Some Decent Entry Points
Current Market Outlook
Impeachment talk stole the headlines last week, and China trade issues remain one of the chief economic concerns, but overall, the market remains healthy, with all major indexes in uptrends and most just a couple of weeks off their recent highs. Nevertheless, making money remains difficult, as the forces of rotation have been sending old leaders to the locker room and trotting out fresher new leaders to take their place. This is actually good for the health of the bull market, but it does make investing more difficult, so you should continue to tread carefully, in particular by choosing low-risk entry points and being ruthless at cutting loose your worst performers. As for the market monitor, we’ll stand pat this week, as the flurry of selling late last week has created some decent entry points.
This week’s list includes a great variety of stocks, and our Top Pick is a lower-risk insurance stock, Arthur J. Gallagher (AJG), which has been building a base over the past couple of months and looking ripe to resume its uptrend.
| Stock Name | Price | ||
|---|---|---|---|
| Arthur J. Gallagher (AJG) | 89.27 | ||
| Chubb Group (CB) | 153.34 | ||
| Entegris (ENTG) | 48.08 | ||
| Garmin (GRMN) | 97.45 | ||
| Insulet (PODD) | 175.69 | ||
| Jabil Inc. (JBL) | 41.50 | ||
| MasTec, Inc. (MTZ) | 66.65 | ||
| Synnex Corp. (SNX) | 129.70 | ||
| Taylor Morrison Home (TMHC) | 27.51 | ||
| Weight Watchers International, Inc. (WW) | 35.33 |
Arthur J. Gallagher (AJG)
Why the Strength
Arthur J. Gallagher & Co. (AJG) is a global insurance brokerage, risk management and consulting services firm that serves customers in over 150 countries. The company is experiencing organic growth, along with an aggressive acquisition strategy, which are expected to deliver 12-15% revenue growth in both 2019 and 2020. After several years of stagnant insurance rates, the risk management industry is experiencing a multi-year cycle of rising rates, which directly benefits profitability. Gallagher reported near-5% global rate increases in the first half of 2019, and an expectation for additional increases through year end. The company completed 13 brokerage mergers with $195 million of annualized revenue in the second quarter. Gallagher also announced at least 13 additional acquisitions during the current third quarter – it’s hard to count them all! – including The Human Capital Group, a global executive search and leadership consulting firm based in Tennessee. Second quarter earnings per share of 65 cents beat the 61-cent consensus estimate. Margins improved during the quarter, attributed to lower corporate expenses. Analysts expect Gallagher to deliver multi-year margin expansion. On top of all this revenue and profit growth, the stock offers a dividend that is increased annually and that currently yields 1.9%.
Technical Analysis
The stock has been trending higher since early 2016, without any appreciable or sustained downturns. Share price gains in the first half of 2019 have been followed by a stable and narrowing two-month trading range between 86 and 90—a constructive chart pattern that indicates AJG could resume its uptrend quite soon.
AJG Weekly Chart
AJG Daily Chart
Chubb Group (CB)
Why the Strength
Chubb is the antithesis of an exciting growth stock. The Swiss company has a market cap of over $70 billion and specializes in offering property and casualty insurance (83% of revenue), accident and health (14% of revenue), and life insurance (3% of revenue) around the world. But what the company lacks in pizzazz it makes up in consistency and dependability. That’s especially true right now given the company’s scope of product offerings, as well as the improving pricing and underwriting environment in the P&C industry. This is driving a “flight to quality,” according to CEO Evan Greenberg, which has put Chubb squarely in the cross hairs of those looking for commercial insurance. That’s why investors are snapping up shares right now. Chubb has been delivering 4% revenue growth for the last two years and should do the same in 2019 and 2020. EPS growth should be faster, upwards of 11% this year, to $10.45. With one of the biggest P&C insurance platforms in the world Chubb is well-positioned to grow in the U.S. (70% of revenue) and also in overseas markets, where insurance penetration is far below that of the U.S. It’s not going to scratch your speculation itch. But the stock, which yields 1.9%, should deliver near-term gains. We like the recent breakout to all-time highs above 155.
Technical Analysis
CB peaked near 156 at the beginning of 2018 then went through an extended pullback that saw shares retreat 24%. They bounced off the 120 level a few times in 2018 then gained momentum early in January of this year. For the last nine months CB has been trading almost exclusively above its 50-day line. And it just broke out to new all-time highs above 160.
