Issues
Well, March in the markets certainly came in like a lion, didn’t it? And it looks like it may end the month the same way. Until we make progress in defeating the coronavirus, we expect continued volatility in the markets, and we recommend that you remain defensive.
That doesn’t mean Sell everything in your portfolio. Remember, you don’t have real losses until you sell your stocks. But it does mean if you are holding on to some stocks that weren’t doing well before the coronavirus outbreak, it might be a good idea to think about unloading them. But being defensive also means being judicious when buying. For the near future, I’m going to include this message in all my writings, as an alert that, certainly, you may buy these recommendations, but for most of us, they will provide entries into a ‘watch’ list that can be acted upon as the volatility disperses. Or you may find that you might want to nibble just a bit at some of them. That’s up to you, but please know that I’m here to help you with your investing decisions, so please don’t hesitate to reach out to me.
In the meantime, I—and our contributors—are very busy trying to find some great recommendations that will help your portfolio recover, once normalcy returns to the markets.
That doesn’t mean Sell everything in your portfolio. Remember, you don’t have real losses until you sell your stocks. But it does mean if you are holding on to some stocks that weren’t doing well before the coronavirus outbreak, it might be a good idea to think about unloading them. But being defensive also means being judicious when buying. For the near future, I’m going to include this message in all my writings, as an alert that, certainly, you may buy these recommendations, but for most of us, they will provide entries into a ‘watch’ list that can be acted upon as the volatility disperses. Or you may find that you might want to nibble just a bit at some of them. That’s up to you, but please know that I’m here to help you with your investing decisions, so please don’t hesitate to reach out to me.
In the meantime, I—and our contributors—are very busy trying to find some great recommendations that will help your portfolio recover, once normalcy returns to the markets.
Well, March in the markets certainly came in like a lion, didn’t it? And it looks like it may end the month the same way. Until we make progress in defeating the coronavirus, we expect continued volatility in the markets, and we recommend that you remain defensive.
That doesn’t mean Sell everything in your portfolio. Remember, you don’t have real losses until you sell your stocks. But it does mean if you are holding on to some stocks that weren’t doing well before the coronavirus outbreak, it might be a good idea to think about unloading them. But being defensive also means being judicious when buying. For the near future, I’m going to include this message in all my writings, as an alert that, certainly, you may buy these recommendations, but for most of us, they will provide entries into a ‘watch’ list that can be acted upon as the volatility disperses. Or you may find that you might want to nibble just a bit at some of them. That’s up to you, but please know that I’m here to help you with your investing decisions, so please don’t hesitate to reach out to me.
In the meantime, I—and our contributors—are very busy trying to find some great recommendations that will help your portfolio recover, once normalcy returns to the markets.
Read the Issue for more details.
That doesn’t mean Sell everything in your portfolio. Remember, you don’t have real losses until you sell your stocks. But it does mean if you are holding on to some stocks that weren’t doing well before the coronavirus outbreak, it might be a good idea to think about unloading them. But being defensive also means being judicious when buying. For the near future, I’m going to include this message in all my writings, as an alert that, certainly, you may buy these recommendations, but for most of us, they will provide entries into a ‘watch’ list that can be acted upon as the volatility disperses. Or you may find that you might want to nibble just a bit at some of them. That’s up to you, but please know that I’m here to help you with your investing decisions, so please don’t hesitate to reach out to me.
In the meantime, I—and our contributors—are very busy trying to find some great recommendations that will help your portfolio recover, once normalcy returns to the markets.
Read the Issue for more details.
Market volatility and weakness accelerated this week through Wednesday though U.S. Senate passage of a “bailout” measure may lead to a rebound on Thursday. In general, you should sell into strength and cautiously buy into weakness. Our emerging market signal is decidedly negative with the EEM down to 30 from a mid-January high of 46. It has not been at this low a level since early 2016 and got down to 20 at the bottom of the global financial crisis in 2008. Today we do a little selling, increase our S&P 500 Inverse ETF position marginally and add JPMorgan (JPM) to the watch list.
