Clean energy is the future. But not for a while.

This country and the world still rely heavily on fossil fuels for more than 80% of energy needs, and these conventional energy sources will likely remain dominant for decades. Meanwhile, many stocks of companies that benefit have strong earnings and great value.

Fossil fuel proportions are expected to move toward natural gas in the years ahead. A recent study estimates that global natural gas demand will soar 34% between 2022 and 2050 with the strongest growth in the natural gas realm to be liquid natural gas (LNG), with demand expected to more than double in the same time frame.

In this issue, I highlight one of the best natural gas companies on the market. It is a newly formed company in the business of exporting abundant and cheap American natural gas overseas. It’s big business. In a short time, this company has become one of the world’s largest natural gas exporters.

Stocks began the second half of 2024 exactly the way they behaved for much of the first half: at all-time highs, but with only a couple handfuls of mega-cap tech stocks and artificial intelligence plays doing most of the heavy lifting. It remains both a bull market and a stock picker’s market, so today we pick a stock that’s been attracting a lot of institutional attention of late. It’s a tech stock, but it’s no mega-cap; it’s a small-cap, space-related title that Tyler Laundon recommended to his Cabot Early Opportunities audience last month. Its shares have exactly doubled this year and yet still trade 40% below their 2021 highs.

Details inside.

The holiday-shortened week was mostly quiet outside of the AI/Semiconductors plays, which once again rose nicely. As for the rest of the market, by the numbers below it was a good week, though under the surface it feels like not many stocks are truly rallying.

For the week, the S&P 500 gained 1.35%, the Dow rose marginally, and the Nasdaq added another 2.9%.

Two of the past three weeks have had odd mid-week holidays, which combined with the time of year, has led to some pretty slow trading since the tail end of June. We’re now seeing more tightness and legitimate setups out there, so if the buying pressures spread we think there could be a surprising number of names that provide solid entry points. While there are some signs that could be starting, earnings season is set to ramp, and as always, that will likely tell the intermediate-term story. For now, given that the market’s decent-but-tricky evidence hasn’t changed much, our advice isn’t changing, either. Our Market Monitor remains at a level 7.

This week’s list has another batch of intriguing setups that could go if the market cooperates. Our Top Pick has always had a good story and great numbers, and now the stock seems to be ready to move as its sector comes back to life.

Consumer cyclicals, perhaps more than any other sector, are at the nexus of what we look for in Cabot Value Investor these days: solid growth, but at value prices. And today we add a high-profile stock from one of the most resilient subsectors of an otherwise sluggish retail space. Its shares were overly beaten down in the weeks since underwhelming May retail sales prompted a flash mini-selloff in all things retail. But this remarkably reliable, steady-as-she-goes growth company didn’t deserve it, and shares are now trading at a rare discount.

Details inside.

In 2022 new management took the helm of a small, deli-focused food company that was underperforming its potential. Fast forward a couple of years and management is executing an ambitious growth plan, while consumers are flocking to the deli section like never before.

This month’s Issue tells the story of a micro-cap company that’s hitting its stride a century after the woman it’s named after completed the journey from Italy to Brooklyn, NY.

Before we dive into this week’s idea, we do need to move on from our Oscar Health (OSCR) position that broke below our stop. While it’s possible the stock will rebound in the days/weeks to come (especially as the stock decline may be tied to politics), we need to respect the stop and exit our covered call.

If you’ve been with us for a while you might remember that we frequently write that January can be a tricky month, since, as the calendar flips, tax-related moves (profit taking) can occur and big investors will often reposition their portfolios, creating lots of crosscurrents. July is not the same thing, but we wouldn’t be shocked to see some repositioning and volatile action in the days ahead given how many investors are rowing in different directions already. Our point: Don’t fight the evidence, which continues to tell us things remain choppy and narrow, but also stay flexible in case the market flashes some change in character. Right now, we’ll once again leave our Market Monitor at a level 7, taking things on a stock-by-stock basis.

This week’s list has a ton of setups, with many stocks rounding out launching pads that could get going if all goes well. Our Top Pick is part of a strengthening sector, has terrific growth numbers and is under strong accumulation. Try to start a position on dips, with the idea of adding more of a decisive breakout.

After a productive but top-heavy first half of the year in the market, we set our sights on the back half of the year, and the potentially shifting winds from mega-cap tech and artificial intelligence into the many other unloved sectors. So to kick off the second half of 2024, today we add a retailer that’s bucking the trend of slowing U.S. retail sales due to its discount offerings – which plays well in an inflationary environment. It’s a new pick from Mike Cintolo in his Cabot Top Ten Trader advisory.

Details inside.

Ahead of a holiday-shortened week, last week was mostly quiet as the S&P 500, Dow and Nasdaq were all down marginally.

And while the market may be slow again this week headed into the Fourth of July, this is the start of the third quarter, which could bring some volatility ahead of the presidential election.

Ahead of a holiday-shortened week, last week was mostly quiet as the S&P 500, Dow and Nasdaq were all down marginally.

And while the market may be slow again this week headed into the Fourth of July, this is the start of the third quarter, which could bring some volatility ahead of the presidential election.

The market officially entered a “correction” last week when the S&P fell 10% from the 52-week high on a closing basis. Now, it’s largely up to the Fed to determine where the market goes next.

The Fed meets on Wednesday and will decide on the Fed Funds rate. They are widely expected to leave the rate unchanged and then indicate they might raise it in the future. But the main event isn’t the Fed Funds rate. It’s the benchmark 10-year Treasury yield.

