Search

There’s not much to say when it comes to the market—the downturn that started in late August continues, with the major indexes back down to their May/June lows, keeping the intermediate- and longer-term trends pointed down. Moreover, after last week’s Fed meeting, the sellers finally came around for many resilient names, causing a bunch to crack support. Today, we’re staying cautious and continuing to hold plenty of cash, but we’re keeping an open mind as we see how this retest phase plays out. Our Market Monitor is down to a level 3.



This week’s list is mostly names that have taken on water (like everything else) but are still acting “normally.” Our Top Pick is a name that’s acting very unusually good, and it has a good story and excellent growth, too.

Today’s featured stocks reported fourth quarter results this morning; we have a new addition to the Growth & Income Portfolio; which could deliver quick capital gains when they report earnings; and another company which gave an informative presentation at the recent Needham Growth Conference.

I also discuss the coronavirus, which could easily cause stock market turbulence through April, even if the virus dissipates quickly.

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.

The evidence continues to take steps in the right direction, with most of the intermediate-term, top-down measures now pointing up and, after last week, more and more leadership-type names are beginning to perk up. Of course, the headline news from this weekend was the downgrade of U.S. debt, which could be used as an excuse to pull in some indexes and stocks that have had good runs … though today there wasn’t much of that at all. All told, we’re increasingly optimistic when it comes to the bigger picture, though we still want to see more fresh leaders emerge. We have our Market Monitor at a level 7.

This week’s list is a bit eclectic, with everything from earnings winners to earnings setups to news-driven names. Our Top Pick acts like an institutional leader and has the story and numbers to match.

The title says it all—overall, the trend remains up for the major indexes and most stocks and sectors, and so our Market Monitor remains in bullish territory. But there’s also no question that the environment is whippy; big moves happen almost daily, and earnings season continues to bring a bunch of big moves in both directions. None of this is bad, per se, but it does mean you have to be more discerning with your buys and make sure your timing is right and your stops aren’t too tight.

This week’s list has yet another impressive crop of stocks with good stories and charts that have shown large recent buying power (usually on earnings). Our favorite is Yelp (YELP), a relatively recent IPO that has a great, sustainable story, rapid sales growth and a stock that just exploded higher on earnings.

Stock Name	Price	Buy Range	Loss Limit
Yelp (YELP)	41.30	29-31.5	26-27
Trulia (TRLA)	0.00	33-35	29.5-30.5
Seagate Technology (STX)	0.00	39.5-41.5	36-37
Parexel Corp. (PRXL)	0.00	42-44	39-40
IntercontinentalExchange, Inc. (ICE)	0.00	165-170	156-158
Hertz Global Holdings, Inc. (HTZ)	0.00	23-24.5	21-22
Hornbeck Offshore (HOS)	0.00	49-50.5	44-45
Guidewire (GWRE)	90.60	39.5-41	35-36
Gilead Sciences (GILD)	75.10	51-54	47-48
EQT Corporation (EQT)	0.00	73-75	67-69

Three of today’s featured companies seem most obviously ready to begin or continue run-ups in the coming days Yesterday’s earnings report made it clear that a fourth’s dividend is safe, with a current yield of 8.4%. Plus, energy stocks are acting well recently.

All across America, but especially in the Northeast and the Midwest, Boomers will be putting their homes up for sale, and often leaving those areas for warmer climates.

The evidence has gotten a bit worse during the past week, with more misses than hits among leading growth stocks, and with the major indexes sagging a few days in a row. That said, early January is often tricky, with lots of crosscurrents, profit taking, repositioning and so on, so we’re hesitant to change our stance for the moment unless we see a decisive show of strength or weakness. The good news is that we are seeing more proper set-ups from many names that rested during the past six to 10 weeks; if a bunch of them emerge, it would give us some newer, fresher leadership to sink our teeth into.

