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Everybody is talking about the potential of generative AI. But a lot of organizations haven’t yet organized their digital data in such a way that they can leverage it for AI, let alone protect it once AI applications gain access.

Today, we’re jumping into a steady-growth software company that helps solve this problem.

Halfway through January and one of the big stories of the year is the continued outperformance of small-cap stocks. Along with the strength in the equal-weight S&P 500 (the Invesco S&P 500 EW ETF (RSP) is an easy option to track this), this is part of the “market is broadening out” theme that you’ve likely been hearing about.

As I stated several times in the waning months of last year, small caps benefit from (1) an early cycle backdrop, (2) stabilizing earnings revisions, (3) positive operating leverage, and (4) lower rates. These conditions are materializing right now. Analysts expect small-cap earnings to grow 15% in 2026, only slightly ahead of the 14.8% expected for large caps but a massive improvement from the small-cap earnings contractions in 2023 and 2024, and above the expected 2025 earnings growth rate of 13.4%. By the way, mid‑cap earnings are expected to grow by 19.3% in 2026. This is helping to draw more attention to the small and mid-cap (SMID) asset class, which is actually what a lot of small-cap ETFs and mutual funds really have exposure to.

The market continues to make progress, despite the dramatic headlines gracing the front page every day (and popping up online throughout the day). Today I’m adding a well-known restaurant stock to the Dividend Growth tier of our portfolio, to take advantage of rising consumer spending and the strong American economy. I also have updates on all our stocks, most of which are rated Buy, and at the end of the issue I take a look at the importance of diversification.

WHAT TO DO NOW: Remain defensive, but keep your eyes open. Yesterday’s rally was noteworthy and may have started (or will soon start) a process of repairing the damage from the recent selling. That said, the market’s trends are still down and few stocks are in great shape, so the odds favor the repair process taking some time. Of course, we’re flexible, so if the buyers go wild, we’ll act, but tonight we’re again standing pat and seeing how this bounce plays out. Our cash position remains near 87%.

Monthly dividend stocks are a perfect source of regular income you can use to pay bills, rent or buy groceries. Here are five to add to your portfolio.

While the market mourns the misfortunes of poor Mark Zuckerberg, we actually have a little ray of light in emerging markets, as the Cabot Emerging Markets Timer is showing a very new green light. New buy signals are pretty delicate, but we’re taking this one seriously, doing a little new buying and shifting another stock from a Hold to a Buy rating. As the artillery of the trade war rumbles, it’s nice to have something to celebrate. Read on for details.

Stocks are finally showing signs of life after a brutal August, and many of our Stock of the Week positions have fared even better than the market of late. Don’t expect much movement this week as investors will likely play out the summer string until they lock in after Labor Day. Will the (modest) recent gains hold in September, notoriously the weakest month on the investment calendar? We’ll start to find out next week. In the meantime, we won’t try and do too much, which is why today we’re adding a solid-if-unspectacular big-cap retailer that has a habit of beating the market. It’s a new addition from Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Building an investment portfolio is scary. Here’s what you need to know so you can make money and stop worrying about losing everything.

This remains a split tape, with many defensive and some commodity stocks testing new-high ground, while most of the market is chopping around, and growth stocks are still lagging. That said, we have seen a few rays of light lately—the mid-cap indexes are back above their 50-day lines, many growth stocks have held support for many weeks, and we’re seeing a few more potential leaders emerge on earnings or other good news. We’re sticking with our neutral Market Monitor until we see more bullish action among a variety of stocks and sectors, but the next week or two will be interesting.

This week’s list is still relatively heavy on commodity names, but our Top Pick is a growth stock that just completed a game-changing acquisition. Avago Technologies (AVGO) has great projected earnings growth, but the company reports earnings on May 29 so keep new positions small.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	95-100	88-90
Nabors Industries (NBR)	0.00	25-26.5	23-24
Lazard (LAZ)	0.00	47-49	45-46
Diamondback Energy (FANG)	0.00	72-74	66-67
Extra Space Storage (EXR)	0.00	49-51	46-47
Constellium (CSTM)	0.00	29-31	27-27.5
Carrizo Oil & Gas (CRZO)	24.03	53.5-55.5	50-50.5
Broadcom Limited (AVGO)	266.26	66-69	61-62
Athlon Energy (ATHL)	0.00	39-41	36-37
AerCap (AER)	0.00	45.5-47.5	41.5-42

As you can tell by glancing at the portfolio summary table at the bottom of this update, the market is healthy. I’m putting two stocks back on Buy today.

The market continues to hover near the high. The S&P is up over 13% year to date and about 38% from the April low.

When the market turns back up, having the shopping list ready will save a lot of research time, and money can be quickly directed into those names that have convincing uptrends. Here are five mid- and small-cap software stocks that are on my radar as potential buys for investors. With forecasts suggesting cloud software will drive 50% of all software investment through 2019 (equal to average annual growth of 18.3%), these stocks deserve a spot on any growth investor’s wish list.

