Cabot Prime Week Ending February 24, 2017
Cabot Growth Investor
Bi-weekly Update February 22: Our market timing indicators remain bullish, and while a short-term pullback is always possible, the odds favor higher prices down the road. For individual stocks, the goal is to hold your winning stocks while rotating out of any stocks that crack support. In the Model Portfolio, we sold Freeport-McMoRan (FCX) and replaced it with Texas Capital Bancshares (TCBI). That still leaves us with eight stocks and a cash position near 18%.
Special Bulletin February 21: We’re going to buy Texas Capital Bancshares (TCBI), a growth-oriented firm that offers a range of lending services in Texas and elsewhere. The company’s sales and earnings growth are accelerating and we think the stock can do well in a bull market.
Special Bulletin February 21: Mike advises selling Freeport-McMoRan (FCX), which is under pressure today as the company continues to battle with Indonesian authorities regarding its big mine in that country.
Bi-weekly Issue February 15: All three of our key market timing indicators remain bullish, so we’re sticking with a heavily invested stance. Mike has three changes to the portfolio: he’s selling Martin Marietta (MLM), buying Lumentum (LITE) and restoring his Buy rating on Charles Schwab (SCHW) after its recent shakeout.
Cabot Top Ten Trader
Movers & Shakers February 24: We’ll probably knock our Market Monitor down a notch or two to respect the recent selling, but we remain overall bullish. Buy ideas: Ally Financial (ALLY), Glaukos (GKOS), Olin Corp. (OLN), Square (SQ 17) and Univar (UNVR 32). Seven sells, most of which tripped their stops or loss limits: Allegheny Technologies (ATI), CF Industries (CF), Eagle Materials (EXP), Greenbrier (GBX), HD Supply (HDS), Nvidia (NVDA) and U.S. Silica (SLCA).
Weekly Issue February 20: This week’s Top Ten has another batch of very strong stocks—many have either recently gapped up on earnings or are just emerging from multi-month consolidations. Our Top Pick is ON Semiconductor (ON), a chip firm with huge earnings estimates thanks in part to a recent acquisition.
Cabot Undervalued Stocks Advisor
Special Bulletin February 22: Sell Toll Brothers (TOL), Buy PulteGroup (PHM), Sell ASML Holding (ASML) and Archer Daniels Midland (ADM) moves from Buy to Hold. Plus updates on Legg Mason (LM), Boise Cascade (BCC), GameStop (GME), Quanta Services (PWR), Total (TOT) and Whirlpool (WHR).
Weekly Update February 21: Last week, Mattel (MAT) introduced a boy doll named Logan to its American Girl product line. I can’t say that the doll will change much at Mattel’s bottom line, but it will certainly bring attention to the company. Today’s Portfolio Changes: BP plc (BP) moves from Hold to Strong Buy and Cardinal Health (CAH) moves from Hold to Sell.
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 21: Tim leans back to the growth side for this week’s stock, Texas Capital Bancshares (TCBI). Changes: Berry Plastics (BERY) to Buy, Biogen (BIIB) to Hold, Celgene (CELG) to Hold and Q2 Holdings (QTWO) to Hold.
Cabot Emerging Markets Investor
Bi-weekly Issue February 23: The markets decided to remind us of what “risk” means, with many of our stocks correcting and Weibo (WB) taking a real beating. The Weibo move really caught our attention, as the stock’s pullback coincided with a pullback that specifically targeted Chinese ADRs. We’re also featuring a new stock from the Brazilian financial sector, Banco Santander Brazil (BSBR). VanEck Russia ETF (RSX) and Weibo (WB) are moved to Hold a Half.
Cabot Benjamin Graham Value Investor
Special Bulletin February 24: Synchronoss Technologies (SNCR) is the subject of an investigative report published today by the Southern Investigative Reporting Foundation. I recommend selling your SNCR shares now.
Weekly Update February 24: Roy includes summaries for 15 Cabot Benjamin Graham Value Investor companies that have reported quarterly financial results or other noteworthy news during the past week, and there are two ratings changes: Convergys (CVG) Hold to Sell and TRI Pointe Group (TPH) Buy to Sell.
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.
