Cabot Undervalued Stocks Advisor Weekly Update

A PROFOUND LONG-TERM HOUSING FORECAST
(Baby Boomers: take note!)

Early this month, I read a 68-page report by Wall Street analysts on population demographics, lifestyle trends and spending habits that’s projected out several decades. What I read about real estate was so significant—and in line with broad assumptions I’d been making—that I would be remiss if I did not share it with you. (I am prohibited from sharing the exact information, but I will summarize so that you can understand that this is not a flash-in-the-pan paragraph of no import.)

Let’s first back up a little bit to the approximate year 2005. I was a stay-at-home mom, but always an extrovert, out and about dealing with people each day, keenly aware that middle class Americans were obsessed with fix-n-flip houses, that home prices were skyrocketing, and that no-money-down mortgages had become the financial scam du jour. I was also well aware (and appalled!) that the U.S. government had strong-armed financial companies into making mortgage loans to people with poor credit histories. That was a recipe for disaster, and a race to the bottom ensued with each financial company vying for mortgage business from a large pool of unqualified buyers.

Inevitably, Americans of the home-owning and investment ilks experienced the falling dominoes of real estate, bond and stock prices. The thing that amazed me, though, was that I have rarely met a soul who also anticipated the housing crash. When I talk to investors, they beg me to let them know when I foresee another major drop in housing prices. Today I am ringing that bell.

(If you were a little too young or distracted to pay attention to that particular financial disaster, I recommend viewing “The Big Short.” I’ve learned that it’s not politically correct to announce “I loved that movie!” at social events, because there are invariably people within earshot who were greatly harmed by the bursting of the housing bubble, and it seems like I’m stomping on their graves. I’m sorry! I understand your pain! The reasons I loved that movie were (a) there are scenes with investment people working together, which, as an extrovert, I greatly miss—yes, I had a career before I was a Mom—and (b) there is a character in the movie who foresaw the housing crisis, and I feel a certain awe of and affection for that guy and his brain.)

Now it’s 2019, and Baby Boomers are getting older. A tremendous number of them own large homes that they’re having trouble maintaining. I don’t care how healthy you think you are, one serious knee problem and you are not going to be climbing the stairs very often to the second story of your house, or descending stairs into the basement where your washer and dryer are located. You’ll also be hesitant to continue doing outdoor chores: climbing a ladder onto the roof to clean out gutters, pushing a lawnmower around, bending over to pull weeds, raking (ouch! That shoulder injury!). A vast majority of Boomers will be downsizing in the coming decade; selling the big homes in which they raised children and buying small homes, such as condos with one level and no yard to maintain. Added benefit: they can then extract equity from their big homes with which to finance their retirement years.

All across America, but especially in the Northeast and the Midwest, Boomers will be putting their homes up for sale, and often leaving those areas for warmer climates. (And not to be morbid, but there will also be a subsection of Boomers who die, and their heirs will be selling those homes.)

Are you with me so far? Massive numbers of homes will be going up for sale in the next decade. The youngest of the Boomers were born in 1964. They’re age 55 right now. The oldest Boomers are 73. And of course, members of the Silent Generation who still own homes are even older. They’re less physically mobile. Their bodies are not cooperating with the basics of living within and cleaning a large home and yard. They’re going to sell their homes.

If you are a Boomer and own such a home, right now you’re probably grasping at hope, thinking, “It won’t be a problem. The younger generations will buy homes from the Boomers.” Well clearly I would not bother writing about this topic today if demographic projections pointed toward an evenly matched assortment of future buyers and sellers, so take a deep breath and keep reading.

There are a variety of reasons that Millennials and Generation Z are not expected to pick up the slack in the housing market. Off the top of my head, here are some lifestyle situations among those generations that make them different from Boomers, and less likely to purchase houses:
• They’re very comfortable with renting. In fact, they’re expected to push rental occupancy more than 20% higher than historical norms during the coming decade.

• They’re having smaller families. They don’t need a large house in which to raise three or ten kids.

• They’re burdened with significant college debt that prohibits them from saving for a house down payment.

