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Current Market Outlook


The market’s rebound continues, and encouragingly, we’re seeing some power develop—stocks have shown two major accumulation days (one the day after Christmas, when the Dow rose 1,000 points, and the other last Friday after soothing words from the Fed) and breadth has been terrific. We can’t say we’re out of the woods yet; even after today’s rally, the intermediate-term trends of the major indexes are clearly down (all indexes are still near their 25-day moving average, in fact). But even so, there’s no denying the rally is off to a good start, and to this point, the market and potential leading stocks are doing what they “should” to carve out a sustainable low. You should still keep plenty of cash on the sideline, but we’re not opposed to adding some small positions in potential leaders and seeing how things progress. We’re nudging our Market Monitor up a notch.

This week’s list has a broad mix of stories and charts, but all of them look like they want to head higher if the market cooperates. Our Top Pick is Chipotle Mexican Grill (CMG), which, after a massive shakeout, looks primed to continue its turnaround.

Stock Name	Price	Buy Range	Loss Limit
AZUL (AZUL)	29.41	26.5-28	24-25
Buenaventura (BVN)	16.23	15.5-16.5	14-14.5
Chegg (CHGG)	74.21	28.5-30	25-26
Chipotle Mexican Grill (CMG)	773.32	465-485	425-435
Etsy (ETSY)	112.97	49-51.5	42-43.5
Incyte Corporation (INCY)	76.98	70-73	64-66
Kirkland Lake Gold (KL)	51.30	24-25.5	21.5-22.5
Okta, Inc. (OKTA)	148.41	63-66	54-56
Telephone & Data (TDS)	35.36	33.5-35	30.5-31.5
Workday (WDAY)	194.88	157-164	143-147

Current Market Outlook


The major indexes have now rallied five weeks in a row, with most having at least eked out to new highs during that time. That push higher has created a few short-term yellow flags among overbought and sentiment measures; similar readings during the past few months have preceded multi-week, tedious retreats in the market. What happens this time around will be key: With the trends up and longer-term measures supportive, we’re optimistic the market has changed character for the better, but should the market and leading stocks suffer a deep retreat, that would probably put us back in the soup. In the meantime, we’re going with the evidence, which continues to improve both for the indexes and new leading stocks.

This week’s list has another round of stocks that have recently enjoyed outsized accumulation. It’s a tough choice, but our Top Pick is United Rentals (URI), which looks like a potential leader among cyclical stocks.

Stock Name	Price	Buy Range	Loss Limit
Cirrus Logic Inc. (CRUS)	0.00	66-69	58.5-60
Dexcom (DXCM)	421.36	196-205	177-181
InMode Ltd. (INMD)	38.86	40-43	34-36
Insulet (PODD)	175.69	168-174	154-156
MKS Instruments (MKSI)	109.43	108-112	97-99
State Street (STT)	79.42	69-71	62.5-63.5
Tesla, Inc. (TSLA)	818.87	320-335	280-290
United Rentals, Inc. (URI)	0.00	151-156	136-138
Visteon (VC)	89.82	91-95	82-83.5
Winnebago (WGO)	48.56	47.5-49.5	42.5-43.5

Our Cabot Tides buy signal earlier this week has prompted us to put some cash back to work; we now own seven stocks, though we still have a good-sized cash position of around 46%. As always, we’ll just take it as it comes, but so far leading growth stocks and the major indexes remain in good shape.

In tonight’s issue, we review a little about how we run our ship, as well as dig deeper into Cabot’s Aggression Index, which can also provide some clues for the overall market. And, of course, we dive into all of our stocks and some fresh ideas should the buying pressures grow.

Current Market Outlook


The market’s two-plus-week rally hit a wall last week, with the major indexes suffering three days in a row of distribution (higher volume selling), that caused most to fall back below their 50-day lines. That’s reason enough to remain relatively cautious—we’re keeping our Market Monitor in neutral territory. On the flip side, though, is the action of leading stocks, a ton of which are actually pushing higher despite the market’s wobbles! Of course, good-looking stocks can go bad in a hurry in a bad market, but there’s no question this broad resilience (including a slew of solid earnings reactions) is very encouraging. Our thought is to pick up a few shares of some potential winners of the next leg up, but because of the market, do so in small amounts, while continuing to hold a chunk of cash on the sideline.

This week’s list is chock-full of strong growth stocks (and a couple of old world stocks, too). It’s hard to narrow down our choice to just one, but we’re going with Proofpoint (PFPT), which looks like a mid-cap leader in the newly strong cybersecurity group.

