THE STOCK MARKET CORRECTION IS KNOCKING AT OUR DOOR
The stock market’s uptrend finally cracked late last week. Is this the beginning of the official market correction, or a prelude, or just a hiccup? I think it’s more than a hiccup. In my opinion, the market’s not falling because of the scary coronavirus that’s emerged from China, as news headlines might lead us to believe. The virus is just the catalyst for a correction that was overdue after the S&P 500 ran up 10% since late November.
Stock market corrections are something that we have to put up with if we want to make money in stocks over the long term. Fortunately, normal corrections don’t last long – usually just a few months. On the bright side, the correction isn’t currently caused by serious economic or geopolitical news, so we don’t have to worry that the companies we’re invested in will develop shaky financial outlooks.
While it has not been my recent pattern to cover all of our portfolio stocks in these weekly updates – in between the monthly issues – I’m covering them all today because I’m well aware that the stock market is getting turbulent and people are wanting to check up on their portfolio holdings.
Some industries and sectors will suffer more than others. Falling oil prices have put a serious dent in energy stock prices. Fortunately, I can name 10-15 energy stocks with strong fundamentals, worthy of owning at current prices, so I’m not worried that the sector has financial problems. It’s just a large oil price swing, which we see happen just about annually.
Travel and transportation stocks have been reeling from the prospect of lower near-term profits as many leisure and business travelers cancel trips within China and around the globe, in an effort to avoid coronavirus germs. I’ll be scouring travel, leisure and transportation stocks, looking for bargains in the coming weeks. The only such stock that’s recently been on my waiting-in-the-wings Buy List has been JetBlue Airways (JBLU), so that’s a likely near-term portfolio addition.
Last week, in a Bulletin on January 23, I added a description of Movie Star Stocks. These are famous stocks that usually carry big valuations that are currently relatively inexpensive, usually due to a price correction. Examples of such stocks would be Amazon.com (AMZN) and Netflix (NFLX), which joined our portfolios in November and January, respectively.
Send questions to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from January 23 and 24 in which I mentioned news, rating changes and/or price action on Baker Hughes Company (BKR), Broadcom (AVGO), LGI Homes (LGIH), Netflix (NFLX) and Valero Energy* (VLO).
*Not one of our current portfolio stocks.
QUARTERLY EARNINGS RELEASE CALENDAR
January 29 am: Dow Inc. (DOW) and Marathon Petroleum (MPC) – 4Q
January 30 am: Alexion Pharmaceuticals (ALXN), Blackstone Group (BX) and Corteva (CTVA) – 4Q
January 30 pm: Amazon.com (AMZN) – 4Q
February 5 am: General Motors (GM) – 4Q
February 6 am: Total SA (TOT) – 4Q; Tyson Foods (TSN) – 1Q
February 10 am: Mercury General Group (MCY) – 4Q
February 10 pm: Voya Financial (VOYA) – 4Q
February 19 pm: Mosaic (MOS) tentative – 4Q
February 25 am: LGI Homes (LGIH) – 4Q
Second half February: Equitable Holdings (EQH), Quanta Services (PWR) and Universal Electronics (UEIC) – 4Q
EARNINGS SEASON SCORECARD:
Big earnings beat: Citigroup (C) and Schlumberger (SLB).
Big earnings miss: Baker Hughes Company (BKR).
TODAY’S PORTFOLIO CHANGES
Citigroup (C) moves from Hold to Retired.
Mercury General Group (MCY) moves from Buy to Strong Buy.
Quanta Services (PWR) moves from Strong Buy to Hold.
Total SA (TOT) moves from Strong Buy to Hold.
Tyson Foods (TSN) moves from Strong Buy to Hold.
RECENT PORTFOLIO CHANGES
LGI Homes (LGIH) moved from Strong Buy to Hold.
Marathon Petroleum (MPC) moved from Strong Buy to Buy.
