The broad market remains in fine health, with the major indexes trending higher and sentiment measures still bullish. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.
Today’s recommendation is a well-known name on the consumer side, the biggest airline on the west coast. And, interestingly enough, it will be replacing our current airline stock, which is now being sold for a decent profit after less than four months.
Beyond that, there’s only one change to the portfolio today. Last week’s recommendation, which was bought at an unfortunately high point, will now be downgraded to Hold. Details in the issue.
Cabot Stock of the Week 257
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The market remains in fine health, with most indexes very close to their recent highs and all our momentum indicators remaining positive. There’s been some rotation going on lately, as market leadership changes, but that’s normal, and overall, I can’t say that sentiment is high enough to worry about yet, either. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit you needs. But don’t marry your stocks! If they don’t live up to expectations, sell them! Or if they do fulfill your expectations, but then have less potential to do more, you can sell then, too. That’s the situation with Delta (DAL) today, which is a sell—and it’s being replaced by another airline. Both were originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor, and here are Crista’s latest thoughts.
Alaska Air Group (ALK)
Alaska Air Group is a low-cost passenger airline and the leading airline on the west coast. Alaska and its regional partners fly 46 million guests per year to more than 115 destinations with an average of 1,300 daily flights across the United States and to Mexico, Canada and Costa Rica.
The company’s service expanded this year to 10 new destinations and routes in the first quarter; more recently, the company added new service to Palm Springs, CA, and increased its service to Florida and Hawaii. The company reaches another 900 destinations through its 15 global partners.
Alaska Air does not operate any Boeing 737 Max jets, which are grounded on many competitors’ tarmacs due to unresolved software problems. As a result, the reduced industry capacity increases the load factor across the company’s entire fleet, and also allows the company to charge higher fares.
Alaska Air is focused on expanding margins in the coming years, primarily through increasing revenue and lowering operational costs, which are an ongoing result of its $4 billion December 2016 acquisition of Virgin America. The company has since paid down much of the debt associated with that purchase, while significantly outperforming its peers in the areas of positive free cash flow, pre-tax margin, ROIC, net debt and on-time departures. Additionally, the company ranks second among nine major airlines in fuel efficiency and also in the low average age of its fleet.
Alaska Air is a well-respected airline. For the 12th year in a row, Alaska Airlines is recognized as the highest-ranked airline in customer satisfaction among traditional carriers in the J.D. Power 2019 North America Airline Satisfaction Study. In this year’s study, Alaska received the highest ranking in six out of seven categories among traditional airlines: aircraft; check-in; cost and fees; boarding/deplaning/baggage; flight crew; and reservations. Many other prominent publications have sung Alaska Air’s praises in recent years, including Fortune, Forbes, Conde Nast Traveler, and U.S. News & World Report.
Alaska Air Group is expected to report second-quarter earnings per share (EPS) of $2.12 on the afternoon of July 25, within a range of $1.96-$2.17. Wall Street analysts expect full-year EPS of $6.04 and $7.03 in 2019 and 2020, reflecting EPS growth rates of 35.4% and 16.4%, respectively. Alaska Air’s 2019 price/earnings ratio (P/E) is 10.5. The strong U.S. economy supports revenue growth in air travel, as people have more cash for personal travel and businesses are thriving and growing. Alaska Air’s revenue is expected to grow from $8.3 billion in 2018 to $9.2 billion in 2020.
Alaska Air held $1.4 billion of cash and marketable securities as of March 31. The company is committed to returning capital to shareholders via dividend increases – announced annually near February 1 — and share repurchases, including $13 million of repurchases in the first quarter of 2019.
ALK is a mid-cap stock with a $7.8 billion market capitalization. If you’re sticking with a diversified equity portfolio strategy, ALK is in the industrial sector along with transportation, aerospace, air freight & logistics, building products, and engineering companies.
The stock rose about 70% in 2015 and 2016, gave back all those gains in 2017, and has since traded consistently in a relatively wide range between 55-80. ALK has upside price resistance at 74, 80 and 95. There’s plenty of room for traders, growth stock investors and growth & income investors to potentially make good profits in both the short term and the long term. Buy ALK now, prior to the July 25 earnings release.
Alaska Air Group (ALK)
19300 International Boulevard
Seattle, WA 98188
206-392-5040
http://www.alaskaair.com
CURRENT RECOMMENDATIONS
Generally, our stocks look great today, but there’s usually room for fine-tuning, and today there are two notable changes. First, as mentioned at the start, Delta Airlines (DAL) gets replaced with Alaska Airlines (ALK). Second, last week’s addition Sunrun (RUN) gets downgraded to Hold. Details below.
Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, remains above all its moving averages, climbing steadily higher. In her update today, Crista wrote, “Apple is expected to report third quarter EPS of $2.10 on the afternoon of July 30, within a range of $1.79-$2.20, and $53.4 billion revenue, within a range of $52.5-$54.2 billion. Reuters reported that Raymond James raised AAPL to an outperform recommendation last week, with a $250 price target.” And just this morning we got the news that Apple is close to buying Intel’s smartphone-modem chip business, a move that would bring more critical technology in-house and enable Apple to capture the profits that previously went to Intel. HOLD.
Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson for Cabot Dividend Investor, is trending higher above all its moving averages and on track to equal—and eventually exceed—its high of 45 of just two weeks ago. In Tom’s latest update, he wrote, “BIP is part of Brookfield, one of the best asset managers in the world. The partnership has a solid track record of investing in profitable, stable, long life assets with near monopolies in these areas. Since the 2008 IPO, BIP has returned 468%, nearly four times the return of the S&P 500. Looking ahead, the company has been selling mature assets and reinvesting in higher return properties. The defensive nature of the cash flow, high dividend and superior track record make this a great dividend stock. The stock is still reasonably valued and looks poised to break through the old high of 45.” BUY.
CIT Group (CIT), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth Portfolio, hasn’t yet turned profitable for us, but I’m patient; the stock is on a normal pullback. In this morning’s update, Crista wrote, “CIT operates both a bank holding company with $30 billion in consumer deposits and a financial holding company. CIT Group provides financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT is expected to report EPS of $1.13 on the morning of July 23, within a range of $1.10-$1.17, and $460.8 million revenue, within a range of $445.7-$469 million.” Well, the results blew those estimates away, as earnings were $1.32 per share on revenues of $467 million. The stock was up on the results, and climbed higher throughout the day. BUY.
Delta Air Lines (DAL), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, has brought us a nice little profit in less than four months, but now it’s time to take that profit and move on. Here’s what Crista told her readers yesterday. “DAL is now retired from the Growth & Income Portfolio; Alaska Air Group (ALK) joins the Buy Low Opportunities Portfolio. Now that analysts have had a chance to rework their 2020 earnings projections in the wake of Delta’s second-quarter results, I can see that the numbers haven’t improved. Next year’s EPS is expected to grow just 5.4%. Delta Air Lines is a wonderful company. If you’re a buy-and-hold investor who hates selling stocks, then keep DAL. But if you prefer to keep your portfolio full of stocks that have good future earnings growth prospects, as I do, then it’s time to sell DAL and move on to a more growth-oriented company.” SELL.
Everbridge (EVBG), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, hit another new high yesterday and pulled back today. In his latest update, Tyler wrote, “Everbridge broke out in February and has been running ever since. As I said last week there aren’t a lot of players that can send messages directly to mobile devices in over 200 countries. Everbridge has scarcity value; you just don’t find companies like this lying by the side of the road every day. When you do, pick them up and tuck them in your pocket. Then try not to sell them.” I feel the same way; I think this company’s story has great long-term value. On the other hand, my real favorite long-term investment stories tend to belong to companies that service mass markets. Still, for now, holding EVBG is a no-brainer. HOLD.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, hit a high of 122 two weeks ago and has been building a base at 116 since, which looks like normal action. The company’s revolutionary, non-invasive Cologuard test for colorectal cancer (which is the second leading cause of cancer death in the U.S.) is making great inroads into the market. HOLD.
Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential so large that I’ve resolved to sit through normal technical sell signals. Long-term, China’s largest hotel operator will only get bigger. The stock had a great June, corrected in early July, and has rallied in recent days but is not yet strong. HOLD.
Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is challenging Starbucks’ dominance of China’s coffee market with a leaner and faster strategy, and its chart is looking good! In last week’s update, Carl wrote, “Luckin has launched more than ten tea products in several categories including cheese foam tea, fresh tea and milk tea. Starbucks has countered by opening its first express coffee shop, Starbucks Now.” And then just yesterday, Luckin announced that it would partner with the Kuwait-based company The Americana Group to launch its coffee business in the Middle East and India. Americana runs 1,900 franchises across the Middle East for several fast food brands, including KFC, Red Lobster, Olive Garden, Krispy Kreme and Starbucks’ UK rival Costa Coffee. On the news, the stock advanced on big volume—both yesterday and today—and is now working to get above its all-time high, set on its IPO day in May, of 25.96. Aggressive investors who know how to control risk can buy here. Otherwise, wait for the next pullback. BUY.
