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Cabot Prime Pro Week Ending January 19, 2018

Cabot Prime Pro Week Ending January 19, 2018

Cabot Quarterly Market Report

4Q 2017 Report January 18: (emailed to Prime Pro members) A very strong year for the stock market closed with a flourish, as the S&P 500 surged another 6% in the fourth quarter to reach new all-time highs entering 2018.

Cabot Weekly Review

In this week’s stock market video, Paul Goodwin keeps it simple: It’s a bull market and you should be heavily invested. That doesn’t mean that you should ignore earnings season or take excessive risks. But despite high RSI and MACD, extended indexes and the impending earnings season, the market is in a broad uptrend and you should be participating. Yes, there will be a correction or bear phase in the future, but right now, it’s time to ride the bull. Paul also gives examples from five sectors that are doing well.



Cabot Wealth Summit Registration

Register here for the August 15-17, 2018 Summit at special pricing for Cabot Prime Pro members.

Cabot’s 10 Best Marijuana Stocks

Special Update January 8: (emailed to Prime Pro members) It’s been only 11 days since Tim’s last update, but circumstances compel him to write another.

Cabot’s 10 Best Stocks to Buy and Hold for 2018

Annual Issue January 4: Crista Huff, Chief Analyst of Cabot Undervalued Stocks Advisor, selects 10 stocks to buy in January and hold all year. You received your copy via email on January 4, 2018.



Cabot Growth Investor

Other Stocks of Interest January 19: Follow ups to stocks featured August 16, 2018 (issue 1374) to January 17, 2018 (issue 1385). Since they’re not in the Model Portfolio, you don’t see them followed on a regular basis. However, we are monitoring these stocks, and this listing gives their current momentum status.
Bi-weekly Issue January 17: Mike writes about a handful of blastoff indicators and bullish market studies that tell us the odds strongly favor higher prices down the road. He also mentions one “sector” that’s reemerged after resting for a few months, touches on a few stocks for your watch list and dives into all of our holdings. One rating change: Facebook (FB) from Buy to Hold.

Cabot Top Ten Trader

Movers & Shakers Weekly Update January 19 We remain (a) in a very strong bull trend, which (b) portends higher prices in the months ahead, but (c) has left most indexes, sectors and stocks very extended to the upside. Buy ideas: Charles Schwab (SCHW), Freeport McMoRan (FCX), MercadoLibre (MELI) and USG Corp. (USG).

Weekly Issue January 15: This week’s list has something for everyone, from turnarounds to big growth stories to more strong commodity stocks. Our Top Pick is Red Rock Resorts (RRR), a little-known gaming entity that is pausing after a very strong breakout and persistent advance.

Cabot Options Trader and Cabot Options Trader Pro

Note that the current week’s Weekly Update, earnings updates, position updates and stocks on watch are posted on the website in the Market Update section, which is deleted each week.

Position Updates January 19: Jacob will be on vacation next week until Friday, January 26, so you will not receive his regular weekly update or daily watch list next week, but he will leave his mental stops with Mike Cintolo, and Mike will alert Jacob if anything comes up. Here are updates on all of our positions.

Trade Alert January 19: Sell Half your Remaining Fiat Chrysler (FCAU) June 20 Calls for $4.60 or more.

Trade Alert
January 18: Sell your Sprouts (SFM) January 22.5/25 Bull Call Spreads for $2.30 or more. Our SFM Bull Call Spreads will expire tomorrow afternoon, and with the stock trading at 26 this morning, Jacob expects it to close for its full profit. However, there’s no guarantee of that, so he will close the position today for a profit of approximately 50%.
Position Update January 18: Our Canada Goose (GOOS) buy-write will expire tomorrow afternoon. The stock is trading at 32.8 this morning, which is $4.80 above our short strike price. If the stock closes above 28 tomorrow, which is very likely, we will be taken out of our stock and option position on Monday morning, and will have created a yield of 4.12% in one months’ time.

Stocks on Watch January 17: Call buying is a way that hedge funds play potential takeovers or stock turnarounds. With that in mind, here are three trades Jacob picked up on today that may be looking for takeovers: GoPro (GPRO), Papa John’s (PZZA) and Kraft Heinz (KHC).

Stock on Watch
January 16: Blackstone (BX) hit Jacob’s radar multiple times in the last several days, including this morning.
Earnings Update January 16: Bank of America (BAC) and Goldman Sachs (GS) will report earnings 1/17 before the open.

Trade Alert January 16: Close Existing Position: Sell your Sprouts Farmers Market (SFM) January 22.5 Call for $3 or more.

