I’m excited about all of the recent price action in the stock market! For many months—or several years?—investors’ stock portfolios alternated between treading water and surviving market corrections. Finally, the markets seem to have been set free, adding bullish stock movements into the mix.
Typically, the moment anything good happens in the stock market, a flurry of opinions will assault you, “The market’s overvalued It’s going to crash!”
I promise, I will not recommend overvalued stocks to you. And if the broader market is overvalued, it will be obvious to me because I will have great difficulty finding undervalued stocks to recommend. It’s normal for stock markets to rise, because stock prices represent corporate profits and enterprise value. If a company’s value and/or profits are rising, it is natural for its share price to rise.
There are a variety of stocks that recently landed on my buy list, which had slow 2016 earnings growth but are projected for strong 2017 earnings growth, including a wide selection of prominent energy stocks and insurance companies.
I will continue to add new stocks to the portfolios in the coming weeks and months, especially when the broader market has a price correction. So if you have cash on the sidelines, and nothing is striking your fancy today, be patient! More good stocks will be joining us soon.
Today’s Portfolio Changes:
• Applied Materials (AMAT) moves to Buy.
Portfolio Changes in Last Week’s Special Bulletins:
• Archer Daniels Midland (ADM) was added to the Buy Low Opportunities Portfolio on November 18.
• Total SA (TOT) was added to the Buy Low Opportunities Portfolio on November 18.
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) Wall Street expects Adobe to finish fiscal 2016 with 43.3% EPS growth (November year-end). 2017 EPS are expected to grow 28.9%, with a corresponding P/E of 27.3. Try to buy below 103. Strong Buy.
Amazon (AMZN) fans should make sure to read this informative November 18 article from Investor’s Business Daily. Corporate growth is broad-based, with rising Prime subscriptions, Amazon Web Services margins, retail margins, and investment in new products and services. Full-year EPS are now expected to grow 281% and 89.5% in 2016 and 2017 (December year-end). The corresponding P/Es are 160 and 84.3. AMZN is a Strong Buy on fundamentals. Investors can probably buy AMZN on a near-term bounce below 760. Strong Buy.
American International Group (AIG – yield 2.0%) is an undervalued stock slated for aggressive earnings growth. At last week’s Investor Day, AIG announced continued improvement in expense reduction, core loss ratio, ROE, strategic divestitures and book value per share. (Some news agencies are reporting a 2017 goal of a $25 billion return of capital to shareholders—e.g., dividends and share repurchases—but $25 billion is a two-year goal, including both 2016 and 2017.) The stock will likely break past 65 soon. Strong Buy.
D.R. Horton (DHI – yield 1.4%) Horton finished fiscal 2016 with strong earnings growth and a dividend increase (September year-end). Looking forward to fiscal 2017 and 2018, EPS are expected to grow 12.7% and 10.5%, with corresponding P/Es of 10.7 and 9.7. Homebuilder stocks turned upward last week on news that U.S. housing starts rose to a nine-year high in October. DHI could rise to 34 in the coming months. Buy DHI now. Buy.
Dollar Tree (DLTR) Wall Street is expecting EPS of $0.79 when Dollar Tree reports third-quarter results on the morning of November 22. Expect volatility. DLTR is a slightly undervalued aggressive growth stock with high debt levels. The discount retail stock sector fell for several months and is now rising post-election. The best-case scenario this winter is that DLTR returns to its August highs, around 98. Buy.
Quanta Services (PWR) Analysts increased 2017 earnings estimates again. Full-year EPS are expected to grow 38.7% and 29.9% in 2016 and 2017 (December year-end). The respective P/Es are 20.7 and 16.0. PWR has been rising toward significant upside resistance at 37, at which price PWR will still be undervalued. Strong Buy.
Royal Caribbean Cruises (RCL – yield 2.3%) is up $17 from its summertime lows, and could easily continue climbing toward 100. The stock remains undervalued. Buy.
Vulcan Materials (VMC – yield 0.6%) VMC is an undervalued aggressive growth stock. Last week, I said that the stock was overextended after a quick post-election run-up, and that investors should try to buy on pullbacks. VMC has since fallen $7. It could bounce at 125 or 120, depending on the direction of the broader market. Get ready to Buy VMC. Strong Buy.
