We seem to be experiencing a more active stock market than that of a typical summer. The adage “sell in May and go away” hasn’t seemed to fit in 2017. There’s been lots of price action among oil refiners and marketers, food retailers, steel, technology and investment companies. We have three financial stocks, plus Vertex Pharmaceuticals (VRTX), that could easily hit their price targets in the coming weeks. I look forward to the change. It’s fun to subsequently add new stocks to the portfolios!
As a reminder, I will occasionally sell stocks when they retrace long-term upside price resistance, rather than hold them for what will likely be an extended period of sideways trading. Oftentimes, these stocks are still attractive and undervalued. Please feel free to hold the stocks if your personal investment strategy leans toward buy-and-hold, and send me questions whenever the outlook is unclear.
Steel Stocks
Continue to accumulate steel stocks. Scrap metal volumes are higher than normal this summer. The Commerce Department’s Section 232 investigation into the national security implications of trade problems in the steel industry has thus far affected both imports and buyer behavior. Neither foreign exporters nor their U.S. customers want to be on the record as transacting in underpriced steel products during the investigation, which has led to increased third-quarter pricing and demand among U.S. steel manufacturers. Earnings estimates have therefore been rising this summer. Buy Commercial Metals Company (CMC) and Schnitzer Steel (SCHN).
Bank Stocks
Last week, Jim Cramer cited KeyCorp (KEY) as his favorite bank stock. The thing I love the most about KEY is that the stock is just now breaking out of a trading range where it’s dwelled since Thanksgiving. It therefore seems primed for an excellent and immediate capital gain opportunity. The stock offers strong EPS growth, low P/E, 2% dividend yield and scheduled dividend increases in 4Q17 and 2Q18.
Send questions and comments to Crista@CabotWealth.com.
Portfolio Notes
Make sure to review the Special Bulletins from July 13 and 17, in which I mentioned news, rating changes and/or price action on Ameriprise Financial (AMP), Bank of America (BAC), Blackstone Group (BX), Dollar Tree (DLTR), Goldman Sachs (GS), Quanta Services (PWR) and Universal Electronics (UEIC).
Buy-Rated Stocks Most Likely To Rise More Than 5% Near-Term:
Ameriprise Financial (AMP)
Blackstone Group (BX)
Cavium (CAVM)
Commercial Metals Company (CMC)
Dollar Tree (DLTR)
Quanta Services (PWR)
Schnitzer Steel (SCHN)
Universal Electronics (UEIC)
Today’s Portfolio Changes:
Blackstone Group (BX) moves from Buy to Hold.
Legg Mason (LM) moves from Strong Buy to Hold.
Last Week’s Portfolio Changes:
Ameriprise Financial (AMP) joined the Growth & Income Portfolio as a Buy.
Goldman Sachs (GS) moved from Buy to Hold.
Updates on Growth Portfolio Stocks
American International Group (AIG – yield 2.0%) is a diversified insurance company. The stock meets all my growth and value criteria. AIG appears immediately ready to rise toward short-term price resistance at 67, where it will still be undervalued. Strong Buy.
Bank of America (BAC – yield 2.0%) will report second-quarter results on the morning of July 18. Investors may access the earnings webcast on the company’s website. The White House confirmed that it intends to nominate Randy Quarles for the Fed’s Vice Chair of Supervision. Investors can expect an easing of expensive regulations to contribute to earnings estimates in the coming year.
The new $0.12 quarterly payout per share that investors will receive in late September has not yet been officially declared, and therefore it’s not reflected when you pull up stock quotes on brokerage firm websites or NASDAQ.com. The official declaration will take place near August 1. BAC was featured in the July issue of Cabot Undervalued Stocks Advisor.
BAC is an undervalued large-cap bank with strong earnings growth. BAC has short-term upside price resistance at 25.5, which it could easily surpass this year, possibly even this month. Strong Buy.
Cavium (CAVM) is a very undervalued, aggressive growth semiconductor stock. Continued strength in the NASDAQ could push CAVM back to 74 in August. Risk-tolerant investors should buy CAVM now. Buy.
Johnson Controls (JCI – yield 2.3%) is a multi-industry company with the following business mix: fire & security services, residential and commercial HVAC/R (heating, ventilation, air conditioning and refrigeration), automotive batteries and building equipment. JCI is an undervalued growth stock. JCI could reach price resistance at 45 in July, and could easily continue climbing a short time thereafter. Strong Buy.
KLX Inc. (KLXI) is a manufacturer of aerospace fasteners, consumables and logistics. Last week, I mentioned, “The company is projecting much higher fiscal 2018 earnings growth than is reflected in Wall Street’s aggressive growth estimates.” In recent days, consensus earnings estimates rose to meet the company’s projections. At this point, EPS are expected to grow 193% and 27.6% in 2017 and 2018, with corresponding P/Es of 16.7 and 13.1. Rising earnings estimates and low P/Es make KLXI incredibly attractive.
