The Fed is on the precipice of cutting interest rates for the first time in years; when that happens, homebuilder stocks tend to benefit first. But that’s not the only reason to be bullish on the sector. Homebuilders have changed the way they do business in recent years to become more like car makers, only with greater upside and higher internal rates of return. With both those short- and long-term winds at their sails, homebuilder stocks are a good – and still undervalued – bet. And today, we add a big name in the space that has the best combination of growth and value.

Enjoy!

Everybody is talking about the potential of generative AI. But a lot of organizations haven’t yet organized their digital data in such a way that they can leverage it for AI, let alone protect it once AI applications gain access.

Today, we’re jumping into a steady-growth software company that helps solve this problem.

Ahead of the long weekend, and the unofficial end of summer for the trading community, it was a mostly quiet and mixed week as the S&P 500 was unchanged, the Dow gained 0.9%, and the Nasdaq fell 0.7%. Though that quickly changed Tuesday when the market got hit hard.

Ahead of the long weekend, and the unofficial end of summer for the trading community, it was a mostly quiet and mixed week as the S&P 500 was unchanged, the Dow gained 0.9%, and the Nasdaq fell 0.7%.

Ahead of the long weekend, and the unofficial end of summer for the trading community, it was a mostly quiet and mixed week as the S&P 500 was unchanged, the Dow gained 0.9%, and the Nasdaq fell 0.7%.

Last week had a few potential potholes for the market’s nascent rally, including some influential big-cap earnings releases and an inflation report before the long weekend—but despite some selling that popped up here and there, the market and fresh leaders handled themselves well. Stepping back, we’re definitely encouraged by the market’s snapback and the numerous upside moves in individual, growth-oriented stocks during the past month; we think the odds favor the next major, sustained move is up. That said, a lot of stocks have set up (but not broken out), old leaders (chip names in particular) look suspect and it’s a fact that defensive areas continue to ramp higher, which is a sign that big investors are hunting for some safety. Again, we’re encouraged overall, but continue to think going slow makes sense, especially now that some selling pressures are beginning to emerge, stickign with mostly small positions and keeping some cash on the sideline. We’ll keep our Market Monitor at a level 6 today.

This week’s list is a bit of a hodgepodge, with some recent earnings winners, some fresh names and a few stodgier types. Our Top Pick is Rocket Cos. (RKT), which is basically a cyclical (mortgage lending) company that should be lean and mean after the multi-year dry period—meaning its earnings power should be big as rates head lower.

September selling is already underway. Just remember that it’s almost always temporary. The S&P 500 has been down at least 4% after Labor Day in each of the last four years, with a bottom coming sometime in October. All four times, it has eclipsed pre-Labor Day levels by the third week of November. Thankfully, our portfolio enters September in very good shape, with 12 stocks up double-digit percentages and four others up by at least triple digits. To help weather another potential September storm, today we add a “safer” dividend stock recently recommended by Chief Analyst Tom Hutchinson to his Cabot Dividend Investor audience.

Details inside.

While there are a lot of healthy signs of growth out there, stocks that do not meet high expectations are being punished.

Super Micro Computer (SMCI) was off 29% this past week after some allegations of faulty accounting by short sellers was followed by the company reporting yesterday that it was postponing filing of its annual report with the SEC to assess “internal controls over financial reporting.”

Given the uncertainty, we have little choice but to sell the stock. We took some profits earlier this year, and the stock is still up 43% so far this year. My guess is that we will be back to Super Micro at some point, and I will watch this stock carefully.

Talk about a terrible week for cannabis investors. The Drug Enforcement Agency (DEA), on Monday, torpedoed the sector by announcing a move that will significantly delay favorable legal reform.

What happened: The DEA now wants to hold a formal hearing on the Biden administration’s proposal to reschedule cannabis, before deciding what to do. The move dashed all hopes of rescheduling before the election – which many analysts had expected – since the hearing is set for December 2.

After the tumultuous sell-off in the broad equity market last month, the S&P 500 Index is back to within a few points of its all-time high as of this writing in what has been one of the fastest comebacks in recent memory.

New technology is driving huge demand growth in old technology. The growth of artificial intelligence, electric vehicles, and semiconductor manufacturing will generate huge growth in electricity.

After being stagnant for most of the last two decades, electricity demand is soaring. Most of the increasing electricity demand (from data centers, EVs, and chip manufacturing) is coming from climate-conscious technology companies that will likely try to secure carbon-friendly power sources whenever possible.

Companies that can provide low-carbon electricity generation should be the primary beneficiaries of this increasing electricity demand. Opportunity is being created for certain companies that also tend to be very recession-resistant at a time when the economy is slowing.

But there is one utility that stands above all others in terms of the current opportunity. And it is highlighted in this month’s issue.

Note: Due to the Labor Day market holiday next Monday, you will receive your next Cabot Profit Booster issue on Wednesday, September 4.

Before we dive into this week’s covered call idea, we need to address our four August positions that expired a week ago.

