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Three years ago this month, I went to see my first movie in a theater since Covid. The film was Top Gun: Maverick, a movie that tapped into my 1980s nostalgia and was more entertaining and coherent than your average sequel. I wasn’t alone – the film grossed nearly $1.5 billion worldwide, making it the highest-grossing movie of Tom Cruise’s career, which is really saying something. Steven Spielberg thanked Cruise for “saving movie theaters.” He may have been right: In the two previous Covid-tainted years, 2020 and 2021, U.S. movie theaters grossed just over $6.5 billion combined – barely more than half of the industry’s 2018 peak of $11.89 billion.

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is one of my favorite kinds of stocks—a small company that’s not well known but that’s growing fast by making a big difference in a global marketplace.



As for the current portfolio, most of our stocks look good, and many are hitting new highs, but I have two sells, Five Below (FIVE) and Molson Coors (TAP).



Details inside.

The bull market is alive and well, and our holdings, in general, are delivering as expected, with the usual zigs and zags to keep us on our toes.

Today’s recommendation is a big solid technology company that should benefit for years from the ongoing 5G communications rollout—and it pays a nice dividend, too.



As for our current holdings, there are no changes. With the new addition, the portfolio is once again fully invested.



Details inside.

If you believe our recent reader survey, self-driving cars could be five years away from going mainstream, and one of the best buy and hold stocks in driver assistance technology could benefit for years from that impending revolution.

We’re sticking with a cautious stance—selling stocks that crack, holding plenty of cash and focusing more on capital preservation until the buyers reappear.

New data from an Apple Heart Study could be a boon for these two small-cap MedTech stocks - assuming the Apple Watch does what it’s supposed to do.

Remain bullish, but be selective on new buys as earnings season revs up. The overall market remains in great shape, with all our market timing indicators solidly bullish. Short-term, a pullback wouldn’t be surprising, but the odds remain in favor of higher prices down the road.

I want to talk about innovation in the Green sector for a bit. The New York Times published a special section called the Business of Green this week and the story I wanted to share with you was about how some dairy farms are producing more than just milk and cow manure. Some dairy farms are generating electricity.

After the market has motored higher for months, as it has now, few investors are concerned with market timing, and that’s a mistake.

SolarCity, like Alstom, is in the energy business; its current goal is to be the largest electric utility in the U.S.

There’s no doubt things are looking a little better out there as many software, MedTech and other growth stocks retested their March lows late last week then turned north. The timing of that short-term reversal, coinciding with the end of the first quarter, most definitely has me feeling better about the state of things right now.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the April 2021 issue.

As value investors, we look for companies that are selling at a discount to their underlying value. But how do we measure that value? In this issue, we briefly describe and discuss the EV/EBITDA metric, which is our preferred valuation tool.



While our stocks generally did well this past week, there wasn’t much news. With earnings season starting next week, most companies are remaining fairly quiet.



One change we made was to reduce our rating on Tyson (TSN) from a Buy to a Hold. The shares have about 8% upside to our recently raised price target. From here, we’d like to learn more about its earnings power, which hopefully will be provided in its fiscal second quarter report, before deciding to either raise or sell.



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.



Thanks!

Current Market Outlook


It’s usually hardest to keep things simplest, which is why we put our main emphasis on the trends of the major indexes and action of leading stocks—and with both of those still positive, we’re sticking to a generally bullish stance. However, there’s little doubt we’re seeing some late-in-the-advance happenings (heavily-shorted stocks going to the moon, wild rotation intraday among sectors, etc.) and, chart-wise, nearly everything is sticking straight up in the air (the Nasdaq was about 1,100 points above its 50-day line this morning). We never pick tops, but we also prefer not to leave our brains at the door, and there’s little doubt that the risk/reward for most stocks here isn’t great. Thus, we’re willing to give things some wiggle room, but we’re raising stops and being selective on the buy side, focused mostly on entering on dips.

This week’s list has a wide mix of stocks, and most have been either setting up during the past few months or staging initial pullbacks after huge runs. Our Top Pick is Cleveland-Cliffs (CLF), which is finally beginning to pull in after a big run—further dips would be tempting.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	183	175-185	157-162
1Life Healthcare (ONEM)	51	48.5-50.5	42-43
Cleveland-Cliffs (CLF)	17	15.4-16.4	13.5-14
Cronos Group (CRON)	10	9.5-10.2	8.3-8.7
Goldman Sachs Group, Inc. (GS)	283	276-284	248-253
Inseego (INSG)	21	18.5-20	15.5-16.5
Peloton (PTON)	157	152-159	133-137
Schrodinger, Inc. (SDGR)	96	88-92	77-79
Shopify (SHOP)	1206	1170-1220	1050-1080
Unity Software (U)	151	148-153	133-136

For many weeks the selling pressure was overwhelming, so the first thing we needed to see was the bulls at least put up a fight—and they did two weeks ago, with lots of hectic action after some oversold extremes. And then we saw some lift for the first time in a while, with many beaten-down names finally getting off their knees and a few stocks pop on earning. All in all, we consider it a good start, with the January 24 likely representing a workable low that the market can build off of.



We’ll take it, but in terms of the overall picture, the bulls still have more work to do: The intermediate-term trend of the major indexes remains down, and most individual stocks are still buried beneath major resistance (just 37% of NYSE and 19% of Nasdaq stocks came into today above their 200-day lines). Near-term, we do think the odds favor some further upside, but the rest test will come as indexes and potential leaders run into resistance; as has been the case, we’re not opposed to starting positions in a potential leader or two, but we continue to think a defensive stance remains mostly appropriate until we see some “real” buying and positive trend changes. Our Market Monitor remains at a level 4.



This week’s list has a variety of recent earnings winners and other setups ahead of their reports. Our Top Pick is Stifel Financial (SF), which (interestingly) is part of a strong Bull Market stock sector and recent surged back to its peaks after a solid Q4 report.

Note: Heads up as our schedule for Top Ten is garbled this week and next. First, we’re going to try to shoot out a quick Movers and Shakers update on Wednesday since our offices will be closed on Friday, and next Monday is one of our two scheduled weeks off of the year (though we’ll send out a full M&S update on Friday as usual). We’ll be around if you have any questions, of course, but if we don’t hear from you, have a great Thanksgiving!

As for the market, the top-down action since the election has been volatile and somewhat disjointed due to crosscurrents, but the trends have remained up, and leading titles (especially on the growth side of the equation) have posted stunning gains. To be clear, the action remains very hot and heavy, with near-term sentiment elevated and many stocks extended to the upside, all of which is a reason to pick your spots on the buy side and to consider partial profits on some names that have gone wild. We’ll keep our Market Monitor at a level 8.

This week’s list has something for everyone, with names from a variety of sectors and themes showing strength. Our Top Pick is finally changing character with a powerful breakout last week.

It’s fair to say the evidence has taken a small step back in recent days because the intermediate-term trend of the major indexes is essentially on the fence, because the broad market has also faded somewhat, and because we’re finally seeing some earnings-induced dents in strong stocks. Of course, the election has finally (almost) arrived, which could easily cause some hecticness in the days ahead—but also remove some uncertainty. Put it all together and we’re still bullish, but we did pull in our Market Monitor to a level 7 and will take it as it comes in the days ahead.

This week’s list has a pretty solid growth component to it, which we do find encouraging. For our Top Pick, we’ll go with a zinger that has a great story and a powerful chart that we think can go far.

Small caps made no net new progress over the past week but we definitely saw some movement under the surface. This week we’re pulling back just a little given some softening in momentum stocks. A few positions were moved to hold, but for now we’re not cutting anything from the portfolio.