The market is strong, and the strongest sector of all is growth stocks; we have bunch hitting new highs. As to today’s recommendation, it’s a repeat, a stock we owned successfully last year and that looks good to enter again.
Cabot Stock of the Week 188
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The market’s rebound continues, with the strongest sector being the Nasdaq Composite, which is weighted toward faster-growing technology companies. Happily, roughly half our portfolio is in these stocks—and I’m adding one more today. Interestingly, it’s a stock we sold last October—for a profit of 25%—when the stock weakened after the company’s President and CFO both resigned. The stock fell a bit lower after our sell, bottoming in early December, but it’s been back on the growth track since, and looks attractive once more. As to the practice of buying back a stock that we’ve owned before, there is one bit of wisdom to impart, which I learned long ago: “The stock doesn’t know you owned it before.” Therefore, whether your first investment in the stock yielded a winner or a loser, if you can approach it with a psychologically clean attitude, there’s no reason not to take another swing.
Today’s stock was originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, and these are Paul’s latest thoughts.
Autohome (ATHM)
China is the world’s largest car market, having grown at double-digit rates for years. And while that growth rate cooled to a 15-year low in 2017—just 3%—the sheer scale of the market—28.88 million vehicles sold in 2017—makes it a tempting playground for any ambitious company. (By contrast, U.S. auto sales of 17.2 million vehicles in 2017 represented a decline of 1.8% from the previous year.)
Autohome plays a vital role in the auto industry in China. The company’s website is a virtual showroom for every manufacturer, make and model, both foreign and domestic. And the site’s extensive information resources and links to financing, insurance and guidance through the challenging Chinese auto registration process make it a valuable resource. And the value works both ways, as sellers and service providers can advertise to attract business from the motivated shoppers and browsers, generating qualified and motivated leads.
Autohome gets revenue from the media services it provides dealers in setting up and maintaining their online showrooms, from fees for lead generation for dealers and ancillary businesses and from transaction fees from its online marketplace for used cars and financing.
While it won’t be immune to an eventual slowdown in auto sales, Autohome is about as bulletproof as any automotive-sector player can be. That’s because Autohome’s website and services will remain a vital part of the Chinese automotive scene no matter what.
Historic growth numbers have been good. Revenue grew by 62% in 2016, and rose by 16%, 11% and 5% in the first three quarters of 2017, respectively. Earnings were up 15%, 39% and 58% in those same three quarters. Q4 results, reported on March 7, were mixed, with earnings of $1 per share up 82% and revenue of $269 million also beating expectations. The only fly in the ointment was the company’s lukewarm guidance for the first quarter of 2018. The stock fell initially on the news, but rebounded quickly and broke out to new highs on big volume just two days later.
ATHM has been in and out of the Cabot Emerging Markets Investor’s portfolio several times over the past few years. Paul Goodwin bought the stock in June 2017 at 43 and sold for a nice profit in late October at 55 after a tedious 10-week decline. Returning to the stock this year, Paul added ATHM to his portfolio again on January 12 and has it rated Buy right now.
Autohome (ATHM)
CEC Plaza, Tower B
10th Floor 3 Dan Ling Street Haidian District
Beijing 100080
China
86 10 5985 7001
http://ir.autohome.com.cn
CURRENT RECOMMENDATIONS
The addition of Autohome brings the portfolio to 19 stocks, one short of my maximum of 20, but I can’t find any stocks that deserve to be sold! Sure, it’s quite possible that some stocks will head down from here, but none of the charts look bad enough to sell. The only changes, therefore, are the downgrade of Broadridge Financial Solutions (BR) and Planet Fitness (PLNT) to Hold (traders could take profits) and the upgrade of Cronos Group (CRON) to Buy.
AllianceBernstein (AB), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier and featured here last week, had a record closing high last Friday but hasn’t successfully broken out. Still the setup is quite attractive, and the risk is relatively low. BUY.
Alphabet (GOOGL), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor, has been strong over the past week and now sits a hair’s-breadth from its all-time high of 1,198, hit in late January. Technically, that level is likely to provide resistance, and fundamentally, there are reasons to sell there, too, as Crista explained in her latest update. “I will consider GOOGL to be fairly valued when it retraces its January high near 1,190, at which point I will sell to make room for a more undervalued stock to join the portfolio. If you want to own GOOGL long term, it’s a high quality aggressive growth stock, and will probably deliver attractive capital gains for years to come.” HOLD.
