Cabot Undervalued Stocks Advisor Weekly Update

THE INTEREST RATE NOTHING BURGER

Last week’s much-awaited pronouncement by the Federal Open Market Committee (FOMC) turned out to be a big “nothing burger.” I did not personally expect a cut in the fed funds rate. I didn’t even bother writing about it because it seemed that absurd to me.

Mere hours later, Barron’s opined, “After today’s news, the futures market is pricing in a 100% chance of a rate cut at the Fed’s next meeting in July—that’s up from 25% one month ago.” Did new and drastic economic data emerge that afternoon to so rapidly change the interest rate prognosis?? Of course not. Oh my goodness, it must have been a slow news day!

The FOMC is not supposed to be the stock market’s coach. The FOMC is supposed to be the economy’s referee, tweaking interest rates when economic data runs afoul from the norms, and otherwise stepping back and letting the game play on.

DFAST and CCAR

Traders take note: The June 21 Dodd-Frank Act stress test (DFAST) results conclude that all U.S. banks passed this year’s bank stress tests conducted by the Federal Reserve. In total, results were significantly stronger than last year’s results. Banks that are heavily into the credit card business, such as Capital One (COF), did not fare nearly as well as the other banks that the Fed reviewed.

Many of these banks have had stable price charts that are conducive to forming a base from which the stocks can launch, pending some sort of good-news catalyst. DFAST results can be that catalyst, combined with results of the June 27 Comprehensive Capital Analysis and Review (CCAR). That’s when we’ll learn of the Fed’s approvals of each bank’s plans for increased dividends and share repurchases in the coming year.

(Even though the U.S. ostensibly operates within a free market economic system, the government holds a tight rein over financial industry activities, which often turns out to be a dubious responsibility. As a reminder, it was the rocket scientists in Congress who forced Fannie Mae and Freddie Mac to loan money to unqualified homebuyers through the Housing and Community Development Act of 1992. That legislation promptly laid the groundwork for the 2007 subprime mortgage crisis.)

I added Citigroup (C) to the Growth & Income Portfolio last week. Citigroup has a relatively bullish price chart, plus the company offers the best prognosis for earnings growth among this group of large banks. Other DFAST banks that also have bullish price charts are JPMorgan Chase (JPM) and U.S. Bancorp (USB). Bank of America (BAC) and Goldman Sachs Group (GS) have very stable price charts. Some of the other bank stocks have recently had bearish price charts, and could potentially deliver significant price rebounds, but I’d stick with the aforementioned banks for lower-risk trading opportunities.

Send questions and comments to Crista@CabotWealth.com.

PORTFOLIO NOTES
Be sure to review the Special Bulletins from June 19 and 20 in which I mentioned news, rating changes and/or price action on the annual bank stress tests, Adobe Systems (ADBE), Baker Hughes (BHGE), Citigroup (C) and Commercial Metals (CMC).

TODAY’S PORTFOLIO CHANGES
Knight-Swift Transportation (KNX) moves from Hold to Retired.
Mosaic Company (MOS) moves from Hold to Buy.
Southwest Airlines (LUV) moves from Hold to Buy.

LAST WEEK’S PORTFOLIO CHANGES
Abercrombie & Fitch (ANF) moved from Hold to Buy.
Baker Hughes (BHGE) moved from Hold to Strong Buy.
CIT Group (CIT) moved from Hold to Strong Buy.
Citigroup (C) joined the Growth & Income Portfolio as a Strong Buy.
Designer Brands (DBI) moved from Strong Buy to Buy.
Marathon Petroleum (MPC) moved from Hold to Buy.
Schlumberger (SLB) moved from Hold to Buy.
Synchrony Financial (SYF) moved from Hold to Strong Buy.
Total SA (TOT) moved from Hold to 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 is a large-cap growth stock, a great stock for risk-tolerant growth investors and for buy-and-hold equity portfolios. Their subscription-based annually recurring revenue is rising, as are operating margins. Full-year consensus estimates point toward EPS increasing aggressively by 42.0% in 2019 and 24.8% in 2020. Those are much bigger earnings growth rates than are typically found within the software industry. The high P/E of 38.3 is the only reason that I am not giving ADBE a Strong Buy recommendation.

ADBE surpassed all-time highs last week after reporting an excellent second quarter and a strong prognosis for the balance of the year. I expect an extended run-up, occasionally interrupted by pullbacks in the broader market. Risk-tolerant growth stock investors and traders should 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 last week, now trading at $2.24 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 63% and 31% in 2019 and 2020, with corresponding P/Es of 23.2 and 17.6. CF is a cyclical mid-cap aggressive growth stock. The stock launched above previous price resistance in June. 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 14.1% in 2019 and 2020. The P/E is 10.4. The company continues to repurchase large amounts of stock. The price action has been quiet and stable. When CIT reaches 55—a new high—expect the beginning of an extended run-up. Buy CIT now. Strong Buy.

