It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair … we had nothing before us, we were all going direct to Heaven, we were all going direct the other way … --A Tale of Two Cities, Charles Dickens
Well, we’re in the thick of it. New citywide, statewide and national mandates are being pronounced daily, the stock market fell dramatically, my two daughters were sent home from college, three close relatives lost jobs/projects, and one close relative is a basket case over potentially losing his business. All because a virus that makes people sick – just like any normal wintertime flu virus – is circling the globe.
At this point, we can only make the best of it, so let’s do it. I’m telling my girls, “You’re going to remember March/April 2020 for the rest of your lives. Let’s do some good things so that you can remember our time together with fondness.” We’re going to make a concerted effort to play board games, plan meals (including baking bread, which we haven’t done in about 15 years), make art, exercise together, and find people who need our help.
Your lives have changed, too. What will you do that is different, that can enhance your life, or the lives of others? Be purposeful. We have been given a gift of “differentness,” so make it a good “different.”
As for our stocks, I need to be brief today. The aforementioned upheaval has been incredibly time-consuming, with several sick family members thrown into the mix.
If you are calm and opportunistic, you can buy low. Stock markets always recover from corrections and crashes. I’ll tell you which stocks seem to be holding their one-year support well, and which are not. Please don’t buy the stocks that are still plummeting. Focus: your goal is capital gains. You’re going to achieve those far more quickly with stocks that have found some price support.
If you are fearful, that’s okay. It’s to be expected. You can wait to buy low when the market is far more stable, and you’ll still be able to buy some excellent bargains. So if you want to ignore your investment portfolio for a while, just do it.
In the meantime, I have a webinar that takes place at 2 p.m. ET today, March 18. It’s free, but you need to register in advance so that we can send you a link to join in at the appointed hour. I will give you eight stock suggestions – all companies that have growing profits and growing dividends, and decent price charts compared to the broader market. Big hint: one of them is Blackstone Group (BX). Its long-awaited pullback has arrived.
To listen to my webinar today, click here.
Portfolio performance – The average annualized total return on the 108 stocks that have been bought and then sold within these portfolios from October 2015 through February 2020 is 14.96%, with an average holding period of 10.5 months. (These returns do not include compounded growth, but they do include dividends.)
Send questions to Crista@CabotWealth.com.
Portfolio Notes
Be sure to review the Bulletin from March 13 in which I mentioned news, rating changes and/or price action on Adobe Systems (ADBE) and Broadcom (AVGO).
Today’s Portfolio changes
Adobe Systems (ADBE) moves from Buy to Strong Buy.
Equitable Holdings (EQH) moves from Buy to Hold.
MKS Instruments (MKSI) moves from Strong Buy to Hold.
Recent Portfolio changes
Adobe Systems (ADBE) moved from Hold to Buy.
Alexion Pharmaceuticals (ALXN) moved from Strong Buy to Hold.
Broadcom (AVGO) moved from Hold to Buy.
Quanta Services (PWR) moved from Buy to Hold.
BEST STOCKS TO BUY TODAY
Stock Comment*
Adobe Systems (ADBE) G T
Amazon.com (AMZN) G T
Netflix (NFLX) G T
* A good choice today for investors looking for growth (G), growth & income (DIV) or trading (T).
Growth Portfolio
Adobe Systems (ADBE) is a software company that’s changing the world as an innovative leader in digital media and digital marketing. Subsequent to last week’s earnings report, earnings estimates for 2020 came up a fraction, while 2021 estimates came down. Analysts now expect EPS to increase by 24.7% and 14.1% in 2020 and 2021, respectively. The 2020 P/E is 30.7. ADBE is a large-cap aggressive growth stock. Yesterday, Oppenheimer raised their price target on ADBE from 375 to 410. I’m moving my recommendation on ADBE from Buy to a Strong Buy recommendation. I love the company and prospects for the stock. If we’re going to buy low during a stock market correction, ADBE has a better price chart than most stocks right now, and will therefore likely recover sooner than the broader market. Strong Buy.
LGI Homes (LGIH) -- (last update March 11) No recent changes in earnings estimates. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Marathon Petroleum (MPC – yield 11.5%) 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. Last week, Reuters reported that Marathon is in early-stage negotiations to explore the sale of assets of its pipeline subsidiary MPLX LP for as much as $15 billion. MPLX generated $1.75 billion EDITBA in 2019.
There are four potential catalysts for share price appreciation in 2020:
• Higher margins as Marathon meets industry demand as most of the world’s ships and tankers have switched to ultra-low-sulfur diesel fuel.
• The Speedway retail store spin-off that’s targeted for early fourth quarter 2020.
• The strategic review of MPLX LP (MPLX), the midstream energy business for which Marathon is a majority owner, that’s due by the end of March.
• The appointment of a new CEO.
