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Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 2023 issue.

The attention of most investors, commentators and analysts has been on the winners, notably the Magnificent Seven, driving this year’s stock market rally. As contrarians, we are fine with letting a few overpriced trendy stocks capture the spotlight. One place that draws our attention is the other end of the spectrum – those with the worst performance. While most of these stocks fully deserve the market’s dour judgment, some have favorable changes underway. We look into four large and mid-cap stocks that fit this description and one that does not. We also discuss a tactic to help improve one’s success in investing in out-of-favor stocks.

Our feature recommendation this month is Advance Auto Parts (AAP), one of the four major auto parts retailers. The shares have fallen sharply out of favor, but a comprehensive and much-needed overhaul is now starting.

We also include our recent Sell recommendations: Toshiba (TOSYY), Holcim AG (HCMLY), First Horizon (FHN) and ESAB Corporation (ESAB), and our suspension of our rating of shares of Kopin Corporation (KOPN).

Current Market Outlook


Last week made it five weeks up in a row for the major indexes, which keeps the intermediate-term trend solidly up. Moreover, the broad market is now clearly healthy, with many stocks and sectors showing excellent accumulation. All of that is why we’re nudging up our Market Monitor another notch; you should probably be more invested than not, given the evidence. However, we’re going to stay in the upper reaches of neutral until we see growth stocks get going—many of them are set-up nicely, but until they actually break out (and until the market’s longer-term trend turns up, which it has yet to do), it’s best to keep some powder dry.

This week’s list has a strong flavor of industrial and cyclical stocks, though many have excellent earnings estimates so they aren’t pure turnarounds. Our Top Pick is HD Supply (HDS), which has surged higher after a big correction, and is likely to post humongous earnings and cash flow growth in the quarters ahead.

Stock Name	Price	Buy Range	Loss Limit
Whirlpool (WHR)	0.00	168-173	153-155
Trex Company (TREX)	117.56	43.5-45.5	40.5-41
Reliance Steel & Aluminum Co. (RS)	117.45	66-69	60.5-61
HD Supply Holdings, Inc. (HDS)	0.00	30-31.5	27.5-28
Hawaiian Holdings Inc. (HA)	0.00	44-46	39-39.5
Dollar Tree (DLTR)	0.00	81-84	75-76
Communication Sales & Leasing (CSAL)	0.00	20.5-21.5	18.5-19
Cirrus Logic Inc. (CRUS)	0.00	34-36	32-32.5
Copa Holdings (CPA)	0.00	65-68	60-61
Adobe Inc. (ADBE)	315.23	90-93	84-85

Current Market Outlook


We always strive to go with the evidence the market has presented. Right now, just about all of it is bullish: The intermediate- and longer term trends are up, the broad market is in terrific health (new highs are expanding while new lows are minuscule), we’ve seen some rare, powerful blastoff indicators flash (which almost always portend solid gains in the months ahead), leading stocks are perking up and many investors remain on the sideline. Obviously, a pullback could occur at any time, and earnings season is sure to create some potholes among individual stocks.

But overall, the path of least resistance is up, so we’re pushing our Market Monitor further into bullish territory. This week’s batch of stocks includes many that report earnings within a few days, which makes buying a bit tricky. For our Top Pick, we think a small position in Masco (MAS) can work—it’s shown great power, has buoyant earnings estimates and is part of the newly-strong housing group.

Stock Name	Price	Buy Range	Loss Limit
Zendesk (ZEN)	82.19	27-28.5	25-26
Tahoe Resources (TAHO)	0.00	15-16	13-13.5
Dave & Buster’s (PLAY)	57.01	46-48	42-43
Nucor Corporation (NUE)	66.20	55-56.5	50-51
Match (MTCH)	0.00	15.5-16.5	14-14.5
Mobileye N.V. (MBLY)	0.00	46-48	41-42
Masco (MAS)	0.00	33-34	31-31.5
EBIX Inc. (EBIX)	0.00	51-53	48-49
ServiceNow (NOW)	341.86	19.5-20.5	17.5-18
CBM (CBM)	0.00	54-56	48-49

Current Market Outlook


Last night, the headlines blared that there was no deal among Middle Eastern countries to curtail oil production, which led to a big overnight move down in oil prices and threatened to take a chunk out of major stock markets. Today, though, the reaction was fine—stocks actually rose on the day while oil prices declined only modestly. It’s not just a good lesson (pay attention—not to the news—but the market’s reaction to the news!), but also a good sign that the general market can shrug off “bad news” and continue along its way. More important will be earnings season, which will pick up steam in the days ahead. Right now, we continue to lean bullish and will be watching earnings reactions closely—how stocks react to their reports will be very revealing.