• They’re burdened with significant rental costs that prohibit them from saving for a house down payment. Current rental prices are more than 50% higher than they were prior to the housing crisis, a decade ago, while housing prices are less than 15% higher. (I’m being vague so as not to plagiarize the research report. The true numbers are even more dramatic, I promise.)

• It’s much harder to qualify for a mortgage in this post-housing crisis era. In a gig economy, it can be very difficult for the masses of self-employed workers to meet mortgage lending requirements that demand more predictable income and job stability. (In recent years, I’ve known people who had enough income, assets and FICO scores to qualify for a mortgage or refinance, but they were turned downed because they didn’t have the type of employment history that the mortgage company required. These were normal, educated, middle class people in solid occupations ... the kinds of people who coach kids’ activities, volunteer at church and sit on their local City Council.)

• They’re more likely to be single parents at younger ages (an expensive proposition!) and possibly working in retail or lower-level corporate jobs that barely cover rent, transportation and living expenses, let alone health insurance (corporate America took a hatchet to middle management jobs in recent decades, so there are proportionally fewer adults earning those more-attractive salaries). Example: A stay-at-home mom who gets divorced has only a small chance of acquiring a job that pays enough to cover rental costs, plus support her kids, plus save for a house down payment. Considering that financial problems are the number one catalyst for divorce, chances are fairly good that a divorced parent with kids is not going to be able to buy a home. The couple was already broke before the divorce! Granted, home ownership can be vastly less expensive than renting, but if you don’t have cash for the down payment, then you’re locked out of the housing market.

Housing takes up much more of a family’s income today than it did when you or your parents bought houses. My father was a newspaper reporter for 36 years. He supported a family of six, and was able to own a home and a car in the 1960’s, and two cars by the 1970’s. Can you imagine a newspaper reporter supporting a family of six on their salary in 2019?!

PayScale reports, “A mid-career Journalist with 5-9 years of experience earns an average total compensation of $45,583.” If you subtract 15% for income taxes, 3% for charity, $2000 per month for rental housing, and $1000 per month for other expenses (college loan, car loan, utilities, food & basic supplies, clothing, gasoline), that leaves $1,378 per year with which to cover retirement savings, technology upgrades, kids’ school & activity fees, medical co-pays, restaurants, entertainment, vacations, gifts, manicures & haircuts, and saving for a down payment for a house. (We’re assuming that the journalist is provided with health insurance by their employer.) So you can see that the cost of living for young families in 2019 is very different from the cost of living long ago.

The housing analysis that I read projects home buying volume to be more than 50% below normalized long-term levels in the coming decade. FIFTY PERCENT LOWER. (I don’t foresee this problem being resolved in Year 11. The forecasted suppression in housing demand will likely build slowly and unwind slowly, spanning more than the next ten years.)

That means people who sell their homes very soon will get much higher prices for their homes than people who sell their homes later in the coming decade. Home values are projected to steadily fall because there will be a glut of available homes and a lack of qualified buyers.

I have always assumed that this downsizing housing shift among Boomers would harm home values, but this report makes it clearer than before to me, and illustrates how bad it might get. If the bulk of your net worth is tied up in your home, and you were planning on selling in order to tap into the equity to sustain you during retirement, you need to understand that your long-term plans might be thwarted by market forces that you had not anticipated.

Send questions and comments to Crista@CabotWealth.com.

TODAY’S PORTFOLIO CHANGES
Abercrombie & Fitch (ANF) moves from Hold to Buy.
CIT Group (CIT) moves from Hold to Strong Buy.
Designer Brands (DBI) moves from Strong Buy to Buy.
Marathon Petroleum (MPC) moves from Hold to Buy.
Schlumberger (SLB) moves from Hold to Buy.
Synchrony Financial (SYF) moves from Hold to Strong Buy.
Total SA (TOT) moves from Hold to Buy.

LAST WEEK’S PORTFOLIO CHANGES
Universal Electronics (UEIC) 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. Wall Street is expecting Adobe to report second quarter results of $1.78 EPS, within a range of $1.76-$1.87, and $2.7 billion revenue (November year end), within a range of $2.7-$2.8 billion, tentatively to be announced on the afternoon of June 18.

