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Cabot Undervalued Stocks Advisor Special Bulletin

Three of the stocks in the portfolio please the market with their quarterly earnings releases.

Today’s news: Apple (AAPL), CIT Group (CIT) and Knight-Swift Transportation (KNX) all please the market with their quarterly earnings releases.

Apple Inc. (AAPL – yield 1.8%) reported record high first quarter diluted EPS of $4.18, and $84.3 billion in revenue yesterday afternoon, each slightly above the consensus estimates (September year end). Services, Mac and Wearables each delivered record revenues. The company lowered second quarter revenue guidance vs. current market expectations. From the press release:
• Revenue from iPhone® declined 15 percent from the prior year, while total revenue from all other products and services grew 19 percent.

• “While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide,” said Tim Cook, Apple’s CEO. “Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments.”

The stock rose 5.7% to $163.54 in after-hours trading. I expect the share price to act well in the coming days. Revised consensus earnings estimates will help me know how to proceed thereafter. Buy.

CIT Group (CIT – yield 2.2%) reported fourth quarter diluted EPS of $1.21 yesterday morning, when the market was expecting $1.14, within a range of $1.08-$1.37. Full-year 2018 EPS rose 31.6% to $4.04. The recent 2019 consensus EPS estimate of $4.78 will be tweaked by analysts in the coming days.

The company had a successful year, growing loan and lease volumes, consumer deposits, the customer base and the stock’s book value; reducing operating expenses and divesting several non-essential businesses. The successes are laid out nicely via bullet points in the top of the press release.

CIT Group repurchased $1.6 billion of stock during 2018. The company plans to repurchase another $450 million of stock through Sept. 2019, and to increase the second quarter dividend by 40% to $0.35 per share, subject to approval by their Board of Directors. Based on a current share price of $45.78, the new dividend yield will therefore be 3.1%.

CIT is an undervalued aggressive growth stock with an attractive dividend yield. The stock is up 29% from its December lows. There’s a very strong likelihood that CIT will promptly reach price resistance at 47, then head back down to about 42, at which time I’ll likely give CIT a Buy recommendation. Hold.

Knight-Swift Transportation Holdings (KNX – yield 0.7%) reported fourth quarter adjusted EPS of $0.93 yesterday morning, in line with their previous guidance, and way ahead of consensus earnings estimates. (I outlined this scenario in a January 28 Special Bulletin.)

Knight-Swift had an extremely successful and profitable 2018. The stock rose 6.7% to 32.11 in reaction to the strong earnings report, and could climb to a maximum of about 35 in the coming days. In next week’s February issue, I should have a good sense of the revised 2019 earnings outlook, which might cause me to change my recommendation again, in one direction or the other. Buy.

Note: When quoting consensus earnings estimates, I use the Thomson Reuters estimates, which generally include far more analysts’ projections than do the Zacks Consensus Estimates.