Today’s news:
• Amazon.com (AMZN) moves from Buy to Hold after a rapid run-up.
• Mercury General Group (MCY) reported an earnings and revenue beat; moves from Strong Buy to Hold after a rapid run-up.
• Netflix (NFLX) moves from Strong Buy to Hold after a rapid run-up.
• Voya Financial (VOYA) reported an earnings miss.
Amazon.com (AMZN) is on a tear, blowing past its all-time high of 2,040 from September 2018. I’m moving AMZN from Buy to a Hold recommendation. I never chase stocks after big run-ups. There’s always a lower-risk place to put your money, or you can wait for the next market correction and buy your favorite stocks when they’re on sale. Hold.
Mercury General Group (MCY – yield 4.7%) reported fourth-quarter EPS of $0.21 yesterday, at the top of the estimate range, when the market expected $0.18. Net premiums earned, net investment income, net realized investment gains and the combined ratio (a profitability measure) all improved in the quarter and in the full year vs. a year ago, producing higher quarterly revenue than analysts had expected. The quarter delivered lower-than-normal profits due to elevated catastrophe losses, mainly due to California wildfires. (Catastrophe losses are a normal part of business within the property & casualty insurance industry, and the losses did not come as a surprise to the market.)
Mercury General Group operates as Mercury Insurance, the leading independent agency writer of automobile and home insurance in California. Mercury also writes automobile, home and/or other lines of insurance, including business and mechanical breakdown insurance, in 10 additional U.S. states. MCY is an undervalued, aggressive growth, small-cap stock with an unusually large dividend yield.
The earnings report was well-received, and the stock rose 9.7% yesterday on double the normal trading volume. I’m moving MCY from Strong Buy to a Hold recommendation as the stock now approaches upside price resistance at 55 dating back to September 2019, where traders should exit. There’s a very strong likelihood that MCY will not surpass 55 before resting for a while. I expect additional capital gains in the coming months. Hold.
Netflix (NFLX) is the world’s leading streaming entertainment service with more than 167 million paid memberships in over 190 countries. Viewers can enjoy unlimited access to TV series, documentaries and feature films across a wide variety of genres and languages, all without commercial interruptions. The company is experiencing rapid international subscription growth and creating original foreign language content for international markets. Netflix was featured in the January 22 update of Cabot Undervalued Stocks Advisor.
Consensus estimates point to EPS increasing 46% and 41% in 2020 and 2021, respectively. The P/E is 61. I’m moving NFLX from Strong Buy to a Hold recommendation as the stock quickly approaches its recent peak of about 380 from July 2019. Short-term traders should exit; everybody else should hold. NFLX will most likely rest or pullback, in preparation for a later move toward its 2018 high of 420. Hold.
Voya Financial (VOYA – yield 1.0%) reported fourth-quarter adjusted operating earnings of $1.07 per share yesterday afternoon vs. the $1.10 consensus estimate. The Investment Management and Employee Benefit Divisions performed better than expected. Higher expenses within the Retirement and Corporate divisions disappointed investors, especially impacted by stranded costs associated with the company’s 2018 sale of the majority of its annuities businesses. The loss ratio within the Employee Benefits division (i.e. group life insurance) declined nicely from 72.5% in 2018 to 70.2% in 2019. Voya repurchased $1.1 billion of stock in 2019, and plans to repurchase at least $1 billion of stock during 2020.
This was a classic “messy quarter” in which a variety of one-time events associated with discontinued businesses made the numbers hard to decipher. I’m already seeing different analysts and news services reporting conflicting numbers. The upshot of the situation is that Voya is perceived to be a very strong company, and is definitely expected to achieve decent and great earnings growth in 2020 and 2021, respectively. The only updated analyst price target change I’ve seen so far (a few hours after the quarter was reported) was a target of 70, 12% higher than yesterday’s closing price. (I don’t personally make decisions based on analysts’ price targets, but I know that many people find them to be valuable.)
Voya Financial is a U.S. retirement, investment and insurance company serving 14.3 million individuals and institutional customers. Voya has $603 billion in total assets under management and administration through year-end 2019. CEO Rodney O. Martin, Jr. will present at the 2020 Bank of America Merrill Lynch Insurance Investor Conference on February 12, 2020.
The stock is pressing up against all-time highs that were established in January, near 63. Today’s price action will be a wild card, but I think Wall Street will react well this week to Voya’s future prospects. I’ll need to review the new earnings estimates and research further before deciding how much longer to hold the stock. Buy.