Last week, Mattel (MAT) introduced a boy doll named Logan to its American Girl product line. Coincidentally, my daughter Isabella works in the American Girl store during summer breaks from college, and “Logan” was the name we had selected for her, had she been a boy. I can’t say that the doll will change much at Mattel’s bottom line, but it will certainly bring attention to the company. Already, everybody’s trying to spin Logan into something symbolic that supports or opposes their political agenda.
Does anybody else get tired of everything having to “be political” and “make a statement”? I consider a boy doll to be perfectly normal, like girl dolls, mom dolls, dad dolls, firefighter dolls and Mickey Mouse dolls. A doll is just a soft, fluffy personification of a human or animal form, right?
One of the smartest things I ever did as a parent was introduce the American Girl line of books to my daughter. These were books about “old-fashioned girls,” as we called them; girls who travelled through Ellis Island or the American West. People were so much more self-reliant, brave and moral in the old days. Those books influenced my daughter to emulate skills and behaviors that are not emphasized in pop culture. Sure, she learned to cook and sew, which feminists might sneer at, but she also learned to take a stand and be brave and “do the right thing,” which came in handy when protecting her peers from bullies.
After arriving at college, Isabella was shocked to see how poorly her fellow students handled money. That probably came from the emphasis on thrift in the American Girl books. (By the way, I never bought her an American Girl doll. I was way too budget-conscious to spend that kind of money!)
Even now, at age 21, Isabella’s willingness to embrace all of her skills—rather than just skills that are favored in our p.c. society—have led to her developing an extreme talent in costuming. Costuming sounds frivolous to all the men and women who would prefer Isabella to be an aggressive take-no-prisoners businesswoman. But every single theater company in the world needs someone to head up their costume shop and design costumes for plays. And there are myriad other applications for that talent, in addition to her managerial, budgeting and communication skills.
As a parent, I’ve learned that a child’s future line of work is nowhere near as important as their work ethic. I’ve met plenty of smart well-to-do young people who think that minimum wage jobs are below them. Yet my daughter found her talent by chance, when her minimum-wage college work-study assignment plunked her down in the college theater’s costume shop. She began sewing, and within a couple months, she was making full-length costumes from scratch. The rest, as they say, is history.
I tell people all the time that if I die tomorrow, I know that my kids will be capable of supporting themselves. I did my job.
As for Mattel, thank you for making a boy doll! Boys are humans, so there’s no good reason not to celebrate them in the form of a doll. And thank you for providing my daughter with well-rounded role models during her formative years.
Last week I wrote about Valero Energy (VLO) for Wall Street’s Best Daily, a free Cabot publication. You can read more about Valero Energy here.
We’re a little light on investment choices within the Growth & Income Portfolio right now. That has more to do with the natural ebb and flow of stock market opportunities, and less to do with negligence on my part. Haha! I’ll add new stocks when my research identifies solid opportunities.
Have questions about your stocks? Email me: Crista@CabotWealth.com.
Portfolio Notes
Make sure to review the Special Bulletins from February 15, 16 and 17, in which I mentioned news, rating changes and/or price action on American International Group (AIG), GameStop (GME), Kraft Heinz (KHC), Molina Healthcare (MOH) and Universal Electronics (UEIC).
Buy-Rated Stocks Most Likely to Rise More Than 5% Near-Term:
Archer Daniels Midland (ADM)
Dollar Tree (DLTR)
Goldman Sachs (GS)
Legg Mason (LM)
Mattel (MAT)
Whirlpool (WHR)
Today’s Portfolio Changes:
BP plc (BP) moves from Hold to Strong Buy.
Cardinal Health (CAH) moves from Hold to Sell.
Last Week’s Portfolio Changes:
Applied Materials (AMAT) was sold from the Growth Portfolio on February 13.
Archer Daniels Midland (ADM) moved from Strong Buy to Buy on February 14.
Boise Cascade (BCC) moved from Buy to Hold on February 14.
Kraft Heinz (KHC) was sold from the Growth & Income Portfolio on February 17.
Molina Healthcare (MOH) was sold from the Buy Low Opportunities Portfolio on February 16.
Tesoro (TSO) moved from Hold to Buy on February 14.