MakeMyTrip (MMYT), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is an India-based travel company that provides the portfolio with great diversification as well as good long-term growth potential. In his latest update, Carl wrote, “Founded in 2000 to serve the travel needs of the US-based Indian community, MakeMyTrip has evolved into a leading travel company as India evolves into a digital marketplace by providing a comprehensive range of travel and travel-related services. MakeMyTrip has made key acquisitions and strategic partnerships and its strong balance sheet should allow it to continue expanding its dominant market share. One key alliance is with Ctrip, China’s largest online travel group. The company has achieved a 43% compound annual growth rate in gross merchandise value processed during the past few years but is not yet profitable. If you have not yet done so, I encourage you to take a half position in this Indian growth stock.” BUY.
Match Group (MTCH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a record high last Friday and has pulled back normally since. Yesterday in Cabot Top Ten Trader, Mike wrote, “It didn’t take long after mobile devices and applications became mainstream for dating websites and apps to pop up. Match Group has emerged as one of the best at developing properties and has enjoyed immense success with Tinder, in particular. Management says that roughly 60% of all dates, relationships and marriages that originated from online dating sites came from a Match Group property! That’s not hard to believe given that Match’s subscriber base is approaching nine million, with roughly five million of those on Tinder. The rest are spread across its other properties, which include Match, PlentyOfFish, OkCupid, OurTime, Meetic and Pairs. The stock can be volatile at times when investors loose faith, like late last year when shares got clipped during the market’s implosion. But IAC Interactive (IAC), which owns the majority of the company, has been steering Match in the right direction for long-term growth and that’s why investors are bidding up shares right now. Second quarter earnings will come out on August 7 so mark that on your calendar; analysts are looking for revenue to rise 16% in the quarter, to $489 million, while EPS is seen staying about flat at $0.40 (though the firm typically crushes estimates). More importantly, Match should crank out 15% to 20% sales and cash flow growth for the next couple of years, with potential upside based on how the company executes.” If you don’t own it, you can buy a little here, though more risk-averse investors will wait for a pullback to the 50-day moving average, now at 71. HOLD.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, hit new highs last Wednesday, Thursday and Friday and has pulled back minimally since. In his update last week, Tom wrote, “This stock has been beating the market and the utility index consistently for the past several years. It’s the country’s largest utility that offers stability and growth in its alternative energy business. Management is actually targeting 12% to 14% annual dividend growth through 2020. The price is a little on the high side, but stronger growth than its peers and the defensive business justify a higher price. The momentum is good as well.” HOLD.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, is no longer strong, but it’s not weak, either—though it could turn weaker from here. In his last update, Mike wrote, “After a wild few weeks (at least relative to its prior action), PLNT has settled down, hanging around the mid 70s as earnings (no set date yet, but likely to be released in the first week of August) approach. Big picture, the stock enjoyed a nearly straight-up advance from late February to early May (60 to 80) and has gyrated between 70 and 80 since then. That seems normal to us, and combined with the company’s long runway of growth ahead, keeps us optimistic the stock will eventually resume its major uptrend. Near term, though, we’re being a bit cautious given the big-volume distribution seen in late June. We’ll stick with a Hold rating and look for signs that big investors are again grabbing shares.” HOLD.
Snap (SNAP), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a new high two weeks ago and has pulled back normally since. If it falls below 14, we’ll probably exit with a quick small profit, but right now, it’s worth holding. I’ll stick with a Buy rating, but earnings are due out tonight, and the reaction will be important. BUY.
STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, has frequently pulled back to its 50-day moving average this year and has just done so again—which means it’s probably a good time to buy if you don’t already own it. In his latest update, Tom wrote, “STAG is a high dividend payer with a great niche in a strong REIT sector. Industrial REITs enjoy a high demand that outstrips current supply. The sector seems to be benefitting from the proliferation of E-commerce as much retail space is moving into warehouses. The market loves this monthly dividend payer right now and it still has good momentum.” HOLD.
Sunrun (RUN), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and featured here just last week, sold off on big volume today as an analyst downgraded the stock, but it bounced off its 50-day moving average mid-day so the big question is what happens next. If the stock rolls over further, and other stocks in the sector join it, we’ll probably sell for a quick loss (our buy happened to be the very top day). But if the buyers return—after all, the sector is still healthy— we’ll probably hold on and eventually make a profit. In the meantime, I will downgrade it to hold. Second quarter results will be released after the market close on August 7. HOLD.
Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) so I’m committed to holding as long as the prospects are good; they are, and the stock is looking good. However, on the news front, Tesla has a very high profile, and much of the news about the company is critical. (And it may not help that the company doesn’t buy any advertising.) But here’s a news item you may not see elsewhere, which was first reported by Benzinga.