KLXI rose to a new high near 53 in early June, fell about 10% and quickly rebounded. If the broader market remains stable-to-strong, KLXI could begin reaching new highs this month. Buy KLXI now. Strong Buy.
Martin Marietta Materials (MLM – yield 0.7%) is an aggressive growth stock that’s quite undervalued based on 2018 numbers. There’s recent price weakness throughout Martin Marietta’s peer group. The stock could surpass short-term price resistance at 240 this year. Strong Buy.
PulteGroup (PHM – yield 1.5%) is a single-family U.S. homebuilder. Pulte will report second quarter results on the morning of July 25. Zacks noted that Pulte “surpassed estimates in each of the trailing four quarters, with an average beat of 9.59%.” PHM is a very undervalued growth stock. The stock broke out of a very long-term trading range this month. That’s an optimal time to own a stock. There’s lots of upside. Buy PHM now. Strong Buy.
Quanta Services (PWR) Last week, UBS raised PWR from neutral to buy. The corporate outlook remains fantastic, with aggressive earnings growth and a low P/E. PWR is actively rising toward short-term price resistance at about 38.5. The stock could conceivably surpass that price in 2017. Buy PWR now. Strong Buy.
Vulcan Materials (VMC – yield 0.8%) is an aggressively growing supplier of construction aggregates, asphalt and concrete. Last week, Goldman Sachs recommended Blackstone Group (BX) and Vulcan Materials in Goldman Sachs Top 4 Picks for a New Infrastructure Era. (The other two stocks in the article hail from Spain and Australia.) Stocks within Vulcan’s peer group traded sideways all year. VMC could retrace 135 this summer, then possibly head higher. Strong Buy.
XL Group (XL – yield 1.9%) is an aggressively growing insurer and reinsurer. The company will report second-quarter results on the afternoon of July 26. XL is actively rising, and remains extremely undervalued. Strong Buy.
Updates on Growth & Income Portfolio Stocks
Ameriprise Financial (AMP – yield 2.4%) offers insurance products and asset management to retail and institutional clients. AMP is an undervalued growth & income stock. The company will report second-quarter results on the afternoon of July 25. AMP began reaching new highs a few days ago. AMP could rise into the 160’s and still not be overvalued. Buy AMP today. Buy.
BP plc (BP – yield 6.8%) is an undervalued, aggressive growth integrated oil company. Consensus earnings estimates having been declining all year, yet the numbers remain enviable. EPS are expected to grow 94% and 42.3% in 2017 and 2018, with corresponding P/Es of 21.4 and 15.1. Shares of integrated oil companies have recently bounced at the bottoms of their trading ranges. I encourage growth investors and dividend investors to buy BP. There’s short-term upside price resistance at 37, and a maximum price target of about 44 during the next year. Strong Buy.
Blackstone Group LP (BX – variable large payouts) is an undervalued alternative asset manager. The company will report second-quarter results on the morning of July 20. Last week, Goldman Sachs recommended Blackstone and Vulcan Materials (VMC) in Goldman Sachs Top 4 Picks for a New Infrastructure Era. (The other two stocks in the article hail from Spain and Australia.) BX left its recent trading range last week, and is now heading toward long-term price resistance at 38. I’m moving BX from Buy to Hold, with the intention of selling when BX reaches long-term price resistance at 38. Dividend investors and long-term growth investors should feel comfortable keeping BX. Hold.
Commercial Metals Company (CMC – yield 2.4%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Steel stocks spiked upward last week as President Trump emphasized his intention to put a stop to illegal dumping of steel in the U.S. by China. CMC was featured in the July 3 issue of Cabot Undervalued Stocks Advisor. Commercial Metals operates on an August fiscal year, and is currently expected to have huge earnings growth in fiscal 2018. The stock is now ratcheting higher. In the coming months, I expect CMC to retrace its December 2016 high around 24, at which time it will still be significantly undervalued. Buy CMC now. Strong Buy
ExxonMobil (XOM – yield 3.8%) is the largest U.S. integrated oil company. XOM is an undervalued stock with aggressive earnings growth. Shares of integrated oil companies have recently bounced at the bottoms of their trading ranges. I encourage growth investors and dividend investors to buy XOM, in anticipation of a maximum run-up to 91 this year, as it eventually retraces its highs from July and December 2016. Strong Buy.
GameStop (GME – yield 7.2%) is a retailer of games, collectibles and technology; with additional ventures in the entertainment field. The company is transitioning through a multi-year process of diversifying its product areas away from a dependence upon physical game revenue. The stock is volatile, currently trading between 20.5 and 22, and not yet signaling an upturn. Hold.
Invesco (IVZ – yield 3.2%) is an undervalued growth & income stock in the asset management industry. Consensus earnings estimates continue to slowly rise each week, since early May. IVZ is approaching upside price resistance at 38-39, where it last traded in March 2015. I will very likely issue a sell alert soon, when IVZ surpasses 38, so as to avoid a prolonged sideways trading period. Hold.
