The markets have been quiet, heading into earnings season, which begins next week with financial stocks. A couple of our stocks move to Buy recommendations today after recent pullbacks, including Blackstone Group (BX) and Carlyle Group (CG). Apple (AAPL) is now retired from the Buy Low Opportunities Portfolio. AAPL tends to take two steps forward and one step back, so don’t be surprised if I feature the stock again during the next market correction.
If you have questions about a stock on which I did not report today, please send an email to Crista@CabotWealth.com.
QUARTERLY EARNINGS RELEASE CALENDAR
October 15 am: Citigroup (C) – 3Q
October 18 am: Schlumberger (SLB) and Synchrony Financial (SYF) – 3Q
October 23 am: Blackstone Group (BX) – 3Q; Commercial Metals (CMC) – 4Q
October 24 am: Alexion Pharmaceuticals (ALXN), Dow Inc. (DOW) and Southwest Airlines (LUV) – 3Q
October 24 pm: Alaska Air Group (ALK) – 3Q
October 30 am: Baker Hughes, a GE Company (BHGE) and Total SA (TOT) – 3Q
October 30 pm: Apple (AAPL) – 4Q
October 31 am: Bristol-Myers (BMY) and Corteva (CTVA) – 3Q
TODAY’S PORTFOLIO CHANGES
Alexion Pharmaceuticals (ALXN) moves from Hold to Buy.
Apple (AAPL) moves from Hold to Retire.
Blackstone Group (BX) moves from Hold to Buy.
Carlyle Group (CG) moves from Hold to Buy.
LAST WEEK’S PORTFOLIO CHANGES
Abercrombie & Fitch (ANF) moved from Hold to Buy.
Apple (AAPL) moved from Strong Buy to Hold.
CIT Group (CIT) moved from Hold to Buy.
Corteva (CTVA) moved from Strong Buy to Hold.
Dow Inc. (DOW) moved from Buy to a Strong Buy.
Mercury General Group (MCY) joined the Buy Low Opportunities Portfolio as a Strong Buy.
BEST STOCKS TO BUY TODAY
*Please note that a trading range is not a price target. It’s simply the recent range of the stock’s price action. Sometimes I will specifically say that I plan to sell a stock at the top of its trading range. In most other cases, I expect the stock to eventually surpass the current trading range and begin a new run-up.
**A good choice today for investors looking for growth (G), growth & income (DIV) or trading (T).
UPDATES ON GROWTH PORTFOLIO STOCKS
Southwest Airlines (LUV – yield 1.3%) 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 expected to report third-quarter EPS of $1.08, within a range of $1.02-$1.12, on the morning of October 24.
Investors may access Southwest’s September 18 Investor Update on their website, as well as ongoing updates on 737 Max 8 aircraft service plans. Wall Street expects no EPS growth in 2019, followed by 21% EPS growth in 2020. The 2020 P/E is 10.4. LUV rose about 17% after the August market correction, and is now resting, recently trading between 52-56. I expect more upside in the coming months. Buy.
UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS
Blackstone Group Inc. (BX – yield 4.5%*) is the world’s largest and most diversified alternative asset manager with $545.5 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. Blackstone Group is expected to report third-quarter EPS of $0.56, within a range of $0.44-$0.66, on the morning of October 23. Wells Fargo began research coverage on BX last week with an Outperform rating and a 60 price target, citing “distinct competitive advantages” versus Blackstone’s peers. The analyst foresees a pathway to $1 trillion assets under management. In addition, Jacob Mintz, Chief Analyst of Cabot Options Trader, reported seeing two bullish options trades on BX last week valued at about $475,000 each.
The share price is down from about 54 in September to 46 right now. That raises the yield for new investors from 3.8% to 4.5%. I’m moving BX from Hold to a Buy recommendation, now that both the capital gain and dividend yield opportunities are enhanced. Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.07 and yielding 4.5%.
Citigroup (C – yield 3.0%) is a global financial company that serves consumers, businesses, governments and institutions in 98 countries. Strength in consumer lending, and lower expenses, tax rate and share count contributed to second-quarter successes. Citigroup is an undervalued, large-cap growth & income stock. Analysts expect Citigroup to report third-quarter EPS of $1.95, within a range of $1.86-$2.00, on the morning of October 15. Wall Street expects Citigroup’s full-year EPS to grow 14.3% and 11.1% in 2019 and 2020. The 2020 P/E is 8.1.
The stock could trade anywhere between 66-73 in the coming days, especially in reaction to next week’s earnings report. Barring a correction in the broader market, I think we could see the stock travel back to its January 2018 peak at 77 within 3-6 months. Buy C now. Strong Buy.
Commercial Metals Company (CMC – yield 2.7%) is the largest rebar producer in the U.S. with a broad basket of merchant and wire rod offerings. Operations are located from coast-to-coast in the U.S. and in Poland. Demand remains positive driven by continued strength in non-residential construction activity. Analysts expect CMC to report fourth-quarter EPS of $0.71, within a range of $0.60-$0.80, on the morning of October 23 (August year end). CMC is a small-cap growth & income stock with a market capitalization of $2.1 billion. The company completed their fiscal year in August. Wall Street expects final full-year 2019 EPS to increase 35.6%, followed by 7.9% EPS growth in fiscal 2020. The 2020 P/E is 8.2. CMC rose last week while most stocks fell. The stock could retrace its September high at 19 this month. I’m watching for a certain level of bullish corporate outlook via the fourth-quarter earnings release, in order to keep CMC in the portfolio. Buy.
