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The market looks great right now. Inflation is falling fast, the Fed is just about done hiking rates, and there is no recession in sight. It looks like we will get through the steepest rate-hike cycle in decades without much economic pain.

But nothing is certain. Inflation could rise again. The Fed may keep rates high for longer than the market expects. The economy may turn south in the quarters ahead. There could be more trouble with bank failures or the war in Ukraine. S&P earnings have been contracting for three straight quarters.

We’ll see if the market can add to the 30% rally from the low, or if it turns south again. A reasonable argument can be made for either scenario. Instead of trying to guess the possible short-term gyrations, let’s look to investments that should be longer-term winners no matter what.

In this issue, I highlight a stock that diversifies the portfolio into the consumer space. The company operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to outperform the market in every measurable period over the last 15 years. The company is positioned for strong growth in the years ahead and the stock has a long track record of delivering stellar returns in all kinds of markets.

The big-picture outlook with the market hasn’t changed, with all of our key market timing indicators bullish, many studies pointing to higher prices down the road and leaders--even those that have taken hits--showing little abnormal action. That said, near-term, the odds are growing we may see more choppy trading, if not a pullback of some sort, so we’re not pushing the envelope here and are ditching names that crack. Earlier this week, that meant selling one position, and today, we’re selling another, leaving us with 28% in cash.

To be clear, the odds still favor the next big move being up, so we’re aiming to put some money to work in new leadership that emerges on earnings, or current leadership that pulls in to support. For now, though, we’ll hold the cash and see how earnings season progresses.

Elsewhere in tonight’s issue, we go over a few new ideas, with the biggest write-up being what could be the #1 AI platform play (not picks and shovels, but actual platform) out there. It’s on our watch list.

We continue to keep things simple, and when you do that, you see that the overall market remains mixed (strong big-cap indexes, weak broad market, etc.) and individual stocks are extremely tricky ... though there remain many setups and it’s not hard to fill up our watch list. Still, we remain cautious overall, holding lots of cash and a few small positions, while waiting patiently for the next big move to start. We are encouraged by the action of the past two days, but it’s far too soon to tell if it’s the real McCoy.

In the Model Portfolio, we’ve sold two small positions since the last issue, though we’re adding one new one tonight (a familiar name that we think is finally ready to perk up). We’ll remain flexible going ahead, willing to jump in or stay mostly on the sideline (68% cash) depending what comes.

Elsewhere in tonight’s issue, we write about a bunch of new ideas, a sector that’s reasserting itself after a two-month rest and remind you to think big -- yes, right now, the news is bad and the market is tedious, but when things get going, there should be big profits to be had.

The market remains in a rough spot, with a hawkish Fed that continues to raise rates into what’s become a rolling bank crisis, with some big names going under and others walking the plank. Far more important to us than the news is the market’s reaction to the news--and it remains mixed when it comes to the indexes (intermediate-term trend neutral), but growth stocks remain iffy at best, with many good-looking setups falling apart on earnings of late, and with relatively few really powering ahead. All of this can change in a hurry, but until it does, we continue to think growth investors should remain generally cautious and flexible as we wait for a more certain environment that will entice big investors to pile in.

In tonight’s issue, we have no changes to the Model Portfolio (though one small position is on a tight leash), holding north of 60% in cash and working on building our watch list. Elsewhere tonight, we write about the market’s very narrow nature, highlight the housing group (which has a history of trending even in bad markets) and have re-added a few names back to our watch list after some old favorites have popped on earnings.

Happy New Year! The market remains in great shape, with the vast majority of evidence positive—and, given that we are coming off of two years in the muck, with big declines in 2022 and (for the most part) lots of bottoming-out action in growth stocks and the broad market in 2023, we see great potential going ahead for a real bull phase. That doesn’t mean we’re complacent or leaving our brain at the door, but we’re leaning bullish and putting money to work. Tonight we’ll add one half-sized position in a leveraged long index fund, leaving us with around 20% in cash.

Most of us never take practical economics classes that dive into everyday finances, how to save, how to invest, or how to plan for the future. If you’ve taken an economics class at all, you probably learned more about supply and demand than you did about setting aside an emergency fund. That means that most of what we “know” about money we learned from our parents or just sort of picked up as we went along. So this month, let’s put to rest some of the most pernicious money myths and unfounded beliefs that keep us from achieving our long-term financial goals.

The market plunged today on news of the “official” Russian invasion, but the turnaround was even more impressive, with the buyers pouncing and driving the indexes to solid gains; combined with sour sentiment and an internal positive divergence on the Nasdaq (fewer new lows than at the January lows), and there are a few rays of light. Even so, we need to see more than just that to turn bullish--the main trends of growth stocks, the broad market and the major indexes are all down, so while today was a solid first step, we advise patience while we watch to see if the bulls can really step up.

