Search

Current Market Outlook


Looking at just the major indexes, things couldn’t be better right now. The S&P 500 and Nasdaq are both at all-time highs, while growth stocks look good for the most part. But a peek below the surface reveals that some crosscurrents still abound. There’s still an above-normal amount of Nasdaq stocks making new 52-week lows, while new highs aren’t as expansive as they could be—especially given the strength of the leading mega-cap names. Meanwhile, only around half of S&P stocks are above the 50-day line, and the advance-decline line could be stronger. That said, we’re still seeing lots of nice setups in growth stocks, and while we likely haven’t seen the end of earnings-related volatility, the latest earnings season has been mostly kind to growth stocks. We’re moving our Market Monitor to a level 6 but are keeping our eyes open for what comes next.

This week’s list includes a nice mix of sectors, including a few that have had spectacular earnings reactions. Our Top Pick is Trane Technologies (TT), an HVAC company benefiting from the return-to-office trend.

Stock Name	Price	Buy Range	Loss Limit
Arvinas, Inc. (ARVN)	95	92-96	84-85
ASML Holding (ASML)	754	730-748	685-700
AutoNation (AN)	116	114-116.5	104.5-107
BioNTech (BNTX)	286	275-286	250-257
Dropbox (DBX)	31	30-31	29-29.5
HCA Healthcare (HCA)	246	240-246	220-225
Morgan Stanley (MS)	97	94-97	88-90
PTC Inc. (PTC)	151	148-152	137-140
Snap Inc. (SNAP)	76	75-77	68-69
Trane Technologies plc (TT)	200	196-201	185-188

The news of a new virus variant came out of left field late last week, whacking the major indexes on Friday … though today brought a so-so rally as some think the economic impact of omicron won’t be as bad as feared. We’re not in our storm cellar, but we’re not ignoring the action, either—on the buy side, we advise going slow and starting small, while for names you own, you want to honor your stops and make sure bad situations (losses, etc.) don’t get much worse.

That said, there remain many stocks that are pulling back or consolidating normally despite all the hectic action. Our Top Pick is one of those that already went through the wringer this year, broke out recently and is holding up well

Current Market Outlook


Last week brought some upside-down action, with the leading growth stocks doing OK (some up, some down) while the lagging names (small- and mid-caps, economically sensitive sectors) did very well. And that trend continued today, with growth stocks getting hit while the major indexes ramped up. Overall, the upmove in the beaten-down areas means the intermediate-term trend has survived its first test, and while taking on some water, growth stocks remain in fine shape, with very little abnormal selling. (In fact, pullbacks in some of the hot names could offer up some solid entry points, but we’ll see how that goes.) All in all, the divergent environment isn’t ideal and will probably lead to further crosscurrents; it remains important to pick your stocks and entry points carefully, and taking some partial profits on the way up isn’t a bad idea, either. But overall, most of the evidence remains positive, so you should, too. Our Market Monitor remains at a level 7.

This week’s list has many names that have just come to life after long rest periods. Our Top Pick is Spotify (SPOT), which has always had a good story, but now has decisively broken out following a meaningful catalyst.

Stock Name	Price	Buy Range	Loss Limit
Allogene Therapeutics (ALLO)	48.94	46-48.5	40.5-41.5
Big Lots (BIG)	43.12	31-33	27-28
BJs Wholesale (BJ)	36.69	34-36.5	30.5-32
Guardant Health (GH)	88.34	87.5-91.5	79-81
Horizon Therapeutics (HZNP)	49.89	45.5-48	40.5-42
Neurocrine Biosciences (NBIX)	123.40	114-119	104-107
1Life Healthcare (ONEM)	34.01	32.5-35	28.5-29.5
Spotify (SPOT)	272.82	184-191	166-169
Wayfair (W)	167.03	152-162	126-130
Wix.com (WIX)	302.53	195-205	175-180

The major indexes quickly retreated after the prior couple of good weeks, with growth-oriented areas falling the most, a lot of stocks being rejected near resistance and some old winners being taken out and shot. Despite that, there are some green shoots out there—by the letter of the law, some broad indexes (like small- and mid-caps) are in intermediate-term uptrends, and we’re also seeing some sectors assert themselves, especially in the commodity space. We’re not bullish, and will leave our Market Monitor at a level 4, though our overall advice remains basically unchanged: Hold plenty of cash, honor your stops and, if you do some buying, keep it small.


