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Cabot Prime Pro, Week Ending February 10, 2017

Prime Pro Week Ending February 10, 2017

Cabot Growth Investor

Bi-weekly Issue: February 1: We’re selling PayPal (PYPL), leaving us with about 18% in cash, and we’ll look to invest that cash should the market resume its uptrend. We also write about the improvement in growth stocks, including many old favorites that are beginning to come back to life; we’re looking for real uptrends to develop before we buy.

Cabot Top Ten Trader

Weekly Issue February 6: The market remains mostly confined to its tight seven-week range, and until that changes, we’ll probably keep our Market Monitor at a level 7 (out of 10)—we’re still much more bullish than not, but would like to see the uptrend resume before getting more aggressive. That said, we’re very encouraged by what we’ve seen from earnings season thus far; many stocks have gapped up, and most have held those gains and are trading tightly since, both of which are great to see. Our Top Pick is strong chip stock Ally Financial (ALLY), which just exploded to 18-month highs on its second highest weekly volume ever.

Movers & Shakers February 3: Last week’s encouraging breakout by the major indexes turned into this week’s retreat, although this morning’s jobs-related rally is good to see. Overall, of the five major indexes we track regularly, one is looking fine (Nasdaq), but the other four have made hardly any progress during the past seven weeks.

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.

Weekly Update February 6: Last week, despite many major earnings reports, a Federal Reserve announcement and the January Jobs Report, the three major indexes could not break out of their now eight week trading range. For the week, the S&P 500, Dow and the Nasdaq were all virtually unchanged.

Earnings Updates February 7: Walt Disney (DIS) will report earnings February 7 after the close.

Market Update February 7: As stock market volatility has continued to drop, and the indexes have been chopping around for eight weeks now, my option scanner is picking up on fewer and fewer big trades.

Earnings Update February 8: Coca-Cola (KO) will report earnings before the open tomorrow.

Cabot Undervalued Stocks Advisor

Monthly Issue February 7: Today’s featured stocks include Vertex Pharmaceuticals (VRTX), Exxon Mobil (XOM) and a new addition to the Growth Portfolio, Martin Marietta Materials (MLM). Crista also mentions four additional growth stocks, which she encourages you to research on your own and ask her about.

Cabot Stock of the Week

Weekly Issue February 7: Tim’s recommendation today is Square (SQ), which has a unique brand and business, which big investors will often pay up for. The issue also includes two ratings changes: Adobe (ADBE) Buy to Hold and Biogen (BIIB) Hold to Buy.

Cabot Small-Cap Confidential

Monthly Issue February 3: Tyler’s choice this month is Airgain (AIRG), a small cap company that specializes in antennas for wireless networking.

Cabot Emerging Markets Investor

Bi-weekly Update February 16: The Emerging Markets Timer continues to flash a buy signal, as the iShares Emerging Markets Fund (EEM) has been sprinting away from its moving averages. We are responding by returning NetEase (NTES) to a Buy rating and initiating a half position in BeiGene (BGNE).

Bi-weekly Issue February 9: The Cabot Emerging Markets Timer is still flashing a robust buy signal and our portfolio holdings are either advancing or holding up well. In today’s issue, Paul does a little strategy review, warns against predictions and welcomes an old friend back to the portfolio, social media platform Weibo (WB).

Cabot Benjamin Graham Value Investor

Weekly Update February 17: Roy includes summaries of 10 Cabot Benjamin Graham Value Investor companies that have reported quarterly financial results or other noteworthy news during the past week. He also reports on the sectors of the economy that are likely to benefit from economic and political changes in 2017 and 2018.

Monthly Enterprising Issue February 16: Featured Buy Recommendations are Alliance Resource Partners (ARLP), Biogen (BIIB), GNC Holdings (GNC), Magna International (MGA) and Stifel Financial (SF). Rating changes: Blackstone Group LP (BX) from Hold to Buy, and Activision Blizzard (ATVI), LKQ Corp. (LKQ), Maiden Holdings (MHLD) and Ulta Salon (ULTA) from Buy to Hold.

Special Bulletin February 15: Fortress Investment (FIG) will be acquired by Japan’s SoftBank for $8.08 per share, all cash. Roy recommends selling your FIG shares because his sell target has been reached and shares are selling very close to the cash offer. Quest Diagnostics (DGX) reached Roy’s Min Sell Price of 94.87 this morning and should now be sold.

