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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 296

The market has pulled back a bit in recent days, but not enough to change our stance. By our measurements, the market’s intermediate-term trend remains up, while the long-term trend is still working to turn up.

More important, however, is how the stocks in our portfolio are acting, and the answer is “pretty good!” In fact, we’ll continue to hold them all today.

As for today’s recommendation, it’s a very well-known U.S. meat company that reported earnings just this morning—and the dip that followed that report now makes the stock an even better bargain!

Full details in the issue.

Cabot Stock of the Week 296

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In my opinion, diversification is the single most important element of an investing system, as well as one of the easiest to achieve (given sufficient funds), and that’s one of the reasons I love helming Cabot Stock of the Week. It enables me to recommend all kinds of companies! Last week we dipped into small-cap speculative territory with a little marijuana company and this week we swing back to a dividend-paying mega-cap old-economy brand that is currently undervalued. The stock was originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Investor and these are Crista’s latest thoughts.

Tyson Foods (TSN)
“Tyson is the largest U.S. food company, with operations in 20 countries, and a recognized leader in protein with leading brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair. Management is focused on the growing global need for protein, and fulfilling that need in a sustainable and environmentally conscious manner.

“In November 2019, China agreed to buy more poultry from the U.S., lifting their nearly five-year ban on poultry imports, and they also removed existing tariffs. One motivating factor in this decision was the African Swine Flu pandemic that destroyed over 300 million hogs in China in 2018 and 2019. The country needs additional protein sources for its citizens.

“Then in January 2020, China promised to buy significantly increased amounts of U.S. poultry in 2020 and 2021 as part of a Phase 1 U.S.-Sino trade deal. In March, China additionally agreed not to ban all U.S. poultry imports if avian flu is discovered among any U.S. poultry populations. Instead, China will temporarily ban poultry products from any U.S. state where an avian flu outbreak occurs.

“More recently, the COVID-19 virus pandemic has been affecting most global companies. For meat processing companies like Tyson, that means sick and absent workers are leaving companies unable to continue production at their normal pace, sometimes causing plant closures for health reasons. In late April, President Trump deemed meat-packing plants ‘critical infrastructure’ that must stay open. This pronouncement largely alleviates food companies’ worries over lawsuits if they remain open. The executive order also seeks to resolve two additional problems: farmers and ranchers are destroying food and livestock because the supply chain has been so damaged that they can’t get their food products delivered to consumers and restaurants; and resulting meat shortages in grocery stores could seriously impact Americans’ diets. A Tyson spokesperson commented, ‘We have and expect to continue to face slowdowns and temporary idling of production facilities from team member shortages or choices we make to ensure operational safety.’

“Tyson reported second-quarter results just this morning. Revenue of $10.89 billion came in on target with consensus estimates. The company also reported record six-month beef adjusted operating margin of 6.9% and record six-month total sales of $21.7 billion.

“Adjusted EPS of $0.77 missed the consensus estimate of $1.03. While that sounds serious, it’s important to understand that everybody on Wall Street already knew that the virus pandemic was interrupting the work flow and profits at meat processing facilities. A first-quarter fire in a Tyson beef processing facility additionally impacted the quarter’s results. As the virus abates, production will ramp back up.

“CEO Noel White commented, ‘During the quarter, we witnessed an unprecedented shift in demand from foodservice to retail, temporary plant closures, reduced team member attendance, and supply chain volatility as a result of the virus. Despite these challenges, we were able to adjust our product mix and redirect products to the appropriate channels. While we cannot anticipate how long the challenges presented by COVID-19 will persist, we remain focused on driving long-term growth. Our solid balance sheet, ample liquidity, scale and diversity continue to give us confidence in our long-term outlook.’

“Prior to the virus pandemic, Tyson was expected to experience tremendous profit growth in 2020 and 2021. In recent days, Wall Street’s EPS projections amounted to 8% and 13% growth in 2020 and 2021, which is still good compared to a majority of American companies that are being far more seriously impacted by the virus-caused business lockdowns. We’ll have updated projections in the coming week as analysts assess today’s numbers and rework their full-year estimates.

“TSN is an undervalued stock, attractive for growth investors, traders and dividend investors. The stock will most likely trade between 53-65 in the coming weeks. I expect continued upside later in 2020, interspersed with pullbacks as we experience ongoing volatility in the broader market.”

Tim’s note: When I selected Tyson for today’s stock, knowing that the company would report earnings this morning, I reasoned that if the stock reacted well to the report it might break out into a new uptrend (above 65) and if the stock reacted poorly, it would set up a buying opportunity in the lower end of the current trading range. Well, the latter occurred (on reasonable volume) and thus I recommend aiming to buy below 55.


