Cabot Undervalued Stocks Advisor Weekly Update

CABOT UNDERVALUED STOCKS ADVISOR PERFORMANCE HISTORY

There have been 80 completed stock trades in the Cabot Undervalued Stocks Advisor portfolios since its October 2015 inception through April 9, 2019.

The average annualized total return for the 80 stocks has been 18.11% per year. If the stocks accrued dividends while in the portfolios, I included those dividends in the total return calculations. (These numbers do not include the current portfolio stocks.)

The average holding period per stock has been 10.3 months.

These numbers include seven companies that received buyout offers while in the portfolios.

We have obviously lived through a very difficult period in the stock market recently, from which most of the portfolio stocks are recovering or have already recovered. Hopefully we will not see another similarly ugly stock market downturn for several years, but there are no guarantees. If you stick with high quality companies—profitable, growing companies without any major red flags—they usually recover in the months following stock market downturns.

DOWDUPONT AND DOW INC. COST BASIS ADJUSTMENT

Scroll to the end of this Weekly Update to read an assessment of the DowDuPont and Dow Inc. cost basis calculations.

Send questions and comments to Crista@CabotWealth.com.

PORTFOLIO NOTES
Be sure to review the Special Bulletin from April 10 in which I mentioned news, rating changes and/or price action on Delta Air Lines (DAL).

QUARTERLY EARNINGS RELEASE CALENDAR
April 16 am: Comerica (CMA) – 1Q
April 18 am: Blackstone Group LP (BX), Schlumberger (SLB) and Synchrony Financial (SYF) – 1Q
April 23 am: CIT Group (CIT) – 1Q
April 24 am: Knight-Swift Transportation (KNX) – 1Q
April 25 am: Alexion Pharmaceuticals (ALXN) and Southwest Airlines (LUV) – 1Q
April 26 am: Total S.A. (TOT) – 1Q
April 30 am: Baker Hughes (BHGE) – 1Q; WestRock (WRK) – 2Q
April 30 pm: Apple (AAPL) – 2Q
May 2 am: Apollo Global Management (APO), Dow Inc. (DOW) and DowDuPont (DWDP) – 1Q
May 6 pm: Mosaic Company (MOS) – 1Q
May 7 pm: Voya Financial (VOYA) – 1Q
May 8 am: Marathon Petroleum (MPC) – 1Q

EARNINGS SEASON SCORECARD
Big earnings beat: Delta Air Lines (DAL)

TODAY’S PORTFOLIO CHANGES
Abercrombie & Fitch (ANF) moves from Hold to Buy.
Dow Inc. (DOW) moves from Buy to Strong Buy.
D.R. Horton (DHI) moves from Hold to Retired.
Mosaic Company (MOS) moves from Buy to Hold.
WestRock Company (WRK) moves from Hold to Sell.

LAST WEEK’S PORTFOLIO CHANGES
Martin Marietta Materials (MLM) moved from Hold to Retired.
Quanta Services (PWR) moved from Hold to Retired.
Southwest Airlines (LUV) moved from Strong Buy to Hold.
Voya Financial (VOYA) moved from Buy to Hold.
WestRock Company (WRK) moved from Buy to Hold.

UPDATES ON GROWTH PORTFOLIO STOCKS

CF Industries Holdings (CF – yield 2.8%) is one of the world’s largest producers of nitrogen products, serving customers on six continents. The company operates nine nitrogen production facilities in Canada, the U.K. and the U.S. CF is a cyclical mid-cap stock, affected by both currencies and natural gas prices (lower prices being optimal). The company is expected to grow EPS by 82% and 29% in 2019 and 2020, with corresponding P/Es of 18.8 and 14.5. The share price is near the top of a four-month trading range, but does not yet appear ready to break past 45. Buy.

CIT Group (CIT – yield 2.8%) operates both a bank holding company and a financial holding company that provides financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT Group is expected to report first-quarter EPS of $1.08, within a range of $0.96-$1.20, and revenue of $462.5 million, within a range of $446-$479 million, on the morning of April 23.

CIT is an undervalued growth stock with an attractive dividend yield. The company plans to increase the second-quarter dividend by 40% to $0.35 per share, subject to approval by their Board of Directors. The price chart indicates that CIT could promptly rise above its recent trading range (46-51) and head to 55, where it peaked repeatedly in 2018. Buy.

