In the March Issue of Cabot Early Opportunities we spread things around with a diverse group of mid-caps, plus one large cap from our Watch List that’s one of the biggest stories in MedTech.

As always, there’s something for everybody.

Enjoy!

Before we get into this week’s covered call idea, we have two positions we need to address coming out of expiration Friday.

Because the market has somewhat lost its momentum recently, we are going to exit our WDC and WSC stock positions, as the March calls we sold expired worthless on Friday.

The intermediate-term trend of most major indexes and most leading stocks is still pointed up, but there’s no doubt we’re seeing much more choppy action, with most leading stocks basically marking time since early February. The good news is that, while we are seeing some sluggishness and a larger number of potholes, there are some areas of the market that are perking up—retail names started to pop three or four weeks ago, and more recently we’ve seen some commodity areas begin to flex their muscles. As we said last Friday, then, it’s not so much that there are major red flags out there, but more that the very bright green light has dimmed some as money starts to slosh around and some uncertainties (like interest rates and the Fed) pop up. We’ll again leave our Market Monitor at a level 7.

This week’s list is heavy in commodities and newer retail names, and our Top Pick looks like it’s leading what could be a group move.

After a rare down week for the market, and with the Fed set to potentially pour their usual pitcher of cold water on investor enthusiasm again this week, it’s possible an extended pause or even a modest pullback in stocks is in order. With that in mind, today we add another safety play in the form of a high-yield business development company Tom Hutchinson recently recommended to his Cabot Dividend Investor readers. And it’s not some stodgy, slow-burn title – the stock is trading at 52-week highs!

We are finally through March expiration and volatility continues to remain at low levels. Volatility is starting to perk up a little, but the VIX still sits below 15, at 14.41. Until we see a sustained push towards the 18 handle, we should expect to see market complacency rule the day. A return to more normal levels of volatility (18 to 22) would allow us to expand our positions. Until then, we patiently wait for Mr. Market, and more importantly, probabilities, to lead the way.

Our Income Trader portfolio continues to shine with a total return of 159.2%.

We should be able to add to our total this week by locking in profits on our most conservative position, PFE. It’s only a paltry 1.4%, but the wheel approach lives on singles and doubles. Since we introduced PFE to the income wheel approach we’ve made a steady 30.89% in total returns (16 trades) while the stock has lost over 40%.

Earnings season is behind us, but as always, there are a few companies yet to report earnings. Micron (MU) is our focus this week. With an IV rank of 93.1, it makes sense to look at a potential trading opportunity in the company, which I’ve done in the trade ideas below. The range we created looks nice and wide, while the premium is at attractive levels. The company is due to report after the closing bell today, so if we decide to place a trade look for an alert around mid-day Wednesday.

The markets saw mostly sideways action in the past month—the soothsayers are still debating when the Fed will begin reducing interest rates. Growth stocks held on to their leadership position, although value stocks are beginning to show life in 2024.

Good gracious, last week was volatile for the market as the indexes moved violently day-to-day. Yet, by the close of trading on Friday the S&P 500 and Dow were only down marginally on the week, while the Nasdaq had declined by 1.5%.

Bitcoin is sometimes referred to as “digital gold,” but investors should also have some of the real stuff. As J.P. Morgan put it, “Gold is money. Everything else is credit.” So today, with gold prices on the rise, we add exposure to the yellow metal in the form of a low-risk streaming and royalty company.

Good gracious, last week was volatile for the market as the indexes moved violently day-to-day. Yet, by the close of trading on Friday the S&P 500 and Dow were only down marginally on the week, while the Nasdaq had declined by 1.5%.

The rich get richer. Now, you can too.

Growing businesses with big ambitions need large amounts of money to grow and expand to the next level. But these enterprises can’t get the necessary capital from stodgy and risk-averse bankers. And they are still too small to access the capital markets by issuing stock or bonds. Thus, they are forced into the domain of wealthy individuals and institutions that have money and are itching to reap high returns.

These venture capitalists provide desperately needed money to up-and-coming businesses that can’t get it anywhere else. Thus, they are in a position to negotiate very favorable terms for themselves.

As financial markets have grown in sophistication, venture capital investing is no longer the exclusive domain of the wealthy. There is a little-known class of security that enables regular investors to mimic the very same moneymaking strategies employed by the rich and famous. These securities are called Business Development Companies (BDCs).

In this issue, I highlight one of the most successful BDCs on the market. It pays dividends every single month, has a long and consistent track of raising payouts, and has delivered fantastic total returns.

Wells Fargo & Company (WFC) reported second-quarter results this morning, and we comment on the report.

Shares of ESAB Corp (ESAB) have crossed our $68 price target so we are now formally reviewing the rating and price target.

With the 4^th of July holiday last Tuesday it felt like 75% of the country was on vacation for the week and whatever happened in the market was a mirage.

This week things came into sharper focus. And the bull argument firmed up with the better-than-expected June CPI reading yesterday morning. The annualized 3.0% CPI inflation rate is the lowest in more than two years and came in below estimates of 3.1%.

That report helped the S&P 600 Small Cap Index, as represented by the iShares Core S&P Small-Cap ETF (IJR), jump up to its highest level since March 10 and move convincingly through the 100 level.

In a letter outlining his near-term agenda, Senate majority leader Chuck Schumer (D-NY) says passing bank reform favoring the cannabis sector is a top priority.