Weekly Update
January 15:
There are many theories on why the market has ripped higher to start the year. Strong economic data, tax reform and fear of missing out (FOMO) are likely all playing a part. But Jacob has an additional theory, which may be playing a small role in the market’s strength.

Cabot Undervalued Stocks Advisor

Special Bulletin January 19: Crista comments on Chipotle Mexican Grill (CMG), adds PulteGroup (PHM) to the Growth Portfolio, and reports on Schlumberger’s (SLB) fourth-quarter earnings beat.

Special Bulletin January 18: Crista comments on quarterly earnings reports from BB&T Corp. (BBT), Bank of America (BAC) and Morgan Stanley (MS), and updates on Knight-Swift Transportation (KNX) and Supernus Pharmaceuticals (SUPN), which have Strong Buy ratings.

Weekly Update
January 16: Cabot analyst Tyler Laundon writes the introduction to this week’s update. Unsurprisingly, it related to small-cap stocks, which is Tyler’s focus in Cabot Small-Cap Confidential. One rating change: GameStop (GME) moves from Hold to Buy.

Monthly Issue
January 2: Today’s portfolio changes: ConocoPhillips (COP) and Knight-Swift Transportation (KNX) join the Growth Portfolio, BB&T Corp. (BBT) joins the Growth & Income Portfolio and Supernus Pharmaceuticals (SUPN) joins the Buy Low Opportunities Portfolio. New sells: Boise Cascade (BCC), Johnson Controls (JCI), Legg Mason (LM), Total SA (TOT), Vertex Pharmaceuticals (VRTX), Vulcan Materials (VMC) and Weyerhaeuser (WY).

Cabot Stock of the Week

Weekly Issue January 16: Today’s recommendation is Teladoc (TDOC), a hot little medical stock with a great service. There’s one change to current holdings—Tim is taking a profit in our one-month investment in GDS Holdings (GDS) because the risk is growing that it could turn into a loss.

Cabot Emerging Markets Investor

Bi-weekly Update January 18: The iShares EM Fund (EEM) is well on top of its moving averages, which keeps the Emerging Markets Timer firmly positive. We have one change tonight: We’re moving Weibo (WB) back to a Buy rating.

Bi-weekly Issue January 11: Paul has some thoughts about the state of the market and a few questions you need to be asking yourself as we set sail into a New Year. And he’s welcoming a rebounding Old Friend back into the portfolio, Autohome (ATHM). ZTO Express (ZTO) moves to Sell and Baidu (BIDU) moves to Sell Half.

Cabot Benjamin Graham Value Investor

Weekly Update January 18: Updates on Lowe’s (LOW), Apple (AAPL), Magna International (MGA), LCI Industries (LCII) and Intercontinental Exchange (ICE).

Monthly Issue January 11: Azmath reviews his recommendations and market performance in the past year, introduces new Buy Target (TGT), and moves Discovery Communications (DISCA) to Hold and FedEx (FDX) to Sell.

Cabot Small-Cap Confidential

Weekly Update January 19: Tyler previews his upcoming 2018 Small-Cap Outlook. Spoiler alert: His best guess is that the S&P 600 will be up 12% to 17% in 2018. No ratings changes today.

Monthly Issue January 5: This month’s candidate is Instructure (INST)—another software stock but not a high flyer. Rather, this company is still scooting just below the radar, and trades at a big discount to most of its peers. When you value it based on growth, it’s downright cheap—but valuation isn’t why we’re buying it. One rating change: Primo Water (PRMW) moves to Hold.

Cabot Dividend Investor

Weekly Update January 17: Earnings season has begun in earnest. UnitedHealth (UNH) reported excellent results and issued strong guidance yesterday, and American Express (AXP) and BB&T Corp. (BBT) will report tomorrow. No ratings changes.

Monthly Issue December 20: Chloe adds American Express (AXP) to the Dividend Growth Tier. She also reviews the buys and sells of 2017, and provides updates on all our holdings.

Wall Street’s Best Investments

Daily Alert January 19: Akre Focus Retail (AKREX) from Moneyletter
Daily Alert
January 18: Diamondback Energy (FANG) from Cabot Growth Investor
Top Picks Daily Alert
January 17: Cemtrex (CETX) from S.A. Advisory
Top Picks Daily Alert
January 16: Bank of Nova Scotia (BNS) and State Street Corporation (STT) from Global Investing

Top Picks Daily Alert
January 15: Magna International (MGA) from Cabot Benjamin Graham Value Investor

Annual Top Picks Issue January 17: While the broad market returns were fantastic in 2017, there was no stopping our contributors, whose Top 5 Picks—Arista Networks ANET), YY Inc. (YY), Vertex Pharmaceuticals (VRTX), Crocs (CROX) and NMI Holdings (NMIH)—gained an average of 72.83%! And in today’s 2018 Top Picks issue, you’ll find a great selection of investments, distributed among almost every sector and investing style.

