Search

Markets rallied strongly last week, with growth stocks in particular showing strength, so the odds are improving that the recent correction is over and new highs are ahead. If so, today’s recommendation of a data-warehousing company will likely thrive.

As for selling, I have no recommendations today, just one downgrade to hold. And I’ll be following Tesla carefully, reading the quarterly report on Wednesday, and watching the stock’s reaction.



Details inside.

The market has a split tape right now -- on one hand, the broad market is very weak, led lower by the horrid financial sector, but on the other hand, many growth indexes and individual stocks are hanging in there ... with some actually stretching higher. We’re certainly not going to ignore our market timing indicators (Cabot Tides and Two-Second Indicator are negative), but it’s hard to ignore the action in growth, either, especially after last year’s bear and lots of bottoming action. Thus, tonight, we’re adding two half-sized stakes in potential new leaders, but also holding a bit more than half the portfolio in cash.

Elsewhere in the issue, we write about the action of interest rates (likely longer-term positive) and the resilience of growth stocks, along with a full watch list and some new enticing ideas. All in all, we remain flexible, but are still mostly cautious given the evidence.

Tariffs have officially arrived. And the market doesn’t like them one bit.

On Tuesday, the Trump administration imposed 25% tariffs on Mexico and Canada and raised the level from 10% to 20% on China. Stocks fell as of midday on Tuesday, but not dramatically. It’s unwelcome news to a market that was already dealing with still-sticky inflation and diminished economic growth expectations.

Marijuana stocks are looking a bit overcooked after a major rally. But my favorite marijuana stock today is actually undervalued despite the big run-up.

Value investors should look at Abbott Laboratories (ABT) and Fred’s Inc. ‘A’ (FRED).

Today I’m removing Delta Air Lines (DAL) from the Growth Portfolio. The company’s earnings outlook has deteriorated to an expectation of EPS declining 1% in 2016, and the price chart has not improved since I put the stock on Hold two months ago.

Contrary to what Warren Buffett says, it’s always a good idea to diversify your portfolio. Here are three reasons investors should do it.

In the last of my five-part series on the best emerging market stocks, I reveal the best Indian stock - one that takes advantage of India’s booming economy.

A lot of the most reliable income-generating investments don’t have much growth potential: they’re bonds with a fixed value, or companies that pass earnings on to shareholders instead of reinvesting them for growth. But there are plenty of exceptions. One type of income investment that often also offers growth potential, particularly...

Business development companies are a great place to find high yields. Here are three worth buying now, according to Bob Ciura of Sure Dividend.

The markets have been quiet, heading into earnings season, which begins next week with financial stocks and a couple of our stocks move to Buy recommendations today after recent pullbacks.

Current Market Outlook


Earnings season is always important, but it looks even more so this time—many growth stocks have been sitting around for the past two to three months (some even longer), while a decent number of cyclical names have been mostly up-and-down for the past four to five weeks. Thus, a collection of positive, powerful reactions to earnings could result in a bunch of good-looking buying opportunities … but, as always, we have to wait to see that happen before pouncing. Just going with what’s in front of us, nothing much has changed, with a lot of good setups but also a lot of selling in names that approach their old highs. Once that changes (due to earnings reports or anything else), it will be time to get more aggressive, but right now we’re sticking mostly with a buy-on-dips approach and waiting for buyers to really flex their muscle.

This week’s list has a broad mix of names, though most are more cyclical or turnaround plays. Our Top Pick is Steel Dynamics (STLD), which just leapt to new highs out of a tight area on huge volume. You can start a position here or (preferably) on weakness.

Stock Name	Price	Buy Range	Loss Limit
Burlington Stores (BURL)	321	312-318	285-290
Floor & Décor (FND)	113	109-113	97-100
Goldman Sachs Group, Inc. (GS)	343	335-345	305-310
Harley-Davidson Inc. (HOG)	48	45-47	40.5-41.5
The Middleby Corporation (MIDD)	181	176-182	160-163
Okta, Inc. (OKTA)	285	275-282	248-252
Qorvo (QRVO)	199	194-200	173-176
Seagate Technology (STX)	93	85-89	76-78
Steel Dynamics (STLD)	55	52.5-55	46-47.5
Tractor Supply Company (TSCO)	191	183-187	167-170

The sellers continue to come out of the woodwork, with a generally weak environment hitting a big air pocket to end last week, decisively dragging all indexes and the vast majority of individual stocks lower—we’re even seeing the selling spread to the commodity arena, with even the impenetrable defensive areas taking hits. At this point, the major indexes are retesting their January-March lows, and we’re still seeing positive divergences under the surface, but as we’ve been saying for most of the past few months, you have to see it to believe it—right now, there’s no question the trends are pointed down, so we advise staying mostly on the sideline. Our Market Monitor is now at a level 4.



This week’s list is a potpourri of names that are holding well, including some that have lifted thanks to huge earnings beats. Our Top Pick is one of those and, if all goes well, could be part of a new group move.

Fed Week has come and gone, and Jerome Powell and company did just what investors expected them to do, nudging stocks further into record territory. How long the market can keep this up, at least in the short term, is anyone’s guess. But we can only go with the evidence in front of us, and right now it’s a good time to buy. So today, we add another big growth name that has emerged as a leader of the recent rally. It’s a stock that has stood out enough to gain approval from both Mike Cintolo and Tyler Laundon.

Details inside.

This note includes the Catalyst Report, a summary of the December edition of the Cabot Turnaround Letter, which was published on Wednesday, and earnings from Duluth Holdings (DLTH).

Bull Market stocks are those that benefit from, and outperform during, a bull market. Here are three I like in what looks like the first leg of a bigger move.

Current Market Outlook


We’re still of the mind that going slow makes sense—following the vicious rotation of the past week or two, there’s still a chance of continued crosscurrents going forward, especially with the weekend news in Saudi Arabia and the usual batch of uncertainties that are out there (Fed this week, U.S.-China trade, etc.). But at the end of the day, most of the evidence out there is tilted to the bull case: The intermediate- and longer-term trends of the major indexes are up, the broad market is very strong (very few stocks hitting new lows every day) and, while leadership has definitely shifted, we’re seeing a good number of stocks and sectors that are under strong accumulation. We still favor starting with smaller-than-normal positions and holding some cash, but we also wouldn’t be in your storm cellar as the buyers are (mostly) in control.
This week’s list features stocks where the buying has been concentrated of late—and these aren’t beaten-down names, as many are at or near new-high ground. Our Top Pick is Floor & Décor (FND), a mid-sized building-related retailer that has tightened up nicely.

Stock Name	Price	Buy Range	Loss Limit
ACADIA Pharmaceuticals (ACAD)	47.84	42-44	34-35
Arconic (ARNC)	17.00	26.5-27.5	24.5-25
Elastic (ESTC)	86.17	90-93	82-84
Floor & Décor (FND)	68.03	48-50	44-45
Lam Research (LRCX)	268.47	227-232	207-210
Medpace (MEDP)	76.28	81-83.5	73-75
Micron Technology, Inc. (MU)	43.31	48-50	44-45
Shake Shack (SHAK)	92.08	95-98	85-87
Teladoc, Inc. (TDOC)	127.95	67-69	60-62
Teradyne (TER)	82.83	56-58	51-52