Inflation is back. And it might be for real this time.

Inflation has taken off since the end of the lockdowns this past spring. In September, the inflation rate rose to 5.4%, the highest monthly reading in 30 years. Inflation over the last twelve months is also the highest such measure in 30 years.



This inflation may prove to be a temporary side effect of the pandemic recovery that will fade away over the next year. But maybe not. Once that inflation genie gets out of the bottle it can be hard to put back. There are powerfull reasons why it could be worse than most expect.

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



As we approach the mid-point of the calendar year, we provide our traditional mid-year update for the stock market and high-yield bond market. Our commentary on stocks reviews what sectors worked (only one), what sectors and stocks stood out as the weakest, how the value vs. growth shift has played out so far, and what helped developed markets outside the United States limit the depth of their selloffs. We also discuss the state of two key drivers of future stock market performance, the role of the two “Easts,” and offer some advice on what not to do in this market, as well as a suggestion about what value investors might want to do.



Our call last year to avoid high-yield bonds, cousins of sorts to turnaround stocks, was spot-on. We walk through the effects of inflation on the two components of high bond yield prices, provide some historical perspective on yield spreads, and describe how only two of the three ingredients for a bankruptcy cycle are in place. We also suggest that while high-yield bonds are more attractive today than a year ago, it is still a time to be selective.



Our feature recommendation this month is ESAB Corporation (ESAB). This high-quality company was recently spun off from Colfax Corporation and checks nearly all of our boxes for an appealing turnaround stock, yet it is being overlooked as investors migrate to familiar stocks.



We note our recent ratings change of Marathon Oil (MRO) from Buy to a Sell.

Although uncertainty in the market is growing, there are still strong income stocks out there. But we must be careful to find the right ones. A good stock needs to be resilient in a continuing recession, yet able to thrive amidst high inflation, or both, or neither. In this issue, I highlight such a rare bird.


The portfolio is also eliminating a cyclical position and adding a more defensive one. At the same time, we are seizing upon recent strong performance in another stock and selling a call to lock in a high income in this uncertain market.

The market continues to show many small positives, but we’re really looking for a BIG positive to change the market’s character and kick individual growth stocks (many of which are set up well) higher. Until then, many names are subject to potholes, as we saw this week; we trimmed our Shift4 position further and are placing Allegro on Hold.

That said, our general outlook is unchanged--the odds favor the next big move is likely up, but until that happens, we’re playing things cautiously, holding some resilient names, small positions and plenty of cash. Tonight’s issue goes into detail into all our stocks, discusses one reason why the market is so choppy and talks about the hugely negative sentiment out there that could propel the market down the road.

Are you tired of turning on your television first thing in the morning and getting heartburn over the market’s gyrations?

Yeah, me, too. So, I’m swearing it off. I’m only going to peek at it a couple of times a day, since it doesn’t seem to be finishing the day as it starts, and I just don’t need the angst.



Instead, I’m going to keep looking at the macro-economic figures and try to do my very best to find the right investments for you to weather these ups and downs.

October has been a challenging month for many investors, but dividend stocks and income investments have been a rare safe haven. After a few sells last week, our portfolio is looking ready for whatever November throws at us. So far, investors are optimistic about turning the calendar page: the market managed to rally yesterday and then opened higher today.
However, we’re not out of the woods yet, and as always, I recommend sticking with what’s working. That’s why today I’m adding another conservative consumer staples stock to the Safe Income tier, which I expect to provide us with a secure income stream for a long time.
Read the whole issue for the story, plus earnings updates on many of our holdings, and a look into why REITs have been doing so well recently.

The stock market is inherently unpredictable in the near term. That’s what makes it a market. But it has been especially hard to predict in recent years. And there might be more of the same going forward.

There could be continued economic growth with rising interest rates and inflation or an economy bounding toward recession in the next couple of quarters, or anything in between. Sure, the market could find the means to rally with a desirable in between scenario. But it is more likely that the market will just bounce around or move lower.

Amid such uncertainty, it makes sense to find stocks that can weather any scenario. Instead of placing a bet on what the Fed or inflation or the economy might or might not do, it makes sense to seek out an all-weather income generator.

In this issue, I highlight the stock of a company that operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to consistently outperform the market in every kind of environment. The company is positioned for strong growth in the years ahead and is selling below its average valuations over the last five years despite the high-priced market.