BB&T Corp. (BBT), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, continues to look great. In her latest update, Chloe wrote, “A move to new highs above 56 could come any day now and result in a much longer breakout. As a result, BBT is a Buy.” Well, the stock had a record-high close of 56.03 last Friday, but it hasn’t quite broken free yet. Still, the advice stands. BUY.
Baker Hughes, a GE Company (BHGE), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy-Low Opportunities Portfolio and featured here two weeks ago, has had two great weeks! In fact, if you’re a trader, taking your 15% profit right here is fine. But Crista sees more upside ahead. In her latest update, she wrote, “Baker Hughes offers products, services and digital solutions to the international oil and gas community. The number of U.S. rigs drilling for crude oil and natural gas rose by three last week to a total of 984 vs. 768 active rigs a year ago. The rig count bottomed at 404 in May 2016. Analysts expect EPS to grow 90.7% in 2018, with continued aggressive growth in subsequent years, and the P/E is 36.9. UBS upgraded BHGE to a buy recommendation last week, citing its attractive valuation and balance sheet, and potential for huge, multi-year margin expansion. The median Wall Street price target for BHGE is 36. I think that’s a no-brainer, considering that the stock was trading at 37 as recently as January. There’s 20% upside as BHGE heads back to 37. I expect additional capital gains thereafter, with a good amount of volatility along the way. Buy BHGE now.” BUY.
BioTelemetry (BEAT), originally recommended by Tyler Laundon of Cabot Small-Cap Confidential, is in a similar situation. In Tyler’s latest update, he wrote, “BEAT has tons of potential, but shares have been stuck in a rut lately. The 4% gain over the past week puts them just below resistance in the 35 to 36 zone, where they have failed twice to break out (in January and February). It feels like there is enough good stuff going on to get the stock moving higher again, but let’s wait to see if we can get through this area of turbulence before moving back to Buy.” The stock did close up at 35.9 yesterday, but volume was not particularly impressive. Also, although Tyler didn’t mention it, there’s resistance up at 38 dating back to September. HOLD.
Broadridge Financial Solutions (BR), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, continues to soar to new highs, but it’s so far extended from its moving averages that I’m going to downgrade it to Hold. In her latest update, Chloe wrote, “Broadridge continues to hit new all-time highs, soaring more than 16% in the last month. All is well at the company, which provides shareholder services and other services and technology to financial companies. Analysts expect EPS to rise almost 30% this year.” HOLD.
China Lodging Group (HTHT), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is one of our Heritage Stocks, meaning that the company’s long-term growth prospects are so good—and our profit cushion so ample—that I can afford to sit through market gyrations in pursuit of major long-term profits. In his latest update, Paul wrote, “HTHT will release earnings on March 13 [today, after the market close], which, along with the overall market, will probably determine the stock’s next big move. HTHT’s huge run during the past year and a half certainly raises risk, but it’s set up a nice launching pad since mid-October and, of course, the growth potential is huge as it expands its hotel count. Analysts see earnings up 45% this year, but all eyes will be on management’s outlook.” Note: if you don’t own it, and the stock reacts well to the earnings report, that would probably be a good time to buy. HOLD.
Cronos Group (CRON), originally recommended by me in Cabot’s 10 Best Marijuana Stocks, has pulled back normally over the past week, giving up roughly half the gain accrued when it became the first marijuana stock listed on the Nasdaq exchange, and it’s now down to nearly its 50-day moving average. So the question for me today is this: remembering that my strategy for reducing risk in this volatile sector was to make the initial investment in Cronos a half-position, with the intention of buying the other half when the chart provided an opportunity, is it now time to buy the second half? After some deliberation, my answer is yes, and therefore we will take the average of tomorrow’s price, and average that with our original bought price, and that will be our new cost basis. Averaging in—and up—is a smart strategy for volatile growth stocks. BUY.
Discovery Communications (DISCA), originally recommended by Azmath Rahiman of Cabot Benjamin Graham Value Investor, is now too high to buy, but it’s a solid hold—heading back at least to its January high of 26. HOLD.
