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Cabot Prime Pro Week Ending April 21, 2017

Cabot Prime Pro Week Ending April 21, 2017

Cabot Quarterly Market Report

Click here to view the first quarter 2017 Quarterly Market Report for Prime Pro members and listen to the April 11 Cabot Prime Quarterly Analyst Teleconference.

Cabot Weekly Review

In this week’s video, Mike Cintolo discusses the market’s very encouraging action in recent days, which makes the prior week’s high-profile selloff look like a shakeout. That said, Mike still isn’t ready to give the market’s intermediate-term outlook a green light, but with the evidence improving, he’s fine-tuning his watch list (and earnings calendar) and is ready to bounce if the market confirms a new uptrend.

Cabot Growth Investor

Bi-weekly Update April 19: Mike is continuing to play things cautiously. Our Cabot Tides turned negative last week, though he didn’t take any action in the Model Portfolio because he already had 29% in cash. We’ve seen a modest bounce this week, and with our Cabot Trend Lines and Two-Second Indicator still positive, we think the next big move is up. But until we get a new Tides buy signal, we’re holding some cash and taking things on a stock-by-stock basis. We have no changes tonight, though we’re keeping shares of Netflix (NFLX) on a very tight leash.

Other Stocks of Interest April 14: Follow ups to stocks featured November 9, 2016 (issue 1355) to April 12, 2017 (issue 1365). Since they’re not in the Model Portfolio, you don’t see them followed on a regular basis. However, we are monitoring these stocks, and this listing gives their current momentum status.

Bi-weekly Issue April 12: Tonight, we’re replacing Lumentum (LITE) with Alibaba (BABA), which is showing signs of emerging. We’ll still have nearly 30% in cash after tonight’s purchase, giving us some cushion until the buyers return. Elsewhere in tonight’s issue, we discuss the importance of developing staying power, which helps you achieve some big winners, and review many of the stocks we’re watching closely for when the longer-term uptrend resumes.

Cabot Top Ten Trader

Movers & Shakers Weekly Update April 21: A couple of good days in the indexes and leading stocks would likely be the signal that the seven-week consolidation is over, and that the longer-term uptrend is resuming. That would tell us to take a more aggressive stance, especially if new leadership shows up on earnings. Until then, we’ll remain in a slightly cautious stance, holding our resilient stocks, but also holding some cash and being selective on the buy side. The next few days should go a long way toward revealing the market’s hand.

Weekly Issue April 17: This week’s Cabot Top Ten Trader has another batch of stocks with strong stocks and good stories. Our Top Pick is Innoviva (INVA), a little-known biotech that’s raking in the money thanks to some leading products and a generous royalty stream.

Cabot Options Trader and Cabot Options Trader Pro

Note that the current week’s Weekly Update, earnings updates, position updates and stocks on watch are posted on the website in the Market Update section, which is deleted each week.

Sell Alert April 21: Close Existing Position: Sell your PayPal (PYPL) April 44 Calls for $0.01 or more.

Position Update April 21: Visa (V) reported earnings and revenues that easily beat expectations. The company also announced a $5 billion stock buyback. In early pre-market trade, V is trading higher by $2.60, at 93.75. If V opens at 93.75, our position will be at an approximate profit of 90% to 100%. Jacob will closely monitor option trading today to determine if we should sell or hold on for even more profits.
Position Update April 20: Visa (V) will report earnings after the close today. We are holding half of a position, having sold the first half for a profit of approximately 25%. I’m going to take the earnings risk tonight, but if you want to avoid earnings, you must close your position before the close of trade today.

Close Existing Position April 20: Sell your Microsoft (MSFT) April 62.5 Calls and Buy Back your April 66 Calls for $2.70 or more or Sell your Microsoft (MSFT) April 62.5 Calls for $2.75 or more.

Stock on Watch
April 19: One stock that keeps popping up on Jacob’s radar and then drifting off is Anheuser Busch (BUD). Since early March, traders have been amassing huge call positions. Today, a trader again bought a large position.

Position Updates April 19: April options will expire this Friday. That means that we will need to address our Microsoft (MSFT) and Builders FirstSource (BLDR) positions this week.