ADBE is a large-cap growth stock; a great stock for risk-tolerant growth investors and for buy-and-hold equity portfolios. Full year consensus estimates point toward EPS increasing aggressively by 42.2% in 2019 and 23.9% in 2020. Those are much bigger earnings growth rates than are typically found within the software industry. The high P/E of 35.3 is the only reason that I am not giving ADBE a Strong Buy recommendation.

ADBE recently began reaching all-time highs, then had a rapid shakeout & recovery during the May pullback in the broader market. That’s a bullish pattern on the price chart, which could easily be followed by a retracement to the all-time high of 290 in April, and then additional new highs. Buy ADBE now. Buy.

CF Industries Holdings (CF – yield 2.6%) 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. The Henry Hub price of natural gas dropped to a three-year low in June, now trading at $2.35 MMbtu. Monitor natural gas prices here. CF Industries was featured in the June issue of Cabot Undervalued Stocks Advisor.

The company is expected to grow full-year EPS by 64% and 31% in 2019 and 2020, with corresponding P/Es of 23.1 and 17.7. CF is a cyclical mid-cap aggressive growth stock. The stock launched above previous price resistance last week. There’s more resistance at 50 and again at 55. Strong Buy.

CIT Group (CIT – yield 2.8%) operates both a bank holding company with $30 billion in consumer deposits and a financial holding company. CIT Group provides financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. Investors may listen to CEO Ellen Alemany’s June 11 presentation at the Morgan Stanley 10th Annual Financials Conference.

CIT is an undervalued growth stock with an attractive dividend yield. Wall Street expects EPS to increase 19.6% and 14.3% in 2019 and 2020. The P/E is 10.4. The company continues to repurchase large amounts of stock. CIT maintained a stronger price chart than many quality stocks during the May market downturn. I’m returning CIT to a Strong Buy recommendation, and anticipate near-term upside. Buy CIT now. Strong Buy.

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. New Canadian industry rules regarding electronic logging devices (ELDs), with a June 2021 compliance deadline, are expected to contribute to a tighter trucking market that would benefit Knight-Swift. Congress is considering the benefits of mandating truck driver drug testing via hair follicles vs. urinalysis, which could exacerbate the current driver shortage. (Hair follicle drug testing is apparently far more effective than testing via urinalysis.) KNX is rebounding rapidly from the May pullback. Hold.

Marathon Petroleum (MPC – yield 4.4%) 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.

Consensus earnings estimates project 2019 EPS falling 21%, followed by a 67% jump in 2020 EPS, while the 2020 P/E is incredibly low at 5.9. This huge earnings increase can be seen throughout the refining industry, largely due to IMO 2020 – a new sulfur emissions cap being mandated by the International Maritime Organization (IMO), which is expected to increase prices and profit margins on low-sulfur fuel provided by refiners.

Read more about pending global energy and environmental changes in IMO 2020: The Big Shipping Shake-Up. If you are an avid fan of efforts to protect the environment, you’re going to love reading about IMO 2020. Did you know that the largest 15 ships in the world produce more sulfur emissions than all of the world’s cars combined? And that there are 39,000 cargo ships and oil tankers on the world’s waterways?

Now that the May stock market downturn is behind us, and the threat of Mexican tariffs has ostensibly subsided, Marathon’s share price has stabilized. The price chart is, in fact, showing constructive signs of turning upward soon. Last week, Jacob Mintz, Chief Analyst of Cabot Options Trader, reported the $1.2 million purchase of a January bull call spread on MPC. I’m moving MPC from Hold to Buy. Risk-tolerant growth investors should buy now. There’s price resistance at 58. Expect volatility. Buy.

Sanmina Corp. (SANM) – Hold.*** (last review June 4)

Southwest Airlines (LUV – yield 1.4%) 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. Last week, Southwest announced that they will remove the Boeing 737 MAX jet from their schedule through September 2 while awaiting news of software enhancements and training requirements from Boeing and the Federal Aviation Administration.

LUV is an undervalued large-cap stock. Wall Street expects full-year EPS to grow 6.6% and 15.5% in 2019 and 2020. I will likely give LUV a Buy recommendation after the share price stabilizes and strengthens. Hold.