Facebook (FB), originally recommended by Mike Cintolo in Cabot Growth Investor, continues to trend higher, but it’s no longer a leader. In his latest update, Mike wrote, “FB remains sloppy and beneath resistance at 185; bigger picture, shares haven’t made much progress since July, but we’re not counting the stock out unless or until it cracks long-term support in the high 160s. There’s been a bunch of “negative” news lately, including reports the EU wants to tax a piece of Facebook’s (and other tech giants) revenues and BlackBerry is moving forward with a patent-infringement suit against Facebook. Still, the stock didn’t move much on either piece of news, and I think the real key is simply whether business continues to crank ahead (which will eventually push FB higher) or whether growth decelerates (which is always tough for a growth stock). With the stock holding support, we’re happy to hang on.” HOLD.
Insulet (PODD), originally recommended by Mike Cintolo in Cabot Growth Investor, is the world leader in tubeless insulin delivery technology and its stock looks great! It notched a record closing high yesterday and climbed even higher today—yet it’s not so far extended from its moving averages that you can’t buy now. BUY.
Knight-Swift Transportation Holdings (KNX), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, is a truckload carrier formed from the September 2017 merger between Knight Transportation and Swift Transportation Company and the stock’s chart looks great. In her latest update, Crista wrote, “The market expects 2018 EPS at the company to grow 65.9% and the P/E is 21.4, with 2019 numbers also reflecting strong earnings growth and undervaluation. The KNX price chart is signaling a potential breakout that could happen this week. Buy KNX now.” BUY.
PayPal (PYPL), originally recommended by Mike Cintolo of Cabot Growth Investor, might be called the grandfather of digital payments companies, and its fundamentals are still very promising. In his latest update, Mike wrote, “PayPal made a few waves yesterday, filing for a patent on a virtual currency transaction system that will likely speed up bitcoin-related settlements. That said, big investors are more focused on the firm’s core payment systems, including Venmo, which is just starting to be monetized. As for the stock, PYPL is starting to tighten up a bit after more than three months of ups and downs, which is constructive.” HOLD.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has a solid growth story with nearly guaranteed earnings growth. In his latest update, Mike wrote, “From 1,518 stores today to 4,000 in the years ahead, PLNT’s cookie-cutter business has a ton of potential, though we wouldn’t say growth is overly rapid (mid-teens cash flow growth this year).” But the stock is up 36% over the past month, and looks overextended to the upside to me, so I’m going to downgrade it to Hold for now. HOLD.
Teladoc (TDOC), originally recommended by Mike Cintolo in Cabot Growth Investor, is the leading force in the telehealth movement, which enables patients to access board-certified doctors 24/7/365. The stock has had a great month, and it could pull back a bit from here (its 50-day moving average is down at 37), but it looks to me like it might hold up—in part because lots of investors are just discovering the stock—so I’ll leave it on Buy. BUY.
Tesla (TSLA), originally recommended in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio—now on a long-term Hold. Year-to-date, the stock hasn’t done much, bouncing back and forth between 300 and 360, but a look at the long-term chart reveals a nine-month base, with a range from 300 to 390, and technical analysis says the next big move—given that the company is still making great progress at revolutionizing our transportation system—will be a breakout above that range and out to new highs; it just doesn’t say when. Still, if you don’t own the stock, and you like the story, buying between here and 300 is likely to work out in the long run. HOLD.
WestRock (WRK), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth & Income Portfolio, is not a hot stock but it’s acting well, breaking out above its February high today. In her latest update, Crista wrote, “WestRock is a major player in the global packaging and container industry. CFRA (formerly Standard & Poor’s) is expecting revenue to rise 10% and margins to increase by 200 basis points in fiscal 2018 (September year-end), and to continue growing in 2019. Analysts are expecting EPS to grow 50.8% in 2018, and the P/E is 17.0. The 2019 numbers are currently fairly-valued.” HOLD.
Wingstop (WING), originally recommended by Mike Cintolo in Cabot Top Ten Trader, broke out cleanly to new highs last Friday and has held the ground yesterday and this morning. If you’re near one of the restaurants, check it out. And if you like what you see and you like buying strong stocks, get on board! BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED MARCH 20, 2018
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