Search

Current Market Outlook


The major indexes have been pulling back in recent days, and many are now back to their 50-day moving averages after a nice snapback for the second half of December. The question is whether the recent wobbles have more to do with year-end/start-of-year positioning (this portion of the calendar is notorious for crosscurrents creating volatility), or a renewed wave of selling that would basically be a continuation of what we saw in early December. We’re still optimistic, but we’re knocking our Market Monitor down a couple of notches today, and if all’s well, buyers should appear very soon as many stocks test support.

This week’s list has a larger-cap, steadier feel to it as the market favors “defensive growth” names most of all. Going along with that theme, our Top Pick is Whole Foods Market (WFM), whose stock is firmly in a turnaround phase.

Stock Name	Price	Buy Range	Loss Limit
Whole Foods (WFM)	0.00	48-50	44-46
Visa (V)	0.00	255-265	240-242
Virgin Airlines (VA)	0.00	40-43	36-37
PPG Industries (PPG)	0.00	219-230	209-211
O’Reilly Automotive (ORLY)	0.00	186-193	175-178
CarMax (KMX)	0.00	62-64	58-59
KLA Corp. (KLAC)	158.80	68-70	65-66
Jones Lang LaSalle (JLL)	0.00	145-149	139-141
Electronic Arts (EA)	0.00	45.5-47.5	43-44
Cirrus Logic Inc. (CRUS)	0.00	22-23.5	19.5-20

One of the immutable laws of technology investing is that all tech stocks go through the Hype Cycle. Well over a century ago, leading-edge tech stars like railroads went through their boom-and-bust phases. The 20^th century included the notable enthusiasm-and-disillusionment in radio, television, automobiles, copy machine and IBM (its own industry for years) stocks, ending with the exceptional dot-com bubble.

Highly regarded technology research and consulting firm Gartner plots this hype arc in their chart, below. While the rise and fall, and time length, are different for each stock and industry, the chart effectively captures the changes in investor mindset through the cycle. Changes in the investor mindset invariably drive changes in tech stock prices.

The Cabot Undervalued Stocks Advisor has an investment horizon that is generally one to two years. As long as our companies are making fundamental progress, we’re comfortable with waiting for periods that easily extend past December 31st. However, the market doesn’t necessarily share that perspective. For many reasons, including professional investor bonus calculations, tax-related trading, window-dressing and simple year-end portfolio house-cleaning, the market’s horizon shrinks geometrically as the calendar winds down.

Last week, we outlined four ingredients of a market bubble that were usefully outlined in a recently published book1”and briefly described how it clearly appears that our stock market is in a bubble. These ingredients include easy trading of assets, cheap and easy money, rising speculative fervor and an appealing narrative.

After rising 25% from its December low to its May high, the S&P 500 index is finally taking a breather. I don’t expect a shocking price drop like we saw in December. Rather, I anticipate the S&P 500 receding to 2,750, which would be down 200 points from the recent high, or even 2,650. Pullbacks aren’t any fun, but they are normal, and they provide opportunities for investors to buy stocks while they’re on sale.

Current Market Outlook


The broad market continues to be challenging, with last week’s low having the potential to kick off a renewed market uptrend and at the same time holding the potential to establish a floor that—if it collapses—could bring a fresh round of pain. In short, the path ahead is foggy and continued caution is advised. But don’t put your head in the sand! Our OptiMo system continues to dig up top-performing stocks with the potential to bring you substantial profits, if you play your cards right—and one of the most promising characteristics of these stocks is that they tend to be under-owned, meaning far more institutional money could arrive to boost them higher over time.

Today’s roster includes some strong breakouts and a handful of set-ups, and our Top Pick is AMN Healthcare (AMN), which has a steadily growing business in the field of healthcare staffing.

Stock Name	Price	Buy Range	Loss Limit
AMN Healthcare Services Inc. (AMN)	0.00	62-67	57.5-60
Chipotle Mexican Grill (CMG)	773.32	405-420	375-385
Dexcom (DXCM)	421.36	71-74	64-67
Integra LifeSciences (IART)	0.00	57-62	52.5-54
Michael Kors Holdings Limited (KORS)	73.22	67-70	66-64
Novocure (NVCR)	0.00	25-27	23-24
Oil States International (OIS)	0.00	35-37	32-33
Phillips 66 (PSX)	0.00	107-111	99-102
SVB Financial Group (SIVB)	0.00	285-295	265-270
Transocean Ltd. (RIG)	0.00	11.7-12.5	10.2-10.6

Current Market Outlook


The market spent most of last week testing its late-January low, and the combination of some positive breadth divergences (about 1,200 stocks on the NYSE and Nasdaq hit new lows last Thursday, versus 2,300 on January 20) and Friday’s big upmove could mean it’s time for another rally attempt. We’ll be watching the 1,950 level on the S&P 500 and 4,650 level on the Nasdaq—pushes above both levels could turn the intermediate-term trend back up. But that’s looking far down the line; right now, the market’s major trends remain down, and while some stocks and sectors have shaped up, most are still in the mud. Thus, a defensive stance is advised, though we’ll be keeping a close eye on the action in the days ahead.

This week’s list has some enticing names, including a few that reacted well to earnings. Our Top Pick is Sabre (SABR), a behind-the-scenes player in air travel and hotel bookings that has steady growth, booming cash flow and a stock that showed unusual power following its recent quarterly report.

