Search

Buying call options in beaten down stocks is one way to play an eventual rebound. Here’s how I’d approach it with AMZN & AAPL.

In the April Issue of Cabot Early Opportunities we take a look at the red-hot real estate market and muse on the dramatic and lasting impacts from the Covid-19 pandemic.

We also take hints from the market’s action that it continues to be a time to focus on diversifying new buys across different markets. We take this evidence to heart and add five stocks that offer exposure to everything from resort travel to Afib surgical tools to digital transformation services.



Enjoy!

Current Market Outlook


It’s been six weeks since the market bottomed, and the evidence since then has steadily improved—whether it was the blast off from the lows (2-to-1 Blastoff Indicator), the lack of any sustained selling since, the amazing upside breadth or the increasing number of setups and breakouts among growth stocks, it’s all been going the bulls’ way. Of course, now that the market has basically marched ahead for six weeks, things could easily get trickier; even some intermediate-term measures (84% of NYSE stocks above their 50-day lines) are stretched. That’s no reason to worry (longer-term, such power is probably a good sign), but we’d be looking to buy mostly on dips, though we’re still interested in the occasional earnings breakout, too. And, as things head higher, don’t forget to book some partial profits along the way. We’re bumping up our Market Monitor another notch tonight.
This week’s list is another diverse set of stocks that are acting well. Our Top Pick is Entegris (ENTG), where an upcoming merger (and a uptick in the chip group) has investors piling in.

Stock Name	Price	Buy Range	Loss Limit
Boeing (BA)	432.22	382-395	347-352
Cree, Inc. (CREE)	67.96	48-50.5	44-45
CyberArk (CYBR)	111.74	83.5-86.5	75.5-77.5
Elastic (ESTC)	86.17	84-87	76-78
Entegris (ENTG)	48.08	32-34	28.5-29.5
ServiceNow (NOW)	341.86	218-226	199-203
Smartsheet (SMAR)	44.12	30-32	26.5-28
Spirit Airlines (SAVE)	57.03	60-63	55-56.5
Woodward (WWD)	111.91	87-90	80-82
Zscaler (ZS)	126.22	47-49.5	42.5-43.5

Current Market Outlook


Greece continues to dominate the headlines, and this weekend’s “No” vote hit the market and most stocks, though nothing as dramatic as what we saw last week. That said, you shouldn’t overreact to today’s action, just as it wasn’t smart to overreact to last Monday’s drubbing. Overall, we’re still neutral, as the main trend remains sideways, and we expect further volatility based on the news of the day. Our biggest piece of advice is to take things on a stock-by-stock basis—many stocks are acting well, and you should hold onto those, but don’t hesitate to dump shares of stocks if they break key support.

Encouragingly, this week’s list contains a lot of resilient, growth-oriented stocks … just the kind of potential leadership we like to see setting up. Our Top Pick is Horizon Pharmaceuticals (HZNP), which is acting like it wants to get going should the market hold together.

Stock Name	Price	Buy Range	Loss Limit
Wayfair (W)	167.03	35-37	32-33
Valero Energy (VLO)	97.40	63-65	58-59
Receptos (RCPT)	0.00	186-195	165-170
Ligand Pharmaceuticals (LGND)	267.14	94-97	87-88
Horizon Therapeutics (HZNP)	49.89	33.5-35	30-31
HealthEquity, Inc. (HQY)	70.70	30-32	27.5-28
The Hain Celestial Group, Inc. (HAIN)	0.00	64-67	61-62
Celanese (CE)	0.00	70-73	66-67
BioMarin Pharmaceutical (BMRN)	0.00	137-139	122-124
Acuity Brands (AYI)	0.00	183-188	175-176

Current Market Outlook


Trend following is our preferred method of market timing for two major reasons: If you follow the system, you’re guaranteed never to remain heavily invested in serious downtrend, and you’re also guaranteed never to miss out on a major uptrend. We’ve seen that play out in recent months—our Market Monitor shifted to neutral in mid-November and to bearish at the start of January, and we continue to advise a defensive stance as the market remains under pressure. We do think stocks could snap back some in the short-term, partially because the broad market isn’t in nearly as bad shape as it was on January 20, when the indexes initially dipped to these levels. But, bounce or not, it’s best to stick with the system, which means remaining defensive until the intermediate-term trend turns up.