This week’s list has a mix of old world stocks (housing, construction, precious metals) and growth-oriented stocks (retail, technology). Our Top Pick is Adobe Systems (ADBE), a big-cap growth stock that has a great story and looks poised to break out.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	52-54.5	49-50
Whirlpool (WHR)	0.00	180-183	166-167
Weibo (WB)	98.16	20.5-21.5	18-19
U.S. Concrete (USCR)	0.00	61-63	55-56
Steel Dynamics (STLD)	0.00	22-23	20-20.5
Universal Display (OLED)	187.54	58-61	53-54
KB Home (KBH)	36.05	13.5-14.5	12.5-13
Kate Spade & Company (KATE)	0.00	23-24.5	21-21.5
Agnico Eagle Mines (AEM)	79.05	38-39.5	35-36
Adobe Inc. (ADBE)	315.23	94-97	87.5-88

Current Market Outlook


After five straight weeks on the upside, the major indexes have retreated mildly in recent days, keeping the intermediate-term uptrend firmly intact. Going forward, the key will be how the market handles itself during any further weakness—if dips are modest and lead to renewed upside (especially with growth stocks beginning to hit new highs), then a legitimate bull phase will likely be in place. If the selling pressures intensify and the major indexes sink, that would obviously tell you the opposite. Right now, given the evidence, we remain optimistic, but not fully bullish, until the longer-term trend and growth stocks kick into gear. We’ll be watching for it.

This week’s list is again heavier on commodity and turnaround ideas than true growth stories. Our Top Pick is Wynn Resorts (WYNN), which has bottomed out and begun a new advance, bolstered in part by a new resort opening in Macau later this year.

Stock Name	Price	Buy Range	Loss Limit
Wynn Resorts (WYNN)	121.08	87-91	79-80
Proto Labs (PRLB)	0.00	73.5-76.5	68-68.5
Parsley Energy (PE)	0.00	20-21	18-18.5
Nucor Corporation (NUE)	66.20	44.5-46	41.5-42
NCR Inc. (NCR)	0.00	27-28	24-24.5
Mellanox Technologies (MLNX)	92.00	52-54	47-48
Inphi (IPHI)	120.16	31.5-33	29-29.5
Barrick Gold (GOLD)	27.20	86-89	80-81
Finisar (FNSR)	0.00	17-18	15-15.5
FedEx (FDX)	0.00	156-160	146-148

Current Market Outlook


The market hit some resistance during the past two weeks, with 2,070 or so on the S&P and 4,900 on the Nasdaq repelling recent advances, and with many individual stocks hitting potholes. While there are still some things missing from the rally (namely, new highs outside of the “yield” stocks and sectors), to this point, the selling is normal given the huge February-March advance and the fact that earnings season is approaching. Some further retrenchment, which could go along with a scary headline or two, would probably be good for the market in the long run. So far, though, we remain more bullish than not, and we’re pleased to see some early earnings winners emerge.

This week’s list has a handful of those winners, though for our Top Pick, we’re delving into the precious metals sector—AngloGold (AU) is under extreme accumulation, bursting to new highs as the gold stocks resume their advance. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Tesla, Inc. (TSLA)	818.87	245-255	225-227
Silicon Motion (SIMO)	0.00	36-38	33-34
Ollie’s Bargain Outlet (OLLI)	103.94	23-24.5	21-21.5
Newmont Mining (NEM)	57.31	28-29.5	25-26
Ligand Pharmaceuticals (LGND)	267.14	110-114	100-102
Global Payments Inc. (GPN)	0.00	70-72	63-65
Five Prime Therapeutics (FPRX)	0.00	41-43	37-38
Edwards Lifesciences (EW)	228.06	101-105	92-93
Acuity Brands (AYI)	0.00	240-250	215-220
AngloGold Ashanti (AU)	20.45	14-15	12.5-13

