Three of today’s featured companies seem most obviously ready to begin or continue run-ups in the coming days. The fourth featured company is sitting at the bottom of a steady trading range, offering attractive opportunities for growth investors, dividend investors and traders.
U.S. stock markets are rising again. At some point in the coming months, the sober reality of the country’s economic situation will impact the stock market, but for now, there’s money to be made. Energy stocks and stocks within the investment, life insurance and annuity industry look especially bullish right now.
Cabot Undervalued Stocks Advisor 620
How to Monitor Future Trouble in the Housing Market
U.S. stock markets continue to rise, carrying the majority of our portfolio stocks upward. There’s price resistance on the S&P 500 index at about 3,200, so that’s where I will anticipate an end to the current run-up. That’s the moment that I will likely invest in a few inverse exchange-traded funds, because it seems inevitable to me that bad economic news will pull stock prices back down in the coming months.
Investors who want to keep an eye on mortgage default ratios can monitor monthly numbers from NMI Holdings (NMIH), a mortgage loan company. NMI just began reporting defaults as a percentage of outstanding loans, which they plan to now do on a regular basis. The May number was 0.61%, up from 0.38% and 0.43% in March and April. I believe the rising default ratios will accelerate much later in 2020, continuing in 2021 and 2022 as many millions of unemployed families fail to find new jobs with comparable incomes. NMI Holdings was featured in Cabot’s 10 Best Stocks to Buy and Hold for 2020 report.
Remember, it wasn’t just lower-income retail and restaurant workers who lost their jobs during the pandemic, formerly working at establishments that have now permanently closed. All of the middle and upper management at these businesses have also lost their jobs, and a high percentage of these people live in homes for which they’re indebted to financial companies.
They’ll scramble to make mortgage payments as long as they can, using up savings and retirement assets and home equity before ultimately deciding to lower monthly expenses by moving in with relatives. (As I’ve previously mentioned, apartment rentals that target middle-income households are generally more expensive than mortgage payments, so not only will these struggling homeowners not be moving their families into apartments, but unemployed apartment dwellers will be facing this same crisis with more immediate impact.)
The moral of this story is that we’re going to have a big housing problem in the U.S., with homes flooding the market, falling occupancy rates at apartment buildings, and a lack of capable buyers and renters – a trend that was already threatening the market due to economic and demographic changes in the population – to take up the slack.
Lastly, with so many businesses shutting down, and most other businesses needing less office space due to work-at-home trends, commercial real estate will also be experiencing occupancy and pricing problems. Therefore, please be cautious when considering various types of housing investments in the next few years. To that end, here’s a Reuters article on commercial real estate from May 29: “Stick or twist? Investors face coronavirus-induced property dilemma.”
Share prices reflect Monday (June 1) closing prices. Send questions and comments to Crista@CabotWealth.com.
Be sure to review the Bulletin from May 28 in which I mentioned news, rating changes and/or price action on Alexion Pharmaceuticals (ALXN), Tyson Foods (TSN) and Voya Financial (VOYA).
Quarterly Earnings Release Calendar
June 4 pm: Broadcom (AVGO) – 2Q
June 11 pm: Adobe Systems (ADBE) – 2Q
Today’s Portfolio Changes
Dow Inc. (DOW) moves from Buy to Strong Buy.
Quanta Services (PWR) moves from Hold to Buy.
Last Week’s Portfolio Changes
LGI Homes (LGIH) moved from Hold to Sell.
Mercury General Group (MCY) moved from Hold to Buy.
Tyson Foods (TSN) moved from Buy to Strong Buy.
Universal Electronics (UEIC) moved from Buy to Strong Buy.
Growth Portfolio stocks have bullish charts, strong projected earnings growth, little or no dividends, low-to-moderate P/Es (price/earnings ratios) and low-to-moderate debt levels.
