Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the May 2021 issue.

The stock market, so far in May, hasn’t continued the robust momentum of the first four months. Treasury Secretary Yellen’s comment about the possible need to boost interest rates to ward off inflation seems to be the catalyst. The market and the broad economy will likely respond differently if rates increase. We briefly outline on our asset allocation philosophy, which helps guide us when the market is edgy, in our economic comments.



Earning and proxy voting are in full swing. We’re updating the earnings as they come in.



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 April 2021 issue.

As value investors, we look for companies that are selling at a discount to their underlying value. But how do we measure that value? In this issue, we briefly describe and discuss the EV/EBITDA metric, which is our preferred valuation tool.



While our stocks generally did well this past week, there wasn’t much news. With earnings season starting next week, most companies are remaining fairly quiet.



One change we made was to reduce our rating on Tyson (TSN) from a Buy to a Hold. The shares have about 8% upside to our recently raised price target. From here, we’d like to learn more about its earnings power, which hopefully will be provided in its fiscal second quarter report, before deciding to either raise or 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.



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 March 2021 issue.

As value investors, we follow the goings-on at Berkshire Hathaway, and comment briefly on its earnings and Warren Buffett’s annual shareholder letter, released this past Saturday. Your chief analyst owns some Berkshire shares (the lower-priced Class B shares), but isn’t a full-fledged Berkshire “groupie.”



We also discuss our new Buy recommendation – British insurance company Aviva, Plc (AVVIY). This company is emerging from a period of global sprawl and weak leadership, led by a new and impressive CEO.



Currently-recommended Dow (DOW) is a strong beneficiary of the global economic re-opening, with higher earnings likely ahead, so we are raising our price target to reflect this still-undervalued stock’s potential.



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 February 2021 issue.

We briefly comment on how the response by hedge funds to the Reddit trades may have led to last week’s sell-off and this week’s rebound in the stock market. Is there a bubble? Yes, and our note touches upon how all four ingredients of a bubble, outlined in a recent book on bubbles, are in place.



Earnings season is upon us. We review the reports from Dow (DOW) and JetBlue (JBLU), and look forward to six more reports in the coming week.



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 January 2021 issue.

With the turning of the calendar, we list eleven long-term secular trends that we see shaping the world for years to come. We also include four additional trends that investors may think are enduring yet which we have less certainty about their ability to continue indefinitely.



Contrarian investors can benefit from considering these trends. Sometimes the most appealing stocks are those that superficially go against them.



The current recommended list includes 14 names, with Merck (MRK) and U.S. Bancorp (USB) added this month. Earning season is starting soon, so we’ll get updates on how these companies are faring and provide our commentary and analysis on them.



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 December 2020 issue.

We briefly share our thoughts on the surging stock market and run through some valuation math that looks out a few years. Our conclusion: the market’s earnings growth, even side-stepping the pandemic’s effects, doesn’t look that impressive, while the market’s valuation is on the high side of average. It is starting to look like a good time to be pickier about which stocks to own.



With this thought in mind, we are moving Broadcom (AVGO) from a Hold to a Sell, as the shares have essentially reached our price target.



It’s been a fairly active month for a value-oriented newsletter, adding three new names and selling six, including Broadcom. This leaves the holdings list at 12 names. We anticipate expanding this roster over the next month or two, as there are many interesting value ideas out there.



We also tweaked the descriptions under the portfolio titles to more accurately reflect what types of stocks we look for. This should also help add some clarity to the differences between the two categories.



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 November 2020 issue.

We briefly discuss the soon-to-evaporate election cloud, the merits of holding value stocks when growth/momentum stocks tumble, and highlight one of our portfolio stocks that had some earnings issues along with several others that reported strong earnings that lifted their share prices meaningfully.



Earnings season is in full swing. Six portfolio companies report later this week. We encourage subscribers to visit the reporting companies’ websites to review their earnings-related slide presentations and listen to the post-earnings conference call. These are all available to the public under the “Investor Relations” tab. Sometimes what portfolio companies actually do can seem murky – a quick visit to their website can help clarify, and (at least to me, a certified investment geek) provide some fascinating reading.



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.

This month and early November will be jammed with possibly market-moving events: earnings season, presidential (and now importantly, vice presidential) debates, the actual elections, a likely new federal stimulus package, possible change (in either direction) in the pandemic’s course, and perhaps news about a vaccine solution.

But for now, we’re stuck in Limbo-Land, with the worst (hopefully) of the pandemic behind us, yet so many unknowns just ahead. We outline some basic suggestions that we follow when in this type of market.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the September 2020 issue.

With earnings season mostly completed, the markets have drifted upwards in the waning days of this otherwise unusual summer. Some splashy IPOs and stock splits have provided some excitement, but the bigger and more enduring news came from the Fed’s official change in its priorities. We discuss our thoughts on this shift in the letter.



We also introduce price targets for several recommended stocks. Over the next few weeks, we will provide targets for the remaining stocks and all newly recommended stocks. Price targets help stay the course when our stocks weaken on noise, and provide a tangible exit point. The assumptions behind the price targets provide a roadmap to gauge the company’s recovery process.



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.

Here is the August 2020 issue of Cabot Undervalued Stocks Advisor.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. It’s earnings season, and in this issue we review fresh reports from MKS Instruments (MKSI), Tyson Foods (TSN), Columbia Sportswear (COLM), Amazon.com (AMZN) and Marathon Petroleum (MPC). Marathon also announced a deal to sell their Speedway retail gas station business for $21 billion in an all-cash deal, which we discuss.