The letter to Senate colleagues confirms what lobbyists and cannabis company executives have been reiterating for the past several weeks: July could be a turning point for the group, offering legislative developments that push marijuana stocks much higher.

This sets up cannabis as a potentially good short-term swing trade, but it also confirms the bullish long-term prospects for the group.

The first half of the year produced stock market returns that few, if any, anticipated. The S&P 500 has uncorked a 15.6% year-to-date return (through last Friday), a remarkably strong showing relative to the index’s history. Brokerage firm forecasts for the rest of the year have an exceptionally wide breadth given the equally wide range of economic forecasts. We will readily admit that we are not in the forecasting business. This saves us from the considerable embarrassment that comes with forecasting as well as an immense amount of time. Our approach requires us to be “macro-aware” but not “macro-driven.” As such, we are well aware of the milieu of others’ forecasts, and the rationales behind them, but find them unactionable for our style of investing.

It’s anybody’s guess what the second half will have in store for the market. The first half surprised almost everyone with a stellar 16% gain in the S&P.

Investors are sensing a soft-landing, whereby we get past this Fed rate hiking cycle without a recession and minimal economic pain. Recent economic numbers reflect a greater likelihood of that scenario.

Anything is possible. The market could be off to the races, or it could sober up and pull back. Inflation is falling while the Fed is still making hawkish noises. It’s reasonable to assume that even if the economy isn’t slowing down yet, the Fed will continue to raise rates until it does.

This was a quiet week for our stocks. Earnings season starts next Friday, with Wells Fargo (WFC) reporting, followed by Nokia (NOK) and First Horizon (FHN) the next week. Based on the preliminary calendar, the earnings deluge starts on Tuesday, July 27.

WHAT TO DO NOW: Remain optimistic but keep an open mind. At this point, our market timing indicators remain bullish and we’re seeing little abnormal action among leading stocks—that said, the Fed/interest rate situation refuses to go away, and near term, some more shaking of the tree is certainly possible to raise the fear level. Tonight, we have no new buys or sells, but we’ll place Inspire Medical (INSP) and Monday.com (MNDY) on Hold and see how things progress. Our cash position will remain in the 30% range.

This is a short week as we begin the second half of 2023 with inflation down, recession fears fading, and the animal spirits of investors alive and well.

In the first half of 2023, market performance was positive and narrow, largely driven by the big tech names, and especially artificial intelligence (AI) related stocks. The Dow was up 3.8%, the S&P 500 gained 15.9%, and the tech-heavy Nasdaq was up 31.7%. We will continue to explore the world for the best value and growth stocks providing both conservative and aggressive ideas. EVs across the supply chain, resources, and emerging markets remain the focus but we have the flexibility to change course as opportunities arise.

The S&P 500 delivered an impressive 16% return in the first half. Can the good times continue in the second half?

A big part of the latest surge higher has been the artificial intelligence (AI) excitement. After Nvidia (NVDA) blew away expectations citing far greater demand for AI technology, the market-leading tech sector caught fire. But returns were impressive even before then as the market is sensing a soft landing.

Hope you had a wonderful 4^th of July!

The weather was less than ideal (raining all day in Wellesley, MA, where I live) but we made the most of it and had friends over for some hot dogs and hamburgers.

This has been the rainiest start to the summer in a long time. Fingers crossed better weather awaits us in the second half of July and August.

It has been a fabulous rally that has proven naysayers wrong. The S&P 500 is up about 15% YTD just before the midpoint. Stocks have also rallied more than 20% from the October low into a new bull market.

How much gas is left in the tank?

Inflation is falling and the Fed is almost done hiking rates. It is also looking less likely that there will be a recession this year. Investors are optimistic that we can get to the other side of this hiking cycle without too much pain.

This week, we comment on earnings from Walgreens Boots Alliance (WBA). We also include the Catalyst Report and a summary of the July 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.

HUBS, SITM and MSFT

With 14 days left until the May 19, 2023, expiration cycle ends, we need to begin the process of rolling the remainder of our short calls and immediately selling more call premium in June.

Alphatec reported preliminary Q1 results on April 19 when the company announced the acquisition of the REMI Robotic Navigation System.

HUBS, SITM and MSFT

Updates on NRDS, LUNG, TKR & ISEE

I will be exiting the Starbucks (SBUX) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET this Friday, May 5.

Sprout Social beat on the top and bottom lines after the close yesterday. Revenue rose 31% to $75.2 million (beat by $130K) while EPS of $0.06 improved from a loss of -$0.03 in the year-ago quarter and beat by $0.07.

As discussed in our weekly issue, and on our weekly call, I will be taking a position in Starbucks (SBUX) today. SBUX is due to announce earnings after the closing bell today (May 2). The stock is currently trading for 113.60.

Okay, it’s time to take some profits. Albeit on the small side, I’ve decided to lock in profits in our SPY iron condor and look to sell another iron condor after the Fed announcement tomorrow.

Terex reported Q1 2023 results that beat expectations after the close yesterday. The company also raised full-year guidance by more than the Q1 beat. The result should quiet some of the concerns of a slowdown and help the stock do well today.

I am buying back our short calls today and immediately selling more premium. Our May 5, 2023, 57 calls are essentially worthless, so let’s buy back our calls, lock in some profits and immediately sell more call premium.

There is little premium left in our May 19, 2023, 60 puts. As a result, I want to buy back our puts and immediately sell more put premium.

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.