Monthly Value Issue
February 2: This month’s Cabot Value Model contains a diversified list of buy recommendations, with a focus on stocks featuring low price to earnings ratios, high growth prospects and generous dividends. These companies will prosper whether the stock market continues to meander, or if stocks rise or fall.

Cabot Dividend Investor

Weekly Update February 15: The market is healthy and investors should be bullish. Chloe is putting Wynn Resorts (WYNN) back on Buy today. Investors looking to put money to work should also consider Carnival (CCL), Costco (COST), Prudential (PRU), U.S. Bancorp (USB) and Home Depot (HD).

Wall Street’s Best Investments

Daily Alert February 17: PPG Industries (PPG) from The Investment Reporter
Daily Alert
February 16: Celgene (CELG) from Nate’s Notes
Monthy Issue February 15: In this issue, you’ll see that Growth Stocks are making a huge comeback, starting with our Spotlight Stock, Shopify (SHOP.TO and SHOP). The company operates in one of the fastest-growth sectors—online shopping—and is gathering up customers at a heady pace.
Daily Alert February 15: Square (SQ) from Cabot Stock of the Week
Daily Alert February 14: United States Oil (USO) from Stock Trader’s Almanac
Daily Alert February 13: New Gold (NGD) from Jack Adamo’s Insiders Plus

Wall Streets Best Dividend Stocks

Daily Alert February 17: Power Corporation of Canada (POW.TO) from Canadian Edge
Daily Alert
February 16: Cedar Fair (FUN) from Forbes/Lehmann Income Securities Investor
Daily Alert February 15: Entravision Communications (EVC) from Top Stocks under $10
Daily Alert February 14: Archer Daniels Midland (ADM) from Wall Street Stock Forecaster
Daily Alert February 13: Leidos Holdings (LDOS) from The Wealth Advisory

This Week’s Q&As

Cabot Options Trader and Cabot Options Trader Pro

Question: Explain with a little more detail your suggestion here from your Daily Watch:
Buy Apple (AAPL) Stock at 120, Sell March 120 Calls for $3.20
Static Return: 2.73%
Breakeven: 116.80
Covered Call Return (if assigned): 2.73%
Are these the Calls for March 3 or March 17?
Are they sell to Open or sell to Close?

Jacob Mintz: You would be selling to Open when you execute this trade. Think of it this way ... when you don’t have a position, it is to Open. If and when you want to exit the position, it would be Buy to Close.
Unless I specify the date, assume the date is the “standard” expiration. And by standard I mean the Third Friday of the month. In this case, that is the March 17 expiration date.
Also, please note AAPL earnings are on 1/31. That makes the calls expensive to sell which is great, but also brings in earnings risk.

Question: (Ahead of Microsoft earnings) Hope MSFT does well :) – waiting for it anxiously :).

Jacob Mintz: So am I. However, we have locked in profits of 34% on half of our position, so I feel ok taking the risk. HOWEVER, if you are anxious, sell another piece so that you are comfortable with the earnings risk. Also of note, the options market is pricing in a $2.70 move on earnings

Question: I’m seriously considering buying additional FCAU shares today and writing Feb 11 covered calls depending on what FCAU settles out at in an hour or so. Any thoughts/opinions appreciated. Even buying calls again might make sense?

Jacob Mintz: I’ve actually been considering a buy-write for subscribers as well. Only downside is the unknown legal issues. But because of those legal issues, options premiums are expensive, which makes a buy-write attractive.
Also of note, option order flow has gone somewhat quiet since the big drop

Cabot Undervalued Stocks Advisor

Question: I have been an investor in the market now for about 2 years (my primary retirement money is in funds that our Financial Advisor addresses for us).
My stock portfolio is fairly diversified based on the advice I receive from Cabot. I’m 69 years old and have another year to work before I transition to more free time (by choice, I want to work some to stay involved). Our retirement income is secure.
1. My normal philosophy is to purchase stocks in lots of 100, and to keep those purchases under $100.00 per share. Right now I own 21 different stocks ranging in price from $5.73 to $123.00 (purchase price). 18 are 100 share lots and 5 are 50 share lots.
2. I keep noting your Buy Strong recommendations on GS, but one 100-share lot is $24,000!
3. I can purchase a few different “Strong Buy” stocks for that amount of money and have more diversification, but am interested in your view of the growth power of one GS vs three or four other lesser priced recommendations.
4. Also, do you have a recommendation of how much cash an account should have in it?

