Search

In today’s Investment of the Week, J. Royden Ward, editor of Cabot Benjamin Graham Value Letter explains his approach to finding the winning undervalued stocks and recommends two high-quality undervalued stocks. “My best stock screen approach, which is easy to create, searches for companies with all of the following: “S&P (Standard &...

As 2017 comes to a close, we all have a lot to be thankful for, as the bull market provided us with a great environment for stock picking. There’s always room for improvement (which we’ll probably write about in future issues), but coming into this week the Model Portfolio was sitting on a gain north of 40%. We’ll take it.

Looking ahead, we remain bullish, especially longer-term, as some big-picture indicators point toward higher prices. Near-term, though, it’s hard to ignore the optimistic sentiment, which we write about in today’s issue. It’s very inexact, so we don’t base trading decisions on it, but it’s good to remember to keep your eyes (and your options) open.

The market’s evidence continues to improve, with our core market timing indicators returning to the bullish side of the fence. That’s obviously a good thing and has us optimistic -- though upside follow through from here will be key, as many growth measures are still lagging behind, though we are seeing more setups, especially from areas that sat around for much of the past year (see the issue for much more on that). All told, we are doign some new buying tonight, and will have more to come if the market continues to act well.

The market’s evidence has clearly worsened the past two weeks and, really, there hasn’t been any money made in growth stocks since late September, when more names began to flash abnormal action and crack. We’ve mostly been selling in recent weeks, building up a big cash position of 56%, and tonight we’re hanging on to that as our Cabot Tides is on the fence, Two-Second Indicator is negative and many stocks are headed south. To be fair, the indexes are hanging in there and we still have many stocks we like (we write about some liquid biopsy stocks and other potential leaders in tonight’s issue), so we’re staying flexible--but right now it’s prudent to hold our cash and see how this selling wave plays out.

Stocks inched further into record territory this week. And while there’s another big news event to weather this week (the Fed’s Jackson Hole meeting and Jerome Powell press conference), the market has already motored ahead in the face of a bad July jobs report and escalating inflation. The real test is likely to come in September, historically the worst month for stocks as Wall Street returns from its summer vacation and sells off its laggards. So today, we add a bit of safety in the form of a low-beta, high-yield utility courtesy of Cabot Dividend Investor Chief Analyst Tom Hutchinson. But this utility acts more like a growth stock, thanks to AI and data center buildouts.

Details inside.

A sizzling summer for stocks has delivered some strong returns for investors, though not all sectors have enjoyed the ride. In fact, seven of the 11 S&P 500 sectors have underperformed the benchmark index’s 8% return so far this year. As a result, there’s plenty of value still out there. So today, we set our sights on of those underperforming sectors: consumer staples. While the sector hasn’t trailed the market as much as a few others, we’ve found a usually steady, reliable stock that just touched five-year lows despite reporting record sales. The company dates back to the 1800s, and is a brand everyone knows – and has likely been in your house, your parents’ house, your grandparents’ house and your great-grandparents’ house. And now it’s on sale.

Details inside.

The market’s big-picture outlook remains excellent, and we’re keeping most of our focus on that. However, there’s no doubt that we’re starting to see some growth stock wobbles, as today was the 3rd day of distribution in the group while money rotates into the broader market. That’s no reason to be defensive, but we are selling one name tonight that flashed abnormal action and holding a bit more than 30% cash on the sideline for now. Our goal is to ditch any laggards or names that crack and eventually replace them with big leaders, some of which are in a rest phase that should result in higher-odds entries.

While the market was weak this morning, 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 a low-risk dividend payer whose products you have probably bought—and probably never knowing the company’s name. More importantly, Tom Hutchinson says it’s cheap.



As for the current portfolio, most of our stocks look good, so the only changes is an upgrade of Five Below (FIVE) to Buy.

It’s not 1999 out there, and the environment remains tricky and narrow. But there’s also improvement being seen among growth stocks, with more and more stocks showing persistency and power. We’re still going slow, but we added two new half positions last week; we’d like to increase our exposure soon, but tonight will sit tight.

In tonight’s issue, we talk in depth about some of the improved evidence we’re seeing, write about all of our stocks and highlight a few tempting titles (including a new cloud software name that’s on our watch list—see Other Stocks of Interest).

Large-cap stocks are starting to show some cracks. But small caps aren’t.

