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Today’s Cabot Small-Cap Confidential addition isn’t a cloud-based software provider. But it is a perfect example of what I’ve been talking about – a company in an established industry that’s shaking things up largely because cloud-based technologies are at the center of its DNA. The company’s platform is helping it grow roughly 10 times faster than its industry average, while delivering profits.
It’s an exciting story that I’ve been looking forward to sharing with you. Enjoy!

Current Market Outlook


Last week brought another small improvement in the market, both for the major indexes (the S&P 500 and Nasdaq notched their fifth straight up week and are holding above some key longer-term moving averages) and for some leading stocks—more growth stocks with top-notch fundamentals have reacted well to earnings, offering some much-needed leadership for this rally. Of course, the flip side is also true, as a bunch of stocks have been crushed on earnings, and the broad market’s action is just decent. Overall, we’re a bit more constructive than we have been, so we’ll bump the Market Monitor up a notch, but it remains vital to be selective—buy what’s working, keep losses small and avoid or sell anything that breaks down.


This week’s list has an encouraging batch of growth stocks with good stories and numbers (not as many defensive-type stocks this week). Our Top Pick is LinkedIn (LNKD), a dynamic big-cap growth stock that’s come back to life after its quarterly report blew away expectations.

Stock Name	Price	Buy Range	Loss Limit
Ultimate Software (ULTI)	0.00	200-205	185-186
Lending Tree (TREE)	411.51	108-116	95-97
Royal Caribbean Cruises (RCL)	0.00	96-99	87-88
Proofpoint (PFPT)	113.79	67-70	60-61
The Priceline Group Inc. (PCLN)	0.00	1380-1440	1300-1310
LinkedIn Corporation (LNKD)	0.00	234-242	214-216
IntercontinentalExchange, Inc. (ICE)	0.00	245-255	230-235
Expedia Group (EXPE)	0.00	130-133	119-120
Ctrip.com International Ltd. (CTRP)	34.94	91-95	83-85
Boyd Gaming Corporation (BYD)	0.00	19-20	17-17.5

Current Market Outlook


Bigger picture, nothing has changed with the market’s stance—the intermediate- and longer-term trends of the major indexes and most leading stocks look solid, sentiment (while heating up a bit) isn’t stretched and many background measures (like our 7.5% Rule) bode well for the months ahead. Short-term, though, things continue to look tricky, as earnings season combined with all the news/rumors out there surrounding the Fed, trade negotiations and even Iran is leading to daily wiggles and a ton of under-the-surface rotation. As we’ve been writing for a while, you shouldn’t get caught up in the day-to-day gyrations, but taking partial profits when offered and being choosy on the buy side (keeping positions small ahead of earnings, looking for good setups near support) makes sense as the myriad crosscurrents continue.

Reflecting the environment, this week’s list produced much more diverse than in recent weeks. Our Top Pick is ASML Inc. (ASML), a chip equipment maker that just broke out on earnings from a year-long base.

Stock Name	Price	Buy Range	Loss Limit
Ally Financial (ALLY)	30.44	32-33.5	29-30
Arrowhead Pharmaceuticals (ARWR)	32.16	28-30	24-25
ASML Holding (ASML)	350.01	222-229	200-204
CrowdStrike (CRWD)	105.02	84-88	70-72.5
EPAM Systems (EPAM)	188.24	190-195	173-175
Generac Holdings (GNRC)	86.60	69.5-72	63-64.5
Lululemon Athletica (LULU)	304.69	185-190	172-174
Match (MTCH)	0.00	75-78	67.5-69
Proofpoint (PFPT)	113.79	122-127	112-114
Wheaton Precious Metals (WPM)	34.43	26-27.5	23-23.5

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

It’s no secret that a fresh fascination with artificial intelligence has ignited shares of companies like Alphabet (GOOG), Microsoft (MSFT) and Nvidia (NVDA), while “safety stocks” like Apple (AAPL) have rebounded on recession fears. Shares of more prosaic technology companies have lagged, but a few offer highly relevant albeit slow-growth products and services, making their businesses highly resilient. They are often well-supported by durable balance sheets and capable management. We highlight four such companies.

As a follow-up to our April edition that featured banks, we have found additional interesting financial stocks by looking at the 13F filings of like-minded value investors. We discuss three that saw sizeable new purchases or meaningful additions to already-sizeable holdings by well-respected value managers.

Our feature recommendation this month is Tyson Foods (TSN), a major producer of chicken, beef and pork products. Its earnings and shares have tumbled due to an unusual simultaneous downturn in all three protein groups. The hardest time to buy a commodity cyclical is at the bottom of the cycle, as there appears to be no end in sight to the malaise. We think this is the time to buy Tyson.

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

While much of our emphasis is on mid-cap and large-cap turnarounds, there are often attractive turnarounds in the small-cap segment of the market. Companies in this group, with market values generally below $1 billion, can offer worthwhile investment opportunities. This month, we are focusing our research exclusively on small-cap turnarounds and discuss eight names with interesting potential.