Updates on Growth Portfolio Stocks
ASML Holding NV (ASML – yield 1.0%) is a fairly-valued aggressive growth stock. The stock is reaching all-time highs, which is always a bullish chart pattern. Semiconductor stock prices are generally rising right now, so I recommend holding ASML a short while longer for additional capital appreciation. Hold.
Adobe Systems (ADBE) is actively rising, and approaching fair valuation. I will likely sell ADBE soon. Hold.
American International Group (AIG – yield 2.0%) is a very undervalued aggressive growth stock. Earnings growth expectations have changed since last week. After suffering a net loss in 2016, due to a large fourth-quarter reserve charge, AIG is expected to deliver EPS of $5.10 and $6.09 in 2017 and 2018. The stock traded down to 61 last week, and promptly began to rebound. I expect AIG to trade in the mid-60s for a while as it gathers steam to rise above 67 later this year. Strong Buy.
Dollar Tree (DLTR) The earnings outlook is strong, and the stock is fairly valued. Shares of discount retailers are recovering from an industrywide price correction. I expect DLTR to rise to upside resistance at 90, at which time I will likely sell the stock, unless the company raises its fiscal 2018 earnings outlook (January year-end). Traders could buy now, with the intention of selling near 90. Buy.
Goldman Sachs Group (GS – yield 1.0%) is an undervalued growth stock. Total common shares outstanding have decreased by 13.9% in the last four years through fiscal 2016. GS broke past 245 last week, but you haven’t missed your opportunity to buy GS before the impending run-up. Strong Buy.
Johnson Controls (JCI – yield 2.4%) is an undervalued growth stock. The share price is bouncing between 41 and 45.50 somewhat erratically. Buy JCI now, while it’s low within its trading range. Buy.
Martin Marietta Materials (MLM – yield 0.8%) is an undervalued aggressive growth stock in the construction aggregate industry. The company reported full-year 2016 EPS of $6.63 last week; and is expected to earn $8.43 and $10.61 per share in 2017 and 2018 (December year-end). There’s price support at 215. Strong Buy.
Quanta Services (PWR) is a very undervalued aggressive growth stock. The company is expected to report fourth-quarter EPS of $0.56 on the morning of February 21. Ensuing volatility could push the stock down to 34, or cause a breakout above 38. Strong Buy.
Vulcan Materials (VMC – yield 0.8%) is an undervalued aggressive growth stock. There’s about 13% upside this winter, as VMC retraces its recent high of 135. I expect the stock to continue climbing thereafter. Strong Buy.
XL Group (XL – yield 2.1%) – Last week, XL Group announced a new $1 billion share repurchase program, and proceeded to cancel the remaining $349 million in the previous repurchase program. In addition, the company raised the quarterly dividend by 10%, from $0.20 to $0.22. XL is a very undervalued growth stock. The stock has been rising for several weeks. Try to buy on pullbacks. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BP plc (BP – yield 7.2%) – The earnings outlook has changed for the better in recent weeks at BP. Analysts now expect EPS growth of 177% and 14.6% in 2017 and 2018. The 2017 number is distorted, reflecting an easy comparison to a down year in 2016. More importantly, the 2018 number is solid and attractive, with a P/E of 12.5 and an incredible dividend yield.
I had moved BP from Strong Buy to Hold immediately after the 2016 results were reported because the 2018 outlook looked unimpressive. But as typically happens after full-year earnings are reported, it takes a few weeks for Wall Street to get a firm grip on a company’s longer-term outlook. In the case of BP, the 2018 EPS outlook has improved, and I am therefore moving BP back to a Strong Buy rating. (Alas, I’ve met investors who believe that “hold” means “sell.” I don’t ascribe to that theory. For me, “Hold” means “hold for additional capital gains” and “Sell” means “sell it right now; don’t overthink it”.)
BP is an incredible bargain right now. The price chart shows a “whole lotta nothin’ goin’ on.” If you have even an ounce of patience, you should buy BP, which is offering the best total return opportunity that I’ve seen in a very long time. Strong Buy.
Cardinal Health (CAH – yield 2.2%) is fully valued, with a slow 2017 EPS growth outlook. It does not seem reasonable to expect more from the share price this year. My recommendation is that shareholders sell CAH and reinvest in a stock with strong earnings growth prospects. Sell.
D.R. Horton (DHI – yield 1.3%) is slightly undervalued, and will likely rise to upside resistance at 34 in the near future. Hold.
