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Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2022 issue.

At it most basic, investing is a mental game supplemented by a calculator. Our articles use one or both aspects to find attractive investing ideas.

Our first group covers enduring companies with out-of-favor stocks with theses well supported by a calculator. Our other articles discuss companies with deeper issues but whose shares have been so heavily sold that their risk/return trade-offs are highly attractive, even if their theses rely less on a calculator and more on pure contrarian instincts.

Our feature recommendation this month is a high-quality, well-capitalized bank that emphasizes credit card loans

We don’t want to write the same thing week after week, but the story remains mostly the same as it has for the past two months: There are definitely some positives out there, including a good number of setups, some positive earnings reactions and a resilient set of major indexes, especially given the banking worries—but the broad market is mostly iffy while we continue to see repeated air pockets and selling on strength. We still think there’s lots of bullish dry tinder that could spark if things go right, but until it happens, we think it’s best to remain cautious.

This week’s list sports more than a few recent earnings winners, as well as a few tight setups. Our Top Pick is a growth name that’s getting costs under control—combined with its cookie-cutter story, that could produce reliable bottom-line growth soon. Try to buy on dips.

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!).

Big picture, the factors that have been in place for the past few weeks are still hanging around, but we’re also starting to see more names give it a go on the upside—after a rough start to earnings season, more and more are starting to react well and push through some resistance, with others that did get hit snapping back impressively. (Indeed, today’s list is as growth-y as we’ve seen it in a while.) Is it enough to change our stance? No, as we’re leaving our Market Monitor at a level 4, but we’re keeping our antennae up in case the buying pressures spread and more real leaders emerge.

This week’s list has a bunch of strong names with solid numbers and stories, from a variety of industries, too. Our Top Pick is toyed with new highs a couple of times in recent months and now looks to have decisively broken through.

It’s still a narrow rally at this point, but we are seeing more names begin to pop higher, whether on earnings or some other news, with some shakeouts-and-recoveries, some earnings gaps that see immediate follow-through and more names setting up. (We don’t hate the selloff in defensive stocks, either.) It’s not definitive yet, but we will nudge the Market Monitor up to a level 5 and see how it goes.

Growth names make another good showing this week, with a variety of sectors (outside of retail, which has been rough) represented. Our Top Pick is a big-cap chip name that has stormed back after a spring correction.

This month we’re wading deeper into the MedTech space with a life sciences company that’s commercializing a disruptive technology that could diagnose disease in seemingly healthy people.
It’s an exciting story of a young company that appears to be in the early innings of its growth curve, but has made it far enough with respect to technology development, customers and strategic partnerships to attract attention from larger investors.
Revenue was up 60% in 2018, and is projected to keep growing at a rapid rate. All the details are inside this month’s Issue.

With the market on edge we’re going with a slightly larger company than normal with this month’s Cabot Small-Cap Confidential selection. But we’re not being overly conservative. Shares of this software stock have been climbing steadily after a breakout move in May. The reasons? Growth is reaccelerating, profit margins are climbing, and the proportion of recurring revenue is going up.

For the first time in a while we started to see big investors floor the accelerator last week, with some names really letting loose on the upside. Moreover, even the “non-AI” nascent leaders that perked up earlier in May are acting fine, with most digesting gains in normal fashion. All of that is to the good—though the top-down flaws that we’ve written about are all still out there, too, with relatively few stocks hitting new highs, a good number of blowups each week and most areas of the market still struggling. Right now, we’re keeping our Market Monitor at a level 5, but we’re watching things closely—if more leaders emerge, it would certainly add to the bullish side of the ledger.

This week’s list has a bunch of solid growth and earnings-related plays from a variety of industries. Our Top Pick is practically a blue chip name from the software field that’s emerging from a solid launching pad.

With mortgage rates leveling off and housing prices still elevated, here’s everything you need to know to confidently buy a new home in less-than-ideal conditions.