This week’s list includes a bunch of smaller and less-well-known ideas, which we view as a good thing; most of the “obvious” stocks are either chopping around or suffering through some selling. Our Top Pick this week is YY Inc. (YY), which has had a huge run, but isn’t overly pricey and just surged out of a multi-week tight area. It’s very volatile but the potential is big.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	54-58	49-50
WisdomTree (WETF)	0.00	16-17	14.5-15
Western Digital Corporation (WDC)	0.00	80-83	75-76
Workday (WDAY)	194.88	81.5-85.5	77-78
Spirit AeroSystems (SPR)	92.54	32.5-34	30.5-31
NPS Pharmaceuticals (NPSP)	0.00	30.5-32	26-27
Jazz Pharmaceuticals (JAZZ)	0.00	120-127	112-113
Himax Technologies (HIMX)	0.00	12.5-14	11.5-12
E-House Holdings (EJ)	0.00	13.5-14.5	11-12
Canadian Solar (CSIQ)	0.00	33-35	28-29

The major indexes continue to act very well; today’s pop higher is par for the course. That said, the hot growth stocks of the past few weeks are starting to take a breather; there hasn’t been much abnormal selling, but new buying is being focused on some other groups. Moreover, investor sentiment has, by our measures, become elevated, which raises risk. Altogether, we’re leaving our Market Monitor where it has been. Continue to keep your feet on the ground and try to do your buying on weakness, or in stocks that are recently emerging from multi-week pauses.

This week’s list has a bunch of newer names to Top Ten, or at least stocks that haven’t appeared in a couple of months or longer. Our favorite is Five Below (FIVE), a small but exciting growth company whose stock just popped out of a long consolidation.

Stock Name	Price	Buy Range	Loss Limit
Swift Transportation (SWFT)	0.00	19-20	18-18.5
Qihoo 360 (QIHU)	0.00	79-84	68-69
Ocwen Financial (OCN)	0.00	54-56	49-50
Melco Crown (MPEL)	0.00	29-30.5	25-26
Cheniere Energy (LNG)	63.82	30-32	25-27
Gulfport Energy (GPOR)	0.00	60-63	53-55
Five Below (FIVE)	134.58	45-48	41-42
Dril-Quip (DRQ)	0.00	107-111	101-103
Concur Technologies (CNQR)	0.00	105-110	88-90
ACADIA Pharmaceuticals (ACAD)	47.84	22-23	19-20

Current Market Outlook


The major indexes have been pulling back in recent days, and many are now back to their 50-day moving averages after a nice snapback for the second half of December. The question is whether the recent wobbles have more to do with year-end/start-of-year positioning (this portion of the calendar is notorious for crosscurrents creating volatility), or a renewed wave of selling that would basically be a continuation of what we saw in early December. We’re still optimistic, but we’re knocking our Market Monitor down a couple of notches today, and if all’s well, buyers should appear very soon as many stocks test support.

This week’s list has a larger-cap, steadier feel to it as the market favors “defensive growth” names most of all. Going along with that theme, our Top Pick is Whole Foods Market (WFM), whose stock is firmly in a turnaround phase.

Stock Name	Price	Buy Range	Loss Limit
Whole Foods (WFM)	0.00	48-50	44-46
Visa (V)	0.00	255-265	240-242
Virgin Airlines (VA)	0.00	40-43	36-37
PPG Industries (PPG)	0.00	219-230	209-211
O’Reilly Automotive (ORLY)	0.00	186-193	175-178
CarMax (KMX)	0.00	62-64	58-59
KLA Corp. (KLAC)	158.80	68-70	65-66
Jones Lang LaSalle (JLL)	0.00	145-149	139-141
Electronic Arts (EA)	0.00	45.5-47.5	43-44
Cirrus Logic Inc. (CRUS)	0.00	22-23.5	19.5-20

From July 7 through July 17, we saw a harrowing decline among individual stocks and many major indexes. There was enough damage to suggest selling off a couple of your weaker holdings and possibly taking partial profits in a couple of winners. However, the market found some support last Friday, few stocks have broken down and the indexes have generally held support (though small-cap indexes look sick). Because of that, we remain overall bullish—you shouldn’t push the envelope here, but holding your best performers and keeping your eyes open for new leaders (possibly via earnings gaps) makes sense.