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
Monthly Issue February 22: You’ll find plenty of great potential portfolio additions in today’s issue. Chloe adds a new 4.7% yielder Verizon (VZ) to the High Yield Tier, and moves Xcel Energy (XEL) to Buy.
Wall Street’s Best Investments
Daily Alert February 24: Comcast (CMCSA) from 2 for 1 Stock Split Newsletter
Daily Alert February 23: TD Ameritrade (AMTD) from The Personal Capitalist
Daily Alert February 22: Micron Technology (MU) and SELL Whole Foods Market (WFM) from The Wealth Advisory
Daily Alert February 21: Citigroup (C) from AlphaProfit Sector Investors’ Newsletter
Daily Alert February 20: CDW Corporation (CDW) from Dow Theory Forecasts
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.
Wall Streets Best Dividend Stocks
Daily Alert February 24: Alliance Resource Partners (ARLP) from Cabot Benjamin Graham Value Investor
Daily Alert February 23: Atlantica Yield (ABY) from Conrad’s Utility Investor
Daily Alert February 22: Apartment Investment & Management (AIV) from Barclays Capital Equity Research
Daily Alert February 21: CoreCivic (CXW) from Canaccord Genuity Research
Daily Alert February 20: Diageo plc (DEO) from The Income Investor
This Week’s Q&As
Cabot Growth Investor
Question: You’ve had Tesla (TSLA) on your Watch List for a while, and I own shares from when Tim Lutts first recommended it a few years ago near 30 (and I’ve booked some profits on the way up). What are your latest thoughts on the stock after its selloff post-earnings?
Mike Cintolo: While the selloff after earnings isn’t pleasant, I am still keeping the stock on my Watch List—the action during the past few months, in my mind, raises the odds that the stock’s consolidation of the past couple of years could be ending as investors look ahead toward continued output hikes and, of course, the Model 3.
Moreover, the post-earnings drop hasn’t even taken the stock down to its 50-day line, and after a run from 180 to 287, some consolidation could be in order. It’s not a Buy in my book, but if you have a big profit, it’s still a Hold. And should the stock find support around here and build a new launching pad, it could make for a new entry point.
Cabot Undervalued Stocks Advisor
Question: I’ve really enjoyed receiving your recommendations. I have other stocks I would like your thoughts on from time to time if that’s OK. One stock I have a large position in that I would like your opinion on is QCOM.
Crista Huff: Qualcomm’s (QCOM) EPS are expected to grow 4.7% and 3.0% in 2017 and 2018 (September year-end). The corresponding P/E’s are 12.2 and 11.9. The dividend yield is fairly large, at 3.75%. The year-end debt ratio in 2016 was 23%, but that doesn’t reflect the pending acquisition of NXP Semiconductors NV. The chart is volatile!
Quick assessment: The pros are the great dividend, low P/E and current market favoritism towards semiconductor stocks. The cons are that the company is mired in a big acquisition (which tends to drag on a stock’s price), and there’s very little earnings growth on the horizon.
My goal is always near-term total return (capital gains plus dividends). In that light, if I owned QCOM, I’d develop an exit strategy. Yes, you might pay capital gain taxes, but if you hold the stock in order to avoid taxes, you will instead be avoiding potential share price growth!
There’s upside resistance at 60, 64 and 69. I think the stock can rise a little more in the coming weeks, simply because a rising tide lifts all ships. I’d begin selling at 59.50, and move that capital into a stock with good earnings growth.
Question: Could you give me your opinion of Waste Management?
Crista Huff: Waste Management (WM) has moderate earnings growth, comparably high P/E and high debt levels. Despite all that, the stock has been steadily rising. If I owned it, I’d use a stop loss order, approximately one dollar below the current price, and adjust it frequently, with the expectation that the stock will sell soon. As you know, I like my stocks to be undervalued, so that I can have a certain amount of confidence that I’ve minimized my risk.
Question: You recommended Mattel as a buy just before they posted a poor earnings report which sent the stock price downward. Unfortunately I bought before the drop. Do you recommend continuing to hold MAT due to a promising 2017?
