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I’ve been receiving questions recently that essentially ask, “Why did this stock go up when the company reported bad news?” and “Why did this other stock go down when the company reported good news?”

I haven’t added any new stocks for a while because we’ve already got 30 stocks in the portfolios. Our current stocks have mostly been rising: the good, the bad and the ugly. However, I always have a good list of stocks that are waiting in the wings, so I really should rotate into some of them.

The stock market recovery continues in a slightly better style than I had hoped for. I had expected big upswings followed by pullbacks, which is normal for a recovery.

In recent days, several portfolio companies reported quarterly and/or full-year 2015 results. General Motors (GM), Robert Half (RHI), Royal Caribbean Cruises (RCL) and Vulcan Materials (VMC) all surpassed market earnings per share (EPS) expectations.

Yesterday, Johnson Controls (JCI) reported an agreement to purchase Tyco International (TYC). We had strong earnings reports from three portfolio stocks last week: Delta Air Lines (DAL), D.R. Horton (DHI) and E*Trade Financial (ETFC), and many more portfolio companies will report earnings this week. Today, I’m upgrading Chemtura (CHMT) to a Buy rating.

Global stock, bond, oil and gold markets continue to bounce around as investors look for trends that signal a re-entry into stocks. Today, I’d like to review facts vs. fiction, in order to give us a little more peace as we live through the stock market correction.

Today we’re breaking into a familiar market by going back to the insurance industry.

But today’s addition is very different from our other rapid growth insurance companies in a major way (as you’ll soon see!).



The stock is acting strong and the fundamentals remain great, despite COVID-19.



All the details are inside this month’s Issue. Enjoy!

The broad market remains strong, and all Cabot’s market timing indicators are currently positive, so I remain optimistic that we’ll see higher prices in the month ahead and I continue to recommend that you remain heavily invested. However, it’s worth noting that the market is increasingly ripe for a pullback, and that a few of our super-strong stocks (LK and SPCE and TSLA) are also ripe for major pullbacks. In other words the market looks a bit overheated here.

Thus this week’s recommendation is a lower-risk, high-yielding chemical stock with very little downside potential. I think it will balance those higher-risk stocks nicely. Lastly, the addition of this stock means we have to sell one, and the victim this week is TopBuild (BLD).



Details in the issue.

The market bounced back in the first few days of last week, but Friday’s negative reversal, combined with today’s downmove, makes it clear that there are still sellers lurking out there. Our thoughts remain unchanged—on a near-term basis, expect more choppiness and hesitation; taking some profits on strength and holding some cash makes sense as we head into earnings season. That said, we can’t conclude the intermediate-term trend has turned down, either for the market or for most stocks; thus, while you should dump your losers and laggards, we recommend holding on to most of your best performers.

This week’s list reflects the recent environment—most of the names are either a bit thinly traded or have the ability to trade outside the market’s influence (housing, precious metals, etc.). Our favorite of the week is Fusion-io (FIO), a relatively new technology firm that is growing rapidly and has been acting very well over the past few months.

Stock Name	Price	Buy Range	Loss Limit
Accenture (ACN)	0.00	68-70	-
Align Technology (ALGN)	316.20	35-38	-
CLGX (CLGX)	0.00	26-27	-
Cosan Limited (CZZ)	0.00	15-16	-
Fusion-io (FIO)	0.00	29-31	-
NetSuite, Inc. (N)	0.00	60-62	-
ONYX Pharmaceuticals (ONXX)	0.00	83-87	-
Qihoo 360 (QIHU)	0.00	21-23	-
Whirlpool (WHR)	0.00	81-84	-
AUY (AUY)	0.00	18-19	-

Our Market Monitor has been in the bullish zone since mid-August, and it remains there today—the intermediate-term trends of all major indexes and the vast majority of leading stocks are still bullish. That said, in the short-term, the market remains choppy; distribution was clearly seen last week, and with earnings season beginning in a couple of weeks, it makes sense that investors will hold their cards close to their vests. Thus, while we wouldn’t push the accelerator to the floor, our overall advice isn’t much changed: Hold your best performers, consider taking partial profits in some extended stocks and look to use normal weakness as a chance to buy.

Encouragingly, this week’s list has a surprising number of solid-looking set-ups and names that have actually come to life in recent days. Our favorite of the week is CF Industries (CF), the huge fertilizer maker that is trading well and has huge earnings power in this era of high crop prices.

Stock Name	Price	Buy Range	Loss Limit
CF Industries (CF)	45.23	215-225	-
CommVault (CVLT)	0.00	55-58	-
Expedia Group (EXPE)	0.00	55.5-57.5	-
Five Below (FIVE)	134.58	36-38	-
Gilead Sciences (GILD)	75.10	64-66	-
Marathon Petroleum Corporation (MPC)	0.00	52-54	-
Packaging Corp (PKG)	0.00	34-36	-
Regeneron Pharmaceuticals (REGN)	512.96	146-150	-
Splunk (SPLK)	207.67	33-35	-
Williams-Sonoma (WSM)	64.96	42-44	-

The growth stock selloff of February and March knocked good software companies down a peg. But many of these stocks are bouncing back now as investors realize growth isn’t going to evaporate as the pandemic eases.

Today’s addition is a newly public company with a software platform for hosting virtual events. The pandemic supercharged growth and revenue doubled. Deeper evaluation of the trends suggests things will calm down a little, but growth should be sustained well above 20% for years and could even top 30%.



Despite the potential, the stock is dirt-cheap as compared to its peers. We’ll jump in now before investors realize the disconnect.



Enjoy!

Among all the small-cap stocks I’ve studied in recent weeks one keeps jumping out at me. In fact, I’ve been eying it since March. It’s time to act.

This stock is different in virtually every respect from our typical stock. It’s not high tech and growth isn’t off the charts. That’s because it’s a value stock.



I think once you read my report you’ll “get it.” And in a year or so I believe this stock will be trading 50% to 100% higher than it is now, meaning it could offer the same upside potential as growthier names.



Enjoy!

The broad market has now begun a well-needed correction, which is likely to go on at least a little longer, and our job is to adjust our portfolio, on a continuing basis, so that we are always invested in a diversified portfolio of stocks that fit your investment needs.

This week that means selling three stocks. But it also means that there are buying opportunities in some of our stocks.

As for the new recommendation, I’m leaning conservative once again, with a low-risk petroleum infrastructure stock that has great recurring business and is decently valued as well.

Note: Because of the Cabot Investors Summit, which will bring all the Cabot analysts together in Salem late next week, the next issue of Cabot Stock of the Week will come out a day early next week, on Monday.

Short-term, the market remains under pressure, and this corrective phase could easily go longer (I don’t sense enough pain yet), but long-term, the market’s main trend remains up, so I continue to recommend that you be heavily invested in a diversified portfolio of stocks that are performing well.

Today’s recommendation is a recent IPO, but it’s not Uber or Pinterest or any of the big popular names. I think you’ll like it, but be careful; volatility is to be expected.

As for the portfolio’s current holdings, several are hitting new highs—and none are performing so badly that they deserve to be sold. So this week we’ll stand pat. Details in the issue.