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Dear Jacob, my wife just picked up her new Mercedes purchased with PTON and JD profits. And I’m already in trouble with the IRS about underestimating my options account success.
Victor H.

NOTE: A couple of things. First, we’re sending this update a day early, as the Friday holiday is pushing up our publishing schedule by a day. And second, I’m actually out of town on vacation, so while we’re sending this update this morning, we’ll follow up with a bulletin tomorrow morning if need be. If we’re not in touch, have a great holiday weekend!

WHAT TO DO NOW: Remain bullish but take things on a stock-by-stock basis. The overall market is in fine shape, but Tuesday saw a lot of selling in growth stocks as investors rotated into stodgy areas (Dow Industrials and defensive stocks). For now, the action is broadly acceptable, but the next few days will be key. Today, we are making some small changes: We’ll place Axon (AXON) and Rubrik (RBRK) on Hold and we’re going to sell one-third of our remaining position of Palantir (PLTR), leaving us with around 23% in cash.

For the second straight week the leading indexes went in vastly different directions as the S&P 500 fell 0.6%, the Dow lost 1.9%, and the Nasdaq gained 1%.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the March 2021 issue.

This month we look at post-bankruptcy energy stocks. Companies that have emerged from bankruptcy are generally shunned by investors, as are energy stocks in general in the current market. Combined, these two traits offer some attractive investment opportunities. We discuss four of them.



We also look at tobacco stocks. Shares of these companies have fallen sharply in recent years due to an acceleration in the decline rate of cigarette volumes. However, that trend appears to be moderating, leaving the shares undervalued yet paying high dividend yields. Our feature recommendation, Altria Group (MO), is a stand-out value among the group.



We also include comments on recent price target and rating changes, including our recent Sell recommendations on Trinity Industries (TRN) and ViacomCBS (VIAC).



Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your 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.

We’re going to buy a growth-oriented firm that offers a range of lending services in Texas and elsewhere. The company’s sales and earnings growth are accelerating and we think the stock can do well in a bull market.

Anybody that’s done a drive with kids has faced this question more times than they’d like to recall. We’re facing the same question now with respect to the market’s retreat as we look for some stability.

We’ve had a fierce six-day selloff, but the market has managed to find support and is rebounding this week. But I still advise caution as things are still dicey. Most of the positions in our portfolio are on Hold, but we’re adding one more to that list and selling half of one our weaker positions.

This week’s update of Cabot Undervalued Stocks Advisor is focused on portfolio stocks that are being affected by recent news or upcoming earnings reports. Next week’s September issue will include all portfolio stocks, with at least one new portfolio addition.

While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.

And while the other indexes couldn’t keep up with the IWM, the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.

With the market having come back strong since its swift retreat in early June the immediate threat of a larger correction has diminished. The S&P 500 index is back above its 50-day line and within a couple percentage points of its all-time high.

The first half of the year produced stock market returns that few, if any, anticipated. The S&P 500 has uncorked a 15.6% year-to-date return (through last Friday), a remarkably strong showing relative to the index’s history. Brokerage firm forecasts for the rest of the year have an exceptionally wide breadth given the equally wide range of economic forecasts. We will readily admit that we are not in the forecasting business. This saves us from the considerable embarrassment that comes with forecasting as well as an immense amount of time. Our approach requires us to be “macro-aware” but not “macro-driven.” As such, we are well aware of the milieu of others’ forecasts, and the rationales behind them, but find them unactionable for our style of investing.

U.S. stock markets continue to suffer, wiping out year-to-date gains that had previously culminated in all-time-high prices on the S&P 500, Dow Jones Industrial Average and NASDAQ indexes. If you’re looking for “the bright side” of this dour news, take heart that none of these market indexes have retraced their early-2018 lows.

This rise of the U.S. dollar against the yen, euro and pound as well as most other currencies in the world is a mixed blessing for investors. You can take your capital gains and head to Europe or Japan for a trip and imported goods will be cheaper. On the other hand, American companies and stocks will be hurt by their exports being more expensive to overseas buyers and their overseas earnings will be worth less in U.S. dollars when brought back to America.

As we move closer to the end of another week, investors continue to focus on the potential timeline to open parts of the economy. New York has just said the lockdown for non-essential businesses remains in effect for at least another month, but clearly there are many areas that haven’t been so badly affected.

Small caps have pulled back ever so slightly from the all-time highs of last week. But that’s not the big news of the week. The larger event was yesterday’s Fed meeting, during which Chairman Jerome Powell suggested that a start to tapering of asset purchases was still a “ways off” but that this was a “talking about talking about meeting.”

After an insane couple of weeks this one has felt relatively calm. There is still plenty of market-moving news around the election, vaccines, the pandemic’s frightening trajectory, etc. but I think we’ve all become somewhat accustomed enough to alarming headlines – within a certain range – that it’s harder to get shaken now than in the past.

The action in the second half of August was encouraging, but as has been the story of 2021, a lot of that move has been erased so far in September—and that goes for just about everything.

Continue to go slow but have your shopping list ready. Growth stocks are gradually improving their standing, with more popping toward their highs, many holding their gains and a few finding some good-volume buying.

This week’s featured stock is a fast-growing Chinese stock that dominates its mass-market business segment. Conservative investors will probably want to give it a pass, but risk-takers can jump on board. It has great growth potential!

We briefly discuss our thoughts on valuation and raise our price target on shares of a consumer staples company and introduce a new Buy rating on a retail company.