Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the March 2023 issue.

We discuss how the post-Cold War peace dividend is shifting to a war tax.

We provide updates on earnings and change our rating on Organon (OGN) from Buy to Sell. The company is spending more to generate sales growth even as that growth is becoming more difficult. Our thesis is broken, but fortunately, we exit with only a small (~6%) loss.

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.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the February 7, 2023, issue.

We continue our mini-series on the Tech Hype Cycle and Value Investing with a look at what happens to companies after they tumble into the “Trough of Disillusionment.” We also include our perspective on the favorable earnings update from Sensata Technologies (ST).

This week, we changed our rating on State Street Corp. (STT) from Hold to Sell, and our rating on Dow (DOW) from Buy to Sell. Both are quality companies, but their shares have reached our price targets and we see no compelling reason to raise these targets.

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.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the January 2023 issue.

Our letter describes our view that 2022 was a bridge year and that we may need some or all of 2023 to complete the bridge-crossing. We also provide our outlook for the stock market, the economy and the geopolitical environment, with some caveats about forecasting and model use provided by Yogi Berra and George Box.

All-in, we see 2023 as a year with many changes but also a year in which consumers, companies and countries – amazing sources of ingenuity and resolve – work their magic to adapt to whatever curve balls are thrown at them. Our optimism is undaunted.

We also have moved our rating for Arcos Dorados (ARCO) from Hold to Sell.

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.

Starting next week, you will receive your Cabot Undervalued Stocks Advisor issues and updates on Tuesdays instead of Wednesdays. So look for next week’s update in your email inbox a day earlier, on Tuesday, December 13.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the December 2022 issue.

While we are not market or economic forecasters, we try to make sense of what is going on. As we’ve commented on in earlier notes, we may be seeing the return of the long-forgotten inventory cycle. If we’re right, this is the time to buy over-discounted and reasonably healthy cyclicals like the ones on our recommended list.

Our letter comments on Big Lots (BIG) earnings, our price target reduction to 25, and why it remains a Hold rather than a Sell.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the November 2022 issue.

While sharp declines in hyper-growth tech stocks to below their pre-pandemic prices may seem like the proverbial “end of days” has arrived, the fall-off is more a return to normal following a period of vast excesses.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the October 2022 issue.

Following the sharp drop in stocks due to fears of a major policy error, we see an opportunity for subscribers to add to their existing positions in many of our recommended names at very attractive prices.

Is a deep recession likely? Perhaps we are instead experiencing an old-fashioned inventory cycle.

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.

I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the September 2022 issue.

We’re not in the predictions business, so we have little use for predictions or forecasts. Our commentary includes perspectives from Warren Buffett and Yogi Berra.



This past month we covered a complicated earnings season and added two new stocks (State Street Corporation and Gates Industrial Corporation) while selling our position in The Coca-Cola Company.



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.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the August 2022 issue.

Ernest Hemingway’s quote about “… gradually then suddenly…” could apply to the escalating geopolitical tensions.



It has been a quiet month for new recommendations and ratings changes as we patiently wait for attractive opportunities in a difficult investing climate.



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.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.



Thanks!

Thank you for subscribing to the Cabot Undervalued Stocks Advisor . We hope you enjoy reading the July 2022 issue.

Investors are facing two forecasts that wouldn’t seem to be possible at the same time: pending recession and stable/rising earnings estimates. We look at how our cyclical stocks have been beaten down even as their earnings estimates remain largely steady.



It has been a quiet month for new recommendations and ratings changes as we patiently wait for great opportunities.



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.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.



Thanks!

As investors are broadly satisfied with the current outlook, it seems that we have arrived at the end of the beginning of the post-pandemic era. However, there remains immense uncertainly about how the middle-game will play out.



This week, we took advantage of the strong performance of some of our stocks to reduce our ratings. And, as not every stock works right out of the gates, we are moving Big Lots (BIG) from Buy to Hold as we want to rethink our outlook and valuation given its dismal recent earnings report.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the May 2022 issue.

We’re back in the States after an unplanned but superb extended stay in London. It seems that most of the pandemic-driven adrenaline rush in speculative stocks has burned off, leaving a tremendous amount of losses in the wake, while stocks of companies with more enduring business models that trade at prosaic valuations continue to hold their ground or advance.



In the letter, we review earnings reports of several Recommended companies as well as provide updates on all of the others.



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.

The first quarter was kind to our stocks, as they rose, on average, +8.8%, while the broad market fell. We comment on the sources of the gains and any recent news on our recommended stocks.

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

Last night at Hollywood’s Academy Awards, the movie “Everything Everywhere All at Once” won the award for best picture, long considered the top prize of the event. It also won six other coveted Oscars. The movie, ostensibly, is a science fiction film about alternative realities and an everyday laundromat owner.


For investors, the movie is immediately elevated to mandatory viewing – the title applies directly to what is going on in “this here” in “this now” in today’s capital markets.

A few weeks ago, we introduced the Gartner Hype Cycle, which traces the path that all tech companies follow in what essentially is an immutable law of tech investing. Currently, tech stocks have passed the Peak of Inflated Expectations and are sliding down to the Trough of Disillusionment. A few will ascend back to prosperity along the “Slope of Enlightenment” if they maintain both their relevance and their competitive edge. But most will lose one or both of these traits and thus continue downward in what could be labeled the “Decline into Oblivion.”

