Issues
October has been a challenging month for many investors, but dividend stocks and income investments have been a rare safe haven. After a few sells last week, our portfolio is looking ready for whatever November throws at us. So far, investors are optimistic about turning the calendar page: the market managed to rally yesterday and then opened higher today.
However, we’re not out of the woods yet, and as always, I recommend sticking with what’s working. That’s why today I’m adding another conservative consumer staples stock to the Safe Income tier, which I expect to provide us with a secure income stream for a long time.
Read the whole issue for the story, plus earnings updates on many of our holdings, and a look into why REITs have been doing so well recently.
However, we’re not out of the woods yet, and as always, I recommend sticking with what’s working. That’s why today I’m adding another conservative consumer staples stock to the Safe Income tier, which I expect to provide us with a secure income stream for a long time.
Read the whole issue for the story, plus earnings updates on many of our holdings, and a look into why REITs have been doing so well recently.
After six consecutive weeks down, the market has generally given up all its gains for the year; taking profits when they were there was definitely wise. But this week the market is up—so far—and I’m watching carefully to see which of our stocks bounce like tennis balls—and which bounce like eggs. The best tennis balls can still be your road to profits.
Overall, though, the climate is definitely unsupportive, and thus a defensive stance, including plenty of cash, is warranted.
Overall, though, the climate is definitely unsupportive, and thus a defensive stance, including plenty of cash, is warranted.
Current Market OutlookStocks had another punishing week, with all the major indexes off at least 3% and many individual stocks doing much worse than that. Yes, the market remains stretched to the downside, with numerous oversold-type readings and some measures of sentiment that are showing greater caution. But at this point, any bounces have lasted just hours, and the intermediate-term trend remains firmly down (the major indexes are also below all longer-term moving averages), so we advise waiting patiently for the bulls to offer support; our Market Monitor drops to a level 3 in today’s issue. The ray of light is that, as earnings season has progressed, we’re beginning to see some solid reactions, often from names that didn’t do much in the last uptrend. These are names to keep an eye on for potential leadership down the road.
This week’s Top Ten has the first batch of earnings winners and other resilient stocks showing some big-volume accumulation. Our Top Pick is Tractor Supply (TSCO), a steady company that’s found excellent earnings-induced support, even hitting a new high today. If you want in, aim to nibble on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| ACADIA Pharmaceuticals (ACAD) | 47.84 | ||
| Burlington Stores (BURL) | 193.95 | ||
| Cadence Design (CDNS) | 42.95 | ||
| Jacobs Engineering Group (JEC) | 89.83 | ||
| Mellanox Technologies (MLNX) | 92.00 | ||
| MongoDB (MDB) | 156.56 | ||
| PayPal (PYPL) | 147.00 | ||
| Tesla, Inc. (TSLA) | 818.87 | ||
| Tractor Supply Company (TSCO) | 122.24 | ||
| Xilinx (XLNX) | 134.50 |
Hopefully, you took some profits last week as I advised. It’s been a rough week since then, but it wasn’t unexpected. The well-publicized legalization day in Canada was exactly the type of event that often accompanies market tops.
Of course, it’s not just the marijuana stocks that have been sinking; the broad stock market is trending down as well.
But have no fear! The key to successful investing in this sector is to hold cash when the environment is against you, and to invest in great growth companies when trends are positive, and to take partial profits—as we did last week—when stocks get frothy.
Of course, it’s not just the marijuana stocks that have been sinking; the broad stock market is trending down as well.
But have no fear! The key to successful investing in this sector is to hold cash when the environment is against you, and to invest in great growth companies when trends are positive, and to take partial profits—as we did last week—when stocks get frothy.
The market’s downturn continues, with the trends of the major indexes and most growth stocks clearly down. Our longer-term Cabot Trend Lines even turned negative last Friday, reinforcing the view that the sellers are in control.
The market decline of the past month has turned Cabot’s long-term trend-following indicator negative (after 30 months on the positive side), so it’s time to recognize that the tide is now going out. Defense is now a major part of the game.
Current Market OutlookThe day-to-day (and sometimes hour-by-hour) action remains very volatile, with headlines (both company-specific and economic) coming at investors quickly. But taking a step back, not much has changed—the intermediate-term trend is pointed down and the vast majority of leading stocks are in the same boat, with a good amount of damage on their charts that will likely take time to repair. That doesn’t mean you should stick your head in the sand; odds favor earnings season allowing some names to grab pole position for the next market uptrend. But right now, it’s best to remain defensive as we wait for the market to find some strong support and more stocks to build launching pads. Our Market Monitor remains at a level 4 today.
This week’s list includes a broad mix of stocks and sectors, including one very new IPO and a couple of special situations. Our Top Pick, though, is Ciena (CIEN), the mid-sized networking outfit that looks ready for a sustained upturn once the pressure comes off the market.
| Stock Name | Price | ||
|---|---|---|---|
| Ciena (CIEN) | 44.25 | ||
| Dine Brands (DIN) | 93.05 | ||
| Eli Lilly (LLY) | 117.78 | ||
| GasLog (GLOG) | 21.39 | ||
| Guardant Health (GH) | 88.34 | ||
| Intelsat (I) | 25.46 | ||
| Ollie’s Bargain Outlet (OLLI) | 103.94 | ||
| Spirit Airlines (SAVE) | 57.03 | ||
| Tabula Rasa Healthcare (TRHC) | 76.14 | ||
| United Continental Holdings (UAL) | 96.76 |
The emerging market sector remains in a downtrend as we patiently await the buyers to arrive. When they do, we fully expect a profitable, sustained uptrend given the persistent decline this year, but until that happens, it’s best to stay mostly on the sideline.