Crista Huff: My experience has shown me that the share price is NOT an indicator of future performance, but that EPS and P/E are good indicators. Therefore I’ll buy stocks with big share prices, without hesitation. (Long ago, I had a small cash balance in an account, and I bought ONE SHARE of Google. It turned out to be a wise investment.)
In my own portfolio, I buy random numbers of shares, focusing instead on the total dollars invested per stock. For example, if the maximum I’m willing to invest per stock is $10,000, I’ll begin with a $5,000 purchase. Then later, if the stock breaks out, or falls to price support -- both of which present good buying opportunities -- I’ll invest another $2,500. I am thereafter willing to purchase another $2,500 if a good buying opportunity arises. At that point I will not add to the position, because I don’t want to overweight my portfolio in any particular stock. (Keep in mind that I’m always trying to minimize the risk associated with stock investing.)
As for cash balances within equity accounts, that’s a personal choice. For me, I’m most likely to go “all in” during market corrections, because there are so many attractive opportunities during those times. And I’m most likely to accumulate cash when the market has a big run-up and/or appears overvalued.

Question: Your Cabot Undervalued Stock Advisor reports are very informative and helpful in my stock trading. Your frequent updates reflect the time and hard work you put into maintaining the quality of your reports.
If you will, I have a question re a stock. I can’t recall if NVCR was mentioned in any of your earlier reports; however, I bought this stock at 15.5/share and unfortunately did not sell on the drop and have a substantial loss.
Based on your knowledge, do you feel this stock will return to a price of around 15/share, within a reasonable timeframe? I realize the term “reasonable-time-frame” is subject to the investors’ status and is speculative.

Crista Huff: The essential problem with NVCR is that the company has no net income and is projected to continue losing money in 2017, compounded by price weakness throughout the pharmaceutical sector. My suggestion is to switch from NVCR to Vertex (VRTX), which is expected to have rapid earnings growth for many years to come, and has a price chart that has already begun to rebound.
I would not hold a stock that was not expected to achieve rising profits, because it would not attract institutional investors. Those are the folks who buy enough shares to move the share price upward.

Cabot Stock of the Week

Question: Tim, I’m ready to accept your challenge of doubling my account over the next 12 months. Now I need a little more info on how to do this. I have been an investor and subscriber to Cabot Growth Investors for many years. With that service the portfolio has at the most held 12 positions at one time.

Now with one stock recommendation a week, what is the investment plan? Let’s assume I have a $50,000 account. Buying 1 stock each week would mean buying about $1,000 of stock each week. That seems like it will be way too much diversification and result in market type returns, which of course will not double an account in 12 months. I realize that some of the positions will be sold along the way but I still see a portfolio with many positions. I can’t add much additional cash so how do I allocate the $50,000 to start?
Tim Lutts: While I do recommend 50 stocks a year, I don’t expect readers to buy every one—only those that are appropriate for their investment styles and goals. Furthermore, I limit the portfolio to 20 holdings, which means I am continually pruning.

With every issue, I explain this process, along with the goal of keeping the portfolio both high performing and diversified.

Thus, to start, you might divide your $50,000 into 20 slices, and proceed from there.
Cabot Small-Cap Confidential

Question: I love your picks and have made some good money on them.

I think Trump is going to be a disaster and wonder how much of a problem this is going to be for the economy and the market, I am very worried.
Tyler Laundon: Thanks for your kind email. I’ve been thinking about your “Trump” concerns this week. I have to admit, I share some of the same concerns, mainly around what I perceive to be a lack of tact and behavior befitting the most powerful man in the U.S., and likely, the World.

I am somewhat more optimistic about the economy though. I wrote about why in today’s update, which you’ll get shortly. But to summarize, I keep going back 8 years or so when it seemed the world was falling apart and every day we learned that the government was getting more involved in areas where it not only wasn’t supposed to, but didn’t have a great history of success. At the time, most in favor of a “free market” were extremely concerned with the degree of government intervention.

Now, it seems the pendulum is set to swing back the other way. Much of the economic optimism stems from Trump’s pro-business policies. This Monday, the IMF raised its economic growth forecasts for the U.S. by nearly half a percentage-point, putting U.S. real GDP growth at 2.3% in 2017 and 2.5% in 2018. Also, forward revenue and EPS growth rates for the S&P 500 and 600 are rising. So is the relatively conservative National Federation of Independent Business’ outlook, which hasn’t been this high since 2004. The net percentage of businesses expecting the economy to improve jumped from 12% in November to 50% in December.

