Issues
Today’s Cabot Small-Cap Confidential addition isn’t a cloud-based software provider. But it is a perfect example of what I’ve been talking about – a company in an established industry that’s shaking things up largely because cloud-based technologies are at the center of its DNA. The company’s platform is helping it grow roughly 10 times faster than its industry average, while delivering profits.
It’s an exciting story that I’ve been looking forward to sharing with you. Enjoy!
It’s an exciting story that I’ve been looking forward to sharing with you. Enjoy!
The general trend in emerging market stocks has gone from bad to worse, and we have responded by moving heavily into cash. And although this isn’t as much fun as picking out the big winners from among a stampeding herd of strong stocks, it’s the price we have to pay to play profitably in a volatile market. Today we’re featuring a relatively conservative stock that sports strong fundamentals and a tidy dividend.
The market’s main trends remain up, and thus I remain bullish, while continuing to remind you that a balanced portfolio with attention to risk management is always smart.
We’re up to 31 stocks in the portfolios, and that’s too many! I’m hoping for a surge in the broader market so that half a dozen of our stocks reach their target prices, and I can then pare back the portfolios a bit.
Current Market OutlookAfter what was basically a straight-up move for the major indexes and many leading stocks during the past three weeks (including a few names that got out of trend on the upside), big investors came back from the beach today and took some profits. And short-term, further retrenchment is possible, so don’t be surprised to see a few potholes or rotation show up. But bigger picture, the trends of the indexes are pointed up, leading stocks are acting well and we’re pleased to see buying pressures broadening (more new highs) and selling pressure fading (relatively few new lows). It’s still a good idea to pick your spots and take a partial profit or two on the way up, but we remain bullish and see the odds favoring higher prices in the weeks ahead.
This week’s list has a wide mix of stocks and sectors, reflecting the broadening of the market’s advance. Our Top Pick is Semtech (SMTC), a smaller chip maker with a pretty chart and excellent growth.
| Stock Name | Price | ||
|---|---|---|---|
| Allison Transmission (ALSN) | 51.79 | ||
| Ciena (CIEN) | 44.25 | ||
| DSW Inc. (DSW) | 31.82 | ||
| Exact Sciences (EXAS) | 116.91 | ||
| HCA Healthcare (HCA) | 137.60 | ||
| iRobot (IRBT) | 103.17 | ||
| NVIDIA Corporation (NVDA) | 242.42 | ||
| Semtech (SMTC) | 51.09 | ||
| Veeva Systems (VEEV) | 180.23 | ||
| Wayfair (W) | 167.03 |
As marijuana stocks have blasted off over the past couple of weeks, it’s become clear that institutional money is entering the sector—and this is good. We like having institutions confirm our early judgment that the cannabis industry is a great place to invest, probably the greatest growth sector of our time.
The most bullish thing a market can do is hit new highs, and that’s what we’ve seen from this market in recent days, with most indexes and stocks participating on the upside. And with interest rates remaining tame, our dividend stocks have been doing well, too.
All of this is good, though it makes this month’s choice of a featured stock a bit more difficult, as many names are a bit extended to the upside. In the end, I went with a strong stock that gives us leverage to the strong U.S. economy—both the stock and dividend payment are likely to head higher over time.
All of this is good, though it makes this month’s choice of a featured stock a bit more difficult, as many names are a bit extended to the upside. In the end, I went with a strong stock that gives us leverage to the strong U.S. economy—both the stock and dividend payment are likely to head higher over time.
The market overall and growth stocks in particular have shown great improvement during the past two to three weeks, with the major indexes hitting new highs and selling pressure drying up.
Granted, it’s late August, so we’ll see what big investors do when they come back from the beach next week, but given the evidence we’re continuing to put money to work. Tonight, we’re adding one new name, leaving us with around 17% in cash.
Granted, it’s late August, so we’ll see what big investors do when they come back from the beach next week, but given the evidence we’re continuing to put money to work. Tonight, we’re adding one new name, leaving us with around 17% in cash.
The market’s main trends remain up, and thus I remain bullish, while continuing to remind you that a balanced portfolio with attention to risk management is always smart.
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 company is transforming itself into a player in the automotive, avionics, and B2B arena.
This chemical company has a ‘1’, or strong buy rating by Wall Street analysts. The shares recently crossed over their 50-day moving average, a bullish indicator.
Celanese Corp. (CE 96.80) reached its Minimum Sell Price of 96.66 today, June 19.
As shares of one of our financial services companies approach long-term price resistance, I’m moving the stock from Strong Buy to Hold, simply because there’s less capital gain potential in the near-term.
Our first idea is an industrial company that clobbered estimates for eight consecutive quarters.
Our second recommendation is some great profit-taking on a previous selection.
Three analysts have raised their earnings estimates for this tech company in the past month, and Wall Street is predicting double-digit growth for the next five years.
One of our stocks moves from Buy to Hold. The company cut the dividend and is implementing a new business plan. The outlook is positive.
We’re starting to see a little uptick in trading ranges, especially among our technology stocks. Given that market risks seem to be on the rise and there is some rotation out of tech stocks (at least for the moment), I’m advising that you take partial profits in two of our outperforming software positions today. Plus, I suggest stepping away from one underperforming position.
Our first idea is a medical device company that is growing at a double-digit rate. The shares are rated ‘Strong Buy’ by Zack’s, citing the company’s growth and rising estimates.
Our second recommendation is a sale of a previous idea.
This medical device company beat analysts’ estimates by $0.07 last quarter.
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.