Featured Stock: Tyson Foods (TSN 62.61 – yield 2.7%)
Tyson Foods (TSN 62.61 – yield 2.7%) is the largest U.S. food company, with operations in 20 countries, and a recognized leader in protein with leading brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair. Management is focused on the growing global need for protein, and fulfilling that need in a sustainable and environmentally conscious manner. The company is expected to deliver record revenues in 2020. Tyson Foods was featured in the January and April issues of Cabot Undervalued Stocks Advisor.
Tyson’s peer Sanderson Farms (SAFM) reported second-quarter results on May 28. Management said that demand from China is decreasing due to high inventories that resulted from a slow, post-COVID restaurant recovery. However, Sanderson Farms also reported that chicken prices are rising due to the ongoing beef shortage that resulted from COVID-induced processing plant closures. Sanderson Farms is a chicken products company, whereas Tyson Foods offers a much wider variety of meats. Sanderson’s stock has been trending downward, in contrast to Tyson shares.
Tyson’s profits are expected to fall 22% in 2020 due to pandemic business disruptions, then rise 42% in 2021. The 2020 P/E is 14.4. An insider purchased $122,000 of TSN shares on May 18. The stock has traded within a narrowing range, since late March, that keeps bumping up against 63-64 resistance. While waiting for the breakout can be frustrating, it’s also very bullish for the share price that the stock has been developing a solid base in the aftermath of the March market correction. Traders, growth investors and dividend investors should buy TSN now. The breakout could initially carry TSN to about 70. Strong Buy.
Marathon Petroleum (MPC 36.50 – yield 6.4%) is a leading integrated downstream energy company and the nation’s largest energy refiner, with 16 refineries, a majority interest in midstream company MPLX LP, 10,000 miles of oil pipelines, and product sales in 11,700 retail stores. Wall Street analysts are forecasting a 2020 full-year loss of ($2.10) per share, followed by a 2021 profit of $2.51 per share. Share repurchases have been suspended, and the dividend payout remains intact.
Gasoline demand is trending higher than forecasts, which, when combined with supply constraints associated with annual refinery facilities maintenance (a.k.a. turnarounds), leads to higher profit margins.
Since the bottom of the March stock market correction, MPC has had four run-ups that were followed by smaller pullbacks. The initial peaks of each run-up have been spaced 15-21 days apart from each other. The current pullback has been less intense than the last two, with the stock trading in a very tight range. If the recent pattern of run-ups repeats itself, the stock could begin climbing again this week, peaking near June 9 before it rests again. Additionally, the price of West Texas Intermediate Crude Oil ($WTIC) is beginning to rise from a tight trading range as well, so that could influence energy stocks this week. Traders and dividend investors should buy MPC now. Strong Buy.
MKS Instruments (MKSI 104.19 – yield 0.8%) is a 60-year-old global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for their customers. Their primary served markets include the semiconductor, industrial technologies, life and health sciences, research and defense. MKS offers the largest breadth of products and services in their market, with 2,200 patents and a sales presence in 100 countries. Investors can tune in to webcasts from industry conferences dated May 26, May 27 and June 8. MKS Instruments was featured in the February 19 issue of Cabot Undervalued Stocks Advisor.
MKSI is an undervalued, small-cap growth stock, making it a good choice for growth investors and traders. Analysts’ consensus estimates point toward EPS growth of 12% and 38% in 2020 and 2021. MKSI appears ready to rise past the top of its trading range, around 105-108, and continue toward this year’s high of 120. Growth investors and traders should buy MKSI now. Strong Buy.
NV5 Global (NVEE 45.73) is a leading provider of professional and technical engineering and consulting solutions for public and private sector clients in the infrastructure, construction, real estate, and environmental markets. NV5 announced $19 million in new contract awards in May. Profits are expected to grow 1% and 30% in 2020 and 2021, respectively. The 2020 P/E is 14.2. NVEE is an undervalued micro-cap growth stock, appropriate for risk-tolerant growth investors and traders. NVEE has been ratcheting upward since mid-March. Strong Buy.
