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I’m recommending that we sell our position in Solventum (SOLV). I’m recommending that we sell our position in Baxter International (BAX).

Right on the heels of yesterday’s Issue featuring new addition Byrna Technologies (BYRN) management released preliminary Q2 revenue. The press release came just after the closing bell yesterday.

Cava (CAVA) Moves to Sell a Quarter, SharkNinja (SN) to Hold

Emerging markets ETFs, the strategy that doesn’t really deliver results. I’m going to make a blunt statement.

Small caps bounced off their 50-day line last week and are nearing all-time highs. It’s anybody’s guess what will happen in the days ahead as many people will have stepped away from the market, so don’t be surprised if there is some odd trading in some of our stocks. There’s usually some inefficient trading, especially with the microcap stocks, during these periods.

Last Monday’s dramatic selloff and reversal smelled like a short-term low, but the sellers had other ideas—the bounce from that low lasted just a couple of days before the bears were back at it, with today’s decline further unraveling growth stocks. All in all, we remain in the same cautious stance as we have been for a while: Given the extreme selling in growth and choppiness in many other areas, we think holding a good chunk of cash is paramount; we’re not opposed to a little buying here and there in resilient areas, but we don’t advise playing heavily until the bulls step up to the plate. Our Market Monitor now stands at a level 4.



This week’s list is mostly cyclical and commodity names, all of which are acting or are set up well. Our Top Pick is a Canadian copper and coal play that just lifted from a multi-month rest on big volume.

Last week was an awful one for growth stocks, many of which had already been sitting well off their highs and then were taken apart as the calendar flipped, with 15% to 20% declines seen in some former leaders last week alone. To be fair, some areas actually acted decently—in our screens this week, it wasn’t hard to find good-looking commodity, semiconductor, financial and industrial stocks—and there are names that may be near good entry points. The trick, though, is that the selling appears to be broadening out: Today saw declines across the board (led again by growth stocks), with even resilient areas getting hit. We never catch falling knives, but in the near term, a bounce wouldn’t shock us, as the selling has beenpunishing and has become very obvious. Still, that’s like picking up nickels in front of a bulldozer—a nibble here or there is fine, but there’s not much to like from an intermediate-term perspective, so caution remains the best stance.

This week’s list contains a bunch of commodity and more reliable performers, a sign that big investors continue to favor steadiness and defense rather than aggressive situations. Our Top Pick is a steady performer with a low valuation and a great cash flow outlook.

We’ve written about inflation in the past two letters and promise that we’ll stop with this letter, unless some major news on this front emerges. Yet, what keeps us on the topic is commentary from brokerage firms and media outlets saying that the market is fully discounting the arrival of inflation. If inflation is here to stay, at perhaps a rate greater than, say, 3-4%, then the market is not discounting its arrival.

Current Market Outlook


There are a still a couple of flies in the market’s ointment, but the past week or two has seen the market broaden out—the Nasdaq and growth stocks are still leading the way, but the S&P 500 and NYSE Composite have joined them in new high ground, and even the lagging small- and mid-cap indexes have perked up. Market-wise, then, the evidence has improved, so we’re nudging up our Market Monitor to a level 9. Just as important, though, is handling your stocks correctly—right now, many are extended to the upside, though some are just emerging while others look like great buys on any dips. Long story short, you should remain bullish, but honor your stops and continue to pick your spots on the buy side.

This week’s list has another batch of strong growth stocks. Our Top Pick is JD.com (JD), which catapulted to all-time highs a month ago on earnings and has calmly consolidated since.

