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Today’s featured companies have sturdy financial conditions and attractive valuations, with appeal to buy-and-hold investors as well as traders.

The markets eked out a positive return for the month of June, with the S&P500 returning 1.99%, capping one of the strongest quarters (+20.5%) on record. In this month’s letter, I describe a bit more about the re-opening and how it might affect the markets.

Current Market Outlook


The market had been under some pressure since early October, but last week was a different animal, with the sellers coming out of the woodwork and cracking numerous leading stocks and major indexes. Longer-term, this is still a bull market, with the past two months being a (very) tedious up-and-down consolidation period following the huge March-August advance; we still think the next major move is up. Near-term, though, stocks are back in the soup, and while the headlines will be coming fast and furiously this week (earnings and the election), the onus is on the buyers to step up. Until that happens, we advise a cautious stance—holding a good chunk of cash makes sense, while keeping new positions on the small side and honoring your stops and loss limits. We’re pulling down our Market Monitor another notch to a level 5.

Meanwhile, it’s easiest to spot strength in a down market, so the next couple of weeks should be telling. This week’s list has a broad array of stocks and sectors on it, and our Top Pick is Pinduoduo (PDD), one of many resilient Chinese names that’s actually picking up steam while the market sags.

Stock Name	Price	Buy Range	Loss Limit
Bunge Ltd (BG)	57.98	56-58.5	49.5-51
Cloudflare (NET)	51.96	49-52	42.5-44.5
Five9 (FIVN)	144.12	136-140	124-127
Martin Marietta Materials (MLM)	270.94	263-273	238-243
Mattel, Inc. (MAT)	13.95	13-13.5	11.5-11.8
Novocure (NVCR)	112.15	110-115	99-102
Pinduoduo (PDD)	91.62	86-90	77-79
Pinterest (PINS)	58.56	53-56	45-47.5
Quanta Services (PWR)	66.45	62-65	55.5-57
Ultragenyx Pharmaceutical Inc. (RARE)	95.53	90-94	83-85

The market’s action last week, while far from perfect, was about as good as you could have hoped for given the prior damage. But in our view, what happens from here will tell the true tale: The overall market’s intermediate-term trend is still down (or at least not up), and while there has definitely been some improvement, many stocks remain in poor shape—especially in growth land, where a lot of names have failed to bounce at all. To reflect the bounce, we’ll nudge up our Market Monitor to a level 6, but the bulls still have more to prove.

This week’s list is a hodgepodge of stocks and sectors, with everything from infrastructure to lumber to transportation included. Our Top Pick, though, is part of the strong networking theme and staged a powerful breakout last week.

Starting next Monday, August 31, before the market opens, the Dow Jones Industrial Average will have a new look.

Investors have started to see a cloud or two in an otherwise sunny stock market sky. We don’t focus much on short-term market moves, but we have noticed that the weather is shifting, at least slightly.

After a stunningly strong market so far this year, with the S&P 500 producing a 20% total return through Monday, the slow grind-down of most stocks since early September has seemed interminable. The 1,100 largest stocks in our 3,000-stock database have declined only 2% in the past two weeks, but the steady flow of higher inflation news, a growing likelihood of interest rate increases, a never-ending pandemic, the prospect of higher taxes of all kinds and memories of the tragic events of 9/11 makes us feel like we’re stuck inside on a cold, rainy day watching an awful four-hour movie.

This stock and its peers are experiencing a game-changing situation within its industry. The stock therefore deserves a second look by growth investors.

Traders will be happy to see this stock joining the Buy Low Opportunities Portfolio for the third time in less than a year. Let’s see if we can accomplish a trifecta!

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the February 7, 2023, issue.

We continue our mini-series on the Tech Hype Cycle and Value Investing with a look at what happens to companies after they tumble into the “Trough of Disillusionment.” We also include our perspective on the favorable earnings update from Sensata Technologies (ST).

This week, we changed our rating on State Street Corp. (STT) from Hold to Sell, and our rating on Dow (DOW) from Buy to Sell. Both are quality companies, but their shares have reached our price targets and we see no compelling reason to raise these targets.

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.

We continue to watch in amazement the values that the market puts on electric vehicle makers, with the most recent example of Rivian Automotive (RIVN). Since its IPO at $78/share, RIVN shares have doubled, making the EV company’s roughly 900 million shares worth a total of about $144 billion. This makes it the #3 most valuable car company in the world.