The chart below follows the same pattern as the Tech Hype Cycle chart while it more specifically traces the pattern of revenues and profits. The peak of the Hype Cycle corresponds, of course, to the peak of the Sales cycle in the Maturity Stage. Most tech companies follow the Decline Stage line into oblivion.

We’ll continue our mini-series on the Tech Hype Cycle next week, as we thought some brief comments on the war in Ukraine might be timely roughly one year after Russia’s invasion.

Clearly, the war is an awful situation for all involved, certainly on a humanitarian level but also on an economic level. While the conflict has degenerated into a World War I-style artillery battle between two entrenched forces, we anticipate that spring will bring more mobile hostilities.

Part of our risk management process is to identify risks, then gauge whether those risks are increasing, or decreasing. This simple directional metric avoids the impossible task of predicting the future yet provides an effective way to understand risks.

A few weeks ago, we introduced the Gartner Hype Cycle, which traces the path that all tech companies follow in what essentially is an immutable law of tech investing. Currently, tech stocks have passed the Peak of Inflated Expectations and are sliding down to the Trough of Disillusionment. A few will ascend back to prosperity along the “Slope of Enlightenment” if they maintain both their relevance and their competitive edge. But most will lose one or both of these traits and thus continue downward in what could be labeled the “Decline into Oblivion.”

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.

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%.

For many of your value stocks on the recommended list, the New Year’s rebound continues. Most of these shares were heavily over-sold late last year. Almost given up for dead, shares of Organon (OGN) have surged 38% since hitting an all-time low in mid-October. Similarly, shares of Barrick Gold (GOLD) are up over 43% since their nadir in November.

We’re only a week into the new year, but it’s been a good start for your value stocks. On average, prices of the stocks on the recommended list (excluding ARCO, which we sold last week) have increased nearly 7%. This is a favorable start, both in absolute terms and relative to the 3% jump in the S&P 500 Index.

For most people, investing during a bear market is a frustrating experience. Share prices keep going down, profitable positions erode in value, new purchases become money-losers. Short upward bursts in market sentiment bring hope for a new bull market, but these fade quickly. The temptation is to sell everything and wait for better times.

The financial media, observers and traders are focused almost exclusively on the path of the Fed’s interest rate tightening policy. How much will they raise rates at the next meeting? How about the meeting after that? Then what? What is the terminal rate (the highest rate of the cycle)? When will the Fed start reducing rates?

Today we are moving shares of Dow (DOW) from Buy to Sell. As the shares have reached our 60 price target, and with no compelling reason to raise that target, we are moving the shares from Buy to Sell. This change will also be made in the Cabot Turnaround Letter.

Today we are raising our price target on Arcos Dorados (ARCO) from 7.50 to 8.50. The company is recovering from the pandemic and looks well-positioned to expand its franchise and profits while continuing to improve its balance sheet. The shares remain undervalued.

Conoco’s earnings report, released earlier today, displayed the company’s strengths. Fourth-quarter profits of $3.0 billion compared to a $(0.2) billion loss a year ago and were 25% higher than the impressive third-quarter profits of $2.4 billion. Rising oil prices combined with restrained spending helped drive earnings higher.

General Motors has made a remarkable transition from bankruptcy in 2009 to a highly-profitable and innovative contender in the rapidly changing global auto industry, driven by CEO Mary Barra.

With today’s 9% intra-day price drop following a disappointing near-term outlook, Cisco (CSCO) shares look more attractive and we would buy/add to positions here, as the long-term fundamental picture remains healthy.

Our interest in oil and natural gas exploration and production (E&P) companies has been warming up lately. Many of these stocks are beaten down, yet oil prices have remained resilient, leaving producers like ConocoPhillips meaningfully undervalued.

We are initiating coverage of Organon (OGN) with a BUY rating.

With the shares continuing to surge past our recently raised 65 price target, and now being priced at a premium to even our upgraded valuation metrics

Bruce is selling three portfolio stocks.

We’re selling this portfolio stock with a 54% profit since its December 2019 recommendation.

Chart is an interesting company, for sure, and we would be happy to buy again at much lower prices.

Yesterday, after the market closed, rumors emerged that this portfolio stock is once again in talks to sell their gas stations.

I want to point out a problem that I foresee, potentially on the scale of the technology bubble in 2001 and the housing bubble in 2007. I think we’re going to have an “inverse ETF bubble.”

I was talking with an investor recently about the latest stock market downturn. He was puzzled; if General Motors (GM) is supposedly such a great stock and vastly favored among portfolio managers, why would it fall 30% during a market correction?

My stock-picking strategy has been refined over the course of 28 years, and has been quite stable for the last six years. My investment goals are (1) minimize stock market risk, (2) achieve capital gains, with dividends as a welcome addition to total return and (3) outperform the U.S. stock markets.

If professional investment companies are not making their decisions based on the price of the stock, neither should you.

Our instincts warn us that stocks reaching all-time highs are invariably overdue to fall. Sometimes yes, sometimes no. We examine two common scenarios involving stocks that are about to rise—or fall—from new high prices.