We made it past the first major phase of income tax season. Wow … always a horrendous time in my household. I hope you fared well!
It’s earnings season, first featuring bank stocks, then oilfield service companies a week from today. Most of the other companies in our portfolio won’t report results until early May. Others operate on different fiscal cycles. I’ll send out Special Bulletins as any noteworthy news or price action develops.
More On International Trade …
If you’re wondering “What’s going on with trade between the U.S. and China?” and “Where can I get deeper insight into the economic and cultural situation that’s affecting China’s future?”, look no further than the March issue of Hillsdale College’s Imprimis. The feature article is an excerpt from a speech by David P. Goldman, a senior fellow of the London Institute for Policy Studies: How to Meet the Strategic Challenge Posed by China. The differences between the Chinese and U.S. economies and cultures are fascinating and complex.
Send questions and comments to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from April 12 and 16 in which I mentioned news, rating changes and/or price action on Bank of America (BAC), ConocoPhillips (COP), KLX Inc. (KLXI) and Skechers (SKX).
Quarterly Earnings Release Calendar
April 16 am: Bank of America (BAC) – 1Q
April 17 am: Comerica (CMA) – 1Q
April 18 am: Morgan Stanley (MS) – 1Q
April 19 am: BB&T Corp. (BBT) and Blackstone Group (BX) – 1Q
April 19 pm: Skechers (SKX) – 1Q
April 20 am: Baker Hughes, a GE Company (BHGE) and Schlumberger (SLB) – 1Q
April 23 pm: Alphabet (GOOGL) – 1Q
April 24 am: CIT Group (CIT) and PulteGroup (PHM) – 2Q
April 25 pm: Chipotle Mexican Grill (CMG) and Knight-Swift Transportation (KNX) – 1Q
April 26 am: Alexion Pharmaceuticals (ALXN), ConocoPhillips (COP) and Southwest Airlines (LUV) – 1Q
April 27 am: Interpublic Group of Companies (IPG) – 1Q, and WestRock (WRK) – 2Q
Virtually all companies offer extensive information on their websites pertaining to their quarterly earnings releases, often including slide shows or webcasts.
Buy-Rated Stocks Most Likely* To Rise More Than 5% Near-Term:
Alphabet (GOOGL)
Commercial Metals (CMC)
Molina Healthcare (MOH)
Schlumberger (SLB)
Skechers (SKX)
*I can review price charts and make an educated determination about what’s likely to occur, but I will sometimes be wrong. I cannot control the stock market; I can only guide you through it.
Today’s Portfolio Changes:
(none)
Last Week’s Portfolio Changes:
BB&T Corp. (BBT) moved from Strong Buy to Hold.
ConocoPhillips (COP) moved from Strong Buy to Hold.
KLX Inc. (KLXI) moved from Strong Buy to Hold.
Knight-Swift Transportation (KNX) moved from Strong Buy to Hold.
Updates on Growth Portfolio Stocks
Alphabet Cl. A (GOOGL) – Alphabet is the world’s largest internet company. Revenue is derived from Google’s online ads, with the balance coming from the sale of apps, digital content, services, licensing and hardware. Alphabet is expected to report first quarter EPS of $9.31, within a range of $8.24 to $10.07, on the afternoon of April 23. I will consider GOOGL to be fairly valued when it retraces its January high near 1,190, at which point I plan to sell so as to make room for a more undervalued stock to join the portfolio. Buy GOOGL now for a 14% capital gain. Strong Buy.
Apple (AAPL – yield 1.4%) manufactures a wide range of popular communication and music devices. Apple is an undervalued growth stock, expected to see EPS increase 24.2% in fiscal 2018 (September year-end). The company typically announces a dividend increase in late April. Last year’s increase was 10.5%, and it would not be surprising if this year’s increase is larger because of all that repatriated cash that Apple is now free to bestow upon shareholders. AAPL is rising toward its March high at 182. I expect additional capital gains in 2018. Buy AAPL now. Strong Buy.
Bank of America (BAC – yield 1.6%) is a significantly undervalued growth stock. The company reported a fantastic first quarter yesterday. Buy BAC now for a potential 10% short-term gain as it heads back to its March high near 33. At that point, we’ll have achieved a total return of 39% since BAC joined the Growth Portfolio in June 2017. I might then sell in favor of a smaller financial institution, in order to capitalize on legislative changes that are coming from Congress this year. (BAC will still be a great stock to hold longer-term.) Strong Buy.
