Today’s news:
• LGI Homes (LGIH) moves from Hold to Buy; moves from the Buy Low Opportunities Portfolio to the Growth Portfolio.
• Total SA (TOT) reports fourth quarter results; stock moves from Hold to Strong Buy.
• Tyson Foods (TSN) reports first quarter results; stock moves from Hold to Strong Buy.
LGI Homes (LGIH) – Yesterday afternoon, LGI Homes announced 434 home closings in January, up from 269 home closings a year ago, representing year-over-year growth of 61%. And on Tuesday, Investor’s Business Daily made bullish comments on LGI Homes’ relative strength and price chart action. The stock rose 6.6% yesterday, on heavy volume, and it’s up again today, appearing to be ready for a breakout past short-term price resistance at 88.
LGI Homes is the tenth largest residential home builder in America. The company is currently building homes, primarily for first-time home buyers, in 19 U.S. states from coast-to-coast and the District of Columbia. LGI Homes was featured in the December and January monthly issues of Cabot Undervalued Stocks Advisor. LGIH is a small-cap stock. Analysts expect full year EPS to grow 13.7% in 2020. The P/E is 11.4.
At 88.54, the stock is up 24.7% since joining the Buy Low Opportunities Portfolio at an average price of 71.03 on December 3. I moved LGIH from Strong Buy to Hold in late January as it rapidly approached short-term price resistance at 88, which was my price target. However, it now looks as if LGIH will blow right past 88 and keep climbing.
The stock has fulfilled its role in the Buy Low Opportunities Portfolio. The valuation remains low, and the earnings growth rate will likely be revised upward, since the January home closing statistics will almost surely lead to higher-than-expected first quarter profits. Therefore, I’m going to move LGIH into the Growth Portfolio today with a Buy recommendation. There’s a bit of risk in the share price after such a quick run-up, but for now, the stock has serious momentum. Risk-tolerant growth investors and traders can buy LGIH now. Hesitant-yet-eager investors can wait for a near-term pullback after the breakout (which frequently happens, but not always). Traders who need cash can take profits now. Buy.
Total S.A. (TOT – yield 5.9%) reported $3.2 billion adjusted fourth quarter net income this morning, far ahead of the consensus $2.7 billion estimate and undeterred by significantly lower oil and gas prices. Results were driven by strong performance in all business segments. Management is projecting modest energy production growth in 2020.
The company’s divestment goal of $5 billion in 2019-2020 is running on schedule; it’s thus far sold businesses worth $3.0 billion. The long-term debt ratio declined a bit to 20.7%. Total reduced their organic pre-dividend breakeven to less than $25 per barrel of oil. (The dividend is quite safe.) The company repurchased $1.75 billion of stock in 2019, and plans to repurchase $2 billion of stock in 2020. Access the press release here.
Total is a French multinational integrated energy company that produces and markets fuels, natural gas and low-carbon electricity, operating in over 130 countries. TOT is an undervalued, large-cap growth & income stock with a large dividend yield. Wall Street recently expected Total’s EPS to fall 9.3% in 2019, then to increase 17.7% in 2020. I would expect new earnings projections to increase over the next two weeks.
The share price fell in January alongside declining oil prices, with price support at 48 dating back to August and October of 2019. The stock is up 4.0% this morning at 50.55. I’m moving TOT from Hold to a Strong Buy recommendation, now that it’s clear that the company continues to thrive, even during a weak pricing environment, and the stock is staying within its trading range. TOT could appeal to traders who would like to make about 10% profit in the coming months, growth investors and income investors. Strong Buy.
Tyson Foods (TSN – yield 2.1%) reported first quarter EPS of $1.66 this morning, on target with consensus estimates, on $10.8 billion revenue, slightly below the $11.0 billion estimate. International demand for beef and pork products is increasing due to the epidemic of African Swine Fever that has decimated Asian hog populations. The quarter’s successes include record beef GAAP operating margins of 10.7% and a record adjusted operating margin of 11.2%. Revenue grew 6% year-over-year.
Tyson Foods is one of the world’s largest food companies, with operations in 20 countries, and a recognized leader in protein with leading brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair.
CEO Noel White added, “Our Chicken segment performed better operationally, although in a soft pricing environment. Our Prepared Foods segment produced its sixth consecutive quarter of retail consumption growth, demonstrating the strength of our brands and innovation as we grew or held market share in all core categories. With improved access to global markets resulting from recent trade developments, there are reasons to be optimistic about fiscal 2020 and beyond and we are well-positioned to capitalize on opportunities in the global marketplace. Although we anticipate the challenges and volatility typical in our second fiscal quarter, our long-term outlook remains positive.”
The company embarked on a restructuring program that is expected to contribute to financial fitness by eliminating overhead and consolidating operational functions. This includes the layoff of 500 mostly-corporate employees and an associated $44 million pretax charge, leading to expected cost savings of $55-$65 million in fiscal 2020.
Thus far, Wall Street has expected Tyson Foods to achieve 25.1% EPS growth in fiscal 2020 (September year end). The P/E is just 10.8. Analysts will tweak their estimates over the next two weeks. The restructuring should slightly boost 2020 earnings estimates, as should strength in international trade. The fact that the stock is down today makes no sense in light of the company’s ongoing growth and success. TSN is trading at about 80, which represents price support that was established in September through November 2019. I’m moving TSN from Hold to a Strong Buy recommendation now that the share price seems optimal again. This is a great moment to buy low for traders and growth investors. Strong Buy.