Last week was a good one for the bulls, not because the indexes finished in the green but because after three poor weeks, the broad market finally found some support, with breadth improving and the number of stocks hitting new lows drying up. We wouldn’t say the broad market is completely out of the woods; another few days of positive action would be necessary to conclude that. But, overall, we’re optimistic—the intermediate- and longer-term trends are pointed up, most stocks outside of commodity sectors remain in good shape, and we’re even seeing some rotation into more growth-oriented groups, which is usually a good sign. We’ll keep our Market Monitor at a level 7 right now as we wait to see further confirmation from the broad market.

This week’s list is chock full of strong stocks with solid growth stories from a variety of industries. We’ll keep it simple with our Top Pick this week, going with Adobe Systems (ADBE), a liquid growth leader that just reported a strong quarter.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	0.00	70-73	64-65
Adobe Inc. (ADBE)	315.23	123-127	116-119
Axalta Coating (AXTA)	0.00	31-32.5	28-29
Broadcom Limited (AVGO)	266.26	215-223	200-205
Children’s Place (PLCE)	0.00	114-117	105-107
Glaukos Corp. (GKOS)	67.84	46-48.5	41.5-43
KB Home (KBH)	36.05	18.5-19.5	17-17.5
Micron Technology, Inc. (MU)	43.31	25-26	23-23.5
Olin Corp. (OLN)	0.00	31-33	29-30
Veeva Systems (VEEV)	180.23	47-50	44-46

After another month of dramatic declines in March, cannabis stocks showed a little more stability in April.

This is encouraging, even though it is never really possible to “call the bottom” in out-of-favor groups.

How out of favor is cannabis? I’ve invested through three bear markets, and I don’t think I have ever seen a group as unloved as cannabis is now. Remember, this is a good thing if you are a contrarian investor looking for bargains, as long as the group in question is not a value trap. (Like the declining newspaper industry years ago, a value trap that Warren Buffett got caught in.)

Big picture, it’s hard to find much wrong with the market, as the primary evidence (trends of the indexes, action of leading stocks) remains clearly positive. Thus, we’re generally holding our winners and think there’s a good chance last November marked a major turning point after nearly three years of growth stock sluggishness.

That said, near-term, we’re keeping our feet on the ground and going slow on the buy side, as there’s no question stocks have had a good run and many leaders are extended. Recently, we’ve trimmed a couple of positions but, tonight, we’re averaging up on one name to fill out our stake.

In the May Issue of Cabot Early Opportunities, we spread things around, taking a look at a rising MedTech star, a possible breakout biotech stock, a boring discount retailer, an oil and gas income play and a familiar apparel manufacturer.
Enjoy!

After a modest bounce in May and early June, another thunderstorm has hit the market, driving the indexes and most stocks to fresh lows. Of course, the Federal Reserve is on everyone’s mind these days, but really, you don’t need to guess about what they’ll do and what effect it will have--just following the market’s trends has kept us mostly on the sideline in recent weeks and months, and they’ll be your best guides going forward. In the meantime, we’re actually trimming one of our two positions tonight, but we’re keeping our eyes open for signs the buyers are putting up a fight.



In tonight’s issue, we write about the energy sector, our current holdings and a few new ideas, too. We offer no predictions and remain mostly safe on the sideline, but the environment is certainly ripe for a turn given how everyone’s predicting doom, so it’s important to keep your head up and be ready should the evidence improve.

There remain a few warts on the market’s current rally, including some meaningful divergences (the Nasdaq and Russell 2000 have yet to reach new highs like some of the broader big-cap indexes) and a lack of decisive breakouts from big-cap leaders (most are still working on launching pads). But the evidence is rarely going to line up perfectly; the fact is that during the past few weeks, more and more stocks have been acting well as selling pressures ease. Now’s a time to grow gradually more optimistic as the stocks you own and follow improve.

This week’s list includes one of those classic, big-cap breakouts that we alluded to above. Top Pick Applied Materials (AMAT) is in the process of completing a major acquisition that should boost its market dominance in a big way, and the stock has exploded out of a nice consolidation on very big volume.

Stock Name	Price	Buy Range	Loss Limit
Zebra Technologies (ZBRA)	154.94	72-76	69-70
Skyworks Solutions (SWKS)	0.00	45-47	41-42
MeadWestvaco (MWV)	0.00	42-44	39-40
Lannett Company (LCI)	0.00	45-46	42-43
Illumina Inc. (ILMN)	289.74	160-170	154-155
Carrizo Oil & Gas (CRZO)	24.03	59-61	55-56
Consol Energy Inc. (CNX)	0.00	45-48	43-43.5
Bonanza Creek Energy (BCEI)	0.00	52-55	48-49
Arris Group (ARRS)	0.00	32-34	28.5-29.5
Applied Materials (AMAT)	0.00	20-22	18-19