Last week was quiet, which keeps the overall evidence mostly unchanged—the indexes are hanging in there despite a rash of worrisome news, but there remain plenty of potholes and news- (and rumor-) driven action, including continued selling on strength. The question is whether Q1 reports will bring buyers out of their slumber and launch of bunch of fresh leaders higher. If so (given the hugely bearish sentiment out there), there could be tons of opportunities—but until it happens, it’s best to remain cautious. Once again we’ll leave our Market Monitor at a level 5.

This week’s list has does have a couple of recent earnings winners, and our Top Pick is one of them, gapping to new highs last week and leading what looks like a group move higher.

For the big-cap indexes, last week was intriguing, with a sharp dip from resistance on Monday and Tuesday leading to an equally-sharp snapback—a possible shakeout of sorts. That said, the bullish action remains concentrated in a handful of names; the broad market is still meandering at best and there were more than a few air pockets last week among potential leaders. All in all, we’ll drop our Market Monitor to a level 4—that said, there are still tons of earnings reports on tap this week and next, so a bunch of gaps up (and broad market strength) could give us plenty to work with.

This week’s list has a bunch of recent earnings winners as well as a few that are set to report. Our Top Pick was an early leader off last year’s October lows and looks to be resuming its uptrend after a two-month rest.

The markets have continued to flirt with new highs—pulling back and then moving forward—for the past month.

The Fed’s 50-basis-point rate cut inspired investors, home buyers, and those folks wanting to refinance their homes. The Mortgage Bankers Association reported that refinancing applications rose 20% right after the rate cut!

Current Market Outlook


News of travel restrictions due to a new strain of the virus over in Europe hit the major indexes early today, but when it comes to our analysis, the reason for the initial selloff is secondary—the setup for an air pocket has been around for a couple of weeks as sentiment was elevated and most stocks and indexes were extended to the upside. Thus, today’s hiccups weren’t totally unexpected, but the damage was limited; at day’s end, the major indexes held up well and remain in intermediate-term uptrends, as do most stocks. Near term, further reverberations are likely, so we still think it best to pick your spots and stocks carefully, but with the major evidence still positive, we are too.

This week’s list has a nice mix of stocks benefiting from different trends (growth, reopening, cyclical, etc.). Our Top Pick is Elastic (ESTC), which has finally, decisively gotten going from a long 20-month IPO base.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	22.12	21-22.5	18-18.7
Cardlytics (CDLX)	146.04	135-141	116-119
Coeur Mining (CDE)	9.88	9.5-10.0	8.2-8.5
Elastic (ESTC)	155.91	147-153	129-133
Floor & Décor (FND)	99.10	95-98	85-87
Kodiak Sciences (KOD)	149.51	136-142	117-120
PayPal (PYPL)	237.79	232-238	209-213
Redfin (RDFN)	78.54	72-75.5	60-63
Smartsheet (SMAR)	72.00	70-73	61-63
WESCO International (WCC)	75.16	72-75.5	62-64

Current Market Outlook


This morning’s positive news of a possible COVID vaccine helped the major indexes surge, but it also revealed some of the crosscurrents that remain—today saw a big bout of rotation, as leading growth titles were mostly lower while the lagging (usually economically-sensitive) areas did well. Even so, we don’t advise getting too involved in the day-to-day news or gyrations; overall, there’s still more positive evidence than negative, with the intermediate-term trend still up (today’s action helped on that front) and just about every leading stock remaining in a firm uptrend. Given the crosscurrents, we don’t advise going hog wild on the buy side, but we continue to think holding your strong performers (maybe with some partial profits here or there) and looking for decent entry points on strong names is the way to go. While we were going to knock our Market Monitor down late last week, the action of the past two sessions has us keeping it at a level 7.