D.R. Horton (DHI – yield 1.3%) is an undervalued stock, but the earnings growth prospects are not strong enough to remain in the Growth Portfolio. The stock is now approaching one-year price resistance at 46. I’m ready to Retire DHI from the portfolio. Retired.

Knight-Swift Transportation Holdings (KNX – yield 0.7%) is the largest full truckload carrier in North America and an industry leader with an exemplary management team. Knight-Swift is expected to report first quarter EPS of $0.52, within a range of $0.50-$0.54, and revenue of $1.3 billion, within a range of $1.2-$1.4 billion, on the morning of April 24. The stock is overvalued now that earnings growth has slowed. However, the price chart indicates that KNX could shortly begin a new run-up, so I will hold the stock a little longer. There’s price resistance at about 38. Hold.

Marathon Petroleum (MPC – yield 3.5%) is a leading integrated downstream energy company and the nation’s largest energy refiner, with 16 refineries, majority interests in two midstream companies, 10,000 miles of oil pipelines and product sales in 11,700 retail stores. Marathon will host its annual shareholder meeting on April 24. There are many moving parts expected in Marathon’s first-quarter earnings report (due on May 8), including cost synergies related to the October 2018 Andeavor acquisition, a large share repurchase, and synergies and potential changes in the business plans of Andeavor Logistics LP (ANDX) and MPLX LP (MPLX).

Consensus earnings estimates reflect a lack of 2019 EPS growth followed by a 56% jump in 2020 EPS. The 2020 P/E is 6.8. MPC has been trading with a ceiling at about 66 since November, and does not yet appear ready to rise. Strong Buy.

Sanmina Corp. (SANM) designs and manufactures optical, electronic and mechanical products for original equipment manufacturers (OEMs) in a broad variety of industries. Earnings per share are expected to grow 41.2% and 11.9% in 2019 and 2020 (September year end). The 2019 P/E is quite low at 10.3. SANM is a small-cap growth stock. The stock pulled back after its January run-up, and is suddenly racing toward price resistance at 33. We could see a near-term breakout that carries SANM to 35. This stock is appropriate for risk-tolerant aggressive growth investors. Strong Buy.

Southwest Airlines (LUV – yield 1.2%) is the largest U.S. domestic air carrier, transporting over 120 million customers annually to over 100 locations in the U.S., Central America and the Caribbean. Southwest is currently grounding its Boeing Max 737 jets through August, which will affect capacity numbers. Southwest Airlines was featured in the April issue of Cabot Undervalued Stocks Advisor.

Southwest is expected to report first-quarter EPS of $0.61, within a range of $0.56-$0.65, and revenue of $5.1 billion, within a range of $5.1-$5.4 billion, on the morning of April 25. Wall Street expects full-year EPS to grow 10.1% and 13.3% in 2019 and 2020. The company typically announces an annual dividend increase in the range of 25%-33% in mid-May. LUV is rising toward its February peak at 58. Hold.

Supernus Pharmaceuticals (SUPN) focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy and migraine. Supernus has five pipeline products, in various phases of clinical trials, which aim to treat ADHD, impulsive aggression, bipolar disorder, depression and severe epilepsy. Investors are invited to join the live webcast of Supernus’s Investor Day presentation on April 16, 2019.

SUPN is an undervalued small-cap growth stock. Analysts expect EPS to increase 14.6% and 36.6% in 2019 and 2020. The corresponding P/Es are 16.1 and 11.8. SUPN is paused amid a run-up toward short-term price resistance at 42. SUPN peaked at 60 in 2018, so that’s likely your maximum upside in 2019. Strong Buy.

Voya Financial (VOYA – yield 0.1%) is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. Voya’s earnings are equity-sensitive. The company could easily deliver upside earnings surprises when reporting quarterly results that were accompanied by strong stock market performance. The S&P 500 index rose 13% in the first quarter. Stay tuned for Voya’s first quarter results on May 7.

The company is prioritizing share repurchases, and planning a large dividend increase this year that has not yet been finalized. VOYA is an undervalued aggressive growth stock. Analysts expect EPS to grow 36.1% and 14.9% in 2019 and 2020, and the current P/E is 9.9.