Cannabis stocks are astonishingly weak following the nomination of Rep. Mike Johnson (R-LA) as House speaker. He has always opposed cannabis legislation. So, the fear is that Secure and Fair Enforcement Regulation (SAFER) Banking Act reform (allowing banks to serve cannabis companies) cannot get out of the House. This is probably true. However, Senate leaders could put the reform in must-pass legislation, and the House may well accept it, given how many current House members have approved the bill in the past.

So far, our recommended companies have reported strong earnings but the share performances following the reports have generally been sloppy. What’s going on?

Investors, of course, are forward-looking. So, decent trailing results can take a back seat to the incremental changes in near-term prospects. As we note in our discussion about the recent and continued slide in shares of Citigroup (C), investors are assuming that the company not only has no chance of improving its earning power but are also assuming that profits will probably slide backward. Comcast (CMCSA) reported one of the strongest quarters in its history, yet the outlook is for incremental headwinds in its customer count, so the shares slid.

It’s officially a correction. The S&P 500 fell 10% below the 52-week high on a closing basis last week. Now what?

As usual, all eyes are on the Fed. The Central Bank will decide on interest rates on Wednesday. Also, this week are earnings from Apple (AAPL) and several other large companies and another jobs report on Friday. But the Fed should be the main event.

This week’s note includes our comments on earnings from 10 of our companies. The deluge continues next week.

The note also includes the monthly Catalyst Report and a summary of the November edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

It’s said that the market climbs a wall of worry. It’s been a slippery wall lately, and this was the week when the bear case for the stock market really seemed to gather momentum.

The short list of bear case arguments includes the following:

The war between Israel and Hamas could easily expand into a broader conflict and draw the U.S. (and Iran, among others) deeper into a situation with no clear exit ...

WHAT TO DO NOW: The market cave-in continues, with some sacred cows and resilient stocks catching up on the downside now. The trend clearly remains down, and while we’re not craving more cash (69% coming into today), have only smaller positions and see some legitimate oversold signs out there, we’re also not going to just hold and hope with things that are caving in. Tonight, then, we’ll sell the rest of our ProShares S&P 500 Fund (SSO) and one-third of what we have left in Uber (UBER), which will leave us with just over three-quarters of the portfolio on the sideline. Details below.

Over the past month Tesla (TSLA) has struggled as continued price cuts have boosted sales but narrowed profit margins. It is also failing to live up to its brand as more than just a maker of electric cars (EVs).

Higher interest rates are eating into EV demand. Competition is catching up as Tesla last launched a new passenger vehicle in 2020. In October, BYD (BYDDY) outsold Tesla for the first time.

The market has lost all the October gains. Despite the strong economy and optimistic earnings, interest rates continue to cast a shadow.

The economy is killing it (for now). Third-quarter GDP is expected to exceed 5%. That’s an economy nowhere near recession. And earnings should reflect that economic strength. Strong earnings can lift many stocks higher.

The S&P 500 index, of course, is the most widely used benchmark for stock market returns. Individual investors, financial media and those overseeing complicated institutional portfolios use this metric as their core measure of absolute and relative performance.

Professional investment consultants may take umbrage with this statement. These highly trained analysts are well-versed in the intricacies of quantitative analysis and can parse portfolio returns, relative to potentially hundreds of alternative benchmarks, into dozens of marginally relevant categories down to the 8^th decimal place.

August expiration is near, and we need to roll a few positions in our various Fundamentals portfolios. Expect to see several alerts over the coming week as we roll into September and October expiration cycles.

SI-Bone (SIBN) reported yesterday afternoon that revenue rose by 30% to $33.3 million (beating by almost $2 million) and EPS came in at -$0.30, a penny better than expected. Management raised full-year guidance by $3.5 million to $133 million (at the midpoint), about $1 million more than the Q2 beat.

WHAT TO DO NOW: Remain cautious here as the correction plays out. Growth stocks continue to take the worst of it, with many names hitting intermediate-term peaks, though the selling is spreading to the rest of the market, too. Eventually, this should provide some excellent opportunities, but in the meantime we’re moving into more cash—today we’re going to dump our small-ish remaining positions of Monday.com (MNDY) and MasTec (MTZ), which will leave us with a bit over 50% in cash, which represents lots of buying power once the correction ends.

We can finally take our August 18, 2023, SPY 462/466 bear call spread off for a profit. If you choose to hold on to the trade to seek greater profits, please be aware of the risks.

Earnings Roundup: LUNG, RACE, ELF, SHOP, HUBS, FIX

IBM continues to rally, and the underlying price has now pushed past our short call strike. As a result, the delta of our short call is now at parity with our LEAPS contract, so we need to buy back our short calls and immediately sell more calls at a higher strike price that are further out in duration.

Sell Terex (TEX)

We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL

Our August 18, 2023, SPY 462/466 bear call spread is now in profitable territory, so for those who wish to take off the trade for a small profit, especially given the overall price action of the trade, well, no one is going to scoff at taking some profits off the table.

WHAT TO DO NOW: Earnings season remains a landmine of sorts, though we have seen some names find support later in the week. This bulletin is in regards to MasTec (MTZ), which, frankly, reported a totally unexpected sour quarter and poor outlook, which is leading to a big break today. We’ll sell half of our shares and hold the cash for now, leaving us with around 41% on the sideline.

I will be exiting the ConocoPhillips (COP) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET Friday, August 4.

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.