Earnings Update April 19: Here are earnings updates on American Express (AXP) and Qualcomm (QCOM), which will report earnings today after the close.

Trade Alert April 19: Sell HALF your Visa (V) June 90/95 Bull Call Spreads for $1.95 or more. Visa is popping higher this morning, which is putting our position in good shape. Jacob will offer half his spreads at a profit of 22%, and see if he can get filled.

Earnings Update
April 18: Morgan Stanley (MS) will report earnings on April 19 before the open. Jacob’s update includes including what the options market is pricing in for an expected move, the stock’s move on the last earnings event, his quick thoughts on volatility/price of options and recent order flow

Trade Alert April 18: Sell Half of Existing Position: Sell HALF your Coca-Cola (KO) May 42 Calls for $1.60 or more.

Earnings Updates April 17: Here are earnings updates on Netflix (NFLX), Bank of America (BAC) and Goldman Sachs (GS), including what the options market is pricing in for an expected move, the stock’s move on the last earnings event, Jacob’s quick thoughts on volatility/price of options and recent order flow.

Weekly Update April 17: The VIX closed the week at 16, higher by 29% on the week and the highest close since before the election. That said, Jacob’s option scanner is still trending bullish, and he has not yet seen big put buying in the market leaders (though there has been put buying in the semiconductors). Also, given the many geopolitical concerns, the VIX at 16 seems cheap. And the fact that the VIX isn’t at 20 given those concerns, likely means that the big market players don’t see a big market fall.

Cabot Undervalued Stocks Advisor

Special Bulletin April 21: Mattel (MAT) reported a poor first quarter, largely due to continuing overhang from a poor holiday season. Crista expects to hold the stock as long as the numbers remain attractive. She is not changing the rating today, but if the stock lingers at 22, she will change the rating to a Hold while we wait for MAT to prepare to rise again. Buy.

Weekly Update
April 18:
Crista has two rating changes: American International Group (AIG) moves from Strong Buy to Hold, and Goldman Sachs (GS) moves from Strong Buy to Buy. Near-term, PulteGroup (PHM) and TiVo (TIVO) are Buy-rated stocks most likely to rise more than 5%.

Monthly Issue April 4: Today’s featured stocks include Johnson Controls (JCI), Vertex Pharmaceuticals (VRTX); and a new addition to the Growth & Income Portfolio, TiVo (TIVO). Johnson Controls (JCI) moves from Buy to Strong Buy.

Cabot Stock of the Week

Weekly Issue April 18: After surging to new highs in mid-March, today’s recommendation, Jabil Circuit (JBL), entered into a tight consolidation pattern—and today it’s still in that pattern! While the broad market has pulled back, this stock has held up strongly, which is a very good sign.

Cabot Small-Cap Confidential

Weekly Update April 21: Small caps got their mojo back this week. The asset class jumped 3.2%, driven by strong performance in consumer discretionary, tech and industrials. In fact, everything was up except energy. Tyler write a lengthy update on Aqua Metals (AQMS), which was attached by short seller “The Friendly Bear.” There are no ratings changes today.

Monthly Issue April 7: Aqua Metals (AQMS) is a $358 million market cap company trying to disrupt the $22 billion global lead recycling industry. There are no changes to the other stocks in the portfolio.

Cabot Emerging Markets Investor

Bi-weekly Issue April 20: Most of our recommended stocks are acting great, and our new recommendation, Yum China (YUMC), checks many of the boxes we look for when hunting for a long-term winner. It’s a dominant restaurant company in China, and the stock just got going after a few months of base-building. There are no changes in ratings today.

Cabot Benjamin Graham Value Investor

Weekly Update April 21: Thirteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. This update also includes two Sell alerts: Aflac (AFL) and Activision Blizzard (ATVI).

Monthly Enterprising Issue April 13: This month, Roy introduces Tech Data (TECD), which holds great promise. After reporting stagnant results during the past several years, the company recently acquired assets that will boost sales and earnings this year and next.
Monthly Value Model Issue April 6: The allocation for the Cabot Value Model remains at Level 5, which calls for a mix of four stocks and 12 defensive positions. The Value Model adds two new stocks this month: Celgene (CELG) and Lowe’s Companies (LOW), while two stocks transition out of the Model: Danaher (DHR) and Home Depot (HD).