CIT Group (CIT – yield 1.2%) operates both a bank holding company and a financial holding company that provide financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT Group is expected to report first quarter EPS of $0.97, within a range of $0.92 to $1.06, on the morning of April 24. Analysts forecast CIT’s full-year EPS to grow 32.6% and 20.6% in 2018 and 2019, and the corresponding P/Es are 12.7 and 10.5. I expect CIT to rise to its March high at 56 in the short term, with additional capital gains in 2018. Buy CIT now. Strong Buy.
ConocoPhillips (COP – yield 1.7%), a global energy exploration and production company, broke out from its 2018 trading range last week, and continues to climb. Earnings estimates jumped last week, but did not change the disparity between the 2018 and 2019 EPS growth rates. ConocoPhillips is expected to report first quarter EPS of $0.80, within a range of $0.45 to $0.72, on the morning of April 26. Consensus estimates point toward full-year EPS growth of 385% and 5.2% in 2018 and 2019. I don’t want to hold COP much longer unless the 2019 earnings growth projection ramps up well into the mid-teens—which could happen after the upcoming earnings season. But if that doesn’t happen, I’ll be selling COP after the current run-up, in favor of a stock with better multi-year earnings growth expectations. Hold.
Delek US Holdings (DK – yield 1.8%) is a diversified downstream energy company and a very undervalued small-cap stock. Analysts expect EPS to grow 133% in 2018, with continued strong growth in subsequent years. Last week, Raymond James raised their price target on DK to 50. DK could appeal to investors who have a focus on value, growth or dividend income. DK began reaching new all-time highs in mid-March, and continues climbing. Buy DK now and buy more on dips. Strong Buy.
KLX Inc. (KLXI) is an undervalued, small-cap aggressive growth stock in the aerospace and energy service industries. In late December 2017, KLX announced that it hired Goldman Sachs to represent the company after receiving inquiries from interested parties about possibly buying all or part of KLX. KLX is expected to see 2019 EPS grow 34.3%. The stock began reaching new all-time highs last week. Hold.
Knight-Swift Transportation Holdings (KNX – yield 0.5%) is a truckload carrier formed from the September 2017 merger between Knight Transportation and Swift Transportation Company. The company just completed its seasonally-slow first quarter. Knight-Swift Transportation is expected to report first quarter EPS of $0.41, within a range of $0.35 to $0.47, on the afternoon of April 25. The market expects full-year EPS to grow 65.2% and 19.7% in 2018 and 2019. KNX is an undervalued mid-cap stock. KNX rose to new all-time highs this year, then pulled back with the weak market. The worst might be over, and I might be moving KNX back to a Buy recommendation quite soon. Hold.
Martin Marietta Materials (MLM – yield 0.9%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. In this Fortune interview, CEO Ward Nye expresses optimism that Martin Marietta will benefit from border wall and infrastructure construction projects, the latter of which may be financed by a new gasoline tax. He also expressed that his customers in the contracting community “are having better backlogs today than they’ve had in more than a decade.” Consensus estimates point to EPS growth of 19.8% and 24.8% in 2018 and 2019. The corresponding P/Es are 22.9 and 18.4, making the stock undervalued based on 2019 numbers. MLM has been resting at strong price support near 200. As the stock makes its way back to its January high of 240 in the coming months, the changing numbers will guide my decision as to whether to hold the stock for additional capital gains above 240. Strong Buy.
Molina Healthcare (MOH) is a managed healthcare operator that offers health information management solutions to nearly five million members who receive their care through Medicaid, Medicare, health insurance exchanges and other government-funded programs in fifteen states. Molina Healthcare was featured in the April issue of Cabot Undervalued Stocks Advisor. The market is currently focused on continued progress with the company’s restructuring goals, which have been pleasing analysts thus far. The consensus earnings estimate for 2018 stood at $2.83 per share back in October, and then rose steadily. Analysts now expect Molina to achieve earnings per share (EPS) of $3.69 and $4.46 in 2018 and 2019. MOH is actively rising from the lows of its recent price correction. When MOH reaches 92, I expect it to rest briefly before reaching new all-time highs again in 2018. Buy MOH now. Strong Buy.
PulteGroup (PHM – yield 1.2%) is a U.S. homebuilder and a very undervalued aggressive growth stock. PulteGroup is expected to report first quarter EPS of $0.45, within a range of $0.34 to $0.50, on the morning of April 24. The consensus full-year 2018 EPS projection is $3.09, reflecting 50% year-over-year growth. PHM has slowly begun its recovery from the market correction. I expect the stock to head back to 35, where it last traded in January, and to deliver additional capital gains in 2018. Buy PHM now. Strong Buy.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Consensus earnings estimates reflect 30.5% EPS growth in 2018, and the stock is undervalued. PWR has been resting at strong price support near 33.5. In the coming months, I expect PWR to rise to its January high of 40, with additional capital gains in 2018. Buy PWR now. Strong Buy.