TSNRevenue and Earnings
Forward P/E: 10Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Current P/E: 12($bil)(vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) 2.6%Latest quarter10.94%0.77-36%
Debt Ratio: 70%One quarter ago10.86%1.665%
Dividend: $1.68Two quarters ago10.99%1.21-23%
Dividend Yield: 2.8%Three quarters ago10.98%1.47-2%

Current Recommendations

StockDate BoughtPrice BoughtYieldPrice on 5/04/20ProfitRating
AbbVie (ABBV)3/31/20765.8%827%Hold
Blackline Inc (BL)3/24/20520.0%579%Hold
Fanuc Corp. (FANUY)4/21/20131.5%1617%Buy
Huazhu Group Limited (HTHT)3/30/1690.0%32245%Hold
Luckin Coffee (LK)6/19/19200.0%4.39-78%Hold
Marathon Petroleum (MPC)4/7/20247.6%3127%Buy
NextEra Energy (NEE)3/27/191942.4%22918%Hold
Nvidia (NVDA)3/10/202540.0%28814%Buy
RingCentral (RNG)10/23/191530.0%23252%Hold
Sea Ltd (SE)1/21/20410.0%5534%Hold
Tesla (TSLA)12/29/11300.0%7412400%Hold
Trulieve (TCNNF)4/28/2010.420.0%10.04-4%Buy
Tyson Foods (TSN)New2.8%55Buy
Vertex Pharmaceuticals (VRTX)1/7/202240.0%25916%Buy
Virgin Galactic (SPCE)10/11/199.240.0%1782%Hold
Zoom Video (ZM)03/17/201080.0%14231%Buy
Zscaler (ZS)4/14/20650.0%685%Buy

Big picture, the market looks fairly healthy, as investors place their bets on the companies that are best positioned to exit this unusual period in good shape. Happily, we own a lot of them—and they’re acting so well that I’ll sell none today. But we’re not out of the woods yet; Cabot’s long-term market timing system has yet to give a buy signal, so a modest cash reserve is still appropriate.

Vertex Pharmaceuticals (VRTX) to BUY.

AbbVie (ABBV), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, last Friday reported first-quarter revenues that exceeded expectations and reiterated its guidance for 2020. In last week’s update, before the report, Tom wrote, “Earnings have taken a distant back seat to the ebbs and flows of the virus and lockdown. AbbVie has delivered better-than-expected earnings in each of the last four quarters. It is also expected to benefit from drug stockpiling during the virus, as many of its peers have. The stock was flying before the bear market and it has a defensive business and a safe dividend. This is a stock that should be a great holding though the rest of the crisis and well beyond.” HOLD.

BlackLine (BL), originally recommended by Tyler Laundon in Cabot Early Opportunities, offers cloud-based automated accounting services that are used by larger companies to automate financial/accounting processes. The stock remains well above all its moving averages, and is thus is a solid hold. In last week’s update, Tyler noted that while the company is not a natural beneficiary of the virus situation (like ZM, for example), it’s in the group of stocks that “should still do very well, provided we don’t have a worst-case scenario (rolling, severe outbreaks worldwide; social unrest/rioting; major supply chain disruptions; no vaccine/effective therapies on the horizon, etc.).” HOLD.

Fanuc (FANUY), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, and featured here two weeks ago, is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and also serve as the brains of industrial robots. In last week’s update to his readers, Carl wrote, “With the pullback in the market, now is a great entry point even as the stock has leapt from a low of 11 in late March up to 16 this week—a price that’s still well below its 52-week high of 19. Fanuc offers investors a pristine balance sheet with zero debt and a whopping $7 billion in cash. Profit margins are impressive and Fanuc also bought back 72 million shares last month. In short, Fanuc is a high-quality play on what seems to be an unstoppable trend. I encourage you to buy this conservative robot play if you have not already done so.” BUY.

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 hold the stock through normal technical sell signals. The stock has made no progress over the past two years, but has been trending higher since the March low—with a nice gap up last Thursday. HOLD.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is still not trading, pending the release of more information from the company. In his update last week, Carl wrote, “China Securities Regulatory Commission has been cooperating with the SEC to look into the Luckin Coffee situation. More than a dozen officers from State Administration for Market Regulation visited the headquarters in Xiamen on Sunday, marking the most significant action so far by Chinese authorities. Since Luckin is listed in the U.S., China’s securities regulator has limited supervisory authority. Luckin said in a statement on its official Weibo account that it is ‘actively cooperating’ with the market regulator and providing information about its business. The company added that its stores across the country are operating normally.” HOLD.

Marathon Petroleum (MPC), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, has actually developed a nice uptrend since the March bottom—in spite of all the bad news about oil—and that’s partially because the stock is cheap! However, earnings are imminent. In her latest update, Crista wrote, “Marathon is expected to report a first quarter loss of $0.26 EPS and $23.9 billion revenue on the morning of May 5. The company’s full-year earnings outlook has come way down, and should remain cloudy until countries emerge from lockdown and resume commerce. Fortunately, MPC appears to be starting a new run-up. Traders and dividend investors should buy now.” If you don’t own it yet, I advise waiting until after the report to avoid any major surprises. BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, sold off last week after reporting first-quarter results and is now below all its moving averages. In his latest update, Tom wrote, “This regulated and alternative energy utility announced earnings last week that beat expectations for earnings and revenue on an adjusted basis. Earnings were up 8.2% and revenues increased 13.2%. The utility has outperformed both the market and its peers so far this year but it is still almost 20% below the 52-week high. If the market again turns south, I will recommend a BUY on NEE at a cheaper price.” HOLD.

