Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2023 issue.

Much of the art of finding interesting turnaround stocks is looking at catalysts, tracking management changes and searching through lists of out-of-favor companies. Sometimes, however, good ideas can be found closer to home – literally – by looking through the roster of public companies in one’s home state. We discuss five turnarounds underway in our home state of Massachusetts.

Despite near-record gold prices, shares of gold producers remain depressed. We discuss two attractive companies. Our Buy recommendation this month is Agnico Eagle Mines Ltd (AEM), a premier gold mining company selling at a discounted price.

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

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

The market has been choppy and unpredictable. Optimism about a “soft landing” is being tempered by rising interest rates. Either the strong economy or high interest rates will dominate the market in the months ahead. We’ll see.

But what seems to be quite clear is that the economy is solid for now. Third-quarter GDP is expected to be over 5%. Even if the economy does slow, it will likely take several quarters to slow from here. That means gasoline demand should remain solid. And that should be good news for refiners.

In this issue I highlight one of the best performing large company stocks in the energy sector over the last several years. It is also one of the few plays out there that still has solid momentum, as the stock remains in an uptrend that began three years ago.

Good momentum means high call premiums as more investors are willing to be on higher prices in the future. The refiner stock highlighted in this issue has a great chance of providing the opportunity to sell covered calls in the near future. It should help generate a high income in this uncertain environment.

The market has continued to unravel, and there’s no need to review all the gory details from the prior few days—suffice it to say that the trend of interest rates remains up and the trend of most indexes, stocks and sectors remains down. It’s also true that emotions are starting to run high, with a few signs of panic out there as investors throw most everything overboard, bringing lots of stuff down to key levels. Because of that, we remain on the lookout for some sort of market turn, but until then, we advise holding plenty of cash and keeping any new positions on the small side as we wait for the sellers to run out of ammo. We’ll respect the latest leg lower and drop our Market Monitor to a level 4.

This week’s list is a great place to start building your watch list if you haven’t already, with many names that are clearly resisting the market’s pull. Our Top Pick is a tech name that looks to have the right mix of steady growth, big earnings expansion and huge AI potential—as well as a resilient stock.

The market is in a tough place right now, closing last week at new post-summer lows. At some point – perhaps sooner than we expect – the next rally will arrive. And there are a lot of indicators (overly bearish investor sentiment, a history of October bottoms, etc.) that suggest the next big move is up. But we have to see it to believe it. So, for now, we’ll maintain a relatively cautious stance, trimming an underperforming position today and downgrading another to Hold.

And yet, there are enough glimmers of hope out there (remember: it’s still technically a new bull market!) that today we’re adding a mid-cap software company with tons of growth potential, recently recommended by Tyler Laundon in Cabot Early Opportunities.

Details inside.

As October expiration moves into our rearview mirror, our total returns sit at an all-time high of 165.8%. For the expiration cycle we were able to lock in two iron condors (SPY and IWM) for a total return of 19.8%.

We allowed our three remaining October 20, 2023, positions to expire.

Our DraftKings (DKNG) puts closed in-the-money and as I discussed last week on our subscriber-only call, I plan to sell calls against our newly issued shares in DKNG on Monday.

Both our Wells Fargo (WFC) and Pfizer (PFE) call positions expired worthless, so we locked in all of the premium and we needed it to offset some of the losses in both stocks. I plan to sell more calls against both positions on Monday.

The first full week of earnings season arrived last week and we decided to place our second trade of the season in American Express (AXP) by using a 20-point range, with our short strikes at 140 (puts)and 160 (calls). We felt comfortable with the range as it was not only well outside of the expected range (144 – 156) for AXP, but covered, on a percentage basis, almost every earnings move going back to October 2006. These are the type of setups we prefer to trade.

The historic move in the bond market continued to weigh on stocks last week as the S&P 500 lost 2.4%, the Dow fell 1.6% and the Nasdaq declined by 3.1%.

The historic move in the bond market continued to weigh on stocks last week as the S&P 500 lost 2.4%, the Dow fell 1.6% and the Nasdaq declined by 3.1%.

The market remains under pressure as interest rates rise, which keeps us in a cautious stance -- we’re holding nearly as much cash as we have during the past two years as few stocks are able to sustain any upside. That said, we actually think the market has a solid setup here--there are a decent number of names forming normal launching pads, sentiment is awful and earnings season could be a catalyst. The bulls still have a lot to prove, but we’re remaining flexible should the buyers appear.


Tonight’s issue reviews our remaining names and market outlook in more detail, talks about some big-picture positives to keep in mind, as well as some things we want to see as a sign the buyers are taking control. More watchful waiting is needed, but we’re keeping our watch list up to date should the market’s character change.

I’m in Amish country this week so the Cabot Explorer issue will be briefer than usual today. Markets are facing a 5% dilemma. The benchmark Treasury yield closed just above 4.9%, a fresh 16-year high.

Third-quarter GDP estimated growth may be above 5%, signaling that inflationary expectations are still strong.

