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Current Market Outlook


The market enjoyed a nice bounce after last Monday’s shakeout, especially in growth-oriented sectors and indexes like the Nasdaq. But we don’t think the market is quite out of the woods—by our measures, the intermediate-term trend is still on the fence (most indexes are just above or below their 50-day lines), and the fact is that far fewer stocks are hitting new highs now than the past couple of times the indexes have tested their highs. To be clear, we’re not overly negative, as the longer-term trend looks great, as do many stocks, and the major indexes are just a couple of percent from all-time highs. But we think it’s best to play things carefully (holding some cash, keeping new buys relatively small, etc.) until the market confirms that the post-election uptrend is back on track.

This week’s list is a mixed bag, with some turnarounds, some recent earnings winners and others that have soared on news. For our Top Pick, we’re going with Western Digital (WDC), which, after a brief shakeout, has come storming back to new highs on great volume.

Stock Name	Price	Buy Range	Loss Limit
Huntsman (HUN)	0.00	23-24.5	21-22
Jabil Inc. (JBL)	41.50	27.5-29	26-26.5
Jazz Pharmaceuticals (JAZZ)	0.00	138-144	129-130
Lending Tree (TREE)	411.51	120-124	112.5-115
Penn National Gaming (PENN)	45.38	17.5-18.5	15.8-16.5
PRA Health Sciences Inc. (PRAH)	96.08	63-65	58-59
RH Inc. (RH)	252.93	44-46	40-41.5
Tesla, Inc. (TSLA)	818.87	280-295	260-270
Vertex Pharmaceuticals (VRTX)	230.36	104-109	95-100
Western Digital Corporation (WDC)	0.00	79.5-82.5	73-75

Last week was a good one for the bulls, not because the indexes finished in the green but because after three poor weeks, the broad market finally found some support, with breadth improving and the number of stocks hitting new lows drying up. We wouldn’t say the broad market is completely out of the woods; another few days of positive action would be necessary to conclude that. But, overall, we’re optimistic—the intermediate- and longer-term trends are pointed up, most stocks outside of commodity sectors remain in good shape, and we’re even seeing some rotation into more growth-oriented groups, which is usually a good sign. We’ll keep our Market Monitor at a level 7 right now as we wait to see further confirmation from the broad market.

This week’s list is chock full of strong stocks with solid growth stories from a variety of industries. We’ll keep it simple with our Top Pick this week, going with Adobe Systems (ADBE), a liquid growth leader that just reported a strong quarter.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	0.00	70-73	64-65
Adobe Inc. (ADBE)	315.23	123-127	116-119
Axalta Coating (AXTA)	0.00	31-32.5	28-29
Broadcom Limited (AVGO)	266.26	215-223	200-205
Children’s Place (PLCE)	0.00	114-117	105-107
Glaukos Corp. (GKOS)	67.84	46-48.5	41.5-43
KB Home (KBH)	36.05	18.5-19.5	17-17.5
Micron Technology, Inc. (MU)	43.31	25-26	23-23.5
Olin Corp. (OLN)	0.00	31-33	29-30
Veeva Systems (VEEV)	180.23	47-50	44-46

Current Market Outlook


During the past three weeks, we’ve seen the market’s breadth begin to sag (small- and mid-cap indexes haven’t made much progress in three months), then we saw some key sectors falter (financials have decisively broken down) and now the market’s own intermediate-term trend is on the fence. That’s enough yellow flags for us to advise trimming your sails a bit; we’re nudging our Market Monitor down to a level 6, as the onus is on the bulls to pull us out of this near-term funk. However, longer-term, we’re much more optimistic—today’s show of support was encouraging, of course, and there remains a ton of strong stocks (especially growth-oriented stocks) out there, so you should continue to hold on tightly to your top performers.

This week’s list is chock-full of stocks that have ignored the market’s recent dip. There are many good names to choose from, our Top Pick is Teladoc (TDOC), a newer issue that’s emerging from a long post-IPO droop and consolidation. It has a great story.