I’m reading lots of positive research comments about VOYA, and about institutional investor interest in VOYA. This month, Sandler O’Neill, UBS and KBW raised their price targets on VOYA to 59, 60 and 62 respectively. I’m cautious because the stock is retracing its 2018 high of 54-55, which normally signals that the run-up will come to a halt. Don’t sell your shares. I think that any near-term pullback is likely to be extremely brief. Hold.

UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS

Apollo Global Management, LLC (APO – yield 6.3%*) is an alternative asset manager with assets under management (AUM) totaling $280 billion, dispersed among credit, private equity and real estate investments. APO is an undervalued mid-cap growth & income stock. Next year’s consensus estimates have been rising in recent weeks, with Apollo’s 2020 economic net income (ENI) now expected to increase 18.9%. Combine that growth rate with a 6.3% dividend yield and a stable price chart; add in the market’s growing bullishness toward financial stocks, and you’ve got a significant total return opportunity. Buy APO now before the next run-up begins. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.83 and yielding 6.3%.

Blackstone Group LP (BX – yield 6.0%*) is the world’s largest and most diversified alternative asset manager with $472 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Blackstone is expected to report $0.52 economic net income (ENI) on the morning of April 18, within a range of $0.42-$0.63. BX is an undervalued growth & income stock, and an excellent choice for dividend investors. Morgan Stanley and Jefferies each raised their BX price target to 40 last week. The stock is actively rising toward medium-term price resistance at 38. Buy BX now. Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.14 and yielding 6.0%.

Comerica (CMA – yield 3.4%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica is expected to report first-quarter EPS of $1.93, within a range of $1.86-$2.02, on the morning of April 16. CMA is an undervalued growth & income stock. At a share price of 79.14, there’s 11% upside as CMA travels back to its February high of 88, and 26% upside toward the stock’s 2018 high near 100. Strong Buy.

Commercial Metals Company (CMC – yield 2.7%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. CMC is an undervalued aggressive growth stock with an attractive dividend yield. Analysts expect EPS to increase 26.2% and 23.4% in fiscal 2019 and 2020 (August year end). The 2019 P/E is low at 9.4. CMC pulled back a bit after an early April breakout—a very normal occurrence, and a good opportunity to buy CMC before the run-up gains more steam. Buy CMC now. Strong Buy.

Delta Air Lines (DAL – yield 2.4%) is a U.S. and international passenger and cargo airline that serves nearly 200 million people every year, flying to more than 300 destinations in over 50 countries. Subsequent to last week’s glowing first quarter results, Barron’s published Evercore ISI’s bullish comments on DAL, noting, “First-quarter 2019 was the company’s first quarter of operating and pre-tax margin expansion in two years.”

DAL is an undervalued growth & income stock. Analysts boosted their 2019 earnings estimates last week, but there could be more upside. That’s because Delta management expressed cautious optimism of reaching near the top of FY19 EPS guidance. Their previous guidance was a range of $6.00-$7.00 per share. Last week, the consensus estimate rose from $6.60 to $6.69, so there is clearly more room for earnings revisions. Remember, every analyst’s earnings revision is accompanied by a research report that goes to clients and institutional investors, thus encouraging more buying activity. At this point, Delta is expected to achieve 18.4% EPS growth in 2019, and the P/E is 8.7. I’m keeping an eye on the 2020 EPS estimate, which currently reflects just 7.6% growth. That’s a ho-hum number, but I hardly expect that number to sit still while the 2019 number gets a weekly boost.

DAL rose as high as 59 last week, up 10 from just two weeks prior. There’s price resistance at the December high of 60. Buy on dips and give the stock some time to catch its breath before it advances again. Strong Buy.

Dow Inc. (DOW – yield 4.8%) is the materials science division of DowDuPont (DWDP) that began trading as a separate company on April 2. Each DowDuPont stockholder received one share of Dow Inc. common stock for every three shares of DowDuPont common stock held. Dow Inc. was featured in the April issue of Cabot Undervalued Stocks Advisor.

Last week, Dow declared their first quarterly dividend of $0.70 per share, payable June 14 to shareholders of record on May 31.

Analysts expect Dow to report EPS of $4.93 and $5.77 in 2019 and 2020. These numbers could change quite a bit during the first several quarterly reporting periods as Wall Street becomes more familiar with Dow’s operations and management team. I’m very pleased with the profit projections, the dividend yield and the current P/E, which is 11.8. I’m moving DOW from Buy to Strong Buy. Strong Buy.