Mosaic (MOS) moved from Buy to Hold.
Netflix (NFLX) joined the Special Situation & Movie Star Portfolio as a Strong Buy.
Schlumberger (SLB) moved from Buy to Retired.
VanEck Vectors Oil Refiners ETF (CRAK) moved from Strong Buy to Hold.
Voya Financial (VOYA) moved from Strong Buy to Buy.
BEST STOCKS TO BUY TODAY
* A good choice today for investors looking for growth (G), growth & income (DIV) or trading (T).
UPDATES ON GROWTH PORTFOLIO STOCKS
Adobe Systems (ADBE) is a software company that’s changing the world as an innovative leader in digital media and digital marketing. Moody’s Investor Service upgraded Adobe’s senior unsecured notes to an A2 rating, citing increased scale, recurring revenue base and cash flow profile, increased product diversification outside Adobe’s creative cloud portfolio and Moody’s expectation of continued strong growth and maintenance of conservative financial policies. Analysts expect future EPS to increase by 24.7% and 18.5% in 2020 and 2021, respectively (November year end). The 2020 P/E is 35.8. ADBE is a large-cap aggressive growth stock. Last week, Evercore ISI raised their price target on ADBE from 342 to 404, and Oppenheimer raised their rating to Outperform. The stock’s up 36% from its October low. If you’re looking for a suggested price for a stop-loss order, I suggest 336 or 322. My intention is to return ADBE to a Buy recommendation after a 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 interest in a midstream company, 10,000 miles of oil pipelines and product sales in 11,700 retail stores. The company is prepared to meet the IMO 2020 demand for ultra-low-sulfur diesel fuel by the world’s ships and tankers. Marathon is expected to report fourth-quarter EPS of $0.86, within a range of $0.73-$1.00; and $33.9 billion revenue, within a range of $29.2-$49.4 billion, on the morning of January 29. The Speedway retail store spin-off is targeted for early fourth quarter 2020. Management expects to update investors on strategies to optimize their midstream business in the first quarter of 2020.
MPC is a greatly undervalued large-cap stock with a solid dividend yield. Full-year EPS are expected to fall 32% in 2019, then rise 69% in 2020. The 2020 P/E is very low at 7.7. Marathon increased their quarterly dividend payout by 9% this week, from 53 cents to 58 cents per share. The share price has weakened in recent weeks, along with shares of other U.S. oil refining companies, as crude oil prices have come down. The earnings report will likely bring decisive movement in the stock. If the share price falls, do not chase it. Buy.
Quanta Services (PWR – yield 0.5%) is a leading specialty infrastructure solutions provider serving the utility, energy and communication industries. Their infrastructure projects have meaningful exposure to highly predictable, largely non-discretionary spending across multiple end-markets, including 65% of revenue coming from regulated utility customers. The company is working on a multi-year goal of increasing margins. Quanta Services was featured in the December monthly issue of Cabot Undervalued Stocks Advisor. PWR is a mid-cap growth stock. Wall Street expects EPS to grow 15.3% and 19.4% in 2019 and 2020, while the 2020 P/E is just 10.2. PWR rose to an annual high near 44 in November, and has since been gradually pulling back. I’m moving PWR from Strong Buy to Hold until it shows a readiness to rise again. Hold.
Tyson Foods (TSN – yield 2.0%) is one of the world’s largest food companies, with operations in 20 countries, and a recognized leader in protein with leading brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair. Tyson is expected to report first-quarter EPS of $1.66, within a range of $1.33-$1.90, and $11.0 billion revenue, within a range of $10.8-$11.5 billion, on the morning of February 6. Tyson Foods was featured in the December 10 and January issues of Cabot Undervalued Stocks Advisor.
