Issues
Current Market OutlookThe market remains in great shape with all the major indexes in gear on the upside, a ton of stocks and sectors acting well and a general lack of selling pressure even after the recent run. Surprisingly, we’re still seeing hesitation among investors in terms of money flows, which, from a contrary point of view, is bullish. The next big test for the market and (especially) individual stocks is earnings season—how leading stocks respond (both those that have been running for a while, and new leaders that emerged in September) will have a big say on the market’s short-term future. But given the overall evidence, the odds continue to favor higher prices down the road, so any reasonable dips should be viewed as buying opportunities.
This week’s list is another good-looking mix of growth and industrial stocks with strong charts. Our Top Pick is Adient (ADNT), which owns about one-third of the car seat market and has big earnings, a cheap valuation and a tidy pullback after a powerful September breakout. Keep new positions small ahead of earnings.
| Stock Name | Price | ||
|---|---|---|---|
| Adient (ADNT) | 0.00 | ||
| Atlassian (TEAM) | 182.16 | ||
| Baidu (BIDU) | 0.00 | ||
| CF Industries (CF) | 45.23 | ||
| DXC Technology (DXC) | 0.00 | ||
| LPL Financial Holdings (LPLA) | 85.22 | ||
| Monolithic Power (MPWR) | 0.00 | ||
| Sherwin-Williams (SHW) | 526.09 | ||
| Thor Industries (THO) | 104.76 | ||
| Vishay (VSH) | 0.00 |
In this issue, I begin to transition stocks from Roy Ward’s Value and Enterprise Models to my new, more consolidated Prudent Model. My top recommendation is a new stock for us, and I give it a thorough write-up.
In tonight’s issue, we go over all our recent moves, dive into the recent action in one of our stocks and review one of our proprietary indicators that, along with some precedent analysis, adds further evidence to the market’s bullish outlook.
Our Spotlight Stock this month is representative of thriving stock markets—a company that owns and operates exchanges for stocks, options, futures and derivatives. It has grown leaps and bounds, both internally and by acquisition, and numerous opportunities for expansion remain. My Feature further explores those opportunities.
Today’s recommendation is a classic steelmaker that has great growth prospects as the U.S. economy speeds along and protectionist measures improve our country’s competitive position. Also, the stock is cheap, so downside risk is limited.
Current Market OutlookThe answer to the question above is simple: Go up! And that’s what all of the major indexes have been doing in recent days, knocking out all-time highs amid a vacuum of selling pressure. Short-term, there are some signs of complacency, and of course earnings season is coming up, which always adds volatility to the mix. Both of those factors probably mean you shouldn’t buy stocks with both fists. But the big picture is clear: It’s a bull market, and while the below-the-surface action continues to show some rotation, the odds favor higher prices ahead. You should be holding your top performers and looking to grab shares of new leaders as opportunities arise.
This week’s list has a nice mix of growth, “old world,” big and small, reflecting the broad strength in the market. Our Top Pick today is HubSpot (HUBS), which is a bit thin and jumpy, but has a great fundamental story and recently broke out on excellent volume.
| Stock Name | Price | ||
|---|---|---|---|
| BeiGene (BGNE) | 170.20 | ||
| Five Below (FIVE) | 134.58 | ||
| HubSpot (HUBS) | 582.89 | ||
| LGI Homes (LGIH) | 86.04 | ||
| MyoKardia (MYOK) | 108.56 | ||
| RH Inc. (RH) | 252.93 | ||
| ServiceNow (NOW) | 341.86 | ||
| Tronox (TROX) | 0.00 | ||
| United Rentals, Inc. (URI) | 0.00 | ||
| Yelp (YELP) | 41.30 |
A year ago, college kids laid out the case for a Trump’s victory. And they did it with a mess of disparate data in just 20 hours, using a data prep platform by the little-known company that I’m recommending today.
Despite some nervous-making weakness last week, the Cabot Emerging Markets Timer has bounced back to regain its green-light status. And with our stocks acting well, the situation looks excellent, although we’re issuing the usual bull-market warnings that this can’t go on forever.
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
Universal Electronics (UEIC) is being added to the Buy Low Opportunities Portfolio at Strong Buy. We have an opportunity to buy a stock that fell a ridiculous amount based on minor news at a low price today.
With the market remaining under intense pressure, you should remain cautious until the buyers show up. Today we’re selling one-third of one position, which will leave the Model Portfolio with nearly 60% in cash.
It’s been an interesting week for quarterly earnings reports. Today I’ll bring you up-to-date on seven companies. Three reported earnings way above estimates, three below estimates, and one exactly on target.
Today’s big-volume selloff has damaged Wynn Resorts (WYNN) in the short-term, so I’m switching the stock from Buy to Hold.
Primo Water (PRMW) reported solid Q3 results last night. The bottom line is that it was another good quarter and the acquisition of Glacial Water looks to be on track. In other news, LogMeIn (LOGM), Mindbody (MB) and LeMaitre Vascular (LMAT) are holding up well, while USA Technologies (USAT) and Mitek (MITK) are looking weak.
We came into this week with 50% cash in the Model Portfolio, and tonight, we’re going to raise a little more cash by selling our remaining shares of a long-time winner.
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.