In today’s note, we discuss the recent earnings reports from Janus Henderson Group (JHG) and Polaris (PII). Our note also includes the monthly Catalyst Report and a summary of the February edition of the Cabot Turnaround Letter, which was published on Wednesday.

WHAT TO DO NOW: Remain bullish, though we are seeing more crosscurrents pop up. The big-picture evidence remains positive, so we’re holding most of our winners, but we’re also comfortable holding some cash as earnings season progresses. We’re watching a few of our names closely (as well as many names on our watch list), but tonight we’ll hold our 23% cash position and have no changes.

It’s been a good start to the year, with the S&P 500 up more than 3% so far this month. Of course, that’s a big slowdown from the breakneck pace of advancement in November and December. But that’s to be expected.

We are smack dab in the heart of earnings season for this portfolio. With the market sputtering along without much conviction, individual stocks are taking center stage, and earnings are a major part of that.

Quarterly and annual earnings will be reported this week from AbbVie Inc. (ABBV), Alexandria Real Estate Equities (ARE), American Tower Corporation (AMT), Marathon Petroleum Corporation (MPC), and Qualcomm Inc. (QCOM). The reports could be a hugely important factor in determining the near-term direction of these stocks.

Last week, we wrote about how rising debt and rising interest rates are increasingly weighing on the Federal budget. Our rough math points to interest costs consuming as much as 21% of Federal revenues by 2025. We also added that “This math seems awful. Realistically, how likely is this to play out and what can investors do to mitigate, or even benefit?”

This week, we review earnings reports from Capital One Financial (COF), General Electric (GE), Nokia (NOK), Western Digital (WDC) and Xerox Holdings (XRX).

Next week, we anticipate earnings from Polaris (PII) and Janus Henderson Group (JHG). Please know that some reporting dates are estimated based on the companies’ reporting history, others are confirmed dates. As always, it’s likely that some companies will report on a day different from what we anticipate.

It’s been another strong week for stocks despite rising concerns about overseas conflicts disrupting the flow of oil and that the market is overshooting just how fast the Fed will cut rates this year.

It wasn’t long ago that investors were factoring in an 80% chance of a March Federal Funds Rate (FFR) cut. Today that probability is down to just 40%.

That said, what’s most important is the expected trend in the FFR. While the timing of the first rate cut and the pace of subsequent cuts remains open to debate, there’s no arguing that the market still sees rates significantly lower at the end of 2024.

In my view, the best strategy for overseas markets is to play the trends with a contrarian value approach. For example, the Hang Seng China Enterprises index, a closely followed gauge of large Chinese listings in Hong Kong, has fallen about 11% so far this month after losing 14% last year. Foreign investors have sold about 90% of the $33 billion worth of Chinese stocks that they had purchased earlier in 2023 and have continued selling this year.

So today, we go against the grain on China.

After the stellar finish to last year, the market rally is continuing, sort of.

The S&P 500 is up for the year. But it’s only up 1.69% and participation is far less broad than it was. Technology stocks are driving the market higher but most of the other sectors are down. The AI euphoria is continuing, but the interest rate rally is gone.

According to credit rating agency Moody’s, debt obligations of the United States federal government are “judged to be of the highest quality, subject to the lowest level of credit risk” and thus are worthy of a “AAA” credit rating.

The other two major credit rating agencies, Standard & Poor’s and Fitch, disagree. These firms place an “AA+” rating on federal debt. For its part, Moody’s is not fully convinced of its AAA rating, as it recently added a “negative” label, implying that the rating is no longer “stable.”

I want to sell a bear call spread in SPY going out to the December 15, 2023, expiration cycle. As mentioned in our alert Friday and issue today, I want to take advantage of the current short-term oversold readings and two unclosed upside gaps from last week.

Well, we’ve seen five straight days of positive gains to the tune of 6%. While this may have helped all of our delta-positive poor man’s covered call positions in the Fundamentals service, the push higher wasn’t as kind to negative delta positions.

ATI, SHOP, DT Report

RELY and RCM Report

Well, there is no doubt that our SPY November 17, 2023, position has been a wild ride. We decided to leg into this one by selling the SPY November 17, 2023, 452/457 bear call spread. Several days after the market presented us the opportunity to leg into the other side of our iron condor. We sold the SPY November 17, 2023, 408/403 bull put spread. In total, we were able to bring in $1.32 worth of premium for our SPY November iron condor.

Repligen (RGEN) Beats in Q3

I want to sell a bear call spread in SPY going out to the November 17, 2023, expiration cycle. This is more of a protective play just in case we see a continuation of the current trend over the next week or so. By adding a bear call spread we are able to bring our deltas closer to a neutral state.

We sold a SPY November 17, 2023, bear call spread in late September for $0.74. It’s now worth roughly $0.03. A week later we initiated a SPY November 17, 2023, bull put spread for $0.58, essentially legging-in to an iron condor.

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.