Crista Huff: Yes, I would hold Mattel (MAT). The company is still expected to achieve very strong earnings growth in both 2017 and 2018, and the stock is quite undervalued, with a huge dividend yield. I see no reason why the stock shouldn’t rebound nicely this year.
Cabot Emerging Markets Investor
Question: Weibo tanked after its healthy quarterly report—is this a buying opportunity?
Paul Goodwin: Here’s what I’m writing about Weibo in the Portfolio Review section of this week’s new issue of Cabot Emerging Markets Investor: Weibo (WB) reported its latest quarterly results before the market opened this morning and the results looked good, with earnings up 127% and revenue up 43%. It looked like a solid beat of analysts’ expectations. But WB went into freefall as soon as the market opened, and by the middle of the afternoon session, the stock was down 16%. There’s no definitive way to tell what caused this correction, especially on such heavy volume. We will put the stock on hold for now and use a very tight leash. If the stock resumes its fall tomorrow, we’ll be prepared to sell; we’ll likely use the 47.5-48 area as a stop. We note that the stock found a bottom at 48.5 in the afternoon session, with a faint sign that bargain-hunters might be nibbling. We don’t see this as a buying opportunity, as we would need evidence that investors are moving back into the stock for that to happen. HOLD.
Cabot Benjamin Graham Value Investor
Question: Please provide your current thoughts on SNCR. It moved up in the fall, perhaps on takeover speculation, but now it is down some 17% after earnings fell short and its acquisition of IL.
Roy Ward: Synchronoss Technologies (SNCR 30.86) fell sharply after reporting weak fourth-quarter results. The company completed its acquisition of Intralinks Holdings during the quarter, as well as the divestiture of its carrier activation business. Management forecast slow growth in 2017 as Synchronoss integrates Intralinks. The forecast shocked investors a bit, but the overreaction has created an excellent buying opportunity. The company operates in the fast-growing cloud business, and the future looks bright after 2017. Buy at 38.30 or below for long-term holding.
Question: I have seen more recent comments regarding Whirlpool. These include:
• Estimated 4.7% growth in sales in 2017 and 5.2% in 2018. Outlook also reflects a recovery in the US housing market.
• Increase in gross margins benefited from tame raw material inflation, modest price increases, a shift in product mix and cost savings.
• EPS per S&P is $16.05 for 2017 and $18.49 for 2018.
Also, the U.S. Depart of Commerce announced in December 2016 a final decision that Samsung and LG engaged in ongoing dumping of clothes washers from China into the U.S., in violation of the trade law agreements. A healthy duty has been assessed against each company. This should be a positive for WHR and should allow for better competition and could lead to market share gains in North America.
They have also increased their dividends over the last 5 years and are buying back stock.
I know your max buy for the company was $160.16, but does the more recent info noted above change your opinion in any way?
Roy Ward: Whirlpool (WHR 180.72) seems poised for better growth in 2017 and 2018, but analysts have been lowering their estimates. Value Line and Standard & Poor’s have lowered their EPS forecasts, and analysts have lowered their average estimate for 2017 to 15.61 from 16.07 on average, and for 2018 to 17.58 from 18.35. Recent developments, especially the decision against Samsung and LG, would seem to indicate that Whirlpool will easily beat lowered estimates.
In my opinion, the sharp rise in consumer confidence will lead to robust consumer spending in 2017 and 2018, which will provide an additional boost. My current 2017 EPS estimate is $15.84, but $16.00 to $16.15 seems achievable. Whirlpool has missed estimates during the past couple of quarters, so a couple of “beats” could send the stock up over 200. S&P has a 12-month price target of 201 and my Min Sell Price is 203.25, but both could be low by about 10% to 15%. If so, WHR’s current price is quite reasonable with 25% upside potential during the next 12 months. I expect another quarterly dividend hike of $0.10 when the board of directors meets in the second quarter. Buy.
Question: Could you resend me your most recent buy recommendation on AIOCF?
Roy Ward: The last full write-up for Avigilon (AIOCF 11.65) appeared in my January 12, 2017 Cabot Enterprising Model Issue: I usually write up stocks about every four months. I anticipate writing about quarterly sales and earnings in my Weekly Update after Avigilon reports fourth-quarter results on February 28. Until then, see the January Cabot Enterprising Model Issue.