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In the December Issue of Cabot Early Opportunities we look at five companies growing nicely and with share prices that have held up reasonably well in recent months.

Our top pick this month is a small-cap biopharma stock that just made a timely acquisition this week. I also feature a potential biotech superstar, an emerging MedTech name, a solar energy specialist and an online retailer that we’ve seen before.

As always, there should be something for everyone in this month’s Issue!

Volatility has increased and minor divergences are beginning to appear, but the market’s major trend remains clearly up. Thus our Market Monitor remains in bullish territory, and we continue to advise heavy participation. However, with some small cracks beginning to appear, we remind you that cutting losses short is critical, and that buying smart—ideally on high-potential set-ups—is the best way to avoid having to take a quick loss.

Among sectors that are attractive today, we find quite a few in the medical industry, where the Affordable Care Act is beginning to affect the marketplace; in addition to drug companies, health care REITs are strong! Energy remains robust. Retail is very healthy. And numerous Internet-centric firms are thriving, from the leading consumer photography site, to the leading business networking and employment site to a leading provider of fuel cards and related services for commercial vehicle fleets. Our Editor’s Choice today, though, is benefiting from the wholesale shift in mortgage servicing from big banks to smaller, specialized companies. It’s not Nationstar’s (NSM) first appearance here, and it’s probably not the last.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	44-46	-
Shutterfly (SFLY)	94.71	41.5-43	-
Omega Healthcare Investors (OHI)	0.00	26.5-27.5	-
Nationstar Mortgage (NSM)	0.00	37.5-40.5	-
LinkedIn Corporation (LNKD)	0.00	158-167	-
FleetCor Technologies (FLT)	0.00	67-70	-
Five Below (FIVE)	134.58	39.5-41	-
BioMarin Pharmaceutical (BMRN)	0.00	56-58	-
Bonanza Creek Energy (BCEI)	0.00	32-34	-
HomeAway, Inc. (AWAY)	0.00	28-31	-

Nio (NIO) was up 22% this week though markets face headwinds of inflation and increasingly loose talk of recession by many including Fed Chairman Jerome Powell. With regret, we let go of Sea (SE) but add another favorite selling at a sharp discount to its high—and in the middle of the unstoppable trend of cybersecurity.

There is no perfect method of investing in stocks. What really matters is matching the system’s pros and cons with your own personality. I base this on meeting and corresponding with hundreds of other investors.

Another Fed rate hike is on the near horizon. Before it happens, you should buy these three stocks in this red-hot sector.

After a huge run, last week definitely showed some short-term character changes for many stocks, especially leading titles, with some flashing legitimate abnormal action; even among the top-down evidence, we’ve seen sluggishness, with the broad market showing wear and tear as sentiment remains relatively buoyant. That said, there are still plenty of stocks either holding their own or still doing well, too, including some growth-y themes that are seeing fresh buying of late, a sign big investors aren’t going into hibernation. When you put it all together, we do think paring back some and seeing how things play out makes sense, but it’s as important as ever to take things on a stock-by-stock basis. We dropped our Market Monitor to a level 6 and will leave it there today, but we’re flexible and could ratchet it higher if growth stocks start to rebound strongly.

This week’s list has a wide assortment of names—but nearly all of them are growth-oriented, which we take as a good sign. Our Top Pick is a mega-cap that staged an awesome breakout on earnings last week. Near-term wobbles are possible, but we think big investors will support any dip.

It’s now been a couple of months since the market’s April low, but instead of a firm uptrend that’s telling you big investors are diving in or adding to positions, we’re seeing lots of split action. Whether this is a fresh launching pad for most stocks or near-term toppy action that will lead to a summer slump is anyone’s guess—right now, we’re just following along with the evidence, which means holding and targeting stocks that are fresher and under accumulation, raising stops and dumping names that crack and holding a chunk of cash given the sloppiness seen in the broad market. We’ll leave our Market Monitor at a level 7, but once again, it’s mostly about what you own.

From solar to chips to biotech to aerospace, this week’s list is another that has something for everyone. Our Top Pick is a turnaround-type chip player whose stock has decisively blasted off in late April as business is set to turn up.

Current Market Outlook


The market found some buying support after this morning’s gap lower, as some investors believe the Fed might stay on hold for longer considering job growth has slowed. That was good to see, but, daily wiggles aside, the intermediate-term trend remains sideways, which means staying selective, holding some cash and honoring your stops is paramount. There are still plenty of stocks working and a few set-up nicely, and that’s where your focus should be.

This week’s Top Ten presents a bunch of current winners; all have held up well during the market’s recent selloff. Our Top Pick is Carmax (KMX), which popped out of a nice, flat base on earnings last week.

