Today’s News: Sell BP plc (BP); four stocks move to Hold -- Delek Holdings (DK), Martin Marietta Materials (MLM), Vertex Pharmaceuticals (VRTX) and Vulcan Materials (VMC) -- plus other stock news and changes in portfolio strategy.
I don’t typically reshuffle stock portfolios at year-end, but I’m announcing in advance my intention to do so in the coming weeks.
There are currently 1,023 stocks within my stock universe that I review on a regular basis. After completing a three-month review of all those stocks in preparation for 2018, I’m planning to update the Cabot Undervalued Stocks Advisor portfolios with several stocks that are expected to have better earnings growth and/or lower valuations than some of our current stocks. In addition, once we’re a few weeks into January, it will become clear which of our 2017 laggards are recovering and which are stagnating. I’ll be replacing some of the laggard stocks as well.
In each case, I’ll make it clear whether the companies continue to have generally attractive prognoses, so that if you’re more of a long-term investor, you’ll have a sense of whether you can expect good things from your stocks in the months to come. (I can’t hold every attractive company in the portfolios, because that limits my ability to introduce new stocks, so I’ve got to occasionally make it clear that removing a stock from these portfolios does not necessarily mean that there’s anything wrong with the companies!)
Next week brings the January issue of Cabot Undervalued Stocks Advisor. Please continue to set aside more cash than usual for two purposes: new stocks that will join the Cabot Undervalued Stocks Advisor portfolios in January, and cash with which to buy low during the inevitable stock market correction (and subsequent rebound!) that typically arrives after a big market run-up like we saw in 2017. (Yes, I am both bullish and cautious! My personal cash position is up to 24%, from about 3% last summer, yet I have continued to regularly purchase new stocks while also hoarding cash. I just love buying low during market corrections, and don’t want to miss out due to being fully invested.)
In that light, today I’m moving Delek Holdings (DK), Martin Marietta Materials (MLM), Vertex Pharmaceuticals (VRTX) and Vulcan Materials (VMC) to Hold recommendations.
I plan to sell Delek Holdings (DK) when it approaches long-term price resistance at 38, which could happen quite soon. 2018 earnings growth projections remain fantastic, but this stock is up 40% since mid-October. Hold.
Both Martin Marietta Materials (MLM) and Vulcan Materials (VMC) are expected to achieve aggressive earnings growth in 2018 and 2019. However, they’re each approaching price resistance. I anticipate keeping one in the Growth Portfolio and selling the other, simply to make room for new opportunities. I’ll play it by ear, based on their share price performance in the coming weeks. Hold.
Vertex Pharmaceuticals (VRTX) is rising toward price resistance at 166, where it will be fairly valued, though earnings growth prospects remain very strong. Earnings estimates and price momentum can change rapidly among biotech stocks. I’m moving VRTX to Hold today, but I will make a final decision on how to subsequently proceed when the share price is mere dollars away from the target. Hold.
Sell BP plc (BP) today. BP has reached my price target, which is defined by long-term price resistance in the low 40’s where it last traded in 2014. Statistically, a stock will have quite a bit of difficulty rising past that price point, and will first require an extended period of sideways trading. Those are the odds, and anything can happen, but I’m going with the odds.
BP’s earnings growth remains aggressive (at least in 2018, although possibly not in 2019), and the dividend yield is currently quite large at 5.7%. Feel free to hold this stock if you prefer, because there is absolutely nothing wrong with the stock other than price resistance. Sell.
In addition, I’ll likely be selling KLX Inc. (KLXI) in the coming weeks. I’m expecting some sort of buyout offer, which will push the share price to a definitive top. The stock’s up 47% since joining the portfolio in June. It’s simply not reasonable to expect much more upside in the near term, whether or not a buyout offer materializes. Hold.