DowDuPont (DWDP) has begun implementing its plan to break up into three companies: Corteva, Dow Inc. and DuPont. The materials science division of DowDuPont is now called Dow Inc. (DOW), and began trading on April 2. The remaining two companies will separate by June 1. The final DWDP dividend will be paid on May 28. I removed the references to “yield” herein because it’s no longer a relevant number for DWDP until the final spinoff takes place and the new dividend payouts for Corteva and DuPont are announced. DowDuPont was featured in the April issue of Cabot Undervalued Stocks Advisor.

Subsequent to the recent Dow Inc. spinoff, DowDuPont announced plans for a reverse stock split, on which shareholders will vote on May 23. The potential reverse split is tentative and might not take place. I’ll have more information about the reverse split in the coming weeks. Investors who own DWDP will own two companies in June: Corteva and DuPont. The price chart, adjusted for the recent DOW spinoff, indicates that DWDP could break past six-month price resistance at 40 this week. Buy DWDP now. Buy.

Guess?, Inc. (GES – yield 5.1%) is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements. The company is growing revenues aggressively in Asia and significantly expanding in both Asia and Europe. GES is an undervalued, aggressive growth, small-cap stock with a big dividend yield. Wall Street expects EPS to increase 19.4% and 21.4% in fiscal 2020 and 2021 (January year end). The 2020 P/E is 15.5.

As this issue goes to print, the share price, which had been sitting at the bottom of a trading range, is down a bit further. There is no obvious relevant news that would cause the downturn. Opportunistic investors who like the idea of locking in a large dividend yield while awaiting the share price rebound should consider GES shares. Strong Buy.

Royal Caribbean Cruises (RCL – yield 2.3%) is a cruise vacation company that delivers travelers to desirable and exotic destinations on all seven continents. The company operates a total of 59 ships, with 17 on order, under the brand names Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises.

Royal Caribbean is an undervalued, large-cap growth & income stock. RCL began a new run-up last week toward its September 2018 high of 132. Buy RCL now. Strong Buy.

Schlumberger NV (SLB – yield 4.3%) is the world’s largest oilfield service company. New standards of financial accounting for leases went into effect on January 1. Investors may read more about IFRS 16 on the Deloitte website.

Schlumberger is expected to report first-quarter EPS of $0.30, within a range of $0.28-$0.33, and revenue of $7.8 billion, within a range of $7.6-$8.0 billion, on the morning of April 18. Wall Street expects full-year EPS to fall 1% in 2019 and to rise 41% in 2020. The market is forward-looking, and I’m therefore not concerned about this year’s lack of earnings growth because the company is on the verge of outsized profitability next year.

SLB began a new run-up in recent days, which could carry the stock to 50-52 before it rests again. Most types of investors could benefit from buying SLB right now. Buy.

Total S.A. (TOT – yield 5.3%) is a French multinational integrated energy company operating in over 130 countries. Last week, Total and its partners signed an agreement with the Independent State of Papua New Guinea for a new LNG project. Total is expected to report first-quarter EPS of $0.95, within a range of $0.78-$1.15, on the morning of April 26. Earnings estimates are now rising with the price of oil. Total is expected to see full-year EPS grow 5.9% and 17.9% in 2019 and 2020, and the 2019 P/E is 10.5.

TOT is trading between 55-59. The next run-up will likely take TOT to about 64, where it peaked in October, prior to the fourth-quarter 2018 stock market correction. Buy TOT now while the stock is low within its trading range. Buy.

WestRock Company (WRK – yield 4.6%) is a global packaging and container company. Earnings estimates reflected attractive growth in January and have since slowly eroded. I’m moving WRK from Hold to Sell. There’s no alarming problem —just a lack of earnings growth—and free cash flow easily covers the dividend. Sell.

UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS

Abercrombie & Fitch (ANF – yield 3.0%) is a leading global specialty retailer of apparel and accessories for men, women and kids, operating under the Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands. ANF is an undervalued small-cap growth stock with a big dividend yield. Analysts expect EPS to grow 26.1% and 6.9% in fiscal 2020 and 2021 (January year end). I’m moving ANF from Hold to Buy because the stock appears capable of promptly surpassing its recent trading range between 24.5-27.5. There’s price resistance at its 2018 high near 29. Buy.

Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. ALXN is an undervalued large-cap growth stock. Alexion is expected to report first-quarter EPS of $2.19, within a range of $1.96-$2.31, on the morning of April 25. Wall Street expects full-year 2019 EPS to increase 17.4% and the P/E is 14.6. The price chart indicates that ALXN is resting after recently poking above a trading range. A new run-up is likely. Traders and growth stock investors should buy now. Strong Buy.

Apple Inc. (AAPL – yield 1.5%) is a manufacturer and provider of many popular technology devices and services, including the iPhone, iPad, Mac, App Store, Apple Care, iCloud and more. Five new services will roll out in the coming months: Apple News+, Apple TV+, Apple TV Channels, Apple Arcade and Apple Card. There are over 1.4 billion active Apple devices globally, which provide a strong and growing revenue base for Apple Services. Apple is expected to report second quarter EPS of $2.36, within a range of $2.12-$2.49, and revenue of $57.4 billion, within a range of $54.5-$59 billion, on the afternoon of April 30.

Last week, an analyst at HSBC lowered his AAPL recommendation from Hold to Reduce, whining that we might not see increased earnings from Apple’s five new services right away. The analyst continued his gloom and doom with more handwringing over iPhone sales. [Video of Simpsons glove slap montage.]

In the meantime, analyst Wamsi Mohan at Bank of America raised his price target on AAPL from 210 to 220, his second increase in a month. Mohan apparently decided to do the actual math on iPhone sales and potential replacement purchases, and the numbers are attractive.

Yet another investment firm reported on a variety of iPhone data points that increased during the March quarter, including shipments and market share, which leads me to believe that Apple will deliver an upside earnings surprise on April 30. Also, watch for an announcement of an annual dividend increase in conjunction with the earnings report.

AAPL is up 40% from its December low, continuing a pattern of climbing and resting. I anticipate additional near-term upside, either prior to the April 30 earnings report or in response to it. There’s price resistance at 230, where AAPL last traded in October. Buy AAPL now and buy more on pullbacks. Strong Buy.

Baker Hughes, a GE Co. (BHGE – yield 2.7%) offers products, services and digital solutions to the international oil and gas community. New standards of financial accounting for leases went into effect on January 1. Investors may read more about IFRS 16 on the Deloitte website.

Baker Hughes is expected to report first-quarter EPS of $0.13, within a range of $0.08-$0.17, and revenue of $5.6 billion, within a range of $5.5-$5.9 billion, on the morning of April 30. The number of U.S. rigs drilling for crude oil and natural gas fell by three last week to a total of 1,022, down 14 vs. a year ago. BHGE is an undervalued aggressive growth stock. The stock’s up 32% from its December low, trading between 25.5-28.5 for eight weeks. There’s price resistance at 30 and 34. Buy.

Designer Brands Inc. (DBI – yield 4.3% – formerly DSW Inc.) is a footwear, accessories and apparel retailer that operates Designer Shoe Warehouses and a variety of other brands of retail stores, totaling nearly 1,000 locations in 44 U.S. states and Canada, and ecommerce. DBI is an undervalued growth stock with a hefty dividend yield. Wall Street is expecting EPS to increase 11.4% and 15.7% in fiscal 2020 and 2021 (January year end), and the current P/E is 12.5. The stock is rebounding from a senseless drop in March. Buy DBI now. Strong Buy.

The Mosaic Company (MOS – yield 0.4%) is the world’s largest supplier of phosphate and potash, supplying crop nutrients and animal feed ingredients via production facilities in the U.S., Canada, South America and the Asia-Pacific region. Mosaic was featured in the April issue of Cabot Undervalued Stocks Advisor.

As a result of new Brazilian regulations governing mine tailings dams, Mosaic will temporary cease production at two Brazilian phosphate mines as they work on providing the required information to Brazil’s National Mining Agency. Mosaic’s press release states, “The company currently has the rock and finished product inventory necessary to meet near-term market requirements. During this period and as necessary, the Company will also ship phosphates from its operations in Florida and rock from its Peruvian mine for use in Brazilian production to meet customer needs in Brazil, leveraging the Company’s position as a global, integrated producer.”

MOS is an undervalued mid-cap stock. Earnings per share estimates could shift in relation to the expense of transporting phosphate products to Brazil, but last week’s 2019 and 2020 consensus EPS estimates fell and rose by only a penny, respectively. There were no apparent analyst rating changes on the stock subsequent to the announcement of the Brazilian government’s decision. To be cautious, I’m moving MOS from Buy to a Hold recommendation. Hold.