As the bear market continues and stocks swing wildly we have some sage advice regarding what to expect over the coming weeks. The first part of this months Issue is all about understanding the environment. We’ll get into stock talk tomorrow.
There’s obviously a lot of uncertainty when it comes to all earnings forecasts for 2020, and it’s pretty much a given that this stock itself will miss initial forecasts in Q1. But the company looks poised to be one of the blue-chips best positioned to rebound whenever the virus storm passes.
Current Market OutlookFirst and foremost, with the virus now affecting most everyone, all of us here at Cabot are hoping you stay safe (and if you’re home with your kids, sane!). As for the market, there’s not much to say except the obvious: We remain in a very steep selloff, with bounces limited to a couple of hours, though we’re seeing such crazy extremes (price and sentiment) that a near-term low is possible at any time. Our advice really hasn’t changed despite the once-in-a-lifetime action of the past couple of weeks: You should remain cautious, holding plenty of cash and keeping any new buying on the small side. Eventually, there will be huge opportunities, but we need to see the market and potential leading stocks find support before thinking a workable low could be in.
In the meantime, we’re mostly focused on eying stocks that are showing some resilience—if something can hold up in this disaster, it’s definitely worth at least keeping a close eye on. Our Top Pick is Masimo (MASI), which could be a port in the virus storm.
| Stock Name | Price | ||
|---|---|---|---|
| Acceleron Pharma (XLRN) | 75.11 | ||
| Apple (AAPL) | 248.94 | ||
| Bilibili (BILI) | 28.71 | ||
| DocuSign (DOCU) | 107.98 | ||
| Equinix, Inc. (EQIX) | 547.73 | ||
| FTI Consulting (FCN) | 120.09 | ||
| Inphi (IPHI) | 120.16 | ||
| Masimo (MASI) | 159.56 | ||
| Repligen (RGEN) | 91.34 | ||
| TAL Education (TAL) | 50.49 |
Just when you start to think this coronavirus crash will never end—it will. And our goal is to have a portfolio of healthy stocks when that day arrives. In the meantime, our selling has increased our cash position significantly—and there are two more recommended sales today.
As for new buying—there aren’t a lot of healthy stocks to choose from, regardless of whether you’re looking for low-risk or high-risk, but one that stands out is today’s recommendation, which benefits from the booming growth in working-from-home (WFH).
Full details in the issue.
As for new buying—there aren’t a lot of healthy stocks to choose from, regardless of whether you’re looking for low-risk or high-risk, but one that stands out is today’s recommendation, which benefits from the booming growth in working-from-home (WFH).
Full details in the issue.
The market has crashed during the past three weeks, with the major indexes down 25%-plus and many stocks down much more than that. We’re seeing some truly historic oversold extremes, which tell us a bounce could get underway at any time, but we’re also not seeing the market able to bounce from those extremes. The bottom line is the same as it’s been since late February: The sellers remain in control of the market and the vast majority of stocks, so we’re holding plenty of cash and paring back as need be.
Bigger picture, the market (and the country) will get through this pandemic in time, so it’s important not to lose your cool. There will be big money to be made down the road, and we’re on the hunt for stocks showing some minor relative strength and studying up on some new stories (a couple of which we highlight in the issue). But the goal is to get to the next uptrend in one piece--right now, you should respect the action and remain defensive.
Bigger picture, the market (and the country) will get through this pandemic in time, so it’s important not to lose your cool. There will be big money to be made down the road, and we’re on the hunt for stocks showing some minor relative strength and studying up on some new stories (a couple of which we highlight in the issue). But the goal is to get to the next uptrend in one piece--right now, you should respect the action and remain defensive.
Updates
Nine Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news.
The market continues to act well following last week’s whipsaw buy signal. There are still obvious resistance levels for the major indexes to deal with, but all three of our market timing indicators are bullish and more stocks are acting well. We’ll stand pat tonight with our eight stocks and 20% cash position in the Model Portfolio, though further strength (especially among individual stocks) would prompt us to put our remaining cash to work.