MPC is a greatly undervalued large-cap stock with a solid dividend yield. Earnings estimates came down last week, with EPS now expected to rise 11.9% in 2020. The P/E is 3.6. The stock fell with the market correction, and has not yet stabilized. I would normally move a stock with this type of bearish price chart to a Hold recommendation. But since there are so many near-term catalysts for MPC’s share price appreciation (itemized above), I believe that MPC will probably rebound far more quickly than many other stocks that are suffering with the market correction. Buy.
MKS Instruments (MKSI – yield 1.0%) – (last update March 4) MKSI moves from Strong Buy to a Hold recommendation, due to the poor price chart. Earnings estimates remain very strong. The price needs to stop falling, and then stabilize, before investors buy shares. Hold.
Quanta Services (PWR – yield 0.7%) – (last update March 11) Earnings estimates have come down a fraction this month. The stock is possibly exhibiting a bottoming pattern. Give it a little more time. Hold.
Tyson Foods (TSN – yield 3.6%) is the largest U.S. food company, 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. Management is focused on the growing global need for protein, and fulfilling that need in a sustainable and environmentally conscious manner. Tyson Foods was featured in the December 10 and January issues of Cabot Undervalued Stocks Advisor.
Tyson commented last week that pandemic or disease outbreaks may disrupt food consumption, trade patterns, supply chains and/or production processes. As a result, COVID-19 could materially impact operations and financial results. (Not to belabor the point, but this is why the stock market fell so dramatically in recent weeks.) Earnings estimates declined for several weeks in February due to this year’s coronavirus-related commerce disruption in China, and have since stabilized.
Analysts are now forecasting EPS to increase 15.4% and 14.3% in 2020 and 2021 (September year end). The 2020 P/E is 7.5. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Universal Electronics (UEIC) – (last update March 4) On March 12, management announced the authorization of the repurchase of up to 300,000 shares of stock through May 7, which is presumably the date of the first-quarter earnings release. Investors can interpret this move as a belief on management’s part that the stock is very cheap, and that repurchasing their own stock is a good use of their available cash. Earnings estimates increased a bit in March. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Voya Financial (VOYA – yield 1.5%) – (last update March 4) Earnings estimates came down a fraction last week. The stock is possibly exhibiting a bottoming pattern. Give it a little more time. Hold.
Growth & Income Portfolio
Broadcom (AVGO – yield 6.9%) is a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions that serve the world’s most successful companies. Broadcom was featured in the December 17 and January issues of Cabot Undervalued Stocks Advisor. The company reported a good quarter last week. CFO Tom Krause commented, “We are well positioned to continue to support our dividends to stockholders despite the challenging market backdrop.” Earnings estimates came down last week. Analysts now expect EPS to grow 2.9% and 10.5% in 2020 and 2021 (November year end). The 2020 P/E is 8.6.
While I would not normally recommend that an investor buy a stock with a share price that has not yet stabilized after a recent fall, the caveat is this: If the stock pays a safe dividend, and the dividend yield is large, investors have an unusual opportunity to lock in a big yield while the share price is low. Income investors should buy now, as should patient growth and income investors. Traders and pure growth investors should wait until the price chart becomes more bullish. Buy.
Dow Inc. (DOW – yield 11.0%) is a commodity chemicals company with manufacturing facilities in 31 countries. Dow derives roughly 50% of profits from its polyethylene business. Management is focused on cost-cutting, debt repayment and returning cash to shareholders. The consensus earnings outlook came down in March due to business disruptions associated with the coronavirus. Analysts now expect full-year EPS of $3.09 and $3.75 in 2020 and 2021, reflecting (11.5%) and 21.4% annual growth. The P/E is 8.3. I would normally move a stock with this type of bearish price chart to a Hold recommendation, but the dividend yield is compelling. Income investors who buy now can lock in an 11.0% dividend yield, prior to the eventual share price rebound. Buy.
Goldman Sachs Group (GS – yield 3.1%) – (last update March 4) Earnings estimates came down in March. Analysts now expect EPS to grow 13.4% and 13.7% in 2020 and 2021. The 2020 P/E is 6.7. The stock is possibly exhibiting a bottoming pattern. Give it a little more time. Hold.
GUESS?, Inc. (GES – yield 6.1%) 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. This afternoon, March 18, Guess is expected to report $1.12 EPS and $851.2 million revenue for the fourth quarter ended January 2020. GES is a greatly undervalued, aggressive growth, small-cap stock. This company has been delivering better earnings growth than all of its retail apparel peers. Earnings estimates for the coming year came down this month. Analysts now expect EPS to grow 39% and 11% in fiscal 2020 (January 2020 year end) and 2021. The fiscal 2021 P/E is 4.9. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Total S.A. (TOT – yield 10.9%) is a French multinational integrated energy company that produces and markets fuels, natural gas and low-carbon electricity, operating in over 130 countries. Fourth-quarter results featured strong performance in all business segments. Trouble in the oil markets has caused analysts to lower earnings projections, with EPS now expected to grow 1.6% and 18.0% in 2020 and 2021. The 2020 P/E is 6.2. My intention is to return TOT to a Buy recommendation after the price chart stabilizes. Dividend investors should consider locking in the abnormally large dividend yield. Hold.
