• Broadcom (AVGO) reported second quarter results; moves from Buy to Hold.
• Rising oil prices
o Marathon Petroleum (MPC) moves from Strong Buy to Buy.
o Total SA (TOT) moves from Strong Buy to Hold.
o VanEck Vectors Oil Refiners ETF (CRAK) moves from Strong Buy to Buy.
• Other Portfolio Stocks
o Dow Inc. (DOW) moves from Strong Buy to Buy.
o MKS Instruments (MKSI) moves from Strong Buy to Hold.
o NV5 Global (NVEE) moves from Strong Buy to Hold.
o Quanta Services (PWR) moves from Buy to Hold.
o Voya Financial (VOYA) moves from Strong Buy to Buy.
Broadcom (AVGO 317.08 – yield 4.1%) reported second quarter results on June 4 (November year end). Non-GAAP diluted EPS came in on target at $5.14, while revenue of $5.74 billion beat the $5.69 billion consensus estimate. Record quarterly free cash flow totaled $3.065 billion. Broadcom’s chip business, which is experiencing a data center demand surge due to the rising work-at-home trend, was affected by pandemic-related disruptions in global supply chains during the second quarter.
“Second quarter results were in-line with our expectations, and saw limited impact from the effects of COVID-19,” said CEO Hock Tan. “Looking ahead, our third quarter guidance for semiconductors reflects a surge in demand from cloud, telecom and enterprise customers, offset by supply chain constraints and an expected substantial reset in wireless. We remain focused on investing in our diverse set of mission critical semiconductor and software franchises, while carefully managing our expenses…"
Management gave third quarter revenue guidance that was just a fraction below consensus estimates. A product cycle delay at a major customer -- assumed to refer to Apple Inc.’s (AAPL) 5G iPhone launch – is pushing forecasted revenue out into the fourth quarter.
The next ex-dividend date is June 23. (You must own the stock at the close of business on June 22 in order to receive the next dividend payment. You may then sell the stock on June 23 or any day thereafter, and still receive the dividend payment.)
I’m moving AVGO from Buy to a Hold recommendation, now that it has completed its rebound from the March market correction. The stock will need to rest for a while. On June 5, fourteen investment firms raised their price targets on AVGO to a range of 305-370. I continue to view AVGO as an excellent growth & income stock for dividend investors and buy-and-hold investors. The stock retraced its closing high near 320 where it traded consistently from December 2019 through February 2020. Traders should seriously consider moving on now, and market timers should consider exiting their positions with the intent of buying again during the next inevitable correction in the broader market. Hold.
RISING OIL PRICES
Energy tends to be the most volatile sector in the stock market. We had an extreme example of that volatility in April when oil prices crashed. At this time, the per-barrel price of West Texas light crude oil ($WTIC, see chart below) has since tripled to about $39.50.
On June 6, OPEC+ nations agreed to extend oil output cuts for another month. In anticipatory excitement over this potential decision, oil prices rose over $5 per barrel on June 5, and shares of oil-related companies have also picked up momentum.
Note that Saudi Arabia might raise their selling price of oil today, June 8, which would likely push oil prices higher yet again.
There are four energy stocks in the Cabot Undervalued Stocks Advisor Portfolios:
Baker Hughes (BKR 17.75 – yield 4.1%) – The decline in the weekly rig count is slowing and shares of oilfield service companies continue to rise, encouraged by reopening economies, rising oil prices and rising stock markets. I remain concerned about Baker Hughes’ deteriorated earnings outlook, and there will remove the stock from the portfolio when the current run-up appears to cease. Energy stocks are volatile, so consider using a stop-loss order on BKR, raising it every few days during this run-up. Hold.
Marathon Petroleum (MPC 41.56 – yield 5.6%) continues to have great momentum. In a show of caution, I’m moving the stock from Strong Buy to a Buy recommendation. Oil prices and stock prices will invariably experience another correction soon, after the huge March-through-June run-up. The best approaches right now would be to either buy MPC for a quick trade; plan to buy low during the next market correction; or use a stop-loss order on your existing position, raising the stop price as the stock continues to rise in the coming days. Buy.