Stock Name	Price	Buy Range	Loss Limit
Coupa Software (COUP)	262.20	44-46	39-40.5
Etsy (ETSY)	112.97	22.5-25.5	21-22.5
Lumentum (LITE)	87.00	61-64	55-57
MercadoLibre, Inc. (MELI)	980.83	375-395	345-355
The New York Times Company (NYT)	0.00	23-24.5	21-22
Proofpoint (PFPT)	113.79	110-114	100-103
Salesforce.com (CRM)	0.00	117-121	108-111
Splunk (SPLK)	207.67	98-102	90-92
United States Steel Corporation (X)	0.00	42.5-45.5	37-39
Veeva Systems (VEEV)	180.23	72-76	65-67.5

I’m moving another five stocks from Strong Buy to Hold. It’s a normal seasonal pattern in the market that any stock that’s trading at its low point for the year during the fourth quarter will then remain low through the very last days of 2018 due to tax-loss selling. And unfortunately, the stock market has decided to present us with another correction, so most stocks are down in recent weeks.

Current Market Outlook


It’s the last week of August, and that means that many big investors (and more than a few small investors!) are at the beach and volume remains relatively light. Last week, though, was generally constructive for the market, but at this point, not much has really changed—the intermediate-term trend of the major indexes is sideways-to-down, the broad market is iffy and few stocks are pushing higher with any consistency. That’s not to say the bears are completely in control, either, but we continue to think a cautious stance makes sense—limiting new buying and holding some cash, but also giving your strong, profitable holdings a chance to catch their breath and resume their longer-term upmoves. We’re keeping the Market Monitor at a level 5 tonight.

Tonight’s list definitely has a more diverse feel to it, with a couple of materials stocks and some special situations. Our Top Pick is Alcoa (AA), which could morph into a leader if the recent strength in materials stocks is sustained. Shares just broke out from a nice base; try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
58.com (WUBA)	0.00	61-65	54-56
Alcoa (AA)	0.00	40-42.5	36.5-37.5
Alexion (ALXN)	0.00	134-139	125-128
Autodesk (ADSK)	229.00	109-113	103-105
CyrusOne Inc (CONE)	0.00	60-62.5	56-57.5
Live Nation Entertainment, Inc. (LYV)	0.00	38-40	35-36
Southern Copper (SCCO)	0.00	39.5-41.5	37-38
Supernus Pharmaceuticals (SUPN)	52.50	42-44.5	38.5-39.5
Westlake Chemical Corp. (WLK)	0.00	71.5-74	67-68.5
Yelp (YELP)	41.30	40-43	36.5-38

Current Market Outlook


During the past two-plus weeks, we’ve seen the Nasdaq and most leading growth stocks lag most other indexes, and things came to a head today, with the sellers unloading on many of the market’s biggest winners this year. As for the overall market, there are plenty of areas of strength as money rotates into both turnaround situations and some growth-oriented ones, too. So what should you do? For the stocks you own, follow your plan and honor your stops; it’s OK to take a couple of partial profits, too, if you are holding some long-time winners. As for new buying, you should focus on areas that are working and stocks that have shown good-volume buying recently. We’re moving our Market Monitor back down to a level 7 tonight.

This week’s list has many such possibilities, including a few with solid stories. Our Top Pick is Guess? (GES), which looks like a solid turnaround story as it’s seeing excellent growth overseas.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	143.58	107-113	97-99
Blue Buffalo Pet Products (BUFF)	0.00	26.5-27.5	24.5-25.5
Guess (GES)	0.00	15.6-16.4	14.2-14.8
Juno Therapeutics (JUNO)	0.00	40.5-44	35-37.5
Lending Tree (TREE)	411.51	230-240	215-220
Navistar International (NAV)	0.00	38-40	35-37
RPC Inc. (RES)	0.00	22.5-23.5	20.5-21.5
Sociedad Quimica (SQM)	0.00	51-54	46-48
Ultra Clean Holdings, Inc. (UCTT)	0.00	26.5-28.5	23.5-24.5
Weibo (WB)	98.16	94-97	85-87

Just as it appeared the sellers were taking control, the market bounced back in impressive fashion last week, and encouragingly, we saw more than a few growth stocks pop on earnings. Is it a major new buy signal for the market? We can’t go that far, at least not yet—plenty of stocks are still stuck in the mud, and the market remains volatile as earnings season continues. Even so, we’ve seen enough strength to move our Market Monitor back to the bullish camp, so you can look to extend your line as opportunities arise.
More important these days than the market’s daily gyrations is the consistent stream of enticing ideas being produced by our screens. This week’s list has another batch of high-potential names (with no defensive-type stocks at all). Our favorite being ARM Holdings (ARMH), which roared back to life after a two-month rest thanks to a great quarterly report.

