Cabot Prime Week Ending July 28, 2017
Cabot Wealth Summit
Have you registered for the Cabot Wealth Summit in September? It’s included in your Prime membership, but you need to register to reserve your seat. Registrations for your guests are just $400 per person. Click here to register now.
Quarterly Prime Market Report
In this Q2 2017 Prime Market Report,Cabot President Timothy Lutts gives his read on the stock market, looking back at the most recent quarter.
Quarterly Prime Analyst Teleconference
Listen to the Q2 2017 quarterly teleconference where Cabot Analysts answer members’ questions live.
Cabot Weekly Review
In this week’s video review, Mike Cintolo talks about his generally bullish stance—the overall market looks good and there are far more stocks in good shape than bad—but also relays his desires for more positive action (especially breakouts) that will pull him into a fully invested position. The good news is that Mike sees a ton of setups, so if the rest of earnings season goes well, there should be plenty of new leaders to sink your teeth into.
Cabot Growth Investor
Bi-weekly Update July 26: The overall market is in good shape, with all three of our market timing indicators still bullish, though individual growth stocks still have a bit more to prove as we move through the heart of earnings season. We have no changes today (the Model Portfolio is 20% in cash), but are ready to move to a fully invested stance should earnings season go well.
Update on Other Stocks of Interest July 21: Follow ups to stocks featured February 15, 2017 (issue 1361) to July 19, 2017 (issue 1372). 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 July 19: The markets and major indexes have made a show of strength that has put fears about a larger pullback to rest. We’re moving Universal Display (OLED) back to a Buy rating, give a detailed explanation of the market’s moves and our portfolio’s holdings, and write about the puzzling failure of the average investor to take part in the equity rally and how to handle stocks around their Initial public offerings.
Cabot Top Ten Trader
Movers & Shakers Weekly Update July 28: The rally is just three weeks old so we don’t expect hundreds of stocks to be skyrocketing already, but with far more stocks in good shape than not, we’re leaving our Market Monitor at a level 8. Buy ideas: Autodesk (ADSK), Regeneron Pharmaceuticals (REGN), U.S. Concrete (USCR) and Wayfair (W).
Weekly Issue July 24: We’re bumping up our Market Monitor a notch and will continue to listen to what the market says. This week’s list has a good mix of newcomers and familiar names. Our Top Pick is JD.com (JD), a Chinese retailer that’s riding triple-digit revenue growth to new highs.
Cabot Undervalued Stocks Advisor
Special Bulletin July 27: Legg Mason (LM) and Total (TOT) exceeded all analysts’ earnings per share (EPS) estimates and Invesco (IVZ) reached the highest analyst estimate. Boise Cascade (BCC) fell short of the consensus estimate, although the stock broke out on the upside today.
Special Bulletin July 26: Ameriprise (AMP) and Chipotle (CMG) report second-quarter earnings beats, Universal Electronics (UEIC) moves from Buy to Hold, and Quanta Services (PWR) offers a good buying opportunity.
Special Bulletin July 25: PulteGroup (PHM) reports second quarter earnings beat, there’s strength in steel stocks today, and Schnitzer Steel (SCHN) moves from Buy to Hold.
Weekly Update July 25: In the wake of surprisingly successful second-quarter results among large-cap banks, all eyes are turning to regulatory reform as the next catalyst to rising earnings estimates among bank stocks. Bank of America (BAC) and Goldman Sachs (GS) continue to present capital gain opportunities. Goldman Sachs (GS) moves from Hold to Buy.
Monthly Issue July 5: Today’s featured stocks include Bank of America (BAC) and its CCAR results, Dollar Tree (DLTR) and its prognosis in the wake of the Amazon-Whole Foods merger, and a new addition to the Growth & Income Portfolio, Commercial Metals Company (CMC).
Cabot Stock of the Week
Weekly Issue July 25: In choosing today’s stock, Tim leaned back toward the value side, to choose Quanta Services (PWR), an undervalued energy/industrial stock that has been attracting increasing institutional interest. Alliance Data Systems (ADS) moves to Sell, and Schnitzer Steel (SCHN) and Sherwin Williams (SHW) move to Hold.
Cabot Emerging Markets Investor
Bi-weekly Issue July 27: Our market timing indicator is positive and our stocks are doing well. We’re heading into earnings season with a powerful wave of momentum providing the power. In this issue Paul does a little basic review of earnings season and list all the firm dates for companies we own. He also reintroduces NetEase (NTES), which boasts very strong numbers and will be reporting in a couple of weeks.
Cabot Benjamin Graham Value Investor
Weekly Update July 28: Roy summarizes the latest news for 21 companies. One stock, Greenhill & Co. (GHL) is now a Sell.
