Today’s news: Alexion Pharmaceuticals (ALXN) and Chipotle (CMG) reported quarterly results; KLX Inc. (KLXI) moves from Hold to Strong Buy; XL Group (XL) is rising due to takeover rumors.
The stock market correction arrived so quickly that if you happened to have gone away for a four-day weekend, or perhaps had your wisdom teeth extracted on Friday, you missed the whole thing! I expect the S&P 500 index to trade between the recent high and low for a while, several weeks or months, before attempting new highs again. Start investing your cash. Lots of the portfolio stocks are down, and I encourage you to buy any of the buy-rated stocks this week. I’m going to personally buy on the down days and restrain myself on the up days, knowing that volatility can work in my favor.
I am not expecting the U.S. stock markets to take another downturn that reaches far below this week’s bottom, unless substantially scandalous political situations are revealed to the public. Even then, will such news affect the stock market? It’s hard to know.
I’m adding to my favorite stocks, buying low on stocks that sold last week on stop-loss orders, and picking up a few more good opportunities.
If you want excitement via potential takeover stocks, scroll down to read about KLX Inc. (KLXI), TiVo (TIVO) and XL Group (XL).
If you want to buy low among dividend stocks, consider the stocks in the Growth & Income Portfolio, especially Blackstone Group (BX), GameStop (GME) and Interpublic Group (IPG).
If you want stocks that were barely affected by the market correction—stocks with bullish price charts—consider Interpublic Group (IPG) and Knight-Swift Transportation (KNX).
Alexion Pharmaceuticals (ALXN) reported fourth quarter 2017 adjusted earnings per share (EPS) of $1.48 this morning when analysts expected $1.28 EPS. Revenue also topped consensus estimates. Full-year 2017 non-GAAP EPS were $5.86, above estimates and 26.8% higher than a year ago. The company appointed four new independent board members who have deep biopharmaceutical experience.
Alexion expects 2018 revenue of $3.85-$3.95 billion, below the consensus estimate of $4.1 billion; and non-GAAP EPS of $6.60-$6.80, below the consensus estimate of $7.02. The new 2018 earnings estimates represent approximately 14.5% EPS growth, with a P/E of 17.5. The key catalyst in 2018 will be results of two drug trials for the treatment of aHUS. Alexion currently markets treatments for PNH, aHUS, and gMG.
The stock is undervalued, and analysts project aggressive earnings growth through at least 2020. There’s price resistance at 127, 147 and again at 160. Strong Buy.
Chipotle Mexican Grill (CMG) reported a good fourth quarter this week. Revenue of $1.1 billion was on target vs. expectations and earnings per share (EPS) of $1.34 (excluding a big tax benefit) slightly beat the consensus estimate of $1.32. Same store sales rose, margins rose nicely and Chipotle opened 38 new restaurants. The company now has 2,408 restaurants. Chipotle plans to share its windfall from lower income tax rates with its employees by giving them cash and/or stock bonuses and offering enhanced paid parental leave. Read more in the earnings press release.
The lynchpin for the share price is the CEO search. My assumption is that WHEN a new CEO is hired and IF the market approves of him/her, THEN AND ONLY THEN will the share price finally advance past 350. For 2018, management is expecting comparable restaurant sales increases in the low single digits, and 130—150 new restaurant openings.
The market was disappointed with the pace of expected progress in 2018, and the stock fell down toward its November 2017 lows near 270. I expect the stock to remain within its recent wide trading range, at least until a new CEO is announced. Buy.
KLX Inc. (KLXI) was approached by several potential buyers in late 2017. KLX responded by hiring Goldman Sachs to handle a potential M&A transaction. Investors have short memories, and have apparently given up on a buyout offer emerging. The share price is down with the market in recent days. KLX is expected to report 2017 EPS up 200%, followed by another 25% EPS growth in 2018. The current P/E is 16.6.
I’m moving KLXI from Hold to Strong Buy. This is an excellent stock for aggressive growth investors, and for people who have always wanted to own a takeover stock. The odds are with you right now. Strong Buy.
Special note: TiVo (TIVO) is in the same situation as KLX. The company revealed that potential buyers have shown an interest. The stock jumped, but investors got bored with waiting. The stock is dirt cheap, the dividend is big, and the earnings growth is solid. Small-cap stocks can be volatile, but I see very little downside on the share price. (TiVo is not currently in the Cabot Undervalued Stocks Advisor portfolios.)
XL Group (XL) is apparently “in play”. The stock rose 12% yesterday on news that Allianz has shown an interest in acquiring XL Group or a similar reinsurance company, in order to expand its presence in the U.S. XL traded below book value of about $38 in recent days, then rose to 42 yesterday. According to one large investment firm, recent M&A activity in the industry took place at 1.4—1.7 times book value, which puts a potential buyout price in the range of $53-$65.
After a 2017 loss of $2.01 per share related to higher-than-normal catastrophe losses, the market is expecting 2018 EPS of $3.74. Based on a current share price of approximately 42, the P/E is 11.2 and the dividend yield is 2.1%. Whether a buyout offer emerges or not, XL is an attractive undervalued stock.
There’s price resistance at 47, where the stock last traded in July 2017. If the stock shoots up to 47 (or higher), and no buyout offer appears shortly thereafter, I would expect investors to slowly lose interest, and to see the share price recede. In that scenario, consider using a stop-loss order to protect your downside. Strong Buy.