CB Weekly Chart
CB Daily Chart
Entegris (ENTG)
Why the Strength
Entegris operates in the semiconductor industry, an industry that is resurrecting itself as supply dwindles. Analysts expect 5% growth in the sector next year, yet Entegris, which supplies micro contamination control products, specialty chemicals, and advanced materials handling solutions for manufacturing processes in high-tech industries, is seeing double-digit growth.
Entegris enjoys a diverse group of customers, including semiconductor device and equipment manufacturers, gas and chemical manufacturing companies, wafer grower companies, manufacturers of high-precision electronics; flat panel display equipment makers, materials suppliers and panel manufacturers, and manufacturers of hard disk drive components and devices.
Investors have driven the stock higher since the start of 2019, on anticipation of the resurgence of the semiconductor industry, particularly for Entegris’ advanced solutions for making chips at smaller node sizes of 10 nanometers, 7 nanometers and even 5 nanometers (Nanometers equal one-billionth of a meter—pretty darn small), as well as their appreciation of anticipated growth for ENTG, both internally and externally.
Entegris is no stranger to mergers to expand its company. It acquired a couple of small materials companies earlier in the year, and also coupled with Versum Materials, Inc. in a $9 billion deal that expanded ENTG’s global reach and cemented it as a leading specialty materials company across the entire semiconductor spectrum. A couple of weeks ago, Entegris announced another deal to acquire Hangzhou Anow Microfiltration Co., Ltd., a filtration company with customers in the semiconductor, pharmaceutical, and medical industries. That addition will widen ENTG’s technologies and add new manufacturing capacity in Asia.
Rising demand for the Internet of Things, Artificial Intelligence, and the rollout of 5G infrastructure should continue to boost the fortunes of Entegris.
Technical Analysis
After consolidating in August, following a so-so quarter, the shares of Entegris recently broke out to record highs, as the industry’s outlook improved. Shares are up 66% so far this year. They appear to be seeing support at this level, before the next upswing.
ENTG Weekly Chart
ENTG Daily Chart
Garmin (GRMN)
Why the Strength
Garmin is an electronics company that makes GPS navigation and wearable technologies for the automotive, aviation, marine, outdoor and fitness markets. Whereas many others in its industry have faltered – witness the poor performance of GoPro (GPRO) and Fitbit (FIT) – Garmin has succeeded because of a much broader go-to-market strategy and diversified revenue base that helps the business weather cycles in certain markets. The stock is doing well now because, even though automotive (19% of revenue) was down 12.6% in Q2, other markets, most notably aviation (18% of revenue) and marine (12% of revenue), were up handsomely at 20.2% and 12.5%, respectively. Part of the strength in aviation is due to the FAA’s ADS-B initiative, which requires new and improved equipment. With roughly 80% market share Garmin has been a standout performer here, and while the upgrade cycle is winding down management says there are still a lot of aircraft out there that haven’t yet upgraded. This is much more than an aviation story, however. The company is constantly rolling out products for everything from health and workout monitoring to fishing and action cameras. The net result is that analysts see both revenue and EPS up 7% this year, then another 5% in 2020. Add in a share price that’s far from overvalued, plus a 2.7% dividend yield, and we see this growth and value stock moving higher.
Technical Analysis
GRMN’s big breakout came in February when the stock blasted more than 10 points higher to close above 80 for the first time in over a decade. Shares then walked up to 90 before pulling back into the mid-70s this past summer. The bottom of 74 was struck in early August, and shares have moved back into the mid-80s since. We see a potential for a run back to all-time highs near 90, with a breakout likely depending on the Q3 earnings report, due out a month from today.
GRMN Weekly Chart
GRMN Daily Chart
Insulet (PODD)
Why the Strength
Insulet has been good to us thus far in 2019, so we’re going back to the stock again this week. The big-picture idea is that Insulet is helping the hundreds of millions of people around the world with diabetes by cutting costs and increasing convenience. The key to success is the Omnipod Insulation Management System, a pump patch that can be worn on the body and injects insulin based on pre-set parameters. Insulet’s latest iteration, dubbed Omnipod DASH, includes a Bluetooth wireless pump, color-touch screen and suite of mobile apps. All of this makes it even more convenient for users and caregivers to manage diabetes. And it’s fueling big growth for Insulet. Q2 revenue was up 43% (to $177 million) as sales in the U.S. (up 26%) and outside the U.S. (up 48%) both exceeded expectations. We also like that management bumped up guidance to 20% top-line growth for several years out, and that it sees the cost to patients for using Dash falling to roughly $35 for three months. It’s hard to argue with a company that is making better products, more cheaply, and growing like a weed as a result. That’s why the stock is going up, and why we like it.