After eleven weeks up, the broad market has been correctingfor the past fethreew weeks, and the marijuana stocks are also in gear, totally synchronized—which is good. Bottom line, this correction provides a fine buying opportunity.

I’m taking advantage of this opportunity to average up in Canada’s leading producer, Aphria (APHA). And I’m sticking with all the other portfolio stocks because I truly think we have a portfolio that will thrive as this industry matures.



Full details in the issue.

This morning’s market crash will go down in history as a big one—biggest by point drop and one of the biggest by percentage drop. But this is no time to panic. Instead, it’s time to recognize that the market is increasingly offering its wares at bargain prices, and all you need to do is have cash on hand when the climate improves.
For our portfolio, that means selling one more stock today, Endava (DAVA).
In the meantime, Cabot analysts continue to find stocks that are attractive for one reason or another and today’s featured stock is one of them—a leading chipmaker with great prospects as the world goes increasingly online and digital.

Full details in the issue.

When I do research for this weekly update, I review the consensus earnings per share (EPS) estimates for each portfolio stock. The consensus estimate represents the average of all the estimates of the Wall Street analysts who do research on the company. This past week, estimates surged more than I’ve ever seen, involving a majority of our portfolio stocks, and involving much more than the typical one- or two-penny per share increases.

The market as a whole is now eighteen trading days into a consolidation process, as the major indexes hold above their January 22 lows. However, we still haven’t seen enough strength to conclude the trends have turned up, and that’s why our market monitor above remains tilted into the bearish camp. However, among individual stocks, there are a few (not a ton, but a few) emerging signs of strength. Some growth stocks are acting better, but if this market gets going to the upside, the real leadership is likely to be found in commodity and inflation-related stocks – gold, silver, steel, coal, oil, natural gas and the like. So that’s where your focus should be. This week’s Top Ten contains many familiar names, including six commodity-type stocks. Our favorite is Cleveland-Cliffs (CLF), a maker of iron ore pellets. You could buy a little here, but be aware that earnings are due out Thursday night, which will cause volatility.

Stock Name	Price	Buy Range	Loss Limit
CALM (CALM)	0.00	28-32	-
CLF (CLF)	0.00	100-112	-
CMED (CMED)	0.00	46-51	-
CMO (CMO)	0.00	14-16	-
COG (COG)	0.00	42-45	-
FDG (FDG)	0.00	44-47	-
ILMN (ILMN)	0.00	66-72	-
KGC (KGC)	0.00	21-23	-
MTL (MTL)	0.00	95-105	-
WMS (WMS)	0.00	37-39	-

It’s been a fun, interesting and profitable year for readers of Cabot Top Ten Report, and it would be easy to recap the highlights … like Baidu, First Solar, Intuitive Surgical and Research in Motion. But you’re not paying us to look back, you’re paying us to look ahead. So here’s what this week’s stocks tell us we should watch going forward. First is the trend toward solar power; investors in these stocks are looking for major revenue and earnings growth in the years ahead. Second is the strength of commodities; from coal to steel to silicon, basic materials are getting more expensive … and profitable. Third is the continuing strength of well-managed foreign companies. Part of their appeal comes from a weak dollar, but the bigger and more important part comes from the greater growth opportunities in developing countries. You’ll find three stocks in this category in this issue; our Editor’s Choice today is good old Baidu, the Google of China. The stock has been knocking on the ceiling at 400 for two months and we’re confident it will break through eventually.

Stock Name	Price	Buy Range	Loss Limit
BIDU (BIDU)	0.00	360-400	-
BUCY (BUCY)	0.00	93-98	-
ENER (ENER)	0.00	30-33	-
JASO (JASO)	0.00	60-70	-
MA (MA)	0.00	200-220	-
MBT (MBT)	0.00	88-98	-
MELI (MELI)	0.00	70-75	-
MICC (MICC)	0.00	115-122	-
SID (SID)	0.00	85-90	-
WFR (WFR)	0.00	78-86	-

Investors came back from the holidays in a selling mood last week, driving the indexes and leading stocks sharply lower. And while everyone hopes that this is the final push lower before the bulls truly re-take control, the fact is nobody knows what the future holds. What we do know is that the sellers are punishing most stocks, and the narrow list of leaders that were holding up are now going along for the ride. Conclusion: You should be playing defense, mostly sitting on the sideline and waiting for the storm to pass. As for new buying, a small buy or two is still OK, especially in areas that are actually pushing ahead during this down market. This week’s Top Ten, for instance, features many commodity-related names to examine. Our favorite is Barrick Gold (ABX), which spiked to new peaks last week on its biggest volume in years, as institutions anticipate more good times for gold prices as the Fed cuts rates and the U.S. dollar sinks. It’s worth a nibble here.

