In this issue, I present my overall outlook on the investment climate and the economy. I also add two new stocks to the portfolio and give updates on our existing stocks.

Our contributors remain bullish, but cautious. This month’s Spotlight Stock is a Master Limited Partnership that’s primarily an asset manager, and its holdings are increasingly energy investments. The company is growing at double-digit rates and currently yields 5.35%.

There are a few yellow flags out there, from short-term sentiment measures to a weakening broad market (our Two-Second Indicator is again unhealthy), but the trend of the major indexes is firmly up, and the action of growth stocks has been terrific, including a bunch that have surged on earnings in recent weeks.

Today’s featured stocks include two new additions to the portfolios and a stock that has ostensibly become a takeover target.

Today’s selection is one of the big, fast-growing Chinese companies (you might call it the Google of China), which has just pulled back to offer us a lower-risk entry point.

Current Market Outlook


After a modest rise last week, the market’s story remains the same—the intermediate- and longer-term trends continue to point up, and leading stocks remain in favor, with a ton gapping up on earnings during the past three weeks. It’s not all good news, of course—the broad market has again turned iffy by a few measures, and the environment is a bit giddy right now as investors count their profits. Thus, we won’t rule out a healthy pullback in the major indexes or some rotation among various stocks and sectors. But at day’s end, we always go with the market’s primary evidence (trend, price/volume, etc.), and today that evidence is solidly bullish, so we are, too.

This week’s list is heavy on small- and mid-sized companies, though a variety of sectors are represented. Our Top Pick is Universal Display (OLED), a leading glamour stock that just soared on earnings after about five months of no progress. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Axcelis Technologies (ACLS)	0.00	31.5-33.5	28.5-30
Conn’s Inc. (CONN)	0.00	29.5-31	26.5-27.5
EPAM Systems (EPAM)	188.24	96-98.5	90-92
Insulet (PODD)	175.69	66-69	60.5-62.5
Neurocrine Biosciences (NBIX)	123.40	70-73	63.5-65.5
Old Dominion Freight Line Inc. (ODFL)	221.91	115-119	106-108
PBF Energy (PBF)	38.93	30-31	27-28
Trex Company (TREX)	117.56	100-105	92-95
TRI Pointe Group Inc. (TPH)	0.00	16.5-17.2	15-15.4
Universal Display (OLED)	187.54	154-160	137-140

Today’s addition to our portfolio is different from the rest in a number of ways. It’s not a pure-play cloud software stock, though it has a software division that generates 26% of revenue. It’s not a pure-play medical device stock, though it has a medical division that generates 33% of revenue. It’s not even based in the U.S.!

Emerging market stocks in general strengthened this week, keeping our Cabot Emerging Markets Timer firmly on the positive side. Our new stock is an express delivery company with a China-wide network that covers 96% of China cities and towns. We have ratings changes on two of our stocks.

In choosing today’s stock, I leaned conservative, and found a dividend-paying stock with strong growth prospects. When I selected it yesterday, the stock was at the bottom of its recent range, but today it shot up to near the top of that range. It’s still a good story, but I’d like it better where it was yesterday.

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.

Our Cabot Tides turned positive today, and while the market is still very volatile and divergent, there’s no question the evidence is improving.

The momentum for emerging market stocks in general, and Chinese stocks in particular, has taken a big turn for the worse.

The Board of Directors of Harman International Industries (HAR) has come to a definitive agreement with Samsung Electronics, in which Samsung will acquire Harman for $8 billion. Harman’s shareholders will receive $112 per share in cash. The deal is expected to close in mid-2017.

Big gains in the stock market during the past week have pushed some stock prices to unsustainable heights. Benchmark Electronics (BHE) and Prudential Financial (PRU) have reached their Min Sell Prices and should be sold.

Sell Harman (Har) due to buyout offer from Samsung, plus other portfolio updates.

Harman International Industries (HAR) agreed to be acquired by Samsung, South Korea for $112.00 per share all cash.

Knight Transportation (KNX 33.85) reached its Minimum Sell Price of 33.84 on Friday, November 11.

It’s time to sell EMAN. I think eMagin remains a mediocre company that has excellent technology and which will continue to have modest success in its military markets. But I don’t think this is “the next big thing.”

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.