Supernus Pharmaceuticals (SUPN) – Hold.*** (last review June 11)

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. Voya has $547 billion in total assets under management and administration.

The Secure Act passed the U.S. House of Representatives in recent weeks, a.k.a. H.R. 1994, Setting Every Community Up for Retirement Enhancement Act of 2019. The proposed legislation would remove age limits for workers’ contributions to traditional IRAs; raise the starting age for required minimum IRA distributions (RMDs) to 72; and mandate distribution of IRA assets to non-spouse heirs over a ten-year period, as opposed to over the non-spouse heirs’ lifetimes (with some exceptions). The U.S. Senate is working on a similar bill. As an asset manager, Voya benefits when assets within IRAs grow. Therefore, the potential extension in the allowable ages of IRA contributions and the higher age for mandatory IRA distributions would each serve to increase fee income at Voya.

VOYA is an undervalued aggressive growth stock. Analysts expect full-year EPS to grow 36.4% and 14.5% in 2019 and 2020, and the current P/E is 9.8. The company intends to increase the dividend yield to about 1% in the third quarter. There’s a decent chance that VOYA could promptly surpass its April all-time high of 55 and begin a new run-up. Buy VOYA now. Strong Buy.

UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS

Blackstone Group LP (BX – yield 4.9%*) 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.

BX is a growth & income stock that’s reaching new all-time highs. The July 1 corporate conversion should trigger corporate buying and also inclusion in the S&P 500 index, which will then warrant the purchase of BX by portfolios that mirror the index. Last week, Jacob Mintz, Chief Analyst of Cabot Options Trader, reported the purchase of $850,000 of January 42 call options on BX. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.17 and yielding 4.9%.

Commercial Metals Company (CMC – yield 3.1%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Commercial Metals derives 60% of revenue from rebar products, which experienced price declines in June.

CMC is an undervalued growth stock with an attractive dividend yield. The company is expected to report third quarter EPS of $0.61 – down from last week’s projection of $0.64 -- within a range of $0.50-$0.71; and $1.6 billion revenue, within a range of $1.4-$1.7 billion, on the morning of June 20 (August year end). Analysts expect full-year EPS to increase 28.9% and 13.8% in fiscal 2019 and 2020. The 2019 P/E is low at 8.2. CMC is rebounding from the May pullback. Expect significant volatility with relation to the June 20 earnings release. Hold.

Corteva (CTVA – yield approx. 2.0%) – Hold.*** (last review June 11)

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. Wall Street’s earnings estimates have been climbing since early March. Delta is now expected to achieve 18.8% EPS growth in 2019, and the P/E is 8.3. Last week, the JPMorgan airline analyst got very bullish on airline stocks based on this summer’s expected increases in air traffic & fares, ensuing increases in analysts’ earnings estimates, and low stock valuations. DAL is rebounding from the May pullback, with short-term price resistance at 58. Strong Buy.

Dow Inc. (DOW – yield 5.7%) is the materials science division of the former DowDuPont (DWDP) that began trading as a separate company on April 2, 2019. Investors may access CEO Jim Fitterling’s May 30 presentation at Bernstein’s 35th Annual Strategic Decisions Conference. Analysts** currently expect Dow to report EPS of $4.37 and $5.34 in 2019 and 2020. I’m very pleased with the profit projections, the dividend yield and the P/E (11.3). The stock fell yesterday when the Bank of Montreal lowered their recommendation on the stock to “market perform” from “outperform”. Dividend investors should buy now, while growth investors should wait for the share price to stabilize. Strong Buy.

DuPont de neMours (DD – yield approx. 1.6%) – Hold.*** (last review June 11)

Guess?, Inc. (GES – yield 3.1%) is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements. In a filing with the Securities and Exchange Commission, CEO Carlos Alberini reported that he purchased $4.97 million of GES shares on June 12 and 13. Wall Street expects EPS to grow of 27.6% and 15.2% in fiscal 2020 and 2021. The 2020 P/E is comparatively low at 11.5. The company repurchased $201.6 million of stock during the first quarter. GES offers the best earnings growth & value opportunity of any U.S.-based apparel retailer. I want to see the share price stabilize before issuing a Buy recommendation. Hold.