Quanta Services (PWR 37.93 – yield 0.5%) is a leading specialty infrastructure solutions provider serving the utility, energy and communication industries. Their infrastructure projects have meaningful exposure to highly predictable, largely non-discretionary spending across multiple end-markets, including 65% of revenue coming from regulated utility customers. The company achieved record annual revenues, operating income and backlog in 2019, and is pursuing a multi-year goal of increasing margins. Dividend payouts and share repurchase activity have continued uninterrupted during the pandemic. Investors can tune in to webcasts as Quanta’s management speaks at four meetings and industry conferences between May 26 and June 9. You may also view Quanta’s comprehensive May/June Investor Presentation. Quanta Services was featured in the December monthly issue of Cabot Undervalued Stocks Advisor.
PWR is an undervalued, mid-cap growth stock. Full-year earnings estimates declined during the pandemic due to business disruptions. Analysts now expect EPS to fall 5% in 2020 and then rise 21% in 2021. The 2020 P/E is 12.0. Last week, Northland Capital Markets, an institutional research firm and investment bank, initiated coverage on PWR with an outperform rating and a 44 price target. Additionally, investment banker Stifel raised their price target on PWR to 46.
I’m moving PWR from Hold to a Buy Recommendation, as the stock is showing more strength that I had expected. PWR began another run-up in recent days. There’s some price resistance in the low 40s. Buy.
Universal Electronics (UEIC 45.03) is a manufacturer and world leader of wireless and voice remote control products, software and audio-video accessories for the smart home, with over 400 patents and a strong pipeline of new products in the areas of safety and security, climate control and lighting. Clients include every major electronic and telecommunication company: AT&T, Cox, Dish, Comcast, Samsung, LG, Sony, Liberty, Daikin, Sky and more. CEO Paul Arling will present at the Baird 2020 Global Consumer, Technology and Services Virtual Conference on June 2. Investors may tune in to the webcast. Universal Electronics was featured in the February monthly issue and the February 26 issue of Cabot Undervalued Stocks Advisor.
The first quarter of 2020 delivered strong gross margins and improved operating margins, even though revenue was affected by pandemic-related business disruptions. UEIC is a volatile, undervalued, micro-cap growth stock, appropriate for risk-tolerant investors and traders. A corporate insider purchased $145,000 of UEIC shares on May 13. During May, the stock rose from 36 to 46. We could see more upside toward 50 in June. Strong Buy.
Voya Financial (VOYA 46.15 – yield 1.3%) is a U.S. retirement, investment and insurance company serving 13.8 million individual and institutional customers. Voya has $603 billion in total assets under management and administration. Investors may listen to management’s presentation at the May 26 Deutsche Bank Global Financial Services Conference.
Analysts expect EPS to grow 19% and 42% per year in 2020 and 2021, and the 2020 P/E is 11.1. VOYA is a mid-cap stock, appropriate for aggressive growth investors and traders. The stock began a new run-up last week when it rose above 45. Buy VOYA now for a potential 10-20% near-term capital gain. Strong Buy.
Growth & Income Portfolio
Growth & Income Portfolio stocks have bullish charts, good projected earnings growth, dividends of 1.5% and higher, low-to-moderate P/Es (price/earnings ratios), and low-to-moderate debt levels.
Featured Stock: Bristol-Myers Squibb Company (BMY 60.29 – yield 3.0%)
Bristol-Myers Squibb Company announced on May 26 that Opdivo 360 mg plus Yervoy 1 mg/kg (injections for intravenous use) given with two cycles of platinum-doublet chemotherapy was approved by the FDA for the first-line treatment of adult patients with metastatic or recurrent non-small cell lung cancer (NSCLC) with no EGFR or ALK genomic tumor aberrations. The therapy is approved for patients with squamous or non-squamous disease and regardless of PD-L1 expression.
Bristol-Myers is a biopharmaceutical company with a mission to discover, develop and deliver innovative medicines that help patients prevail over serious diseases. Bristol-Myers purchased Celgene for $74 billion in November 2019. The merged company markets a long list of pharmaceuticals, including Revlimid, Eliquis and Opdivo, to treat cardiovascular, oncology and immunological diseases. The company expects revenue and profit growth to come from four areas: sales volume increases from current products, development and launch of new medicines, life cycle management and synergies from the Celgene acquisition.
