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Cabot Undervalued Stocks Advisor Special Bulletin

Three of our stocks reported June quarter-end earnings results. Two beat all analysts’ estimates for the quarter, and one boosted full-year revenue expectations.

June quarter results: American International Group (AIG), Cavium (CAVM) and Quanta Services (PWR).

AIG and CAVM beat all analysts’ estimates for the quarter, PWR boosted full-year revenue expectations, and notes on Mattel (MAT).

American International Group (AIG – yield 1.9%) reported second-quarter results yesterday afternoon that far surpassed analysts’ wildest dreams. Non-GAAP EPS of $1.53 beat the consensus estimate of $1.20, with a range of $1.10 to $1.33. Quarterly revenue of $12.5 billion beat the consensus estimate of $12.0 billion. Return on equity (ROE) has exceeded the company’s 2017 goal. The quarter’s successes were attributed to strong consumer insurance results. AIG repurchased $2.4 billion of stock during the quarter.

Considering that at least 17 Wall Street analysts underestimated AIG’s performance, investors should expect a slew of new research reports containing upward revisions in annual earnings estimates, which could easily lead to a boost in near-term share price performance.

AIG is rising toward its January high near 67. I wouldn’t be surprised to see the stock continue climbing shortly thereafter. Strong Buy.

Cavium (CAVM) reported second-quarter results yesterday afternoon, with revenue and profits that beat all analysts’ estimates. Non-GAAP EPS of $0.67 exceeded the consensus estimate of $0.65, with a range of $0.64 to $0.66. Revenue of $242.1 million also beat the $239.0 million estimate.

The company guided Wall Street higher than current consensus estimates for third-quarter revenue, gross margins and EPS.

Semiconductor stocks declined in recent weeks, with CAVM repeating its July low near 60. The stock is up about 4% today. The short-term price target is 74, where CAVM traded in May. Barring a bearish stock market, CAVM could exceed 74 later this year. Buy.

Mattel (MAT – yield 3.1%) has fallen to its lows from 2015, where it bounced several times in the 18 to 20 range. Earnings projections have been revised lower for 2017, and are expected to rise about 27% in 2018. I’m going to hold the stock for the rebound that will likely take place under the new CEO. The stock remains undervalued. Hold.

Quanta Services (PWR) reported second-quarter results this morning, a new business win, and an increase in full-year revenue projections. Non-GAAP EPS of $0.50 missed the consensus estimate of $0.53, with a range of $0.48 to $0.61. Revenue was $2.20 billion when the market expected $2.12 billion. The company restated its full-year 2017 earnings outlook, with a range of $1.92 to $2.10. Prior to this morning, the full-year consensus estimate stood at $2.00, with a range of $1.87 to $2.13. The company had earned $1.51 per share in 2016.

The biggest surprise in the earnings report was the revised full-year revenue expectation of $8.65 billion to $9.05 billion, when the market had expected $8.5 billion.

The share price continues to rise. I expect the stock to rest again when it retraces its February high at 38.5. Once the stock breaks past 38.5, there’s no upside resistance that could put a ceiling on the share price. Strong Buy.