Search

Earnings season has arrived in full force. So far, cyclical companies are rallying and technology is faltering, just like before earnings.

Big tech earnings have been mixed so far, with more to come this week. Investors so far haven’t seen enough to change their view that AI investment is too high while revenues have not soared enough yet. That attitude could change soon or endure for a while longer. But AI will be back in favor at some point.

With the current earnings season more than halfway complete for S&P 500 companies, a clearer picture of the overall corporate health backdrop is beginning to emerge.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the September 2020 issue.

With earnings season mostly completed, the markets have drifted upwards in the waning days of this otherwise unusual summer. Some splashy IPOs and stock splits have provided some excitement, but the bigger and more enduring news came from the Fed’s official change in its priorities. We discuss our thoughts on this shift in the letter.



We also introduce price targets for several recommended stocks. Over the next few weeks, we will provide targets for the remaining stocks and all newly recommended stocks. Price targets help stay the course when our stocks weaken on noise, and provide a tangible exit point. The assumptions behind the price targets provide a roadmap to gauge the company’s recovery process.



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.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

For the first time since the summer began, the market is faltering. The rally that thrust the S&P 500 60% higher in little more than five months is cracking.

The end of summer is being greeted by cranky investors who see a market that has run up to new all time highs despite the risks of Covid and the election. Of course, a huge rally of this magnitude needed a breather. The pullback is normal, healthy and overdue.



It is impossible to say how far stocks will fall. But, unless there is some very bad news, I don’t expect a prolonged or deep selloff. The market is still looking ahead to a positive environment where the pandemic is fading away and the economy is quickly recovering.



In this uncertain environment, I found a rare stock. It is a company that benefits from the undeniable trend toward technological proliferation. It has solid earnings growth and stock performance. But it provides these benefits with remarkably low volatility.



The stock is off the high after a rare pullback and selling at a cheap price. Historically, it has less than a quarter of the volatility of the overall market. It’s a great forward-looking investment for this uncertain environment.

The past month has been very profitable for investors in the sector, as stocks rallied off their December lows and climbed strongly through January, with several hitting new highs as I write. In general, I recommend that you enjoy the trend; the long-term prospects remain bright.

But short-term, there are opportunities for fine-tuning and risk reduction, and thus I have a few recommended changes in today’s issue, as well as one new addition, a company thriving in the booming CBD market.

When market pundits toss about terms like “growth stocks” and “value stocks,” it seems as if they’re saying “companies that are growing” vs. “companies that are not growing,” so we sugar-coat these companies and pretend that they have ‘value.” That’s not really what “growth vs. value” means!

Note: Due to the Presidents’ Day holiday, when the stock market is closed, your next issue of Cabot Stock of the Week will be published on Tuesday, February 22.
This week’s stock comes from a recent issue of Cabot Top Ten Trader, which is always on top of the market’s strongest stocks—recently has included a lot of energy and financial stocks. This is one of them.



As for the current portfolio, we come into this week holding 16 out of a possible 20 stocks, and …


Details inside.

Recent crosscurrents in the market have seen changes among sector leadership, and today we have a broad selloff, but overall, the main trend of the market is up and thus I continue to recommend that you be heavily invested.

Today’s recommendation is an attempt to benefit from sector rotation, by targeting a sector that’s still down; if the sector turns up soon, today’s buyers should profit handsomely.



As for our current holdings, two stocks are upgraded to buy today, while two are downgraded to sell as we cut our losses short. The adage that applies: There’s nothing wrong with being wrong; what’s wrong is staying wrong.



Details inside.

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock provides a cloud-based service that has been in great demand through the pandemic and will continue to grow in popularity as the world’s business becomes more virtual.



As for the current portfolio, all our stocks look good, so there are no sales, just one simple downgrade to Hold.



Details inside.



Lastly, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible lineup of experts ready to share their best picks.

The market’s divergent behavior continues, with small growth stocks in particular suffering, but there are still attractive investments, and for investors looking for something in the electric vehicle sector, today’s recommendation is one of them.

As for the current portfolio, I have two sell recommendations, both small, lightly traded stocks that are losing support.



Details inside.

While there are still symptoms of a broad unfolding market top, and the market as a whole is soft today, the main trend is still clearly up and thus I continue to recommend you be substantially invested.

In fact, in our recommended portfolio all our stocks look fine; there are no recommended changes today.



As for today’s recommendation, it’s a technology company that’s a household name, but still small enough to grow very fast.



Details inside.

Almost everywhere in the mainstream media and across most Wall Street research firms, there is a common implication that a recession will bring a bear market for stocks.

The S&P 500 Index and the Dow Jones Industrial Average began new run-ups yesterday, while the NASDAQ Composite Index continues its uptrend. I’m glad that investors are continuing to make money during this market rebound.

This past weekend I attended the company’s annual shareholder meeting in person in Omaha. While the online viewing of Warren and Charlie’s commentary produces many tangible take-aways (which can be found on a wide variety of media outlets), it was the intangibles – obtained only from being there in person – that provided the incremental value.

It’s ugly out there, as virtually everything has been caught up in the merciless selling the last couple weeks. As a result, we are parting ways with three more stocks this week before their losses become even bigger. But we’re not completely battening down the hatches: Today’s addition to the Stock of the Week portfolio is a small-cap growth stock courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon. It’s not a household name, but it’s growing fast by taking full advantage of the return to relative normalcy in a post-Covid world.

Details inside.

The market continues to retrace its steps back toward mid-summer lows, but not all stocks are suffering. Renewable energy names, including several in the Stock of the Week portfolio, are holding up quite well thanks in large part to lingering good vibes from the passage of the Inflation Reduction Act. So we’re not fighting the tape – today, we’re adding another clean energy stock to the portfolio, recommended by our Greentech expert, Brendan Coffey.

Details inside.

Dog days of August, indeed! The market’s late-summer swoon continues, but that doesn’t mean the bull market party is already over; the power simply went out and we’re waiting for the generators to bring it surging back to life. In the meantime, opportunities to buy good companies at discounted prices abound. With that in mind, today we add a former market darling that fell on very hard times in 2021 and 2022 but is having a solid 2023, with even better growth likely to return in 2024 as the Fed is poised to (likely) cut sky-high interest rates next year. It’s a new addition from Cabot Early Opportunities Chief Analyst Tyler Laundon.