The consensus earnings estimate reached its highest point thus far last week, with EPS now expected to grow 25.1% in 2020 (September year end). The 2020 P/E is 12.6. Shares of Tyson and industry peer Sanderson Farms (SAFM) fell last week, without any apparent news catalyst or negative analyst comments. I’m guessing investors fear that the coronavirus that has been spreading from China’s Wuhan region will impact demand for U.S. meat products that are processed in or sold to China. I’m moving TSN from Strong Buy to Hold until the share price stabilizes. 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. UEIC is an undervalued, micro-cap growth stock with very little analyst coverage, appropriate for risk-tolerant investors and traders. Profits are expected to increase 46% and 12.3% in 2019 and 2020. The 2020 P/E is 13.8. 2019 was a huge rebound year for UEIC, which peaked in November near 60, then commenced a normal pullback. The stock is rising again. Buy UEIC now. Buy.
Voya Financial (VOYA – yield 1.0%) is a U.S. retirement, investment and insurance company serving 14.3 million individuals and institutional customers. Voya has $568 billion in total assets under management and administration. The company is successfully increasing revenue and profits via organic growth, cost savings and share repurchases. As I mentioned on January 9, it’s rumored that Voya might agree to be acquired by a larger company in the near term at an approximate value of 74 per share.
Voya is expected to report fourth-quarter EPS of $1.10, within a range of $1.05-$1.14, on the afternoon of February 10. Last week, I mentioned concern regarding Voya’s recently-declining earnings estimates. I believe the situation stems from the pending sale of their individual life and non-retirement annuity businesses, with a result being that analysts are removing those earnings from full-year projections. The company is expected to have a large capital influx when the transaction closes in the third quarter of 2020. Therefore, I’m not going to stress out over the exact numbers of current consensus earnings estimates, but rather, I will take my cues from research comments, which have frankly been exceedingly bullish this month.
Thus far in January, three Wall Street firms raised their price targets on VOYA to a range of 66-77, and a fourth company named VOYA as one of their top picks in the life & annuity business. VOYA rose to a new all-time high in mid-January. I expect the stock to continue rising, barring a pullback in the broader market. Buy.
UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS
Blackstone Group Inc. (BX – yield 3.1%*) is the world’s largest and most diversified alternative asset manager with $554 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 is expected to report fourth-quarter EPS of $0.67, within a range of $0.60-$0.73, on the morning of January 30. (Be prepared for Blackstone and its industry peers to report results that vary greatly from consensus estimates. Within this industry, that’s not necessarily perceived as bad news. It’s the quality of the results and the outlook that are important.) Consensus earnings estimates point to 35.6% full-year EPS growth in 2020, and the 2020 P/E is 20.4.
This month, six investment firms adjusted their price targets on BX to a range of 54-65 (five raised and one lowered). Each week, I struggle with pulling the plug on BX because the P/E is quite high and the stock is way overextended (meaning it’s run up a monstrous amount with nary a pullback). On the positive side, the stock remains Best in Class among the alt. managers, the earnings growth rate is strong enough to handle the valuation, and the price chart remains relatively bullish. BX won’t defy gravity forever, and we’re due for a stock market correction, so consider using a stop-loss order at 57 or 54.5 to protect your capital. Hold.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.92 and yielding 3.1%.
Broadcom (AVGO – yield 4.1%) is a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions that serve the world’s most successful companies. Last week, Broadcom announced $15 billion in new Apple (AAPL) contracts in which Broadcom will supply iPhone parts over the next 3.5 years. Broadcom was featured in the December 17 and January issues of Cabot Undervalued Stocks Advisor. Analysts are expecting $23.22 and $25.49 EPS in 2020 and 2021 (November year end), representing 9.1% and 9.8% EPS growth. The 2020 P/E is 14.0. The stock briefly rose above the trading range last week, touching upon a new all-time high of 331. Nobody has missed their chance to make money with AVGO. I continue to recommend that traders, growth investors and dividend investors buy AVGO. Strong Buy.
