Take a Deep Breath: The Stock Market Pullback Has Arrived
After rising 25% from its December low to its May high, the S&P 500 index is finally taking a breather. I don’t expect a shocking price drop like we saw in December. Rather, I anticipate the S&P 500 receding to 2,750, which would be down 200 points from the recent high, or even 2,650. Pullbacks aren’t any fun, but they are normal, and they provide opportunities for investors to buy stocks while they’re on sale.
DowDuPont Pre-Spinoff Jitters
There’s a lot of investor anxiety in the stock market pertaining to the agricultural chemical industry and uncertainty over how DuPont and Corteva will trade in June with regard to their post-spinoff P/E multiples and prices. The companies recently reiterated full-year earnings guidance, so it’s not a question of whether these companies might not meet their stated financial goals.
Bad weather patterns that harmed first quarter results at Corteva, CF Industries (CF) and Mosaic Co. (MOS) are unlikely to continue. While these companies have projected various degrees of positive full-year revenue trends as relate to agriculture, it remains a “show me” situation for investors, who won’t likely relax until future positive quarterly results are produced. Fortunately, weather and economic trends do not sit still. Crop shortages lead to rising crop prices which can positively affect business at crop fertilizer companies by increasing farmers’ abilities to pay for inputs.
Remember that the original 2017 merger of Dow Chemical and DuPont de neMours was designed not only with this 2019 three-way corporate split in mind—Dow, DuPont and Corteva—but with additional goals for these standalone companies. We’re at halftime during a championship game, the teams are playing well, and there are no proverbial weather delays or injuries hampering the players and potential outcomes. Let the game play out. Market jitters will eventually fade.
We know that Wall Street has been far more bearish in recent quarters than has been warranted. We saw that play out early in 2018 over worries that interest rates would rise, followed by fourth quarter 2018 fears that a recession was commencing. (That pendulum certainly swung rapidly!) My point of view all along was that a rate hike was not warranted because inflation was not trending higher, and that a recession was not on the horizon because GDP and employment numbers were strong.
As recently as April, Wall Street feared an earnings recession, meaning that first quarter profits would come in below last year’s numbers. Instead, a majority of S&P 500 companies reported results that exceeded consensus earnings estimates. Even within the Cabot Undervalued Stocks Advisor portfolios, fully two-thirds of our companies reported March quarters that far exceeded consensus estimates. Translation: analysts were overly gloomy, and they were wrong.
So when investors stampede toward their next collective fear—iPhone sales, trade wars, agriculture results, post-spinoff performance—I just roll my eyes and stay the course. When the next big storm hits the stock market, you can be sure that you will not be warned by more than two or three astute economists or market strategists. How many people warned you that a housing crisis loomed, a dozen years ago, that would bring down financial markets? Not many, right?
Some of this anxiety and share price volatility should fade after DuPont and Corteva begin trading separately on June 3.
African Swine Fever + Midwestern Flooding = Food Price Inflation
Inside U.S. Trade reports, “An outbreak of African Swine Fever [ASF] that is decimating China’s hog and sow population is lowering demand for soybean feed, the Agriculture Department says, projecting a substantial decrease in Chinese purchases of one of the commodities being hit hardest by U.S.-China trade disputes.” The disease is also harming livestock in Vietnam and South Africa.
“Based on USDA’s import forecast for China from May 2018, and trend forecasts using earlier USDA baseline forecasts as a guide, the global soybean market faces a potential 42 million ton accumulated decline in China’s import demand through the 2019/20 year. The loss for 2018/19 is projected to reach 17 million tons with 2019/20 losses totaling 22 million tons,” the report said.
A May 10 report from the United States Department of Agriculture states, “African Swine Fever (ASF) in China will be a game changer for the global oilseed complex, and soybeans in particular, in the coming years. China’s Ministry of Agriculture and Rural Affairs reporting that the pig herd has declined by 20 percent since ASF was first reported in early August 2018, and China’s feed demand and soybean imports are projected to fall dramatically from earlier forecasts.”