This week’s list is again heavy on commodity-type names, though we’re also seeing a few recent earnings winners that have some growth to them. Our Top Pick straddles the line between growth and commodity and is one of the few names to move out to recently all-time highs.

When looking at an investment idea, investors may want to replicate this intake process, tweaked of course for a clearly different (and less urgent) task. By using a consistent process, regardless of whether the idea comes from a friend, that off-beat relative, an investment broker or a newsletter, you can better categorize and screen incoming ideas.

Current Market Outlook


There’s not much negative to say about the market if you’re looking at the major indexes—all remain in solid intermediate-term uptrends, and longer-term, there are many bullish signposts for the overall market. But it’s also a fact that this rally has become awfully thin—the number of stocks hitting new highs is half (or less) of what we saw earlier this month, and the rotation between extended growth (those that got going back in April/May), fresher growth (those that got going in the past month or so) and cyclicals is becoming more frequent and intense. Once again, none of this necessarily portends doom, but there’s little doubt that making money has become tougher, so factor that into your plan—possibly buying smaller positions, entering on weakness, and focusing on what’s attracting buyers.

That’s just what our screens do, and this week’s list has another batch of in-favor stocks. For our Top Pick, we’ll go with JD.com (JD), a well-traded name that just reacted positively to earnings, and whose group (China) is picking up steam.

Stock Name	Price	Buy Range	Loss Limit
The AZEK Company (AZEK)	39.88	37-38.5	33.5-35
Big Lots (BIG)	53.65	48.5-51	42.5-43.5
DaQo New Energy Corp (DQ)	124.59	119-125	101-104
Elastic (ESTC)	103.35	99-103	89-91
Emergent BioSolutions, Inc. (EBS)	125.55	120-125	105-108
Etsy (ETSY)	128.74	121-125	106-108
JD.com (JD)	76.18	72.5-75	65-66.5
Natera (NTRA)	65.49	60-63	52-53.5
Trade Desk (TTD)	466.66	445-467	395-410
Whirlpool (WHR)	181.38	171-176	153-156

Current Market Outlook


From a top-down perspective, there’s not much to complain about when it comes to the current market—the intermediate-term trend of the major indexes is firmly pointed up, and the broad market has come alive in a big way, with two major blastoff indicators turning green in the past two weeks. Thus, for the overall market, the outlook is mostly sunny, though there’s always the chance of a passing shower. However, leading growth stocks are now on the run a little bit; it’s been two weeks of on-and-off selling, and many are beginning to approach key support areas. As we’ve written lately, the good news is that breakdowns have been few and far between; the pullbacks have been normal thus far, but the next few days should be telling to see if growth names are in for a deeper retreat or whether everything can get in gear with the broad market on the upside.

As you’d expect, this week’s list is heavier in names that have more recently come to life, including a few cyclical-related names. Our Top Pick is Autodesk (ADSK), a growth-y name that should also get a boost from the economic recovery, and the stock has leapt nicely to new highs.

Stock Name	Price	Buy Range	Loss Limit
ASML Holding (ASML)	350.01	330-340	300-305
Autodesk (ADSK)	229.00	220-230	198-203
Carrier Global Corporation (CARR)	26.23	21.5-23	18.5-19.5
Datadog (DDOG)	81.52	72.5-77	62-64.5
Elastic (ESTC)	86.17	78.5-82.5	70.5-72.5
Marvell Technology Group (MRVL)	36.88	32.5-34	28.5-29.5
Square, Inc. (SQ)	91.04	85-89	74-76
Thor Industries (THO)	104.76	101-106	89-92
Trade Desk (TTD)	468.02	338-358	298-308
Trex Company (TREX)	117.56	117-122	103-105

The market looked ugly early last week before finding some support, but we’re going to need to see more before changing our stance. We will say that, with September in the rearview mirror, there are many studies that point to a year-end rally and we continue to see a decent number of potential growth-y leaders that aren’t far from overcoming some technical hurdles. In other words, now’s not the time to stick your head in the sand, but as always, we want to see it first (some decisive buying) before taking much action. We’ll leave our Market Monitor at a level 5.