Citigroup (C – yield 2.6%) is a global financial company that serves consumers, businesses, governments and institutions in 98 countries, and the third-largest U.S. bank by assets. Citigroup finished fiscal 2019 with profits rising 20.9%. Wall Street expects EPS to increase 6.1% and 9.6% in 2020 and 2021. The 2020 P/E is 9.2. I’m retiring Citigroup from the Growth & Income Portfolio today because the earnings growth estimates have become quite moderate. I will likely be introducing a different large-cap bank into the portfolio next week – a company that is projected to achieve triple the 2020 earnings growth rate vs. Citigroup. There are no red flags influencing my decision to Retire C, and Wall Street continues to highly recommend the stock. But you’ll probably achieve better capital gains in next week’s bank recommendation. Retired.
Corteva Inc. (CTVA – yield 1.9%), a.k.a. Corteva Agriscience, provides farmers with seeds and crop protection products (herbicides, fungicides and insecticides), enabling them to maximize yield and profitability. 2019 was a difficult year for seed and crop protection businesses as many months of wet weather and flooding in the U.S. disrupted normal planting cycles and yields. Corteva is expected to report ($0.12) fourth-quarter EPS, within a range of ($0.14)-$0.09, and $2.9 billion revenue, on the morning of January 30. Analysts are expecting a return to more normalized weather and market conditions in 2020, with Corteva’s profits expanding due to rising margins, merger savings and lower expenses. CTVA is a mid-cap growth & income stock. Analysts expect EPS of 1.23 and 1.49 in 2019 and 2020, reflecting 21.1% growth in 2020. The 2020 P/E is 18.8. The price chart is currently showing no decisive trend. Hold.
Dow Inc. (DOW – yield 5.9%) is a commodity chemicals company that derives roughly 50% of profits from its polyethylene business. DOW is an undervalued stock with strong earnings growth and a large dividend yield. The company is exhibiting progress on cash flow, cost cutting, a focus on debt repayment, a litigation win and an ability to thrive during a weak global economy. Dow is expected to report $0.74 fourth-quarter EPS, within a range of $0.57-$0.85, and $10.1 billion revenue, within a range of $9.9-$10.9 billion, on the morning of January 29. Analysts expect full-year EPS of $3.50 and $4.06 in 2019 and 2020. The projected 2020 EPS growth rate is 16.0% and the corresponding P/E is 11.5. In other news, for the 15th consecutive year, Dow achieved a perfect score on the Human Rights Campaign (HRC) Foundation’s list of the “Best Places to Work” for LGBTQ+ equality.
Chemical stocks fell through price support in recent days, partly in reaction to an upcoming ban on some types of single-use plastics in China that will be phased in over the next five years. While the ban is expected to have only very minor impact on global polyethylene sales, it’s fairly normal that investors sell into negative news. Fourth-quarter conference calls could provide some clarity on the earnings impact, and be a potential catalyst for share price rebounds. DOW shares could bottom shortly, but I urge investors to be cautious. I’m leaving the Buy recommendation intact for dividend investors, because the yield is abnormally high right now. Growth investors should wait for the share price to stabilize before buying. Buy.
GUESS?, Inc. (GES – yield 2.0%) is a global manufacturer of an iconic apparel brand, selling sexy GUESS and Marciano brand clothing and merchandise to Gen Z, Millennial and Heritage consumers through 1,743 stores worldwide, in over 100 countries. GES is a greatly undervalued, aggressive growth, small-cap stock. The consensus earnings estimate for fiscal 2021 (January 2021 year end) rose last week. Analysts now expect EPS to grow 39% and 26% in fiscal 2020 and 2021. The fiscal 2021 P/E is 12.9. Last week, Evercore ISI raised their price target on GES from 22 to 26. The stock has traded between 21.5-23.5 for six weeks. A move above 24 would be very bullish. A move below 21 should invite near-term caution. Strong Buy.