I’ve been following this story since last August, and even emailed an investment friend in September asking “How do we buy pork futures?” The situation is poor. Recent news stories project China losing 100 million of their 440 million hogs and sows in 2019. But knowing as we do that China controls their news sources with a tight fist, it would be easy to assume that the death rate is even more dire.
As a result of the decimated hog population in China, consumers can expect elevated pork prices, likely for several years. Now compound that problem with recent historic flooding in the U.S. Midwest that destroyed cattle, pigs, grains and planting fields, and you’ve got a probable food price inflation situation that could be the cause of the next substantial increase in the Consumer Price Index (CPI), an inflation measure. In addition, labor costs are rising, which is great for employees’ incomes, but those costs get passed on to consumers and therefore contribute to price inflation. Rising inflation naturally leads to rising interest rates, which then puts pressure on stock and bond prices.
The media will likely blame rising inflation and interest rates on politics, because news stories are far too often agenda-driven. So I’m just telling you in advance that if food prices rise, it will result from the effects of a global livestock health disaster combined with a U.S. weather disaster, and not from some arbitrary decision coming from Washington D.C.
Final Results of the Occidental-Chevron-Anadarko M&A Showdown
For those of you following the Anadarko Petroleum (APC) buyout story, here’s my latest review of the situation: What to Do with Anadarko Stock after Surprise Takeover.
Send questions and comments to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from May 9 and 10 in which I mentioned news, rating changes and/or price action on Marathon Petroleum (MPC), Supernus Pharmaceuticals (SUPN) and TiVo (TIVO).
FINAL EARNINGS SEASON SCORECARD
Big earnings beat: Alexion Pharmaceuticals (ALXN), Baker Hughes (BHGE), CF Industries (CF), CIT Group (CIT), Comerica (CMA), Delta Air Lines (DAL), Knight-Swift Transportation (KNX), Royal Caribbean Cruises (RCL), Sanmina (SANM), Southwest Airlines (LUV), Synchrony Financial (SYF), Total S.A. (TOT), Universal Electronics (UEIC) and Voya Financial (VOYA).
Earnings within 5% of consensus estimate: Apple (AAPL), DowDuPont (DWDP), Mosaic Company (MOS) and Schlumberger (SLB).
Big earnings miss: Marathon Petroleum (MPC), Supernus Pharmaceuticals (SUPN) and TiVo (TIVO)
EPS figure not available: Dow Inc. (DOW).
(I decided to stop reporting economic net income (ENI) for limited partnerships – Blackstone Group (BX) and Apollo Global Management (APO) – because ENI is not comparable to EPS.)
TODAY’S PORTFOLIO CHANGES
Baker Hughes, a GE Co. (BHGE) moves from Buy to Hold.
DowDuPont (DWDP) moves from Buy to Hold.
Schlumberger (SLB) moves from Buy to Hold.
Synchrony Financial (SYF) moves from Strong Buy to Hold.
Royal Caribbean Cruises (RCL) moves from Strong Buy to Hold.
LAST WEEK’S PORTFOLIO CHANGES
Adobe Systems (ADBE) joined the Growth Portfolio as a Buy.
Apollo Global Management (APO) moved from Hold to Retired.
Axis Capital Holdings (AXS) joined the Buy Low Opportunities Portfolio as a Strong Buy.
Comerica (CMA) moved from Hold to Retired.
Designer Brands (DBI) moved from Hold to Strong Buy.
Marathon Petroleum (MPC) moved from Strong Buy to Hold.
Supernus Pharmaceuticals (SUPN) moved from Hold to Strong Buy.
UPDATES ON GROWTH PORTFOLIO STOCKS
Adobe Systems (ADBE) is a software company that’s changing the world through digital experiences. Adobe is reimagining Customer Experience Management (CXM) with Adobe Experience Cloud, the industry’s only end-to-end solution for experience creation, marketing, advertising, analytics and commerce. ADBE was featured in the May issue of Cabot Undervalued Stocks Advisor.
ADBE is a large-cap growth stock. Wall Street expects Adobe’s earnings per share (EPS) to increase aggressively by 42.2% in 2019 and 23.9% in 2020. The 2019 price/earnings ratio (P/E) is 35.6. This is a great stock for risk-tolerant growth investors and for buy-and-hold equity portfolios. ADBE recently began reaching all-time highs, and has pulled back a little after the breakout. Buy ADBE now. Buy.