Stock Name	Price	Buy Range	Loss Limit
Toyota Motor (TM)	0.00	113-115	103-104
Ryland (RYL)	0.00	43-45	38-39
RockTenn (RKT)	0.00	95-97	90-92.5
Pandora Media Inc. (P)	0.00	13-14.5	12-12.5
Netflix, Inc. (NFLX)	423.92	210-220	188-192
Keurig Green Mountain (GMCR)	0.00	54-56	50-52
Fifth & Pacific (FNP)	0.00	20-21	18-18.5
D. R. Horton (DHI)	66.55	25-26.5	22.5-23
ARM Holdings (ARMH)	0.00	44.5-45.5	40-41
ANGI Homeservices Inc. (ANGI)	14.81	22.5-24	20-21

Current Market Outlook


One thing that keeps coming up in our research is that the majority of investors think the market is ready for a pullback. Of course, a dip is certainly possible—the major indexes have had a great run over the past month and some short-term measures of sentiment are elevated. But we don’t expect a large market retreat, and besides, obsessing over the next week or two misses the big picture—that a new uptrend is likely underway, and many stocks and sectors are performing extremely well. You still want to find advantageous buy points and cut your losses when things go awry. But we continue to advise you to be heavily invested in strong stocks and let your winners run.

This week’s list has a great batch of high-potential stocks, many of which have excellent growth stories. Our Top Pick is Cirrus Logic (CRUS), a chip firm with great earnings estimates that just exploded out of a year-long base. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
United States Steel Corporation (X)	0.00	24.5-26	22-23
VCA Inc. (WOOF)	0.00	69-71	65-66
Wix.com (WIX)	302.53	33-35	30.5-31.5
Tempur Sealy (TPX)	85.53	73-75	66-68
Lumentum (LITE)	87.00	28.5-30	25-26
GrubHub (GRUB)	140.03	35-38	32-33.5
Cirrus Logic Inc. (CRUS)	0.00	46.5-49	42.5-43.5
Buenaventura (BVN)	16.23	13.5-14.5	12-12.5
B&G Foods (BGS)	0.00	50-51.5	46-47
Abiomed (ABMD)	0.00	117-120	108-109

Current Market Outlook


The broad market’s weakness has finally caught up with the major indexes. Last week we saw an end to the post-September market rally, with all major indexes (and most stocks) breaking down. We never got too bullish in recent weeks because of all the warts on the rally, and now it’s time to be cautious, selling your losers and laggards and holding plenty of cash. From here, we’re open to any scenario, ranging from yet another quick snapback to a prolonged downtrend after months of topping action. Just following the evidence, we’re moving our Market Monitor down to the lower end of neutral.

This week’s list reveals that despite the broad market implosion, there are still many resilient stocks; you could nibble on one or two or just add them to your watch list. Our Top Pick is TAL Education (XRS), a stock that looks to be in a bull market of its own.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	43-45	40-41
Wayfair (W)	167.03	43.5-45.5	40-40.5
Take-Two Interactive (TTWO)	123.32	34-35	32-32.5
NVIDIA Corporation (NVDA)	242.42	31-32.5	29-29.5
ServiceNow (NOW)	341.86	81.5-84	77.5-78
Integrated Device Technology (IDTI)	0.00	26-28	24.5-25
Five Prime Therapeutics (FPRX)	0.00	37-40	31-32
Eagle Pharmaceuticals Inc. (EGRX)	0.00	88-93	80-82
Acuity Brands (AYI)	0.00	224-230	208-210
Abercrombie & Fitch (ANF)	15.37	25-26	22.5-23

Current Market Outlook


The market spent most of last week testing its late-January low, and the combination of some positive breadth divergences (about 1,200 stocks on the NYSE and Nasdaq hit new lows last Thursday, versus 2,300 on January 20) and Friday’s big upmove could mean it’s time for another rally attempt. We’ll be watching the 1,950 level on the S&P 500 and 4,650 level on the Nasdaq—pushes above both levels could turn the intermediate-term trend back up. But that’s looking far down the line; right now, the market’s major trends remain down, and while some stocks and sectors have shaped up, most are still in the mud. Thus, a defensive stance is advised, though we’ll be keeping a close eye on the action in the days ahead.

This week’s list has some enticing names, including a few that reacted well to earnings. Our Top Pick is Sabre (SABR), a behind-the-scenes player in air travel and hotel bookings that has steady growth, booming cash flow and a stock that showed unusual power following its recent quarterly report.

Stock Name	Price	Buy Range	Loss Limit
WellCare Health Plans, Inc. (WCG)	271.83	78-81	72-73
Sabre Corp. (SABR)	0.00	24.5-26	22-22.5
Rovi Corp. (ROVI)	0.00	19-20	16.5-17
O’Reilly Automotive (ORLY)	0.00	245-255	227-229
Nasdaq (NDAQ)	0.00	58-61	55-55.5
Vail Resorts (MTN)	0.00	116-122	109-110
Barrick Gold (GOLD)	27.20	84-88	76-77
Goldcorp (GG)	0.00	14-15	12-12.5
Ellie Mae (ELLI)	0.00	69-73	62-62.5
CH Robinson (CHRW)	0.00	67.5-70	62.5-63

September selling is already underway. Just remember that it’s almost always temporary. The S&P 500 has been down at least 4% after Labor Day in each of the last four years, with a bottom coming sometime in October. All four times, it has eclipsed pre-Labor Day levels by the third week of November. Thankfully, our portfolio enters September in very good shape, with 12 stocks up double-digit percentages and four others up by at least triple digits. To help weather another potential September storm, today we add a “safer” dividend stock recently recommended by Chief Analyst Tom Hutchinson to his Cabot Dividend Investor audience.

