The market continues to zoom higher amid a vacuum of selling pressure. In the short-term, though, we’re not seeing a lot of stocks at great entry points and earnings season is coming up, both of which could lead to some pullback or retrenchment, at least on a stock-by-stock basis. But longer-term, there are many positives that tell us the odds strongly favor higher prices down the road.

While the broad market returns were fantastic in 2017, there was no stopping our contributors, whose Top 5 Picks gained an average of 72.83%! And in today’s 2018 Top Picks issue, you’ll find a great selection of investments, distributed among almost every sector and investing style.

The market has been hot as a pistol in recent days, and today, after a hot open, stocks rolled over and finished down. Odds are that this downward movement could turn into a real correction. But it’s important not to predict; it’s much more profitable to simply observe the trends and invest in sync with them. Today’s recommendation is a hot little medical stock with a great service.

Current Market Outlook


Stocks had another great week, with the major indexes and most leading stocks levitating higher amidst a vacuum of selling pressure. There’s no question things are a bit bubbly here, with most things trading miles above support and moving averages, and as investor sentiment shifts toward greed. Still, more important to us are the intermediate-term trend (clearly up) and the fact that momentum like we’re seeing generally leads to higher prices down the road. Thus, overall, you should remain bullish, but (a) we still favor being choosy on the buy side, looking for pullbacks and shakeouts in stocks that have shown excellent strength and persistency, and (b) having a plan as we enter earnings season, including looking for new leadership that emerges.

This week’s list has something for everyone, from hot growth stocks to news-driven moves to some turnaround situations. Our Top Pick is Red Rock Resorts (RRR), which is part of the strong gaming group and has began to take a breather after a persistent advance.

Stock Name	Price	Buy Range	Loss Limit
Abercrombie & Fitch (ANF)	15.37	18-19	16-16.8
Arch Coal (ARCH)	82.27	92-95	85.5-87.5
Express Scripts Holding Company (ESRX)	79.25	76.5-79.5	70-72
Heron Therapeutics (HRTX)	35.25	19.5-21	17.5-18.5
Matador Resources Company (MTDR)	27.89	30.5-32	28-29
Nucor Corporation (NUE)	66.20	66-69	61.5-63
Red Rock Resorts (RRR)	34.70	32.5-34	30-31
Stifel Financial (SF)	56.32	63-66	58-59.5
Universal Display (OLED)	187.54	188-198	167-175
Wingstop (WING)	121.52	42.5-44	39.5-40.5

2017 was a great year for investing in stocks. In this issue, I briefly review my recommendations and market performance in the past year. I also introduce a new stock in the retail space, move one stock to Hold and another stock to Sell.

The year began with five straight days of advances for emerging market stocks, which was pleasant. And the little rap on the knuckles from the market on Tuesday and Wednesday brought us back to reality without doing much damage. So the bottom line is that our stock universe is still in an uptrend and the prospects for 2018 looks just fine.

Our contributors are stock-picking experts, utilizing their various investment styles to offer investors a wide range of strategies through up and down markets. And their track records are impressive. While the market’s double-digit gains of 2017 were fantastic, our contributors did even better.
Now, we move ahead to 2018, and this issue is packed full of exciting opportunities among very diversified sectors and investing styles.

Today’s recommendation is a familiar name, not because I’ve recommended the stock before (I haven’t) but because the company’s creations are enjoyed by millions of Americans and a major new acquisition will only increase the company’s reach.

Current Market Outlook


It’s been a great start to the year, with most areas and indexes shooting ahead on solid volume in recent days. We’re still seeing some wild moves (up and down), which is par for the course for early January and you can expect volatility among individual names to remain elevated in the near-term. Our focus is always on the intermediate- to longer-term, so while there remain some near-term yellow flags (with many stocks extended to the upside and with sentiment bubbly, you should pick your spots on the buy side), the positive price and volume action keeps us bullish.

This week’s list is about evenly split between growth stocks and industrial/commodity stocks, which tells you how broad the advance has been. Our Top Pick is Commercial Metals (CMC), a mid-sized steel-related outfit that just catapulted out of a huge base on earnings. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	0.00	51-53	47-49
Autohome (ATHM)	98.65	70-73	65-67
Commercial Metals (CMC)	0.00	23.5-25	21-22
Dycom Industries (DY)	0.00	109-113	99-101
Lear Corp. (LEA)	0.00	184-188	173-176
Lennar (LEN)	61.85	64-66.5	60-62
Netflix, Inc. (NFLX)	423.92	204-210	191-194
Splunk (SPLK)	207.67	85-88	79-80.5
Steel Dynamics (STLD)	0.00	44-46	40.5-41.5
Twitter (TWTR)	40.37	23-24.5	21-22

Has there ever been anything as overvalued as SpaceX (SPCX)?

Elon Musk’s rocket and space-based internet company reported $18.7 billion in revenue in 2025. That’s less than half the revenue declining electronics store chain Best Buy (BBY, $41.7 billion) generated last year, less than International Paper Company (IP, $23.6 billion), and barely more than Casey’s General Stores (CASY, $17.6 billion). Those three companies have a combined market cap of roughly $67 billion. As of this writing, SpaceX has a market cap of $2.7 trillion. That’s more than the combined market cap of Walmart (WMT), JPMorgan (JPM) and Visa (V). Together, those three companies generated $847 billion in revenue last year.

Small caps continue to hold up well. The S&P 600 Small Cap Index is up modestly since last Thursday and is trading just below the fresh all-time highs it hit earlier this week. The group’s resilience stands out, especially against a backdrop of narrowing leadership and ongoing rotation beneath the market’s surface.

The main macro development this week was the Fed’s June meeting and Chair Kevin Warsh’s press conference, which confirmed a shift in policy direction.

WHAT TO DO NOW: The market’s bounce has been a good one, and the intermediate-term outlook remains bright. That said, near term, there are still some crosscurrents (rotation into the broad market, Dow outperforming the Nasdaq) that tell us growth stocks could throw us another curveball in the coming week or two. Overall, then, we’re mostly standing pat, but we’re going to add a half-sized stake in Guardant Health (GH) here, leaving us with a still-good-sized cash position of 37% or so. Details below.

Stocks started this week with a huge rally as the Iran ceasefire deal appears to be the real thing.

Of course, it’s been months of supposed peace deals falling apart. It’s hard to believe. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons.

Stocks are starting off this week with a huge rally as the U.S. and Iran have reached a ceasefire deal.

We’ve been here before. These peace deals have fallen apart several times. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons. First, it’s the furthest a peace deal has gotten with both sides agreeing and independent verification from Pakistan. Second, this is what a peace deal would look like at this point if it’s real and lasting.

[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.

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.

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.

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%.

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.

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.

I’m moving two growth stocks from Hold to Buy today, Boise Cascade (BCC) and Goldman Sachs (GS), and provide an update on General Motors (GM)—which is no longer in the Cabot Undervalued Stocks Advisor portfolios—and recommendations on the best stocks to buy today.

Before the opening bell today, one of our stocks issued preliminary Q4 2016 results that came in below expectations.

Applied Materials (AMAT) moves from the Growth & Income Portfolio to the Growth Portfolio, and I suggest three semiconductor stocks for your consideration.

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.