Enterprising Model Issue July 20: Roy’s new stock in this month’s Cabot Enterprising Model is Canadian Tire (CTCA.TO), a diversified retailer with $13 billion in sales. Ratings changes: Big Lots (BIG) to Buy, Chicago Bridge & Iron (CBI) to Buy, Five Below (FIVE) to Hold, LKQ Corp. (LKQ) to Hold and Ulta Beauty (ULTA) to Hold.
Monthly Value Model Issue July 13: Roy’s Cabot Value Model contains a wide variety of stocks this month with a slight focus on companies in the Technology and Financial sectors. Roy initiates coverage of a new Buy recommendation, FleetCor Technologies (FLT). There are also several ratings changes: Starbucks (SBUX) to Buy, Facebook (FB) and SPDR S&P Dividend ETF (SDY) to Hold, and Kroger (KR), Oracle (ORCL) and PowerShares US Dollar ETF (UUP) to Sell.
Cabot Dividend Investor
Monthly Issue July 26: Chloe adds Ecolab (ECL), a 94-year-old company with a 31-year history of dividend growth, to the Safe Income Tier. Be sure to read Important Information for REIT Investors in the educational section. One rating change: 3M (MMM) moves to Hold.
Special Bulletin July 25: Chloe moves 3M (MMM) to Hold, and gives updates on General Motors (GM) and Wynn Resorts (WYNN).
Wall Street’s Best Investments
Daily Alert July 28: Alliance Data Systems (ADS) from Argus Weekly Staff Report
Daily Alert July 27: WESCO International (WCC) from Capitalist Times
Daily Alert July 26: Eyes Lips Face (ELF) from The Wealth Advisory
Daily Alert July 25: FleetCor Technologies (FLT) from Cabot Benjamin Graham Value Investor
Daily Alert July 24: Symantec (SYMC) from Sound Advice
Monthly Issue July 19: In this Mid-Year Top Picks issue, Nancy features the top five picks year to date, which averaged 54.85% gains, plus updates on all our Top Picks. Going forward, analysts expect the three industries to grow the fastest in the remainder of the year to be energy, information technology and financials, and we have plenty of ideas in each of those sectors.
Wall Streets Best Dividend Stocks
Daily Alert July 28: Kimco Realty (KIM) from Barclays Capital Equity Research
Daily Alert July 27: McDonald’s (MCD) from Dividend Advisor
Daily Alert July 26: SPDR Blmbg Barclays Convert Secs ETF (CWB) and iShares Convertible Bond ETF (ICVT) from Dow Theory Forecasts
Daily Alert July 26: Sell Verizon Communications (VZ) from Cabot Dividend Investor
Daily Alert July 26: Sell Automatic Data Processing (ADP) from Cabot Dividend Investor
Daily Alert July 25: Getty Realty (GTY) from Canaccord Genuity Research
Daily Alert July 24: Colony NorthStar (CLNS-I) from Forbes/Lehmann Income Securities Investor
Monthly Issue July 12: In this Top Picks Mid-Year Update issue, Nancy reports that overall, her contributors did a wonderful job. The number one stock—Lam Research (LRCX), recommended by Richard Moroney of Dow Theory Forecasts—pulled off a stunning return of 37.55%.
This Week’s Q&As
Cabot Growth Investor
Question: This is a simple question but one I always struggle with: How do you know when a big down market day (like the selloff we saw on Thursday) is the start of a deeper pullback, or one that should be bought?
Mike: Well, short answer is, you don’t. Nobody does--if there was a way to know the market’s next wiggle with certainty (or something close to it), we’d all be rich, but that’s not how the market works.
Of course, we do follow our market timing indicators (all are still positive) and the action of leading growth stocks (positive as well, but more mixed and some stocks are suspect here), but a lot of it comes down to following your plan. If you buy 4 stocks and none of them are profitable two weeks later, that’s probably telling you something. Or if two of your new buys stop you out, that is also meaningful.
Thus, in the short-term, it’s more about following the plan than predicting (or over-interpreting) one market day. But if I had to predict, I would always go with the trend, meaning a sharp pullback within an uptrend is likely to lead to higher prices, while a sharp rally in a downtrend is likely to lead to further downside.
Cabot Undervalued Stocks Advisor
Question: Regarding Quanta Services (PWR), I see that Baird downgraded it from Outperform to Neutral with a price target of $38 citing valuation and lack of catalysts to drive shares higher. Still has some upside, but I’m curious if you think this will cause some investors to shy away and makes PWR less attractive or not.