Current Market Outlook


The market’s action last week—three days up and two days sideways in the S&P 500 and a run to new highs by the Nasdaq—looks excellent, and we think it’s time to put a little more of your sidelined cash to work. Yes, it’s a light-volume summer rally and earnings season will provide plenty of landmines to go along with the blastoffs, so we’re not advising going all in. But given last week’s early progress and stubborn refusal to give any of its advances back, we will bump our Market Monitor up by one step, putting it in the green. As always, we will listen to what the market tells us from here.

This week’s list has a couple of newcomers, including one of three Chinese stocks that have been making great strides. A few stocks with long Top Ten histories also made the grade. Our Top Pick is a Chinese retailer, JD.com (JD), that’s growing revenue at a blazing rate.

Stock Name	Price	Buy Range	Loss Limit
ASML Holding (ASML)	350.01	147-151	136-138
Huazhu Group (HTHT)	30.89	89-93	82-85
JD.com (JD)	39.58	41.5-43.5	38-39
JinkoSolar Holding (JKS)	0.00	26-27.5	24-25
Littelfuse (LFUS)	0.00	177-182	169-173
Netflix, Inc. (NFLX)	423.92	182-188	168-173
NRG Energy (NRG)	0.00	23.5-25	20.5-22
TD Ameritrade (AMTD)	0.00	45-46.5	42-43
Vertex Pharmaceuticals (VRTX)	230.36	152-160	140-145
Workday (WDAY)	194.88	101-104	93-95

Current Market Outlook


On an intermediate-term basis, the overall market remains stuck in the middle—many areas are still looking ragged, and most major indexes are hanging around their 50-day moving averages. Our screens this weekend did reveal a number of solid five- to six-week setups among growth stocks, as well as lots of solid action in other areas that have recently come to life. If the market gets going from here, there should be plenty of stocks to jump on. We’re not opposed to buying small amounts of a couple of these potential leaders today, but until we see more than just a day or two of rallying, you should play things carefully. We have our Market Monitor at a level 6 (out of 10), and will simply let the market tell us (through its own action) whether the next big move is up or down.

In the meantime, we’re laser-focused on stocks that have either just blasted out of bases or uptrending stocks that have resisted the Nasdaq’s wobbles since early June. Our Top Pick is Medidata Solutions (MDSO), which remains in good shape after lifting from a two-year base in April. Keep positions small.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	254.81	138-144	125-130
Align Technology (ALGN)	316.20	145-150	135-137
American Airlines Group Inc. (AAL)	0.00	51-53	46-47.5
Exact Sciences (EXAS)	116.91	35-37	31.5-32.5
First Republic Bank (FRC)	0.00	100.5-103.5	96-96.5
Medidata Solutions (MDSO)	0.00	77-80	71-72
Puma Biotech (PBYI)	0.00	82.5-87	74-76
RingCentral (RNG)	238.73	35.5-37.5	33-34
Tesoro (TSO)	0.00	92-95	87-88
WellCare Health Plans, Inc. (WCG)	271.83	177-181	166-168

Current Market Outlook


Following last week’s selling storm, today’s big rebound was encouraging; three of the five major indexes we track (S&P 500, Nasdaq, NYSE Composite) bounced back above their 50-day lines today, and many leading stocks did the same. Ideally, last week’s decline, which was spurred on by obvious news (North Korea), was a sharp shakeout that cleared the decks and set the stage for a new upmove. But we’ll need to see more evidence before going there. As we stand now, the intermediate-term trend is sideways-to-down, and many stocks have either cracked or are testing support. There’s no need for wholesale selling, but we are knocking our Market Monitor down a notch; you should keep new positions on the small side and honor your stops until we see further evidence that the bulls are back in control.

This week’s list does have a bunch of good growth stories, which is encouraging after the recent selling. We’re going with Vantiv (VNTV) as our Top Pick—it’s not the most volatile stock, but it just blasted out of a long period of lackluster action following a game-changing acquisition.