Southwest Airlines (LUV – yield 0.9%) is the largest U.S. domestic air carrier, transporting over 120 million customers annually to over 100 locations in the U.S., Central America and the Caribbean. Based on recent statements by Warren Buffett, the investment world is speculating that Berkshire Hathaway (BRK) might purchase Southwest Airlines … the entire company. The company is expected to report first quarter EPS of $0.74, within a range of $0.71 to $ 0.83, on the morning of April 26. Analysts expect Southwest’s full-year EPS to grow 39.1% in 2018, and the P/E is just 11.3. The stock is low within its trading range, offering a 19% capital gain when LUV returns to its January high of 66, with additional capital gains in 2018. Buy LUV now. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 2.9%) is a 145-year-old financial holding company with $222 billion in assets and 2,100 financial centers that serves businesses and individuals. BB&T is expected to report first quarter EPS of $0.92, within a range of $0.87 to $0.96, on the morning of April 19. Three investment firms raised their ratings and/or price targets on BBT last week, including Wedbush with a price target of 111. Analysts expect full-year EPS to grow 41.2% and 8.1% in 2018 and 2019. I will sell BBT near its January high of 56 if the 2019 earnings growth rate does not improve further. The stock’s still a good investment, but I have stocks with stronger 2019 earnings growth projections waiting in the wings. Hold.
Blackstone Group LP (BX—yield 8.7%*) is the world’s largest and most diversified alternative asset manager with $434 billion in client assets. The company raises tens of billions of dollars from investors and deploys the capital into private equity, lower-rated credit instruments, hedge funds and real estate. Blackstone is expected to report first quarter economic net income (ENI) of $0.51, within a range of $0.06 to $0.81, on the morning of April 19. Full-year earnings estimates dropped last week. Analysts now expect Blackstone’s full-year ENI to fall 0.7% in 2018, then to grow 15.1% in 2019. I expect those numbers to change again after Wall Street digests this week’s quarterly earnings report. In the coming months, I expect BX to rise to its January high near 36. Strong Buy.
*The payout varies each quarter, with the total of the last four announced payouts yielding 8.7%.
Comerica (CMA – yield 1.2%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica was featured in the April issue of Cabot Undervalued Stocks Advisor. Comerica is profiting more from rising interest rates in its variable rate loan portfolio than any of its mid-cap bank peers, which could lead to a surprising first quarter increase in net interest margin (NIM). Comerica is expected to report first quarter EPS of $1.53, within a range of $1.40 to $1.65, on the morning of April 17. Full-year consensus earnings estimates rose again last week, with EPS now expected to increase 39.1% and 10.9% in 2018 and 2019.
I’ve been awaiting Comerica’s late-April annual dividend increase, which might be reported in conjunction with quarterly financial results. Watch for a 10%-20% dividend increase. (A 20% increase is my bullish guess, while the last two increases ranged from 11%-15%.) The price chart is relatively bullish. CMA rose to new all-time highs in January, pulled back with the stock market correction, rose to new highs again in both February and March, then had another pullback. Buy CMA now. Buy.
Commercial Metals Company (CMC – yield 2.4%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. CMC is an extremely undervalued aggressive growth stock. Despite all the scary headlines about steel tariffs and trade wars, Wall Street analysts expect EPS to grow 93.0% and 66.4% in 2018 and 2019 (August year-end), with corresponding P/Es of 14.8 and 8.9. The disparity between the earnings growth rates and the P/Es is somewhat absurd. After falling in March, share prices of most steel stocks turned upward in recent weeks. There’s 28% upside when CMC returns to its March high of 26. Strong Buy.
GameStop (GME – yield 11.2%) is a retailer of games, collectibles and technology; with additional ventures in the entertainment field. The company is going through a multi-year shift in product emphasis, to which the stock has reacted poorly. On March 29, I sent a Special Bulletin regarding the fourth quarter earnings report, and suggested that investors sell half their shares. The stock has stabilized from its recent decline, but is not yet ready to rise. Sell Half.
The Interpublic Group of Companies (IPG – yield 3.6%) is a large conglomerate of advertising, marketing, communications and public relations companies serving all global markets. Interpublic is expected to report first quarter EPS of $0.05, within a range of $0.02 to $0.09, on the morning of April 27. IPG is an undervalued growth & income stock with an attractive rising annual dividend. The company is expected to see full-year 2018 EPS grow 22.0%. (Earnings growth slows in 2019.) In the coming months, I expect IPG to rise to its February high at 25, and to rise further in 2018. Strong Buy.
