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Despite last week’s overreaction to the Fed, the market will likely continue sideways for a while for two reasons. One, the market indexes had to take a breather after a massive 90% move higher from the pandemic lows. Two, investors look ahead and can’t decide what will drive the market six months from now after the economy slows and comparisons get tough.

In a sideways market, income is at a premium. Income is the only game in town when stock prices aren’t rising. Dividends roll in regardless of near-term market gyrations. Covered calls greatly enhance that income.



In times like this, a portfolio geared towards high income can provide strong returns while the overall market languishes. In this issue, I highlight two new covered call opportunities that will enable you to ring the register while the market wallows.

The market rallied nicely last week, and growth stocks joined the crowd (which is good), but today’s strong open didn’t last and now we’re seeing deterioration across the board, reminding us that the market is a two-way street. Plus, in the background is the fact that investor sentiment is so high, and the economic news has been so good, that eventually we’re going to need a big correction.

Still, looking at the stocks in our portfolio, I see no need for any ratings changes today.



As for today’s new recommendation, it’s a growth stock that hit a new high just last Friday and has a long runway of growth ahead of it as its young industry expands.



Details inside.

The market as a whole is looking healthier, though there are still symptoms of a broad unfolding market top. But our stocks look healthy and all have the potential to move higher from here, so the only change in our portfolio today is the downgrade of DKNG to Hold.

As for today’s recommendation, it’s a company with a great growth story (in the insurance industry) that just came public last May.



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 is a consumer stock with a classic cookie-cutter story, which brings the possibility of extended long-term growth.



As for the current portfolio, to keep it at our maximum level of 20 stocks, we’re parting company with long-time holding Huazhu Group (HTHT), for a variety of reasons.



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.

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

We comment on the price of gold and what we see as its primary drivers. Gold is now trading above $2,000/ounce. We also provide updates on our recommended stocks.

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.

In the March Issue of Cabot Early Opportunities we take a look at what’s been unfolding in the financial system and consider implications for the FOMC’s meeting and subsequent rate hike decision next week.

Suffice to say, buying a bunch of stocks into the current uncertainty doesn’t seem like the best idea. We’ll add a few partial positions, but the bulk of this month’s new ideas are going on our Watch List.

We’ll take things as they come and consider plucking names off this list as things develop.

Never a dull moment!

The market looks strong right now. The S&P 500 just made a new all-time high in a young bull market and the index is up 5.38% in just the first five weeks of this year.

Inflation is way down. The Fed is done hiking rates. The economy is still strong. And earnings are solid. That’s a good macroeconomic background for stocks. But how long will this good news last?

In what has been a basically good market this year, investors just got a dose of bad news. Inflation isn’t going down enough, even with the current high rates. That makes the rate cut “Holy Grail” far less likely anytime soon.

The Fed will have to at least keep interest rates at a very high level to prevent inflation from reigniting. But at some point, the Fed will need to lower interest rates in order to keep the recovery alive. But they can’t, at least to an impactful degree. Historically, inflation tends to come right back when the Fed takes its foot off the gas.

In the November Issue of Cabot Early Opportunities, we jump into a crazy semiconductor growth story, an electrification name and an international travel story. We also kick the tires on a new company focused on acquiring outdoorsy brands as well as another playing in the healthy and alternative food space.

As always, there should be something for everyone.

It’s still a bull market and a rally. But the S&P has been in a sideways funk since the middle of last month.

April has not had news that the market seems to like. There has been stronger-than-expected economic news. The manufacturing numbers were the highest in about two years, and the Fed upgraded its 2024 GDP forecast from 1.4% to 2.4%. But sometimes good news is bad news.

This market has been resilient. But that resilience is being severely tested. The next couple of weeks should tell us the near-term direction of stocks.

The S&P rallied higher for five straight months. That’s long in the tooth for any rally. The market is down so far in April and the story is changing for the worse.

Wow! The economy is red hot! Both GDP and Jobs numbers came in much stronger than expected. But good news can also be bad news in the demented view of many Wall Street professionals.

Inflation is way down. The Fed is still unlikely to raise the Fed Funds rate again. The economy is surging despite the highest interest rates in decades. Ultimately, the economy is the most important driver of overall stock market performance. The economy isn’t weakening but strengthening after the recent malaise. And it’s a new bull market.

The market dodged a bullet. And the rally forges on.

After a 5% dip from the high, stocks started climbing again in mid-April and have regained all the losses. Last week’s inflation report had the potential to derail the recent rally. But it didn’t. And the good times are continuing.

Exchange-traded funds (ETFs) are a popular low-cost alternative to mutual funds that can help investors achieve their diversification goals, gain exposure to asset classes and sector trends they’re interested in, and save money while they do it. This month, we’ll dive into the pros and cons of investing in ETFs, how to identify the funds that match your investing style, and how to evaluate their risks and potential. In short, we’ll explore everything you need to know to make more money investing in ETFs.

Cannabis stocks continue to post sharp rallies on rumors of progress on federal policy developments like banking reform and rescheduling. Then the stocks give it all back over the next day or two.