Wall Streets Best Dividend Stocks

Daily Alert January 19: Phillips 66 Partners LP (PSXP) from Forbes Dividend Investor
Daily Alert
January 18: Manulife Financial (MFC.TO) from Dividend Advisor
Daily Alert
January 17: Keyera (KEY.TO) from Capitalist Times
Daily Alert
January 16: Macquarie Infrastructure (MIC) from Income Investor
Daily Alert
January 15: Darden Restaurants (DRI) from Canaccord Genuity Research

Annual Top Picks Issue January 10: Our first place 2017 Top Pick, Lam Research (LCRX) gained a very healthy 71.39% for the year, second-place pick Caterpillar (CAT) delivered a return of 71.23%, and capturing third place was AbbVie (ABBV) for a 54.92% gain. This Top Picks 2018 issue is packed full of exciting opportunities among very diversified sectors and investing styles.

This Week’s Q&As

Cabot’s 10 Best Marijuana Stocks

Question: I received your new 10 Best Marijuana Stocks and unfortunately I didn’t buy the ones you suggested in August. I first would like to know if you think its okay to buy all of the 10 stocks now or just the new ones. Second, is there an ETF for Marijuana Stocks so I can include that in my portfolio as well?

Tim: Thanks for asking. My latest update summed up the picture. The stocks have come a long way, so eventually there will be a cooling off phase—but it’s impossible to know when. One strategy is to wait until a major correction (one may be getting under way now) brings a bottom and then buy as the rebound gets going. A more aggressive approach is to buy now, but keep investments small and average up (never down) as prices rise. If they don’t rise, cut losses short.
In the group, XXII is an exception because it’s really a low-nicotine stock. The chart looks great.
I don’t have an ETF recommendation.

Cabot Growth Investor and Cabot Top Ten Trader

Question: With interest rates rising and the Fed likely to hike short-term rates further this year, does that pose a risk to the overall market? Rates have been so low for so long that stocks must have benefited, so is the opposite true?

Mike: We’ve always believed that money does go where it’s treated best, so if rates really get going on the upside, yes, I could see that being a risk. But for the past few decades anyway, it turns out rising long-term rates (like the 10-year Treasury note) go hand-in-hand with higher stock prices—usually because the economy is picking up. Plus, it’s hard to say that a 2.6% 10-year note yield is overly burdensome to the market or the economy.
Short-term, I would say that rates (or any number of factors) could cause a pullback. But generally speaking, higher interest rates usually have more of an effect on individual sectors (utilities are struggling, for instance) than the overall market, unless the move gets very rapid.
Either way, though, my biggest thought is: Just follow the market itself, as it will tell you when (or if) rates start becoming an issue.

Cabot Emerging Markets Investor

Question: Whats your take on China Construction Bank (CICHF)—its in a lot of Emerging Market and China ETFs but not your usual kind of stock, like Cheetah Mobile (CMCM) or Vipshop Holdings (VIPS).

Paul: On the one hand, China Construction Bank is a powerful player in the Chinese financial sector with a chart that’s up from 48 cents in February 2016 to as high as 1.07 yesterday. That’s the good news. The bad news is that CICHF is hugely illiquid, sometimes trading zero shares per day, and trading just over a dollar. The ETFs that include it in their portfolios likely own the native stock, not the ADR.
It’s too low priced and too thinly traded for me to consider, but you could certainly buy a VERY small amount as a speculative position.

Question: I am not having luck with the Emerging Market stock recommendations. First I tried Sina, I bought it at $116 and sold at $106 (as you suggested; I think it closed around $113 today). Next I tried GDS. I think you recommended it around $18. Looking at the latest newsletter, it still recommended you could purchase GDS. I purchased GDS at $24.75 and now I am down 18.54% within a week. If I read the charts correctly it appears its next support level is around $18. From your writeup and what I have read on GDS it seems like a good investment.
What would you suggest I do with GDS at this time? Do you have any idea why it was down 13.29% today? Do you think it might bounce back like Sina has done? If it gets around $18 would it be worth buying to lower my cost basis?