Buy Low Opportunities Portfolio
Abercrombie & Fitch (ANF – yield 8.8%) – (last update March 11) It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Alexion Pharmaceuticals (ALXN) – (last update March 11) The stock is possibly exhibiting a bottoming pattern. Give it a little more time. Hold.
Apple Inc. (AAPL – yield 1.2%) – (last update March 11) Earnings estimates came down last week. Analysts are now forecasting $13.32 and $15.54 in 2020 and 2021 (September year end), reflecting 12.0% and 16.7% growth rates. The 2020 P/E is 18.9. The company typically announces a dividend increase and a new share repurchase authorization annually, in late April. I like the current price. I recommend that investors build a position in AAPL. Strong Buy.
Baker Hughes Company (BKR – yield 6.5%) – (last update March 4) Earnings estimates came down last week, now reflecting an expectation of 18.8% and 37.6% EPS growth in 2020 and 2021. The 2020 P/E is 10.9. The stock is possibly exhibiting a bottoming pattern. Give it a little more time. Hold.
Designer Brands Inc. (DBI – yield 8.5%) 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. This spring, Designer Brands will debut the JLO JENNIFER LOPEZ collection, a line of footwear and handbags that will be sold exclusively at DSW Designer Shoe Warehouse stores in the United States and Canada, and online at DSW.com.
The company reported fourth-quarter and full-year 2019 results yesterday (January year end). The quarter’s loss was ($0.05) vs. the consensus estimate of ($0.06). Full-year net sales grew 11%. Full-year adjusted EPS came in at $1.53 vs. the $1.52 consensus estimate. The company repurchased 7.1 million shares of stock during the year.
Chief Executive Officer Roger Rawlins, stated, “The impact of COVID-19 on our business and industry is unprecedented, and our thoughts are with those individuals who have been directly affected by the virus. At the direction of government officials to flatten the curve, and in an attempt to safeguard the long-term stability of our business, we have made the difficult decision to temporarily close our North American retail locations, as of close of business today. However, we will continue to serve our customers through our leading e-commerce infrastructure, which we have invested in heavily over the last few years. Our warehouses will remain open to fulfill our online orders, operating under our emergency preparedness plan, and all retail employees will be compensated in the near-term.”
Management reduced the dividend from 25 cents to 10 cents per quarter. Mr. Rawlins continued, “In an abundance of caution and to preserve our financial flexibility during this difficult time, we have decided to reduce our dividend for the first quarter of fiscal 2020 to deliver a yield that we believe more appropriately aligns with the current stock price, yet remains near the top of our peer set. We have a solid balance sheet with modest bank debt levels outstanding, and we expect to return to normal investment and distribution policies as we return to normalcy and volatility subsides.”
Analysts recently expected fiscal 2020 EPS to increase 19.7% (January 2021 year end). The 2020 P/E is low at 2.6. DBI is an undervalued, small-cap stock with a huge dividend yield. The stock is suffering from the market correction and the curtailing of commerce across the globe. Dividend investors can buy now. Growth investors and traders should wait until the share price turns bullish. Buy.
General Motors (GM – yield 7.7%) – (last update March 11) Earnings projections came down last week. Analysts now expect EPS to rise 14.9% and 5.8% in 2020 and 2021. The 2020 P/E is 3.6. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Mercury General Group (MCY – yield 6.8%) – Hold. (last update March 4) The stock is possibly exhibiting a bottoming pattern. Give it a little more time.
Special Situation AND MOVIE STAR PORTFOLIO
Amazon.com (AMZN) – (last update March 11) Earnings estimates remain bullish, and largely unchanged. AMZN rose to a new high in February, then dropped down to Fall 2019 support levels with the market correction. I expect AMZN to recover from this market correction far more quickly than most stocks. Strong Buy.
Equitable Holdings (EQH – yield 4.6%) – (last update March 4) I’m moving EQH from Buy to Hold, due to the very weak price chart. Earnings estimates came down a fraction last week. It’s not time to buy this stock yet. The price needs to stop falling, and then stabilize. Hold.
Netflix (NFLX) – (last update March 4) Earnings estimates remain strong. Strong Buy.
NVIDIA (NVDA – yield 0.3%) – (last update March 4) The price chart is decent vs. the broader market. Continue to accumulate shares. Strong Buy.
VanEck Vectors Oil Refiners ETF (CRAK) -– (last update March 4) It’s not time to buy this ETF yet. The price needs to stop falling, and then stabilize. Hold.