Total S.A. (TOT – yield 5.9%) is a French multinational integrated energy company that produces and markets fuels, natural gas and low-carbon electricity, operating in over 130 countries. Total is expected to report fourth-quarter EPS of $0.98, within a range of $0.86-$1.06, on the morning of February 6. Refinery margins are expected to be impacted by a December fire at a Normandy refinery and a strike in France. TOT is an undervalued, large-cap growth & income stock with a large dividend yield. Earnings estimates fell last week. Wall Street now expects Total’s EPS to fall 9.3% in 2019, then to increase 17.7% in 2020. The 2020 P/E is 9.4. The share price fell in January alongside declining oil prices. I’m moving TOT from Strong Buy to a Hold recommendation until the share price stabilizes. Dividend investors should feel comfortable buying now to lock in the large current yield. Hold.
UPDATES ON BUY LOW OPPORTUNITIES PORTFOLIO STOCKS
Abercrombie & Fitch (ANF – yield 4.7%) is a specialty retailer of Abercrombie & Fitch (a.k.a. A&F), abercrombie kids, and Hollister brand apparel and accessories for men, women and kids. In the January 14 Special Bulletin, I reviewed Abercrombie’s presentation at the ICR Conference 2020 and moved the stock to a Strong Buy recommendation. ANF bounced at eight-week price support this week. Growth investors, traders and dividend investors should buy ANF 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 three goals: converting patients from Soliris to Ultomiris, expanding indications for Ultomiris, and diversifying their portfolio to fuel continued long-term profit and revenue growth. On January 24, the U.S. Federal Trade Commission cleared Alexion to proceed with the acquisition of Achillion Pharmaceuticals, and Alexion then completed the transaction on January 28.
ALXN is an undervalued growth stock. Analysts are expecting Alexion to report $2.60 fourth-quarter EPS, within a range of $2.38-$2.83, on the morning of January 30. Wall Street’s full-year 2020 and 2021 earnings estimates for Alexion rose yet again last week to $10.43 and $11.37; with growth rates now 31.7% and 9.0%, respectively. The 2020 P/E is 9.3, which is extremely low for a biopharmaceutical stock. The stock has come down to the bottom of its three-month trading range alongside the current pullback in the broader market. If ALXN falls below 104, hold off on additional purchases until the stock stabilizes. Buy.
Baker Hughes Company (BKR – yield 3.3%) offers products, services and digital solutions to the international oil and gas community. Management is achieving strong free cash flow. The company’s Turbomachinery & Process Solutions (TPS) business is expected to produce strong revenue and margin growth this year, heavily weighted toward the second half of 2020 due to project timing.
BKR is an undervalued, mid-cap aggressive growth stock. Profits grew 31% in 2019, and are expected to increase 33% and 45% in 2020 and 2021. The 2020 P/E is 19.5. BKR has given back all the gains from its big December run-up, as both oil prices and the broader stock market fell recently. I expect continued upside in the coming months. The stock has good price support at 22.5 and a very wide trading range. Traders, growth investors and dividend investors could benefit from buying at this low point in the trading range. Buy.
Designer Brands Inc. (DBI – yield 6.4%) is one of North America’s largest designers, producers and retailers of footwear and accessories. The company operates DSW Warehouse, The Shoe Company and Shoe Warehouse stores with nearly 1,000 locations in 44 U.S. states and Canada; and Camuto Group. Consensus earnings estimates project EPS falling 8.4% their fiscal 2019 year (January 2020 year end) and 19.7% EPS growth in 2020. The 2020 P/E is low at 8.5. DBI is an undervalued, small-cap stock with a huge dividend yield. Patient growth and dividend investors should buy now, lock in the large current yield, and benefit from eventual capital gains as the company continues to fulfill their successful marketing strategies. If a market correction pulls DBI below 15.25, hold off on further purchases until the market stabilizes. Buy.
