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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 232

Market trends remain quite positive, and I continue to recommend that you work to get more invested. Months from now, the market will be higher.
As for today’s recommendation, it’s a dirt-cheap dividend-payer in the energy industry that may not get going right away, but downside risk looks minimal and all the fundamentals argue that it will eventually be higher.

Cabot Stock of the Week 232

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The political and economic news remains troubling, even with the federal government open again, but it’s best to not allow the news to influence your investment decisions; just look how well stocks did with the government shut down! Today the market is certainly due for a pause, but the prospects for the months ahead remain bright, particularly because of the Blastoff Indicator I mentioned last week. Thus I continue to work to fill the portfolio with a diversified group of stocks with attractive prospects for the short-term or long-term or both. Last week’s recommendation was a fast-growing technology stock that’s off to a good start, and this week, simply to keep the portfolio balanced, I have a low-risk undervalued stock. The stock was originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor and here are Crista’s latest thoughts.
Delek U.S. Holdings (DK)

Delek U.S. Holdings is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel in Arkansas and Texas) and asphalt operations. Delek is based in Tennessee, with refining operations in Arkansas, Louisiana and Texas; and six asphalt terminals in five states. Delek is the largest licensee of 7-Eleven stores in the U.S., and operates about 300 convenience stores in Texas and New Mexico.

Over the last two years, Delek acquired Alon USA Partners and Alon USA Energy (ALJ), making Delek a larger, more diverse company that’s better able to withstand the cyclical nature of the energy business. The company saved over $100 million from post-acquisition cost synergies in 2018.

Delek owns 63.4% of Delek Logistics Partners, LP (DKL), including a 2% general partner interest, which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminaling. Notably, Delek Logistics Partners has increased its quarterly distribution 24 consecutive times since the stock’s initial public offering (IPO).

Political turmoil in Venezuela led to U.S. sanctions on the Venezuelan oil industry this week. Delek’s competitors Valero Energy (VLO) and PBF Energy (PBF) are expected to be affected by the sanctions. However, Delek imports negligible amounts of Venezuelan crude oil, and should not be harmed by the sanctions.

DK is an extremely undervalued small-cap growth stock, with a market capitalization of $2.5 billion. Wall Street’s consensus earnings per share (EPS) projections change more frequently with energy stocks than with just about any other sector or industry, and that’s due to fluctuations in oil and gas prices. Those fluctuations affect profit margins at energy refining companies.

Delek delivered $1.12 non-GAAP EPS in 2017 (December year end), and is expected to achieve $4.43 and $5.17 EPS in 2018 and 2019, representing 16.7% EPS growth in the coming year. The 2019 price/earnings ratio (P/E), a valuation measure, is extremely low at 5.9, indicating a strong likelihood that energy stocks will swing back to more normal valuations in the coming year.

Fourth quarter and full-year 2018 results are due after the market closes on February 19. Analysts are currently expecting fourth quarter EPS of $1.24, within a range of $1.04-$1.38, and $2.2 billion revenue, within a range of $2.2-$2.7 billion.

Delek is committed to returning capital to shareholders. The company has announced three dividend increases since February 2018, repurchased $365 million of stock in 2018 and announced a new $500 million share repurchase authorization in November 2018. It’s therefore possible that the upcoming late-February dividend announcement will also include an increase in the payout. The current yield is 3.4%.

DK rose to new all-time highs near 60 in June 2018, then proceeded to fall to 30 during the fourth quarter 2018 stock market correction. Now that most stocks have stabilized and begun rebounding, I expect DK to trade between 30 and 40 for several months before proceeding higher. New investors can achieve a 30% capital gain within that trading range while collecting the attractive dividend. When DK returns to its June 2018 high, investors who buy here will have doubled their money.

Delek U.S. Holdings (DK)





The portfolio has made great progress over the past few weeks, mainly due to the broad and strong market advance. And one good thing about this advance is that it’s very cohesive, which is a good sign that it hasn’t reached an end yet—though it is certainly likely to have corrections. As for portfolio management today, I have no changes. As I said last week, there are a couple of stocks that may be faltering, and that would be sold if I were managing a full portfolio, but that’s not the case today; I’m still working to fill this portfolio up, so I’d rather hold these laggards—which still have potential—than have cash. Details below.