Cabot Dividend Investor

Special Bulletin April 21: Schlumberger (SLB) reported earnings that met estimates this morning, but revenue fell short of expectations and the stock is about 3% lower mid-morning. We’ve been considering selling SLB for the past few weeks, disappointed by the stock’s lack of momentum even as oil prices have rebounded. We have a mental stop in place around 75, where the stock bounced in June and September. Right now, SLB is trading below that level. If it closes below 75, we’ll sell on Monday.

Special Bulletin April 21: New information in Mattel’s (MAT) first-quarter report is enough reason to switch MAT to sell. However, because today’s trading is likely to be knee-jerk and disorganized, we’ll wait a couple of days to react. Look for a sell alert on MAT in the coming days.

Special Bulletin April 20: Verizon (VZ) reported earnings that missed estimates this morning. U.S. Bancorp (USB), on the other hand, reported estimate-beating earnings. VZ moves to Hold and USB moves to Sell.

Weekly Update April 19: The odds of a June interest rate increase have now fallen to 47%. That’s led to additional gains in bond alternatives like utilities, including Safe Income Tier holdings Consolidated Edison (ED) and Xcel Energy (XEL). Elsewhere in the Safe Income Tier, Home Depot (HD) could be about to start another leg up. In the Dividend Growth Tier, Carnival (CCL) and Wynn (WYNN) are offering buying opportunities, Schlumberger (SLB) is still on the chopping block, and U.S. Bancorp (USB) reported earnings this morning. And in the High Yield Tier, Pembina (PBA) is buyable, GameStop (GME) is perking up, and General Motors (GM) is looking laggy.
Monthly Issue March 29: Chloe is adding 100-year dividend payer 3M (MMM) to the Safe Income Tier, and selling J.M. Smucker (SJM). Also, in the educational section, Chloe takes a look at the incredible power of dividend reinvestment.

Wall Street’s Best Investments

Daily Alert April 21: Copart (CPRT) from 2 for 1 Stock Split Newsletter
Daily Alert
April 20: FPA Crescent (FPACX) from The Chartist Mutual Fund/ETF Letter
Daily Alert
April 19: Stifel Financial (SF) from AlphaProfit Sector Investors’ Newsletter
Daily Alert
April 18: PRA Health Services (PRAH) from Cabot Stock of the Week
Daily Alert
April 17: Toll Brothers (TOL) from Argus Weekly Staff Report
Daily Alert
April 14: Alibaba Group (BABA) from Internet Wealth Builder
Monthly Issue April 12: Our contributors found ideas with great potential in just about every sector this month, and our Spotlight Stock is Hologic (HOLX), a company that has taken the lead in women’s healthcare, particularly in the diagnostic, surgical and medical-imaging products sectors.

Wall Streets Best Dividend Stocks

Daily Alert April 21: Pembina Pipeline (PBA) from The Income Investor
Daily Alert April 20: Navient (NAVI) from The Buyback Letter
Daily Alert
April 19: Cummins (CMI) from Richard C. Young’s Intelligence Report
Daily Alert
April 18: Tekla Life Sciences Investors (HQL) from Nate’s Notes
Daily Alert
April 17: Vanguard FTSE All-World ex US (VFWIX) from The No-Load Fund Investor
Monthly Issue April 5: Contributors remain positive on a variety of industries, beginning with Spotlight Stock Verizon (VZ), a giant in the telecom sector that is poised to greatly benefit from cutting-edge tech developments like the mass-market adoption of the Internet of Things and the coming 5G rollout.

This Week’s Q&As

Cabot Growth Investor

Question: You’ve written repeatedly that you think the next major market move is up, but that we’re in the middle of a near-term correction. Given that, why not just buy now during weak spells, getting in before the next rally?