There are two ways to deal with this trend.

There have been a few shots across the bow in recent weeks, and last week was another, with Friday’s big selloff hitting just about everything, though today’s bounce took some sting out of that. Overall, after six months with hardly any pullbacks, the market could easily be ready for a “real” correction—however, anticipating such a decline isn’t advised. Don’t get us wrong, our antennae are up and we continue to advise being selective, but we’re mostly focused on the next few days: A strong bounce in leaders and the indexes would be positive, but a break of last week’s lows would likely usher in a volatile, corrective period. For now, with most of the evidence unchanged, our Market Monitor remains at a Level 7.

This week’s list has something for everyone, though it’s again full of more growth-y titles. Our Top Pick is part of a newly strong group, and whose stock actually rebounded to a new high today.

The market has taken a dramatic turn.

Previously beleaguered stocks are soaring while technology flounders. Cyclical stocks in industries including materials, energy, consumer companies, and industrials have posted double-digit returns while the overall market is barely positive.

Is this a lasting trend or a temporary aberration? The cyclical rally indicates investor confidence regarding the state of the economy in the quarters ahead. Will that stronger growth materialize? Is the AI trade finished, or is this just another periodic consolidation?

Anything can happen in the next several months. It’s easier to focus on the longer term instead of trying to figure out the next fashionable trend on Wall Street. Sectors go in and out of favor all the time. Industry leadership changes often. But one strategy has been a winner in just about every kind of market over time – dividend growth.

In this issue I highlight several portfolio stocks that have consistently paid and grown the dividend for many years and have delivered stellar returns with far less volatility than the overall market.

Current Market Outlook


Last week saw some vicious rotation early in the week, with the super-strong growth names coming down to earth while money gushed into cyclical sectors, but the leaders stabilized as the week wore on and the broad market remains positive, too. From a big-picture perspective, the 90% Blastoff signal last week (90% of NYSE stocks above their 50-day lines) bodes well for the overall market, and the fact that few (if any) leading stocks have cracked is a good sign. All in all, further potholes, rotations and shakeouts are relatively likely given the big run over the past two months and the divergent environment, but until proven otherwise, we continue to think the path of least resistance is pointed up. We’re moving our Market Monitor up another notch to a level 8.

This week’s list has a good mix of setups, with some recent earnings winners, some that have pulled back and others that are in persistent uptrends. Our Top Pick is Arconic (ARNC), which is one of the few cyclical stocks to appear in Top Ten since the uptrend got underway.

Stock Name	Price	Buy Range	Loss Limit
Adaptive Biotechnologies Corporation (ADPT)	39.41	37.5-39.5	34-35
Arconic (ARNC)	17.00	14-15	11.7-12.2
Bill.com Holdings (BILL)	88.76	69-73	60-62.5
Dynatrace (DT)	36.59	35-37	31-32.5
II-VI Incorporated (IIVI)	48.64	45.5-48	40-41.5
LiveRamp Holdings (RAMP)	46.54	48-50	43-44
Pan American Silver (PAAS)	27.28	27-29	24-25
Seattle Genetics (SGEN)	150.85	156-160	140-143
Tractor Supply Company (TSCO)	122.24	115-119	103-105
Zscaler (ZS)	126.22	103-108	89-92

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the August 2022 issue.

Ernest Hemingway’s quote about “… gradually then suddenly…” could apply to the escalating geopolitical tensions.



It has been a quiet month for new recommendations and ratings changes as we patiently wait for attractive opportunities in a difficult investing climate.



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.



Thanks!

Current Market Outlook


Last week was definitely a good one for the bulls, with the indexes acting well but also many individual growth stocks scoring some great gains (and most of those came after tests of support earlier this month). Interestingly, the strength didn’t come at the expense of the rest of the market, either, which is a pleasant change from the rotational wars of late. If this strength can be sustained, it’ll be time to get more aggressive, but to us, the market still has some proving to do, especially with the chop factor, which continues to lead to some dramatic pullbacks in stocks that have recently pushed higher. All in all, we’re encouraged by what we see, including an increasing number of setups and breakouts—we’re OK putting money to work, but buying dips and starting small continue to mostly be your best bet, along with banging out partial profits on the way up.

This week’s list has a bunch of solid actors, including some that are putting the finishing touches on multi-month launching pads. But for our Top Pick, we’re going with an earnings winner—Palo Alto Networks (PANW) is part of the strong cybersecurity group and just leapt out of its own long rest. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Alkermes (ALKS)	31	29-30.5	25.5-26.5
Continental Resources (CLR)	38	37-38.5	32.5-33.5
Horizon Therapeutics (HZNP)	109	106-110	96-98
Inspire Medical Systems (INSP)	222	217-225	194-198
Kulicke and Soffa Industries (KLIC)	70	65-68	57-59
MRVI (MRVI)	60	55-58	47-49
MercadoLibre, Inc. (MELI)	1879	1800-1900	1620-1670
NVIDIA Corporation (NVDA)	227	219-227	197-201
Palo Alto Networks (PANW)	459	440-455	395-405
Sonos (SONO)	39	38-40	34-35