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The Goldilocks scenario of falling inflation and a still-strong economy is unlikely to last. Interest rates will have to come down before long or the recession that the market is dismissing might be just a little further down the road. But recent higher-than-expected inflation is making lower rates less likely.

Sure, the rally could last for a while. The economy always seems to be more resilient than people expect. But the circumstances behind the rally since October are unlikely to last. This environment will change. For that reason, it doesn’t make sense to chase stocks that have been working so far this year. It’s better to position ahead of a new dynamic that is likely coming.

Change creates opportunity. There are many great income stocks that are not benefiting from this rally. Yet these stocks are selling at historically very cheap valuations with high yields. These stocks also can thrive in a slowing economy. In this issue, I highlight two stocks in particular that are cheap and high-yielding ahead of a period of likely market outperformance.

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

Every investor has loser stocks. We discuss two ways to convert this year’s losers into assets and winners, including tax loss selling and buying shares that others have discarded for artificial reasons. Last year’s crop of bounce stocks performed exceptionally well. We discuss five for this year that look promising.

One of our more productive methods for sourcing new ideas is to see what other like-minded investors are buying. We discuss how to refine the vast data in 13F filings and review four from the most recent batch of filings that look attractive.

This month’s Buy recommendation, Fidelity National Information Services (FIS), was used in a February 2023 article about how we evaluate candidates. It was too expensive then, but its recent 26% share price slide and encouraging fundamentals make it attractive to buy now.

I believe the good news will prevail in 2024. But you never know. Forget about trying to predict the direction of the overall market. However, certain aspects of the current environment and established trends are much more bankable.

For example, it is highly likely that interest rates have peaked. Sure, rates could bounce higher than they are now. But that 5% peak level on the 10-year Treasury is unlikely to be eclipsed, at least in this cycle. Artificial intelligence is here to stay. Businesses must spend on it not only for competitive advantage but as a matter of survival. The new technology will continue to be a strong growth catalyst for technology stocks.

In this issue, I highlight a fantastic dividend stock whose long record of strong performance has been interrupted these last two years because of rising interest rates. It’s also a company that focuses on technology and will surely benefit from the proliferation of AI in the years ahead. The timing for this stock should be outstanding.

The explosive growth of artificial intelligence, electric cars, and manufacturing is causing an explosion in the demand for electricity in this country.

After nearly two decades of stagnant growth, electricity demand is expected to soar in the years ahead. This year alone, electricity demand is growing 81% more than it did last year. Electricity demand is expected to grow at nearly twice the past rate for the rest of this decade.

The new demand transforms certain previously stodgy and boring utility stocks into growth investments.

In this issue I highlight one of the very best and fastest-growing electricity producers in the country. This company is in an ideal position to benefit from the increasing electricity demand from data centers and other sources. AI may be the cutting edge of technological innovation. But it doesn’t work without electricity. While most investors are running around chasing the same AI stocks, we can reap the rewards of the tremendous new opportunity from Thomas Edison’s invention.

It looks like the president’s tariffs are beginning to show some effect on inflation. The latest CPI report showed that the inflation rate—while lower than the 2.5% economists had expected—crept up to 2.4% from April’s 2.3% rate. Core inflation—excluding food and energy—rose 2.8%, the same as April’s increase.

The number was helped by drops in apparel and automobile prices.

The unemployment rate remained stable at 4.2%. The ADP employment number was just 37,000, the lowest level since March 2023, and less than the 111,000 anticipated.

We don’t yet know what the inflation rate for June will be (report is due July 15), but in the latest Federal Reserve meeting—reading between the lines—it seems economists expect the Fed to lower rates a couple of times during the remainder of the year.

And, just in the last few days, it’s been reported that Goldman Sachs now expects the Fed to cut rates three times.

We’ll see.

From a top-down perspective, the market’s action over the past few weeks is about as good as you could have hoped for -- our Cabot Tides, Two-Second Indicator and Aggression Index have turned positive, and combined with the negative sentiment and blastoff-type indicators, we think the path of least resistance has turned up and solid gains are likely, at least when looking out many months.

The holdup is growth stock leadership, which has been tricky to this point, with many strong stocks getting hit while beaten-down names rally. That situation has improved some this week, but we want to see more fresh leadership kick off in the weeks ahead.

Still, we’ve reacted to the improvement in the evidence by making a few moves, some on the sell side (kicking out laggards), but a bunch on the buy side -- we still have 55% cash and are hoping to put some of that work if and as new leaders emerge. We review all our thoughts and some names we’re watching closely for purchase in tonight’s issue.