Stock Name	Price	Buy Range	Loss Limit
WellCare Health Plans, Inc. (WCG)	271.83	78-81	72-73
Sabre Corp. (SABR)	0.00	24.5-26	22-22.5
Rovi Corp. (ROVI)	0.00	19-20	16.5-17
O’Reilly Automotive (ORLY)	0.00	245-255	227-229
Nasdaq (NDAQ)	0.00	58-61	55-55.5
Vail Resorts (MTN)	0.00	116-122	109-110
Barrick Gold (GOLD)	27.20	84-88	76-77
Goldcorp (GG)	0.00	14-15	12-12.5
Ellie Mae (ELLI)	0.00	69-73	62-62.5
CH Robinson (CHRW)	0.00	67.5-70	62.5-63

A strong earnings season has propelled the broad market to fresh highs, and as we enter mid-August, “rotation” has become the buzzword of the moment.

We’ll respect this action by not pressing too hard on the gas today. But at the same time, with a number of attractive setups floating across my screen, we’re not going to be wildly conservative.

We step up to the plate and take a swing at three new positions today.

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.

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

Much of the art of finding interesting turnaround stocks is looking at catalysts, tracking management changes and searching through lists of out-of-favor companies. Sometimes, however, good ideas can be found closer to home – literally – by looking through the roster of public companies in one’s home state. We discuss five turnarounds underway in our home state of Massachusetts.

Despite near-record gold prices, shares of gold producers remain depressed. We discuss two attractive companies. Our Buy recommendation this month is Agnico Eagle Mines Ltd (AEM), a premier gold mining company selling at a discounted price.

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

It’s a potentially very busy week for the market, as we close the book on a productive January. The Fed will come out with its latest interest rate progress report; new jobs numbers will be released; and 40% of the S&P 500 will report earnings. Expect some movement in the market. Entering the week, the market is behaving quite well, sitting at new all-time highs as I write this. It’s a good time to take some risks. And today, we do just that by adding a small-cap biotech that got Wall Street’s attention in September after achieving a breakthrough on a new drug candidate. It’s a brand-new recommendation from Cabot Early Opportunities Chief Analyst Tyler Laundon.

Warren Buffett doesn’t see any great values in this market. At least that was the gist of the message he delivered in Berkshire Hathaway’s annual shareholder meeting in Omaha last weekend. When asked why Berkshire’s cash hoard had swelled to $189 billion in the first quarter – up from $167.6 billion at the end of the fourth quarter of 2023 – the Oracle of Omaha replied, “We only swing at pitches we like.”

In other words: the world’s foremost value investor doesn’t see many great value stocks right now. Instead, he’s been putting his cash in Treasury bills – investing more every Monday in 3- and 6-month T-bills, which yield roughly 5.4% – and biding his time until he sees an attractive stock investment.

Last week, we wrote about how rising debt and rising interest rates are increasingly weighing on the Federal budget. Our rough math points to interest costs consuming as much as 21% of Federal revenues by 2025. We also added that “This math seems awful. Realistically, how likely is this to play out and what can investors do to mitigate, or even benefit?”

The market remains in fine health, with all major indexes in strong uptrends and no signs of divergence that typically precede major market tops. Additionally, numerous market-timing indicators tell us the market is likely to be higher months from now. However, as all investors know, corrections will occur, and it’s looking increasingly likely that one is due. So, you should be prepared. This might mean taking profits in stocks that are extended—as many are now. Or it just might mean setting some stops, so that winners don’t turn into losers. In the meantime, there are plenty of fine-looking stocks to buy, and today I’m leaning toward an Asian company that happens to have my favorite fundamental characteristic—accelerating revenue growth.

Details in the issue.

The capital markets are always interesting, and seemingly more so now. A lot of trends are coming together that could drive some late-year turbulence.

Artificial Intelligence (“AI”) is this year’s hot topic. Following a remarkably strong outlook last quarter, chipmaker and AI beneficiary Nvidia (NVDA) is scheduled to report earnings on Wednesday. The company’s shares surged on Monday in advance of the report as speculators place bets for another blow-out report. Other Magnificent 7 tech stocks are riding the wave. If Nvidia’s revenues, earnings and guidance are uninspiring, tech stocks will have a rough year-end.

With the completion of the Super Tuesday primaries, the final grid for the 2024 U.S. presidential election appears to be set. While it is always possible that some surprise will lead to a different lineup on one or both cards, our country is now on track for a rematch of Biden v. Trump. The election date of Tuesday, November 5, is less than eight months away.

Cannabis stocks are generally flat since I sent you the March 27 issue of Cabot Cannabis Investor.

Given the potential magnitude of near-term catalysts, I suggest continuing to hold exposure to the group, and accumulating on weakness. If you have zero exposure, consider buying some now. If you have full exposure, consider adding on any substantial weakness of 2%-4% or more in this highly volatile group.

Stocks have also been a bit stuck in the mud for the last month or so, partly because investor confidence in the Fed’s interest rate-slashing timetable has waned as inflation has remained stickier than expected. Wednesday’s CPI print didn’t help; March inflation came in at 3.5% year over year, a tad hotter than the 3.4% expected and up from 3.2% in February. The month-over-month increase was 0.4%, higher than the 0.3% bump that was anticipated. Stocks promptly sold off, with all three major indexes down more than 1% in early Wednesday trading.


Eventually, however, inflation will dip below that stubborn 3% threshold, and the Fed will start to cut short-term interest rates. We just don’t know when.

Markets recovered some gains yesterday following a climb down on both stiff reciprocal China tariffs and speculation that Fed Chairman Jerome Powell might be fired. Explorer stocks had a good week with Luckin Coffee (LKNCY) up 9%, while DBS Bank (DBSDY) shares were up 7.7% this week following last week’s 6.9% gain.

Today, we add a new ETF with exposure to a very particular European sector that should be immune to the ongoing tariff wars.

The ultimate “fear gauge” isn’t the CBOE Volatility Index (VIX), as financial market pundits often insist. My contention is that it’s actually gold, which arguably is the most historically reliable barometer of how worried the average investor is over various economic, geopolitical and market-related developments.