This week’s has a broad array of resilient stocks, with our Top Pick in pole position to be one of the top growth stocks—if and when the market gets going.

Note: We will have a Movers & Shakers update later this week, but just a heads up, there will be no Top Ten issue next week (December 26), as it’s the second of our two weeks off all year. For those that celebrate, we hope you have a very, very Merry Christmas!

On to the market, things can always change, but after two years of rate hikes and hawkishness, it looks like the Fed is finally “officially” off the market’s back. Interest rates have been the tail that’s wagged the market for two years, so that’s obviously good, and it’s no surprise that stocks (especially the broad market) catapulted on that news. With all of that said, it’s important to keep your feet on the ground; we’re not expecting a major dip, but it’s certainly possible stocks could wobble a bit or we could see some rotation now that the good news is out. Even so, the rubber-meets-the-road evidence is strongly positive; we’re moving up our Market Monitor to a level 8.

This week’s list is a balanced one, with some growth, some cheap names coming back from the depths, some cyclicals and more. Our Top Pick is a Bull Market stock that should do very well if this advance continues. Try to buy on dips.

The markets don’t seem too swayed by the government shutdown, as they continue to remain near all-time highs.

Economically speaking, we’re not getting some reports, like inflation or unemployment, due to the shutdown. But manufacturing seems to be holding up; real estate prices continue to moderate (up 1.8%); existing home sales were down 0.2%; and consumer confidence dipped a bit. Not much to rattle the markets.

The market is still in fine overall shape, but under the hood, it’s becoming more and more of a mixed situation. To be clear, there remains a lot more good than bad when examining the evidence, but for the here and now, we advise simply taking things on a stock-by-stock basis—holding your strong performers (albeit also raising stops and potentially booking a partial profit here or there), while cutting bait with those that lag or crack support and keeping some powder dry. We’ll again leave our Market Monitor at a level 7—we’ve had good success finding winners but don’t advise flooring the accelerator at this point.

This week’s list is growth-ier despite some potholes seen last week, which is a plus. For our Top Pick, we’re going with a blue chip in the AI theme, with its recent post-earnings pullback setting up an opportunity.

All in all, not a bad month. The stock markets had a nice bounce. The unemployment rate held steady at 4.2%; productivity increased (by 2.4%), higher than economists expected; and while home prices continued to rise in certain areas of the country (Northeast and Midwest), nationwide, they fell by 4.9%, to $401,800, on average.

And best of all, the turmoil regarding tariffs doesn’t seem to be affecting earnings much.

FactSet reported that, so far, 90% of S&P 500 companies have announced second-quarter earnings, and 81% have reported a positive EPS surprise and a positive revenue surprise.

That gives us an 11.8% earnings growth year over year—not bad!

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the May 2022 issue.

We’re back in the States after an unplanned but superb extended stay in London. It seems that most of the pandemic-driven adrenaline rush in speculative stocks has burned off, leaving a tremendous amount of losses in the wake, while stocks of companies with more enduring business models that trade at prosaic valuations continue to hold their ground or advance.



In the letter, we review earnings reports of several Recommended companies as well as provide updates on all of the others.



Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

Current Market Outlook


To us, the major (and most disappointing) theme of the past few weeks has been the selling in stocks as they approach their old highs—selling on strength has been seen in growth stocks for a couple of months but it’s even seeping into many cyclical-type names, too. In other words, while selling pressures are controlled (the intermediate-term trend remains up), buyers aren’t exactly stepping up in a major way. Of course, the real question is whether earnings seasons causes the bulls to flex their muscles; so far, that hasn’t happened, but there are a ton of reports coming this week and next, so we’ll see how it goes. Not to sound like a broken record, but we continue to think keeping some cash on the sideline and aiming to enter mostly on pullbacks remains the best play. We’re again leaving our Market Monitor at a level 6.

This week’s list has a hodgepodge of names, many of which have reacted well to earnings, so if you’re going to buy strength, these are some top candidates. Our Top Pick is Crocs (CROX), one of the few growth-oriented names that has shown great power of late.