Total SA (TOT 43.08 – yield 7.0%) is rising toward price resistance at 47. I’m displeased with the earnings outlook, which analysts have continually lowered since mid-May. I’m moving TOT from Strong Buy to a Hold recommendation, and will likely remove the stock from the portfolio quite soon. TOT remains a good investment for buy-and-hold investors and dividend investors. Remember that global economies have greatly suffered, and that a global recession could eventually impact Total’s dividend payout. Hold.
VanEck Vectors Oil Refiners ETF (CRAK 24.23) continues to rise, with price resistance at about 25-26. I’m moving CRAK from Strong Buy to a Buy recommendation. I like the investment very much, although any near-term downside to either oil prices or the broader stock market will certainly pull CRAK down as well. The best approaches right now would be to either buy CRAK for a quick trade; plan to buy low during the next market correction; or use a stop-loss order on your existing position, raising the stop price as the ETF continues to rise in the coming days. Buy.
OTHER PORTFOLIO STOCKS
Dow Inc. (DOW 43.97 – yield 6.4%) – DOW had a tremendous run-up last week. I’m now moving the stock from Strong Buy to a Buy recommendation. DOW shares tend to be encouraged by rising oil prices, and the dividend yield remains quite attractive. Both of those situations could continue to attract new investors and thus enhance the share price. Buy.
MKS Instruments (MKSI 114.05 – yield 0.7%) broke out of a trading range this month and is now racing toward this year’s high of 120. I’m moving MKSI from Strong Buy to a Hold recommendation. Traders should consider exiting near 120. Buy-and-hold growth investors should be comfortable holding the stock longer term. Add MKSI to the list of stocks that you might buy low during the next market pullback. Hold.
NV5 Global (NVEE 53.82) – The earnings estimates for NV5 Global have been declining all year. At this point, profits are expected to show no growth in 2020, and to then grow 29% in 2021. The 2020 P/E is 16.9. Those are not bad numbers. However, the continual downward trend concerns me. I’m moving NVEE from Strong Buy to a Hold recommendation. I’m going to remove the stock from the portfolio very soon, but since I don’t want to suddenly move the market with a Sell recommendation, I’m saying “Hold” so that those of you who prefer more active portfolio management can make timely sell decisions, in advance of the other investors who will wait until I say “Sell.” NVEE is on an uptrend, with some price resistance at 57-58. Hold.
Quanta Services (PWR 42.39 – yield 0.5%) rose rapidly last week. Now that PWR is approaching its November 2019 peak near 44, I’m moving PWR from Buy to a Hold recommendation. Traders should exit soon. Everybody else should hold PWR and considering buying more shares during the next market pullback. Hold.
Voya Financial (VOYA 52.11 – yield 1.2%) – I’m moving VOYA from Strong Buy to a Buy recommendation. The stock could reasonably rise to 55 quite soon; maybe higher. Growth investors should earmark VOYA as a great stock to buy during market corrections. Buy.
The S&P 500 has had a tremendous run-up. It’s due for a correction, although it’s not yet indicating that the correction is imminent. Be cautious. Use stop-loss orders and/or pare back positions on stocks that have retraced early 2020 highs. Raise cash with which to buy low during the next downturn. I continue to expect a trader’s market all year long.
Please note that if I give a stock a Strong Buy recommendation, and the share price has risen since the date that I last published a recommendation, it’s possible that the stock might not rise much more in the short-term. When in doubt, ask me. Also, there are people who look at the recommendation, e.g. “Hold” or “Buy”, without reading my comments and price targets. Please read the comments. They’re just a few sentences, but they tell you whether you are potentially among the target audience for the stock, and they give you a realistic near-term price target. Thank you.