Stock Name	Price	Buy Range	Loss Limit
Autodesk (ADSK)	229.00	107-112	99-102
Bob Evans Farms (BOBE)	0.00	67-70	62-63.5
Broadcom Limited (AVGO)	266.26	245-255	227-232
Graco Inc (GGG)	0.00	109-113	101-103
JD.com (JD)	39.58	38-40	35-36.5
Lumentum (LITE)	87.00	56-58	51-52.5
Marriott Vacations (VAC)	0.00	116-120	105-108
Marvell Technology Group (MRVL)	36.88	16.8-17.5	15.8-16.2
ServiceNow (NOW)	341.86	102-105.5	95.5-97.5
Weibo (WB)	98.16	73-76	66-68

Current Market Outlook


The market has turned mostly neutral, with the intermediate-term trend slightly negative, the longer-term trend slightly positive, and individual stocks a mixed bag. In the big picture, the pullback in the major indexes during the past month is reasonable given the February-April gains, and we’re encouraged by both the broad market’s resilience (few stocks or sectors are in disarray) and the dearth of bullish sentiment. Even so, it’s best to go with the market’s action first and foremost, and right now, it’s a mixed bag. Thus, we’re knocking our Market Monitor down another notch and will keep an open mind—a big-volume selloff from here would raise the odds of a deeper correction, but a surge back above the 50-day lines for the major indexes would likely signal the resumption of the post-February advance. Stay tuned.

This week’s list again has a solid growth feel to it, including a few stocks that recently reacted well to earnings. Our Top Pick is Fidelity Information Services (FIS), a steady fundamental performer that gapped up on earnings three weeks ago and has held firm since.

Stock Name	Price	Buy Range	Loss Limit
Weibo (WB)	98.16	22-23	20-21
Ultimate Software (ULTI)	0.00	193-199	183-185
TransUnion (TRU)	83.09	30-31	28-28.5
Tallgrass Energy Partners (TEP)	0.00	46-49	42.5-44
NetEase, Inc. (NTES)	0.00	158-163	145-147
Fidelity National Information Services (FIS)	0.00	70-73	65-66
Emergent BioSolutions, Inc. (EBS)	0.00	41-43	38-39
Salesforce.com (CRM)	0.00	79-82	74-75
Becton Dickinson (BDX)	0.00	162-166	157-158
Applied Materials (AMAT)	0.00	21.5-22.5	20-20.5

This market just continues to impress with the S&P within a whisker of the all-time high in these waning days of summer.

Why shouldn’t the market be strong? Everybody expects the Fed to start cutting the Fed Funds rate next month. The benchmark 10-year Treasury rate has fallen below 4%. And there’s no recession in sight. We’re getting the lower rates without the requisite economic pain.

What a difference two weeks make! From the close on Monday, August 7 to the close on Monday, August 14, the S&P 500 was up about 8% and is again flirting with the high.

The market fell a lot from mid-July to early August. But it has since recovered all the losses. While the S&P is back near the high, the last month has been a wild ride to nowhere. Now what?

This week’s Friday Update includes our comments on earnings from Wells Fargo & Company (WFC). We had no price target or ratings changes this week, although we are reviewing Wells Fargo shares as they trade above our price target.

Things are getting dicey in the market.


The problem is interest rates. Growth expectations are strong following the election. At the same time, inflation has been sticky and not moving lower. Investors were already expecting higher rates for longer when they got a gut punch with last week’s strong jobs report.

The broad market has bounced in recent days, which is good to see; we’re even seeing a much-overdue relief rally in the interest rate-sensitive sectors. But the real action remains among growth stocks; the vast majority of our recent recommendations are acting well, including a bunch that have pushed to new highs! We still don’t think the market is 100% in the clear; we’ll leave the Market Monitor where it is (just shy of bullish), so holding some cash and keeping your feet on the ground makes sense. But the action among leaders is encouraging.

This week’s list has a nice variety of names to choose from, but for our favorite, we’re going with an institutional growth stock leader—Netflix (NFLX) has come out of the public’s eye of late, but shares have surged to new highs as the firm’s business continues to rebound. Try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Yandex (YNDX)	0.00	33-34.5	30-30.5
Yelp (YELP)	41.30	48-52	42-43
Stratasys (SSYS)	0.00	103-108	92-94
Polaris Industries (PII)	0.00	110-115	104-105
Oshkosh (OSK)	95.04	45-47	41-42
Netflix, Inc. (NFLX)	423.92	275-285	245-250
Melco Crown (MPEL)	0.00	26-27	24-24.5
Magna International Inc. (MGA)	0.00	78-81	73-74
Keurig Green Mountain (GMCR)	0.00	83-88	78-79
Cabot Oil & Gas (COG)	0.00	37.5-39	36-36.5