Mike: It’s a good question, and when it comes to investing in the market as a whole (via mutual funds or ETFs), I’m not really opposed to that sort of thinking. We’ve had our leveraged long fund (ProShares Ultra S&P 500 Fund, symbol SSO) rated Buy throughout this seven-week consolidation.
However, for individual stocks, which can provide far greater returns, it’s not that easy. First, you don’t know for sure which stocks will lead the next uptrend until it gets going (you have some hints, but nothing definitive). Second, we’re starting earnings season, which is adds another layer of trickiness. And third, of course, we could always be wrong—maybe the market will pull back sharply on some unexpected news or event.
Of course, we’re not overly negative at this point (we’re still 71% invested in Cabot Growth Investor), so if you have a ton of cash, I’m not opposed to doing some buying here or there. But history tells us it’s best to stay in gear with the market, so with the trend still mostly sideways, we’re waiting before getting aggressive.

Cabot Options Trader and Cabot Options Trader Pro

Question: What are your thoughts on Walt Disney (DIS)? I have 400 shares—is it worth looking at the longer term calls for Jan. 18?

Jacob: DIS has popped on and off my radar quite a bit in the last couple of months. The call buying explodes every couple of weeks, then dies down. If you’re looking for a January 2018 call, you could target the big trade made yesterday from my Daily Order Flow list: Buyer of 5,000 Walt Disney (DIS) January 120 Calls for $4.15 – Stock at 114.30

Question: Great Visa trade that you sent out to the members. Would like to know what you have in mind regarding MasterCard (MA) considering both AXP and V have beaten on each earnings? Any options or covered play here for MA?
Jacob: I’ve looked into MA options and there haven’t been any trades of any significance made in the past month, so its difficult for me to get a read on it and may pass on a position. That said, if I was bullish, I might Buy the July 115 Calls for around $3.80 or Buy the July 115/125 for around $3.20 or Buy stock and Sell the May 115 for $2.30.The day before earnings, email me again, and I’ll take another look to see how options traders have positioned themselves.

Question: Are you planning to hold Coca-Cola (KO) over earnings? I saw some bearish activity below.
Jacob: Not sure yet. Depends if I see more of that bearish activity in the coming days. (we closed half of our calls for a profit of 25%).

Cabot Undervalued Stocks Advisor

Question: With the recent correction in bank stocks, do you think now is a good time to buy more Goldman Sachs (GS), or is there a concern and I should hold tight before doing so?

Crista: GS has come down toward the price area where it rested in November. It could find a bottom anywhere in the 200-210 range. Since there’s no particular bad new—weak bond trading revenue in the first quarter does not count as “bad news” in my book—and earnings growth projections remain very strong, I agree that it could be wise to “buy low” right now.
As of April 19, consensus earnings estimates point to EPS growth of 19.6% and 10.4% in 2017 and 2018. The dividend was increased this week, with a current yield of 1.40%. The stock remains undervalued.

Question: Do you have any feeling about when American International Group (AIG) might rebound?

Crista: If the market remains in this sideways trading cycle, I would guess that AIG is likely to return to 64 by the end of May, and reach 67 in July. That’s an estimate based on trading patterns. (Its property/casualty insurance company peers are trading with similar chart patterns, so the current downtrend in their share prices is normal throughout the peer group.) We could be seeing the bottom of the trading cycle this week. When I’m fairly certain that we’ve reached that point, I’ll likely give the stock a buy rating again.
From a financial standpoint, AIG earned $0.36 per share in 2016—a low number due to a much larger-than-expected reserve charge—and is expected to earn $4.90 and $5.88 per share in 2017 and 2018. Those are consensus estimates; averages of all the Wall Street analysts’ estimates.
I added AIG to the Cabot Undervalued Stocks Advisor Growth Portfolio in October, in anticipation of the huge earnings rebound in 2017, and subsequent continued earnings growth in 2018. Fortunately, those numbers still look great.
My suggestion is to hold your shares for capital gains, which I anticipate in 2017.

Cabot Small-Cap Confidential

Question: Do you have any opinion on Pura Naturals (PNAT)? I first noticed this company when it got hyped late last year.

