We’ve pared back during the past few days in the Model Portfolio, but we\'re not sticking our heads in the sand and are giving our profitable stocks room to consolidate. In tonight’s issue, we dive into our game plan for our remaining stocks, and we also do some sector analysis, including two areas that are launching new leaders.

Today’s featured stocks include two new additions to the portfolios and a stock that seems ready for a huge price rebound.

Today’s recommended stock is an old-world company in a prosaic business, and its prospects are bright as it reaps improved efficiencies from its recent big merger.

Current Market Outlook


The past week saw yet another round of rotation, but this one was the sharpest and most violent we’ve seen all year, with many leading growth stocks getting crunched while other areas of the market (especially those benefiting from likely lower corporate taxes) surged. Our advice, as usual, is to follow the plan—some growth stocks look very toppy after long, uninterrupted runs, and for those, selling (or partial selling) makes sense. But other growth stocks are pulling back normally, and some new leadership is emerging. It makes sense to pull in your horns a bit, possibly holding some cash until the market settles down; we’ve nudged our Market Monitor down to reflect that. Right now, we advise taking things on a stock-by-stock basis, holding your resilient/advancing issues, while honoring your stops and selling names that break down.

This week’s list is heavier on cyclical, building and retail stocks, all of which have caught huge updrafts during the past few days. Our Top Pick is Warrior Met Coal (HCC), a big turnaround play in the coal sector. Buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Beacon Roofing (BECN)	0.00	60-63	55-56.6
CH Robinson (CHRW)	0.00	84-87	78-79.5
E*Trade Financial (ETFC)	0.00	48-50	44.5-46
Gardner Denver (GDI)	0.00	30-32	27.5-28.5
GrubHub (GRUB)	140.03	64-67	57.5-59.5
Michael Kors Holdings Limited (KORS)	73.22	55.5-57.5	51-52.5
Peabody Energy Corporation (BTU)	43.32	32.5-33.5	29.5-30.5
Tyson Foods (TSN)	0.00	80-83	74-76
USG Corp. (USG)	0.00	36.5-38	34-35
Warrior Met Coal (HCC)	0.00	21-22.5	17.5-18.5

There are only a few companies out there that provide the software that companies can use to implement IT cost-accounting. Today’s Cabot Small-Cap Confidential candidate is pioneering the entire movement.

In today’s issue, I dig into the reasons behind this painful correction, finding an aggravating Chinese government regulatory shift that can account for a large part. Despite the turmoil, the Cabot Emerging Market Timer is still positive, and I have a fresh, young Chinese tech stock that has enormous potential as the development of the Chinese cloud continues.

In today’s issue, we’re adding a reliable new stock to the Safe Income Tier. I also review why you might want to own preferred stock in today’s educational section, and provide updates on all our holdings.

Today’s recommendation is a chain restaurant—a chain I’d never even heard of—but the company is growing fast and the chart is very constructive.

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.

While the overall market is still in decent shape, there’s no question that growth stocks are being crushed across the board. We’re selling two stocks that have broken down on big volume. That will leave us with nearly 50% in cash.

Sell GM. General Motor’s EPS is now expected to grow less than 1% in 2017, so an expectation of additional capital gains is unrealistic in the foreseeable future. Plus updates on BorgWarner (BWA) and Quanta Services (PWR).

WellCare Health Plans (WCG) is up $50 (60%) since joining the Growth Portfolio in October 2015, and I’m thinking the stock is way overdue for a pullback. Today, I’m pulling the plug on WCG. Sell.

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.