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The arrival of AI looks primed to accelerate automation trends, and this Japanese robot stock is already at the forefront of automating manufacturing.

The performance of Rolls Royce (RYCEY) stock has been phenomenal this year, but an ongoing development in their New Markets segment could offer more room to run.

Stocks showing strength and breadth like we haven’t seen in a long time, particularly with the broad market at a record high. Despite flattish returns from the formerly high-flying mega-cap tech stocks, the broad stock market is no longer grinding higher, it is surging higher, lifting the S&P 500 index to a month-to-date gain of 8.8% through Monday.

Just like that, the stock market emerged from its dark mood of October 30th to surge 8.6% in six trading days, with reinvigorated optimism following the evaporation of the election cloud and news of a very promising Covid vaccine.

While pulling back a bit from the sharp jump on Monday, November 9th, the market rebounded on additional encouraging Covid vaccine results this week.

While thinking about how to frame this month’s small-cap opportunity I was hit by the memory of a Ted Talk I heard last winter. The talk features organizational psychologist Adam Grant describing what he calls “originals”—thinkers who dream up new ideas and then do what it takes to put them into action.

I wrote to you recently about upcoming changes in the Global Industry Classification Standard (GICS), which classifies stocks into 11 sectors and dozens of industries, and is commonly used in professional portfolio management as a guideline to portfolio diversity.

This week, we comment on earnings from Bayer AG (BAYRY), Berkshire Hathaway (BRK/B), Dril-Quip (DRQ), Holcim (HCMLY), Kohl’s Corporation (KSS), Macy’s (M), Six Flags Entertainment (SIX), Viatris (VTRS), Volkswagen AG (VWAGY) and ZimVie Holdings (ZIMV).


Next week, we provide an update on earnings from ESAB (ESAB) and Duluth Holdings (DLTH), which should wrap up this earnings season.

Current Market Outlook


As each week has passed, we’ve seen more and more yellow and red flags, including divergences, an implosion in the broad market, and recently, some key leading groups (like chip stocks) and individual stocks break down. There are still some positives out there, especially that many growth stocks remain within multi-month consolidations; if the market pulls out of its funk, they could be the leaders of the next advance. But, right now, that’s a big if—with selling pressures intensifying, we’re knocking our Market Monitor down another notch. Holding cash and being very choosy when doing some buying is your best course.

This week’s list has a larger-cap flavor to it as investors hunker down in well-traded names. Our Top Pick is Nike (NKE), which recently staged a huge gap on earnings, something that almost always leads to good performance in institutionally-owned stocks.

Stock Name	Price	Buy Range	Loss Limit
Ulta Beauty (ULTA)	331.95	113-117	105-106
Nike (NKE)	89.77	86-89	82-83
Monster Beverage Corporation (MNST)	0.00	88-92	83.5-84.5
Mallinckrodt (MNK)	0.00	89-92	83-84
Home Depot (HD)	0.00	90-93	85-86
Keurig Green Mountain (GMCR)	0.00	128-132	119-121
FedEx (FDX)	0.00	156-161	150-151
Carter’s (CRI)	0.00	81-83	76-77
Acuity Brands (AYI)	0.00	128-132	120-121
Actavis (ACT)	0.00	238-243	222-224

Current Market Outlook


After a quiet-but-good holiday week (except for the energy stocks, which have crashed), the sellers came out of the woodwork today, pulling down many stocks that have enjoyed good runs. Big picture though, while there remain a few yellow flags and divergences (including the small caps, which are again acting poorly), the major trend remains up for the indexes and the vast majority of stocks. Thus, our advice is to remain bullish, and to remain focused on what’s working—for many stocks, this pullback could go further, but the odds favor weakness leading to higher prices in the weeks ahead.

This week’s list has a slightly larger-cap tint to it, but all of the stocks have enjoyed huge-volume buying sometime during the past month. Our Top Pick is D.R. Horton (DHI), the nation’s largest homebuilder that’s participating in a powerful upmove for that group.

Stock Name	Price	Buy Range	Loss Limit
Whirlpool (WHR)	0.00	178-184	162-164
Whole Foods (WFM)	0.00	46-48	43-44.5
SolarWinds (SWI)	0.00	49-51	46-47
NetEase, Inc. (NTES)	0.00	100-103	93-95
KLA Corp. (KLAC)	158.80	66-68	62-63
Incyte Corporation (INCY)	76.98	72-74	65-67
Gentex Corp. (GNTX)	0.00	34-35	31-32
D. R. Horton (DHI)	66.55	24.5-26	22.5-23
Tableau Software (DATA)	126.42	81-85	73-74
Bloomin’ Brands (BLMN)	0.00	21-22	19-20

In the July Issue of Cabot Early Opportunities we briefly consider some of the factors making right now a particularly difficult time to make investing decisions, even though markets are near record highs.

To help make life a little easier we once again seek comfort in diversification. This Issue features dissimilar stocks that are bound by a common denominator; each company is either in an early stage of its life cycle, or early in a phase of growth/business model transition that should drive market-beating returns over the coming quarters.



Enjoy

Current Market Outlook


Last Friday’s surge higher by the broad market was a powerful sign that the lack of progress by growth stocks in recent months might be over, and for that reason alone, we are raising our market gauge one notch above neutral to the 6 level. But until we see true follow-through, and numerous growth stocks hitting new highs, we can’t be sure. In the meantime, however, there are still plenty of individual stocks acting well, with the potential to make big moves if the broad market cooperates.

Our Top Pick this week is the world leader in electronic signature technology, DocuSign (DOCU), which is making it easier to do business securely as the world turns increasingly digital.

Stock Name	Price	Buy Range	Loss Limit
Aaron’s (AAN)	74.35	66-69	59-61
ASML Holding (ASML)	350.01	253-260	228-232
Chipotle Mexican Grill (CMG)	773.32	795-825	730-745
Crocs (CROX)	0.00	29.5-32.3	25-26
DocuSign (DOCU)	107.98	64-66.5	56-57.5
Lululemon Athletica (LULU)	304.69	200-202	190-192
Quanta Services (PWR)	91.45	37-39	34-35
Saia Inc. (SAIA)	129.19	93-97	85-87
SolarEdge Technologies Inc. (SEDG)	124.37	87-89.5	78-80
Trex Company (TREX)	117.56	87-90	79-81

This will be a busy week for Wall Street as analysts speak with the companies within their stock purviews and write updated research reports. I expect to relay lots of changes in consensus earnings estimates in next week’s update.

While it may seem that all the stocks in the Dow Jones Industrial Average may move together, there are always those laggards that can’t catch up. This creates opportunity for the turnaround investor.

In this issue, we provide our thoughts on the laggards, highlighting those with promising appeal as well as some that might best be left alone for now.

The stock market’s strong and resilient upward march this year to a 32% total return was great. Yet, few, including us, expected such an uplifting outcome in 2019.

In this issue, we give our turnaround market outlook for 2020.