Search

It’s been another sideways week in small-cap land. The S&P 600 index is essentially unchanged from last week, and despite some cross-currents under the surface, is holding firm just above 910.

Mike Cintolo explores the natural “tension” between booking profits and letting them run.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the January 2023 issue.

Our letter describes our view that 2022 was a bridge year and that we may need some or all of 2023 to complete the bridge-crossing. We also provide our outlook for the stock market, the economy and the geopolitical environment, with some caveats about forecasting and model use provided by Yogi Berra and George Box.

All-in, we see 2023 as a year with many changes but also a year in which consumers, companies and countries – amazing sources of ingenuity and resolve – work their magic to adapt to whatever curve balls are thrown at them. Our optimism is undaunted.

We also have moved our rating for Arcos Dorados (ARCO) from Hold to Sell.

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.

Some areas of the market have wobbled in recent days, and even the major indexes have stalled out a bit—but none of this looks unusual to me after such a strong 10-week run prior to this. With the trends pointed up and the vast majority of stocks in uptrends, we remain overall bullish, though we’re also keeping a close eye on all our stocks and jettisoning any where the potential has faded (we have two sells tonight).

And in their place, of course, we’re adding higher potential names. Tonight’s Stock of the Week is helping to revolutionize the advertising industry, and the stock has taken a brief rest after a powerful earnings-induced breakout nearly two weeks ago.

If you own a large dollar amount of individual MLPs, you may be best off holding them in a regular taxable brokerage account, and here’s why.

Eleven weeks off the market bottom, with the S&P 500 up 45% from its low, the news is finally getting good—which to me says that short-term, investing in stocks is likely to become a bit more challenging. That’s one reason I’m recommending selling two stocks today—and putting another two on hold.

Long-term, however, the future remains bright, especially for companies like the one featured today, which are serving global mass markets with products that they’re (literally) hungry for.



Full details in the issue.

** Because of President’s Day, our offices will be closed next Monday, February 15 — so your next Cabot Profit Booster issue will be published Wednesday, February 17.

Uncertainty is growing while the market is perched at the all-time high.

The S&P 500 soared by a remarkable 29% in just over three months. At the same time, tariffs are back and there is still a high degree of uncertainty regarding the economy.

Sure, the overall market is high. But what is true for the S&P 500 isn’t necessarily true for many individual stocks. Technology drove the S&P 500 index higher. But much of the rest of the market is well below the all-time highs. Some stocks and sectors are barely positive YTD.

Energy has lagged the market all year. At the same time, the fortunes of certain companies are improving. Natural gas volumes are growing at a strong clip as demand for electricity is skyrocketing from data centers. At the same time, overseas demand is expanding with no end in sight.

In this issue, I highlight an energy company with rapidly growing demand for its services that sells at a cheap price and pays a high yield. We don’t have to chase stock prices into the stratosphere. Let’s invest where it’s still April.

Here are two companies that fit my screening criteria for undervalued stocks with low volatility.

Markets are hoping for some sort of breakthrough from the Xi-Trump meeting on the sidelines of the G-20 meetings in Japan over the weekend. Most likely there will be some positive face-saving news with most key issues kicked down the road. The Chinese want no new tariffs and Huawei sanctions pulled back. Emerging market signal is still positive and we remain cautiously optimistic.

A theme that has emerged in the last couple of weeks is rotation out of this summer’s high-flyers and into some of the market’s biggest laggards of recent months. While this is encouraging from our perspective, especially since it bodes well for some of the turnarounds in our portfolio, it’s also a reason for embracing a measure of caution, as it shows that the broad market still isn’t firing on all cylinders.

As you read this, I am likely fortifying my house in preparation for the 400-500 Trick-or-Treaters that are sure to descend on our place in Vermont in a few hours. That’s no exaggeration – we live on a crowded street that draws kids from all over town, and even adjoining towns, trying to maximize their Halloween hauls. The 1,000 pieces of candy I buy every year and the countless ghouls, skeletons, smoke-emitting jack-o’-lanterns and giant spiders I’ve accrued the last few years to adorn our lawn are almost like an annual tax.

Living in such a bustling Halloween hotbed is fun, and it’s certainly a blast for our two kids. But it’s a lot of work, and we’re always happy when the calendar flips to November. And in that way, it reminds me a bit of the market every October.

Given the mixed evidence, we think the Model Portfolio is in a proper stance, with about one-third in cash, but also holding onto a bunch of attractive stocks that could be leaders of the next upturn.

The undercurrents we felt in the market last week bubbled to the surface this week as value-oriented sectors opened a modest performance gap as compared to growth-oriented sectors.

Today I’m putting CVS Health (CVS) and Home Depot (HD) on Hold because of the broad market, taking profits in half of our Costco (COST) position and selling half of Novo Nordisk (NVO) with plans to unload the rest in the coming days.

I’ve received a bunch of questions regarding the Visa IPO this week. Many believe, because MasterCard (MA) turned out to be such a good investment, that Visa is probably a good buy. My answer to that is ... maybe. From a technical perspective, the game plan is obvious: Do not buy the Visa IPO, but do keep an eye on the stock. If it can form a relatively tight consolidation and if the market can show real signs of turning up, then you could consider taking a position on a breakout. It takes some work, but the rewards can be worth it.

The market’s three-day rally has been solid, but even better than that has been the action of growth stocks, many of which have zoomed to new highs.