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Value Investor
Wealth Building Opportunites for the Active Value Investor

Cabot Undervalued Stocks Advisor Special Bulletin

I changed a number in yesterday’s Special Bulletin discussion about the S&P 500, and I failed to subsequently adjust the percentages, so I wanted to issue an update with the correct percentages as they pertain to increases in the S&P’s value.

Yesterday I had two meetings, two radio appearances, baked two quiches, volunteered to help the local symphony (and thus acquired the title “symphomaniac”), ran errands, did chores and yardwork, and wrote a Special Bulletin for you. In my haste to prepare for the next task, I changed a number in yesterday’s Special Bulletin discussion about the S&P 500, and I failed to subsequently adjust the percentages.

I know it’s just a little detail, but I wanted to issue an update with the correct percentages as they pertain to increases in the S&P’s value, lest you tried to do the math yourselves, and discovered that one of us is a bit wacky.

Yes, I was the wacky one.

One last thing: A subscriber asked me which of the portfolio stocks I would buy today. The answer is JCI, PWR, XL, XOM, TSO and TOT.

Here’s the adjusted version of yesterday’s email:

CUSA sp500 spx 3-22-17

Here’s a very brief history of price action on the S&P 500 stock market index, from which we can make comparisons and gauge this month’s stock market activity.

After trading sideways for just over two years, the S&P 500 broke past upside resistance at 2,130 in early July 2016.

For those of you who want a little more helpful info, take a look at the price chart, just before the July 2016 breakout. You see that quick and deep downward spike in the index? That was the brief market turmoil surrounding the Brexit vote. More importantly, that chart pattern is called a shakeout, and it very typically precedes an almost-immediate upside breakout in a price chart—whether we’re looking at a chart for a stock, a market index a currency, etc.

The S&P 500 then rose to about 2,190 in August 2016, representing a 2.8% move. The index then traded sideways, finally breaking out again in mid-November 2016. The index subsequently rose to about 2,400 on March 1, 2017, representing a 12.7% increase in the S&P 500 since the July 2016 breakout.

(If possible, try to follow stock price movement on price charts, which you can locate at The more you understand that there’s “a method to the madness,” the more relaxed you will be about the ups and downs of the stock market.)

The next two questions become:

  • How normal is a 12.7% increase in the S&P 500 index in eight months?
  • Should I be worried?

First off, don’t worry. There’s nothing abnormal happening. U.S. stock markets tend to rise approximately 20%-30% in two out of every five years. The other years tend to present us with much smaller annual increases, or even losses. We have not had a 20%+ year in the S&P 500 index since 2013.

That tells us that (a) we are overdue for a big year in the S&P 500, and (b) the 12.7% gain since July 2016 is not abnormal.

Phew! That’s a relief!

So what’s happening now? Well, stocks don’t go straight up. Stocks and market indexes bounce around, whether the general trend is up, down, or sideways. We need to just accept that, and either turn off the TV, or go shopping for bargains to add to our portfolios.

I’m receiving emails from subscribers who want to “buy low.” The pullback on the S&P 500 has been small, and it has not bottomed yet. We could relatively easily see the S&P fall to about 2,275 before it rebounds. That would be a normal price correction, from which the market could rebound within two to six weeks.

Since the market has not bottomed yet, it is a little premature to buy low, because most stocks that are having pullbacks have not bottomed yet. In that light, here are some rough support levels on some buy-rated stocks—good prices at which to buy.

  • Dollar Tree (DLTR) 73-75
  • Johnson Controls (JCI) 40.50-41.50
  • Martin Marietta Materials (MLM) 205-210
  • Quanta Services (PWR) 34-35
  • XL Group (XL) 39.50
  • BP plc (BP) 33.50
  • Blackstone Group (BX) 28.50-29
  • ExxonMobil (XOM) 81-82
  • Whirlpool (WHR) 165-170
  • Boise Cascade (BCC) 25-26
  • Legg Mason (LM) 33-34
  • Mattel (MAT) 25
  • Schnitzer Steel (SCHN) 20
  • Tesoro (TSO) 79
  • Thermon Group (THR) 18.50-19.00
  • Total (TOT) 48-49
  • Vertex Pharmaceuticals (VRTX) 84-86

When it’s obvious to me that the stock market is beginning a price correction, I usually wait for the market indexes to stabilize before I start buying. Granted, sometimes the rebound happens within days; but usually the market is low for a couple of weeks, giving me plenty of time to go shopping.

If there’s a portfolio stock that I didn’t mention here, the price chart was probably too vague today. Feel free to ask me again in a few days.

By the way, I know that newscasters commonly tie in stock market action to popular economic and political news, but I tend to see their occurrences as coincidental, and not necessarily related to each other. The market was due for a correction, and now it’s happening. Good. The sooner we get past the correction, the sooner we’ll again see market advances!