Today’s news:
• Adobe Systems (ADBE) – trading alert; stock moves from Hold to Buy.
• Alexion Pharmaceuticals (ALXN) – trading alert.
• Apple Inc. (AAPL) – earnings report due April 30; stock moves from Hold to Buy.
• Marathon Petroleum (MPC) – trading alert; stock moves from Hold to Buy.
• MKS Instruments (MKSI) – earnings report on April 28; trading alert; stock moves from Hold to Buy.
• Nvidia (NVDA) – trading alert; stock moves from Hold to Buy.
• VanEck Vectors Oil Refiners ETF (CRAK) – trading alert; ETF moves from Hold to Buy.
• Economic Commentary – sell retail apparel stocks: Abercrombie & Fitch (ANF), Designer Brands (DBI) and Guess? Inc. (GES).
As I was preparing this Wednesday’s Weekly Update, I knew that the price charts on about half a dozen of our stocks appeared poised for immediate run-ups (barring any unexpected bad news). Therefore, I’m telling you about these stocks today so that investors who are looking for trading ideas can start the week off profitably.
Adobe Systems (ADBE 344.10) moves from Hold to a Buy recommendation. After resting for a couple of weeks, the stock appears immediately ready to rise toward its February all-time high near 395. Nevertheless, no stock will be impervious to pullbacks in the broader market this year, so be prepared for volatility. Buy.
Alexion Pharmaceuticals (ALXN 108.12) began rising again late last week, and is now heading toward its November-thru-January high of about 115. Traders should consider paring back their positions near 115, because odds are strong that upon reaching 115, the stock will subsequently have a pullback. You can use the cash to buy low on another stock that’s just beginning a run-up, put the cash aside to buy ALXN during a pullback, or put the cash aside as you await the next pullback in the broader market. Hold.
Apple Inc. (AAPL 282.97 – yield 1.1%) – Apple is expected to report second quarter EPS of $2.28, within a range of $1.73-$2.73, and $54.8 billion revenue, within a range of $45.6-$60.7 billion, on the afternoon of April 30 (September year end). The company typically announces a dividend increase and a new share repurchase authorization annually during the April earnings release. The last quarterly dividend increase was 5.5%, from 73 cents to 77 cents, and the last two repurchase announcements amounted to $75 billion and $100 billion.
AAPL is a great long-term growth stock, currently expected to grow profits 3.9% and 20.1% in 2020 and 2021 (September year end). I’m moving AAPL from Hold to a Buy recommendation today – as opposed to waiting to do so in the April 29 Weekly Update – so that traders have time to position themselves for a possible bullish reaction to this week’s earnings report. The stock appears ready to rise again, after resting for a couple of weeks. A bullish earnings report could certainly be a catalyst for a new run-up toward the stock’s recent high near 330. Nevertheless, no stock will be impervious to pullbacks in the broader market this year, so be prepared for volatility. Buy.
Marathon Petroleum (MPC 25.76 – yield 9.0%) – As an industry group, oil refining and marketing stocks look fantastic right now, with price charts showing a strong readiness to begin new run-ups. That’s not the same thing as saying that the companies appear financially healthy, with bright futures. Share prices can act very differently from industry prospects for a variety of reasons. I’m moving MPC from Hold to a Buy recommendation for traders because I believe that there’s immediate upside to the share price. Buy.
MKS Instruments (MKSI 92.36 – yield 0.9%) will report first quarter results on the afternoon of April 28. Analysts are expecting $1.24 EPS and $508.6 million revenue, within a very wide range of estimates. MKSI is an undervalued, small-cap growth stock. I’m moving MKSI from Hold to a Buy recommendation for growth investors and traders because I believe that there’s immediate upside to the share price. Buy.
NVIDIA (NVDA 289.59 – yield 0.2%) – Last week, Chinese authorities approved NVIDIA’s $6.9 billion acquisition of Israeli chip designer Mellanox Technologies Ltd. The acquisition adds to NVIDIA’s data center and artificial intelligence business. Now that all regulatory hurdles have been cleared, the deal has been completed.
NVDA is a high-PE, aggressive growth stock. Profits are expected to grow 31% and 21% in fiscal 2021 and 2022 (January year end). In recent days, Bank of America raised their price target on NVDA to 360. NVDA moves from Hold to a Buy recommendation for growth investors and traders. The stock appears ready to rise promptly toward the February all-time high near 315. Buy.
VanEck Vectors Oil Refiners ETF (CRAK 19.05) reflects share price activity among oil refining and marketing stocks. Most of the stocks within this industry appear promptly ready to rise. CRAK moves from Hold to a Buy recommendation. Expect volatility. Buy.
ECONOMIC COMMENTARY: SELL RETAIL APPAREL STOCKS
We’re somewhat in the middle of an up cycle in the stock market. I had thought that the oil price crash would send the stock market downward, and I was surprised when that did not happen. (However, don’t confuse bullish share prices with strong balance sheets. Energy industry problems are quite real.) In light of the market’s apparent eagerness to rise, this can be a great time for traders to buy stocks. If you’re more cautious, and would prefer to buy on dips, please feel comfortable staying on the sidelines. I’m sure you’ll have some good buying opportunities in the coming months, and I’ll be happy to point those out to you.
In recent years, I’ve given you several examples of companies that were experiencing significant bad news, including General Electric (GE) and Boeing (BA), emphasizing that the bad news would continue to surprise investors by unfolding over the course of many months. The point was to encourage you not to jump in and buy low on shares of a company that’s mired in problems, because ongoing bad news would keep the share prices depressed.
Well, we’re in a difficult situation now because the virus pandemic will abate, and investors will think that business, the economy, and the stock market will return to normal in a few short months, as if the virus had never happened. However, as with the Boeing and GE problems. I expect a continual unfolding of bad economic news resulting from the media’s eventual awareness and discussion of private sector job loss and business failures, certainly well into 2021. As such, I expect the stock market to be stuck in a trading range for a long time, as our natural propensity toward optimism is repeatedly interrupted by disturbing economic news. In order to best deal with a stock market that’s stuck in a trading range, continue to buy low on market pullbacks and raise cash during market peaks.
I want to ask you to be extremely cautious with the industries that are clearly suffering right now: non-essential retail chains (and their clothing lines), travel companies, and entertainment that involves large gatherings of people. Their balance sheet problems will not be delivered to investors in a “one and done” fashion. The problems will unfold over many months, putting a cloud over their share prices.
In that light, today I am removing Abercrombie & Fitch (ANF), Designer Brands (DBI) and Guess? Inc. (GES) from the Cabot Undervalued Stocks Advisor portfolios. These three companies previously showed the best annual growth and value vs. any of their apparel and footwear peers; yet now they are expected to deliver lower profits vs. 2019 (or net losses) both this year and next year, and the earnings estimates continue to decline each week. I recommend that you sell these stocks and reinvest in companies that are still expected to deliver rising profits over the next couple of years.
Abercrombie & Fitch (ANF) – Sell.
Designer Brands Inc. (DBI) – Sell.
Guess?, Inc. (GES) – Sell.