Paul: GDS has been a challenge all right. There isn’t any company-specific reason for its fall from 25 to 20, but its big down days (Jan. 11 and Jan. 16) were also big-volume selling days for Chinese ADRs in general.
The portfolio bought at 20, so we’re still hanging onto a very small profit.
Two things: First, the stock also took a quick, sharp correction in early December and rebounded from that. Second, with today’s action, GDS is still in contact with its 50-day moving average and is finding support (if it stabilizes here) at its November resistance.
I knew when we bought GDS that it would be volatile, but I still like the story and will be as patient as I can, consistent with responsible practice.
In your specific case, having bought near the top, I think it would be a good idea to put in a mental stop at 20 and be prepared to sell half of your position on any close below that price.

Question: I wanted to get your opinion on the opening of the Hong Kong-Zuhai-Macau bridge opening this year and Macau gaming stocks and specifically Melco Resorts (MLCO), which I’ve owned for years. Being an airline pilot, it’s been fun to watch the bridge being built. A 15 mile drive from HKG airport to Macau is far better to me than the ferry ride from Hong Kong. How do you see this and more mass market visitors to Macau affecting MLCO going forward? It would seem a new era of growth may be starting for Macau with this bridge?
Any thoughts or price targets on how to manage this going forward would be appreciated. I have a nice long term profit in MLCO.
Also, what do you think of (JD)? I know you’ve held the stock over the years. It would seem of the “red chip” Chinese tech stocks, it’s been a relative laggard, but catalysts like profits may soon launch JD.

Paul: I’ve been wondering about the bridge myself. Wish I could have seen it under construction as you have. My bet is that the bridge will have only an incremental effect on Macau gambling receipts. It will certainly increase day-tripper traffic, which will help Melco’s Mocha Clubs and other relatively low-end facilities. But the bulk of Macau revenue has always come from the high rollers who jet in from across China. That segment is so far ahead of foot/ferry/bridge traffic that a good day by just a few whales can actually show up in gross gambling revenues for the month, which is what happened when Macau GGR fell below expectations in December.
For someone who has a good profit cushion, I wouldn’t even think of trading MLCO. Unless the government goes completely off its nut and does a permanent tightening of gambling restrictions, MLCO should do just fine over time. And increasing square footage in Singapore and the Philippines should also help.
I think you’re also right about It’s been range-bound since May 2017, but is trading at the high end of its range with constructive volume trends. The company has been making investments in warehousing and delivery infrastructure that should pay off in future quarters.
Alibaba (BABA) has tended to dominate e-commerce investments in China for quite a while, which restricts the amount of investment capital that can flow toward
I’m quite happy to watch and wait, and will put JD back in the portfolio when it shows signs that investors are ready to jump in.

Question: Are either of IBD 50 issues Casa Systems (CASA) or Daqo New Energy Corp (DQ) of interest to you? Charts look good.

Paul: I haven’t heard of CASA before and it’s too new and too hot to handle right now. There’s usually a correction in the first six months or so after an IPO, and CASA hasn’t had anything like that. The broadband acceleration products sound interesting enough, and the company is actually making money. 2016 revenues were up 2% and 2017 quarterly revenue figures have improved from -5% (Q1) to 17% (Q2) and 61% in Q3. There’s no short activity, no analyst coverage and no institutional sponsorship. Q4 earnings are likely out late this month, and the stock’s future will depend on those results and the general health of the market.
DQ is a stock I’ve had my eye on for a while. I’m a little skeptical about a commodity polysilicon manufacturer, mostly because the solar industry is so economically sensitive. But I can’t argue with the health of the chart.
I would advise that any investment in CASA be kept very small. DQ looks buyable, although I’d want to check on why the company got a new CEO so recently.

Question: My son found a company Fenix Outdoors International, a Swedish company, which trades through London. Fjallraven is their brand. It makes more money than GOOS and has a lower valuation.They have opened new stores in he USA and expect record earnings this quarter. Your thoughts?
It’s hard to get much information about stocks that don’t trade on U.S. exchanges. I’ve been able to find a chart, which is helpful, and a news story referring to a recent change in upper management, which is cautionary.
Here’s the chart showing the stock’s performance over the past year, with the S&P 500 for comparison purposes. Obviously, being up more than 40% is a good thing. But volatility has also been quite high, which implies that big changes could be ahead.