Technical Analysis
PODD pulled back from all-time highs near 109 late last year, then took off again and broke out to new highs above 108 in June. Shares advanced to 126 just ahead of Q2 earnings, then blasted higher to close around 143 the next day. The advance continued until PODD hit 168 on September 3. A normal-looking pullback knocked the stock down to 140 a few weeks ago. But PODD has come back strong and is within 4% of those early-September all-time highs right now.
PODD Weekly Chart
PODD Daily Chart
Jabil Inc. (JBL)
Why the Strength
Jabil Inc.’s primary focus is on designing integrated circuits and assemblies, three-dimensional mechanical design, and computer-assisted design services. Its customers come from widely-diversified industries, including the automotive and transportation, capital equipment, computing and storage, defense and aerospace, digital home, industrial and energy, networking and telecommunications, point of sale, printing, consumer wearables, healthcare, mobility, and packaging industries.
Two factors have driven shares of Jabil higher in recent days. First, the company took analysts by surprise in its fourth quarter—posting EPS of $0.88, up 25.7% and beating Wall Street’s estimates by two cents. That makes three out of the last four quarters that the company has achieved upside earnings surprises. Its revenues were also up, rising 13.9%, to $6.57 billion, as customers in its electronic manufacturing division (accounting for 63% of its revenues)—especially those serving the 5G/wireless, cloud, and automotive sectors—saw healthy increases in their orders. The other part of its business, diversified manufacturing, grew 2% year-over-year, driven by improvements in Jabil’s healthcare business.
And the fun isn’t over yet! Jabil says it expects next quarter’s EPS in a range of $0.82 to $1.04 a share, on revenue of $6.65 billion to $7.35 billion. And, thanks to the increase in demand for autonomous driving and electric vehicles, the 5G roll-out, and continued aggressive growth in cloud, Wall Street forecasts that earnings will rise 14% for 2020.
Second, investors have cheered Jabil’s stock buyback and dividend strategies. During its 2019 fiscal year, Jabil gave its investors a combined $400 million through buybacks and dividends. And now it has announced an additional $600 million in buybacks over the next two years.
Technical Analysis
While most companies saw lots of red in their stock price movements last week, Jabil was one of the few that not only held its own, but continued to move up. The stock gapped up 14%, and has now risen 43% since the beginning of the year.
Shares have broken well above their year-long consolidation in the high-20s to low-30s, and at 35 seem to be poised for further upward momentum. Buy on small dips.
JBL Weekly Chart
JBL Daily Chart
MasTec, Inc. (MTZ)
Why the Strength
MasTec, Inc. (MTZ) is a leading North American infrastructure construction company with over 20,000 employees that primarily services the communication and oil & gas industries. After a decade of tremendous revenue growth, MasTec reported yet another outstanding quarter on August 1. Adjusted diluted earnings per share beat the analysts’ estimate by 43%. Management promptly raised earnings guidance for the balance of the year, and reported increases in cash flow and debt reduction, and record backlogs in three of their four business segments. The growth cycle remains in full force, with management emphasizing strong visibility into continued multi-year growth opportunities. Monthly economic reports on new business activity in the equipment finance sector mirror MasTec’s successes. September financing volume of $9.2 billion rose 3.4% vs. a year ago. Falling interest rates additionally support the health of the construction market. At least six investment firms responded by reiterating buy recommendations and reporting large increases in their price targets, ranging from 63-76. Thirteen of 14 Wall Street analysts are recommending a Buy on MTZ right now. Despite all the bullish corporate growth and rave reviews, the stock’s 2020 P/E ratio is only 12.1, allowing lots of room for share price expansion before anybody would consider the stock to be overvalued.
Technical Analysis
This small-cap stock reacted to quarterly results by breaking free from a 20-month range and surging in August while the rest of the market was falling. The stock gapped from 50 to 60, and has been trending higher since, touching as high as 66 earlier this month before pulling back to 64. Still, the uptrend shows no signs of weakening, and this looks like a solid entry point.
