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Something called DeepSeek out of China helped bring the rally in U.S. stocks to a screeching halt to start the week. Artificial intelligence stocks, in particular, are taking it on the chin, as it appears the Chinese firm may have found a cheaper, just-as-advanced alternative that’s rattling the likes of even Nvidia (NVDA). Chances are, the selling is overdone. But it’s a good time to look for overseas alternatives. And today, we add a Dutch company that plays an essential role in global travel – and one that’s taking advantage of the many missteps of its larger U.S. rival. It’s a stock that was first recommended by Carl Delfeld in Cabot Explorer.

Details inside.

UPS (UPS) opened 5.5% lower this morning after earnings missed expectations and the company issued disappointing 2017 guidance.

It’s been a constructive week for the market, and for our portfolio. After bouncing off its 200-day moving average two weeks ago, the S&P 500 turned positive for the year yesterday, its first return to the black in four weeks.

The S&P 500 walked higher for much of this week while small caps slipped from their recent highs.

We might get back to the pattern that existed in the first three weeks of the year (i.e., small caps outperforming) given weakness in some mega-cap names (i.e., TSLA and MSFT) after reporting and a little breather in small-cap strength.

As we move into the third quarter, analysts at Goldman Sachs write that their baseline forecast is for the S&P 500 to gain 5% in the second half of the year. In their “vaccine upside” scenario, stocks rise by 14% from here; in the “virus downside” scenario, they drop 30%.

This week has brought several news items on the Green front, including a speech by President Barack Obama where he said, “We’re on the cusp of this new energy future.” Find out how you can take advantage of it ...

Almost everywhere in the mainstream media and across most Wall Street research firms, there is a common implication that a recession will bring a bear market for stocks.

The market rally that materialized over Thanksgiving week is on temporary hold as investors wait to see if the Fed will, in fact, cut interest rates by another 25 basis points as anticipated this week. If it happens, there’s a good chance the risk-on mood will resume, and the major indexes could reach new all-time highs by Christmas. While I’m not big on predicting what’s going to happen with the Fed, the odds heavily (87%) favor investors getting their wish, so let’s play those odds today by adding a speculative mid-cap software stock recently recommended by Mike Cintolo in Cabot Top Ten Trader.

Details inside.

Crista Huff, Chief Analyst of Cabot Undervalued Stocks Advisor, shared 7 Undervalued Growth Stocks with Rising Dividends for This Market. You can download the slides here.

Current Market Outlook


There’s been a bunch of news during the past few trading days, including this morning’s revelation that a likely autumn Italian election could threaten the euro, as well as continued China trade shenanigans, both of which attracted sellers. Today’s move did put a dent in a couple of indexes—the NYSE Composite’s intermediate-term green light went up in smoke, for instance—but the other indexes continue to hold most of their early May gains. Much more selling from here could put a fork in this rally, so our antennae are up. But right here, we are still leaning bullish though we are knocking our Market Monitor down a notch. Thus, continue to hold your resilient performers, but don’t forget to take some partial profits when you have them and hold some cash until the buyers truly take control.

This week’s list has an array of ideas from various corners of the market. Our Top Pick is Carpenter Technologies (CRS), a specialty metals firm with huge earnings estimates and whose stock is hitting new highs.

Stock Name	Price	Buy Range	Loss Limit
Carpenter Technology (CRS)	53.25	56.5-58.5	51-53
Foundation Medicine (FMI)	136.68	88-92	80-82
iQIYI (IQ)	0.00	21.5-22.5	19-19.5
Lululemon Athletica (LULU)	304.69	100-104	93-96
Macy’s, Inc. (M)	36.36	33-35	30-31
Micron Technology, Inc. (MU)	43.31	59-62	52-54
PBF Energy (PBF)	38.93	42-45	38-39.5
Turtle Beach (HEAR)	26.70	14.5-17	11-12.5
WTW (WTW)	100.47	76.5-79.5	70-72
ZTO Express (ZTO)	28.84	19.5-21	17.5-18.2

Current Market Outlook


The last week has been brutal, as the sellers have come out of the woodwork and driven most leading stocks down sharply. And this isn’t just a couple of bad days, either—the action since mid June has been spotty, with sharp pullbacks and low-volume, narrow rallies preceding this drop, which has seen a fair amount of abnormal action. The rest of the market isn’t nearly as bad off, and in fact we’ve seen rotation into beaten-down areas like industrials, financials and transports. But our focus is on the leaders, and given the widespread breakdowns, it’s vital to honor your stops and cut back on new buying. If the buyers return soon, we’re not ruling out this being one big shakeout, but the onus is on the bulls at this point, at least when it comes to leading stocks. We’re dropping our Market Monitor back to neutral.

Encouragingly, even amid the recent selling, we saw plenty of positive reactions to earnings and other pieces of news last week, many of which made it into this week’s list. Our Top Pick is Advanced Micro Devices (AMD), which is one of the strongest stocks in the market. Given the environment, start small and buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	18.2-19	16-16.5
Atlassian (TEAM)	182.16	67-70	63-64
GrubHub (GRUB)	140.03	120-125	108-110
HCA Healthcare (HCA)	137.60	117-121	107-110
Hi-Crush Partners LP (HCLP)	12.18	14.5-15.5	12.5-13
IQVIA Holdings (IQV)	157.93	115-120	106-108
Robert Half (RHI)	78.58	72-74	66-68
Stitch Fix (SFIX)	36.79	28-30	25-26
USANA Health (USNA)	133.03	124-129	112-115
Yext Inc. (YEXT)	21.32	21.5-22.5	19-19.5

Artificial intelligence is a massive catalyst that is changing the market. It is spreading beyond technology and transforming other industries.

Utilities are companies that provide water, energy, and electricity to homes and businesses. They operate monopolies or near monopolies in their areas and the rates they charge are usually determined by regulatory bodies.

They usually pay strong dividend yields and provide highly defensive earnings that continue in any kind of economy. But, aside from the dividend and defensive characteristics, they’ve typically offered little else. Good stocks tend to outperform the indexes in flat or down markets and underperform them in bull markets. They are the market sector that most closely resembles bonds.

But skyrocketing electricity demand, mostly from data centers supporting AI, is changing that sector for the better. The phenomenon is making electric utilities growth businesses as well. The changing environment is adding another hugely positive dimension to these underrated stocks.

In this issue, I identify a beneficiary of that positive change that’s ahead of the pack. It’s an opportunity that has never existed before in modern times. The combination of defense and growth is the best of both worlds.

In the May Issue of Cabot Early Opportunities we acknowledge the increasingly choppy action in the market and the unprecedented nature of the current recovery.

Similar to last month, we focus on diversifying new buys across different end markets, offering up names with exposure to everything from mobile gaming to oil services to off-road suspension, and more. In short, there’s something for everyone and, we think, enough variety to capture the upside in a wide range of spring and summer market conditions.



Enjoy!