Apollo Global Management (APO), originally recommended by Crista Huff for the Growth & Income Portfolio of Cabot Undervalued Stocks Advisor, had a good run in the month after I recommended it, as the whole market rebounded, and now it’s resting between 27 and 28. In her latest update, Crista wrote, “Apollo is an alternative asset manager with assets under management (AUM) totaling $270 billion, broken down as follows: credit (68%), private equity (27%) and real estate (5%). Apollo also manages over $70 billion AUM for Athene, a fixed-annuity provider. Apollo and metals manufacturer Arconic (ARNC) have scrapped negotiations for a $10 billion leveraged buyout, purportedly due to a disagreement over Apollo’s potential contribution toward Arconic’s pension fund deficit. In other news, Apollo agreed to buy U.K. plastic packaging company RPC Group Plc (RPCGY) for $4.3 billion. Apollo is expected to report fourth quarter economic net income (ENI) of ($0.74) on the morning of February 1, within a range of ($1.20)-$0.06. Expect volatility. APO is an undervalued mid-cap growth & income stock. Traders should exit near 31, because a pullback will be normal. Growth investors and dividend investors should hold APO through any short-term volatility.” BUY.

Arena Pharmaceuticals (ARNA), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, continues to base calmly between 42 and 44, digesting its post-Christmas gains. In his latest update, Tyler wrote, “Management announced this week that the previously disclosed deal with United Therapeutics (UNTH) has closed. As part of that deal ralinepag, an oral, selective and potent prostacyclin receptor agonist in development for the treatment of pulmonary arterial hypertension (PAH), was licensed to UNTH in exchange for $800 million upfront, milestone payments of up to $400 million, and low double-digit tiered royalties. That deal helps Arena focus more attention on etrasimod, olorinab and APD418, as well as other compounds it plans to develop in the future. Upside is significant for those that can be patient, while downside should be limited.” BUY.

Canada Goose (GOOS), originally recommended by Mike Cintolo in Cabot Growth Investor, has spent the past three weeks trading between 47 and 50, above its 25-day moving average but still below its 200-day moving average. In other words, it’s had a nice bounce, but it’s not in a real uptrend—yet. If the portfolio were full (20 stocks), GOOS might be sold on technical grounds, but as it is, I’m still working on filling the portfolio up, so GOOS stays on its fundamental promise. HOLD.

Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and featured here last week, surged higher last Friday to come within one point of its record high (set in September) and has pulled back normally since. Earnings will be out on February 19. BUY.

General Motors (GM), originally recommended in Cabot Dividend Investor for the High-Yield Tier, continues to satisfy. In his latest update, chief analyst Tom Hutchinson wrote, “Internally, GM is a great company right now. Last week the automaker announced better-than-expected 2018 earnings and increased earnings guidance for 2019 as cost cuts and solid vehicle sales are driving profits. The stock has soared 24% since the Christmas Eve low but it ran up against China yesterday. GM has big investments in China and is sensitive to bad news. This week the U.S. cancelled trade talks and China announced the slowest annual GDP growth since 1990. But still, GM was down less than the overall market. The stock still has good momentum.” HOLD.

Green Dot (GDOT), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest prepaid debit card company as ranked by market capitalization as well as the payments platform company used by Apple, Uber and Intuit. But the stock has been lagging in recent weeks. Last week I wrote, “If the portfolio were full (20 stocks) I’d kick it out in favor of a better prospect, but at the current time, as I’m working to fill the portfolio up one stock at a time, I’d rather hold GDOT than cash.” That’s still true. HOLD.

