This week, I collected the responses from the survey found at
the bottom of each issue of Cabot Wealth Advisory. Many of you
have taken the time to fill it out and I appreciate all of your
feedback. Several readers asked the same questions, so this week,
and for the next few weeks, I'll be going over those topics.
Without further ado ...
I lost a lot of money in the first year of Cabot Small-Cap
Confidential. I would like to know what has been your success (or
lack thereof) in the following years?
We started Cabot Small-Cap Confidential in September 2007, right
as the market was topping. As you know, the year-and-a-half that
followed was anything but kind to investors. Since then, Editor
Thomas Garrity has fared much better, refining his system to
include taking more profits on the way up and cutting losses
shorter. However, the stocks Tom recommends will always be
speculative and thinly traded, making them subject to volatility.
And it's important to keep in mind that Tom is recommending these
stocks primarily as longer-term investments.
Currently, Tom is covering about 16 stocks (keep in mind that
this is not a portfolio, but a list of small-cap investing
ideas). His greatest loss is -18%, while his greatest profit is
211%. He has four other losses, -17%, -5%, -4% and -3%. His other
profits are: 6%, 10%, 10%, 11%, 22%, 42%, 58%, 63%, 67%, 114%,
142% and 211%.
I can't reveal the names of any of the stocks, as it would be
unfair to Tom's exclusive group of subscribers, but I will tell
you about some of his past recommendations that have been sold.
in February 2009 at 2.35 and sold it in October at 3.82 for a 63%
profit. Tom recommended
Acorn Energy (
in June 2009 at 2.67 and sold it in January 2010 at 5.65 for a
112% profit. Tom recommended
Magma Auto Automation (
in March 2010 at 2.44 and sold it in October at 4.03 for a 65%
If you'd like to, you can learn more about
Cabot Small-Cap Confidential
by clicking here.
Why can't current subscribers receive the free January Surprise
Cabot Market Letter report?
Answer: You can receive it! We get this question a lot, so we've
decided to implement a new system whereby all new Special Reports
are sent to the current subscribers of each publication. In the
meantime, or if you want to read more Special Reports, just log
on to the
and go to the publication that you subscribe to. Each publication
has a designated section for Special Reports and other tools that
can help you take advantage of all your subscription has to
How do I pick a winner?
Answer: Obviously no one can predict exactly which stocks will
become the next big winners, but the editors at Cabot have spent
the last 40 years developing a system that puts the odds in your
favor. Here are some tips that will help you pick high-potential
* Search for strong sales and earnings growth (especially
triple-digit sales growth).
* Search for revolutionary products with major benefits (like
First Solar, Crocs, Green Mountain Coffee Roasters and Baidu).
* Stick with stocks that are liquid to avoid gut-wrenching
volatility (we like to see at least 600,000 shares traded per
* Find a company that has a big idea ... one that has few if any
limits on its future growth potential. It's these big ideas that
create an atmosphere that can push a growth stock to dizzying
* Buy growth stocks with strong relative performance (
) lines. RP studies are a superb way to identify successful
companies and to avoid problem companies. You should buy stocks
that are consistently outperforming the market. This is a good
indication that they are under accumulation, week after week,
month after month, and that the companies are succeeding. The
best investing tips come from the performance of the stocks
themselves. So ignore hot tips!
What are some good Indian companies that are likely to do well in
Cabot China & Emerging Markets Report, written by Editor Paul
Goodwin, is where you'll find the top stocks from the BRIC
(Brazil, Russia, China and India) countries. Paul recommended
Dr. Reddy's Laboratories (
in November, writing this:
"Dr. Reddy's still gets 69% of revenues from the sale of generic
drugs. But the company is also a contract manufacturer of active
pharmaceutical ingredients, finished dosing forms and
biotechnology products for other pharmaceutical concerns. And a
program of original research into potential treatments for
cancer, diabetes, cardiovascular disease, inflammation and
bacterial infection has produced a strong pipeline of drugs in
"Dr. Reddy's Labs has over 40 families of products in
distribution in the U.S., and 69 Abbreviated New Drug
Applications (ANDAs, which are requests for approval of generic
drugs) in submission to the U.S. Food and Drug Administration. Of
these applications, 32 are "Paragraph 4" filings (claims that
products do not infringe on patents or that the patents are not
enforceable) and 19 are "first-time filings." Outside India, the
company also has strong generic drug market positions in Russia,
the U.K and Germany.
"While Dr. Reddy's gets only 2% of revenue from sales of its own
proprietary products, the company has used both internal
resources and outside acquisitions to increase its original
research capability, as well as its generic manufacturing
capacity. In 2005, the company bought Roche's custom
pharmaceutical services business for $62 million. And in March
2006, the company sealed its acquisition of Betapharm, the
fourth-largest generic drug manufacturer in Germany, and with it
Betapharm's portfolio of over 145 products. A partnership with
Argenta Discovery is aimed at development and commercialization
of a new treatment for chronic obstructive pulmonary disease.
"The earnings line for Dr. Reddy's Labs has been improving
rapidly with an estimate-beating 41% jump in Q3 earnings reported
on October 23. This quarterly report also showed an 8% gain in
revenues and a 15.3% after tax profit margin that was the highest
in years. Estimates for the full fiscal 2011, which ends in
March, are for $1.44 per share, up 251% from the prior year.
"The long-term chart for RDY shows a stock that spent all of 2006
and 2007 and part of 2008 trading sideways in a tight range in
the teens, which is appropriate for a steady state company. But
after the big correction in 2008, the stock blasted off from its
low of 7 and hasn't made a major correction since. The portfolio
owned the stock earlier this year, but got shaken out last July.
The move that began with the stock blasting off from its double
bottom at 28 in August pushed RDY to 40 before a little weakness
showed up. We think you can buy RDY right here. BUY."
And the stock is still recommended buy. To find out more about
RDY and other top emerging markets stocks,
In this week's Stock Market Analysis Video, Cabot China &
Emerging Markets Editor Paul Goodwin discussed the U.S. and
Chinese markets. The U.S. market had a good week, but our
China-Timer has turned negative after the government there
announced that it would hike interest rates. Stocks discussed:
Abercrombie & Fitch (ANF), Acme Paket, (APKT),
VanceInfo Technologies (VIT), Ctrip.com (CTRP), Dangdang
Click to watch the video.
Until next time,
Editor of Cabot Wealth Advisory
P.S. Don't forget to reserve your copy of
Cabot's 10 Favorite Low-Priced Stocks for 2011
by December 12, 2010, to get a 15% discount! There's only one day
left, so don't delay.