Knight-Swift Transportation Holdings (KNX – yield 0.7%) – I’m Retiring KNX today due to an outlook for weak earnings growth. A variety of Wall Street analysts still love this company. Keep KNX if it’s important to you to own shares of a trucking company. Otherwise, sell KNX for a better growth opportunity. Retired.

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.

Consensus earnings estimates project 2019 EPS falling 22%, followed by a 70% jump in 2020 EPS, while the 2020 P/E is incredibly low at 6.5. IMO 2020 – a new sulfur emissions cap from the International Maritime Organization (IMO) that goes into effect in January 2020 – is expected to increase prices and profit margins on low-sulfur fuels. (Expect energy price inflation to affect all industries.) Read more about pending global energy and environmental changes in IMO 2020: The Big Shipping Shake-Up.

Oil prices and energy stocks are rebounding from the May declines in both crude oil prices and the broader stock market. MPC has short-term 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. LUV is an undervalued large-cap stock. Energy costs are rising again, offset by fare increases. Earnings estimates have been slowly rising in recent weeks. Wall Street expects full-year EPS to grow 7.1% and 15.6% in 2019 and 2020. I’m moving LUV from Hold to a Buy recommendation, now that the share price has stabilized in the wake of the May market downturn. Buy.

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.

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 4.8%*) 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 an extended period of 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 $687,000 of call options on BX that will expire in 2020 and 2021. Buy BX now. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.17 and yielding 4.8%.

Citigroup (C – yield 2.6%) is a global financial company that serves consumers, businesses, governments and institutions in 98 countries. Analysts expect Citigroup to grow EPS by 13.7% and 13.5% in 2019 and 2020. The corresponding price/earnings ratios (P/Es) are 9.0 and 7.9.

Citigroup will likely announce a large dividend increase and a new share repurchase authorization on the afternoon of June 27, when the Federal Reserve publishes the annual results of its Comprehensive Capital Analysis and Review (CCAR). The current yield on Citigroup’s stock is 2.6%. A 25% increase in the dividend payout—which is a more conservative projection than the larger increases in 2017 and 2018—would take the current yield up to 3.3%.

The good news surrounding next week’s capital return announcements could propel Citigroup’s stock higher. The stock rose to 77 in January 2018 prior to the subsequent stock market corrections. I therefore expect C to meet price resistance on its next approach to 77, giving new investors a potential 13% capital gain during the next run-up in the share price. Strong Buy.

Commercial Metals Company (CMC – yield 2.8%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Commercial Metals derives 60% of revenue from rebar products. In the wake of last week’s very strong earnings report, investors can expect Wall Street to make upward revisions to earnings estimates, price targets, and buy/sell recommendations for CMC, all of which can serve to push the share price higher. JPMorgan immediately raised their price target to 24. CFRA, the former Standard & Poor’s, commented that CMC is outperforming its synergy targets from rebar assets acquired from Gerdau S.A., and that demand remains positive driven by continued strength in non-residential construction activity.

CMC is an undervalued growth stock with an attractive dividend yield. Analysts expect full-year EPS to increase 31.5% and 8.2% in fiscal 2019 and 2020. The 2019 P/E is low at 8.6. The stock rose at least 26% since late May, and will likely pull back and rest before advancing further. Hold.

Corteva (CTVA – yield approx. 1.9%) spun off from DowDuPont (DWDP) on June 3. Corteva (pronounced kor-TEH-vuh) is an agricultural sciences company with a robust innovation pipeline that should drive long-term value for shareholders. Reuters reported that JPMorgan says a combination of new product introductions, intermittent positive pricing effects and cost reduction efforts should lead to a good EBITDA growth in 2020 and beyond. JPMorgan assumes some improvement in agricultural business conditions as well as retention of cost savings from Corteva’s restructuring. Analysts** currently expect Corteva to report EPS of $1.15 and $1.45 in 2019 and 2020. I’m waiting for Corteva to post a form 8937 that addresses post-spinoff cost basis.

The company plans to initially spend $400 million on annual dividends. The first dividend has not yet been declared, and will likely yield approximately 1.9%.
Thus far through June 10, I located three Buy/Outperform recommendations and eight Hold/Equal Weight/Neutral recommendations from various investment firms, with price targets ranging from 28-38. I would like to see earnings estimates and price fluctuations solidify before adjusting my stock recommendation. Hold.