TiVo (TIVO – yield 3.8%) is a digital entertainment company that provides technology licensing and related services, which enable people to access online and televised entertainment. TIVO is an extremely undervalued small-cap stock. TIVO recovered from its drop in May, and is now resting. I expect the stock to continue rising toward short-term price resistance at 21. Hold.
Updates on Buy Low Opportunities Portfolio Stocks
Archer Daniels Midland (ADM – yield 3.1%) is fairly valued, with double-digit earnings growth expected in 2017 and 2018. ADM has traded between 40 and 43 since early May. The stock could realistically reach 47 again later this year. Hold.
Boise Cascade (BCC) is a wood products manufacturer and building materials distributor. This aggressive growth stock remains significantly undervalued. BCC could surpass upside price resistance at 31 this summer, then reach the upper 30s later this year. Buy BCC now. Strong Buy.
Chipotle Mexican Grill (CMG) is an undervalued aggressive growth stock. The company is experimenting with four new menu items: queso, margaritas, bunuelos and a citrus vinaigrette. That’s unusual, since Chipotle only added one new menu item in 2016. The stock fell a little further last week, bouncing at support levels that were established in February and March. It’s not yet ready to rebound. Strong Buy.
Dollar Tree (DLTR) was featured in the July issue of Cabot Undervalued Stocks Advisor. DLTR is experiencing the strongest current-year earnings growth among discount retail and food companies. In addition, current-year consensus earnings estimates for DLTR increased in each of the last three weeks.
Food retailers’ share prices fell in the wake of the recent Amazon.com-Whole Foods merger announcement. The worst seems to be over for that sudden price action, with several retail food stocks appearing immediately ready to rise, including DLTR. The upturn was boosted by Target’s (TGT) bullish third-quarter remarks last week. I expect DLTR to quickly rebound to 75, then rise into the 80s later this year. Buy DLTR now. Buy.
Goldman Sachs Group (GS – yield 1.3%) will report second-quarter results on the morning of July 18. The stock is more undervalued now than in recent months. GS tentatively began its rebound back to a maximum of about 252. This is your last chance to buy GS for a short-term trade with close to 10% capital gain potential. I anticipate selling around 250. Hold.
Legg Mason (LM – yield 2.8%) is a very undervalued asset management and financial services company with aggressive earnings growth. Legg Mason’s June assets under management (AUM) number came in surprisingly high, but details reveal that much of the increase came from assets under advisement (AUA) being reclassified as AUM. Still, it was a good month for asset gathering.
As LM approaches long-term upside price resistance at 44, I’m moving the stock from Strong Buy to Hold, simply because there will be less than 10% capital gain potential between the current price and the price target. Hold
Mattel (MAT – yield 2.8%) is a global toy manufacturer with a new CEO who is redirecting the company’s product and marketing focus. The stock is undervalued based on strong expected 2018 earnings growth (December year-end). The share price recently bounced at a support level from 2015, and could reach 23 in August. The strong 2018 earnings growth outlook should push MAT upward in the coming months. Hold.
Schnitzer Steel Industries (SCHN – yield 2.9%) is one of the largest U.S. scrap metal recycling companies. Steel stocks spiked upward last week as President Trump emphasized his intention to put a stop to illegal dumping of steel in the U.S. by China. SCHN is an undervalued aggressive growth stock. Shares of steel companies rose in June, followed by a little profit-taking. SCHN has upside price resistance at 27 and 29. SCHN is a small-cap stock, in a volatile market sector, with relatively little analyst coverage. Buy.
Tesoro (TSO – yield 2.2%) – TSO is a very undervalued aggressive growth stock based on its 2018 EPS and P/E numbers. (The stock rose enough that it’s now fairly valued based on 2017 numbers.) The company will change its name and stock symbol on August 1, to Andeavor (ANDV). Last week, Jefferies raised its price target on TSO to 115, which represents long-term upside price resistance from November 2015. I expect some price resistance at 102, and currently plan on selling as the stock approaches 115, where it will still be undervalued. Strong Buy.
Total SA (TOT – yield varies, approx. 4.5%) is a French integrated oil and gas company, and a greatly undervalued growth & income stock. Shares of integrated oil companies have recently bounced at the bottoms of their trading ranges. This is a great time to buy TOT. My plan is to keep TOT in the portfolio until it reaches three-year price resistance in the low 60s. Strong Buy.
Universal Electronics (UEIC) is a consumer electronics company. This growth stock is overvalued based on 2017 numbers, but undervalued based on 2018 numbers. The stock began reaching above its recent trading range on July 7. There’s some price resistance at 74, and again at 78. Buy UEIC now. Buy.
Vertex Pharmaceuticals (VRTX) is an undervalued, aggressive growth biotech company that corners the market in treatments for cystic fibrosis (CF). Vertex will announce second-quarter results on the afternoon of July 26. VRTX is still on a general uptrend. I plan to sell VRTX when it approaches two-year price resistance near 140. Hold.
