Stocks had a sluggish first week of 2024, but it’s not cause for concern yet. In fact, all of the Cabot Stock of the Week holdings are acting well enough that we haven’t had to subtract from the portfolio in weeks, allowing it to swell to 26 stocks with today’s new addition. It’s an undervalued dividend stock that is showing signs of life with interest rate cuts now firmly on the horizon – which should directly benefit its business. Tom Hutchinson just recommended the stock to his Cabot Dividend Investor audience.

Details inside.

We have six positions that are due to expire within the next two to three weeks. As it stands, at least so far, all of our positions are in great shape. Going forward, my intent this week is to add a few more income-generating positions to the mix. I’m looking at a higher volatility play as well as a few more lower beta stocks and ETFs with lower implied volatility as well. Remember, we not only want to diversify our approach using uncorrelated assets, we also want to vary our levels of volatility throughout the portfolio.

Okay, everyone, the wait is over: Earnings season is back. While the next few weeks will start rather slowly for earnings announcements, we should still see two to three trades before earnings season begins to truly pick up.

This week we have the big banks kicking things off, per usual. My hope is that we can get one, if not two trades off this week. As always, I’ll be focusing on stocks in the weekly watch list below, with Citigroup and JPMorgan Chase at the forefront.

Our SPY bear call spread is due to expire in 10 days. The probabilities on the trade stand at roughly 74% with two weeks left until expiration. A push lower early this week and we should be able to lock in a nice return on the trade.

I also plan on adding an iron condor to the mix this week and potentially a bull put spread in one of the stocks we follow on our watch list. Some stocks, unlike most indexes, have seen a return of volatility, as reflected by their higher IV ranks, so there is a good chance we will pounce on one of those opportunities this week.

2024 got off to a somewhat rocky start as the S&P 500 fell 1.8%, the Dow lost 0.6% and the Nasdaq lost 3.5%. And while the indexes fell there is rarely much to learn from the first week of the year as this week is often “wonky” as traders rotate from one sector to the next, and tax-related trading can move money out of recent winners.

2024 got off to a somewhat rocky start as the S&P 500 fell 1.8%, the Dow lost 0.6% and the Nasdaq lost 3.5%. And while the indexes fell there is rarely much to learn from the first week of the year as this week is often “wonky” as traders rotate from one sector to the next, and tax-related trading can move money out of recent winners.

Although markets have stumbled a bit out of the gate, investors looking to see the S&P 500 build on the 11% advance in the final quarter of 2023 may not have long to wait. U.S. companies are due to start reporting results next week, with the big banks leading the way.

An election year like 2024 with a sitting president running is historically a bullish scenario for U.S. stocks. Since 1949, the S&P 500 is averaging a gain of nearly 13% in those election years, per the Stock Trader’s Almanac.

So let’s kick off the year by adding another aggressive growth stock.

This month we’re jumping into a small software company that provides solutions for a specific small- and mid-sized business (SMB) market.

While the market for SMB software has been tough for the last two years, this company’s revenue growth has accelerated and customers that bailed in 2022 are coming back. In short, best-of-breed software isn’t dead! And this player is about to become profitable too. Enjoy!

After a big run higher for the market to end 2023, 2024 got off to a rough start yesterday, especially for growth stocks. And while yesterday was sloppy, this action isn’t terribly surprising as crosscurrents in the new year are typical.

Happy New Year! Now that the calendar has flipped, early January is upon us, and as we saw today, that’s almost always a tricky time: There are many crosscurrents that pop up, and when you combine that with the market’s straight-up move since the start of November, today’s sour (and rotational) action wasn’t a total surprise and is a reason why we’ve been advising picking your spots of late. If you’re looking for something to worry about, we’d say that growth stocks (which led the way up in November) stalled out three weeks ago, so if the selling continues, that could be a canary in a coal mine of sorts—but at this point, we’re seeing normal (albeit unpleasant) downside action in many stocks. Right now we’re thinking the next couple of weeks will likely prove tricky, yet the path of least resistance remains up. We’ll keep our Market Monitor at a level 8, though we’ll be in touch if that changes.

This week’s list has something for everyone, from newer names trying to emerge to established leaders that have rested for two or three weeks. Our Top Pick has moved out on the upside and has excellent numbers, all while its sector remains in favor.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the January 2024 issue.

We review the stock market’s remarkable performance in 2023 and highlight our recommendations that produced notable gains along with our clunkers. Our view on the 2024 market is that stocks will have an average year, with the Magnificent Seven producing flat/modest returns at best. Readers should keep in mind quotes from Yogi Berra and Warren Buffett when considering market forecasts. Onward to 2024.

Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

Happy 2024! Here’s hoping the new year can pick up right where the old one left off. There are plenty of reasons to think this year will be good for stocks – the Fed cutting interest rates instead of hiking them, inflation cooling, recession fears fading, etc. But there’s no doubt a few sectors (tech?) are a bit overcooked at the moment, at least in the short term. So we kick off the new year by doing a bit of bargain shopping, starting with the most bargain-basement sector out there: cannabis. We haven’t had much luck trying to buy into strength with cannabis. So today, we instead buy after the sector has been knocked back again, adding the largest holding from Michael Brush’s Cabot Cannabis Investor portfolio.

The stock market finished January on a strong note which bodes well for the remainder of the year. Despite a rally in the market, I’m adding new ideas to my watch list on a weekly basis. I’m continuing to find plenty of ideas that look attractive on an absolute and relative basis. I look forward to sharing my latest idea in next week’s new issue of Cabot Micro-Cap Insider.

