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Tariffs are back in the news, and the market doesn’t like it. How long they remain in the news is anybody’s guess. Perhaps the situation will be settled over lunch in Davos this week. In the meantime, fourth-quarter earnings season serves as a welcome diversion and ramps up this week after some mixed results from the banks last week. Speaking of banks, today we add a regional play that should pair well with our Morgan Stanley (MS) holding. It’s a lower-risk, income-generating stock that is a new choice of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

While 2017 was one of the least volatile years ever for the market, 2018 has seen volatility return—with a vengeance! Early February brought the greatest point decline in history for the Dow, while yesterday brought the biggest one-day advance since August 2015 for the Dow, S&P 500 and Nasdaq.

Today, my recommendation is outside the U.S., and outside China, too! In fact, my recommendation is in Brazil, where a young airline is enjoying rapid growth and the chart is positive.

Though the market has been stagnant of late, its resilience in the face of the DeepSeek surprise, a barrage of tariff news and threats, an uncertain interest-rate climate and ongoing geopolitical strife has actually been impressive. It’s clear stocks want to go up, if they can just get a sufficient catalyst. For now, the best earnings season in three years is propping up the market, and breadth has improved from much of the last two years. With that in mind, today we add a small-cap stock that’s a household name. It was a Covid-era darling that fell severely out of favor the last few years. Now, it’s showing signs of a comeback. I recently recommended the stock to my Cabot Value Investor audience. Now, we add the stock to our Stock of the Week portfolio.

Details inside.

The market has softened over the past week, and we’ve seen some high-volume selling in former leading stocks, so I’m now pulling back a bit on risk, which is one reason today’s recommendation is a low-risk utility stock.
Technically part of the Safe Income portfolio of Cabot Dividend Investor, this stock pays a healthy 2.6% yield and it has decent upside potential as well.
As for the current portfolio, we still have some stocks hitting new highs, but we’ve also got some showing renewed weakness, so today I have two sell recommendations. Details in the issue.

Most growth leaders and even the Nasdaq itself has been churning since early February, with a lot of ups and downs but not much price progress—but this week has been more encouraging, as the selling pressures have been unable to persist and the major uptrend may be reasserting itself (basically the opposite situation that was seen repeatedly in 2022-2023). That doesn’t mean it’ll be smooth sailing from here, so we’re still being discerning on the buy side, but we’re holding our winners and remaining in an overall optimistic stance.

In the Model Portfolio, we cut bait on one half position earlier this week that was heading in the wrong direction, but we’re holding our strong performers and tonight are putting a chunk of money to work.

My modus operandi when writing the monthly version of the Cabot Turnaround Letter is to focus solely on a single stock when making a purchase recommendation. And in keeping with that spirit, I’ll be doing the same in this month’s edition of the newsletter. But I will also highlight two additional stocks with what I see as having excellent mid-to-long-term turnaround potential.

WHAT TO DO NOW: Continue to lean bullish, though keep an eye on things in the short term. Overall, our indicators look very good, so we’re aiming to put more money to work—but near-term, we are seeing a few warning signs, so we’re picking our spots and stocks carefully. On yesterday’s special bulletin we sold Noble (NE) and added another half position in PulteGroup (PHM), but tonight, we’ll stand pat and see how things go in the coming days. Our cash position is now 36%.

Before we dive into this week’s idea, I do want to note that our September IBKR, GLW and RKT covered calls finished in-the-money which means we walked away from those trades with our full profits, and no longer own a stock or option position in these stocks.

From an investor’s point of view, I will be cautious about owning P&C insurance stocks. We won’t know the cost of all the damage until second and third quarter earnings reports, but you can be sure that profits will suffer.

The big news pertaining to global investing is the signing in Washington yesterday of the phase-one “truce” trade deal between America and China.

Continue to lean bullish. From a top-down perspective, there’s little negative to say about the overall market—all of our indicators remain positive, and the indexes refuse to give up any gains, a sign of strength. Individual stocks are more hit and miss, but we’re looking forward to earnings season to reveal some new leadership. We have no changes in the Model Portfolio tonight—we’re holding seven stocks and a cash position near 30%.

The new bull market encountered its first real hiccup last week, as second-quarter earnings season hasn’t been kind to growth stocks in particular – even ones that blow estimates out of the water. So, a few of our stocks retreated after earnings, only one of which was enough to warrant selling. I view most of the earnings-induced pullbacks as buying opportunities. And today, we add a stock that has something for everyone – it’s a big-cap technology company with an artificial intelligence tilt, plenty of momentum and it pays a dividend. It’s a longtime holding of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Clearly, it’s in the interests of full-service brokerages to discourage you from making your own investing decisions. They make their money from commissions for trading your account and fees for managing your money. And the more they can count on keeping you in a standard mix of index funds, ETFs, sector funds and bond funds, the better they like it.

Today’s and next week’s issues of Cabot Undervalued Stocks Advisor are going to look a bit different. I won’t be reviewing all of our portfolio stocks today. Many Wall Street analysts are on vacation, so there will be very little in the way of changes in earnings estimates or new research reports for several weeks.

Earnings season can be difficult to navigate for any investor. Here are my five rules on how to invest this earnings season.

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

In this issue, we discuss the most effective and often the only way to reverse the fortunes of a struggling company: a change in leadership. We offer our views on four new CEO situations that are currently attractive and three that are not quite ready yet.

This month’s Buy recommendation, Barnes Group (B), is an aerospace and industrial components maker that is stepping up its efforts to become more valuable, helped by a new CEO and urged on by pressure from a credible activist investor that recently gained several board seats.

Tax-free bond funds yield peanuts these days, so if you’re trying to actually grow your money, there’s only one sensible course.

Crista is adding a new stock to the Growth Portfolio, it’s one of the world’s largest producers of nitrogen products, serving customers on six continents.