Dow Inc. (DOW – yield 6.2%) is the materials science division of the former DowDuPont (DWDP). Dow is expected to report third-quarter EPS of $0.76, within a range of $0.62-$0.97, on the morning of October 24. Dow was featured in the October issue of Cabot Undervalued Stocks Advisor. DOW is an undervalued growth & income stock. The company is expected to achieve EPS of $3.48 and $4.45 in 2019 and 2020. The projected 2020 EPS growth rate is 28% and the corresponding P/E is 10.1. The stock has upside resistance at 52, affording new investors a potential 15% short-term capital gain. Longer-term investors can benefit from future gains while also locking in the huge dividend yield. Strong Buy.
Schlumberger NV (SLB – yield 6.2%) is the world’s largest oilfield service company. Analysts expect Schlumberger to report third-quarter EPS of $0.41, within a range of $0.37-0.42, on the morning of October 18. SLB is a large-cap stock with a hefty dividend yield. Wall Street expects EPS to fall 8.0% in 2019, and then to increase 28.2% in 2020. The 2020 P/E is 16.9. The stock has retraced its August lows. Dividend investors can buy now. Buy.
UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS
Alaska Air Group (ALK – yield 2.2%) is a low-cost passenger airline. Alaska Airlines and its regional partners fly 46 million guests per year to more than 115 destinations with an average of 1,300 daily flights across the United States and to Mexico, Canada and Costa Rica. Alaska Air does not operate any Boeing 737 Max jets. Investors may view Alaska Air’s third-quarter 2019 presentation on the company’s website. Alaska Air Group is expected to report third-quarter EPS of $2.25, within a range of $2.08-$2.41, on the afternoon of October 24. ALK is a mid-cap stock, expected to achieve aggressive earnings growth rates of 33% and 16% in 2019 and 2020. The 2020 P/E is low at 9.3. ALK could easily trade anywhere between 63-72 this year. Buy ALK now. Strong Buy.
Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. Current marketable drugs include Soliris, Ultomiris, Strensiq and Kanuma. The company is focused on the development of pipeline products that will fuel continued long-term profit and revenue growth. Alexion is expected to report third-quarter EPS of $2.45, within a range of $2.05-$2.69, on the morning of October 24.
ALXN is an undervalued growth stock. Wall Street’s earnings estimates for the company have been rising consistently all year. At this point, analysts expect Alexion to grow EPS 25.5% and 10.6% in 2019 and 2020. The 2020 P/E is 8.9, which is extremely low for a biopharmaceutical stock. Since July, I’ve seen news reports citing price targets ranging between 136-177 from 10 investment firms, meaning that these firms—without going out on a limb—expect the share price to rise anywhere between 39%-80% from the current 98. The price chart has been bearish, with the stock trading near its August low. I’m moving ALXN from Hold to a Buy recommendation. I expect the stock to trade up to 115 this year, but it won’t likely go higher until January, barring unexpected news such as M&A activity. Buy.
Apple Inc. (AAPL – yield 1.3%) is a manufacturer and provider of many popular technology devices and services, including the iPhone, iPad, Mac, App Store, Apple TV+, Apple Arcade and more. According to the Nikkei Asian Review last week, Apple plans to increase their iPhone 11 production by 8 million units, or about 10%, as determined by reports of higher orders at suppliers. This series of iPhones was launched in September. The stock promptly reacted by recovering from the market correction in the early part of last week and resuming its uptrend. I’m Retiring AAPL from the Buy Low Opportunities Portfolio today, now that the stock has retraced its high near 230 from October 2018. (And yes, I still love AAPL as a long-term hold for people who prefer to minimize portfolio turnover.) Retire.
Synchrony Financial (SYF – yield 2.7%) is a consumer finance company with 75.5 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. Analysts expect Synchrony to report third-quarter EPS of $1.12, within a range of $0.99-1.15, on the morning of October 18. SYF is an undervalued, mid-cap growth & income stock. Wall Street expects EPS to grow 12.6% and 9.5% in 2019 and 2020. The 2020 P/E is 7.1. The stock came down near recent price support with the weak market last week. There’s short-term upside price resistance at 36.5, and long-term resistance at 38.5. Buy SYF now. Buy.
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 listen to management’s October 3 presentation at the 5th Annual B. Riley FBR Consumer & Media Conference. Analysts expect EPS to increase 37% and 9.2% in 2019 and 2020. (It’s common, with microcap stocks, that analysts have only a vague idea of what to project for next year’s revenue and income.) The 2020 P/E is 13.5.
UEIC is an undervalued micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. The stock ran from 38-53 in August and September and has now pulled back to 48. Traders and investors should jump in now. Buy.
UPDATES ON SPECIAL SITUATION STOCKS
Carlyle Group LP (CG – yield 5.9%) manages $223 billion, divided among real assets, corporate private equity, investment solutions and global credit. Carlyle Group will convert from a limited partnership to a corporation on January 1, 2020. Wall Street expects earnings per share of $1.66 and $2.50 in 2019 and 2020. CG rose about 27% from its August low to its September high. Now that the stock pulled back near 24, I’m moving CG from Hold to a Buy recommendation. Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.47 and yielding 5.8%.
