Issues
Bullish sentiment remains high, both for investors and advisors. And one contributor also believes that the market is becoming more attractive for gold investors. Our Spotlight Stock is a two-pronged recommendation, as the company is benefiting from owning and selling off its land holdings, which also happen to be in one of the most profitable oil regions in the country. As I explain in my Feature article, this oil basin is nowhere near depletion, so the profits should continue to roll in for many years.
The year is poised to end on a high note, as the major indexes continue to hit new highs, with the Dow hitting a record number of new all-time highs this calendar year.
As 2017 comes to a close, we all have a lot to be thankful for, as the bull market provided us with a great environment for stock picking. There’s always room for improvement (which we’ll probably write about in future issues), but coming into this week the Model Portfolio was sitting on a gain north of 40%. We’ll take it.
Looking ahead, we remain bullish, especially longer-term, as some big-picture indicators point toward higher prices. Near-term, though, it’s hard to ignore the optimistic sentiment, which we write about in today’s issue. It’s very inexact, so we don’t base trading decisions on it, but it’s good to remember to keep your eyes (and your options) open.
Looking ahead, we remain bullish, especially longer-term, as some big-picture indicators point toward higher prices. Near-term, though, it’s hard to ignore the optimistic sentiment, which we write about in today’s issue. It’s very inexact, so we don’t base trading decisions on it, but it’s good to remember to keep your eyes (and your options) open.
Today’s recommendation is a medical device company whose one product—an insulin delivery system for diabetics—is growing market share rapidly.
Current Market OutlookThe major indexes boomed again today, with three of the five we track (S&P 500, Nasdaq and NYSE Composite) all notching all-time highs. We would point out that today’s move came on obvious news (likelihood of corporate tax cuts), and that sentiment is getting hot and heavy, which increases the risk of a market pullback or a generally trickier environment (rotation, choppy trading, etc.). Thus, you want to keep your feet on the ground and be sure you’re looking for decent entry points and honoring your stops. But there’s no question the majority of evidence remains solidly positive, and until that changes, you should remain in a bullish frame of mind.
Not surprisingly, this week’s list has many strong charts in a bunch of different industries. Our Top Pick is Urban Outfitters (URBN), a solid turnaround situation in a newly leading sector. Try to buy on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Canada Goose Holdings (GOOS) | 46.21 | ||
| CF Industries (CF) | 45.23 | ||
| Cree, Inc. (CREE) | 67.96 | ||
| KB Home (KBH) | 36.05 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| MercadoLibre, Inc. (MELI) | 980.83 | ||
| PRA Health Sciences Inc. (PRAH) | 96.08 | ||
| Sage Therapeutics (SAGE) | 0.00 | ||
| SVB Financial Group (SIVB) | 0.00 | ||
| Urban Outfitters (URBN) | 0.00 |
Since the last issue, five stocks have declined and 10 gained more than 10%. Many are now at or near fair value, and eight are rated Sell or Sell a Portion. Also in this issue, I recommend two new stocks and profile a new small-cap stock that’s on my watch list.
The Cabot Emerging Markets Timer is sitting firmly on the fence and some of our stocks are taking breathers. It’s not anything like a time to over-react, but we’re pulling in our horns in an appropriate way. We also have a new stock that does a brilliant job of balancing a national presence with thorough local focus.
As you’ll see in our Market Views, our contributors remain bullish, as do the Advisor and Investor Surveys we follow. And our contributors continue to find investing ideas with which to stuff your stocking—in just about every sector.
The market weakness that I mentioned last week has vanished, and with it my cautious stance. Thus, this week’s stock is what we call a zinger—a stock that has been hot, and will likely remain hot for a substantially longer period of time as investors learn about its great growth story.
Current Market OutlookGrowth stocks have stabilized and the market has quieted down following the sharp Nasdaq-led selloff, allowing some stocks to bounce back nicely and other new leaders to flex their muscle. Short-term, we wouldn’t be surprised to see some follow-on selling in some of the damaged areas (we still think chip stocks, for instance, look iffy), and some year-end uncertainties (tax reform, government shutdown) could always cause some wobbles. But you know us—we go with the evidence in front of us, and with the major trends of the major indexes and most leading stocks pointed up, we remain mostly bullish. As always, you want to sell stocks that are breaking down and focus new buying on fresher leadership stocks that have shown excellent volume clues.
There are many such examples in this week’s list, which has a wide variety of good-looking charts and stories to choose from. Our Top Pick is Etsy (ETSY), a niche online retailer that’s just turning profitable and has powerfully broken out during the past week.
| Stock Name | Price | ||
|---|---|---|---|
| Ally Financial (ALLY) | 30.44 | ||
| Boise Cascade (BCC) | 0.00 | ||
| Charles Schwab (SCHW) | 0.00 | ||
| D. R. Horton (DHI) | 66.55 | ||
| Etsy (ETSY) | 112.97 | ||
| First Solar (FSLR) | 83.74 | ||
| G-III Apparel (GIII) | 45.25 | ||
| Global Blood Therapeutics (GBT) | 0.00 | ||
| NetApp (NTAP) | 0.00 | ||
| Roku, Inc. (ROKU) | 150.46 |
Updates
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.
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.
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.
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.
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.
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.
Alerts
We have many stocks moving right now. I thought you’d like a quick, brief update so that you’re not wondering what to do. One Sell: Big Lots (BIG).
Toll Brothers (TOL) reported earnings blowout and the stock is rising; maintain Buy. BorgWarner (BWA) stock is rising; rating change to Hold. Also, brief notes on Applied Materials (AMAT), Archer Daniels Midland (ADM), Big Lots (BIG) and Tesoro (TSO).
Brokerage firm Jefferies also likes our first idea—a media company, saying it’s a great buy, based on valuation and international growth prospects. Our second recommendation is a sale of a pharmacy stock.
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.