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Not much has changed with the market during the past week, so we’re sticking with our stance—the Model Portfolio has 40% in cash and holding six resilient stocks. We continue to believe the next major market move is up, but in the near-term, you should take your cues from the market and individual stocks. We have no changes tonight.

Current Market Outlook


There are definitely some positives among the action out there—growth stocks, for instance, have continued their rally, with many “old” winners finally showing some power in both volume and price (including some names that have poked out to new highs). That said, the overall action in the market remains hectic: Cyclical stocks have cascaded for the most part while growth has ramped, with most major indexes we track now below key support. Moreover, on a daily basis rotation remains intense (like today), with stocks and sectors getting whipped around depending on what’s in favor on a given day. Again, it’s not bearish per se, but the environment is like Jell-O wobbling on a plate, making it tough to pinpoint entries and hold onto stuff. We’re OK with some buying, but until more investors row in the same direction, you should keep it smaller than normal and generally aim for dips.

This week’s list looks like 2020 all over again, with lots of technology and growth earnings spots. Our Top Pick is HubSpot (HUBS), which showed top-notch relative strength during the growth stock correction and has now started to power ahead.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	198	189-198	172-175
Arrowhead Pharmaceuticals (ARWR)	90	86-90	74-76
Atlassian (TEAM)	267	256-263	235-239
Bill.com Holdings (BILL)	181	176-182	155-159
Biogen (BIIB)	381	370-385	325-335
Bonanza Creek Energy (BCEI)	48	45.5-47.5	40.5-41.5
HubSpot (HUBS)	575	560-580	505-515
Scientific Games (SGMS)	76	71-74	62-64
Sprout Social (SPT)	90	85-88	74-76
Zscaler (ZS)	216	207-214	186-190

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the October 2021 issue.

Volatility is a value/contrarian investors’ friend. With the markets becoming more volatile, we’ve made some changes to the portfolio this past month. We recently added ConocoPhillips (COP), a major oil and gas producer that is also an undervalued cash flow machine at current commodity prices.

The market has been spectacular. Can we expect more of the same in 2026?

The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.

The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.

Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.

The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.

The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.

One common market saying is that rotation is the lifeblood of a bull market, but that’s only partly true: If the rotation sees leaders pull in normally while buying pressures broaden out, that is a good thing, giving the market a stronger foundation for future gains. But if the leaders crack intermediate-term support while money chases beaten-down titles, that can lead to trouble as the market (and those laggards) often end up following the leaders lower. Happily, so far, the rotation that began in late June and has carried on since has been more in the former camp. While we’ve pulled in our horns a bit, we remain overall bullish. We’ll move our Market Monitor to a level 7 and see how things go from here.

This week’s list definitely has a value and turnaround flavor, following along with some of the rotation seen in recent weeks. Our Top Pick reacted well to earnings last week (heaviest daily volume since 2020!) after management reinstated bullish guidance. Start small and add on the way up.

The bull market has broadened out beyond technology in a big way. While the S&P 500 is about even for the year so far, most market sectors are beating the index, and by a lot. In fact, six of the eleven sectors have a better than 8% YTD return, not even two months into the year.

The new market dynamic is having a profound impact on the portfolio. Several stocks that had been dead weight in the portfolio have soared in recent months to 52-week highs. The new market has turned previously underperforming stocks into strong income generators.

It has been a strong run for several portfolio stocks. But a largely successful earnings season is almost over. That means there will be no obvious catalyst to continue driving stocks higher, at least for now. The situation makes it a better time to capitalize on recent price surges instead of adding more positions and hoping for more.

Under the current circumstances, the biggest market opportunity right now is income. In this issue, I highlight three more high-priced covered calls on stocks that have had strong rallies.

Given how tenuous the market looked heading into August, it’s hard not to be pleased with how the month turned out—the wild volatility of May, June and July subsided, leadership emerged and most stocks moved higher. We latched onto more than a few solid winners, which we’re pleased with. But now, with the market having pushed back toward its springtime highs, the rubber is likely to meet the road—the set-ups are there for the indexes and many leading stocks, it’s a matter of whether big investors back from vacation are willing to push stocks higher. Right now, the evidence remains bullish, so we remain optimistic that higher prices are ahead.

This week’s list has many of those set-ups; several stocks have tightened up during the past two or three weeks after bullish earnings reactions. Our favorite of the week is Eagle Materials (EXP), one of many housing-related stocks that look to be near good entry points.

Stock Name	Price	Buy Range	Loss Limit
Agrium (AGU)	0.00	96-98	-
Apple (AAPL)	248.94	640-660	-
Cirrus Logic Inc. (CRUS)	0.00	39-41	-
Cooper Tire (CTB)	31.50	19-20	-
CYT (CYT)	0.00	66-68	-
Eagle Materials Inc. (EXP)	0.00	41-43	-
The Flowserve Corporation (FLS)	54.70	122-126	-
Medivation (MDVN)	0.00	105-111	-
Toll Brothers Inc. (TOL)	0.00	31.5-33	-
Zillow (Z)	76.64	40-41	-

All Cabot’s market timing indicators have now flashed green lights, so I continue to recommend that you work to get more invested.
With today’s recommendation, we return to the U.S. with a medical technology stock that addresses a mass market and is growing fast—though it’s not booking profits yet.

Current Market Outlook


We’ve entered the third week of September, and today was another day of sharp rotation, with the market’s leading growth stocks and indexes taking hits while other areas declined modestly (if at all). Big picture, the intermediate-term trend of the major indexes is still up, and most leading stocks, while choppy, are in the same boat; hence, we remain optimistic. That said, we are nudging our Market Monitor down a notch today to respect the repeated waves of selling and, just as important, a bit more iffy action from leading stocks (including a few that are seeing wild swings up and down after a big run, which is often a sign of distribution). Thus, we’re being patient with our top performers, but it’s also a good idea to tread carefully, holding at least a little cash and booking some partial profits on any stocks that are showing wear and tear.

This week’s list is another growth-heavy list, which is encouraging to see given the bouts of rotation. Our Top Pick is CarGurus (CARG), which is aiming to be the TripAdvisor of car information and whose stock is under accumulation after a four-week dip.

Stock Name	Price	Buy Range	Loss Limit
Acxiom (ACXM)	0.00	46.5-48.5	42.5-43.5
Align Technology (ALGN)	316.20	372-382	345-350
CarGurus (CARG)	41.58	49-52	44-45
Centennial Resource Development (CDEV)	20.33	20.2-21	18.4-18.9
Guidewire (GWRE)	90.60	102-105	94-96
HealthEquity, Inc. (HQY)	70.70	90-93	82-84
Jacobs Engineering Group (JEC)	89.83	73-76	67.5-69.5
Sendgrid (SEND)	33.32	34-36	30.5-31.5
Spirit Airlines (SAVE)	57.03	46-48	42-43
Viper Energy (VNOM)	36.55	37-39.5	33.5-35

In recent months I’ve been telling you that cannabis stocks were incredibly cheap and overdue for a bounce, and now it seems the world is starting to agree, as all our cannabis operators have seen their stocks climb in the past month.

Of course, the broad market’s rebound has helped, but the broad market doesn’t have the compelling fundamentals of the cannabis industry’s top stocks.



Bottom line: while the first six months of 2022 were rough, that’s history, and we are now on the path toward renewed profits as the leaders of this growth industry see their stocks come under accumulation once again—and we wait patiently for federal legalization.



Full details in the issue.