Today’s news:
• Adobe Systems (ADBE) moves from Buy to Hold.
• Carlyle Group (CG) moves from Hold to Retired.
• Dow Inc. (DOW) reports earnings beat.
• Southwest Airlines (LUV) reports earnings beat; moves from Buy to Strong Buy.
Adobe Systems (ADBE) – The price chart is bearish, with the stock recently falling to tentative support at 260. I’m moving ADBE from Buy to Hold until the share price appears ready to rise. The company continues to deliver aggressive earnings growth, but software stocks are out of favor on Wall Street right now. Hold.
Carlyle Group LP (CG) moves from Hold to Retired today. The stock has already fulfilled its goal within the Special Situation Stocks Portfolio: the company announced a conversion from a limited partnership to a corporation, and the share price responded well. I’m ready to move on to new stocks. There’s nothing wrong with the company, but I do expect the share price to eventually correct or stagnate following this year’s large run-up. Retired.
Dow Inc. (DOW – yield 5.9%) reported third-quarter EPS of $0.91 this morning vs. the consensus estimate of $0.74. Revenue of $10.8 billion was slightly higher than the $10.7 billion estimate. The repurchased $100 million of stock during the quarter. Dow is the materials science division of the former DowDuPont (DWDP).
CEO Jim Fitterling commented on the quarter: “Our results this quarter demonstrated the Dow team’s focus on managing operational levers in response to a difficult business environment. We grew volume in our packaging, polyurethanes and silicones businesses, and once again successfully leveraged our industry-leading feedstock flexibility in the U.S. and Europe. Our team also took actions to improve pricing – with notable improvements in the Packaging and Specialty Plastics business toward the end of the quarter. Further, we continued to drive down our cost structure, completing the $1.365 billion cost synergy program and removing $40 million of stranded costs. Together, these factors delivered sequential earnings, margins and free cash flow improvements.”
DOW is an undervalued growth & income stock, expected to deliver strong earnings growth in 2020. The stock could easily rise to short-term resistance at 52 this year. The large dividend yield should not only provide downside protection, but should attract institutional investors as they become more confident in the company’s performance and executive management. Buy DOW now. Strong Buy.
Southwest Airlines (LUV – yield 1.3%) reported record third-quarter operating revenues and net income this morning. Diluted EPS of $1.23 beat the consensus estimate of $1.08 and far exceeded all analysts’ estimates. Revenue came in on target. The Boeing 737 MAX is currently removed from Southwest’s flight schedule through February 8.
Southwest Airlines is the largest U.S. domestic air carrier, transporting over 120 million customers annually to over 100 locations in the U.S., Central America and the Caribbean. LUV is an undervalued growth stock.
The company is thriving, despite the serious difficulty imposed by the grounding of the Boeing jet, and expected to deliver strong earnings growth in 2020. I’m moving LUV from Buy to a Strong Buy recommendation. The share price will likely rise today, and could surpass short-term price resistance at 56. Nobody should be selling their LUV shares in the near future. The stock could rise to medium-term price resistance at 62 in the coming months. Strong Buy.