Today’s news: Earnings reports from Apple (AAPL), Molina Healthcare (MOH) and Universal Electronics (UEIC). MOH moves from Strong Buy to Hold, and UEIC moves from Buy to Strong Buy.
Advance warning: I anticipate adding at least one stock to the portfolios in next week’s November issue.
Apple (AAPL – yield 1.4%) reported fourth-quarter 2017 (September year-end) results yesterday afternoon. Non-GAAP earnings per share (EPS) were $2.07—higher than all analysts’ estimates—assisted by increased product pricing. Full-year EPS were $9.21 vs. the $9.00 consensus estimate, up 11.0% from a year ago. Analysts are expected to significantly raise fiscal 2018 earnings estimates in the coming days. Strong 2018 revenue growth is coming from India, China and emerging markets—influenced by telecom infrastructure development and increasing brand awareness—and gross margins are expected to increase.
I’m anticipating revised full-year earnings estimates to reflect at least 30% EPS growth in 2018. Apple’s most recent years of strong EPS growth were 2015 and 2012, so despite the glamorous aura around the company, big earnings years are sporadic. Shareholders should expect to profit from Apple’s extremely successful prospects for 2018!
The stock is up 9% since joining the Growth Portfolio at 158 on August 2. I expect AAPL to perform well between now and June 2018, but it will assuredly have plateaus and pullbacks along the way. Don’t use stop-loss orders unless you are an experienced and focused trader, or you need the capital quite soon for other purposes. Let the stock bounce around and grow. Strong Buy.
Molina Healthcare (MOH) reported non-GAAP third-quarter EPS of (-$1.62) yesterday afternoon, when the market expected $0.38 EPS. The company is ahead of schedule in its restructuring plan, and revenue surprised on the upside, so despite the quarterly loss, the market is reacting with confidence in the new management team. The new CEO joined the firm in October, and Molina is winning new contracts, increasing premiums and controlling costs. Cash flow is good, alleviating market concerns pertaining to the necessity to issue new debt. I expect upward revisions to the recent 2018 EPS estimate of $2.87.
MOH rose this morning near my 80 price target, where it last traded in the summer of 2015. I’m moving MOH from Strong Buy to Hold, and will decide in the coming days whether to replace MOH with another buy low opportunity. Hold.
Universal Electronics (UEIC) reported $0.81 third-quarter EPS yesterday afternoon vs. the consensus estimate of $0.85, and guided analysts’ fourth-quarter estimates downward. While it is true that the company is solidly profitable and growing, the market never likes downward earnings revisions; thus, the stock is down about 8% this morning.
I like UEIC for its earnings growth, low P/E and extremely low debt ratio. UEIC is a micro-cap stock, with Comcast (CMCSA) owning a sizeable warrant position in the company. Frankly, Comcast could pay cash for UEIC on a whim. I’m happy to have added UEIC to the Buy Low Opportunities Portfolio at 57, and plan to hold it for quite a while in order to realize an outsized capital gain. In the meantime, I’ll keep you apprised of trading opportunities. Therefore, take note: I’m moving UEIC from Buy to Strong Buy today. There’s 30% upside as UEIC retraces its July high around 72, where the stock will still be undervalued.Buy.