This week’s list is a hodgepodge of stocks and sectors, but we feel many can do well once the market finds its footing. Our Top Pick is Michael Kors (KORS), which, after a multi-month bottoming effort, reacted well to earnings last week as results weren’t as bad as feared. The stock is dirt cheap, too.

Stock Name	Price	Buy Range	Loss Limit
Vantiv (VNTV)	0.00	43.5-45.5	41-42
Vulcan Materials Company (VMC)	137.10	86.5-90	81-82
Super Micro Computer (SMCI)	0.00	29-31	26-27
PayPal (PYPL)	147.00	32-34	29-29.5
Universal Display (OLED)	187.54	40-43	37-38
Newmont Mining (NEM)	57.31	23.5-25	21.5-22
Mattel, Inc. (MAT)	0.00	30-31	28-28.5
Michael Kors Holdings Limited (KORS)	73.22	47.5-50.5	43-44
First Solar (FSLR)	83.74	62-64	57.5-58
Agnico Eagle Mines (AEM)	79.05	31-33	28-28.5

Current Market Outlook


The market has now been pulling back for nearly three weeks following a strong two-month rebound; currently, most indexes are hovering just above their 50-day lines (though the Nasdaq is living below its 50-day). Among individual stocks, the action has been mixed, with many stocks and sectors breaking down but a fair number holding up well (and some even emerging on positive earnings reports). All in all, we’re nudging our Market Monitor down a notch, but the rubber should meet the road in the coming days—a decisive break of support would have us advising holding more cash, while a strong resumption of the uptrend should present some excellent buying opportunities. For now, we continue to lean bullish, but we’re taking things on a stock-by-stock basis and watching the action closely.

This week’s list is another broad collection of stocks and sectors, though we’re seeing more good growth stories pop up. Our Top Pick this week is one of them: Align Technologies (ALGN) isn’t a barn-burner, but growth is accelerating, earnings estimates are excellent and the stock is hitting new highs.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	25-26.5	22.5-23
Pioneer Natural Resources (PXD)	0.00	155-159	141-143
Huntsman (HUN)	0.00	13.5-14.5	12-12.5
Home Depot (HD)	0.00	133-136	124-125
Facebook, Inc. (FB)	0.00	116-120	108-110
Cynosure (CYNO)	0.00	46-48.5	43-44
Continental Resources (CLR)	66.19	36-38	33-34
Activision Blizzard, Inc. (ATVI)	0.00	35-37	32.5-33
Align Technology (ALGN)	316.20	73-75.5	68-69
AMN Healthcare (AHS)	0.00	36-38	32.5-33

Current Market Outlook


Some of the major indexes are probing the top of their multi-month trading ranges, which is nice to see. But the fact is that, until proven otherwise, the intermediate-term trend remains sideways, so the game plan remains the same—hold some cash and be selective with your new buying. For the stocks you own, you should continue to stick with what’s working—despite the incessant ups and downs, there are plenty of stocks that are working, so focus on the best and leave the rest.
This week’s list has another batch of strong stocks with good stories; we haven’t seen a rash of defensive stocks show up yet, which often occurs when the market is starting to get into trouble. Our Top Pick is Opko Health (OPK), which is speculative but has some major potential catalysts later this year.