CF Industries Holdings (CF – yield 2.9%) 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 Industries expects strong nitrogen demand through the current quarter, and to continue benefiting from low natural gas prices throughout 2019. Monitor natural gas prices here. The company will present at investment conferences on May 15, 16 and 30, and investors can access the presentations on the CF Industries website.
CF is a cyclical mid-cap aggressive growth stock. The company is expected to grow full-year EPS by 66% and 33% in 2019 and 2020, with corresponding P/Es of 20.2 and 15.2. The stock ratcheted downward in May amid a six-month range. Strong Buy.
CIT Group (CIT – yield 2.7%) operates both a bank holding company and a financial holding company that provide financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT is an undervalued growth stock with an attractive dividend yield. The price chart is bullish, with some upside resistance at 55, then lots of capital gain potential thereafter. Strong Buy.
Knight-Swift Transportation Holdings (KNX – yield 0.8%) is the largest full truckload carrier in North America and an industry leader with an exemplary management team. Knight-Swift management will present at next week’s Wolfe Research 12(th) Annual Global Transportation Conference. Earnings growth projections have slowed dramatically since 2018. On a positive note, Wall Street considers the P/E to be too low at 11.8, and out of synch with economic and industry outlooks. The price chart is weak, with KNX nearing the bottom of a four-month trading range. Hold.
Marathon Petroleum (MPC – yield 4.0%) is a leading integrated downstream energy company and the nation’s largest energy refiner, with 16 refineries, majority interests in two midstream companies that will soon merge, 10,000 miles of oil pipelines and product sales in 11,700 retail stores. Full-year estimates reflect 2019 EPS falling 14.3%, followed by a 61% jump in 2020 EPS. The 2020 P/E is 6.2. I will return MPC to a Buy recommendation when the price chart stabilizes. Hold.
Sanmina Corp. (SANM) designs and manufactures optical, electronic and mechanical products for original equipment manufacturers (OEMs) primarily in the communications networks, cloud solutions, industrial, defense, medical and automotive industries. Sanmina announced the addition of a new heavy-duty IT and industrial rack to its Rack IQ product line last week. Full-year earnings per share are expected to grow 49.8% in 2019 (September year end), and the P/E is 9.7. SANM is a small-cap growth stock. The recent stock market pullback brought SANM down to its 50-day moving average. The price chart remains bullish. 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. Investors may listen to Southwest’s webcast of its May 15 Annual Meeting of Shareholders. The company will likely announce an annual dividend increase this week, possibly in the range of 25%-33%. LUV is an undervalued large-cap stock. Wall Street expects full-year EPS to grow 6.4% and 15.3% in 2019 and 2020. The share price has become a bit weak with the broader market. Buy.
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. Three of those pipeline drugs are expected to launch in 2020, 2021 and 2023.
SUPN is an undervalued small-cap growth stock that could appeal to traders and growth stock investors. Analysts expect EPS to grow 12.2% and 20.0% in 2019 and 2020. The stock has been in a consistent trading range this year, largely traveling between 34 and 39, not yet participating in this year’s bull market. Risk-tolerant investors should buy now, while the stock is low within its trading range. The political landscape holds land mines for the healthcare industry. Expect volatility. Strong Buy.
Voya Financial (VOYA – yield 0.1%) is a retirement, investment and insurance company serving millions of individuals and 49,000 institutional customers in the United States. Last week, Voya report adjusted first quarter EPS of $1.22 vs. the consensus estimate of $1.12. The quarter’s highlights included better-than-expected expense reductions, favorable mortality trends in the Life Insurance division, and a repurchase of $200 million of stock. The company also authorized an additional $500 million share repurchase. Expenses were high in the Retirement division. Retirement and Investment Management divisions experienced net inflows of approximately $1.2 billion, higher than in each of the four prior quarters. Reported book value jumped from $52.28 in December to $59.13 in March. (Read the press release here.)