And here’s a translation of the management-change announcement last month:
The board of Fenix Outdoor has decided to launch a management change in connection to the Annual General Meeting this spring. Martin Nordin will be nominated as new Executive (working) Chairman and in connection to that resign from his position as President of the group.
The role of President will be assumed by Alex Koska, currently Vice President with responsibility for the segment Global Sales. Martin Axelhed, currently Vice President in charge of the Brands segment, will be promoted to a new position as Executive Vice President of the Group.
I am proud and pleased to announce Alex Koska as new President, says Martin Nordin. Alex is a competent leader with a long experience in the Outdoor Industry. For over a decade, he has held various management positions within Fenix Outdoor and I know that he is a person who deserves great respect both within and outside the organization of Fenix Outdoor.
I am sure that the new leadership organization, through its rejuvenation, will support the future challenges of the Group. Mr Koska and Mr Axelhed will assume their new positions in connection to the AGM in 2018. I have come to a point where I, want to be able to work 100% with strategic issues from a board position, to support that the Group based on its strong financial and brand position, will develop into a global leading player in the outdoor clothing and equipment industry.

Paul: I can’t find out much about product positioning, pricing, online sales vs. brick-and-mortar, competition, etc., which makes me cautious. I guess my advice would be what I advise in all cases where I don’t have enough information: to keep any initial investment small and have a good idea before you buy about where you will sell if the price deteriorates.

Cabot Dividend Investor

Question: Since we’re in earnings season, I was wondering about your analysis of Pembina Pipeline’s (PBA) last earnings report. I thought they had a big top line miss, so was puzzled by your optimistic outlook. Can you clarify, as I own the stock.

Chloe: Like many energy companies with large fixed assets like pipelines, Pembina has high depreciation and other non-cash expenses that mean EPS tend to be much lower than cash flow (MLPs are the typical example of this, even though PBA isn’t one.)
So while Pembina has to report EPS to comply with securities laws, the company’s adjusted cash flow numbers are a better indicator of how the business is doing and how much cash is available for dividends. Analysts and institutional investors know to look at cash flow instead of EPS (in fact, management doesn’t even discuss EPS on their calls), so PBA isn’t highly correlated to earnings misses or beats.
Of course, because analysts don’t make public estimates for cash flow, it can be a little hard to know if earnings were good or bad. So I look for year-over-year growth, read the conference call transcript and watch the stock’s reaction, and that typically tells me what I need to know.

Question: What’s happening to Gladstone (GOOD) and Two Harbors (TWO)? Taking big losses. Is it just people grabbing profits ?

Chloe: TWO and GOOD are both REITs, which are getting slammed by higher interest rate expectations. I’ve gone into it in some detail in my recent updates on Welltower (HCN), but in short, investors are turning away from the sector in anticipation of significant increases in interest rates and treasury yields later this year. The yield on the 10-year is at its highest level since March, driven by strong economic data, which is expected to drive inflation higher soon. Short-term rates have moved even more.
After Friday’s strong CPI data, the market is now pricing in three 2018 rate hikes. The Fed’s ongoing portfolio unwind and the recent tax cuts are also expected to push Treasury yields higher by reducing the demand for Treasuries (the Fed has been a major buyer since the financial crisis) and increasing the budget deficit (forcing the Treasury to issue more debt.) It all adds up to a bad environment for REITs like TWO and GOOD, which see their costs rise and their popularity with investors decline when fixed income yields increase.

Question: I am a subscriber of Dividend Investor Investor. I have been analyzing four Bullet bond funds that make up the bond ladder in the Safe Income Tier. I found out that as these funds (or for that matter any defined maturity bond ETF) get closer to the maturity date, the yield starts to fall and can be lower than the advertised yield to maturity number. Given this, is it advisable to have such shorter maturity bond ETFs in the ladder?
I am exploring whether to divide my fixed income allocation in an IRA and hence this question. I have looked at the CD rates for shorter duration terms and they seem to be competitive not to mention FDIC insurance. For example, the 1 yr CD rate for brokered CD through Fidelity is 1.7%. That may end up giving higher total return than investing in the 2018 corporate bonds ETF.

Chloe: You’re correct, the yield on the BulletShares ETFs decline as they approach maturity, because Guggenheim rolls the proceeds from maturing and called holdings into cash or Treasuries. The yield won’t start declining until the last year, so you could simply sell the fund at the start of that year to keep your overall yield up (assuming the fund is already trading near par, which most of them do). For example, you could sell the 2018 fund now and replace it with a 2022 fund.
CDs are safer, for sure, but the idea with the bond ladder is to maintain the income stream over time by rolling the proceeds from each maturing fund into a new, longer-dated fund. That way if interest rates go up, your income will also gradually rise. (You could also ladder CDs I suppose.) Anyway, the 2018 bond ETF isn’t a standalone recommendation, it’s part of a bond ladder, so the overall yield is what we’re most concerned with.

Guide to Cabot Prime

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