Thankfully, my job is uncover great small caps that will go up and not drift too far into politics! And based on the numbers, as they stand today, it looks like a good time to be an investor. Obviously we’ll have to monitor things closely as we go. But for today, I just wanted to share my cautiously optimistic outlook.
Question: If you have done some work on 3D printing, I’d appreciate your thoughts.

Tyler Laundon: I love the potential of the technology for prototyping and manufacturing. It seems like a no brainer that this will continue to catch on. I’m less enthusiastic about consumer uses, mainly since I think the average consumer will have a hard time dealing with software, files, etc. to make what they want. And to get the plans to make what they want in the first place. Sales trends (and stock performance) of those companies focused on consumers suggest I’m probably not far off (referring to DDD, PRLB, SSYS).
There has been more interest in the “true” industrial 3D printing stocks. I followed Arcam (AMAVF) for a while ($700 M market cap, based in Sweden), which specializes in metal 3D printing (I believe the others I just discussed are more in the plastics-type materials). Arcam recently sold 70% of itself to GE, which drove the stock up nicely.
Then there’s HPQ, which recently introduced its 3D printer. This has been in the works for a few years and is just hitting the market (it’s called the Jet Fusion 3D printer). I believe their traditional printing business is “over the hump,” and the company has a lot of potential to grow the dividend in time. I own it personally as a long-term holding in my IRA.
I also think Materialise (MTLS) is compelling ($385 million market cap, based in Belgium, grew revenue 6% in 2015, but should brow by 37% in 2016 and 10% in 2017, EPS will likely be negative in 2016, but positive in 2017). I haven’t dug into it too much, but since it’s not making 3D printers (it’s more in the businesses of software and services), it seems to have a more dynamic business model. When I find time, I plan to dig further.
As you can tell, I’m not 100% sold on how to play 3D printing. I think many manufacturers will benefit, but indirectly. The consumer-oriented plays seem risky to me. Large companies, like GE and HPQ, are most likely to drive the industry forward, but this is a small part of their overall business today (I think it could be meaningful for HPQ by 2020 though). And I’m more constructive on the software and services end of it, since I see those companies having an easier time forging partnerships with the big guys, responding to the pace of change in the industry, etc. Materialise jumps out in this area due to being a small cap.

Question: Last year I re-subscribed to Small-Cap Confidential and I just wanted to write to let you know I’ve really enjoyed your perspective and recommendations. You’ve made me aware of some great opportunities that I wouldn’t have known about otherwise. I find your reports thorough and well written. Everbridge was a pleasant surprise for me. I worked with an organization that uses their applications for their emergency management response and I was very impressed with it. I left that organization some time back and didn’t remember the name of the company until you recommended it. So thank you.

Tyler Laundon: I’m glad to hear you’ve been enjoying the service this time around. We’ve certainly been in the right asset class with small caps leading in 2016! And that’s interesting to hear about your history with Everbridge. Once I started following it I was hooked—it seems as though the market opportunity is big, and growing. I’m not always anxious to jump into recent IPOs. But this one was just too compelling.

Question: I want you to know that since I subscribed in October 2016 that I am very pleased with the investment advice. You have exceeded my expectations. I find your commentary on the monthly stock picks comprehensive and balanced. I also appreciate your weekly updates as you share your thoughts and sometimes address concerns that I have. It is also most useful to get your advice on when to sell a stock. There is only one of your recommendations which I declined. I was not comfortable investing in Marrone Bio (MBII) given its negative net worth and some other concerns. However, I see it has returned a profit of 11% as at 13 Jan 2017. I look forward to your future reports & I congratulate you on an excellent service.

Tyler Laundon: Thanks for your kind email, and also for letting me know that MBII didn’t suit your tastes—it’s helpful to know. One of the things I try to balance is presenting ideas from very speculative to aggressive to relatively conservative. MBII is certainly on the speculative end of the spectrum, though obviously I wouldn’t have selected it if I didn’t think it had turned the corner, so to speak.

Cabot Emerging Market Investor

Question: I’ve gotten some videos that suggest that the EU will collapse, followed by Japan and the BRIC countries. I am not getting the gloom and doom from Cabot, and I tend to trust you guys more than the others. What do you think? Should I keep all of my EM stocks?

Paul Goodwin: Online commentators will say just about anything to get you to click on their stories. Mike and I pay zero attention to predictions of disaster and predictions of prosperity. The only thing you can be sure of is what’s happening right now, and you can learn all you need to know about that by looking at charts of the major exchanges.
In general, the only future event that causes us to change our behavior is an upcoming earnings report. We’re never wrong because we don’t predict. So hold on to your EM stocks until the charts tell you otherwise.