Synchrony Financial (SYF – yield 2.5%) is a consumer finance company with 80.3 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. Synchrony is expected to report first quarter EPS of $0.89, within a range of $0.80-$0.98, and revenue of $4.3 billion, within a range of $4.2-$4.4 billion, on the morning of April 18.

SYF is an undervalued, mid-cap growth & income stock. Wall Street expects full-year 2019 EPS growth of 12.3%, and the P/E is low at 7.9. The price chart indicates that SYF is immediately ready to begin another run-up, to a maximum of 39, where SYF last traded in January 2018. Buy SYF now. Strong Buy.

TiVo (TIVO – yield 7.8%) – Hold.* (last review March 19)

Universal Electronics (UEIC) 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. UEIC is an undervalued micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. At 39.24, UEIC is up over 60% from its December low. The stock continues to rise toward medium-term price resistance at 44-45, at which price traders should exit. Strong Buy.

* In order to focus attention on newsworthy changes in our portfolio stocks, I’m eliminating descriptions of Hold-rated stocks during weeks when there are no significant news announcements or changes in consensus earnings estimates. As a reminder, Hold does not mean Sell. Hold means that I am not recommending additional purchases of the stock today, either due to price chart action, earnings outlook, or stock valuation. I expect Hold-rated stocks to perform well in the coming months.

CALCULATION OF COST BASIS FOR THE SPINOFF OF DOW INC. (DOW) FROM DOWDUPONT (DWDP) ON APRIL 2, 2019

The following statement pertains to the adjusted cost basis between Dow Inc. (DOW) and DowDuPont (DWDP) and can be found on page 179 of the Final Form 10 of the Information Statement for New Dow:
the aggregate tax basis of the shares of DowDuPont common stock and shares of Dow common stock in the hands of each DowDuPont stockholder immediately after the distribution (including any fractional shares deemed received, as discussed below) will be the same as the aggregate tax basis of the shares of DowDuPont common stock held by such holder immediately before the distribution, allocated between the shares of DowDuPont common stock and shares of Dow common stock (including any fractional shares deemed received) in proportion to their relative fair market values immediately following the distribution…

Here is my interpretation of that statement. I am not an accountant. You should make an effort to verify the following information with your accountant:

• Investors received one share of DOW for every three shares of DWDP that they owned. (They continued to own the DWDP shares as well.)

• As referenced in the italicized paragraph from DowDuPont, above, these were the “fair market values immediately following the distribution”:
o The opening share price of DowDuPont (DWDP) on April 2 was $36.52.
o The opening share price of Dow Inc. (DOW) on April 2 was $55.12.
The cited opening share prices were reported by both the New York Stock Exchange and a major investment bank. (Slightly different opening share prices were reported by a famous discount brokerage firm and StockCharts.com.)

Here’s a hypothetical example* of the cost basis calculation for an investor who had owned 90 shares of DWDP at $68.03 per share prior to receiving 30 spinoff shares on April 2.

The investor bought 90 DWDP shares at $68.03 per share for a total purchase price of $6,122.70.

On the morning of April 2, the investor owned the following number of shares at the opening share prices:

90 shares DWDP at $36.52 = $ 3,286.60
30 shares DOW at $55.12 = $ 1,653.60
Total value = $ 4,940.40

At that moment in time, the DWDP shares represented 66.5% of the total of the two stocks’ values, and the DOW shares represented 33.5% of the total of the two stocks’ values. Therefore, your original cost basis in DWDP should be allocated 66.5% toward your post-spinoff DWDP position and 33.5% toward your post-spinoff DOW position.

To find your average adjusted cost per share for your post-spinoff DWDP shares, multiply your original DWDP total cost by 0.665, and divide the result by your original number of DWDP shares.

Example*: $6,122.70 x 0.665 = $4,071.60
$4,071.60 divided by 90 DWDP shares = $45.24 per share

To find your average adjusted cost per share for your post-spinoff DOW shares, multiply your original DWDP total cost by 0.335, and divide the result by the number of spinoff shares that you received.

Example*: $6,122.70 x 0.335 = $2,051.10
$2,051.10 divided by 30 DOW shares = $68.37 per share

*This is a hypothetical example. Your adjusted cost basis will be different because you purchased your original DWDP shares at a different price than the price used in this example.