MTZ Weekly Chart
MTZ Daily Chart
Synnex Corp. (SNX)
Why the Strength
SYNNEX provides business processing services, including storage, assembly, and logistics systems, front and back office automation, and marketing services such as direct mail, telemarketing, database analysis, and cloud- and web-based marketing. Its customers straddle the globe, operating in markets in the Americas, Asia-Pacific, Europe and Africa, and are diversified among the automotive, banking and financial services, consumer electronics, energy and public sector, healthcare, insurance, media and communications, retail and e-commerce, and technology, as well as travel, transportation, and tourism sectors.
Investors piled into shares of SYNNEX after the company reported third quarter earnings last week, beating analysts’ forecasts for the fourth quarter in a row. Earnings came in at $3.30 per share, up 42% from a year ago and handily beating analyst estimates of $2.86. Revenues were up 29%, on the expansion of its PCs, networking, and cloud business. SYNNEX is particularly optimistic about new growth from its SMB (small business) customers in its Concentrix division, where revenues soared 136% from the previous quarter.
Institutions have also ramped up their holdings, with 47 new holders who recently bought almost 1.3 million shares. SYNNEX anticipates next quarter’s earnings will be $3.5-$3.7, on revenues of $5.85-$6.15 billion. That robust earnings outlook prompted seven analysts to boost their earnings forecasts for the company.
Technical Analysis
The shares of SYNNEX have risen 41% year-to-date as specific components of the tech industry continue to show exponential growth—despite some pullback during the market’s summer doldrums. And with the impressive earnings report last week, the shares climbed 15% and look like they still hold compelling value.
SNX Weekly Chart
SNX Daily Chart
Taylor Morrison Home (TMHC)
Why the Strength
Taylor Morrison Home Corp. (TMHC) is a small-cap homebuilder that serves a diverse array of consumer groups across the U.S. The company operates under two well-established brands, Taylor Morrison and Darling Homes, and additionally offers mortgage, title, closing and insurance services. Taylor Morrison closed on a $1 billion acquisition of AV Homes in October 2018, expanding five of Taylor Morrison’s existing markets. The integration of AV Homes was completed more quickly than management had projected, and the annualized cost synergies are now expected to be $50 million higher than originally anticipated. Eye-popping second quarter results beat expectations in many areas, including closings, sales, and backlog, with $76 million in share repurchases serving as icing on the cake. Earnings per share of 76 cents trounced the 66-cent consensus estimate, and revenue also beat estimates. The company also announced their entry into the build-to-rent single family home market through a partnership with Christopher Todd Communities. Wall Street expects 41% full-year earnings growth, while the 2020 P/E is just 8.4. In mid-September, the company updated investors with news of 30% year-over-year order growth in July and August, building expectations for exciting third-quarter results in late October.
Technical Analysis
Despite a strong U.S. economy and financial successes throughout the homebuilding industry, 2018 was a poor year for homebuilder stocks. But TMHC has rebounded in 2019, and volume increased in the third quarter as the stock heads toward its January 2018 all-time high near 29. The stock has been impervious to recent market turbulence, having been on a steady uptick from 19 in late June to 25 now. With no signs of slowing down, it’s a good momentum buy, especially if the market stabilizes.
TMHC Weekly Chart
TMHC Daily Chart
Weight Watchers International, Inc. (WW)
Why the Strength
Weight management is big business and Weight Watchers, which offers a variety of weight control programs to over 2.6 million members, is one of the leaders in the market. The stock is doing well now because evidence is building that the execution missteps from last year that hurt subscriber trends seem to have been corrected. Combined with new diet programs and marketing campaigns slated for this fall and 2020, the story is now shifting from “not great” to “much better.” That’s pulling new investors into the stock as anticipation builds that this story can move back to “good” or even “great,” as was the case when shares traded at 105 in June 2018 (roughly 150% higher than they are now). We’re not saying Weight Watchers is on the fast track to 100. But we like that management recently raised 2019 guidance above consensus (again) due to strength in the Digital business and that the new diet program is set to launch toward the end of the year. Analysts, many of whom are still cautious on the name (but becoming more constructive), see 2019 as the trough, with sales down 7% and EPS down 37%. Next year, sales are seen bouncing back 4%, to $1.47 billion, while EPS should jump 23%, to $2.10.
Technical Analysis
WW was a beast in 2017 and the first half of 2018 as the stock soared from 12 to just over 100. Momentum faded in the back half of last year, however, and a big gap down this past February saw WW trade well below 20. Shares kicked around in the 17 to 24 range through most of the summer, then broke out to multi-month highs above 27 after earnings came out in early August. The trend has been solidly up since.
WW Weekly Chart
WW Daily Chart
Previously Recommended Stocks
Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.
Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in green.