Stock Name	Price	Buy Range	Loss Limit
Zebra Technologies (ZBRA)	154.94	106-109	94-95
Tesla, Inc. (TSLA)	818.87	237-244	213-216
SolarEdge Technologies Inc. (SEDG)	124.37	33-35.5	28-28.5
SolarCity (SCTY)	0.00	59.5-62	55-56
OPKO Health Inc (OPK)	0.00	16-17	14-14.5
Newmont Mining (NEM)	57.31	26.5-27.5	23-23.5
Horizon Therapeutics (HZNP)	49.89	27-30	25-26
Cirrus Logic Inc. (CRUS)	0.00	35-36.5	32-33
Cabot Oil & Gas (COG)	0.00	33.5-35	31.5-32
Activision Blizzard, Inc. (ATVI)	0.00	24-25.5	22.5-23

Current Market Outlook


The major indexes’ latest foray into new high ground has again been beaten back, as stocks slid today back into their multi-month trading ranges. It’s clear that the major trend of the market remains sideways, which is a good reason to remain somewhat cautious. But it’s also clear that many stocks are still working well—nobody is printing money, but we’re seeing plenty of stocks and sectors persist higher and, so far, take any selling waves in stride. You should still hold onto some cash and be selective when doing new buying, but if you see a good set-up, go ahead and take it.

This week’s Top Ten is a bit less heavy on growth stocks, though there are still a few hot stocks to read about. Our Top Pick is Cal-Maine Foods (CALM), which is anything but a growth stock, but looks like an interesting special situation. Earnings should explode in the next few quarters.

Stock Name	Price	Buy Range	Loss Limit
Summit Materials (SUM)	0.00	26.5-28	24-24.5
Universal Display (OLED)	187.54	52-54	46-47
Jumei Holdings (JMEI)	0.00	20.5-22	18.5-19
The Goodyear Tire & Rubber Company (GT)	0.00	30-32	27.5-28
Cheetah Mobile (CMCM)	0.00	30-32	26-27
CF Industries (CF)	45.23	311-318	288-290
Cal-Maine Foods, Inc. (CALM)	0.00	51-54.5	46-48
A.O. SMITH (AOS)	0.00	69-70.5	63-64
Ambarella (AMBA)	52.79	82-85	74-75
Autoliv (ALV)	0.00	127-130	119-120

In tonight’s letter, we share a couple of ideas for those of you that don’t like to hold all your stocks though earnings; we review a couple of new names that are on our watch list (ESTC is one we’re very intrigued by) and go over all our current Model Portfolio stocks as many are set to report earnings during the next two weeks.

One of my favorite forever stocks is a digital payments company that’s taking advantage of growth in one specific market.

Everybody knows Alphabet, or Google. But sometimes GOOGL stock gets surprisingly undervalued. When it happens, you need to pounce.

Chinese internet stocks have been beaten down of late, but a bounceback is likely. When it happens, here are two less obvious ways to play it.

Investing in growth stocks requires a big helping of discipline with a side order of patience.

Now that Election Day has mercifully arrived, here’s how to hedge the presidential election by trading options--no matter who wins.

“Tyler, I want you to know I am extremely impressed with the detailed reports you send to me/us regarding the stocks you have chosen and recommended that we consider for investment. I have been with Cabot for many years and have tried probably all the advisories at one time or another. Yours is expensive, but so far well worth the cost. I thank you for your service.”
G. Casey, Wiesbaden, Germany

As value investors in a remarkably robust (exuberant) stock market, full valuation impels us to want to sell a stock. Such is the case with General Motors. On most conventional metrics, the stock is fairly priced. Through the courtesy of several friends, we’ve seen some of the math that Wall Street analysts use to justify prices well over $100/share and find them laughable, at best. As GM shares burst again through our price target, we were on the razor’s edge of selling.

Today’s recommended stock is an old-world company in a prosaic business, and its prospects are bright as it reaps improved efficiencies from its recent big merger.

In the August Issue of Cabot Early Opportunities, we talk about what happened to the summer stock rally and dig into five companies selling everything from coffee to sporting goods to mobile advertising tools.

Enjoy!