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 18.9% EPS growth in 2019, and the P/E is 8.3. Last week, Delta acquired a 4.3% equity stake in Hanjin-KAL, the largest shareholder of Korean Air, with a goal of acquiring up to a 10% stake. Delta has been involved in a joint venture with Korean Air since May 2018. The stock has been trading between 55-57, and could surpass short-term price resistance at 58 this summer. 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. Analysts** currently expect Dow to report EPS of $4.36 and $5.30 in 2019 and 2020. I’m very pleased with the profit projections, the dividend yield and the P/E (11.2). Dividend investors should buy now, while growth investors should wait for the price chart to turn bullish. Strong Buy.

DuPont de neMours (DD – yield approx. 1.6%) is a specialty chemicals company, the remaining portion of DowDuPont (DWDP) after the June 3 spinoff of Corteva Inc. (CTVA). DowDuPont was then renamed DuPont de neMours and underwent a reverse stock split through which investors received one share of DD for every three shares of DWDP they held. The company plans to repurchase $2 billion of stock, and plans to pay a dividend—not yet announced—which I calculate to yield approximately 1.6%. With regard to post-spinoff adjusted cost basis, DuPont will post a Form 8937 on their website, which is not yet available. The stock recovered well from its May pullback, trading between 72-76, with upside resistance at 83. Hold.

Guess?, Inc. (GES – yield 3.1%) is a global apparel manufacturer, selling its products through wholesale, retail, e-commerce and licensing agreements. 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 11.7. 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 2.4%) 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.

Yesterday, Royal Caribbean and ITM Group announced a new destination company, to be named Holistica, “A well-designed destination [that] brings economic benefits to communities and cultural enrichment to travelers, while creating the least possible disruption to the human and natural environment.”

RCL is an undervalued, large-cap growth & income stock. Wall Street expects EPS to grow 10.4% and 11.3% in 2019 and 2020. The 2019 P/E is 11.9. On June 20, Carnival Corp. (CCL) lowered their earnings outlook due to the discontinuation of cruise ship service to Cuba and weaker demand in Europe and Alaska. Troubles at Carnival can affect Royal Caribbean’s share price. RCL could easily trade anywhere between 110-130 in the near future. Expect volatility. Hold.

Schlumberger NV (SLB – yield 5.2%) is the world’s largest oilfield service company. Wall Street expects full-year EPS to fall 4% in 2019 and to rise 39% in 2020. The 2020 P/E is 18.0. The stock rose nicely in June, and might hover in the upper 30s before rising toward price resistance at 41-42. Expect volatility. Buy.

Total S.A. (TOT – yield 5.4%) 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. On June 18, Total announced that it’s now operating the most powerful supercomputer within the energy sector, used to “reduce geological risks in exploration and development, accelerate project maturation and delivery, and increases the value of our assets through optimized field operations, with all this at a lower cost.”

TOT is an undervalued, large-cap growth & income stock with a large dividend yield. Total is expected to see full-year EPS grow 6.3% and 19.2% in 2019 and 2020, and the 2019 P/E is 10.4. The stock rose throughout June, and will soon meet some price resistance at 57-58. Buy.

UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS

Abercrombie & Fitch (ANF – yield 4.9%) 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.

Investors may listen to the webcast of Abercrombie’s June 18 presentation at the Jefferies 2019 Consumer Conference. Of note, Abercrombie has been “aggressively moving [manufacturing] out of China over the years,” and will finish 2019 with less than 20% of product sourced in China. Abercrombie built its loyalty program “from essentially nothing, three years ago, to almost 30 million people.”

Analysts expect EPS to fall 10.4% in 2019, then to rise 40.8% in 2020. The 2019 P/E is 15.7. In early June, Abercrombie announced a new 5 million share repurchase authorization, bringing the total authorization to 7.6 million shares, or 11.6% of outstanding shares. (Earnings estimates do not yet reflect a lower share count stemming from the new repurchase authorization.)

ANF is a small/micro-cap stock. 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. On June 18, Alexion announced that Japan’s Ministry of Health, Labour and Welfare approved ULTOMIRIS® for the treatment of adult patients with paroxysmal nocturnal hemoglobinuria (PNH). Then on June 20, Alexion announced that the U.S. Food and Drug Administration (FDA) accepted for priority review Alexion’s supplemental Biologics License Application for ULTOMIRIS® for the treatment of people with atypical hemolytic uremic syndrome (aHUS).

On June 28, the FDA is expected to deliver results of a priority review of SOLIRIS for the treatment of neuromyelitis optica spectrum disorder (NMOSD) who have anti-aquaporin-4 (AQP4) auto antibodies. This pending FDA approval is generating excitement in the share price. In addition, Jacob Mintz, Chief Analyst of Cabot Options Trader, reported that an investor purchased $187,000 of July 145 calls on ALXN last week.