Crista: I think Baird has made an unwarranted rating change. Aggressive EPS growth, low P/Es, very low debt level, $5 billon market cap, basic industry stocks favored in the market right now... Not only is the stock attractive from a capital gain point of view, but if I were a bigger company looking to buy a profitable mid-cap company that could enhance my bottom line, I’d consider an M&A transaction.
I agree with Baird’s $38 price target in that it will likely pause there when it retraces the $38 high from earlier this year. However, the stock could subsequently climb higher.
Perhaps the Baird analyst (or his/her Chief Investment Officer) has decided to be cautious across the board, now that the market’s run up so well this year. Fair enough.
I remain heavily invested. This market has legs.
Cabot Emerging Markets Investor
Question: What do you think of buying CTRP?
Paul: Ctrip.com (CTRP) is one of the stocks I’m considering for this week’s regular issue. Revenue growth is very strong (67% in 2016) and earnings growth has been excellent in five of the last seven quarters (big dips in Q2 and Q3 2016). Analysts are calling for a dip of 41% in 2017 EPS but growth of 174% in 2018. I’ll have to dig deeper to find out what the big swings are all about. New CEO in November 2016. CTRP has formed a long cup-with-handle from November 2015, with the right side of the cup topping in May 2017 and the handle forming nicely through July.
CTRP is barely out to new highs, but its rally from the beginning of 2017 has gone from 40 to 59. It’s not the hottest stock, but the company is solid, the numbers are good and the 86 P/E is lower than some of the real Chinese high-fliers. Looks like a winner to me.
Question: Would you have any background or current thoughts you’d like to share on BZUN?
Paul: I had Baozun (BZUN) in the portfolio of Cabot Emerging Markets Investor from the middle of May to the middle of June. At that point, after four weeks of sideways activity and with the position about 10% down from my buy point, I sold it. That was my second attempt to get some juice out of BZUN, the first having hit the rocks during a correction in late 2016.
Err in haste; repent at leisure, as the sage says.
I’ve considered putting it back in the portfolio, of course, but it’s made a sizable run since the beginning of the month, which makes finding a good buy point tricky.
Cabot Benjamin Graham Value Investor
Question: Do you think this is a good time to purchase Ulta Beauty?
Roy: I continue to like Ulta (ULTA 249.43), although I am concerned about discounting in cosmetics and Amazon’s possible foray into the cosmetics field. Department stores, including Macy’s and J.C. Penney, will offer discounts on cosmetics as long as lower prices continue to attract shoppers. The discounting won’t last forever, and Ulta is counteracting by offering special deals to rewards program customers.
Amazon has not pushed into selling cosmetics, especially high-end beauty products similar to Ulta’s. The latest rumor that Amazon is considering a partnership with Violet Grey, the beauty expert who sells “prestige” products online. Violet Grey sells very expensive cosmetics, which makes me wonder why Amazon might be interested in a partnership. In my opinion, Amazon won’t pursue an agreement, but Amazon is full of surprises, so I’ll keep a keen eye out for further news.
I believe Ulta’s reduced stock price offers an excellent opportunity to buy a company growing at a rapid pace. My Max Buy Price is 253.10 and my Min Sell Price is 390.32. Analysts continue to raise Ulta’s EPS estimates which now stand at 8.32 for the year ending 1/31/18; 9.89 for 1/31/19; and 12.05 for 1/31/20. I recommend buying ULTA at the current price. Buy.
Wall Street’s Best Investments
Question: I have been an avid subscriber and reader of Dick Davis and now your Wall Street Dividend newsletters for years. I have several stocks that have grown in value from double digit to triple digit values over the last several years. Can you please provide me a few reasons why these firms would NOT want to split their stocks so that more investors could buy-in at more affordable prices?
Nancy: You are not alone in noticing that companies are not splitting their stock as much as they used to. In 2016, only seven companies in the S&P 500 Index split their stock. As you noted, in the old days, companies would split their stock in order to attract new investors to buy in at lower prices. Today, they don’t need to do that.
A recent study by Rosenthal and Austin found that individual investors owned 80% of the equity markets in 1965; today, that number is about 25%. Consequently, institutional investors are the investors courted in today’s markets. Those are the folks that offer index funds and ETFs, which is where many investors are now stockpiling their investment dollars. And institutions don’t mind hefty prices, as it saves them in per transaction trading costs, which rise as splits occur.
Secondly, as prices rise, stocks generally become less volatile, and so the day traders don’t pay much attention to them, making them steadier holdings for institutions.
And lastly, it’s an ego thing. There’s a certain cache to saying your stock is high priced—like Berkshire Hathaway is trading at almost $260,000 a share, or Amazon at $1,000+. Some folks view it as a solid accomplishment.