The company will host a virtual three-part investor series on June 22, 25 and 26, during which CEO Giovanni Caforio, M.D. and members of the leadership team will discuss the company’s strategy, pipeline and business opportunities. The three topics are Early Pipeline and Immuno-Oncology, Hematology, and Immunology and Cardiovascular. The general public is welcome to tune in to the webcasts. Bristol-Myers was featured in the April issue of Cabot Undervalued Stocks Advisor.
The company is expected to increase EPS by 32% and 20% in 2020 and 2021, and the 2020 P/E is 9.8. Bristol-Myers’ financial priorities include debt repayment, investment in innovation, share repurchases and annual dividend increases. I would expect earnings growth to slow in subsequent years as the company digests the Celgene merger and business grows at a more normal pace.
BMY is appropriate for growth investors and income investors. The stock has been bouncing higher and higher for six weeks, each time pulling back to support at 59-60. Investors who buy now at price support can make over 10% profit as the stock bounces up to its February high of 67. Longer-term, pharmaceutical companies will likely fare better during a recession compared to those in other less essential industries. Strong Buy.
Broadcom (AVGO 289.99 – yield 4.5%) is a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions that serve the world’s most successful companies. CFO Tom Krause expects to both continue paying the dividend and paying down debt in 2020 (none of which is maturing this year), even under poor economic conditions. Share buybacks and M&A activity are now on the back burner. Broadcom was featured in the December 17 and January issues of Cabot Undervalued Stocks Advisor.
AVGO is an undervalued growth & income stock. Analysts expect Broadcom to report second-quarter EPS of $5.14 and $5.7 billion revenue on the afternoon of June 4 (November year end). The quarter will likely feature gross margin expansion. Full-year profits are expected to grow 1.2% and 10.2% in 2020 and 20212, and the 2020 P/E is 13.4. I’d like to see the new projected earnings outlook after second-quarter results are reported before deciding how much longer to hold the stock; although I continue to view AVGO as an excellent stock for dividend investors and buy-and-hold investors. Yesterday, commercial bank Susquehanna raised their target price on AVGO to 340. The stock is rising, with some price resistance at 300, and again at 320. Buy AVGO now. Buy.
Dow Inc. (DOW 38.61 – yield 7.2%) is a commodity chemicals company with manufacturing facilities in 31 countries. Results are impacted in tandem with rising and falling oil prices. Investors may listen to Dow management’s presentation at Bernstein’s Strategic Decisions Conference, which took place on May 28.
Analysts expect full-year EPS of $1.39 and $2.30 in 2020 and 2021, respectively. After repurchasing $125 million of stock during the first quarter, Dow suspended share repurchases during the second quarter as a result of the economic lockdown’s effect on business. The stock’s dividend remains intact.
I’m moving DOW from Buy to a Strong Buy recommendation, due to the stock’s new upward momentum and the large dividend yield. Dow began a new run-up when it rose past 37. There’s some price resistance at about 42 and again at 45. Buy DOW now. Strong Buy.
Total S.A. (TOT 38.66 – yield 7.5%) is a French multinational integrated energy company that produces and markets fuels, natural gas and low-carbon electricity, operating in over 130 countries. As with all energy companies, Total has been hard hit by the global business lockdowns that dramatically reduced demand for energy products. Fortunately, the company’s success in maintaining low debt levels and a low price-per-barrel of oil have helped Total rise above their peers regarding their degree of financial solvency. Total has chosen to maintain their quarterly dividend payout at the year-ago level of 66 Euros, a slight reduction from the more recent 68 Euros. The company is reducing capital expenditures and operating expenses, and considering selling infrastructure assets and/or real estate based on liquidity needs. Debt levels increased during the first quarter, but do not reflect a problematic situation. Total SA was featured in the May issue of Cabot Undervalued Stocks Advisor.