Huazhu Group Limited (HTHT) (previously known as China Lodging Group) was originally recommended in Cabot Emerging Markets Investor and now it’s one of the Heritage Stocks in this portfolio, which means that I’ll hold through periods of poor performance to benefit from the positive long-term fundamentals. The stock bottomed in November, before the broad Chinese market, and has been working its way higher since, with the latest advance ending in a big spike up to 35 two weeks ago. Since then it’s pulled back to below 31 (quite normal action) and if you don’t own it, you could buy here. Long-term, I have great confidence in China’s leading hotel operator. BUY. (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest company devoted to connecting single people. Its brands include Tinder, LoveScout 24, PlentyOfFish. OurTime, OkCupid, Meetic, Twoo, and Pairs. The fundamentals are great, with revenues up 29% in the third quarter and earnings up 38%. And the stock has been acting superbly since the Christmas bottom, gaining 61% since then. It’s over-extended now, but if you don’t own it, you could buy on a pullback, ideally below 46. HOLD.

MedMen (MMNFF), originally recommended by me in Cabot Marijuana Investor, presents an embarrassing but educational lesson. The stock is the biggest loser in this portfolio, mainly because I bought wrong. But my Cabot Marijuana Investor, which is diversified among 15 marijuana stocks, is up 27% this year, after being up 15% last year. So what’s the lesson? Diversification has great value, because any one decision may not work out. I don’t like seeing the big loss, but I still believe in the company long-term and, as with GDOT, I’d rather have the stock today than cash. HOLD.

STAG Industrial (STAG), originally recommended in Cabot Dividend Investor for the High Yield Tier, continues to climb as investors see good prospects in this industrial REIT. In Chief Analyst Tom Hutchinson’s latest update, he wrote, “This is a solid industrial REIT that has outperformed other REITs in recent years. Demand for industrial real estate has been off the charts. The e-commerce boom also helps STAG because it owns a lot of warehouses and storage facilities. The fat 5.3% yield is paid out monthly. This stock should be solid.” HOLD.

Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, rallied with the market after Christmas and for the past two weeks has been digesting that gain while building a base centered on 60—which is right on its 200-day moving average and above its 25- and 50-day moving averages. The company recently announced the availability of Teladoc Back Care, a personalized online back pain treatment program aimed at the third-highest medical cost driver in the U.S. (behind diabetes and obesity). HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio, and I’ll continue to hold as long as I believe the company has great growth potential. The stock remains in the wide trading range (250-390) that has constrained it since mid-2017, but the fundamental story remains solid. In fact, Toyota (the biggest car manufacturer in the world) recently admitted that of the 9% of Toyota owners in North America who defect to another manufacturer, roughly half defect to Tesla (a relatively small manufacturer). Fourth quarter results will be released tomorrow (January 30) after the market close. HOLD.

Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, has pulled back normally since hitting a record high above 105 just two weeks ago. In his latest update, Mike wrote, “TWLO has stalled out a tiny bit in recent days, with repeated bouts of selling in and around the 100 level. That said, we’re not reading too much into that because (a) many stocks near new highs are fidgeting around, which isn’t unusual in the early stages of a rally following a punishing market decline, and (b) this is short-term stuff—TWLO actually notched new highs last Friday. Long story short, yes, there’s always a chance that the stock is “too obvious” and won’t be a leader, but the vast majority of evidence to this point—from the stock’s resilient action in Q4 to the fundamentals to the increase in fund sponsorship—all points to good things. We’ll stay on Buy.” BUY.

Van Eck Rare Earths/Strategic Metals (REMX), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, is a diversification play with potential for great growth as technology requires more rare earths. Plus, it has a yield of 13.9%. In his latest update, Carl wrote, “REMX is a resource, tech metals play and a hedge on U.S.-China tensions. The stock has pulled back a bit in recent days but remains well above its prior low.” BUY.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, has had an awesome advance since its Christmas low, but it’s overdue for a rest. In her latest update, Crista wrote, “VOYA is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. Voya Financial is expected to report $1.22 fourth quarter EPS on the afternoon of February 5, with a range of $1.15-$1.28. VOYA is an undervalued aggressive growth stock. Management intends to increase the dividend yield to 1% in 2019. VOYA is up about 26% from its December lows. A pullback is due, after which I will likely return VOYA to a Buy recommendation.” HOLD.


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