This week’s list is a bit more diversified than in recent weeks, with strength seen in a few more sectors. Our Top Pick is PayPal (PYPL), which appears to have resumed its run after a multi-month rest period. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Avalara (AVLR)	102.00	97-100	88-90
Beyond Meat (BYND)	132.87	122-128	109-113
Fastly (FSLY)	39.31	36-39	31.5-33.5
Fortinet Inc. (FTNT)	137.53	137-143	123-127
Inphi (IPHI)	120.16	105-110	94-97
MyoKardia (MYOK)	108.56	106-110	92-95
Ollie’s Bargain Outlet (OLLI)	103.94	73-77	64-66
PayPal (PYPL)	147.00	142-147	129-132
Scotts Miracle-Gro (SMG)	155.72	139-145	125-128
Tesla, Inc. (TSLA)	818.87	770-815	680-705

Current Market Outlook


The news-driven environment featuring incessant rotation and crosscurrents remains in effect; throw in the fact that breadth is narrow (about half of stocks are still below their 50-day lines despite the S&P 500 and Nasdaq being near new high ground; broad market indexes are chopping sideways) and earnings season is approaching and we think it’s best to continue going slow and aim to buy on weakness. That said, there are a growing number of good-looking growth stocks out there—not a ton are kiting higher, but there are lots of setups and, while there have been bumps in the road, the sellers really haven’t been able to sink their teeth into them despite some recent strength. All in all, we’re more optimistic than not, but stock selection and solid entry points are key.

This week’s list has a variety of sectors represented, including a few that have avoided the market’s volatility. Our Top Pick is Arista Networks (ANET), whose stock is in a smooth uptrend as growth picks up steam.

Stock Name	Price	Buy Range	Loss Limit
Antero Resources (AR)	15	13.8-14.3	12.3-12.7
Ares Management (ARES)	65	62-64	57-58
Arista Networks (ANET)	371	363-370	340-345
Bentley Systems (BSY)	64	62-64.5	57-58.5
FIGS, Inc. (FIGS)	44	42.5-45	36-37
L Brands (LB)	77	73-75.5	65.5-67.5
NVIDIA Corporation (NVDA)	821	775-795	700-710
PayPal (PYPL)	303	288-297	268-273
Rapid7 (RPD)	103	97-101	87-89
Synaptics (SYNA)	158	154-158	136-138

This note includes the Catalyst Report, a summary of the November edition of the Cabot Turnaround Letter, which was published on Wednesday and earnings updates on 12 recommended companies.

Although the S&P is currently down around 2% from a week ago, new highs on both exchanges have been encouraging lately. This underscores that a broad array of industries have held firm despite softness in the tech space. Understandably, in this mixed environment, cyclical names are outperforming as traders hedge against possible AI sector weakness, with utilities, consumer staples and healthcare names acting well, but there has also been solid participation from highly economically sensitive areas of the market like transport, discretionary retail and hotel/lodging stocks. Not surprisingly, many of the names in this issue are scattered across these categories. We’ll keep our Market Monitor at a level 6, but we’re still fine nabbing some shares in some of the stronger names out there.

This week’s list contains a nice mix of names across several of the stronger industries—including both defensive and cyclical. Our Top Pick is a water transport name benefiting from a robust start to the annual cruise season.

On the surface, the economic numbers still look pretty good. Although unemployment edged up to 4.2% from 4.1% last month, the number is still low. Jobless claims are down; jobs added, up. Manufacturing looks good, but housing continues to be weak, due to sticky prices and high interest rates.

But the good economic news is on pause, due to tariffs. Already, we’ve seen the 30-year mortgage rate rise to 6.85%, and economists are back to predicting a recession, based on rising business and consumer costs related to the tariffs—which are not yet reflected in the economic stats.

Housekeeping: Seeing as next Monday is Presidents’ Day, your next issue will be Tuesday, February 18.

When we look at the overall evidence, we continue to see more good than bad out there: Most indexes are testing the top end of their ranges; we see more breakouts than breakdowns among growth stocks; earnings season has gone well so far; and all of this has happened as headline uncertainty has crept into the picture. That said, we’re still waiting for buyers to truly step up, as most peppy stocks are still seeing lots of selling on strength and most every index is trending sideways. We’ll leave our Market Monitor at a level 6 for now but could move that meaningfully by week’s end depending on how things go.

All that said there are opportunities out there, and this week’s list has many of them, with a ton of recent earnings winners. Our Top Pick has turned super-strong after earnings as investors look forward to what should be a huge 2025 and 2026.