ALXN is an undervalued large-cap growth stock. Analysts expect EPS to grow 19.1% and 14.2% in 2019 and 2020, and the P/E is 14.0—rather low for a profitable biopharmaceutical company. The stock price is rising toward 140, where it traded in early April. 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. 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!

Last week, Reuters reported that due to the great and rising risks of depending heavily on manufacturing in China, “Apple has asked its major suppliers to assess the cost implications of moving 15%-30% of their production capacity from China to Southeast Asia as it prepares for a restructuring of its supply chain. The countries being considered include Mexico, India, Vietnam, Indonesia and Malaysia.”

AAPL is a great stock for a high quality, buy-and-hold equity portfolio. Wall Street expects EPS to fall 4.0% in fiscal 2019 (September year end), then to rise 10.4% in 2020. Deutsche Bank is expecting a surge in 5G iPhone revenue in 2020, plus slow and steady growth of other Apple hardware products, including AirPods and Watch. Evercore ISI chimed in with bullish expectations for Apple Services’ high margins and revenue growth. The company has $38 billion in cash, raises the dividend annually, and repurchases tens of billions of dollars of its stock each year. AAPL is slowly rising toward price resistance at 210. Strong Buy.

Axis Capital Holdings Ltd. (AXS – yield 2.7%) is an A+-rated 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 $4.95 and $5.56 in 2019 and 2020. AXS has been trading quietly between 59-61 for several weeks. The ex-dividend date is coming up on July 2. There’s price resistance at the stock’s March 2017 all-time high of 66. Buy AXS now. Strong Buy.

Baker Hughes, a GE Co. (BHGE – yield 2.9%) 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 967, down 85 vs. a year ago. The Canadian rig count grew by 12 last week to 119, while the international rig count grew by 64 in May to 1,126. The U.S. Energy Information Administration reports U.S. oil output from seven major shale formations will rise to record levels in July, and the total U.S. oil output will reach record levels in 2019. The drop in the U.S. rig count indicates a shift in focus from increased output to earnings growth, since output is already setting records.

BHGE is an undervalued, mid-cap aggressive growth stock. Wall Street expects EPS to increase 49% and 61% in 2019 and 2020. The P/E remains low in comparison to earnings growth at 25.9. Several investment firms, including Jefferies, have recently named BHGE as their favorite large-cap or oilfield services stock. War-like aggression coming from Iran caused energy stocks to rise significantly last week, with BHGE racing toward short-term price resistance at 28.5. Strong Buy.

Designer Brands Inc. (DBI – yield 5.4%) 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 9.7. The stock has traded quietly between 17.5-19 since falling in May, along with most apparel retail stocks. Income investors and risk-tolerant growth stock investors can buy DBI now. Expect volatility. Buy.

The Mosaic Company (MOS – yield 0.8%) is the world’s largest producer of finished 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. Their mission is to help the world grow the food it needs.

Costs associated with complying with new Brazilian mining regulations contributed to analysts adjusting 2019 EPS expectations downward, reflecting a profit drop of 19% in 2019 and an increase of 37% in 2020. The Brazil situation is expected to be fully resolved by the end of September.

On June 17, Reuters reported Bank of America Merrill Lynch raising MOS to a Buy recommendation (which produced very strong trading volume), favoring the stock’s longer-term potential upside. MOS is an undervalued mid-cap growth stock. Barring unexpected bad news, the share price recovery has begun. I’m therefore moving MOS from Hold to a Buy recommendation. Buy.

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. This month, I’ve been reading Wall Street research that discusses U.S. consumers being in good financial shape, and finance companies racking up lower net charge-offs.

SYF is an undervalued, mid-cap growth & income stock. Wall Street expects full-year 2019 EPS growth of 13.9%, and the P/E is low at 8.1. Synchrony 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.

Excitement from the pending June 27 publication of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) results could carry SYF to 38-39, where it peaked in January 2018. Buy SYF now. Strong Buy.

TiVo Corp. (TIVO – yield 4.5%) – 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. The full-year 2019 analysts’ earnings estimate projects 31.0% growth, and the P/E is low in comparison at 13.2.

UEIC is an undervalued micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. The price chart is relatively 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 33% gain from the recent 41.35 share price. Expect volatility. Strong Buy.

UPDATES ON SPECIAL SITUATION STOCKS

Carlyle Group LP (CG – yield 5.6%) manages $221 billion, divided among real assets, corporate private equity, investment solutions and global credit. Investors may listen to the webcast of Carlyle Group’s June 11 presentation at the Morgan Stanley Financials Conference 2019. 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 5.6%.

**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.