WellCare Health Plans (WCG) Last week, WellCare announced the acquisition of rival insurer Universal American Corp. for $600 million, bringing WellCare 79,000 additional health plan members. Wall Street keeps increasing WellCare’s consensus earnings expectations, but the rapidly-rising share price has kept the stock overvalued. WCG is actively reaching all-time highs. In related news, Anthem and Cigna went to trial vs. the Justice Department yesterday. “ ‘Almost no one thinks Anthem and Cigna is going to happen,’ said Chris Rigg, an analyst with Susquehanna Financial Group,” reported The Wall Street Journal. If the Anthem-Cigna merger fails to win regulatory approval by year-end, there’s a decent chance that Cigna will make a buyout offer to WellCare. Hold WCG if you’re in it for the potential buyout offer; otherwise, use a stop-loss order due to overvaluation. Hold.
Updates on Growth & Income Portfolio Stocks
Applied Materials (AMAT – yield 1.3%) (See notes on AMAT’s fourth quarter earnings report in my November 18 Special Bulletin.) Wall Street expects AMAT to grow EPS by 36% in fiscal 2017, with a corresponding P/E of 12.9 (October year-end). However, earnings growth is expected to slow to 4%-5% in 2018. In that light, I’m reducing AMAT to a Buy. AMAT shares broke out of a trading range in recent days. There’s no discernible upside price resistance. Buy.
Big Lots (BIG – yield 1.6%) The stock is now fairly valued, and the chart remains bullish. BIG could rise to 55/56 in the near future. Hold.
Cardinal Health (CAH – yield 2.5%) CAH is fairly valued and the stock is resting after its post-election run-up. Hold.
Carnival (CCL – yield 2.7%) (See my November 14 Special Bulletin.) CCL is climbing steadily toward medium-term resistance at 54-55. Buy.
Federated Investors (FII – yield 3.6%) The stock is overvalued, although earnings estimates have been rising in recent weeks. There’s medium-term upside resistance at 33.50 where FII traded in early 2015. Hold.
GameStop (GME – yield 6.3%) Analysts are expecting 47 cents per share when GameStop reports third quarter results on the afternoon of November 22 (January year-end). NWQ Managers purchased 1.89% of GME’s outstanding shares during the third quarter. The stock is rebounding from a recent drop after a downward earnings revision. Growth & income investors should buy now to lock in a huge dividend yield while awaiting the share price recovery. Buy.
General Motors (GM – yield 4.6%) The price chart remains bullish. GM could reach 35 this year. Hold.
Goldman Sachs Group (GS – yield 1.2%) GS is a Strong Buy on fundamentals. The stock could rise as high as 215, where it traded in June 2015, or fall as low as 175. Patient investors will probably be able to buy on a pullback below 190. Strong Buy.
H&R Block (HRB – yield 3.8%) HRB keeps quickly shaking off bad news, exhibiting two shakeouts in November. I’m beginning to think that it’s gathering steam to rise past upside resistance at 24.25. Buy.
Johnson Controls (JCI – yield 1.9%) (See my November 14 Special Bulletin.) JCI is undervalued based on 2018 EPS (September year-end), the chart is very bullish, and the stock is drawing a lot of interest now that significant M&A activity has subsided. Strong Buy.
Kraft Heinz (KHC – yield 2.9%) is undervalued, with strong earnings growth and a good-sized dividend. After a recent pullback, the best-case scenario for the short-term share price is that it returns to 90 this year. Buy.
Whirlpool (WHR – yield 2.5%) is a very undervalued growth & income stock. WHR is rebounding from its third major price correction this year. Growth investors, dividend investors and traders should buy WHR now. Strong Buy.
Updates on Buy Low Opportunities Portfolio Stocks
Archer Daniels Midland (ADM – yield 2.7%) (See my November 18 Special Bulletin.) Strong Buy.
Boise Cascade (BCC) BCC is a Hold until the share price is ready to show some sustainable strength. Hold.
BorgWarner (BWA – yield 1.6%) is undervalued and appears capable of breaking past 36 at any time now. The stock traded near 45 in the fall of 2015, so that’s your six-month best-case scenario. Buy BWA now. Buy.
Legg Mason (LM – yield 2.7%) (See my November 14 Special Bulletin.) I expect LM to continue rising to 35 in the short term. Strong Buy.
Toll Brothers (TOL) I expect TOL to rise to 32 in the near-term, then to continue on towards 40. Growth investors should buy now. Buy.
Total SA (TOT – 5.9%) (See my November 18 Special Bulletin.) Strong Buy.
Universal Electronics (UEIC) (See my November 14 Special Bulletin.) There’s about 10% short-term upside as UEIC continues climbing. Buy.
Vertex Pharmaceuticals (VRTX) VRTX pulled back last week, after a $20 run-up in early November. VRTX is likely to trade between 85 and 103 in the coming weeks. Time your transactions accordingly. Buy.
