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The bull market keeps rolling along, though both the Fed and a busy, star-studded earnings slate could provide a couple speed bumps this week. Still, I wouldn’t bet against this market right now, at least not in the intermediate or long term, so today we’re adding another high-upside pick. It’s a mid-cap software stock that’s trading well below its post-IPO highs, but that has built up a full head of steam the last two-plus months. It’s a new addition from Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

As value/contrarian investors, we have little interest in accepting the market’s wisdom. Some might say that we have little ability to accept the market’s wisdom, which is probably what distinguishes us from other investors (and academics) that accept such guidance.

We’ll quote Warren Buffett, founder and head of Berkshire Hathaway, who wrote in his 1987 letter to shareholders, “Mr. Market is there to serve you, not to guide you.” By this, he means that the stock market’s inability to make accurate predictions should help investors make money. And that these predictions shouldn’t provide guidance on how to invest, given that they are so often wrong.

It seems like only yesterday when winter/spring faded and summer rolled in. Our kids wrapped up their classes, reminding me of Alice Cooper’s timeless classic “School’s Out.” As Van Halen wrote, “Summer’s here and the time is right, for dancin’ in the streets.”

The stock market did some sweet dancing with an 11% surge from Memorial Day through early August. Unlike the cold, narrow winter at the start of the year, in which seemingly only the Magnificent Seven stocks ran higher, most stocks thrived in the summer sun. From the official start of the season, the average stock in the S&P 500 sprouted a 10% gain.

Stocks are the highest they’ve been since last summer, and with the debt ceiling in the rear-view mirror and the Fed sounding less hawkish these days, it’s possible they could keep rising as we enter Summer 2023. One sector that’s been unstoppable of late is artificial intelligence, so today we add some more AI exposure, which has already served us well with the performance of Microsoft (MSFT). The new addition is a lesser-known name but is equally red-hot. Mike Cintolo recently recommended it to his Cabot Top Ten Trader audience.

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

Last night at Hollywood’s Academy Awards, the movie “Everything Everywhere All at Once” won the award for best picture, long considered the top prize of the event. It also won six other coveted Oscars. The movie, ostensibly, is a science fiction film about alternative realities and an everyday laundromat owner.


For investors, the movie is immediately elevated to mandatory viewing – the title applies directly to what is going on in “this here” in “this now” in today’s capital markets.

Many of our portfolio stocks either just completed a run-up or they’re trading sideways in synch with the S&P 500 index. A couple of them look capable of continuing their run-ups this week, and cruise company stocks also appear ready to climb. However, the stock that seems most obviously ready to rise is Johnson Controls (JCI) in the Buy Low Opportunities Portfolio.

This month we’re jumping into a little-known company that makes and sells pop culture products.

It’s sort of an odd duck, but when you dig below the surface you find compelling products and interesting market exposures, including to the nascent Non-Fungible Token (NFT) market, which has exploded in trading value over the last year.



Revenue growth is above 30%, and the chart is strong.



Enjoy!

There’s a lot of talk about the Federal Reserve potentially increasing the Fed funds rate in June or July. Such a move would be positive for most financial stocks because they’d earn increased fees on their customers’ deposits, thereby boosting EPS. There are two financial stocks that are affected by rising interest rates in the Cabot Undervalued Stocks portfolios: E*Trade (ETFC) and Federated Investors (FII)

The stock market correction came and went rapidly in recent weeks! Granted, stocks are not done bouncing around yet, and a few sectors are lagging the broader market, including energy and healthcare.

The cannabis sector remains in a correction, with both marijuana and CBD stocks trending lower, giving up some of their early-year gains—and perhaps building a bottom here.

In the meantime, more and more peripheral companies are getting in on the action, and we have been increasing our exposure to these in recent weeks while still holding substantial cash.

This week we’re selling one more of the pure-play marijuana companies, raising the portfolio’s cash level to about 27%.

Full details in the issue.

The major indexes continue to hit new highs, all Cabot’s market timing indicators remain positive, and our portfolio is solid, with no particular worry spots today.

Of course, that will change, and when it does, we will adjust our stance, but there’s no predicting where the trouble will come from, so for the moment we’re standing pat with our portfolio, making no changes.

As for today’s new recommendation, it’s in a traditional industry, but growing fast thanks to acquisitions—and on a pullback right now that offers an attractive entry point.

Details in the issue.

Short-term, the market remains under pressure, notwithstanding today’s strength, so certain defensive measures remain appropriate. But long-term, the market’s main trend remains up, so I don’t recommend any wholesale changes, just minor fine-tuning.

Today, that involves upgrading one strong stock to buy, while selling two stocks that have weakened in face of growing fears of tariffs on China.

As for today’s new recommendation, it’s a high-risk stock with great long-term potential—if we can just get on board at the right time! Details in the issue.

Over the past few weeks, the market has given us a bunch of presents—and now the market is trying to take some of our presents away. But this should come as no surprise. The only “surprise” is what excuse the media finds to pin the blame on, whether it’s China or Russia or Italy or interest rates or Trump or simply an economy that’s too good to last.
I’ll leave the finger-pointing to someone else. Instead, I’ll keep picking high-potential stocks and managing the portfolio to maximize gain and minimize risk.

Last week I downgraded four stocks to Hold, and this week I recommend selling two—one for a fat profit and one for a quick loss. Still, because I keep adding a new stock every week, that leaves nineteen stocks in the portfolio, and most of them are acting very well!

As to this week’s recommendation, it’s a real wild card, a recent Chinese IPO that has been spun off from one of the big Chinese leaders. Risk-averse investors might want to give it a pass, or at least wait until there’s an established uptrend, but if you can handle the risk, buying down here might work out really well!

The market’s main trend remains up, with many major indexes hitting new highs in recent days—and many of our stocks doing the same. Those are the stocks you should hang onto tightly—because there’s no telling how far they’ll run.