The market will likely turn broadly positive when expectations are that interest rate hikes are over – and lower rates may be around the corner.

The brief earnings rally is already petering as positive surprises from some high-profile companies are being offset by others. The hope of a corporate earnings soft landing is getting some cold water thrown on it.

Better-than-expected big bank earnings along with other earnings beats from notable companies like Netflix (NFLX), United Airlines Holdings (UAL) and Johnson & Johnson (JNJ) are being smothered by overall results. So far, overall results are below average for the quarter.

Explorer stocks were all up this week though it is not clear we are out of the woods yet. Sociedad Química y Minera de Chile S.A. (SQM) jumped from 83 to 90, Infineon Technologies (IFNNY) shares had double-digit gains, and Kraken (KRKNF) was up 8% yesterday and almost 20% over the last two weeks as smaller stocks are in favor.

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So far, earnings season is showing that investor expectations have become overly negative. Results from banks indicate that consumer activity remains healthy even as domestic economic growth stalls.

The experience for base and precious metals investors since March, when most metals peaked, has been something akin to Chinese water torture. To be sure, there have been periodic opportunities in select metals (and related industries) along the way. But the main trajectory for the sector has been steadily lower most of this year.

For our recommended stocks, earnings season started this week with reports from Walgreens Boots Alliance (WBA) and Wells Fargo (WFC). Next week, Nokia (NOK) reports, and the deluge for our companies starts the following week on October 24 with fourteen companies reporting.

The market has been rallying furiously over the past several days on earnings. Is this the Promised Land or more false hope?

It’s just the kickoff of the third-quarter earnings season and the nation’s major banks have reported. These banks are considered bellwethers for the U.S. economy and numbers are better than expected. The results are reviving hope among investors.

This week was a slow one with few updates to CMCI companies.
It’s earnings season for many large-cap companies, but we will have to wait until November or later to get updates from most micro-caps.

Cabot Options Institute Fundamentals is focused exclusively on the Poor Man’s Covered Call strategy, which is a way to collect reliable gains from a relatively simple options strategy, without the substantial up-front cost of a regular covered call strategy.

Cabot Options Institute Earnings Trader shows you how to use options to profit during the most profitable period in the market: earnings season. Most people are unaware, but you can reliably collect a month’s worth of gains in a matter of days… and sometimes hours.

The market sold off sharply this morning after another hotter-than-expected inflation report—but, interestingly, the major indexes turned up early on, with the Dow closing up a huge 825 points (2.8%) and the Nasdaq rallying 232 points (2.2%), though individual stocks were far more mixed (though all closed miles off their lows).

We’re entering a period where macro factors are going to fade slightly as investors refocus on company specifics. That’s because earnings season kicks off tomorrow with financials.

As the internal condition of the broad equity market shows gradual improvement while short covering continues, I think it’s time we turn our attention to stocks and ETFs that are in a position of relative strength compared with the rest of the market.

Despite being a sloppy mess, the market has offered up some opportunities since May, when a lot of stocks might have put in a workable bottom. However, with the jury still out on that call and a still extremely uncertain environment, I’m taking a “bird in the hand is worth two in the bush” mentality with a few of our names while also looking to keep our portfolio from swelling to an unmanageable size.

As part of the Income Wheel approach, we allowed our BITO and GDX puts to expire in-the-money at expiration last week. As a result, we were issued shares at our chosen put strikes.

On Friday the July calls that we sold against our JD and EQT stock positions expired worthless. Today, both stocks are trading higher, and I want to sell a new set of calls against each. Here are those trades, and approximate prices.

Today is the expiration of five of our July covered call trades. And despite the market having some ups, and even more downs, the Profit Booster portfolio had a pretty good month. Let’s dive in …

JPM looks to open the day well within our range of 103 to 120. As a result, I want to take the trade off for a profit. I will discuss the trade further in tomorrow’s subscriber-exclusive webinar.

After closing out our SPY bear call spread (albeit prematurely) for a decent profit yesterday, I want to continue to take advantage of the inflated volatility that resides in the S&P 500 by adding another iron condor to the portfolio.

I’ve decided to go ahead and buy back our short calls in IEF and VTI for the opportunity to sell more premium in August. Both short calls in IEF and VTI have little to no premium left, so now is as good a time as ever to sell more premium in both underlying ETFs.

We are moving shares of Credit Suisse (CS) from Buy to Sell.

Alliance Resource Partners (ARLP) is now up 12% from our initial entry point as of Wednesday, which means it’s time to take some profit off the table per the rules of our trading discipline.

For many months, I’ve been telling you what a bargain the leading cannabis stocks have become, and now it appears that increasing numbers of investors have come to the same conclusion, as selected stocks have lifted off their bottoms, with some even climbing above their 25-day moving averages.

I want to close out our SPY July 29, 2022, 405/410 bear call spread today for $0.35. By closing out the trade we can lock in 8.70%.

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.