This week’s list surprised us (in a good way) by including a bunch of top-notch growth stories. Our Top Pick this week is Fairchild Semiconductor (FCS), a turnaround in the chip sector with huge projected growth. The stock just enjoyed a huge-volume, earnings-induced surge.

Stock Name	Price	Buy Range	Loss Limit
Weatherford International plc (WFT)	0.00	22-23	20.5-21
Vertex Pharmaceuticals (VRTX)	230.36	92-96	87-89
Vipshop Holdings (VIPS)	14.25	190-200	175-180
Newfield Exploration (NFX)	0.00	42-44	39-40
Cheniere Energy (LNG)	63.82	70-72	65-66
Keurig Green Mountain (GMCR)	0.00	117-122	110-112
Fairchild Semiconductor (FCS)	0.00	16-17	14.5-15
Blackstone Group (BX)	49.12	34-36	31-32
Applied Materials (AMAT)	0.00	22-23	20-21.5
Akorn (AKRX)	0.00	31-33	29-30

There are a decent number of warts on this market, including some lackluster action from the broad market, the fact that big-cap indexes have been chopping up and down for the past few weeks, and that small-cap indexes look sick. However, the major trends of the indexes remain up, and most leading stocks, while not tearing up the charts, are still in decent shape. (The many earnings reports last week brought a mixed bag of gaps up and down.) We have our antennae up, especially as more earnings reports push stocks this way and that, but right here the evidence continues to tell us to lean bullish and give our top performers a chance to keep rising.

This week’s list has a bunch of recent earnings winners; if the market is going to continue trending higher, most of these names should do well. Our Top Pick is Steel Dynamics (STLD). We’re usually not big fans of highly-cyclical steel stocks, but STLD just had a big quarter and an even bigger acquisition, with huge earnings forecasts for the next 18 months.

Stock Name	Price	Buy Range	Loss Limit
Under Armour (UA)	0.00	65-70	59-60
Steel Dynamics (STLD)	0.00	20.5-22	18.5-19
Silver Wheaton (SLW)	0.00	25-26	23-24
Royal Caribbean Cruises (RCL)	0.00	59-62	55-56
Patterson-UTI Energy (PTEN)	0.00	36-37	33-34
Polaris Industries (PII)	0.00	143-147	136-137
HCA Healthcare (HCA)	137.60	61-63	56-57
Canadian Pacific Railway (CP)	0.00	190-195	178-180
Cameron (CAM)	0.00	71-73	66-67
Apple (AAPL)	248.94	95-98	89-90

While the market action has been somewhat exciting this week (though in the wrong direction), it was fairly dull for Cabot Undervalued Stocks Advisor recommended stocks in terms of news. This news drought will fade as five companies report later this week, with six more the following week.

Each day brings something new. Some days every stock falls, other days they all surge, and some days, like Monday, undervalued stocks in the industrial, consumer and financial sectors jump (the Dow Jones Industrial Average gained 1%) while the Nasdaq slipped 2.4% - an enormous and historically unusual 3.4 percentage point gap, particularly as the indices went in opposite directions. Since February 12th, the Dow Jones Industrial Average has lifted by 1.1% while the Nasdaq has plunged by 10.5%, entering what the media call a correction.

The market took a hit last week, as Washington’s ineptitude continued to grab the headlines and cause investors to raise cash and book some profits. The action wasn’t pretty, for sure, but we can’t say it’s changed the big picture—the rally since the mid-November lows is still intact, and many of the stocks and sectors that had been performing well took last week’s dip in stride. Another day or two of big declines would change our outlook, but right here, you should continue to “lean bullish,” holding your better performers and putting some money to work as opportunities arise. You should, however, also hold a decent cash position until we see more power and decisiveness from the market.