Details inside.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 2023 issue.

The attention of most investors, commentators and analysts has been on the winners, notably the Magnificent Seven, driving this year’s stock market rally. As contrarians, we are fine with letting a few overpriced trendy stocks capture the spotlight. One place that draws our attention is the other end of the spectrum – those with the worst performance. While most of these stocks fully deserve the market’s dour judgment, some have favorable changes underway. We look into four large and mid-cap stocks that fit this description and one that does not. We also discuss a tactic to help improve one’s success in investing in out-of-favor stocks.

Our feature recommendation this month is Advance Auto Parts (AAP), one of the four major auto parts retailers. The shares have fallen sharply out of favor, but a comprehensive and much-needed overhaul is now starting.

We also include our recent Sell recommendations: Toshiba (TOSYY), Holcim AG (HCMLY), First Horizon (FHN) and ESAB Corporation (ESAB), and our suspension of our rating of shares of Kopin Corporation (KOPN).

The first real market turbulence of 2024 has arrived. But you don’t have to fear it. Pullbacks are normal – no bull market simply goes up in perpetuity – and, in the long run, healthy. It’s best to use it as an opportunity to cleanse your portfolio of some laggards and buy good companies at better prices. We check both of those boxes in today’s issue, adding an up-and-coming retail cookie-cutter story that’s a new favorite of Cabot Growth Investor Chief Analyst Mike Cintolo. Mike loves the upside, and buying on the recent dip makes it even more attractive.

In the April Issue of Cabot Early Opportunities, we take a look at the earnings calendar for our current portfolio and spread new research around by covering a diverse group of small-cap companies.
We have a newly public (again) pet retailer, a leaner and meaner defense and aerospace company, and a rising star in the fitness studio space. We also upgrade two stocks from our Watch List (and ditch a few others), including a key supplier for the EV market and a rapidly growing IT services company.


Enjoy!

When evaluating the market, you want to pay attention to unusual activity (good or bad), and the non-stop recovery by the market during the past two weeks strikes us as unusually bullish—eight times out of 10 the market will stall out during the rally, but so far, there’s been a vacuum of selling pressures. That doesn’t mean everything is rosy (many divergences have popped up, and the number of stocks hitting new highs is much smaller than it was in January), but the persistent snapback is enough to put our Market Monitor back into a lean-bullish stance. And that means you should do some buying in some newly-powerful stocks.
This week’s list has a bunch of newer names that are mostly on the growth side of the fence. Our Top Pick is Demandware (DWRE), a small company with a big story. It’s thinly traded, so be sure to keep your position smaller than normal.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	63-66	56-58
Tesla, Inc. (TSLA)	818.87	190-195	165-170
SolarCity (SCTY)	0.00	70-75	63-64
Proofpoint (PFPT)	113.79	37.5-40.5	34-34.5
Monster Beverage Corporation (MNST)	0.00	70-71.5	62-64
Jones Lang LaSalle (JLL)	0.00	114-119	104-106
Intercept Pharmaceuticals (ICPT)	0.00	300-340	250-260
E*Trade Financial (ETFC)	0.00	21-22	19-19.5
Demandware (DWRE)	0.00	68-70	59-60
Athenahealth (ATHN)	0.00	180-187	160-162

I expect to be adding and removing stocks from these portfolios in 2020, more frequently than usual. That’s because when a stock market recovers from a big drop, stocks tend to get stuck in trading ranges, advancing in fits and starts.

If you want to build a buy-and-hold portfolio of attractive takeover targets, look no further than undervalued small- and mid-cap growth stocks. Presuming normal stock market action, you’ll reap the benefits associated with owning growth stocks, and you’ll periodically reap the additional exciting benefit of owning takeover stocks.

It’s quite common that a year’s top-performing stocks and industries can fade after the new year arrives as investors shift money into industries that have been long-ignored. “Buy low” doesn’t just refer to stock market corrections and random stocks that have fallen precipitous amounts. “Buy low” can also refer to unrecognized industry-wide opportunities.

U.S. stock markets have exhibited a high degree of volatility in recent weeks. There are lots of factors contributing to the turmoil, which will ebb and flow, probably for the rest of our lives. So let’s just circle back to why we’re here: We’re here to invest in stocks because over the long term, stocks outperform fixed income investments.