After years of underperformance, small-cap stocks appear to finally be poised for a breakout 2026 thanks to a combination of lower interest rates and soaring earnings. So in this month’s Cabot Value Investor issue, we present a small-cap company that is already coming off a very strong quarter, whose sales and earnings have more than doubled since Covid, but whose shares were overly punished last fall and are just now starting the long climb back. The combination of double-digit earnings growth and a well-below-average valuation makes this small cap ripe for our Buy Low Opportunities Portfolio.

Details inside.

Cannabis stocks are set to close out the year with a punishing 14% decline. Cannabis investors need help from anywhere they can get it.

It looks like it could come from an unusual place in 2025. The future of the cannabis industry is now in the hands of President-elect Donald Trump.

If anyone told me a few years ago this would be the case, I might have asked them what they are smoking.

However, the reality is that during his presidential campaign, Trump endorsed all three of the main reforms that would legitimize the industry and boost cannabis share prices: Rescheduling, bank reform known as SAFER banking, and legalization of recreational use. Trump endorsed the first two outright. He implicitly endorsed legal rec-use because he supported the Florida referendum which would have made this change. At the very least, he has openly endorsed decriminalization.

The market is in a holding pattern, but holding patterns aren’t bad things when they come on the heels of the kind of run-up we saw in November and the first three weeks of December. Besides, many of the stocks in our Stock of the Week portfolio aren’t in a holding pattern, with 10 of them (!) trading at either 52-week or all-time highs. So today, we add another high-upside position that should benefit from another banner year for the travel industry. Mike Cintolo recently recommended the stock to his Cabot Top Ten Trader audience.

Stocks are at all-time highs, yet again, defying the myriad potential macro tailwinds (expanding war in the Middle East, looming presidential election, another damaging hurricane, Q3 earnings season underway, etc.) that have been threatening to derail the market. One of them still could, but for now, we’ll stick with what’s in front of us, and that’s a market with plenty of momentum. Today, we lean into that momentum by adding a mid-cap tech stock recently recommended by Tyler Laundon to his Cabot Early Opportunities audience.

Details inside.

Another event with consequences is the earnings report for recommended name Big Lots (BIG), scheduled for pre-market release on December 1.

Tuesday’s edition of The New York Times had a stock-centric article titled, “The S&P is Nearing a Record. Really.” The subtext, of course, is that stocks have climbed near February all-time highs despite a bevy of geopolitical tensions, potential economic landmines, and widespread investor and consumer pessimism. As I wrote last week, the market has fully recovered from its tariff-fueled cratering of late March and early April, but lingering uncertainties threaten to derail it at any moment … and that was before Israel and Iran started bombing each other.

Wall Street analysts expect stocks to be flat for the rest of the year. That’s according to a new Reuters poll, which surveyed 51 strategists, analysts, brokers and portfolio managers. Among them, the average year-end target for the S&P 500 was 5,900 – roughly in line with the current price, and essentially unmoved since the start of the year.

That’s not exactly exciting news, even if 5,900 would have felt like a win in early April, when the benchmark index dipped below 5,000 after President Trump’s now-infamous “Liberation Day” reciprocal tariff announcement. The rally since then has been impressive, but analysts aren’t confident we’ll get much more movement through the final seven months of the year.

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

The U.S. presidential election, “only” seventeen months away, is shaping up to follow a predictable script. Investors should keep their personal views and their investing process separate.

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.

The buyers finally stepped up after a brutal first three weeks of April, and suddenly the bull market feels back on again. One week doesn’t make a rally – not if the Fed (which rears its ugly head again this week) has anything to say about it. But for now, the selling has ceased, with an assist from a better-than-expected earnings season. Today’s addition isn’t exciting – it specializes in things like pipes, valves and water meters – but it’s a practical – and potentially quite profitable – way to play America’s geyser of infrastructure spending. It was newly recommended by Mike Cintolo to his Cabot Top Ten Trader readers.

Today’s recommendation is a very strong Chinese stock that had quieted down nicely during the past two weeks and is now on a four-day run. One thing we really like in a growth stock is a huge mass market, and this company is right in the middle of one of the biggest markets there is.

It goes without saying that a big part of being a turnaround investor is having a contrarian bent. Let’s face it, we’re a hardy bunch who typically shun the crowd and buy what are, in most cases, stocks that are completely out of vogue with the typical market participant.