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Current Market Outlook


The broad market suffered some wobbles last week, mostly due to energy stocks taking some outsized hits. And we still want to see most of the major indexes lift out of their post-March 1 trading ranges as the Nasdaq is the only index to have achieved that. Even so, while those are factors to watch, the majority of evidence remains bullish—the long-term trend is up, many Top Ten stocks are performing well and the indexes are all at least a bit above their 50-day moving averages. All in all, then, we’re bullish, though it’s important to keep your feet on the ground by looking for solid entry points and taking some partial profits as your stocks advance.

This week’s list has many great stocks to choose from, most of which have recently reacted well to earnings. For our Top Pick, we’re going with a stock we’ve watched on and off for months that finally appears to be getting going—Zillow (Z) has come alive after a nine-month rest, and the story is as big as ever.

Stock Name	Price	Buy Range	Loss Limit
CoStar Group (CSGP)	589.55	240-250	223-228
MasTec, Inc. (MTZ)	66.65	44.5-47	41-43
Paycom Software (PAYC)	0.00	61-64	56-58
Sanderson Farms (SAFM)	149.54	110-114	102-104
SiteOne Landscape Supply (SITE)	98.49	47-51	43.5-46
Square, Inc. (SQ)	91.04	18.5-20	17-17.5
Summit Materials (SUM)	0.00	26.5-28	25-25.5
Universal Display (OLED)	187.54	107-115	94-97
WellCare Health Plans, Inc. (WCG)	271.83	163-168	152-154
Zillow (Z)	76.64	41.5-44	37-39

Current Market Outlook


Early January is almost always a tricky time as big investors rotate and reposition their portfolios, leading to lots of crosscurrents and volatility. We saw some of that today and won’t be surprised to see more gyrations in the days ahead. Thus, we’re focusing mostly on the bigger picture, and on that front, the trend remains up, and we’re seeing a lot of pullback resumption set-ups (mostly from cyclical and financial stocks) and base-breakout set-ups (among some growth-oriented stocks). Now’s not the time to chase a stock’s every tick higher or lower, but you should remain bullish, and have a list of set-ups ready should the buying pressures resume after the modest late-December market retreat. We’re leaving our Market Monitor at a level 8 out of 10.

This week’s list has many stocks that have formed the aforementioned set-ups—should they resume their uptrends, many could have nice runs. For our Top Pick, we’re going with Micron Technology (MU), which gapped up strongly on earnings two weeks ago before pulling back. Dips look buyable to us.

Stock Name	Price	Buy Range	Loss Limit
Arista Networks (ANET)	0.00	95-98	90-92
Dave & Buster’s (PLAY)	57.01	54-56.5	51-52
HD Supply Holdings, Inc. (HDS)	0.00	41-43	37.5-38.5
Micron Technology, Inc. (MU)	43.31	21.5-23	19.5-20
Nabors Industries (NBR)	0.00	16-17	14.5-15
Oasis Petroleum (OAS)	12.57	14.5-16	13-13.5
Quanta Services (PWR)	91.45	34-36	31.5-32.5
Texas Capital Bancshares (TCBI)	0.00	76-78	71-72
United States Steel Corporation (X)	0.00	31.5-33	29.5-30.5
WellCare Health Plans, Inc. (WCG)	271.83	135-138	127-129

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2023 issue.

Much of the art of finding interesting turnaround stocks is looking at catalysts, tracking management changes and searching through lists of out-of-favor companies. Sometimes, however, good ideas can be found closer to home – literally – by looking through the roster of public companies in one’s home state. We discuss five turnarounds underway in our home state of Massachusetts.

Despite near-record gold prices, shares of gold producers remain depressed. We discuss two attractive companies. Our Buy recommendation this month is Agnico Eagle Mines Ltd (AEM), a premier gold mining company selling at a discounted price.

Please feel free to send me your questions and comments. This investment letter is written for you. A great way to get more out of your letter is to let me know what you are looking for.

The markets have continued their bullish momentum so far in 2024, with growth stocks continuing to lead the way—especially large caps, which are up 32.94% so far this year.

Sector-wise, Communication Services (up 9.74%), Technology (up 5.07%), and Healthcare (up 4.11%) are the winners so far, with Real Estate (down 4.37%), Utilities (-2.91%), and Consumer Discretionary (-0/83%) the losing sectors.

Housing inventory is still tight, with prices remaining a little lofty. The S&P Case-Shiller home price index came in at a 5.4% rise, which was a bit less than the 5.7% forecast, but still higher than the month before.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the March 2024 issue.

We discuss the similarities between poker and value investing. This past month we moved two stocks from Buy to Sell – Allison Transmission (ALSN) as it reached our price target, and Sensata Technologies (ST) as its management continues to take a path that is not shareholder friendly.

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.

As the stock market soars ever higher, driven in no small part by the Magnificent Seven mega-cap tech stocks, vitriol again is being heaped upon passive investing. This form of investing, more commonly known as indexing, is considered “passive” because it considers no other traits beyond a stock’s weight in an index. There is no work involved in picking such stocks or setting the weighting – the index passively determines these. The opposite, of course, is “active” investing, in which investors work to select which stocks, and how much, to buy and sell. Active investing can involve a lot of activity.

