that beat analysts’ estimates by $0.10 last quarter.
Analysts expect this security device maker to grow 32.1% this year.
U.S. stocks make up more than 50% of this global equity fund.
This media/entertainment company saw huge increases in revenues and income in its last quarter, and has been buying back shares, reducing share count by more than 6% in the past year.
We’re moving one stock from Strong Buy to Buy.
The shares of this athletic apparel manufacturer were recently upgraded by Susquehanna, to Positive and PiperJaffray, to Overweight, and were initiated at Morgan Stanley, to Overweight.
Our other recommendations are selling previous ideas, with some profit-taking.
Our other recommendations are selling previous ideas, with some profit-taking.
Shares of our first idea today jumped overnight on news that the company received good results on a drug for central nervous system disorders. You might want to watch for a bit of a pullback before buying.
Blackstone Group, an alternative asset manager, held an Investor Day on September 21 for the first time in four years.
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.