Search

This week we had two companies reporting earnings, one reports next week, and the earnings deluge starts the following week with at least seven companies reporting.

In my own work, I apply six yardsticks, or price multiples, to help me find which companies are undervalued.

Yesterday three American professors, Eugene Fama, Robert Shiller and Lars Peter Hansen, won the 2013 Nobel Prize in economics for their research on asset price movement. The three don’t work together—to the contrary, they’ve actually developed some competing theories. One economist commented that the Nobel Prize committee’s decision to recognize all...

Any stock can be undervalued. It can be a company that’s underperforming and has been given a low valuation.

The high price of gasoline is one of the biggest concerns of Americans today. Everyone wants to know whether the price will decline, stay up here at $4 a gallon, or climb higher. Well, at Cabot, our very successful growth stock investing system works because we DON’T try to predict the future. Instead, we simply observe trends and invest on the expectation that they will continue.

The rise in interest rates and the Russia-Ukraine situation are roiling markets and the Fed will soon begin reducing its $9 trillion holdings of Treasury bonds, putting a dent in liquidity that was propping up markets. This is impacting stocks, especially the tech-heavy Nasdaq market.
Agricultural and food markets are also volatile since almost one-quarter of the world’s grain comes from Russia and Ukraine. Across Ukraine’s farm belt, silos are stuck with 15 million tons of corn from the autumn harvest – most of which should have been hitting world markets by now. Impacted by supply-chain bottlenecks and surging freight rates, the $120 billion global grains trade is bracing for upheavals and severe shortages, not to mention political instability.

The Federal Reserve, America’s central bank, raised its benchmark rate a half percentage point yesterday as assets that investors perceive as safer were among those to rally. While macro issues such as inflation and interest rates are certainly important, in the end it will be company performance relative to expectations that will be decisive.

Even if inflation may be peaking at levels last seen four decades ago, the key question is whether these levels are transitory or sticky and likely to come back to earth slower than many imagine.

Raise some cash. Our Cabot Tides are now on the fence, and more important, individual stocks have been hammered during the past week, with a few showing abnormal action. In the Model Portfolio, we’ve sold a few positions lately, leaving us with around 40% in cash.

For the most part, global stock markets performed strongly in 2019. But if you dig a bit deeper, you will see sizable and interesting gaps between countries.

The Cabot Global Stocks Explorer portfolio did well this past week even though markets were a bit choppy, in line with mixed data and expectations about how fast growth will return.

2020 has surely been one for the record books—the sharpest selloff in history from a record high to a bear market and then the sharpest rebound in history from a bear market to a new record high.

After last weekend’s successful space flight of Sir Richard Branson, one would have expected Virgin Galactic (SPCE) stock to soar on Monday. Instead, it lost altitude. Sure, the announcement of a $500 million secondary offering leading to dilution was not welcome news, but part of the reason the stock fell is that investors asked, “what next?” and sold some shares. What comes next is indeed the right question since markets always look forward.

After falling over 30% in record time, the market has had a nice rebound. In less than a week the market jumped 15% from the lows. It has since stabilized somewhat with less volatility. While the worst may be over, I don’t think we’re out of the woods yet.

The new all time high is a significant milestone. Although the S&P 500 hasn’t hit new highs quite yet it is only just about .01% from the mark. The new high is significant because it negates any possibility that we have been in a bear market since September, when the previous high was established.

Despite a slight pullback over the past couple of weeks, the market is showing a slow and steady upward slog. It’s an ideal environment for defensive dividend stocks. For the time being, things are good and the portfolio had another good week. We are selling two positions (1/2 in one of them) and moving another position back on Buy.

If you believe our recent reader survey, self-driving cars could be five years away from going mainstream, and one of the best buy and hold stocks in driver assistance technology could benefit for years from that impending revolution.

The news is out: Brazil is now the largest emerging market in the world by market capitalization of its stocks, and Petrobras, the Brazilian oil giant, is the largest company in the emerging markets by market cap. Brazilian stocks now make up about 15% of the MSCI Global Emerging Markets Index, compared with China’s 14%. The South American giant has surpassed China, in part, because the Chinese stock market is in the middle of a pullback that has given its stocks a significant haircut. That’s the way it is with emerging markets; they go up faster than developed markets and come down faster, too.

In today’s Wealth Advisory, I’m doing something I’ve never done before—reprinting an entire piece I wrote in Cabot Growth Investor last Wednesday. It doesn’t involve any specific stock advice (that is and always will be for subscribers only), but it details the wild divergences in the market (which are now getting lots of press—even the Wall Street Journal had a big write-up on it Monday), what it means, and how I’m advising people to handle it—I think it’s very timely.

The S&P 600 Small Cap Index has drifted a little lower this week but made a nice move over the last month as interest rates declined. The S&P 600 iShares ETF (IJR) is up 7% over the last five weeks.

The chart inside shows how clear the inverse relationship between the IJR (green line) and the 10-year yield (blue line) is.