Nvidia (NVDA), originally recommended by Crista Huff for the Special Situation and Movie Star portfolio of Cabot Undervalued Stocks Advisor, hit another recovery high last week and then pulled back slightly but is still close to its February high near 315. Last week Crista wrote, Nvidia completed their $6.9 billion acquisition of Israeli chip designer Mellanox Technologies Ltd. The acquisition adds to NVIDIA’s data center and artificial intelligence business, and will probably cause consensus earnings estimates to rise a bit in the coming weeks as analysts revisit the numbers. NVDA is a high-P/E, aggressive growth stock, appropriate for growth investors and traders. Profits are expected to increase 31% and 21% in fiscal 2021 and 2022 (January year end). The stock appears capable of rising promptly toward the February all-time high near 315.” BUY.

RingCentral (RNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is definitely in the class of companies benefitting from the virus shut-in as more and more people work to master the logistics of working at home. The stock hit a record high three weeks ago and has pulled back normally since. HOLD.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is an Asian e-commerce and gaming giant, and the stock looks great, having hit new highs several times over the past few weeks. Mike has since sold the stock, but Carl Delfeld has recommended it in Cabot Global Stocks Explorer and last week he wrote, “As I recommended last week, please sell half your position. Sea Ltd’s Shopee Mall continues to see healthy growth in stores ahead of peers in ASEAN – online stores in Indonesia have grown by 30% in three months. All indications point to Sea having the potential to be an enduring growth stock but I would be reluctant to buy new shares at these levels. We will move SE back to a buy on any pullbacks.” 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) and the stock continues to impress, as analysts increasingly recognize that Tesla’s hit from the coronavirus will be far less damaging than the damage sustained by legacy manufacturers who were late to the electric car party. The company last week released an excellent first-quarter report: Revenues were $5.99 billion, up 32% from the same quarter the year before but down 19% from the last quarter of 2019 thanks to coronavirus-related shutdowns. Deliveries were 88,400, up from 63,000 the year before. Automotive gross margins grew to 25.5%, up from 20.2% the year before. Model Y deliveries began significantly ahead of schedule, and actually contributed to profits. Cash and cash equivalents were $8.1 billion at the end of the quarter, up $1.8 billion from the previous quarter. And the company remains committed to its goal of 500,000 vehicle deliveries this year. All told, it was a great report, and I continue to think this stock is worth holding, not just for the company’s leadership in the electric car business but also for its potential to disrupt the electric utility industry with its solar cells and batteries. HOLD.

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor and featured here last week, has pulled back slightly since then and thus is a decent buy right here for investors with a high tolerance for volatitlity and a long time horizon. BUY.

Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, pulled back sharply last week and found support at its 25-day moving average. In his update last week, Mike wrote, “Vertex is another stock that’s (a) sold off sharply, but (b) hasn’t done anything wrong, and (c) whose business remains in great shape. Q1 results (sales up 76%, earnings up 125%) trounced estimates, driven mostly by Trikafta, which was taken up more quickly than expected. Management also hiked guidance for the rest of the year. Still, to be fair, the 2021 earnings number (which many are keying off of as Trikafta ramps) of around $10 per share looks stable, so maybe the upside wasn’t quite as meaningful. But even so, Vertex’s path of rapid, reliable growth for the next couple of years at least looks safe. The recent selling could go on for a bit, and a move below 235 would probably have us going to Hold. But right here, VRTX hasn’t broken any key support and fundamental prospects look great.” Mike has had it rated buy, and I’ll now join him, given the recent pullback. BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, will report first-quarter results after the market close tomorrow, May 5. Carl continues to recommend that his readers sell half their position for a healthy profit; the stock is out of the limelight now and may be in for an extended period of underperformance. But I’d like to hold this for the long haul, assuming the stock doesn’t fall apart, because the long-term prospects are so astronomical. If you don’t own it but you’re intrigued, at least wait until after tomorrow’s quarterly report before doing any buying. HOLD.

Zoom Video (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains one of the highest-profile stocks today, thanks to the coronavirus shut-in and the booming growth in video interactions. The stock hit a new high two weeks ago and has pulled back normally since. BUY

Zscaler (ZS) originally recommended by Mike Cintolo in Cabot Growth Investor, has a surprisingly sedate chart for such a fast-growing internet security stock. If you don’t own one, you can buy this one now. BUY.

The next Cabot Stock of the Week issue will be published on May 11, 2020.

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