As a newsletter looking for undervalued stocks in a market full of enthusiasm for only a select few mega-sized tech companies, we almost feel a moral obligation to highlight contrarian ideas. In this issue, we recommend a stable but meaningfully out-of-favor company that has the potential to provide solid long-term returns. “Out-of-favor” implies that it doesn’t have the immediate profit potential of a “digital economy” stock, but that lack of zest produces the opportunity. With low expectations comes upside surprises. We believe global beverage company Molson Coors (TAP) fits the bill.



You may notice that we are tweaking some of the components of the Cabot Undervalued Stocks Advisor letter. For example, we’re bringing back the portfolio tables to every weekly and monthly issue. A “Hold” rating means that we believe the stock is fine to hold in the portfolio, but that the risk/return trade-off isn’t compelling enough to warrant a “Buy” nor unfavorable enough to warrant a “Sell.” Also, for the monthly issue, we may not always have a “Feature” stock in each portfolio – that doesn’t mean we don’t like any of the names, it probably just means that we featured it recently and want to avoid being repetitive to save you time and effort.



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.

Today’s featured companies have sturdy financial conditions and attractive valuations, with appeal to buy-and-hold investors as well as traders.

The markets eked out a positive return for the month of June, with the S&P500 returning 1.99%, capping one of the strongest quarters (+20.5%) on record. In this month’s letter, I describe a bit more about the re-opening and how it might affect the markets.

Three of today’s featured companies seem most obviously ready to begin or continue run-ups in the coming days. The fourth featured company is sitting at the bottom of a steady trading range, offering attractive opportunities for growth investors, dividend investors and traders.

U.S. stock markets are rising again. At some point in the coming months, the sober reality of the country’s economic situation will impact the stock market, but for now, there’s money to be made. Energy stocks and stocks within the investment, life insurance and annuity industry look especially bullish right now.

In baseball, on an infield hit with a runner on third base, the fielder will look directly at the runner before throwing the ball to first base for a sure out. This “look” prevents any attempt by the runner to score – if he takes off for home plate, the fielder will throw him out.

Longer-term subscribers are no doubt familiar with our immense patience with beleaguered discount retailer Big Lots (BIG). Its shares initially sagged due to bloated inventory, similar to other more highly regarded retailers like Target and Walmart, leading to our initial recommendation. We had expected that its earnings would be weakened as it offloaded its excess goods at sizeable discounts, but also that it would ultimately work its way out of its difficult but by no means impossible situation. At the time, Big Lots had a cash-heavy, nearly debt-free balance sheet, was generating positive free cash flow and traded at a depressed 3x EV/EBITDA multiple. What could go wrong?

The S&P 500 continues to grind higher, now posting a year-to-date gain of 10%. Investors are collectively buying the current narrative that supports these gains: The Fed is poised to cut interest rates later this year to avoid an almost-certain recession.

Nearly impossible to ignore in the financial and mainstream media are updates about the ongoing negotiations to avoid a default on its obligations by the U.S. federal government. Accompanying the news is the countdown to the X Date, the unofficial date when the government will run out of authority to make further payments because it will exceed the $31.4 trillion statutory debt ceiling.

This past weekend I attended the company’s annual shareholder meeting in person in Omaha. While the online viewing of Warren and Charlie’s commentary produces many tangible take-aways (which can be found on a wide variety of media outlets), it was the intangibles – obtained only from being there in person – that provided the incremental value.

It was only a month ago when we wrote about how the seemingly out-of-the-blue turmoil in the banking sector, driven by the sharp increase in interest rates, could lead to a major financial accident that traumatizes the world’s capital markets. Part II recognizes an ever-expanding roster to include additional percolating problems.

Each investor operates within their own time horizon. Day traders’ time horizon is the 4 p.m. ET market close, or shorter. Some traders focus on the calendar week, while most hedge fund traders have a month-end time horizon. Mutual funds focus on a quarterly or at most annual time horizon. Financial commentators have their own time horizons, as well. Bombastic TV or live-streaming pundits usually focus on very short horizons – “what has the stock done for me lately” is their mantra. The definition of “lately” can change but usually means “the past few weeks” or “since it stopped going up.”

As widely reported, Jamie Dimon, the 23-year-and-counting CEO of JPMorgan and its predecessor Bank One, recently penned his annual letter to shareholders. The 43-page tome covered topics ranging from the bank’s “Steadfast Principles Worth Repeating” to “Our Serious Need for More Effective Public Policy and Competent Government” along with some impressive numbers about JPMorgan’s financial, operational and share price performance over the decades.

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 are now living through an unprecedented time in the U.S., and in the world at large, when institutions, schools, universities and more are being shut down from public attendance so as to curtail the spread of a virus named COVID-19.

The stock market is down again today due to oil price competition and aggression between Russia and Saudi Arabia, which led to plummeting oil prices.

Please understand that stock market corrections are about market adjustments and reactions to news and economic scenarios.

After seven consecutive down days and a swift, brutal stock market correction, we’re bound to see a few up days quite soon. Please be cautious.

Now that the market has fallen substantially, I think we’ve reaped the bulk of the potential profits on our recent purchase of these two ETFs.

Once again, the media has done a splendid job of creating fear and panic among the citizenry.

One portfolio stock had a earnings beat and there are two additional rating changes.

Global citizens are beginning to witness a relatively unprecedented situation in which a communicable virus that originated in China is now traveling around the globe.

Crista has two rating changes today and reports on another with a good 2020 outlook.

Crista has rating changes for three portfolio stocks and reports an earnings miss for a fourth.

Crista updates us on three portfolio stocks.

Crista updates us on some Earnings and has two rating changes

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.”

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.

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

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.