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We at Cabot value education very highly. Just last week, Editor Timothy Lutts implored you to read the Education section of our Web site. And in that spirit, I’ve been at a conference in Las Vegas this week learning how to be a better editor and more effectively communicate with you, our readers.

We receive a lot of email here at Cabot and we’re glad that you, our readers, enjoy writing to us so much. Today I’m going to answer readers’ questions.

The most bullish thing a market can do is go up, and that’s what this market continues to do, with the Dow and most other major indexes at (or close to) all-time highs. Now, we saw the usual trumpeting of the new high in the Dow last week by the media, and that often coincides with some choppiness in the market; then again, there’s a distinct lack of greed, with most investors still seeking safety and avoiding risk. Bottom line, we’re keeping our Market Monitor bullish, and while a pullback is always possible, you should be looking to buy as opportunities arise.

This week’s list has a few newer names (to us) from a variety of industries, including REITs, autos, housing and media. But our favorite of the week is Workday (WDAY) a recent IPO that just broke out of a beautiful base, has rapid sales growth and is operating in a huge market.

Stock Name	Price	Buy Range	Loss Limit
Workday (WDAY)	194.88	59-62.5	-
Uni-Pixel (UNXL)	0.00	21-24	-
Time Warner (TWX)	0.00	54-56.5	-
PBF Energy (PBF)	38.93	36.5-38	-
Medical Properties Trust (MPW)	0.00	14.3-14.9	-
The GEO Group (GEO)	0.00	34.5-35.5	-
Fortune Brands Home & Security (FBHS)	81.02	34-35.5	-
Delphi Automotive (DLPH)	0.00	41.5-43.5	-
Discovery, Inc. (DISCA)	0.00	74-76	-
AOL, Inc. (AOL)	0.00	35.5-37	-

Ever since the market suffered a wave of nasty distribution two weeks ago, it’s been tough to make much money; strength has attracted sellers, interest rate-sensitive groups have been crushed, the broad market has weakened and, today, growth stocks were battered. Now, the long-term trend is still up, and many stocks remain in uptrends, but the market has changed character. Thus, we’re moving our Market Monitor into neutral territory—maybe this retreat will find support soon, and if it does, we’ll be happy to quickly switch back to an aggressive stance. But for now, we believe it’s best to play things a little cautiously and hold some cash.

This week’s list does have a good crop of candidates if you want to nibble on weakness, including a few bigger-cap issues that have great stories. Our favorite is one of those bigger names—Boeing (BA), which, despite its image as a slow-moving behemoth, has a history of sustained moves when the aerospace industry turns up, as it has today.

Stock Name	Price	Buy Range	Loss Limit
Valeant Pharmaceuticals (VRX)	0.00	86-89	78-80
SunPower (SPWR)	12.26	17-19	14.5-15
Sohu.com (SOHU)	0.00	61-64	52-54
SodaStream (SODA)	142.91	65-67	55-57
Ocwen Financial (OCN)	0.00	41-43.5	36-37
Jazz Pharmaceuticals (JAZZ)	0.00	65-67.5	59-60
Illumina Inc. (ILMN)	289.74	68-71	63-64
Chart Industries (GTLS)	72.05	94-97	84-95
General Motors Company (GM)	0.00	33-34	31-32
Boeing (BA)	432.22	97-100	90-91

We started to see the market shake and bake a bit last week, which isn’t unusual considering the heady run the indexes and dozens of growth stocks have had since the late-June low. Exactly what happens next is anyone’s guess; our feeling is simply that the next month will probably be more difficult than the last month, so you should expect a few potholes or sudden selloffs. But with the main trend still pointed up, we think higher prices are likely in the weeks and months ahead. Thus, while plunging into a bunch of stocks right now probably isn’t the best idea, we do think you should work to remain (or work toward becoming) heavily invested.

This week’s list has some old friends and a couple of new faces. There’s lots of strength to choose from, but our favorite is Michael Kors (KORS) a fashion house with ambitious growth plans.

Stock Name	Price	Buy Range	Loss Limit
Under Armour (UA)	0.00	69.5-71.5	64-65
Ocwen Financial (OCN)	0.00	49.5-52	45.5-46.5
LKQ Corp. (LKQ)	0.00	28.5-30.5	25-27
Michael Kors Holdings Limited (KORS)	73.22	69-72	63.5-64.5
Jazz Pharmaceuticals (JAZZ)	0.00	77-80	74-75
Harman International Industries, Inc. (HAR)	0.00	66-69	59-60
Facebook, Inc. (FB)	0.00	37.5-39.5	32-33
Cubist Pharmaceuticals (CBST)	0.00	59-62	52-54
Baidu (BIDU)	0.00	130-136	118-120
Activision Blizzard, Inc. (ATVI)	0.00	17-18	15.5-16

The overall market remains mixed, with most of the market doing just OK but growth stocks acting very well, especially this week, which has brought with it a ton of powerful gaps. Divergent environments lend themselves to rotation and potholes, so we don’t think it’s a time to floor the accelerator, but we are adding one more name to the Model Portfolio tonight, leaving us with around 36% in cash.

Elsewhere in tonight’s letter, we write about the importance of being patient soon after you buy a stock, as well as some very encouraging action from our old Two-Second Indicator. We also review some enticing names and give a full view of all our stocks.

It’s not a blastoff-type of environment, but the evidence has steadily improved during the past three weeks, first due to the action of leading growth stocks, and now, our Cabot Tides have returned to bullish territory. Thus, we continue to follow the evidence, slowly putting money to work and rotating into stronger situations. Last week, we averaged up in two of our recent buys, and tonight, we’re adding a full position in a fresh leader.