The world of major pharmaceutical stocks can be split into two camps: winners and laggards. Eli Lilly (LLY) is a clear winner, with its successful roll-outs of new treatments led by the immense promise of weight-control drugs like Mounjaro and Zepbound. Lilly’s shares have surged 545% (up 5.5x) in the past five years and are increasingly mentioned as a replacement for Tesla in the “Magnificent Seven.” The shares trade at 47x estimated 2024 EBITDA.

Let’s talk about the elephant in the room: the presidential election.

No, I’m not going to touch the political ramifications of Biden vs. Trump, Round 2 with an 11-foot pole. For investors, that doesn’t matter. What matters is what typically happens to the stock market in election years. In the 20 presidential election years since 1944, the S&P 500 is up an average of 7.2% - not terrible, but well shy of the average 10% annual gain in the benchmark index.

A good way to invest in global growth is to own real estate in different parts of the world. And global REITs are a hassle-free way to do it.

These rules are the foundation of the Cabot Market Letter investment philosophy.

You can analyze omicron’s spike protein, slice and dice the words of the Fed chairman or do a deep dive into last week’s jobs report all you want. But at the end of the day, all that matters now is that the sellers are in control. To be fair, some short-term measures are stretched, so some type of bounce is possible. Thus, if you’re already defensive, we wouldn’t be in a rush to sell a ton of stuff here, but there’s no question the onus remains on the bulls to begin repairing the damage. We’ll keep our Market Monitor at a level 5.

This week’s list is a hodgepodge of strong names, be it due to company-specific moves, earnings or sector resilience. Our Top Pick is a direct beneficiary of all things construction and infrastructure, and its stock is holding up well.

There is no shortage of great stories in the medical technology field. Today we’re jumping in on one that’s been on my radar for some time.

The company has just begun to commercialize a revolutionary technology for treating BPH and prostate cancer, which affects millions of men around the world. Regulatory approval is in hand across three continents, and revenue growth is in the 80% to 100% range.



There are plenty of challenges ahead, but this company appears to be on the path to enormous success.



All the details are inside. Enjoy!

With the market falling like a stone today, it’s tempting to conclude that a bottom is near. But the fact is that identifying bottoms is very difficult to do in real time, so the prudent course is to reduce risk, which we do this week by selling three more stocks.



As for the new recommendation, energy stocks have been a pocket of strength, so energy it is!

With the market becoming less supportive, I’m dialing back the aggression, so this week’s recommendation is a lower-risk company in the pharmaceutical sector that pays a solid dividend.
As for the current portfolio, our three energy stocks remain very strong, and there are no changes.


Details inside.

The S&P 500 index continues to act well, rising to new highs in July, conducting a very orderly pullback in August, and rebounding in September. To my eyes, the price chart still looks strong.

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!

Friday’s big surge upward—200 points for the Dow—was a clear bullish sign, a reminder that there’s lots of cash sitting on the sidelines waiting for a reason to get back into the market, and a reminder that when those billions of dollars eventually do find their way back into stocks, prices will skyrocket! Yet it’s been hard for the market to maintain a strong uptrend as the tug-of-war between stocks and bonds continues. And it’s not the yields keeping people in bonds these days, it’s simply fear. Thus our Market Monitor remains in the neutral zone—which means while it’s fine to target some attractive situations, you should keep some cash in reserve until the broad market is more supportive, and you should continue to practice risk management. That means buying on dips, not at new highs. It means taking some profits off the table when they come easily. And it means cutting losses short when things go against you.

We’re still very enthusiastic about the homebuilding sector, and our Editor’s Choice this week is Ryland, a homebuilder that’s appeared here this year twice before and has great potential to keep on climbing. Also attractive are companies in fertilizer, energy, electronic health records and more. Enjoy the issue and enjoy the summer!

Stock Name	Price	Buy Range	Loss Limit
Agrium (AGU)	0.00	87-90	-
Athenahealth (ATHN)	0.00	78-80	-
Cabot Oil & Gas (COG)	0.00	38-41	-
CLGX (CLGX)	0.00	19-20	-
Marathon Petroleum Corporation (MPC)	0.00	43-46	-
Ryland (RYL)	0.00	23-26	-
Spirit Airlines (SAVE)	57.03	21-23	-
TripAdvisor (TRIP)	55.14	42-44	-
Weyerhaeuser (WY)	0.00	22.5-23	-
Zillow (Z)	76.64	39-41	-

It’s possible stocks are stretched, at least in the near term, and the just-underway earnings season will put that to the test in the coming weeks. The next big move may be to the downside, so today we’re adding some more portfolio protection in the form of a mega-cap health insurer that pays a modest dividend but has a history of beating the market. It’s the latest recommendation from Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Last week, our opening comments chastised the U.S. Government for such profligate spending that the most likely path as forecast by the Congressional Budget Office is for remarkably high and steady budget deficits into the distant future. We hesitated to write such a gloomy note – and didn’t mention that this is perhaps the greatest risk that long-term investors face (making blips like the next Fed rate decision or Amazon’s next earnings report seem irrelevant).

We worried that we were taking a grim outlier perspective after so many others had dismissed the Fitch credit rating downgrade. However, recent articles in The Wall Street Journal and other high-quality media outlets vindicate our math and view. This is little comfort – I wish that I were totally wrong and that my math or outlook was missing some key facts.