The most recent consensus estimates reflected full-year EPS of $0.81 and $2.22 in 2020 and 2021. The stock is now leaving its recent trading range and rising toward price resistance at 47. Growth & income investors should buy TOT now. Strong Buy.
Buy Low Opportunities Portfolio
Buy Low Opportunities Portfolio stocks appear capable of a big rebound from recent lows. They have strong projected earnings growth; low-to-moderate price/earnings ratios (P/Es); no dividend requirement and low-to-moderate debt levels. Investors should expect volatility as the stock market alternately embraces the companies’ current successes and remains wary of the stocks’ recent downturns.
Featured Stock: Mercury General Group (MCY 40.61 – yield 6.2%)
Mercury General Group operates as Mercury Insurance, the leading independent agency writer of automobile and home insurance in California, with total assets over $4.5 billion. Mercury also writes automobile, home and/or other lines of insurance, including business and mechanical breakdown insurance, in ten additional U.S. states. The first quarter’s combined ratio, a profitability measure, came in at 95.9%, better than the year-ago quarter’s 97.3%. Mercury General Group was featured in the April issue of Cabot Undervalued Stocks Advisor.
MCY is an undervalued small-cap stock with an unusually large dividend yield of 6.2%. The ex-dividend date is June 10. Investors who own the stock upon the close of business on Tuesday, June 9 will receive the June dividend, even if they sell their shares on June 10. Analysts are expecting EPS of $2.85 and $3.45 in 2020 and 2021, reflecting 10% and 21% EPS growth, respectively. The 2020 P/E is 14.2.
According to recent reports, at least $50 million of MCY shares were purchased by corporate insiders, throughout the month of May. That’s an extremely bullish sign that the company is thriving and that the people who intimately know the company believe that the share price is cheap. If the broader market remains neutral-to-bullish, MCY could promptly rise above price resistance at 42. Growth investors and dividend investors should buy now. Buy.
Alexion Pharmaceuticals (ALXN $118.92) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. Current marketable drugs include Soliris, Ultomiris, Strensiq and Kanuma. All first-quarter sales levels of these drugs surpassed year-ago numbers. The company is focused on three goals: converting patients from Soliris to Ultomiris, expanding indications for Ultomiris, and diversifying their portfolio to fuel continued long-term profit and revenue growth. Alexion is in the midst of a $1.41 billion acquisition of Portola Pharmaceuticals (PTLA). Portola markets a treatment that reverses the effects of blood thinning drugs Eliquis and Xarelto in cases of life-threatening or uncontrolled bleeding.
Analysts expect EPS to increase 4% and 7% in 2020 and 2021, and the 2020 P/E is 10.9. An insider purchased $3.6 million of ALXN shares on May 14.
Last week, ALXN rose past price resistance at 115 on news that the company settled a patent dispute with Amgen (AMGN), as I reported on May 28. Upon this news, investment bank SVB Leerink, which focuses on the healthcare sector, raised their ALXN price target to 159; and Credit Suisse raised their target to 147. There’s no strong level of upside price resistance until the stock reaches 140, although it could certainly stop rising at any time. The new support level will likely be 115. I have a Hold recommendation on the stock, due to the slow earnings growth projections (it’s still a great company), and I intend to Retire ALXN from the Buy Low Opportunities Portfolio after the current run-up appears to cease. Hold.
Baker Hughes Company (BKR 16.33 – yield 4.2%) offers products, services and digital solutions to the international oil and gas community. Share prices of energy-related companies are rising alongside a rebound in oil prices and the gradual reopening of global economies in the wake of the virus pandemic. Cowen & Co. raised their price target to 19 last week. BKR rose past 17 this week, and could reach resistance at 21 before resting again. I’m not recommending purchases because the earnings outlook has become quite modest. Investors should plan on exiting near 21. Hold.