Exxon Mobil (XOM – yield 3.7%) is one of the most attractive stocks that I’ve seen in a long while, with big future earnings growth (both 2017 and 2018), low P/Es and big dividend. The 2016 long-term debt-to-capitalization ratio came in higher than the 2015 number, at 20.4%, but that’s still quite low compared to the typical large-cap stock. The stock is at the bottom of a 10-month trading range, between 81 and 92. Buy XOM now. Strong Buy.
GameStop (GME – yield 5.8%) has been rising for five weeks toward upside resistance just above 26. The full-year 2017 earnings report is due shortly (January year-end). If you were in GME for a short-term trade, plan your escape. Everybody else will likely see additional capital gains this year, because despite the stock’s slow-growth scenario, it’s still undervalued. Hold.
H&R Block (HRB – yield 4.3%) is a fairly-valued growth & income stock. The stock has been plagued by uncertainty over tax reform, a crackdown on tax fraud via The PATH Act, a decline in early-season filings of tax returns, and investor angst over HRB’s attempt to regain last year’s lost market share. HRB has been trading between 21 and 24 since June 2016. Hold.
Royal Caribbean Cruises (RCL – yield 2.0%) is undervalued, and slated for mid-teens earnings growth in 2017 and 2018 (December year-end). RCL has traded in the mid-90s since late January, and will likely rise toward medium-term price resistance at 102, at which price the stock will still be undervalued. Strong Buy
Whirlpool (WHR – yield 2.2%) is rising slowly toward upside price resistance at 192, where it will still be undervalued. Buy WHR now. Buy.
Updates on Buy Low Opportunities Portfolio Stocks
Archer Daniels Midland (ADM, yield 2.8%) Basic shares outstanding fell 11.1%, from December 2012 through December 2016, to 591 million shares. ADM is trading between 43.50 and 47.50. Buy.
Boise Cascade (BCC) will report 2016 results on the morning of February 24. Based on 2017 numbers, BCC is a very undervalued aggressive growth stock, which is approaching upside price resistance at 28. The stock is volatile, with very few analysts covering the company. Not for the faint-hearted. Hold.
Legg Mason (LM – yield 2.4%) is climbing toward upside resistance at 40, at which time it will still be undervalued. Buy.
Mattel (MAT – yield 5.8%) EPS are expected to grow 37.7% and 15.8% in 2017 and 2018 (December year-end), with corresponding P/Es of 17.9 and 15.4. MAT is a very undervalued growth stock with a huge dividend. The six-month best-case scenario for the stock is that it rises 30% to 34, where it traded repeatedly in 2016. Dividend investors and bargain hunters should buy MAT now. Buy.
Schnitzer Steel Industries (SCHN, yield 2.8%) has been rising toward its December high around 30, at which point it will still be undervalued. Strong Buy.
Tesoro (TSO – yield 2.5%) Wall Street expects 2017 and 2018 EPS of $6.20 and $6.99, reflecting 44.5% and 12.7% growth. The stock is undervalued, with corresponding P/Es of 14.0 and 12.4. The stock has recently been rising toward short-term price resistance at 92. Buy.
Toll Brothers (TOL) After several years of strong earnings growth, 2018 EPS are expected to grow just 7.8% (October year-end). The stock is overvalued. I will consider selling TOL as it approaches 33. Hold.
Total SA (TOT – yield 5.3%) -- 2017 and 2018 EPS are expected to grow 31.7% and 23.4%, with corresponding P/Es of 11.4 and 9.2. The stock is greatly undervalued, with a big dividend yield and a strong balance sheet. TOT could easily rise past 52 in the near future. Continue to buy TOT for capital appreciation and/or the huge dividend yield. Strong Buy.
Universal Electronics (UEIC) shares rose an absurd amount on February 18, in an overreaction to a good earnings report. At this point, analysts expect EPS to grow 24.7% and 12.1% in 2017 and 2018 (December year-end). The corresponding P/Es are 20.0 and 17.9, making the stock overvalued based on 2018 numbers. My plan has been to sell the stock on a rebound to 78. In the interim, expect volatility. Hold.
Vertex Pharmaceuticals (VRTX) is a volatile biotech stock. It’s currently ratcheting upward toward short-term price resistance at 95. The best-case scenario this year is that VRTX could rise all the way toward its 2015 highs around 140. Strong Buy.