Tyler: As always, please don’t take this as personalized investment advice, and always use your own best judgement when making buy and sell decisions.
My opinion is that Pura Naturals (PNAT) is not a good investment. It looks like typical penny-stock garbage, to be blunt. It is the result of a failed enterprise (was formerly known as Yummy Flies, which made fly fishing flies) and, according to its most recent 10-Q, had generated $72K in sales in the three months ended 9/30/16. That’s something at least, but sales were down from a more significant $222K in the same quarter in 2015, apparently because the company lost a major customer after shipping product to the wrong location. That product was not recovered (sounds odd to me). There is also a license agreement with a related party which requires payment of $750K. Half was due in July 2016 (it wasn’t paid), the other half is due this July. Related party relationships can be sketchy. Even more so when the company isn’t able to pay! I could go on, but I think you get the point – it doesn’t look like a very legitimate enterprise at this stage.
To many other opportunities out there, in my opinion, to spend time & money on this one!

Question: What is happening with Aqua Metals (AQMS)? Big drop in price yesterday…is this a shakeout and is this a good entry point? I like the story on AQMS and the fact that some big companies are investing in it … JCI and Interstate Battery … that gives me confidence that AQMS is on the right path with its new recycling process.
Tyler: A hit piece was posted on Seeking Alpha at 11 am ET time yesterday from the same author that wrote one on MindBody late last year. I think it will pass and I’m keeping the stock at Buy.
Today’s Weekly Update has some more commentary on it. But if you have a chance check out the article. And please ask if you have any specific questions. At a high level, the author uses fuzzy details and hyperbole to try and create a short case. But I don’t think it’s very powerful. The stock began to come back after 1 pm yesterday (it hit a low around 12:30 pm).

Cabot Benjamin Graham Value Investor

Question: It is not clear to me how you calculate the performance of the Cabot Value Model. Is it based off the BUYS in the model portfolio on Page 3 and all the HOLD rating positions on Page 7? How about the BUY and HOLD ratings in the list of 275 Value Stocks? (from subscriber F.M.)

Roy: I include all current Buy and Hold stocks when calculating the performance of the Cabot Value Model and Cabot Enterprising Model.
All Buy-V and Hold-V stocks in the Top 275 Value Stocks listing on pages 9 thru 12 are included in Value performance along with ETF Buy and Holds which are not listed in the Top 275. Likewise, all Buy-E and Hold-E stocks listed in the Top 275 Value Stocks are included in Enterprising performance along with ETF Buy and Holds
My performance calculations adhere to the Global Investment Performance Standards (GIPS) section of the Chartered Financial Analyst (CFA) Institute.

Cabot Dividend Investor

Question: Do you recommend a stop for Mattel (MAT)? Or ride it out because of the high dividend?

Chloe: I recommend all investors use stops to limit their losses to a level they’re comfortable with. For us that’s usually 15% to 20%; it could be more or less for you.
The other option, which we also use, is to place a stop (mental or otherwise) at a level where the stock has technical support. The idea there is that if the stock breaks through that support, it’s probably on its way lower.
Unfortunately, with MAT, there’s no obvious place to put that kind of stop. You could treat the 25 level as a red line, based on the stock’s past few weeks of action, but it doesn’t have much technical significance. Still, if the stock does start another leg down from here (earnings are out this afternoon), it could be headed back to 2015 lows at 20. I would definitely consider selling then, especially if estimates are revised downward again.

Question: I bought a small position in General Motors (GM) some time back at 28 and have never understood why a company with such a low P/E and at that time, growing car sales globally, would not break out to highs in the $40s. Why is it that some large cap stocks move more quickly with much higher P/Es and not much more top line growth than GM and GM is stuck in the mud?

Chloe: I’ve asked myself the same thing about GM many times, while staring at the stock chart in frustration. I know the market is never wrong, but it’s still frustrating when a stock that ticks all the boxes (low P/E, rising earnings) steadfastly refuses to go up. If you want a reason, you can argue that investors have been looking ahead, to “peak auto” and this year’s sales slowdown. But of course, stocks don’t need reasons: they go up if more investors are buying than selling. That simply hasn’t been the case with GM over the past three years.

Question: Is United Parcel Service (UPS) on your dividend list? I noticed it continues to consolidate and are wondering when it would be good time to take a position for the long term?

Chloe: We owned UPS for a while last year, but sold after the stock’s big February gap down (breakout about even). I think the stock needs more time to recover from that selloff; it has found good support here but isn’t showing any inclination to start recovering. I’d wait until estimates start moving up and the stock signals that buyers are returning.