General Motors (GM 26.94) remains committed to producing electric and autonomous vehicles. I’m reading that auto dealers are very low on new and used auto inventory right now. GM continues to increase North American auto production as we move away from COVID-19 lockdowns. The company stated in a press release last week, “We are now in a position to increase production to meet strengthening customer demand and strong dealer demand. Starting Monday, three crossover assembly plants in the United States and Canada will be operating two production shifts, and three U.S. assembly plants building mid- and full-size pickups will move from one- to three-shift operations. Five other U.S. assembly plants will operate one production shift.” GM was featured in the December 31, 2019 issue and the February issue of Cabot Undervalued Stocks Advisor. Wall Street is projecting EPS of $0.87 and $3.82 in 2020 and 2021. On May 12, a corporate insider purchased $286,000 of GM shares. GM began a new run-up in mid-May, rising from about 21 to 28, and is now having a minor pullback. When the stock surpasses 28, it could probably travel to 32. Strong Buy.
Special Situation & MOVIE STAR PORTFOLIO
This is a portfolio for capital gain opportunities that do not conveniently fit into the other three portfolios. These stocks will often be glamorous companies, which I call “movie star stocks,” that investors love to own and follow, such as Amazon.com, Apple Inc. and Walt Disney Co. These movie star stocks currently have relatively low prices or valuations in comparison to their trading histories.
Featured Stock: Equitable Holdings (EQH 19.42 – yield 3.5%)
Equitable Holdings owns two principal franchises: Equitable Life Insurance Co. and a majority stake in AllianceBernstein Holdings L.P. (AB), an investment management firm. Equitable has a 161-year history, including a recently-concluded 30-year period of being majority-owned by AXA, the global insurance company.
The company has strong capitalization and significant liquidity. Their diverse, high-quality investment portfolio is hedged against adverse changes in interest rates and equity markets. As of March 31, 2020, Equitable has $646 billion assets under management (AUM), and book value per common share, excluding accumulated other comprehensive income (“AOCI”), was $37.78 per share. AllianceBernstein’s assets under management (AUM) increased from $542 billion in March to $576 billion in April. Equitable expects to continue delivering a 50-60% payout ratio via dividends and share repurchases. Equitable Holdings was featured in the February issue of Cabot Undervalued Stocks Advisor.
Profits are expected to fall 13% in 2020, then rise 17% in 2021. Equitable shares are undervalued, with a 2020 P/E of 4.6. Importantly, Wall Street and their institutional investors are very pleased that Equitable and its peers in the investment, life insurance and annuity industry fared surprisingly well amidst both huge recent drops in stock values and interest rates, and the COVID-19 pandemic. That success is drawing enough attention to the stocks that they’re all starting new run-ups. EQH is appropriate for dividend investors, growth investors and traders. The stock is rising toward price resistance at 22, providing traders with a potential 10% short-term capital gain. Buy EQH now. Strong Buy.
Adobe Systems (ADBE 389.68) is a software company that’s changing the world as an innovative leader in digital media and digital marketing. ADBE is a large-cap growth stock. Earnings estimates have barely changed in recent months reflecting the consistency provided by the steady income associated with a subscription-based business. Management is focused on improving operating margins. Adobe is expected to report second- quarter results of $2.33 EPS and $3.2 billion revenue on the afternoon of June 11. Analysts expect full-year EPS to increase by 24% and 14% in 2020 and 2021, respectively. The 2020 P/E is 40. Last week, ADBE rose a bit higher than its February all-time high near 385 on a surge in trading volume. I don’t have a sense of how the stock will perform after this week’s earnings report. Hold.
Amazon.com’s (AMZN 2,471.04) innovations and forays into new industries are seriously disrupting established global businesses, including freight companies, retailers, entertainment and technology companies. The company is experiencing growth in Amazon Web Services (AWS), Prime membership, Prime Video viewer hours, revenue and free cash flow. Last week, The Wall Street Journal reported that Amazon is in talks to buy Zoox Inc., a self-driving car technology company. Amazon.com was featured in the April issue of Cabot Undervalued Stocks Advisor.