This week’s list is almost evenly split between great growth companies and turnarounds, including a couple of well-known names that are looking good. We like many of the charts, but we’ll go with Qihoo 360 (QIHU) as our favorite of the week. The stock is a bucking bronco, but it has great growth and a big story.

Stock Name	Price	Buy Range	Loss Limit
Tenet Healthcare (THC)	0.00	30-31.5	-
Terex (TEX)	0.00	25-26.5	-
Rackspace (RAX)	0.00	69-72	-
Rackspace (RAX)	0.00	69-72	-
Qihoo 360 (QIHU)	0.00	26-28	-
Mohawk Industries (MHK)	0.00	87-89	-
General Motors Company (GM)	0.00	26-27	-
FLSR (FLSR)	0.00	28-30	-
Equinix, Inc. (EQIX)	547.73	198-205	-
3D Systems (DDD)	0.00	48-50	-
Bank of America (BAC)	0.00	10.8-11.4	-

Current Market Outlook


The divergence continues, with the broad market looking increasingly weak. Even the rally last week couldn’t lift many stocks off their bottoms. So what comes next? Optimists may claim that low interest rates mean there are no attractive alternatives to stocks, but pessimists will note that divergences such as these seldom end well. Thus our market monitor remains unchanged—in slightly positive territory. You can still make money in this market, but more than ever, skillful stock-picking, combined with proper entry timing, is critical. So we urge you to study numerous individual stocks carefully. Try to buy on normal pullbacks. And above all, keep losses small if a stock doesn’t do what you hired it to do. Today’s roster includes some strong breakouts and a handful of set-ups, and our Editor’s Choice is Vantiv (VNTV), which vaulted out to new highs last week on a positive earnings report and is riding a fine trend of long-term growth.

Stock Name	Price	Buy Range	Loss Limit
Zoës Kitchen (ZOES)	0.00	43-45	39-39.5
WisdomTree (WETF)	0.00	24-26	21-22
Vertex Pharmaceuticals (VRTX)	230.36	135-137	121-123
Vantiv (VNTV)	0.00	42-45	39-40
ServiceNow (NOW)	341.86	76-78	72-73
Masco (MAS)	0.00	24.5-26	23-24
ICON plc (ICLR)	0.00	78-80.5	71-72
Equinix, Inc. (EQIX)	547.73	270-280	260-265
Buffalo Wild Wings (BWLD)	0.00	188-193	174-176
Anacor Pharmaceuticals (ANAC)	0.00	144-151	125-130

Current Market Outlook


Last week didn’t see much net change in the major indexes, but volatility has surged, with big swings up and down based on the news of the day. Overall, not much has changed—some stocks and sectors are acting well, but many others are chopping around and some (like MLPs) are literally crashing. By our measures, the market’s trends are still pointed up, but it’s close. All in all, we’re sticking with a relatively neutral stance, meaning we’re holding our top performers, but also holding some cash and being very selective on the buy side. And if something breaks down or trips its stop, it should be jettisoned quickly.

This week’s list continues with the bigger-cap, growth-oriented theme that’s been present for the past few weeks. Our Top Pick is Ulta Beauty (ULTA), which just gapped up to new highs after three months of rest following a great earnings report. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Weibo (WB)	98.16	18-19	16-17
Western Alliance (WAL)	0.00	36.5-38	34.5-35
Ulta Beauty (ULTA)	331.95	180-184	169-170
Palo Alto Networks (PANW)	236.92	188-193	172-174
Nevro Corp. (NVRO)	0.00	58-62	52-54
Netflix, Inc. (NFLX)	423.92	123-127	113-115
Southwest Airlines (LUV)	0.00	48-50	44-45
Jabil Inc. (JBL)	41.50	24.5-26	23-23.5
Alibaba (BABA)	254.81	82-85	76-77
Broadcom Limited (AVGO)	266.26	142-146	132-134