Question: As I subscriber to Cabot Emerging Markets Investor, I have been following ZTO Express and Tencent Holdings. I have been thinking of making an investment in both companies but not sure of the timing. I know you have ZTO on watch but it seems to bounce off the low 12s and Tencent is not mentioned since you issued a sell, but it looks like volume is picking up now. What are your thoughts?

Paul Goodwin: I agree that ZTO looks like it has found support at 12. But before I recommend it for the portfolio, I need to see some evidence that investors are ready to drive the stock higher. I see no evidence of that now. Personally, I would like to see the stock move past its old resistance at 14 on rising volume. I’m also keeping mind that ZTO is a relatively recent IPO, so higher volatility is to be expected.
TCEHY is a different matter. The stock ha bounced nicely from its late-December low and showed a positive volume spike on January 10. I think it’s buyable right now on any weakness. I considered adding it to the portfolio last week, but decided to go with Alibaba instead. Partly that’s because BABA is closer to clearing resistance. The rest is simply the scale of BABA’s business. But if you want to buy some TCEHY, I don’t see any absolute reason not to.

Question: Seaspan (SSW) was one of your favorite stocks months ago and has fallen badly since it reached the 20s. It seems to be reviving at this point. Questions: Do you feel the dividend at this high rate is still probable? Do you feel this stock will continue to rise? What risk factor do you see at this moment? Prior to the Korean bankruptcy, you felt very safe with this stock and it was a top selection for the long term.

Paul Goodwin: SSW looks like a pretty good rebound story. The company has come through the HanJin crisis in good shape and even bought four additional ships at attractive prices. Seaspan also has plenty of cash on hand to continue paying its dividend. (That’s the opinion of Cabot’s value expert, Roy Ward, who crunched the numbers for me.) And it agrees with Yahoo Finance’s estimate of $541 million in cash and CE on hand.
While the global economy isn’t exactly at the boil, and shipping rates remain under pressure, Seaspan has remained profitable (after-tax profit margin 19.4% in Q3). All in all, with the stock’s triple bottom and recent rally, it looks good to me.
I have no predictions on whether the price appreciation will continue, preferring to stick to what the chart actually tells me.

Question: Paul I can’t remember. Did we miss WB? Motley Fool must think they have more to run: “3 Hot Stocks to Buy in January”

Paul Goodwin: I’ve always liked the Weibo story. And, as you know, we had it in the portfolio from April 8 to November 8. But the real question isn’t whether WB is attractive. The question is whether it’s the best stock to buy right now. And I don’t think it is.
On the other hand, it’s a great stock to feature in a promotional email like “3 Hot Stocks for January.” The company is fundamentally sound, so it’s unlikely to backfire completely. And it has a really great story. I haven’t checked the P/E or other valuation metrics, but it’s probably not bad now.
But if you look closely at the chart, you see a stock that’s still tightening up after two intermediate lows without an intermediate high. So I’d hold off until we see evidence that the whales are getting interested.

Question: MOMO seems to be moving. Opinion?

Paul Goodwin: MOMO is moving, but there’s a ton of overhead at 23–25 from September and October. This may just be a reflection of a rally in the broader market. I think I’d hold off for now.

Cabot Dividend Investor

Question: If I buy BSJI or one of the other BulletShares funds and keep it until maturity would I lose money? Because if they raise rates, bond funds lose money.

Chloe Lutts Jensen: You’re correct that bond prices decline when rates rise. That’s why we own bonds through the defined-maturity BulletShares funds instead of traditional open-ended bond funds.
Traditional bond funds own bonds within a given maturity range, but don’t hold bonds to maturity. For example, IEI, the iShares Barclays 3-7 Year Treasury Bond Fund, holds bonds with maturity dates between 3 and 7 years from today. When the bonds’ maturity dates get closer than that (2020 bonds they own today for example) the fund has to sell them, at whatever price they’re trading at. That can result in the fund losing money if bond prices are depressed.
The BulletShares ETFs, by contrast, own bonds maturing in the year specified, and hold them until maturity. At maturity, the bonds are redeemed for their par value. So while declines in bond prices may affect the Net Asset Value of the ETF in the meantime, as long as you hold to maturity (and don’t pay too much) you can be relatively sure you won’t lose money.