Tesla shares have more than tripled this year as the company delivered a net profit yesterday, marking its fourth consecutive profitable quarter for the first time in its history. Alibaba connected Ant Group announced a mega IPO in Shanghai and Hong Kong.

These two companies dominated the news as investors looked past the upsurge in the pandemic, rising tensions in U.S.-China relations and wrangling in Washington over another shot of stimulus to jump start the economy. Today we highlight a recommendation that was previously in the Explorer portfolio but has moved only modestly from March lows despite a very innovative approach to cancer treatment.

The wild ride continues. After a crazy first few weeks of April, this week has continued in the same vein, with a big down day on Monday and a big up day on Tuesday. This might last a while longer.

It’s been a tough market. The S&P started this week down about 6% for the month of April, over 10% YTD, and over 14% from the high. And that was before Monday’s selloff. It is entirely possible that the market falls back to a new low and an official bear market.

Current Market Outlook


Last week, the selling that had been concentrated in growth names spread to the rest of the market through Wednesday, though a late-week bounce helped a bit. Still, not much has changed with the overall environment—growth stocks remain in the dumps, and while bounces are possible (many fell 20% to 30% in just the past three weeks), there’s a lot of damage to repair. The broad market is obviously in better shape, where we still see some good opportunities (mostly after bullish earnings pops), but even there the action is turning choppy and challenging, with news-driven moves, rotation and whipsaws. Overall, we’re fine taking a swing or two at stocks and sectors that are still in favor, but we also think it’s best to stay relatively cautious until we see broad buying power emerge.

This week’s list is almost all turnaround and cyclical-type stories, and our Top Pick is International Game Technology (IGT), which is benefiting from both the reopening of casinos and also the growth wave in sports betting.

Stock Name	Price	Buy Range	Loss Limit
AutoNation (AN)	105	101.5-104	91.5-93.5
Callaway Golf (ELY)	34	32.5-34.5	28.5-29.5
Camping World Holdings (CWH)	45	44-46	39-40
CF Industries (CF)	55	52.5-55	47-48.5
Cimarex Energy (XEC)	74	71.5-74.5	61-63
International Game Technology (IGT)	22	21-22.5	17.5-18.5
Leggett & Platt, Incorporated (LEG)	56	53-55	49-50
Summit Materials (SUM)	34	31.5-33	28.5-29.5
WestRock Company (WRK)	62	58.5-60.5	53-54
Yeti Holdings (YETI)	86	83.5-86.5	76-77

Current Market Outlook


Our intermediate-term trend model has effectively been neutral for months, with the big-cap indexes acting pretty well but most other areas chopping sideways. Today, though, the sellers got their act together, with the S&P 500 decisive diving below its 50-day line and small caps actually falling below their 200-day line! That’s certainly a change in character and, for the first time in months, turns the intermediate-term trend down. Of course, the evidence hadn’t quite lined up for a while now, so we’ve been playing it more cautiously than normal, but now it’s time to step carefully and see how this plays out. As for positive tidings, there are some: The bad news out there (Chinese real estate) is obvious, and looking at individual stocks, many growth titles are now holding up far better than the Dow or S&P 500 (a marked change from earlier this year). Thus, we’re still holding our resilient names and are OK doing a little buying as stocks pull in to support, but it’s not time to be a hero, with the focus shifting more toward preserving capital. Our Market Monitor has moved to a level 5.

If you are aiming to put a little money to work, you want to look for names that have recently shown good-volume buying. Happily, this week’s list has many names in this club, and our Top Pick is Lululemon (LULU), which is emerging from a long rest and has held its recent earnings gap despite the market’s dip.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	710	685-705	640-650
Catalent Inc (CTLT)	136	129-133	121-123
Chesapeake Energy Corporation (CHK)	60	58-60	52-53
Cloudflare (NET)	127	120-124	108-110
Entegris (ENTG)	129	124-127	114-116
KKR & Co. L.P. (KKR)	62	63.5-65.5	59.5-61
Lending Club (LC)	27	25.5-27	22.5-23.5
Lululemon Athletica (LULU)	420	407-420	370-375
Natera (NTRA)	120	115-119	105-107
Wingstop (WING)	182	173-177	159-161

The marijuana sector peaked in February, bottomed from late March to mid-April, and since then has been building a base, preparing for a resumption of the big advance.

Fundamentals in the industry remain terrific, and the messy but real trend toward legalization in the U.S. continues, so it’s only a matter of time before these stocks enjoy their next upwave.



In the portfolio today there are no changes.



Full details in the issue.

I’m adding E*Trade Financial (ETFC) to the Growth Portfolio today.