Stock Name	Price	Buy Range	Loss Limit
Autohome (ATHM)	98.65	57-62	51-56
CBOE Holdings (CBOE)	0.00	93.5-96	88-90
Chegg (CHGG)	74.21	14-15.5	12.5-13.5
Exelixis (EXEL)	27.35	25-27	23-24.5
Planet Fitness (PLNT)	0.00	23.8-24.8	21.8-22.5
Royal Gold, Inc. (RGLD)	129.66	83-86	75-77
Take-Two Interactive (TTWO)	123.32	85-89	79-81
Teledyne (TDY)	0.00	143.5-147	136-138
Trade Desk (TTD)	468.02	51-55	46-48
Vantiv (VNTV)	0.00	67.5-70	62.5-64

Current Market Outlook


The repeated bouts of heavy-volume selling have driven the major indexes below their key 50-day moving averages, and that’s a clear sign that the bulls are not in control. We’re moving our Market Monitor down to a level 5 and advise you to hold a good chunk of cash on the sideline, cut back on new buying (keep any new positions much smaller than normal) and honor your stops. None of this is to say that we’re bearish—it’s certainly possible the market snaps back, as there’s plenty of pessimism and many liquid leaders are holding up well. But after weeks of sloppy action and distribution, the odds favor further downside in the near-term, and we’ll need to see a few strong days before concluding the overall uptrend is resuming.

This week’s list, though, has a bunch of resilient growth-oriented names, which is encouraging. Our Top Pick is DXC Technology (DXC), which is the product of a recent merger and sports giant cash flow.

Stock Name	Price	Buy Range	Loss Limit
Abiomed (ABMD)	0.00	148-152	139-141
Alibaba (BABA)	254.81	156-166	145-150
DXC Technology (DXC)	0.00	82-84	76.5-78
Insulet (PODD)	175.69	52.5-54.5	48.5-50
Kite Pharma (KITE)	0.00	120-127	105-109
Realpage (RP)	0.00	40-42	37-38
Red Hat (RHT)	0.00	99-102	94.5-95.5
Salesforce.com (CRM)	0.00	89.5-92	84-85
Stamps.com (STMP)	0.00	198-210	177-184
Weibo (WB)	98.16	85-89	77-79

Current Market Outlook


The S&P 500 and Nasdaq came into last week perched just under major resistance levels. But despite the prior run-up, weak opens on every day of the week and the poor jobs report on Friday, the market couldn’t pull back! Of course, the indexes still aren’t free and clear, and there are many uncertainties out there including the Fed’s next move and the upcoming EU vote in Britain, so we can’t rule out another retreat. But the market’s resilience thus far and the improved action from many leading stocks bodes well. We’re keeping our Market Monitor in bullish territory—a breakout on the upside (with many more stocks hitting new highs) would prompt us to lean toward a fully invested posture, while a dip of a few percent would have us paring back again.

This week’s list has many enticing selections, but we’ve selected an energy stock for our Top Pick. Continental Resources (CLR) has the acreage to crank out huge profits if oil prices creep higher, and the stock has tightened up nicely after a big run. Start with a small position and add to it as it rises.

Stock Name	Price	Buy Range	Loss Limit
Zendesk (ZEN)	82.19	24-26	23-23.5
Zillow (Z)	76.64	29-30.5	25-25.5
UnitedHealth Group Inc. (UNH)	0.00	133-136	125-126
Ulta Beauty (ULTA)	331.95	227-234	208-211
Tata Motors Limited (TTM)	0.00	32-34	29-30
Steel Dynamics (STLD)	0.00	24.5-25.5	22.5-23
Sanmina (SANM)	0.00	26-27	24-24.5
Continental Resources (CLR)	66.19	40.5-43	37-37.5
Big Lots (BIG)	43.12	50-53	46-47
Broadcom Limited (AVGO)	266.26	158-162	148-150

For most people, investing during a bear market is a frustrating experience. Share prices keep going down, profitable positions erode in value, new purchases become money-losers. Short upward bursts in market sentiment bring hope for a new bull market, but these fade quickly. The temptation is to sell everything and wait for better times.

Last week, we rolled our valuation and earnings estimate table forward by a year, dropping the 2022 estimates and adding the 2024 estimates.