With regard to the anticipated dividend increase, CEO Rodney O. Martin, Jr. stated, “As we previously announced, we intend to increase our common stock dividend to a yield of at least 1% and we expect to do so beginning in the third quarter of 2019. As we continue to execute on share repurchases given the current attractive valuation levels of our common shares, providing a higher-yielding dividend will enable us to attract new investors to Voya.”
To be clear, there is a big difference in the investment world between a 0.1% dividend yield and a 1.0% dividend yield. There are many institutional portfolios that use dividend yield as one of their investment criteria. A certain percentage of those portfolio managers will be free to begin purchasing VOYA shares, providing additional upside to the stock.
VOYA is an undervalued aggressive growth stock. Analysts expect full-year EPS to grow 36.4% and 15.4% in 2019 and 2020, and the current P/E is 9.8. The price chart remains relatively bullish. I anticipate VOYA performing better than the broad market for the balance of 2019. Strong Buy.
UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS
Blackstone Group LP (BX – yield 5.4%*) is the world’s largest and most diversified alternative asset manager with $512 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, public debt and equity, real assets, secondary funds and real estate, all on a global basis. Blackstone will convert from a limited partnership to a corporation on July 1, 2019. I just learned that BX plans to continue paying variable quarterly dividends equaling 85% of cash earnings, as opposed to switching to a fixed quarterly dividend. BX is a growth & income stock. The current run-up will likely stop and go intermittently. This is a great stock to buy on pullbacks. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.17 and yielding 5.4%.
Commercial Metals Company (CMC – yield 2.8%) 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 24.8% and 24.7% in fiscal 2019 and 2020 (August year end). The 2019 P/E is low at 9.0. The stock is trading between 16.5-18.5, and could rise to medium-term resistance at 20 in the near future. Buy CMC now. Strong Buy.
Delta Air Lines (DAL – yield 2.5%) 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. DAL is an undervalued growth & income stock. Delta is expected to achieve 18.2% EPS growth in 2019, and the P/E is 8.5. Subsequent to a brief, rapid run-up, DAL has traded quietly between 56-58 for six weeks, near price resistance at the December high of 60. A breakout past 60 could happen soon, and would be extremely bullish. Strong Buy.
Dow Inc. (DOW – yield 5.3%) is the materials science division of DowDuPont (DWDP) that began trading as a separate company on April 2, 2019. Analysts currently expect Dow to report EPS of $4.59 and $5.44 in 2019 and 2020. I’m very pleased with the profit projections, the dividend yield and the moderate P/E (11.6). The stock is languishing. Patient investors can lock in the big dividend yield right now while awaiting an eventual upturn in the share price. Strong Buy.
DowDuPont (DWDP) is composed of DuPont and Corteva, which will begin trading separately on June 3 with ticker symbols DD and CTVA. The final DWDP dividend will be paid on May 28. Thereafter, the two companies will declare dividends in accordance with their new, separate dividend policies.
Corteva is DowDuPont’s Agriculture Division. DowDuPont CEO Ed Breen commented, “We believe Corteva is set to be a leading pure-play agriculture company with a balanced portfolio and robust innovation pipeline that will drive long-term value for shareholders.” Each DowDuPont stockholder will receive one share of Corteva common stock for every three shares of DowDuPont common stock they hold. In addition, the company is planning a reverse stock split for the new DuPont shares “at a ratio of not less than 2-for-5 and not greater than 1-for-3.” See the press release for further details.
Corteva’s recent business has been impacted by unusually adverse weather conditions in recent quarters. Corteva hosted an analyst meeting last week with these comments, “The division expects to overcome the first half decline through the realization of new product launches, price opportunities on high demand products, accelerated cost synergy delivery, and incremental productivity opportunities - resulting in an improvement in second half performance versus prior year.”
The stock fell below its recent trading range last week. I’m moving DWDP from Buy to Hold while we wait for the share price to stabilize. I remain bullish on the outlooks for DuPont and Corteva. Hold.
Guess?, Inc. (GES – yield 2.4%) 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.
Wall Street expects full-year EPS to increase 23.5% and 19.0% in fiscal 2020 and 2021 (January year end). The 2020 P/E is 15.7. The company recently implemented a $250 million share repurchase plan.