Elsewhere in tonight’s issue, we write about the ups and downs of recent IPOs, as well as one sector that is beginning to reemerge and has many stocks that fit our stock picking criteria.

In January’s Issue of Cabot Early Opportunities we take a trip down memory lane to January 2020, and try to take some of our own advice that seems even more timely now.

We also dig into five stocks that cover a wide variety of end market exposures. We unpack a small stock that represents a play on infrastructure and clean energy, two rising stars in MedTech, a consumer name that just won’t quit and even a beaten down growth stock that should recover as people get back out there later in 2021.



As always, there should be something for everyone!

Investors remain in a buying mood, as last week’s lower-than-expected Consumer Price Index (CPI) number added fuel to the recent rally. With inflation still high and a recession likely upon us, another correction may be in the offing. But for now, it’s time to buy. This week, we add a dirt-cheap mid-cap stock from new Stock of the Week contributor Clif Droke, Chief Analyst of our Cabot SX Gold & Metals Advisor. It’s from an industry that never goes out of fashion and is gaining steam from the shifting automotive landscape.

Details inside.

With this month’s new addition, I decided to go in a different direction then we have with previous recommendations. Instead of featuring another rapid-growth medical device or software stock, I’ve selected a consumer defensive stock in a very specialized industry and with a more modest growth profile. It’s the perfect summertime stock for a period in which many growth stocks are acting a little schizophrenic—especially for those investors who like getting out of the house for a bite to eat and a good beer or glass of wine.

It is with mixed emotions that I am writing my last Cabot Value Investor issue. My nearly four years as part of the Cabot team have been exceptionally rewarding. I have had the opportunity to work with an exceptional research team – who bring talent, dedication and investment results that readily match and likely exceed most Wall Street sell-side and buy-side analysts. Our Cabot analysts, despite their very different investing styles, have helped me become a better investor.

For many of your value stocks on the recommended list, the New Year’s rebound continues. Most of these shares were heavily over-sold late last year. Almost given up for dead, shares of Organon (OGN) have surged 38% since hitting an all-time low in mid-October. Similarly, shares of Barrick Gold (GOLD) are up over 43% since their nadir in November.

According to credit rating agency Moody’s, debt obligations of the United States federal government are “judged to be of the highest quality, subject to the lowest level of credit risk” and thus are worthy of a “AAA” credit rating.

The other two major credit rating agencies, Standard & Poor’s and Fitch, disagree. These firms place an “AA+” rating on federal debt. For its part, Moody’s is not fully convinced of its AAA rating, as it recently added a “negative” label, implying that the rating is no longer “stable.”

The dark clouds of persistent inflation and high interest rates continue to hover over the market. But with a record amount of capital on the sidelines and little to no movement in most stocks over the last two-plus years, I’m optimistic that better days are ahead, assuming the inflation/Fed clouds eventually part. Thus, I continue to seek out companies that are essentially growth stocks at value prices. And today, we add another one to our portfolio in the form of a big-name company that’s benefitting greatly from a return to normalcy in a post-Covid world … but whose shares are trading at barely half their pre-pandemic peak.

Enjoy!

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the September 2023 issue.

We do a deep-dive into what ails Citigroup (C) shares and remain steadfast in our conviction.

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.

I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

If it feels like value stocks are missing the bull market party this year, take comfort in knowing they’re not alone.

Thanks to the Magnificent Seven and a few other mega-cap tech stocks and red-hot artificial intelligence plays, the S&P 500 and the Nasdaq have posted very strong returns through the first half of 2024, up 17.6% and 24.8%, respectively. But most other indexes and funds have had very average years. The Dow is up a mere 4.2%. The Russell 2000 (small-cap stocks) is up 0.8%. And the Equal Weight S&P 500 index is up 3.7% and is well off its late-March peak.

Inflation was the focus last week with the release of the much-anticipated producer price index (PPI) and the consumer price index (CPI). Both came in well above expectations. CPI came in at 6.2%, which was the highest level seen in over 30 years, while the PPI was 8.6%, the highest in more than 10 years. These data points flamed the inflation fears that many had been anticipating for the past several months.



And while inflation is going to continue to be a worry for the bulls, as of last Friday, 460 of the companies that reside in the S&P 500 have reported earnings, with 80% outperforming expectations, a number which has far outperformed analyst expectations.



Speaking of strong earnings, this brings to me to this week’s idea which is a global leader in the tire market, and which just reported a strong third-quarter earnings report.

The overall market continues to trade without much conviction at the moment. Last week, the S&P 500 fell 0.37%, the Dow declined 0.36% and the Nasdaq pulled back 1.11%. As I’ve pointed out over the past few weeks, the bullish surge has been somewhat tainted by what has been going on below the market’s surface recently. Ideally, in a bullish environment, we would see healthy participation in most stocks, but that just hasn’t been the case over the past few weeks. As a result, I will continue to take a cautious, but certainly optimistic approach.

Few industries have been hit harder by COVID-19 than restaurants. But some of them remained open, and these restaurant stocks are benefitting as a result.

Given that today’s date is 4/20, I feel compelled to acknowledge that that’s the code for “time to smoke pot.” But I don’t have any jokes. This is serious business. And it’s doubly serious because we’ve been dealing with a weak sector for over a year!

The only bright spot in that trend is that valuations have become more attractive; if this goes on long enough, I expect Cabot’s value analyst Bruce Kaser will recommend one of these stocks!