Following our demoralized and never-changing, four-word question of “are we there yet” came worthless responses like “soon enough,” or “sometime later,” “we’re getting closer.”

One of the immutable laws of technology investing is that all tech stocks go through the Hype Cycle. Well over a century ago, leading-edge tech stars like railroads went through their boom-and-bust phases. The 20^th century included the notable enthusiasm-and-disillusionment in radio, television, automobiles, copy machine and IBM (its own industry for years) stocks, ending with the exceptional dot-com bubble.

Highly regarded technology research and consulting firm Gartner plots this hype arc in their chart, below. While the rise and fall, and time length, are different for each stock and industry, the chart effectively captures the changes in investor mindset through the cycle. Changes in the investor mindset invariably drive changes in tech stock prices.

The markets traded sideways through most of April. But since then, the choppiness has returned—along with worries about the uncertainty regarding the debt ceiling, the expiration of the immigration-limiting legislation, and ongoing debate about the possibility of a recession.

Yet, economically speaking, the trends are still healthy. Manufacturing has held up, employment continues to rise, and job openings are still underutilized (as you can tell if you’ve been in a restaurant lately!).

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the February 2024 issue.

This issue focuses exclusively on spin-offs and discusses seven attractive and relatively recently spun-off companies.

This month’s Buy recommendation, Baxter International (BAX), a major producer of medical equipment and hospital supplies, is involved in a spin-off. In this case, it is the parent company of an upcoming spin-off. The transaction, along with fundamental improvements and a long-time low share valuation, makes Baxter shares attractive.

A Midsummer Night’s Scream? That’s what the second half of July has felt like, with stocks (especially tech stocks) plunging and volatility exploding. Now comes another week of Fed speak and massive earnings reports, so don’t expect the choppy waters to settle just yet. But it’s important to remember that it’s still a bull market, and for a variety of reasons, I think the selling will be short-lived. So, today we’re taking another big swing by adding a recent IPO recommended by Mike Cintolo. If you’ve gone to Europe in the last two to three years, it’s possible you’re quite familiar with this company.

Details inside.

Jerome Powell went full Grinch last week, sparking a brief market selloff after saying the Fed would cut rates at a slower pace than expected in 2025. Prior to that, there were some obvious cracks beneath the market’s surface, so Powell’s downer of a press conference served more to expand the selling than cause it. But the nice rebound in the last two trading days shows the bulls are still mostly in charge, which means it’s a good time to add a mid-cap water stock that Tyler Laundon just introduced to his Cabot Early Opportunities audience.

Details inside. Happy Holidays!

Current Market Outlook


The market began 2016 on a bearish note, with the major indexes plunging and even the market’s most resilient stocks getting hit very hard. The “reason” for the decline was supposedly a meltdown in China’s stock market overnight, but there’s no question the U.S. market’s underpinnings had been weak for a while (hence our cautious approach in recent weeks). From here, anything is possible—January is a notoriously volatile month full of crosscurrents, so yet another snapback is possible. But we’re moving our Market Monitor down a notch into bearish territory given the evidence; now’s the time to think more about capital preservation and work mostly on building a watch list, keeping new buys to very small positions.

This week’s list has many great ideas, stocks that should do well if the market does find strong support. Our Top Pick is SolarEdge (SEDG), which is aiming to be the Intel of the solar sector; the company and the sector as a whole are turning around after a big decline last year.

Stock Name	Price	Buy Range	Loss Limit
SolarEdge Technologies Inc. (SEDG)	124.37	25.5-27	22-22.5
Royal Caribbean Cruises (RCL)	0.00	96-99	91.5-92
Pacira Biosiences (PCRX)	54.85	72-75	66-67
Ophthotech (OPHT)	0.00	70-74	64-65
Universal Display (OLED)	187.54	51.5-54	47.5-48
Nevro Corp. (NVRO)	0.00	64-67	57-58
Neurocrine Biosciences (NBIX)	123.40	50-53	45-46
Dollar Tree (DLTR)	0.00	74.5-78	71.5-72
China Biologic Products (CBPO)	0.00	135-140	123-125
Acorda Therapeutics (ACOR)	0.00	39.5-41	37-38