The stock rose 25% in late April, then fell 11% in early May. Now it’s rising again. GES shares never sit still. There’s price resistance at 23. I foresee strong prospects for capital appreciation in 2019 and 2020. Expect volatility. Buy.
Royal Caribbean Cruises (RCL – yield 2.2%) is a cruise vacation company that delivers travelers to desirable and exotic destinations on all seven continents. The company operates a total of 61 ships, with 15 on order, under the brand names Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises, and partnerships with German and Spanish cruise companies.
RCL is an undervalued, large-cap growth & income stock, and a great stock for a high quality, buy-and-hold equity portfolio. Industry research is recently pointing to problems at competitor Carnival Corp. (CCL) that’s leading to discounted pricing. The discounting could affect Royal Caribbean. I’m moving RCL from Strong Buy to Hold. As the stock approaches upside resistance at the September 2018 high of 132, I’ll monitor the price strength and decide whether to keep RCL for further gains or Retire the stock from the portfolio. Hold.
Schlumberger NV (SLB – yield 5.1%) is the world’s largest oilfield service company. Wall Street expects full-year EPS to fall 4% in 2019 and to rise 40% in 2020. SLB traded between 40-48 since mid-January, but is now falling below that level. I’m moving the stock from Buy to Hold until the price stabilizes. Income investors should feel confident snapping up shares while the yield is higher than normal. Hold.
Total S.A. (TOT – yield 5.6%) is a French multinational integrated energy company operating in over 130 countries. Total played a supporting role in Occidental Petroleum’s (OXY) agreed-upon plan to acquire Anadarko Petroleum (APC) by purchasing African energy assets from Anadarko for $8.8 billion. Read more from Reuters: How Total’s CEO pounced on Anadarko’s African energy assets.
TOT is an undervalued, large-cap growth & income stock with a large dividend yield. Consensus earnings estimates have been steadily rising. Total is now expected to see full-year EPS grow 10.5% and 13.3% in 2019 and 2020, and the 2019 P/E is 9.5. The stock recently fell below its two-month trading range. I plan to move my recommendation back to Buy after the price stabilizes. Patient investors who want to buy low and lock in a higher dividend should feel comfortable doing so. Hold.
UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS
Abercrombie & Fitch (ANF – yield 2.9%) 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 a small-cap stock. Analysts expect EPS to grow 25.2% and 9.0% in fiscal 2020 and 2021 (January year end). The price chart remains generally bullish, with long-term resistance at 35-37. 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. Analysts now expect EPS to grow 19.6% and 13.4% in 2019 and 2020, and the P/E is 13.9 – rather low for a profitable biopharmaceutical company. The long-term debt-to-capitalization ratio is also low at 20%. The stock is trading between 125-142 since February. The next run-up could carry ALXN to long-term price resistance at 160. Buy.
Apple Inc. (AAPL – yield 1.6%) 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.
The share price has come down this month as investors worry about tariffs on Chinese exports. It’s worth noting that $200 billion of Chinese exports, which just saw their tariffs increase from 10% to 25%, exclude smartphones. That particular tariff play does not affect Apple.
However, as a result of China “walking back commitments it had made earlier in the talks [Inside U.S. Trade, May 13, 2019]”, the U.S. decided to implement an additional tariff on $250 billion of Chinese exports. The new tariff does affect Apple products. Importantly, and to the chagrin of many readers, I would remind people that the threat of increased tariffs is a negotiating tactic, a hardball approach to stalled negotiations.
When the opposition digs in their heels and refuses to correct bad behaviors, the only choices at that point are to allow the bad behaviors, as many previous presidential administrations did, or to turn up the heat in a type of “tough love” stance. With regard to ongoing Chinese theft of U.S. intellectual property, for example, it would be irresponsible for our government to keep the status quo. So while it’s uncomfortable to see the tension of trade negotiations portrayed on the nightly news, it also represents an opportunity for finally ending IP theft. I think we can all agree that IP theft is bad and that the prospect for stopping the practice is good, despite our potential distaste for the negotiating style.
