Search

The inflation outlook has certainly moved toward the “less bad” end of the spectrum over the last week. That’s the big-picture reason stocks have been doing well since last Friday. On Tuesday the NFIB Small Business Survey (December data) showed that the percentage of small businesses with job openings is falling, as are the percentage of businesses expecting to increase hiring over the next three months and the percentage planning to raise average selling prices.

For many of your value stocks on the recommended list, the New Year’s rebound continues. Most of these shares were heavily over-sold late last year. Almost given up for dead, shares of Organon (OGN) have surged 38% since hitting an all-time low in mid-October. Similarly, shares of Barrick Gold (GOLD) are up over 43% since their nadir in November.

The S&P 600 Small Cap Index hit a 2022 closing low of 1,064 on September 26. On November 11 it moved back above its 200-day moving average line and closed at 1,232. That was a 16% move off the low.

The index then moved sideways for a few weeks before dropping back below both its 50- and 200-day moving average lines in mid-December. At that point, the index found support at 1,135, roughly 7% above the November lows.

WHAT TO DO NOW: Remain defensive. Early January is often marked by crosscurrents, and this year is no different, with a few intriguing rays of light popping up—but the market’s trends are pointed down and there remain far more sinkholes than shooting stars among individual stocks. In the Model Portfolio, we’ve shielded most of our money from harm’s way in recent weeks, but a couple of our names have been getting hit with growth stocks of late. Tonight, we’re forced to sell our half position in Enphase Energy (ENPH), bringing our cash position up to 80%. Details below.

Securing inputs for the next generation of technology is critical to American primacy, and potentially highly profitable for these 2 metals stocks.

The financial media, observers and traders are focused almost exclusively on the path of the Fed’s interest rate tightening policy. How much will they raise rates at the next meeting? How about the meeting after that? Then what? What is the terminal rate (the highest rate of the cycle)? When will the Fed start reducing rates?

The failure of FTX wasn’t a failure of cryptocurrencies, it was just (per the unsealed indictment) fraud. But there are still lessons to be learned, whether you love crypto or hate it.

It was a solid week for the major indexes, and even better has been some notable improvement in the broad market—in late December, we saw a key positive divergence from a broad market measure for the Nasdaq, and now we’re starting to see some legit improvement elsewhere, too. Don’t get us wrong, at this point, the major trends are still pointed sideways-to-down, so we’re not going to make too much out of what we see, but it’s fair to say we’re approaching another key juncture: If the market and (importantly) individual stocks are able to build on their recent action, we could get a green light or two and have something to work with. For now, our Market Monitor remains a level 4, but our antennae are up.


This week’s list features a wide array of names, with some commodity and value names combined with a few turnaround and growth titles. Our Top Pick is a solid long-term grower that has some catalysts for this year—as usual, aim to enter on dips.

WHAT TO DO NOW: The market remains in a pullback, with interest rate fears causing the indexes to slowly deflate. To this point, most indicators are still positive, though they’re leaning on the fence—yet there are many stocks and sectors that look ready to get going if the bulls can show up. All in all, we think how the Model Portfolio is situated (38% cash) makes sense here, though given the slippage, we will place ProShares S&P Fund (SSO) and Wingstop (WING) on Hold tonight. Details below.

The market is testing key levels, as are many indicators, but today’s bounce is a small positive. Today’s bulletin is about Shift4 (FOUR), which cracked support on huge volume two weeks ago and hasn’t been able to bounce at all since. We’re going to sell one-third of our position today and see what earnings brings tomorrow. Our cash position will be around 38% after the sale.

Human cognitive biases can help us in some instances but when it comes to investing, it’s usually best to stick with research and analysis.

“Resilient” is not a word that would have described stocks in 2022, but through the first quarter of 2023, that’s precisely what they’ve been in the face of a bank meltdown, more interest rate hikes and still-high inflation. It bodes well for the back half of the year when perhaps some – maybe all? – of those worries subside. In the meantime, we have to say goodbye to a couple underperforming stocks today, while adding a growth play that lies outside U.S. borders. It’s a Mexican consumer products stock that takes advantage of Mexico’s cheap manufacturing costs – and the stock is up 22% year to date!

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the April 2023 issue.

This issue focuses exclusively on the banking industry. Given the recent turmoil and the second- and third-largest bank failures in U.S. history, we examine the question on the minds of value and contrarian investors: is it time to jump back into bank stocks?

Our feature recommendation this month is First Horizon Corp (FHN), a relatively plain mid-sized regional bank that provides an appealing way to exploit the bank sell-off: merger arbitrage. Due to regulatory delays, the bank’s shares trade at a 33% discount to the $25/share all-cash offer from TD Bank Group, a large and well-capitalized Canadian bank. We believe that the deal will close at the $25 price, providing an attractive return, even as the shares’ discounted valuation offers considerable downside protection.

Banking crisis fears have subsided, and while the fallout from Silicon Valley Bank, Silvergate and Signature Bank simultaneously going under is sure to be felt in the market for weeks and months to come, it’s also not looking like 2008 out there, at least not at the moment. Still, we could use some more safety in the portfolio, and today we add it in the form of a large-cap healthcare giant that’s a reliable dividend payer, boasts one of the industry’s best drug pipelines, and has been outperforming the market for years. It’s a favorite of Cabot Dividend Investor Chief Analyst Tom Hutchinson, who recently upgraded the stock to Buy.

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

Despite ongoing banking fears, impressively the S&P 500 gained 1.26% last week, while the Dow rose by 1.48% and the Nasdaq added 1.14%. How this situation will play out this week is a complete toss-up, though I have to say I’ve been impressed by the resiliency of the bulls in the face of bad news … for now!

Yesterday the FOMC decided to move ahead with another 25bps hike, bringing its federal funds target rate to a range of 4.75% to 5%. The statement was missing the phrase, “...ongoing increases in rates would be appropriate,” which was present in the eight previous statements, suggesting the Fed may be done hiking soon.

The market held its own last week and we’re now even seeing the worst areas out there bounce as a bit of stability shows up in the banking sector. That said, on the charts, not much has changed—some growth stocks are acting resiliently but the broad market is still buried. We’re open to anything, including the scenario where an easier Fed combined with limited bank reverberations leads to a sustained advance. Right now, most of the market is hanging in there, but we need to see continued buying before changing our stance. We’ll leave our Market Monitor at a level 5 today.

This week’s list is a bit broader with some turnaround situations out there. Out Top Pick is an old pandemic darling that, after crashing, has spent months bottoming out and is now perking up

Despite ongoing banking fears, impressively the S&P 500 gained 1.26% last week, while the Dow rose by 1.48% and the Nasdaq added 1.14%. How this situation will play out this week is a complete toss-up, though I have to say I’ve been impressed by the resiliency of the bulls in the face of bad news … for now!