With four global heads of automotive companies stepping down this year (including BMW’s Harald Krüger who will be gone soon), the longest-tenured CEO in the entire global auto industry today is Tesla’s Elon Musk, who strictly speaking, is not running an automotive company but working to “accelerate the world’s transition to sustainable energy.” Musk’s eleven-year tenure is not that remarkable in industry as a whole, but in this industry, there’s only one guy who comes close.
Here’s the list:
Tesla: Elon Musk, 2008
Toyota: Akio Toyoda, 2009
General Motors: Mary Barra, 2014
Peugeot: Carlos Tavares, 2014
Honda: Takahiro Hachigo, 2015
BMW: Harald Krüger, 2015
Ford: Jim Hackett, 2017
Nissan: Hiroto Saikawa, 2017
Mazda: Akira Marumoto, 2018
Volkswagen: Herbert Diess, 2018
Fiat Chrysler: Michael Manley, 2018
Suzuki: Toshihiro Suzuki, 2018
Daimler: Ola Kaellenius, 2019
Renault: Thierry Bolloré, 2019
Mitsubishi: Takao Kato, 2019
Tesla’s quarterly report will be released after the market close Wednesday. HOLD.
Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, recorded its highest close ever yesterday and pulled back slightly today. In his update last week, Mike wrote, “TWLO will report its own quarter on July 31, and by all accounts the numbers will be good—one analyst recently said the company is still seeing remarkable growth, with Twilio’s sales team having trouble keeping up with the number of inbound leads they’re getting! Of course, the company is not the stock, so TWLO’s reaction to earnings (and likely shorter-term future) is anyone’s guess. But we continue to think this name is one of the flag-bearers of the bull market, so barring a complete implosion, we’re aiming to give our remaining shares (we took partial profits a couple of months ago) plenty of rope. Thus, if you own some, sit tight; if you don’t, we’re OK buying in this area, but we’d probably keep it small given the upcoming earnings report.” BUY.
Valero (VLO), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Dividend Growth Tier, and featured here two weeks ago, has a fat 4.4% yield and good growth prospects as demand for refining booms. In his update last week, Tom wrote, “This is in my view the best refiner in the country. The longer trend is still strong for American refiners with the advantage of cheaper crude oil feedstock. And Valero has moved down and is cheap because of temporary factors. Things are turning around and it should also get a boost from the new fuel standards required by the IMO starting in 2020. I see this as a stock that recently had a down leg in an uptrend. The big rebound in earnings will likely occur in 2020, but the market looks ahead. Meanwhile, analysts are expecting stronger second quarter earnings, to be reported on July 25th.” BUY.
Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, hit a new high last Friday and has pulled back minimally since. In today’s update, Crista wrote, “Voya is a retirement, investment and insurance company serving millions of individuals and 49,000 institutional customers in the United States. Voya has $547 billion in total assets under management and administration. CEO Rodney O. Martin, Jr. recently stated, “We intend to increase our common stock dividend to a yield of at least 1% and we expect to do so beginning in the third quarter of 2019.” Investors should expect that announcement at the end of July, at which time the share price could begin another run-up as institutional investors who focus on dividend stocks will be able to buy VOYA. Analysts expect full-year EPS to grow 37.1% and 13.4% in 2019 and 2020, and the current P/E is 10.2. I expect the pending dividend announcement and the second quarter earnings release to bring additional capital gains.” BUY.
Zillow (Z), originally recommended in Cabot Growth Investor by Mike Cintolo, pulled back over the past two weeks, nearly touched its 50-day moving average this morning on news that Amazon teamed up with Realogy, but then bounced strongly upward, back above all its moving averages on good volume today. In his update last week, Mike provided some fundamental background to the pullback, “Last week, online real estate competitor Redfin inked a deal to provide leads to Opendoor, which is one of Zillow’s main competitors in the direct home buying market. The specter of greater competition was enough for some profit taking to set in, but we’re not overly worried—Z’s recent drop began after a strong 10-day run-up, and the stock has “only” dipped to its 25-day line to this point. Fundamentally, there’s already plenty of competition in the home buying market from traditional channels, so we don’t see the Redfin news as a huge deal; if anything, we view direct home buying as an entirely new industry of sorts, with Zillow’s scale, access to capital and top-notch management making it likely to be one of leaders in the field. (It’s a long-term goal, but management thinks it’s possible to sell a few thousand homes per month down the road, compared to just 414 sold in all of Q1.) Long story short, you can start with a half-sized position here if you don’t own any.” BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED July 30, 2019
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