Stock Name	Price	Buy Range	Loss Limit
Academy Sports and Outdoors (ASO)	31	30-31.5	27-28
Bloomin’ Brands (BLMN)	31	29.5-31	26.5-27.5
Capital One Financial (COF)	150	141-146	128-131
Chart Industries (GTLS)	154	149-155	137-140
Crocs (CROX)	98	95-100	84-87
Fortinet Inc. (FTNT)	203	197-204	181-184
Matador Resources Company (MTDR)	26	25-27	22-23
Robert Half (RHI)	88	86-88	78-80
Scientific Games (SGMS)	58	54-56	48-49
United Parcel Service (UPS)	212	203-209	184-188

Current Market Outlook


News of travel restrictions due to a new strain of the virus over in Europe hit the major indexes early today, but when it comes to our analysis, the reason for the initial selloff is secondary—the setup for an air pocket has been around for a couple of weeks as sentiment was elevated and most stocks and indexes were extended to the upside. Thus, today’s hiccups weren’t totally unexpected, but the damage was limited; at day’s end, the major indexes held up well and remain in intermediate-term uptrends, as do most stocks. Near term, further reverberations are likely, so we still think it best to pick your spots and stocks carefully, but with the major evidence still positive, we are too.

This week’s list has a nice mix of stocks benefiting from different trends (growth, reopening, cyclical, etc.). Our Top Pick is Elastic (ESTC), which has finally, decisively gotten going from a long 20-month IPO base.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	22.12	21-22.5	18-18.7
Cardlytics (CDLX)	146.04	135-141	116-119
Coeur Mining (CDE)	9.88	9.5-10.0	8.2-8.5
Elastic (ESTC)	155.91	147-153	129-133
Floor & Décor (FND)	99.10	95-98	85-87
Kodiak Sciences (KOD)	149.51	136-142	117-120
PayPal (PYPL)	237.79	232-238	209-213
Redfin (RDFN)	78.54	72-75.5	60-63
Smartsheet (SMAR)	72.00	70-73	61-63
WESCO International (WCC)	75.16	72-75.5	62-64

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

Housekeeping: Just a heads up that next week’s issue will come after the close on Tuesday, February 20 due to the Presidents’ Day holiday.

The story remains the same as it has for a couple of weeks now: The trends of the indexes remain up and the action of leading stocks (especially leading growth stocks) remains excellent, but most of the market has just sat around since the start of the year (though we are seeing some broadening out of buying pressures the past couple of days) and, for some of the tech/AI names, the action is definitely short-term frothy. We’re leaving our Market Monitor at a level 7, holding our winners but also a little cash, while focusing on fresher names (both inside and outside of tech) that are emerging with some power.

This week’s list has a bunch of fresh ideas in a variety of areas—dips in many of them would be tempting. For our Top Pick we’re going to go with a zinger in the AI space—a liquid name with a great, leading position that’s just gotten going on earnings. If you enter, use a loose leash, as the stock is bound to be super volatile.

The trends of the indexes remain up and the leading growth stocks remain firm, although many big tech names are showing signs of entering what appears to be an overdue pullback.

Volatility is also on the rise and a classic split tape environment is emerging, with some sectors weakening while others show strength. We’re keeping a weather eye out for any sudden changes, continuing to hold our winners, building some cash, but also taking advantage of recent sector rotation. This week’s Top Pick is a name making waves in the app publishing market while also harnessing the power of AI to grow its customer base.

The Board of Directors of Harman International Industries (HAR) has come to a definitive agreement with Samsung Electronics, in which Samsung will acquire Harman for $8 billion. Harman’s shareholders will receive $112 per share in cash. The deal is expected to close in mid-2017.

Value is back.
After nearly a decade of extreme underperformance versus growth stocks, overdue value stocks are flipping the script.


The dominance of growth stocks over the last eight years has been about as lopsided as the relative performance has been over the last 100 years.


But things are changing. Inflation is back. And rising interest rates are sure to follow. This economic recovery is shaping up to a lot different that the last one. This recovery is shaping up to be much better for value stocks. In fact, the role reversal is already underway. Value stocks are already outperforming growth stocks by about 15% so far this year. And it is likely just the beginning.


In this issue, I highlight one of the most dominant technology companies in the world. It is one that has stumbled lately and given way to the competition. But the stock is cheap, wallowing near the four-year low, with limited downside. It is also poised ahead of a likely renewed growth phase. The timing could be just right.