Our feature recommendation this month is L. B. Foster Company (FSTR), a small-cap manufacturing and distribution company focused on the railroad, precast concrete structures and customized steel fabrication, coatings and measurement industries. After years of difficulties, a diligent and impressive turnaround effort is underway and starting to show progress, even as investors overly discount its prospects.

It’s turning out to be a typical volatile January, with last week’s harsh selling among leading stocks leading to this week’s strong snapback that’s seen many leaders (including a few names we own) roar back to new high ground. That’s not to say the wobbles are over--in fact, we’d half-expect some more wiggles given earnings season is just getting started. But overall, things are volatile, but still bullish, so while we’re not flooring the accelerator, we are staying positive.


Last week, we sold half of one stock and placed another on Hold, but tonight, we’re going to start a new half-sized position in an old (from last year) favorite that we think got derailed mostly by the market environment last summer and fall--and now looks poised to do well if the market holds together.

With the broad market making new highs in the face of renewed tariff threats, it seems investors are willing to shrug off macro concerns, at least for now.

We’ll heed the bullish action by stepping into three new positions this month, but hedge our bets by making one of them a half-sized position. We also add two new names to our Watch List.

The market’s rebound from the August 5 mini-panic has been unusual—in a good way, with a straight-up advance that’s recouped most of its prior decline, given up very little of its gains along the way, and has been led by a gaggle of growth stocks that have powered ahead on earnings. Now, we’re not totally free and clear here, and some short-term wobbles could easily come; by our measures, the intermediate-term trend is sideways and defensive stocks are percolating, so there’s more work to do. All in all, we’re putting a little more money to work tonight but will still be holding just shy of 40% in cash as we see if the market can further confirm a new uptrend.

The market has been volatile in recent weeks, but the two biggest pieces of evidence to us have been the continued longer-term uptrend, as well as the buoyant action among many individual growth stocks, a few of which we own; while they can get tossed around, they have tended to bounce back strongly as soon as the pressure comes off the indexes. That said, there are still some flies in the ointment out there, with many broad growth measures just so-so we’re not cannonballing into the pool, but we are putting some more money to work tonight, averaging up in a current holding and adding one more potential leader.

This is, almost certainly, our last update before the Fed starts slashing interest rates for the first time this year. According to the CME Group’s FedWatch Tool, there is now a 100% chance Jerome Powell and company will cut rates by some amount on September 17; 90% think it will be by 25 basis points, another 10% think it will be by 50 basis points, much like last September.

Today brought some selling in growth stocks, mostly egged on by weakness in some “old” leading groups, but the evidence (both market-wide and among leading stocks) is still bullish, so we are, too, though we continue to keep our feet on the ground and manage our portfolio given things are a bit euphoric. Today, we’re filling out one of our positions, leaving us with 13% cash.

Elsewhere in today’s issue, we go over some intriguing new ideas (including one peer of a name we own that looks terrific), and answer some of the barrage of questions we’ve been getting, with some talk about the weakness seen in the formerly strong chip group.

It’s been a rough few years for the housing sector.

Ever since the Fed raised interest rates to multi-decade highs in 2022/2023, both housing starts and existing home sales have fallen off a cliff in the U.S. Housing starts peaked at 1.82 million in April 2022; they dipped as low as 1.28 million this May, a 30% dropoff. Existing home sales have fallen even further, from a 6.6-million-unit peak in January 2021 to a 3.9-million-unit nadir this June – a 41% haircut.

The market’s evidence continues to improve, with more bullish breadcrumbs being dropped--last week, it came via a rare, blastoff-type indicator that triggered for just the fifth time since 1970. To be fair, our primary indicators are still iffy, so you shouldn’t throw caution to the wind, but we’re doing a bit more nibbling tonight, and aim to continue buying if the market can prove itself on the upside going forward.

I find myself shaking my head when I read the words Efficient Market Theory or Efficient Market Hypothesis (EMH), because my experience doesn’t jive with that concept.

The major indexes remain in uptrends, there’s no doubt about that. And, despite some still-soggy action among many growth stocks, most of the broad market is trending higher, too. But not all uptrends are equal, and right now, we don’t see much power out there. That’s not a bad thing, per se, but it’s more of a two-steps-forward, one-step-back kind of advance, with lots of rotation still going on week to week. By all means, continue to do some buying in names you like, but we also advise holding some cash and picking your spots.

This week’s list has a slightly steadier feel to it than prior weeks, as money flows toward companies with dependable growth. There are also a few stocks that have popped on earnings and tightened up of late, including SanDisk (SNDK), which is our top pick. Shares are at a good risk-reward point here.

Stock Name	Price	Buy Range	Loss Limit
Waddell & Reed (WDR)	0.00	63-65	56-57
SanDisk Corp. (SNDK)	0.00	67-70	64-65
Salix Pharmaceuticals (SLXP)	0.00	86-88	74-75
US Silica Holdings, Inc. (SLCA)	0.00	31-33	29.5-30
Mohawk Industries (MHK)	0.00	138-143	129-130
Southwest Airlines (LUV)	0.00	17.5-18.5	15-16
Baker Hughes (BHI)	0.00	56.5-58.5	53-53.5
HomeAway, Inc. (AWAY)	0.00	35-37	31-32
Actavis (ACT)	0.00	160-163	156-157
ACI Worldwide (ACIW)	0.00	60-61	58-59

The most bullish thing a market can do is go up, and that’s what this market continues to do, with the Dow and most other major indexes at (or close to) all-time highs. Now, we saw the usual trumpeting of the new high in the Dow last week by the media, and that often coincides with some choppiness in the market; then again, there’s a distinct lack of greed, with most investors still seeking safety and avoiding risk. Bottom line, we’re keeping our Market Monitor bullish, and while a pullback is always possible, you should be looking to buy as opportunities arise.

