Search

It was only a month ago when we wrote about how the seemingly out-of-the-blue turmoil in the banking sector, driven by the sharp increase in interest rates, could lead to a major financial accident that traumatizes the world’s capital markets. Part II recognizes an ever-expanding roster to include additional percolating problems.

Stocks are doing a nice job weathering a very choppy earnings season, with mixed – though perhaps better than expected – results coming in from mega caps and the banks thus far. Today, we sidestep U.S. earnings landmines by venturing overseas to add an electric vehicle company that’s a household name in China, but perhaps less well-known here in the States. And it’s starting to give Tesla a run for its money. It’s a recent recommendation from Cabot Explorer Chief Analyst Carl Delfeld.

As widely reported, Jamie Dimon, the 23-year-and-counting CEO of JPMorgan and its predecessor Bank One, recently penned his annual letter to shareholders. The 43-page tome covered topics ranging from the bank’s “Steadfast Principles Worth Repeating” to “Our Serious Need for More Effective Public Policy and Competent Government” along with some impressive numbers about JPMorgan’s financial, operational and share price performance over the decades.

The holiday-shortened week was mostly a non-event as the S&P 500, Dow and Nasdaq were mostly mixed. And while the week was quiet, under the surface there was selling pressure in growth stocks and materials that raised some yellow flags.

The holiday-shortened week was mostly a non-event as the S&P 500, Dow and Nasdaq were mostly mixed. And while the week was quiet, under the surface there was selling pressure in growth stocks and materials that raised some yellow flags.

The market took a deep breath last week on the cusp of an eventful upcoming stretch. This week alone we get the latest CPI and PPI numbers before a very pivotal earnings season kicks off on Friday. Potential catalysts – and potholes – abound, so chances are the coming weeks won’t be as calm as the first week of April was. With that in mind, in today’s issue, we’re adding a stock fit to weather any further storms. It’s a century-old company that pays a dividend, trades at a mere 12 times forward earnings, and yet is up 14% year to date – and has been a mainstay in the portfolio of Bruce Kaser’s Cabot Undervalued Stocks Advisor.

After a couple of good weeks, some pullback was half-expected—and, when looking at the big-cap indexes, nothing out of the ordinary has been seen. That said, digging deeper, we saw a good amount of selling in resilient stocks, another round of selling in the broad market all while defensive names found buyers. To this point, the potential leaders that took on water are still holding onto intermediate-term support, so we’re not advising any major change in stance. That said, the next couple of weeks will be key (for good or bad), especially as earnings season gets started. We’ll leave our Market Monitor at a level 5 today.

This week’s list has an interesting mix of names, including more than a few turnaround-type actors that remain under accumulation. Our Top Pick is a former winner that offers a mix of growth and defensiveness in this environment.

The market is still like a jar of mixed nuts. Some good, some bad.

Earnings season begins this week as large-cap banks start delivering Q1 results. Across small-, mid- and large-cap stocks (all sectors) earnings estimates have been trending down for several quarters.

It’s possible stocks are stretched, at least in the near term, and the just-underway earnings season will put that to the test in the coming weeks. The next big move may be to the downside, so today we’re adding some more portfolio protection in the form of a mega-cap health insurer that pays a modest dividend but has a history of beating the market. It’s the latest recommendation from Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Each investor operates within their own time horizon. Day traders’ time horizon is the 4 p.m. ET market close, or shorter. Some traders focus on the calendar week, while most hedge fund traders have a month-end time horizon. Mutual funds focus on a quarterly or at most annual time horizon. Financial commentators have their own time horizons, as well. Bombastic TV or live-streaming pundits usually focus on very short horizons – “what has the stock done for me lately” is their mantra. The definition of “lately” can change but usually means “the past few weeks” or “since it stopped going up.”

The market continues to act “fine” as we get a little deeper into earnings season this week.

At the index level, small-cap stocks are unremarkable. But I continue to attribute the underperformance to the high weight of rate-sensitive sectors (financials, energy, industrials, materials).

In the April issue of Cabot Early Opportunities, we take a quick look at what to expect from portfolio positions set to report in the coming weeks and dive into fresh opportunities that are shaping up nicely now.

At the top of the buy list is a software name we just added to our Watch List last month. We also take a position in a cosmetics stock that looks superb, pull back the curtain on a rising biotech star, tour an enterprise software name based in Canada and revisit a MedTech stock that’s finally getting some respect from the Centers for Medicare and Medicaid Services (CMS).

Enjoy!

WHAT TO DO NOW: After cracking on an intermediate-term basis last week, the market has been unable to find its footing this week despite some steps to secure the banking system. It’s not 2008 out there, and in fact, many growth stocks we own and are watching are still holding up well, but there’s no doubt the selling pressures out there are intense and haven’t let up. Tonight, we’re going to sell one-third of what’s left of our ProShares S&P Fund (SSO) position and our half position in Las Vegas Sands (LVS), which will leave us a cash position of around 66%.

Small-cap stocks have underperformed their larger-cap peers by a wide margin since Jerome Powell’s Congressional Testimony just over three weeks ago.


Part of that is because of the hawkish tone he struck. But mostly it’s because of the fallout of the SVB debacle, concerns over a 2023 financial crisis and what the spillover effects could be on the broader economy.

This week, we comment on earnings from Walgreens Boots Alliance (WBA).


We also include the Catalyst Report and a summary of the April edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the April 2023 issue.

We comment on the price of gold and what we see as its primary drivers. Gold is now trading above $2,000/ounce. We also provide updates on our recommended stocks.

Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

The market is arguably the healthiest it’s been since 2021 – remarkable considering all the economic and sociopolitical hand grenades tossed at investors in the first quarter of 2023. So, this week we lean into the recent strength by adding another growth stock in the form of a small-cap semiconductor play with strong ties to Apple. It’s a stock recently recommended by Cabot Early Opportunities Chief Analyst Tyler Laundon, and one that has plenty of momentum – up 35% year to date.

We’re digging into another compelling MedTech story this month.

The company in focus is a spine specialist. It’s been grabbing market share from larger players by growing a portfolio that covers the full spectrum of spine care, from imaging and surgery planning to surgical tools and implants.

It’s a great example of how intense focus on a specific market can set one player apart from the big boys. Enjoy!

Thank you for subscribing to the Cabot Value Investor. The new name for the former Cabot Undervalued Stocks Advisor more clearly and broadly describes our mission to serve value-oriented investors. We hope you enjoy reading the May 2023 issue.

Fitting for a value investment newsletter, your chief analyst will be making the pilgrimage to the Berkshire Hathaway Annual Shareholders Meeting this coming weekend.

In this month’s letter, we include our recent new Buy recommendation: NOV, Inc. (NOV). This high quality mid-cap company ($7.3 billion market cap) appears to be in front of an upshift in demand for sophisticated drilling equipment even as its shares trade at a modest valuation.

We also cover earnings reports and provide other relevant updates on our recommended companies.

Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

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

Capital market conditions have tightened in the past year, making companies that hold excess cash more valuable and less reliant on fickle external financing. Our search for cash-rich companies that have real products and services with proven and enduring demand whose shares are out-of-favor turned up three promising stocks. Several currently recommended Cabot Turnaround Letter names would also make this list.

Our research process involves looking at a large number of possible turnaround ideas. As investing legend Peter Lynch once said, “The person that turns over the most rocks wins the game.” We uncovered six stocks that have both promising turnarounds ahead yet also have discounted share prices.