TODAY’S NEWS:
• Kansas City Southern (KSU) reports record first-quarter results.
• L3Harris Technologies (LHX) approaches upside price resistance.
• 2020 Stock Market Outlook
• Trading Ideas
Amazon.com (AMZN) moves from Strong Buy to Hold.
Kansas City Southern (KSU 138.19 – yield 1.1%) reported record first-quarter revenue of $731.7 million this morning, above the consensus estimate of $717.6 million. Adjusted earnings per share were $1.96, above all analysts’ estimates. Overall, business is booming, despite a downturn in the energy sector. In sync with most other public companies, Kansas City Southern is withdrawing full-year 2020 guidance on revenue, volume and profitability “due to the general economic uncertainty created by the global COVID-19 pandemic. The Company is targeting $500.0 million or more of free cash flow in 2020.” Investors can read more in today’s press release.
I originally recommended KSU during my March 18 webinar. The stock has been resting this month. The next run-up could take KSU to price resistance at 160. KSU is an appropriate stock for traders, growth investors and dividend investors.
Speaking of the March webinar, I had recommended defense company L3Harris Technologies (LHX 202.47, yield 1.8%) at about 168. The stock is now quickly approaching short-term price resistance at 210. Traders should consider exiting. The stock was touted this week by Jim Cramer of Mad Money, and given a new Buy recommendation by Bank of America. LHX remains a good longer-term hold.
2020 STOCK MARKET OUTLOOK
The S&P 500 index appears to be starting a new run-up, with short-term price resistance around 3,100.
Please expect volatility, and that definitely includes periodic large market pullbacks. I’m not just saying that as a standard disclaimer. There’s a certain amount of irrational exuberance that’s taking place now. People are not comprehending how bad the private sector has been hurt by the global economic shutdown. Everyone from farmers to florists, retailers to salespeople, and almost every person involved in the entertainment and travel industries will be living on far less income, possibly for years to come. I’m not trying to sound alarmist … I’m trying to be realistic. Many of these people will not have their old jobs back and/or won’t be able to live on the reduced income. Out of necessity, some will sell their primary residences in order to live a less costly lifestyle and gain access to their remaining home equity. This new home-selling trend will lower home prices across the U.S.
Again, I’m not being alarmist. This is just plain logic. Pick ONE family you know who until recently managed or owned a restaurant or small retail store, for example. Ask them if they will need to spend significant savings or take on a lot of debt in order to reopen their business and survive until the economy gets strong again. Listen to their answers. Then imagine that taking place in millions of American families.
Local and state governments are comprehending that when people are out of work, they’re not generating tax revenue, which pays for their employees. I’ve already read of instances in my state, Colorado, where governments are furloughing workers.
So yes, the stock market is happy right now and there’s money to be made, and I will hand you trading opportunities on a silver platter. But please don’t confuse temporary bullishness in the stock market with the idea that “the economy is returning to normal.” No. The economy has been very close to “mortally wounded.” Reach out to your friends and relatives who may have lost employment. They’re completely panicked. If you acknowledge their distress, it opens the door for them to share their fears, and possibly brainstorm with you about how they will find a way to pay their bills until they find a new job. It will be like therapy … because they don’t have money for counseling appointments.
Thanks for listening. Obviously, I’m extremely concerned for this unprecedented burden on families.
TRADING IDEAS
People are asking me about selling a portion of their shares of companies that ran up a lot, like Amazon.com (AMZN 2,363.07), in order to buy low on other stocks that are just beginning to rise. That can be a wise idea for traders. But if you’re going to sell shares of a thriving company like Netflix (NFLX 423.86) and keep the money in cash for a while … don’t do it. Most people who do that will have the intention of buying after a pullback, and they will not follow through, and they’ll end up watching NFLX rise a large amount, a couple of months from now.
For now, I’m moving AMZN from Strong Buy to a Hold recommendation. It’s going to need to rest for a while. I will decide soon whether to keep AMZN in the Cabot Undervalued Stocks Advisor portfolios, or replace it with another attractive stock that hasn’t already run up a massive amount. AMZN remains a fantastic long-term growth stock—excellent for buy-and-hold investors.
Stocks that have just begun new run-ups (with short-term price targets):
Adobe Systems (ADBE) 380
Alexion Pharmaceuticals (ALXN) 115
Applied Materials (AMAT) 67.5
Chart Industries (GTLS) 55
Lam Research (LRCX) 300
MKS Instruments (MKSI) 103