Stock Name	Price	Buy Range	Loss Limit
Criteo (CRTO)	0.00	49.5-51.5	46-47
Grand Canyon Education (LOPE)	121.03	66-69	60-62
Lumentum (LITE)	87.00	50-54	43-45
MercadoLibre, Inc. (MELI)	980.83	205-210	196-200
Momo Inc. (MOMO)	44.65	31.5-33.5	29-30
RingCentral (RNG)	238.73	25.5-27	24-25
SiteOne Landscape Supply (SITE)	98.49	44-46	40.5-41.5
Skyworks Solutions (SWKS)	0.00	94-97	87-88
Teladoc, Inc. (TDOC)	127.95	23.5-25	20.5-21.5
Wynn Resorts (WYNN)	121.08	107-111	98-101

We’ll continue our mini-series on the Tech Hype Cycle next week, as we thought some brief comments on the war in Ukraine might be timely roughly one year after Russia’s invasion.

Clearly, the war is an awful situation for all involved, certainly on a humanitarian level but also on an economic level. While the conflict has degenerated into a World War I-style artillery battle between two entrenched forces, we anticipate that spring will bring more mobile hostilities.

Part of our risk management process is to identify risks, then gauge whether those risks are increasing, or decreasing. This simple directional metric avoids the impossible task of predicting the future yet provides an effective way to understand risks.

Current Market Outlook


The market continues to face many headwinds, the largest of which is the fact that the major indexes and the vast majority of individual stocks remain in longer-term downtrends. However, let’s give the market credit where it’s due—after a panic selloff on January 20, the major indexes chopped around, retested those lows during the following three weeks, and now, have nearly risen to their highest levels since early January. By our measures, the intermediate-term trend is starting to turn up, so after many weeks in a defensive stance, it’s OK to loosen the purse strings and put some cash to work—though we do advise going slow on the buy side and continuing to hold a good-sized cash position. Our Market Monitor will move up a couple of notches into neutral territory.

This week’s list is still a bit light on true growth stocks, but there are other interesting ideas to consider. Our Top Pick is TAL Education (XRS), a stock we’ve recommended before that’s now showing excellent relative strength.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	48-50.5	43.5-44
Wynn Resorts (WYNN)	121.08	76-79	69-70
The Priceline Group Inc. (PCLN)	0.00	1220-1300	1080-1100
NVIDIA Corporation (NVDA)	242.42	30-32	27-28
Hawaiian Holdings Inc. (HA)	0.00	38-40	34-35
Five Below (FIVE)	134.58	35.5-37.5	32.5-33
CenturyLink (CTL)	22.88	28-29.5	26.5-27
CyrusOne Inc (CONE)	0.00	36.5-38	34-34.5
Coherent, Inc. (COHR)	0.00	78-82	72-73
Burlington Stores (BURL)	193.95	52-54	47.5-48

This is the worst market we’ve seen in a while. And the ugliness could last a while.

Tariff talk is all the rage. The economy is slowing. Nobody is sure about inflation or interest rates. It all adds uncertainty. The market had been riding high for more than two years. A comeuppance has arrived. How long will it last and how deep will it be?

During times of maximum uncertainty like this, healthcare stocks are a great place to be. That was the topic of last month’s exquisitely crafted issue. But there is another industry with both defensive and growth characteristics that’s ideal for uncertain times – garbage.

We live in the garbage capital of the world. This country generated 292 million tons of waste in 2018, up from 251 tons in 2012, and nearly double the waste produced in 1980. That’s enough waste to produce a pile long enough to go to the moon and back – 29 times. And that’s every single year. Waste services are big business. In 2023, the U.S. waste management services industry generated $145 billion in revenue. That was up from $137 billion the prior year and that number is likely to keep rising.

Garbage will continue to pile up regardless of where interest rates go, the level of economic growth, or the fallout from tariffs. The market could soar, or the world could go to Hell in a handbag. Either way my wife will nag me every week to take out the garbage.