Amazon plans to spend all second-quarter profit – approximately $4 billion – on COVID-related expenses, including new hires and wage increases. Consensus earnings per share are expected to fall from $23.01 in 2019 to $18.85 in 2020, then rise 99% to $37.48 in 2021. I’m personally expecting a continued surge in online shopping as bored homebound consumers spend more time browsing the internet and buying products through Amazon.com; and as fearful consumers avoid retail stores.
On May 15, a corporate insider purchased $680,000 of AMZN shares; and on June 1, Morgan Stanley raised their price target on AMZN to 2,800. AMZN rose to a new all-time high in May. The price chart remains bullish, though erratic. If the broader market weakens, AMZN could easily pull back to 2,300 (or further). Buy.
Netflix (NFLX 425.92) is the world’s leading streaming entertainment service with over 167 million paid memberships in over 190 countries. Viewers can enjoy unlimited access to TV series, documentaries and feature films across a wide variety of genres and languages, all without commercial interruptions. The company is experiencing rapid international subscription growth and creating original foreign language content for international markets. Netflix will host their annual shareholder meeting on June 4. Netflix was featured in the January 22 issue of Cabot Undervalued Stocks Advisor.
The first-quarter earnings release featured outstanding subscriber growth and a rising operating margin that’s enhancing earnings per share. Wall Street expects full-year profits to grow 56% and 33% in 2020 and 2021. NFLX is a high-P/E growth stock. The stock has traded between 400-460 since mid-April. Growth investors and traders should accumulate shares near 400. Buy.
NVIDIA (NVDA 352.25 – yield 0.2%) is the pioneer and leading designer of graphics processing unit (GPU)-accelerated computing, which then ignited modern artificial intelligence (AI). Target markets include gaming, professional visualization, data center, and autonomous driving. In April, NVIDIA completed the $6.9 billion acquisition of Mellanox Technologies Ltd., an early innovator in high-performance interconnect technology, routinely used in supercomputers and hyperscale data centers. NVIDIA’s data center business now represents about 50% of total revenues. NVIDIA was featured in the March and May issues of Cabot Undervalued Stocks Advisor.
NVIDIA is participating in six investment conferences, and also hosting their annual shareholder meeting, between May 27 and June 16. Investors may listen to any of the corresponding webcasts.
NVDA is a high-P/E, aggressive growth stock. Unlike so many other companies this year, NVIDIA’s earnings estimates keep rising. Wall Street now expects EPS to grow 40% and 21.5% in fiscal 2021 and 2022 (January year end). Gross margins and revenue are also expected to increase this year. The company has $7 billion remaining in their repurchase authorization.
NVDA shares rose about 85% from their March lows, to new all-time highs near 360 in May. The stock will likely rest for a while now. Be sure to consider adding to your position during future market corrections! Hold.
VanEck Vectors Oil Refiners ETF (CRAK 22.47) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Oil Refiners Index (MVCRAKTR). The International Maritime Organization is mandating the use of either scrubbers or low-sulfur diesel fuels for the world’s 39,000 ships and tankers, beginning in January 2020. The purpose of the mandate is to minimize sulfur oxide (SOx) emissions into the atmosphere, and the mandate is nicknamed IMO 2020. Oil refining companies are expected to profit from the demand for low-sulfur diesel fuel. Read more here: IMO 2020: The Big Shipping Shake-Up.
As global economies continue reopening in the wake of the COVID-19 business lockdowns and quarantines, demand for energy is rising, as are oil prices and energy-related stocks. CRAK shares continue to rise, with price resistance at about 25-26. Traders should buy CRAK now. Strong Buy.
Strong Buy and Buy – This stock meets most of my fundamental investment criteria.
Hold – Do not add to your position in this stock until a particular issue is resolved.
Retired – This stock has been removed from the portfolio for a specific reason, yet remains an attractive holding for long-term investors who would rather minimize portfolio turnover.
Sell – This stock has a problem that increases portfolio risk. Sell it.
The next Cabot Undervalued Stocks Advisor issue will be published on July 1, 2020.
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