Cabot’s market timing indicators show that the intermediate- and longer-term trends of the market are both up, so you can continue to put money to work judiciously. We have one ratings change today—PGX to Hold—but most of our holdings were very quiet over the past week.
For now, based on S&P trends, economic growth and the proliferation of easily identifiable undervalued growth stocks, I remain bullish on U.S. stock markets. I’m raising the rating on Big Lots (BIG) to Strong Buy, raising the rating on FedEx (FDX) to Buy, and lowering the ratings on Cardinal Health (CAH) and Intuit (INTU) to Hold.
Small caps made a heck of a move over the past week to close just below 700 on the S&P 600. That 4.3% move was led by growth (up 4.6%). Sector wise, tech led the charge with a 6.2% rally.
Continue to hold your best stocks, but also hold some cash until our market timing turns positive. This week’s action has been encouraging, but with our Emerging Markets Timer still negative, we have to wait a bit longer before putting cash to work. Tonight, we’re selling our remaining half position in Volaris (VLRS), leaving us with about 35% cash in the portfolio.
There’s a lot of talk about the Federal Reserve potentially increasing the Fed funds rate in June or July. Such a move would be positive for most financial stocks because they’d earn increased fees on their customers’ deposits, thereby boosting EPS. There are two financial stocks that are affected by rising interest rates in the Cabot Undervalued Stocks portfolios: E*Trade (ETFC) and Federated Investors (FII)
Six Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news.
This is one of those periods where it’s impossible to know what’s going to happen next given all the variables. So it’s better to look at the big picture trends and not try to get too cute in the short-term. For us, that means sticking with what we have been doing, since nothing is fundamentally or technically broken.
Pull in your horns a bit. In last night’s Special Bulletin, we cut our loss in Kate Spade and moved our Five Below and Sabre to Hold. Our Cabot Tides are now on the fence, though our Cabot Trend Lines and Two-Second Indicator remain positive. We now have 30% cash in the Model Portfolio, with our next move depending on whether the major indexes can hold support.
Cabot’s intermediate-term market timing indicators are now on the fence, and I recommend holding off on significant new buying for now, unless you’re substantially underinvested. We’re not selling anything today, but I am putting Xcel Energy (XEL) on Hold.
A couple of weeks ago, I bought Kraft Heinz (KHC), and caught the early-May run-up. And if I were buying a stock today, I’d go straight to Adobe Systems (ADBE) because it appears ready to climb, just like KHC did.
Alerts
This insurance company beat analysts’ earnings estimates by $0.25 last quarter.
This medical device company beat analysts’ EPS estimates by $0.18 last quarter.
The Marijuana Index is trending upwards, as it has been since mid-August, but is still short of exceeding its January high, and thus the advance is likely to continue.
This party retailer just announced it would acquire a master franchise group representing 21 franchise stores in the Minnesota, North Dakota and Texas markets.
In the past 30 days, 10 analysts have increased the earnings estimates for this consumer company.
In the last 30 days, six analysts have raised their 2019 EPS forecasts and nine have increased their 2020 forecasts for this beauty company.
This pharma company just announced its intention to acquire Biscayne Neurotherapeutics, a privately-held company developing a novel treatment for epilepsy.
Analysts expect this biotech company to grow at an annual rate of 23.9% over the next five years.
This ETF goal is to provide investment results that correspond to twice (200%) the inverse of the daily performance of the Bloomberg WTI Crude Oil SubindexSM.
Two of our medical device stocks have begun to look a little shaky and today we’ll pull back on the reins and move these stocks from buy to hold, at least until the path forward becomes more clear.
The top five sectors of this small cap fund are: Industrials, 28.7% of assets; Technology, 18.0%; Health Care, 16.1%; Financials, 13.6%; and Consumer Discretionary, 11.3%.
This is an unscheduled interim update with three goals. Most importantly, keep in mind this is a marathon not a sprint.
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.