Stock Name	Price	Buy Range	Loss Limit
58.com (WUBA)	0.00	49-51	45-46
United Therapeutics (UTHR)	0.00	170-175	160-162
Medivation (MDVN)	0.00	125-130	116-117
CarMax (KMX)	0.00	72-75	67-68
Horizon Therapeutics (HZNP)	49.89	24.5-26	21-22
Humana Inc. (HUM)	0.00	175-179	158-162
Diamondback Energy (FANG)	0.00	75-78	67-69
E*Trade Financial (ETFC)	0.00	26.5-28	24-25
D. R. Horton (DHI)	66.55	27.5-28.5	25.5-26
Cirrus Logic Inc. (CRUS)	0.00	31.5-33.5	29.5-30

All in all, the evidence remains unchanged: The major indexes are positive but not exactly powerful, with resistance (such as near 500 on QQQ) still capping many measures, but leadership remains intact, with strong stocks refusing to give much ground and fresh breakouts from the past month acting well. Of course, earnings season is still ongoing, and you can never rule out the market’s key leadership being dented or some abnormal action appearing. But you can always find something that could go wrong in the market—right now, the buyers are in control. We’ll keep our Market Monitor at a level 8.

This week’s list is very broad, with everything from industrials to real estate to true-blue growth stories. Our Top Pick is a pure cyclical name that just busted out of a long-term consolidation on giant volume.

Our portfolio companies wrapped up their reporting season this week, which means I have a chance to come up for air after an intense couple of weeks.

Somewhat as expected we had some nice winners, but also some losers too. It’s just that kind of market; and while I wish we could have had 100% of our stocks post terrific performance after reporting, that’s just not realistic.

In most professional and personal endeavors, there are dozens if not hundreds of decisions to make. Manage a tech company? You need to decide who to hire/promote/fire, what responsibilities to give them, how much to pay them (base and bonus), resolve conflicting agendas, decide what products to promote, approve technical and strategic changes to each product or service, check quality control, help customers, set pricing … the list is essentially endless. Even a simple home landscaping project involves a long list of decisions: how much to spend, do it yourself or hire out, what to plant and where, and so on.

The Fed’s latest hawkish stance prompted an upside breakout in Treasury rates and a big late-week selloff in the stock market, with just about everything getting whacked. That action puts to bed the rally attempt from late August, of course, and reinforces our overall stance—the intermediate-term trend remains down, and with the broadening of selling pressure, we’re pulling our Market Monitor down to a level 5. To be fair, though, we’re not sticking our head in the sand: Yes, there are many worries, but the longer-term trend is still up and there’s plenty of evidence suggesting a resumption of the post-bear rally is coming at some point. Even so, it’s best to wait to see the bulls arrive first than to catch falling knives—right now, we advise holding plenty of cash.

While there aren’t many super-strong stocks out there, this week’s list has many that have taken the selling in stride thus far. Our Top Pick is helping to lead a group move that got underway a few weeks ago and could be starting its first pullback—further weakness would be tempting.

Current Market Outlook


We have a few main thoughts when it comes to the market. First, of course, the intermediate-term trend remains up, and most stocks are acting well, thus we continue to advise a bullish stance. Second, though, divergent action is still in evidence, with small caps and growth stocks racing up the charts, while many sectors and indexes (the NYSE Composite is down 1% this year!) are stuck in the mud. And third, we’ve seen a bit of froth emerge, with some IPOs and other growth names going vertical, whether it’s on news or not. Like we said, we remain bullish—it’s hard not to be when the leading indexes (Nasdaq, S&P 600 SmallCap) and stocks are acting well. That said, given some of the froth we see out there, be sure to keep your feet on the ground, looking for decent entry points and taking some partial profits on the way up.

This week’s list is chock-full of rapidly growing companies with super-strong charts. Our Top Pick is Nutanix (NTNX), which blasted off in March and, after months of up-and-down action, looks to be resuming its uptrend here.

Stock Name	Price	Buy Range	Loss Limit
Canada Goose Holdings (GOOS)	46.21	60-64	53-56
Dropbox (DBX)	31.80	39-41	33-34
Etsy (ETSY)	112.97	40-43	35-36.5
Exact Sciences (EXAS)	116.91	65-69	58-61
HealthEquity, Inc. (HQY)	70.70	77-80	70-72
HubSpot (HUBS)	582.89	135-140	123-126
Inogen (INGN)	210.84	182-189	165-170
Nutanix (NTNX)	55.91	61-64	54.5-56.5
RH Inc. (RH)	252.93	148-156	123-130
Twilio (TWLO)	183.39	57-60	50-52

In today’s note, we discuss the recent earnings reports from Janus Henderson Group (JHG) and Polaris (PII). Our note also includes the monthly Catalyst Report and a summary of the February edition of the Cabot Turnaround Letter, which was published on Wednesday.

Dividend investing is a hybrid strategy focused on generating income from your investments while also growing your wealth.

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