This week’s list has a few newer names (to us) from a variety of industries, including REITs, autos, housing and media. But our favorite of the week is Workday (WDAY) a recent IPO that just broke out of a beautiful base, has rapid sales growth and is operating in a huge market.

Stock Name	Price	Buy Range	Loss Limit
Workday (WDAY)	194.88	59-62.5	-
Uni-Pixel (UNXL)	0.00	21-24	-
Time Warner (TWX)	0.00	54-56.5	-
PBF Energy (PBF)	38.93	36.5-38	-
Medical Properties Trust (MPW)	0.00	14.3-14.9	-
The GEO Group (GEO)	0.00	34.5-35.5	-
Fortune Brands Home & Security (FBHS)	81.02	34-35.5	-
Delphi Automotive (DLPH)	0.00	41.5-43.5	-
Discovery, Inc. (DISCA)	0.00	74-76	-
AOL, Inc. (AOL)	0.00	35.5-37	-

In October’s Issue of Cabot Early Opportunities we zero in on four software and internet companies that are benefiting from a variety of tailwinds, including two that are finding success after years of less-than-stellar performance. We also revisit an old MedTech friend that helps deliver drugs and vaccines around the world.

Enjoy!

Current Market Outlook


Wow! After a surprise U.S. election result last week, we got a surprise market reaction—straight up, at least when it comes to “old world” and small- and mid-cap stocks. That’s a good sign, and if the major indexes can hold their ground (or build on their advances) from here, the intermediate-term trend should turn up, which will tell us to become more aggressive. That said, there are huge cross-currents out there; the market is very divergent with tons of stocks hitting new highs and new lows, and growth stocks have actually come under pressure in recent days. Right now, then, we still advise being cautious—we’re nudging our Market Monitor up to a level 5 (out of 10), but won’t go further than that until the trend turns up.

The good news is there are many newly-powerful charts. This week’s list is chock full of construction, infrastructure and financial stocks that have solid growth outlooks and whose stocks look great, too. Our Top Pick is XPO Logistics (XPO), a new leader in the strong transportation group that’s just burst to new highs.

Stock Name	Price	Buy Range	Loss Limit
BHP Billiton (BHP)	0.00	35.5-37.5	33-34
Eagle Materials Inc. (EXP)	0.00	90-94	84-86
HealthEquity, Inc. (HQY)	70.70	38.5-41	34-35.5
MasTec, Inc. (MTZ)	66.65	33.5-35.5	30.5-31.5
Nucor Corporation (NUE)	66.20	55-57	51-52
Proofpoint (PFPT)	113.79	79-82	74-75.5
Texas Capital Bancshares (TCBI)	0.00	63-66	56.5-58
Vulcan Materials Company (VMC)	137.10	129-133	119-121
Western Alliance (WAL)	0.00	42-44	39.5-40.5
XPO Logistics (XPO)	0.00	39-41	36-37

Current Market Outlook


The market has turned mostly neutral, with the intermediate-term trend slightly negative, the longer-term trend slightly positive, and individual stocks a mixed bag. In the big picture, the pullback in the major indexes during the past month is reasonable given the February-April gains, and we’re encouraged by both the broad market’s resilience (few stocks or sectors are in disarray) and the dearth of bullish sentiment. Even so, it’s best to go with the market’s action first and foremost, and right now, it’s a mixed bag. Thus, we’re knocking our Market Monitor down another notch and will keep an open mind—a big-volume selloff from here would raise the odds of a deeper correction, but a surge back above the 50-day lines for the major indexes would likely signal the resumption of the post-February advance. Stay tuned.

This week’s list again has a solid growth feel to it, including a few stocks that recently reacted well to earnings. Our Top Pick is Fidelity Information Services (FIS), a steady fundamental performer that gapped up on earnings three weeks ago and has held firm since.

Stock Name	Price	Buy Range	Loss Limit
Weibo (WB)	98.16	22-23	20-21
Ultimate Software (ULTI)	0.00	193-199	183-185
TransUnion (TRU)	83.09	30-31	28-28.5
Tallgrass Energy Partners (TEP)	0.00	46-49	42.5-44
NetEase, Inc. (NTES)	0.00	158-163	145-147
Fidelity National Information Services (FIS)	0.00	70-73	65-66
Emergent BioSolutions, Inc. (EBS)	0.00	41-43	38-39
Salesforce.com (CRM)	0.00	79-82	74-75
Becton Dickinson (BDX)	0.00	162-166	157-158
Applied Materials (AMAT)	0.00	21.5-22.5	20-20.5

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