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The Turnaround Letter has been acquired by the Cabot Wealth Network, a family-owned business based in nearby Salem, Massachusetts. Founded in 1970 by Carlton Lutts, Cabot is celebrating its 50th year in business, having served hundreds of thousands of investors. The company focuses exclusively on publishing high-quality investment newsletters and currently has a portfolio of 20 advisory services.

In this issue you’ll read about an energy company and a powerful catalyst for turnarounds.

We’re about to head into a crucial time of the year for small-cap stocks. That’s because the Q3 earnings season will fire up toward the end of October and run into early November.

This earnings season will let us know how small caps fared over the summer months and also give us a glimpse into how they’re expected to do in Q4 and the beginning of 2026.

Small caps have been outperforming large caps since the beginning of August.

The market had what amounted to a halfway decent eight-day rally, but the sellers pounced on that move, with most major indexes testing or reaching new correction lows today. From here, we’ll be watching to see how this short-term retest phase goes—given the very negative sentiment and obvious reason for the selling (tariffs), a super-powerful rally from here would be intriguing, especially if some resilient stocks (those that are holding well above their lows from a couple weeks ago) take flight. Over time, this decline will set the stage for a buoyant advance with lots of new leadership, but until that payoff arrives, continue to practice patience. As always, though, we just go with the here and now; we’ll yank our Market Monitor back down a notch to a level 3.

This week’s list is again very well rounded, though not surprisingly, there’s fewer go-go growth names, as more well-situated outfits are favored. Our Top Pick has both growth and defensive characteristics, and the stock is holding up very well.

Apple (AAPL) Reports

Today’s featured companies are benefiting from the current focus on healthcare, online commerce, dining at home and limited travel behaviors.

All of the stocks that I follow with any regularity finished falling in March, and began to rebound. I’m glad for that, and happy to be buying low. However, there’s still a dark cloud on the horizon. The longer the quarantine situation lasts in the U.S. and in foreign lands, the uglier the economic situation will become. That’s because many companies are scrambling for cash to pay their employees, rent, utilities, etc. while they’re not actually selling any products that can replenish the cash flow.



There are various stocks in today’s issue that I indicated would be good for traders. “Good for traders” bears no resemblance to “good for buy-and-hold investors”, okay? Please read my recommendations carefully. When in doubt, send me an email with your questions.



Lastly, take your time investing cash positions. Many stocks will be in trading ranges, so watch for opportunities to buy low and sell high within those ranges. To that end, I’ve listed short-term upside price resistance targets on quite a few of the stocks. When the stocks rise to those targets, you’re going to tell yourself “my stock is going to keep rising!” Instead, odds are very strong that your stock will turn down. This will be a trader’s market for much of 2020. If you’ve ever toyed with the idea of buying and selling within a stock’s trading range, this is the year to do it! Best of luck to you!

All of our portfolio stocks move to a Hold recommendation while U.S. stock markets react to turmoil in energy markets. I expect more downside to U.S. stocks in the coming days.

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.

Sometimes, it’s best not to overthink things. And that’s especially true when it comes to large-cap stocks hitting all-time highs.

While I don’t think we just saw the end of the run-up in technology stocks, I do think investors should begin to pare back their tech holdings and do these two things: raise cash, and buy undervalued stocks in other sectors.

Try Cabot Growth Investor and get the names of our best stocks to buy now.

Current Market Outlook


The strength that began around July 4 continued last week as big investors returned to their desks, pushing most major indexes to marginal new recovery highs. There’s still plenty of news-driven action (volume was light even through last week), and earnings season, which is beginning to get underway in earnest, is sure to have an impact. But the intermediate-term trend (which was iffy in late June) has rejoined the longer-term trend on the upside, and many leading stocks have either snapped back to new highs or are building sound launching pads. We’re always on the lookout for renewed selling pressure, but the evidence has improved, so we’re moving our Market Monitor back to a level 8.

This week’s list is again heavy on growth stocks, though there are a couple of special situations presented as well. Our Top Pick is ZTO Express (ZTO), a young, volatile Chinese stocks with huge growth and a very strong chart. Start small, ideally on dips.

Stock Name	Price	Buy Range	Loss Limit
Energen (EGN)	77.04	72-75	65-67
Etsy (ETSY)	112.97	40.5-43	35.5-37
GDS Holdings Limited (GDS)	80.15	41.5-43.5	37-38
Grand Canyon Education (LOPE)	121.03	114-117	106-108
Madrigal Pharmaceuticals (MDGL)	234.07	270-290	230-240
Palo Alto Networks (PANW)	236.92	212-217	198-201
Roku, Inc. (ROKU)	150.46	45.5-47.5	40.5-42
Sonic Corp. (SONC)	35.22	34-36	31.5-32.5
Workday (WDAY)	194.88	130-134	121-124
ZTO Express (ZTO)	28.84	21-22	18.5-19

Today’s opportunity is a cloud software stock that’s recovered nicely from its December lows and is moving back up near its 2018 high.
The company is growing quickly, mainly because of an acquisition-led growth strategy. Evidence is building that organic growth is starting to kick in too now that the company has acquired enough solutions to start bundling them into product suites.
This M&A growth strategy is a slightly different one than pursued by the other cloud software vendors in our portfolio. I think it’s compelling. And if I’m right that organic growth will be steadier moving forward, we should see shares perform very well in 2019 and beyond.

Late yesterday Accolade (ACCD) announced it was diving deeper into the telehealth market by acquiring 2nd.MD, a small start-up based in Houston, TX. The acquisition target provides expert medical consultation services to patients, typically at a critical point in the patients’ lives when a second opinion and/or consultation and provider care options are of utmost importance.