There is one area in the EM world that’s doing well, though, and in tonight’s issue, our new recommendation is a mega-cap stock from that country. It’s a familiar name, is part of a resilient sector and has huge turnaround potential.
There is one area in the EM world that’s doing well, though, and in tonight’s issue, our new recommendation is a mega-cap stock from that country. It’s a familiar name, is part of a resilient sector and has huge turnaround potential.
Updates
[Note: The Cabot Turnaround Letter weekly update won’t be published next Friday, June 19, due to the market being closed for the Juneteenth holiday.]
Before we get into the main topic for today’s newsletter update, a quick note on the portfolio is in order. I’m continuing our “spring cleaning” effort that we began last week by trimming a couple more of our holdings, but I’m also adding a new position to take the place of the recent deletions.
Before we get into the main topic for today’s newsletter update, a quick note on the portfolio is in order. I’m continuing our “spring cleaning” effort that we began last week by trimming a couple more of our holdings, but I’m also adding a new position to take the place of the recent deletions.
After two near-record-setting months, stocks are encountering their first real turbulence since March. It’s no surprise.
While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.
While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.
Stocks look set to enter the summer near all-time highs, but leadership has narrowed, volatility has ticked up, and there’s been renewed scrutiny on the AI trade and valuation concerns in some of the market’s biggest winners.
At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.
At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.
Tech, commodity, AI, and Explorer stocks struggled this week as concern over capital expenditures increased. Mideast tensions intensified and inflation numbers came in yesterday at their highest rate in over three years, fueled by rising energy costs. The combination of anticipated higher interest rates and rising bond yields impacted the price of precious metals, with gold sliding below $4,200 an ounce and silver falling below $64 an ounce.
Stocks look to enter summer near all-time highs, but leadership has narrowed and volatility has ticked up thanks to renewed scrutiny on the AI trade and open-ended questions about valuations in some of the hottest areas of the market.
There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.
There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.
The high-flying AI stocks got crushed on Friday. But those stocks started this week higher. Where do we go from here?
The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.
The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.
A major economic narrative that took shape in recent years was the decline and (presumptive) inevitable death of the so-called “petrodollar,” as a growing number of countries diversified their foreign exchange reserves away from the U.S. dollar and toward gold and alternative currencies like the Chinese yuan.
WHAT TO DO NOW: The overall market remains in good shape, though we are seeing some exuberance on the upside and also a few leaders begin to act sloppy. Near term, then, it’s still a coin flip as to what comes, but the vast majority of intermediate-term evidence remains bullish. In the Model Portfolio, we took partial profits in Marvell (MRVL) earlier this week; tonight, we’re buying a half-sized position (5% of the account) in Bloom Energy (BE), which is extremely volatile but also strong and coming off a few weeks of rest. Our cash position will now be around 28%.
This market just keeps going higher.
Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.
Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.
Despite the negative headlines and volatility, stocks just keep going.
After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.
After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.
This week’s Memorial Day observance marked the traditional onset of the summer vacation season for millions of Americans. It’s a time of traveling, sightseeing, picnics and parties. It’s also the peak season for enjoying cold, carbonated beverages like soda pop and energy drinks.
With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.
With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.
On the heels of a miserable March and a euphoric April, I wrote several weeks ago in this space that I thought May would determine which direction the market is truly headed, at least in the intermediate term. We have our answer, and it’s a definitive “up.”
All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.
All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.
Alerts
This credit card marketer beat analysts’ estimates by $0.10 in its most recent quarter.
Legg Mason and Total exceeded all analysts’ earnings per share (EPS) estimates and Invesco reached the highest analyst estimate. Boise Cascade fell short of the consensus estimate, although the stock broke out on the upside today.
In the last 30 days, four analysts have boosted their EPS forecasts for this industrial company. But the shares are still trading at bargain levels.
Two of our stocks report second-quarter earnings beats, one stock moves from Buy to Hold, and a good buying opportunity.
The shares of this cosmetics company were initiated at Jefferies as a ‘Buy’ last month. In the company’s recent quarter, it beat analysts’ estimates by $0.04.
One of our stocks reported a second-quarter earnings beat, there’s strength in steel stocks today, and one stock moves from Buy to Hold.
This payments company beat analysts’ estimates by $0.09 last quarter. Wall Street expects the company to grow by double-digits in the next five years.
Estimates are rising for this cyber security company, and the valuation remains attractive.
Our first idea is a tech company whose shares just crossed over their 50-day moving average—a bullish indicator. Our second recommendation is profit-taking on a previous pick.
Our second recommendation is profit-taking on a previous pick.
Updates on three of our stocks, including one rating change. Also, three excellent stocks to buy now.
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.