Bank on a company with certain earnings and revenue in uncertain times. Defensive stocks tend to outperform during and after volatile markets. In this issue, I highlight a company that is the unquestioned leader in waste services. The stock has a strong track record which could get even better in the years ahead.

The market didn’t get the bump from another Fed rate cut that some may have anticipated, though it’s possible the run-up was already baked in after the cut was deemed all but a foregone conclusion starting late last month. Still, stocks are hovering near record highs, and broader measures like small caps and the equal-weight index are catching up to the major indexes. Improving breadth means it’s a good time to add a dividend-paying energy stock, courtesy of Cabot Dividend Investor Chief Analyst Tom Hutchinson. It’s a stock that’s picked up a full head of steam since bottoming in mid-August.

Details inside.

Market trends remain quite positive, and I continue to recommend that you work to get more invested. Months from now, the market will be higher.
As for today’s recommendation, it’s a dirt-cheap dividend-payer in the energy industry that may not get going right away, but downside risk looks minimal and all the fundamentals argue that it will eventually be higher.

The cannabis sector remains in a correction, weighed down in part by fears of vaping illness, but many stocks are doing considerably better than the sector and our challenge is to own the right ones—so that we can succeed both short-term and long-term.

While today brings an unexpected new political reality, markets around the world are already adjusting to the new order.

Since the market bottomed five weeks ago, the charts have been impressive, not only for the broad market but for the marijuana sector as well, which has finally shaken loose from its bear market’s two-year grip.

Of course, some companies didn’t survive the hard times, but those that did are battle-hardened, so now, more than ever, it’s easier to identify the future winners of the industry—and the stocks that can bring you big profits in the years ahead.



So today I’m doing a bit of buying for the Cabot Marijuana Investor portfolio, adding four stocks (three of which we’ve owned before).



Additionally, you’ll find a Special Report with this issue, profiling all the publicly traded, vertically integrated multistate operators (MSOs) in the U.S. The report can be found in the Special Reports section of the website.



Full details in the issue.

Part of what makes turnaround mutual funds an inefficient and therefore profitable investing niche is that most investors avoid these securities. Managers of this small group of funds are comfortable with the contrarian approach of owning stocks that are avoided by more conventional mutual fund managers.

In this issue, we highlight seven of these turnaround-oriented mutual funds we’ve watched over the years.

It is useful (if also humbling) to review how our prior year’s forecast turned out.

In this issue, we take a look back - and a look forward - as we assess our moves.

Markets seemed to rotate and flatten this week, and the Explorer portfolio was relatively steady as well. The Federal Reserve pledged to keep its spigot open by continuing to buy $120 billion per month of Treasury debt and mortgage-backed securities and hold short-term interest rates near zero through 2023. This is encouraging to markets but unnerves me a bit as we already seem awash in liquidity.

In our new recommendation today, we explore a new technology that could shift the electric vehicle market into another gear.

Financial stocks, as a group, are undervalued, with strong expected earnings growth, bullish price charts and prospects of upward earnings revisions as interest rates rise. Today’s Portfolio Changes: BigLots (BIG) moves to a Hold, and D.R. Horton (DHI) increased its dividend.

As we enter 2017, big changes are afoot, both economically and politically. News media is currently laser-focused on which stocks are or are not likely to fare well with a new political administration in Washington D.C. This is a good time to remind you why I make my investment decisions based on numbers and price charts, not on trending news topics.

As we enter the brand-new year, we have a renewed buy signal from our intermediate-term timing indicator, and the best stocks are hitting new highs—including a lot in our portfolio. But one of ours is a true laggard, and will be sold today.




As for the new addition, it’s a hot growth stock favored by Mike Cintolo, which is seeing great growth in the exciting area of networking at the edge of the cloud.




Details inside.

It’s been a tough year for investors in cannabis stocks, and in the broad market as well, as all major indexes are in downtrends.

Yet prospects for the cannabis industry remain bright, as state-by-state legalization trends continue.



But until trends turn up, there’s no urgency to buy, so our portfolio sits roughly half in cash, waiting for the upturn.



Full details in the issue.



Yours for wealth and wisdom.