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 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. Wall Street expects EPS to grow 10.4% and 11.5% in 2019 and 2020. The 2019 P/E is 12.5. The share price has been strong and stable, and could reach $130 in the near term. Hold.

Schlumberger NV (SLB – yield 5.4%) 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. The 2020 P/E is 16.9. Oil prices and U.S. stock markets experienced huge run-ups from Christmas Eve 2018 through late April, then pulled back in May, with the SLB share price falling back to its December low. (Yet the consensus earnings estimates for SLB are unchanged from the late-April forecasts.) Now that the share price has caught its breath and stabilized, I’m moving my SLB recommendation from Hold to Buy. Odds are decent for a near-term upward move, with price resistance in the 41-42 area. Expect volatility. Buy.

Total S.A. (TOT – yield 5.7%) is a French multinational integrated energy company operating in over 130 countries. Total’s strengths are in the Middle East, Africa, North Sea and Deep Water. TOT is an undervalued, large-cap growth & income stock with a large dividend yield. Total is expected to see full-year EPS grow 6.1% and 20.1% in 2019 and 2020, and the 2019 P/E is 9.8. The stock is slowly recovering from the May downturn in the broader market. I’m moving TOT from Hold to a Buy recommendation. Buy.

UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS

Abercrombie & Fitch (ANF – yield 5.0%) is a specialty retailer of Abercrombie & Fitch, abercrombie kids and Hollister brand apparel and accessories for men, women and kids. The company operates 857 stores globally. The company remains on track toward its multi-year goals of improving revenue, profits, expense-control, data analytics and global store expansion. Abercrombie’s CFO will present at the Jefferies 2019 Consumer Conference on June 18.

Last week, Abercrombie announced a new 5 million share repurchase authorization, bringing the total authorization to 7.6 million shares, or 11.6% of outstanding shares. That’s a very bullish announcement that tells investors several things:
• The company had $75 million burning a hole in its pocket, and nothing pressing to spend it on, so adding to the repurchase authorization seemed like the best use of cash.

• The company deemed its share price to be so ridiculously cheap that they felt compelled to take advantage of the current share price and buy back their stock.

• Wall Street will necessarily raise earnings estimates: presuming no change in net income, fewer shares outstanding means that earnings per share (EPS) will necessarily increase.

• The share price will likely increase from Abercrombie’s purchases, purchases on the part of investors who are gaining more confidence in the company’s finances and outlook, and short sellers who are throwing in the towel and buying shares to cover their short positions.

Prior to the aforementioned upcoming adjustments to consensus earnings estimates, analysts expected EPS to fall 10.4% in 2019, then to rise 40.8% in 2020. The 2019 P/E is 15.2.

ANF is a small/micro-cap stock. The share price suffered disproportionately in the May stock market downturn due to poor first quarter results at other retailers, investor worries over China tariffs, a slow start for retailers in May and news of Abercrombie’s downward 2019 earnings guidance related to the expense of two store closures. The new share repurchase announcement put a halt to the downturn. I’m moving ANF from Hold to a Buy recommendation. Small stocks like this can move fast, and I believe risk-tolerant growth investors, traders and dividend investors can benefit by buying ANF now. Buy.

Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. In recent days, Alexion presented new, positive data on ULTOMIRIS ®, for the treatment of PNH, at the European Hematology Association Congress. From the press release:
“We continue to expand the body of clinical evidence supporting the potential of ULTOMIRIS to become the new standard of care for patients with PNH,” said John Orloff, M.D., Executive Vice President and Head of Research & Development at Alexion. “SOLIRIS, the first approved therapy for PNH, was a breakthrough for patients for whom only supportive care had been available before. With ULTOMIRIS, we want to enable patients to live their lives more freely thanks to maximal hemolysis control with established safety and reduced treatment burden.”

ALXN is an undervalued large-cap growth stock. Analysts now expect EPS to grow 19.1% and 14.2% in 2019 and 2020, and the P/E is 12.5—rather low for a profitable biopharmaceutical company. The stock price is slowly improving after the May downturn. Bargain hunters can buy now, and cautious investors should wait for the share price to continue stabilizing. 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. In comparison to the devices, Apple’s services deliver bigger gross margins, faster revenue growth, and nobody’s going to slap a tariff onto a service!