(Please note that while many retailers that finish their current fiscal year on January 31, 2020 refer to this about-to-end fiscal year as “fiscal 2020", Designer Brands refers to this as “fiscal 2019". Therefore, Designer Brands will refer to February 2020 and beyond as “fiscal 2020".)
General Motors (GM – yield 4.5%) – Management is focused on both high margin pickups in the North American market and battery electric vehicles (BEVs). General Motors is the first automotive company to mass-produce an affordable electric car, and they are committed to an all-electric future. General Motors has agreed to sell its car plant in India to Great Wall Motors, a Chinese company that manufactures popular SUVs, in a deal worth up to $300 million that’s expected to close in the second half of 2020. In other news, General Motors will transition over 1,350 hourly employees to full-time employment during the first quarter of 2020. This week, the company announced that it will invest $2.2 billion in its Detroit-Hamtramck assembly plant to build electric trucks and SUVs, a move that would create 2,200 jobs. GM was featured in the December 31, 2019 update of Cabot Undervalued Stocks Advisor.
General Motors is expected to report fourth-quarter EPS of $0.01, within a range of ($0.36)-$0.28, on the morning of February 5. (I believe the poor quarter reflects the financial results of the workers’ strike that stopped auto production.) Full-year profits are expected to rebound 31.3% from $4.79 EPS in 2019 to $6.29 EPS in 2020. The 2020 P/E is 5.3. The stock is sitting at the bottom of a wide trading range. It’s okay for dividend investors to buy now, to lock in the big current yield, but everybody else should wait. I want to be sure that GM does not fall below 33 alongside a potential stock market correction before encouraging growth investors to buy. Buy.
LGI Homes (LGIH) is the 10th-largest residential home builder in America. The company is currently building homes, primarily for first-time home buyers, in 19 U.S. states from coast-to-coast and the District of Columbia. LGI Homes achieved an all-time record for 2019 home closings. LGI Homes was featured in the December and January monthly issues of Cabot Undervalued Stocks Advisor. Analysts expect full-year EPS to grow 9.6% and 13.7% in 2019 and 2020. The 2020 P/E is 10.5. LGIH is a small-cap stock. If we don’t get an immediate stock market correction, LGIH could rise to an approximate maximum of 87-88 before it rests again. Hold.
Mercury General Group (MCY – yield 5.2%) operates as Mercury Insurance, the leading independent agency writer of automobile and home insurance in California. Mercury also writes automobile, home and/or other lines of insurance, including business and mechanical breakdown insurance, in 10 additional U.S. states. The company is expected to report fourth-quarter EPS of $0.17, within a range of $0.14-$0.21, on the morning of February 10. That number is dramatically lower than any of Mercury’s typical quarterly results, due to an estimated pre-tax catastrophe loss of about $36 million, mainly due to California wildfires. (Catastrophe losses are a normal part of business within the property & casualty insurance industry, and the market did not react with shock at that number.)
Analysts are expecting EPS to grow 40.0% in 2019 and 26.6% in 2020. The 2020 P/E is 15.2. The stock continues to trade consistently in the upper 40’s, seemingly ignoring the downturn in the broader market, and in fact appears ready to rise from a 12-week trading range. I’m therefore moving MCY from Buy to a Strong Buy recommendation. Growth investors and income-oriented investors can buy MCY now, lock in the large 5.2% current dividend yield, and expect a 9-16% capital gain as the stock retraces October trading levels of 53-56. Strong Buy.
The Mosaic Company (MOS – yield 1.0%) 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. Profits are expected to fall to $0.47 per share in 2019 and then rise 145% to $1.15 in 2020. The 2020 P/E is 16.7. The stock fell in recent weeks, along with industry peers. Continue to hold off on purchases until both earnings estimates and the share price stabilize. Hold.