Tim Lutts, CEO of Cabot Wealth Network, talk about current conditions in this (hopefully) post-corona crash market and shares high-potential growth stocks.

Tyler Laundon, Chief Analyst of Cabot Small-Cap Stocks and Cabot Early Opportunities speaks about Software Stocks.

Among the topics he covers:
* A look at current software stock valuations
* Software in context: Trends over the last 25 years
* Software today: More options than ever
* Software stock opportunities for 2021

Current Market Outlook


The last week has been brutal, as the sellers have come out of the woodwork and driven most leading stocks down sharply. And this isn’t just a couple of bad days, either—the action since mid June has been spotty, with sharp pullbacks and low-volume, narrow rallies preceding this drop, which has seen a fair amount of abnormal action. The rest of the market isn’t nearly as bad off, and in fact we’ve seen rotation into beaten-down areas like industrials, financials and transports. But our focus is on the leaders, and given the widespread breakdowns, it’s vital to honor your stops and cut back on new buying. If the buyers return soon, we’re not ruling out this being one big shakeout, but the onus is on the bulls at this point, at least when it comes to leading stocks. We’re dropping our Market Monitor back to neutral.

Encouragingly, even amid the recent selling, we saw plenty of positive reactions to earnings and other pieces of news last week, many of which made it into this week’s list. Our Top Pick is Advanced Micro Devices (AMD), which is one of the strongest stocks in the market. Given the environment, start small and buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	18.2-19	16-16.5
Atlassian (TEAM)	182.16	67-70	63-64
GrubHub (GRUB)	140.03	120-125	108-110
HCA Healthcare (HCA)	137.60	117-121	107-110
Hi-Crush Partners LP (HCLP)	12.18	14.5-15.5	12.5-13
IQVIA Holdings (IQV)	157.93	115-120	106-108
Robert Half (RHI)	78.58	72-74	66-68
Stitch Fix (SFIX)	36.79	28-30	25-26
USANA Health (USNA)	133.03	124-129	112-115
Yext Inc. (YEXT)	21.32	21.5-22.5	19-19.5

The reality is, there are so many undervalued stocks right now that I have to fight the urge to add another dozen to the Cabot Undervalued Stocks Advisor portfolios.

Since we’re in the midst of a sudden stock market correction, I decided to feature three stocks today that seem to offer the best opportunities while their prices are temporarily low.

Be brave! If you saved up portfolio cash with which to buy low at moments like this, now is the time to buy something! You don’t have to spend it all in one day, of course.

If you are new at buying low during stock market corrections, and you’re feeling excited and scared and tentative and unconfident, send me an email. You’re going to be okay, and I’d love to hear about your experience. Learning to buy low is an important step toward increasing your future stock portfolio success.

Today’s recommendation is a software and infrastructure company specializing in communications. It just reported Wednesday night, and results were better than expected, which is great for two reasons.
First, the latest numbers support my thesis that this company has what it takes to grow over the long haul.
And second, we don’t need to stress about the company reporting right after we buy in! We have the latest data. And it looks good.
All the details are inside this month’s Issue.

Today I’m highlighting three different types of trading opportunities: buying stocks in the days leading up to earnings reports, buying stocks when they fall a silly amount on neutral or good news, and putting great stocks on watch as we await pullbacks. There are many changes in Buy recommendations today, reflecting both dramatic changes in year-to-date price action and significant earnings revisions as Wall Street contemplates final 2018 numbers and solidifies their 2019 earnings projections. I’m not trying to be fickle! I’m just trying to stay on top of the facts so that you can have a clear idea of where tomorrow’s profitable opportunities can be found.

Expensify (EXFY) reported after the bell yesterday and revenue was a touch light (2% miss) while EPS beat expectations on the back of strong margins. Revenue rose 7.8% to $43.5 million (missed by $850K) while adjusted EPS of $0.07 beat by a penny. Management reaffirmed long-term revenue guidance of 25% to 35%.

Cloudflare (NET) earnings are out today as sector rotation and scrutiny of SPAC-acquired target company valuations continue. Electric vehicle (EVs) stocks are struggling a bit and could be presenting us with attractive entry points.

Craft Brewers Alliance (HOOK) is an interesting story, but wait for a pullback before investing in the stock.

Everyone knows the name TASER. Not everyone knows the name Axon Enterprise (AAXN), the company’s new name. Here’s why AAXN stock is worth your attention.

Job hunting can be stressful, but the current environment means there’s never been a better time for job seekers. Here’s where to start.

It was a fairly quiet week in terms of the leading indexes’ performance as the S&P 500 fell marginally, the Dow mostly finished the week unchanged, and the Nasdaq fell by 0.4%.