AAPL is a great stock for a high quality, buy-and-hold equity portfolio. Wall Street expects EPS to fall 3.9% in fiscal 2019 (September year end), then to rise 10.5% in 2020. The company has $38 billion in cash, raises the dividend annually, and repurchases tens of billions of dollars of its stock each year. AAPL rose rapidly in early June, then rested last week. There’s upside resistance at 210. Strong Buy.

Axis Capital Holdings Ltd. (AXS – yield 2.6%) is a global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity of $5.3 billion and locations in Bermuda, the United States, Europe, Singapore, Middle East, Canada and Latin America. AXS is an undervalued, small-cap stock. Axis reported full-year 2018 EPS of $1.92 in 2018, and is expected to report $4.94 and $5.56 in 2019 and 2020. The stock is actively rising toward its March 2017 all-time high of 66. Buy AXS now. Strong Buy.

Baker Hughes, a GE Co. (BHGE – yield 3.2%) – Hold.*** (Last review June 4.)

Designer Brands Inc. (DBI – yield 5.6%) operates DSW Warehouse and The Shoe Company stores with over 1,000 locations in 44 U.S. states and Canada. Designer Brands recently acquired Camuto Group, the leader in private brand footwear in the U.S. DSW was the #1 omnichannel retailer in the U.S. in 2017 and 2018, and has delivered 27 consecutive years of sales growth.

DBI is an undervalued growth stock with a hefty dividend yield. Expected EPS growth rates are 15.1% and 13.6% in 2019 and 2020. The current P/E is moderate at 9.3. I’m moving DBI from Strong Buy to a Buy recommendation due to weakness in the price chart. Income investors and risk-tolerant growth stock investors can buy DBI now. Expect volatility. Buy.

The Mosaic Company (MOS – yield 0.9%) – Hold.*** (last review June 4)

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’s Board of Directors approved a new share repurchase program of up to $4 billion, and intends to increase the quarterly cash dividend from $0.21 to $0.22 per share of common stock, commencing in the third quarter of 2019.

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 7.9. SYF rose 58% from Christmas Eve 2018 through May 14, at which time I moved my recommendation from Strong Buy to Hold. Now that the stock has had a chance to rest, and importantly, did not fall during the weak stock market in May, I’m moving SYF back to a Strong Buy recommendation. The next run-up could carry SYF to 38-39, where it peaked in January 2018. Buy SYF now. Strong Buy.

TiVo Corp. (TIVO – yield 4.7%) – Hold.*** (last review June 11)
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. Investors may view management’s June 4 presentation at the Baird 2019 Global Consumer, Technology and Services Conference. The full-year 2019 analysts’ earnings estimate projects 31.0% growth, and the P/E is low in comparison at 13.1.

UEIC is an undervalued micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. The price chart is bullish. A breakout past 45, where UEIC traded in August 2018 and May 2019, could carry the stock to price resistance at 55, a potential 22% gain. Expect volatility. Strong Buy.

UPDATES ON SPECIAL SITUATION STOCKS

Carlyle Group LP (CG – yield 5.7%) manages $221 billion, divided among real assets, corporate private equity, investment solutions and global credit. The company is planning to make a near-term decision regarding whether they will convert from a limited partnership to a corporation, as four of their industry peers have announced since early 2018. A conversion to a corporation would newly allow a large number of institutional investors to consider buying CG shares, thus potentially boosting the share price both immediately and over a multi-year period. The stock is rising toward 23-24, where it traded several times in 2018. Buy CG now. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.26 and yielding 5.8%.

**Earnings projections for companies that have recently undergone major M&A activity (including post-merger companies, post-spinoff companies and IPOs) are relatively tentative until the companies have reported several quarters of earnings results. At that time, analysts can develop projections based on recent corporate results. They can also get a better feel for the reliability of corporate statements regarding the business outlook. (Some CEOs would naturally be conservative when estimating business trends to analysts, while others would be overly optimistic, and yet others perhaps devious or oblivious!)

*** 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.