UPDATES ON SPECIAL SITUATION & MOVIE STAR PORTFOLIO STOCKS
Amazon.com (AMZN) – Amazon’s innovations and forays into new industries are seriously disrupting established global businesses, including freight companies, retailers and technology companies. A variety of new changes in the trucking industry, including much higher insurance rates and higher diesel costs, are going to cut into retailers’ profits in 2020. Companies like Amazon and Walmart (WMT) that handle the bulk of their shipping in-house are going to weather that storm far more easily than retailers that hire out most of their trucking needs.
Amazon.com is expected to report $4.03 fourth-quarter EPS, within a range of $2.19-$5.58, and $86.0 billion revenue, within a range $83.2-$87 billion, on the afternoon of January 30. Amazon’s slow full-year 2019 profit growth of 2.6% is expected to be followed by 28.2% EPS growth in 2020. The AMZN P/E is 69.4. This week, another investment firm raised their AMZN price target from 2,100 to 2,300. AMZN broke free from a five-month trading range in late December, and is now tentatively trading between 1,820-1,910. I’m very bullish on the stock over the medium-term. However, over the short-term, if AMZN falls below 1,820 alongside a correction in the broader market, hold off on additional purchases until I give the “all clear.” Strong Buy.
Equitable Holdings (EQH* – yield 2.4%) has two principal franchises: Equitable Life Insurance Co. and a majority stake in AllianceBernstein Holdings L.P. (AB), an investment management firm. The company changed their name in January from AXA Equitable Holdings to Equitable Holdings. Equitable has $701 billion in assets under management. 2020 earnings estimates have been consistently and slowly rising for several months. Equitable is now expected to grow EPS 19.0% and 6.0% in 2019 and 2020, respectively. The 2020 P/E is 5.0. EQH rose to a new all-time high in January, yet the valuation remains incredibly low. I expect more upside, with a possible short-term disruption from a stock market pullback. I’d be very comfortable buying EQH right now while it’s low within its 11-week trading range. Strong Buy.
Netflix (NFLX) is the world’s leading streaming entertainment service with more than 167 million paid memberships in over 190 countries. Viewers can enjoy unlimited access to TV series, documentaries and feature films across a wide variety of genres and languages, all without commercial interruptions. The company is experiencing rapid international subscription growth and creating original foreign language content for international markets. Netflix was featured in the January 22 update of Cabot Undervalued Stocks Advisor.
Revised consensus estimates point to EPS increasing 45% and 40% in 2020 and 2021, respectively. The NFLX P/E is 58. Subsequent to last week’s earnings release, seven investment firms raised their price targets on NFLX to a range of 350-423, and one firm raised their price target to 275. In addition, four investment firms lowered their price targets to a range of 390-410, and one firm cut their price target to 173. The price chart remains bullish. There’s about 8% upside as NFLX retraces its high of about 380 from 2019, and if we’re especially lucky, NFLX could rise 20% toward its 2018 high of 420 in the coming months. If a market downturn drags NFLX below 320, hold off on additional purchases until the share price stabilizes. Strong Buy.
VanEck Vectors Oil Refiners ETF (CRAK) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Oil Refiners Index (MVCRAKTR). The International Maritime Organization is mandating the use of either scrubbers or low-sulfur diesel fuels for the world’s 39,000 ships and tankers, beginning in January 2020. The purpose of the mandate is to minimize sulfur oxide (SOx) emissions into the atmosphere, and the mandate is nicknamed IMO 2020. Oil refining companies are expected to profit from the demand for low-sulfur diesel fuel. Read more here: IMO 2020: The Big Shipping Shake-Up.
Here’s a commentary from January 17 that says the switch to very low sulfur fuel oil (VLSFO) is going smoothly, or causing problems, depending on who is interviewed. One interviewee commented, “Needless to say, the prices are sky-high.” That’s the crux of the issue as to why oil refining companies are expected to record huge profit increases in 2020. Continue to hold off on new purchases until prices stabilize within the energy sector and refining stocks resume an uptrend. Hold.