Current Market Outlook


Last week didn’t see much net change in the major indexes, but volatility has surged, with big swings up and down based on the news of the day. Overall, not much has changed—some stocks and sectors are acting well, but many others are chopping around and some (like MLPs) are literally crashing. By our measures, the market’s trends are still pointed up, but it’s close. All in all, we’re sticking with a relatively neutral stance, meaning we’re holding our top performers, but also holding some cash and being very selective on the buy side. And if something breaks down or trips its stop, it should be jettisoned quickly.

This week’s list continues with the bigger-cap, growth-oriented theme that’s been present for the past few weeks. Our Top Pick is Ulta Beauty (ULTA), which just gapped up to new highs after three months of rest following a great earnings report. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Weibo (WB)	98.16	18-19	16-17
Western Alliance (WAL)	0.00	36.5-38	34.5-35
Ulta Beauty (ULTA)	331.95	180-184	169-170
Palo Alto Networks (PANW)	236.92	188-193	172-174
Nevro Corp. (NVRO)	0.00	58-62	52-54
Netflix, Inc. (NFLX)	423.92	123-127	113-115
Southwest Airlines (LUV)	0.00	48-50	44-45
Jabil Inc. (JBL)	41.50	24.5-26	23-23.5
Alibaba (BABA)	254.81	82-85	76-77
Broadcom Limited (AVGO)	266.26	142-146	132-134

In a gold rush, sell picks and shovels. In an AI rush, sell chips and server racks… and water.

The big macro news this week is that the U.S. economy is doing well and there’s no really clear reason for the Fed to cut interest rates. Trade deals continue to be announced, and the U.S. should be bringing in a good deal more money due to tariffs than it has in the recent past.

Real GDP was just announced to have risen 3%, thanks to capex on hardware and software to build out data centers. Results from Microsoft (MSFT) and Meta (META) confirmed this trend.

The market’s rally since its mid-November lows has proven durable enough to turn our intermediate-term indicators back into a bullish mode. (Our Market Monitor, shown to the left, has followed suit.) Granted, the buyers aren’t exactly flexing their muscle here, with plenty of choppy action as investors await word on the Fiscal Cliff. But there’s enough evidence that the sellers have left the building, seen in both the major indexes, which have refused to give back any gains of late, and in leading stocks, more and more of which are setting up. You shouldn’t head for the deep end yet, but putting some sidelined cash to work is advised.

This week’s list is a hodgepodge of stocks and sectors, with a handful of turnaround-type stories thrown in. Our favorite of the week is MasTec (MTZ), an off-the-radar name in the construction business. Growth is picking up, and the stock is acting excellently.

Stock Name	Price	Buy Range	Loss Limit
United Rentals, Inc. (URI)	0.00	40-42	-
Rackspace (RAX)	0.00	65-68	-
Rackspace (RAX)	0.00	65-68	-
MasTec, Inc. (MTZ)	66.65	22-24	-
Marathon Petroleum Corporation (MPC)	0.00	58-60	-
Louisiana-Pacific (LPX)	0.00	16.5-17.5	-
Lowe’s Companies (LOW)	98.15	33.5-34.5	-
First Solar (FSLR)	83.74	27-29	-
Canadian Pacific Railway (CP)	0.00	97-99	-
ASML Holding (ASML)	350.01	60-63	-
Amazon.com (AMZN)	2.00	244-252	-

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the December 2022 issue.

While investment losses are everywhere this year, we highlight two ways to harvest these losses and discuss seven stocks that have strong appeal as year-end bounce trades.

We also highlight four attractive stocks held by highly-regarded long-term value investment funds that we found in our analysis of the recent 13F regulatory filings.

Our feature recommendation this month is theme park operator Six Flags Entertainment (SIX). This company is aggressively working to improve its profit structure under a completely new leadership team but the turnaround is taking longer than investors would prefer, leaving its shares overly depressed. For patient long-term investors, the shares offer an attractive, asymmetric potential return.

Current Market Outlook


In the big picture, we still have yet to see much abnormal action from the market—the long-term trend is up, the broad market is relatively healthy and, while many leading stocks have been dented, plenty are still acting well. Because of that, the odds still favor the next big move being up. But the short-term is trickier to game—it looks to us as if the market topped out for a few weeks starting in early September, with last Tuesday’s breakdown and last Friday’s rally rejection signs that big investors are liquidating some positions. With the major indexes just 2% to 3% off their highs, now is not a time to panic, but it is time to prudently manage your risk by cutting losses short, holding some cash and keeping new buys on the smaller side. We’re nudging our Market Monitor down to level 6 (out of 10) and believe the onus is on the bulls to reignite a new uptrend.

This week’s list has a wide variety of stocks and sectors to choose from. Our Top Pick is Paterson-UTI Energy (PTEN), which has been in rough shape during the energy bust, but the stock is now forecasting better times ahead.

Stock Name	Price	Buy Range	Loss Limit
Aerie Pharmaceuticals (AERI)	0.00	37-34	29.5-28
Diamondback Energy (FANG)	0.00	100-97	93-92
GoDaddy (GDDY)	0.00	35-34	32-31.5
ICU Medical (ICUI)	0.00	147-142	130-128
Las Vegas Sands Corp. (LVS)	0.00	58-56	50.5-49.5
Momo Inc. (MOMO)	44.65	24-22.5	21.5-20
Patterson-UTI Energy (PTEN)	0.00	24-22.5	21-20.5
PRA Health Sciences Inc. (PRAH)	96.08	54-52	49-48
RPC Inc. (RES)	0.00	18-17	16-15.5
TAL Education (XRS)	0.00	69.5-67.5	65-64