Additionally, today the U.S. Supreme Court ruled, basically, that iPhone users will be able to sue Apple for antitrust practices relating to the sale of apps for the phone, and the stock dropped further on the news. This is likely to be a story that unfolds over a very long time, and I will follow it as it does—but it has no effect on Apple’s earnings power today.
As for AAPL’s share price, it will probably bounce and rebound soon, and later climb to price resistance at 230 his year. AAPL is a great stock for a high quality, buy-and-hold equity portfolio. Earnings growth is not always double-digit, and the P/E is not always low, but the company is a consumer products & services powerhouse and a cash machine. Strong Buy.
Axis Capital Holdings Ltd. (AXS – yield 2.7%) is a specialty insurance & reinsurance company that’s based in Bermuda. AXS was featured in the May issue of Cabot Undervalued Stocks Advisor. AXS is an undervalued, small-cap stock. Axis reported full-year 2018 EPS of $1.92 in 2018, and is expected to report $4.96 and $5.59 in 2019 and 2020. The stock just broke free from a 13-month trading range. AXS could now rise to its March 2017 all-time high of 66 before resting again. Buy AXS now. Strong Buy.
Baker Hughes, a GE Co. (BHGE – yield 3.2%) offers products, services and digital solutions to the international oil and gas community. The number of U.S. rigs drilling for crude oil and natural gas fell by two last week to a total of 988, down 57 vs. a year ago. The international rig count grew by 23. BHGE is an undervalued aggressive growth stock. BHGE advanced steadily for three months, then gave back much of those gains in recent weeks. I’m moving BHGE from Buy to Hold while we wait for the price to stabilize. Hold.
Designer Brands Inc. (DBI – yield 4.6%) 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. There’s price resistance at 23.5, and again in the mid-to-upper 20s. 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. Management will present at investor conferences on May 15 and 30.
The company’s full-year outlook for potash and phosphate sale volumes remains
stable. The earnings press release outlines business costs and disruptions from Canadian taxes and from several one-time events, including new Brazilian regulations governing mine tailings dams and the ongoing effects of Midwestern flooding. New corporate guidance has led Wall Street to adjust earnings expectations, now reflecting a profit drop of 16% in 2019 and an increase of 34% in 2020. Analysts’ sentiment remains hopeful. Barron’s reported that Scotiabank, JPMorgan and Credit Suisse all raised their ratings on MOS last week, and commented “Mosaic stock is trading 20% lower than its historical average on a variety of valuation metrics.”
MOS is still an undervalued mid-cap growth stock. However, the price chart is currently bearish. It is not yet time to buy low. Hold.
Synchrony Financial (SYF – yield 2.4%) 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. SYF is an undervalued, mid-cap growth & income stock. Wall Street expects full-year 2019 EPS growth of 15.5%, and the P/E is low at 8.1. I’m moving SYF from Strong Buy to Hold as it nears price resistance at 39, where the stock last traded in January 2018. Hold.
TiVo Corp. (TIVO – yield 4.2%) will spin off its Product business to shareholders in a tax-free transaction during the first half of 2020. Management reduced the quarterly dividend to $0.08 per share, in a quest to optimize corporate balance sheets in advance of the separation of the two company divisions: Intellectual Property Licensing (consisting of Rovi and Tivo licensing portfolios and other patents) and Product. Concurrent with plans to separate into two companies, the Board of Directors is actively engaged in discussions with interested parties who might purchase either or both company divisions.
I continue to believe that TiVo offers excellent technology to the communications industry. Approximately 22 million subscriber households around the world use TiVo’s advanced television experiences. Nevertheless, I plan to remove the stock from the Buy Low Opportunities Portfolio. Investors should continue paring back their positions in TIVO. This is a micro-cap stock, which means if I issue a blatant Sell recommendation on the stock, I risk crashing the share price. I aim to repeat this suggestion to pare back your shares for several weeks before finally issuing a Sell recommendation and removing TIVO from the portfolio. Hold.
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. Management will present at investor conferences on May 23 and June 4.
UEIC is an undervalued micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. The full-year 2019 analysts’ earnings estimate now reflects 31.0% growth, and the P/E is 13.9. The stock is pulling back now after almost doubling in four months. There’s longer-term price resistance at 55. Expect volatility. Hold.
