Today’s news: Andeavor (ANDV), Dollar Tree (DLTR) and Molina Healthcare (MOH) move from Hold to Sell. Cavium (CAVM), which might be acquired by Marvell Technology Group, moves from Buy to Hold.
Note that I will be adding new stocks to the portfolios in tomorrow’s November issue, including a downstream energy company.
Andeavor (ANDV – yield 2.1%) moves from Hold to Sell today after reaching its target price in the Buy Low Opportunities Portfolio. The stock retraced its former highs from December 2015, is therefore very likely to stop advancing, and that’s the only reason that I’m selling ANDV. Earnings growth projections and valuation still look fantastic. I will consider adding ANDV back into the Cabot Undervalued Stocks Advisor portfolios in the future, after the stock has had an opportunity to rest in preparation for a new run-up. Sell.
Cavium (CAVM) rose 10% in after-hours trading on Friday as news stories cited merger talks between Cavium and semiconductor chipmaker Marvell Technology Group (MRVL). Cavium and Micron Technology (MU) were the two semiconductor stocks that I cited in the June issue of Cabot Undervalued Stocks Advisor as being undervalued, after reviewing 13 industry peers.
Cavium earned $1.53 per share in 2016, and is expected to earn $2.82 and $3.56 per share in 2017 and 2018. That reflects 2017 and 2018 EPS growth rates of 84.3% and 26.2%, with corresponding P/Es of 26.6 and 21.1 (presuming a share price of 75).
As for Marvell, 2018 EPS are slated to grow 10.6%. Marvell has virtually no long-term debt, so it should be able to finance the purchase without much trouble.
CAVM rose to new all-time highs as investors snapped up shares prior to a definitive merger announcement. I’m moving the stock from Strong Buy to Hold, and I’ll keep you apprised of how to proceed as the details are made public. In the interim, please read What to Do When Your Stock is a Takeover Target. (If you have questions that are not covered in the article, send me an email at crista@cabotwealth.com. I’ve dealt with dozens of takeover stocks over the years.)
I virtually always sell stocks shortly after the merger announcement, rather than holding the stock for six to 18 additional months until the merger is finalized or aborted. I will do the same with CAVM. If I thought there was any monetary benefit to holding CAVM for more than a couple of weeks after the merger announcement, believe me, I would hold the stock.
If no merger announcement unfolds, the stock will likely trade back down toward 70. If you don’t want to see that happen, use a stop-loss order. Hold.
Dollar Tree (DLTR) moves from Hold to Sell today after reaching its target price in the Buy Low Opportunities Portfolio. The 2019 EPS growth rate is expected to slow to 10.0% (January year-end) and the stock is overvalued with a corresponding P/E of 18.2. DLTR is up 42% since July. (Big run-ups are often followed by big pullbacks!) With price resistance from August 2016 looming in the upper-90s, it’s unreasonable to expect further upside this year. Sell.
Molina Healthcare (MOH) moves from Hold to Sell today after reaching its target price in the Buy Low Opportunities Portfolio. The stock shot upward late last week as the market gained confidence in the new CEO and the restructuring plan. There’s enough long-term price resistance in the low 80s that I don’t anticipate the stock moving any higher in the near term. Sell.