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Value Investor
Wealth Building Opportunites for the Active Value Investor

Cabot Undervalued Stocks Advisor Special Bulletin

Comments on one of our stocks, one stock rejoins the Growth Portfolio, and one of our companies reported a fourth-quarter earnings beat.

Today’s news: comments on Chipotle Mexican Grill (CMG), PulteGroup (PHM) joins the Growth Portfolio, Schlumberger (SLB) reports fourth-quarter earnings beat.

Chipotle Mexican Grill (CMG) Traders take note: CMG is approaching some price resistance at 350. I expect the stock to pause there, and possibly pull back to 330. I’m going to hold CMG for additional gains in the coming months. The company remains on track for attractive earnings growth. Hold.

PulteGroup Joins the Growth Portfolio as a Strong Buy

PulteGroup (PHM – yield 1.0%) is a U.S. homebuilder, and a successful stock in our Growth Portfolio last year, delivering a 51% total return in nine months. I sold PHM on November 21, saying “I’m selling PHM today because it’s extremely overdue for a price correction, and I’d rather sell now than watch it fall. Traders who decide to hold their shares should use stop-loss orders. Long-term investors who decide to hold will still own a very undervalued aggressive growth stock.”

The stock did not fall, but instead proceeded to trade sideways for eight weeks. That’s a bullish price chart pattern, indicating that the stock is building the strength for another run-up. In addition, 2018 earnings estimates have risen quite a bit. At this point, consensus estimates point toward earnings per share (EPS) growth of 27.0%, 47.5% and 18.8% in 2017 through 2019. The 2018 price/earnings ratio (P/E) is just 11.5. Revenue is expected to grow 11%-16% in 2018 due to homebuilding in new communities and increases in average selling prices.

The following investment firms increased their price targets on PHM during the last month: Mizuho, Barclays, Wells Fargo, Susquehanna and J.P. Morgan.

I expect PHM to begin a run-up quite soon, possibly within days. Buy PHM now. Strong Buy.

Schlumberger Reports Strong Fourth-Quarter and Prospects for 50% EPS Growth in 2018

Schlumberger (SLB – yield 2.6%) reported fourth-quarter results this morning. Earnings per share (EPS) were $0.48 vs. the consensus estimate of $0.44. You may access the earnings press release and webcast here. The press release contains extensive business commentary from Chairman and CEO Paal Kibsgaard. Schlumberger is the world’s largest oilfield service company.

2018 revenue growth is expected to come from North American shale drilling and growing international business. Consensus estimates point to very strong EPS growth in 2018 through 2020, and those numbers are likely to increase slightly as analysts rework their earnings estimates in the coming days.

SLB is finally having a pullback after a relentless four-week run-up. There’s 13% upside plus dividends as SLB eventually retraces its December 2016 high near 86. Buy SLB on pullbacks. Strong Buy.