Today I’m adding Axiall Corp. (AXLL) and Boise Cascade (BCC) to the Buy Low Opportunities Portfolio, and Abercrombie & Fitch Co. (ANF) to the Growth & Income Portfolio.
Data from a Morgan Stanley performance assessment of cyclical versus defensive stocks indicates that cyclical stocks are beginning to stage a turnaround. The technical analysis appears relatively identical to AXLL and BCC 2015 stock charts--both companies saw profits decline in 2015, thus their stock prices declined, bottomed at the end of September, stabilized, then began to turn upward.
And it’s no wonder. The U.S. manufacturing economy reflects a recession, whereas the consumer economy reflects a moderate recovery.
Now that institutional investors--who move the markets--are focused on 2016 earnings, they’re buying AXLL, BCC and other cyclical stocks that were oversold in 2015. But use caution! Many cyclicals’ balance sheets--especially those of energy companies--suffered greatly from the drop in commodity prices. Don’t chase stocks that are projected to have net losses in 2015 or 2016!
AXLL and BCC have strong earnings growth projections in 2016 and 2017. Thus there’s a great opportunity to catch the run-up on these two stocks!
ANF shares are at a more advanced stage on their technical chart than cyclical stocks generally, having spent eight months trading sideways and forming a base for a strong run-up.
Abercrombie & Fitch (ANF) is a fashion clothing retailer. The company made tremendous changes in leadership and marketing practices in 2015, leading to Wall Street expectations of aggressive earnings growth in fiscal 2017 and 2018 (January year-end). The stock is undervalued, the balance sheet is strong and the dividend yield is 3.54%. In addition, ANF repurchased between 5.7% and 7.9% of outstanding shares, each year from 2013 to 2015. ANF traded between 19 and 23 for the last eight months, except for a brief shakeout during the August stock market correction. I expect the stock to begin rising promptly. There’s medium-term upside price resistance at 30. Rating: Strong Buy.
Axiall Corp. (AXLL)—formerly Georgia Gulf Corp.—manufactures chemicals and plastics. Axiall reported third-quarter results last week, with profits far above the market’s expectations. Third-quarter EPS (earnings per share) was $0.91; the consensus estimate was $0.29. Full-year EPS are expected to grow 119% and 31% in 2016 and 2017 (December year-end). The 2016 P/E is extremely low at 14.9, and the stock has a dividend yield of 3.2%. Wow! AXLL has upside price resistance at 34-35. Rating: Buy.
Boise Cascade (BCC) is a wood products and building materials company. Boise Cascade went public in 2013 after nine years as a privately held company. The company surprised Wall Street last week with third-quarter revenue and profit much higher than the market’s expectations. EPS was $0.56, versus the consensus estimate of $0.48. Revenue was $991.6 million versus the expected $969.6 million. Full-year EPS are expected to grow 42% and 48% in 2016 and 2017 (December year-end). The 2016 P/E is extremely low at 14.4. The stock has upside price resistance at 38-39. Rating: Buy.