Search

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2022 issue.

At it most basic, investing is a mental game supplemented by a calculator. Our articles use one or both aspects to find attractive investing ideas.

Our first group covers enduring companies with out-of-favor stocks with theses well supported by a calculator. Our other articles discuss companies with deeper issues but whose shares have been so heavily sold that their risk/return trade-offs are highly attractive, even if their theses rely less on a calculator and more on pure contrarian instincts.

Our feature recommendation this month is a high-quality, well-capitalized bank that emphasizes credit card loans

Overall, the market’s action remains as close to pristine as you could hope for. Under the hood, there has been a touch of rotation, with some growth stocks chopping around while cyclical, construction and materials names perk up. All in all, we wouldn’t be surprised if growth continued to catch its breath, as the recent pullback was very brief, but that’s short-term nitpicking: While dips and potholes will come, the bottom line is that the vast majority of evidence is bullish, so you should be, too. We’ll bump our Market Monitor up to a level 8, and think adding exposure (ideally on dips) makes sense.

This week’s list reflects the broadening we’re seeing out there, with a few tech names but many others from other corners of the market. Our Top Pick is a long-term winner in the aerospace and defense field whose stock just broke out.

After a heady run, further short-term wobbles are possible, even likely, as the market and many stocks digest their May/June gains and as fear levels rise with interest rates. That said, to this point the consolidation in the major indexes and leading stocks has been completely acceptable, with very little abnormal action. If we start to see some names crack meaningful support, we’ll knock our Market Monitor down a notch or two, but today we’ll keep it at a level 8, as the odds continue to favor this being a normal rest period that will give way to higher prices.

This week’s list has a handful of names that have recently got going despite the market’s shenanigans. Our Top Pick this week is from a beaten-down group that’s come to life, possibly signaling the start of a group move.

Tom Hutchinson, Chief Analyst of Cabot Dividend Investor, talked about dividend stocks and the current market. PLUS Tom shared a couple of his favorite high-growth, high-yield stocks.

In the November Issue of Cabot Early Opportunities, we take our first step into the crypto economy, delve deeper into international e-commerce markets, bring in another security specialist, attempt to fix the world’s supply chains and jump back into a high-end consigner that’s finally past the pandemic’s ill effects.

After living through 2022, we’re certainly not going to whistle past any market graveyards, so our antennae are up when it comes to the market’s recent wobble—but instead of guessing what may come, it’s best to just go with the evidence in front of you, and so far, everything looks normal. That doesn’t necessarily mean we’d be piling in here, but we continue to lean bullish. We’ll leave our Market Monitor at a level 7 today.

This week’s list is very mixed, but with the chip sector looking peppy, our Top Pick is comes from that space and also quacks like a new growth leader. The stock is extended here, but dips of a couple of points would be enticing.

SThe story of the broad market is much the same as it has been in recent weeks. To wit, rotation continues across several industry groups while the major averages remain stuck in a lateral range. Things should start to heat up as we head further into the earnings season, though we’re not advising any major change in stance just yet.

This week’s list includes a nice mix of key industries that are benefiting from major fundamental and economic trends. Our Top Pick is a stock that should get a boost from accelerating interest in online foreign language learning.

Your Spring issue of Cabot’s 10 Best Marijuana Stocks is ready, with updates on the 10 stocks we’ve been following and two new stocks I’ve added to the mix.

And it’s a great time to take a fresh look at all of them, as the market’s recent correction has brought most of them down to what look like good buying areas. Yes, the correction is deep, but it was overdue, and long term, I remain very optimistic about the sector.

First off, a quick note: Due to our regular schedule (50 weeks a year), there won’t be a Movers & Shakers update this shortened week, or a Top Ten issue next Monday—but we will send out a Movers & Shakers update next Monday and will be around all next week if you have any questions. Have a fantastic Thanksgiving!

Nothing much changed with the market last week: The major indexes were down, but not severely, and the intermediate-term trend continues to point up. That said, under the surface, it remains a very mixed bag—some areas look great, but there are as many (or more) wobbly names out there compared to names in solid uptrends. We’ll keep our Market Monitor at a level 5 this week, though we’d like to individual stocks act better soon.

This week’s list is heavy on old world companies, though there are a few great-looking growth names, too. Our Top Pick is in that space and has shown great power before and after its recent earnings report.