One of the immutable laws of technology investing is that all tech stocks go through the Hype Cycle. Well over a century ago, leading-edge tech stars like railroads went through their boom-and-bust phases. The 20^th century included the notable enthusiasm-and-disillusionment in radio, television, automobiles, copy machine and IBM (its own industry for years) stocks, ending with the exceptional dot-com bubble.

Highly regarded technology research and consulting firm Gartner plots this hype arc in their chart, below. While the rise and fall, and time length, are different for each stock and industry, the chart effectively captures the changes in investor mindset through the cycle. Changes in the investor mindset invariably drive changes in tech stock prices.

The year has certainly started out in fine fashion. The S&P 500 has delivered positive returns for all four weeks so far this year. The S&P is up 6% YTD and the Nasdaq is up 11% YTD, as of Friday’s close.

But earnings have been lousy so far this quarter, with the average S&P 500 company that has reported so far posting -5% earnings growth from last year’s quarter. But the market was expecting that. Investors know there will be a declining economy this year, and the sooner it declines, the sooner the Fed will be done hiking rates.

This week, we comment on earnings from Dow (DOW), General Electric (GE), Nokia (NOK) and Xerox Holdings (XRX). Next week brings reports from Vodafone (VOD), Polaris Industries (PII), M/I Homes (MHO), Meta Platforms (META), Western Digital (WDC) and Janus Henderson Group (JHG).


We also include the Catalyst Report and a summary of the February edition of the Cabot Turnaround Letter, which was published on Wednesday.

Our area was nailed with rain last night, knocking out internet service at our house. After spending a good part of the day skipping around town to get WiFi and doing what I can on a cell signal, my patience with technology is about gone. Coffee shops are great, but where are my mega screens?!

We are just weeks into a year that has so far been better and different than last year.

The S&P 500 is up 4.7% in January after falling 19.4% in 2022. The winners and losers are also different. The best performing sectors are last year’s worst performing, technology and consumer staples. The worst performing sectors are last year’s best performers (with the exception of energy): healthcare, utilities and consumer staples.

Is this a portent of things to come or just a temporary reallocation?

The S&P 500 is off to an excellent start in 2023 and according to Ryan Detrick of Carson, that bodes well for the rest of the year. I’m continuing to see many opportunities in the micro-cap world. The two areas that seem the most interesting to me right now are the biotech and energy sectors.

Only three months ago, the financial community, including investors, analysts, economists, commentators and others, despaired that the Fed’s rate tightening program would produce a hard landing. The resulting combination, of higher interest rates and slowing/negative earnings and economic growth, is toxic for stock markets. Not surprisingly, the S&P 500 tumbled 27% from its highs to touch 3,500 in mid-October.



With the turn of the calendar and minimal discouraging economic news, the same financial community is now optimistic that we’re headed for a soft landing, or possibly no landing at all (economic growth remains positive). Worries that the Fed will inexorably keep raising interest rates have been replaced with the view that perhaps only 25 or 50 basis points of further increases are ahead. The outlook previously labeled as “toxic” has been transformed into “supportive” for equities. In the three short weeks since year’s end, the S&P has lifted 5%.

With today’s note, we offer more clarity on last week’s earnings report from Wells Fargo & Company (WFC) and provide updates on several recommended stocks.

Cabot Options Institute Quant Trader is focused exclusively on creating consistent returns using high-probability options strategies including bear call spreads, bull put spreads, iron condors and more. Whether you have questions about the strategies, or even about setting up your account, or how to make your own trades, Andy will answer all of your questions

As discussed in our weekly issue and on our weekly call, I will be taking a position in Mastercard (MA) today.

SPY has moved significantly higher over the past few weeks. As a result, I’ve decided to take my SPY November 18, 2022 325/320 bear call spread off the table for a profit. Some may choose to hold on to the trade, just remember, we still have 24 days left until expiration and lots can happen over that timeframe.

As part of the Income Wheel approach, we allowed our Coca-Cola (KO) calls to expire out of the money at expiration last week. As a result, our calls expired worthless and we reaped the entire premium.

After allowing our DBC October calls to expire worthless, we need to sell more premium against our DBC calls, this time for the December expiration cycle.

The Cabot Profit Booster portfolio has three positions set to expire this afternoon. My plan is to simply let these calls expire, and then we will evaluate where we stand with the stocks come Monday/Tuesday morning, depending on market conditions.

Our BITO 14 calls for the October 21, 2022, expiration cycle are essentially worthless. Same goes for our GDX 26 calls.

CVX jumped over the past two days. As a result, we need to roll our October 21 calls into November. The jump in the stock has pushed our return to upwards of 35%, while the underlying stock is sitting at a 7.0% gain since we added it to the portfolio.

We still have our DBC and CVX positions on for the October 21 expiration cycle. I intend to hold on to both and monitor how each performs as we lead up to the end of the October expiration cycle. As it stands, there is a good chance I will allow both to expire worthless and sell more call premium early next week. But as always, the price action over the coming days will dictate how we handle each position.

I will be exiting the American Express (AXP) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET today, October 21. Register here.

As discussed in our weekly issue last week, and on our weekly call, I will be taking a position in American Express (AXP) today.

I will be exiting the JPMorgan (JPM) trade today. I will discuss the trade in greater detail in our upcoming subscriber-exclusive webinar, at noon ET today (Friday).

JPM is due to announce earnings Friday (10/14) prior to the opening bell. The stock is currently trading for 108.50.

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.