Stock Name	Price	Buy Range	Loss Limit
ABX (ABX)	0.00	45-49	-
ADM (ADM)	0.00	41-46	-
ATW (ATW)	0.00	90-100	-
BMRN (BMRN)	0.00	33-36	-
CMED (CMED)	0.00	43-48	-
CTCM (CTCM)	0.00	26-30	-
FCN (FCN)	0.00	57-60	-
MON (MON)	0.00	110-115	-
MTL (MTL)	0.00	85-95	-
UTHR (UTHR)	0.00	100-105	-

Last week has the potential to be a landscape-changing week for the market, as the major indexes performed well and, more importantly, leadership quality stocks displayed bullish action. That’s the main reason our Market Monitor above is tilted toward the bulls. Of course, it’s just one week, and nobody who studies the market can declare with certainty that the bear market is over. But it’s all about progress, and last week was a big step in the right direction. This week’s Top Ten remains heavy in energy and commodity stocks, but OptiMo (our screening system) turned up many more candidates than in weeks past; should the market continue higher, we expect many of the leaders to be featured right here in the weeks to come. Our favorite of the bunch is Exco Resources (XCO), a little known energy firm that’s showing tremendous accumulation as prices escalate. Try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
FSLR (FSLR)	0.00	250-270	-
FST (FST)	0.00	52-56	-
LUK (LUK)	0.00	48-53	-
MEE (MEE)	0.00	44-47	-
MMR (MMR)	0.00	18-20	-
MOS (MOS)	0.00	112-120	-
RYL (RYL)	0.00	34-37	-
SCHN (SCHN)	0.00	75-79	-
XCO (XCO)	0.00	17-19	-
XEC (XEC)	0.00	53-57	-

We knew a correction was on the way, and the market delivered it last week. The major indexes still look fine, but we’re a bit wary of the action of leading stocks—even in recent days when the indexes are up, most leaders are dropping. That doesn’t mean the bull move is over, but as you can see in our Market Monitor above, we’d cool our heels a bit; don’t hesitate to take a few chips off the table, and remember to cut all losses short. As for buying, we believe this week’s list offers many of the top leaders in the market in various sectors. Not all are near good buy points, but any further weakness should bring them there soon. Our favorite of the week is Hercules Offshore (HERO), a shallow-water driller that has recently emerged from a tight consolidation. We do feel that many energy names can pull back, but HERO should pull back less than most.

Stock Name	Price	Buy Range	Loss Limit
ANR (ANR)	0.00	60-66	-
CLF (CLF)	0.00	87-97	-
CLR (CLR)	0.00	53-57	-
ENER (ENER)	0.00	45-54	-
FRO (FRO)	0.00	58-64	-
HERO (HERO)	0.00	32-34	-
MMR (MMR)	0.00	28-32	-
SOHU (SOHU)	0.00	70-76	-
SU (SU)	0.00	66-70	-
X (X)	0.00	160-170	-

As we come to the end of a difficult year for marijuana stocks, it’s worth remembering that the best buying opportunities occur when the picture looks gloomiest; perhaps we’re there now, because the stocks look pretty bad, even though the fundamentals of the industry are terrific!





If so, our portfolio is well positioned to benefit, as we own all the leading companies in the industry, as well as a few more conservative peripheral stocks for diversification.





This week’s issue brings one small change, the addition of well-known ScottsMiracle-Gro, which is currently trading 37% off its high.





Full details in the issue.

Nobody has missed their chance to buy low and catch a long overdue run-up in some great stocks. There are lots of great opportunities listed in this week’s update.

Here in New England, the weather can change quickly. A sunny morning can seemingly without warning turn into a rainstorm by the afternoon. Not that long ago, we had three seasons in a single day – snow in the morning, followed by rain, then summer-like temperatures by three in the afternoon. There’s an old saying, “If you don’t like the weather, wait a few minutes.”