This week’s note includes our comments on Goodyear Tire (GT), Warner Bros Discovery (WBD) and Berkshire Hathaway (BRK/B), which reported late last week. It also includes comments on the 12 companies that reported earnings this week: Bayer AG (BAYRY), Brookfield Reinsurance Ltd (BNRE), Dril-Quip (DRQ), Elanco Animal Health (ELAN), Goodyear Tire & Rubber Company (GT), TreeHouse Foods (THS), Six Flags Entertainment (SIX), Viatris (VTRS), Toshiba (TOSYY), Volkswagen AG (VWAGY), Warner Bros Discovery (WBD) and Western Digital (WDC).

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the October 2022 issue.

As stock prices tumble under the twin pressures of rising interest rates and the likely arrival of an economic downturn, just about every new stock pick is destined to be a disappointment. How does one select stocks in such an environment? While most fresh ideas will be near-term duds, there is an important purpose to picking new ideas. And, one doesn’t need to buy full positions right away. We screen for low P/E stocks on depressed 2023 earnings, with estimates for those earnings that are increasing. These make good stocks in which to take starter positions.

We also sorted through stocks with high dividend yields and highlight two picks and two pans (with enticing yields yet have serious dividend risks).

Our feature recommendation this month is Dow (DOW). Its shares have been sold by fearful investors, but the company’s low valuation doesn’t recognize the improvements in its financial strength and cost structure since the dark days of early 2020, nor the attractive yet sustainable dividend yield.

Inflation’s bullish impact on precious metals prices has been held back by dollar strength. That could be changing.

In this week’s video, Tyler Laundon discusses the move in the 10-year Treasury and possible impacts on the market.

Last week brought some true extremes when looking at sentiment and oversold conditions, telling us some type of bounce was likely. That’s what we saw starting Thursday afternoon, and we’re optimistic we may have hit a workable low—“workable” in this case meaning the market can work higher for more than just a couple of days. That said, we’ll just see how it goes: While there are a few stocks acting well and set up decently, the vast majority of evidence remains negative, so we still favor defense and patience as the market tries to etch a bottom.
Encouragingly, though, this week’s list does have a few names that have shown outsized support during the past couple of weeks, often after earnings, and our Top Pick is one of them as it attempts to round out its launching pad.

Last week had a couple of big news items and, not surprisingly, the market was all over the place, with some strong up action, a wild reversal and then some support after the Fed’s talk. All in all, we consider the shows of support modestly encouraging, along with the fact that sentiment has taken a sharp turn lower as the worries of the world come back into focus. But nothing has really changed with the here and now: The intermediate-term trend of the major indexes and most stocks is pointed down, with few names making any progress. That can obviously change, but for now, we’re still patiently waiting for the buyers to retake control. We’ll leave our Market Monitor at a level 5 tonight.


This week’s list is another mixed set of stocks, though we like the fact that we’re seeing a few more positive earnings moves. Our Top Pick is trying to leave behind a multi-month range after its recent earnings surge.

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.

Current Market Outlook


After three weeks of rotation, where cyclical stocks took the reins and growth stocks rested (and some broad selling pressure showed up June 11-12), the reverse occurred last week, with the leaders again ramping up and cyclical stocks sagging. Still, while the endless rotation isn’t ideal, it hasn’t changed the big picture—most of the evidence remains bullish, so we’re still optimistic the path of least resistance is higher. That said, it’s important to keep your feet on the ground, too; looking for solid entry points and not hesitating to book some partial profits on the way up are still good ideas, as some selling pressure or another bout of rotation isn’t out of the question. We’re leaving our Market Monitor at a level 8.

This week’s list has a bit of a secondary feel to it, but many are showing solid setups; ideally some of these will be the next wave of names big investors focus on. Our Top Pick is Restoration Hardware (RH), which has a strong story and is resting nicely after a very strong run.

Stock Name	Price	Buy Range	Loss Limit
Big Lots (BIG)	43.12	32.5-35	27.5-28.5
Immunomedics (IMMU)	34.23	32.5-35	28-29
LGI Homes (LGIH)	86.04	84-87	74-75.5
MercadoLibre, Inc. (MELI)	980.83	910-940	810-830
Mersana Therapeutics (MRSN)	22.28	20-22	16-17.5
Nuance Communications, Inc. (NUAN)	25.35	23.5-25	21-22
PagSeguro Digital (PAGS)	35.09	33.5-35.5	29-30
RH Inc. (RH)	252.93	240-255	210-217
Teradyne (TER)	82.83	78-81	69-71
Yeti Holdings (YETI)	42.80	36-38	31.5-33