Morgan Stanley (MS – yield 1.8%) is a major U.S. investment bank and wealth manager, and an undervalued, large-cap growth stock. Morgan Stanley is expected to report first quarter EPS of $1.25, within a range of $1.15 to $1.33, on the morning of April 18. Analysts are expecting full-year EPS to grow 25.6% in 2018. As the market recovers, I expect MS to rise to its March high at 59, with additional capital gains in 2018. Buy MS now. Strong Buy.
Schlumberger (SLB – yield 2.9%) is the world’s largest oilfield service company. Schlumberber is expected to report first quarter EPS of $0.37, within a range of $0.34 to $0.43, on the morning of April 20. The number of U.S. rigs drilling for crude oil and natural gas rose by five last week to a total of 1,008, up 161 vs. a year ago. Analysts are expecting full-year 2018 EPS to grow 43.3% and 47.4% in 2018 and 2019. SLB appears ready to rise past 69 this week, on its way to its January high of 79. Strong Buy.
WestRock Company (WRK – yield 2.6%) is a global packaging and container company. WestRock is expected to report second quarter EPS of $0.79, within a range of $0.83 to $0.87, on the morning of April 27. Full-year consensus earnings estimates have been consistently rising all year. Analysts now expect EPS to increase 53.8% and 14.4% in 2018 and 2019. The 2018 P/E is just 16.1. WRK is gradually rising toward its January high at 70. Strong Buy.
Updates on Buy Low Opportunities Portfolio Stocks
Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. Alexion is expected to report first quarter EPS of $1.50, within a range of $1.40 to $1.62, on the morning of April 26. Analysts expect full-year 2018 and 2019 EPS to grow 17.1% and 23.3%. The corresponding P/Es are 16.2 and 13.2. Last week, Nomura raised their price target on ALXN to 165. As the market rebounds, I expect ALXN to rebound to its March high of 127, with lots more capital gain potential this year. Strong Buy.
Baker Hughes, a GE Co. (BHGE – yield 2.2%) offers products, services and digital solutions to the international oil and gas community. The number of U.S. rigs drilling for crude oil and natural gas rose by five last week to a total of 1,008, up 161 vs. a year ago. Baker Hughes is expected to report first quarter EPS of $0.06, within a range of $0.02 to $0.12, on the morning of April 20. Wall Street expects full-year EPS to grow 79% and 102% in 2018 and 2019. The stock has been racing upward this month, and will likely rest a bit when it reaches 34. Strong Buy.
Chipotle Mexican Grill (CMG) is a growing restaurant chain, and an aggressive growth stock. Chipotle is expected to report first quarter EPS of $1.58, within a range of $1.31 to $1.98, on the afternoon of April 25. Analysts expect full-year EPS to grow 28% and 29% in 2018 and 2019. CMG fell dramatically and quickly rebounded in early February. A stock will often subsequently trade sideways for about eight weeks before it can continue rising after a big run-up, or a big rebound. We’re at the eight-week point with CMG now, so it wouldn’t surprise me if the stock made some progress before the month is out. There’s price resistance at 345. Hold.
PBF Energy Inc. (PBF – yield 3.2%) is one of the largest U.S.-based petroleum refining and marketing companies. PBF serves the U.S., Canada and other international locales. Wall Street expects aggressive EPS growth rates of 167% and 28.9% in 2018 and 2019, and the stock is undervalued. One major Wall Street bank gives PBF a sum-of-the-parts valuation of $52. PBF has been rising for many weeks, and appears to be blowing right past its January high at 36. (When that happens, it’s fairly common for the stock to pull back in the near term before continuing upward.) Strong Buy.
Skechers USA Inc. (SKX) is an apparel company that designs and manufactures affordable footwear for people of all ages. The company is based in California, and sells its products in over 160 countries and territories in Asia, Europe, the Middle East and the Americas, through wholesale, retail and e-commerce venues. Skechers USA was featured in the April issue of Cabot Undervalued Stocks Advisor.
Skechers is expected to report first quarter EPS of $0.74, within a range of $0.71 to $0.77, on the afternoon of April 19. Full-year earnings per share are expected to grow aggressively at 28.1% and 18.4% in 2018 and 2019. Corresponding P/Es are 18.4 and 15.5. SKX is an undervalued mid-cap growth stock. SKX broke out from its 2018 trading range last week, but nobody has missed the run-up in the share price. I currently plan to hold SKX until it retraces its high of 53 from 2015. Buy SKX now. Strong Buy.
Supernus Pharmaceuticals (SUPN) focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy and ADHD. Analysts expect EPS to grow 47.6% in 2018, with continued aggressive growth in subsequent years. The stock is undervalued, and much farther along in its recovery from the market correction than most stocks. I expect SUPN to rise to 50 this year, where it last traded in September 2017. Buy.
TiVo (TIVO – yield 4.9%) is an entertainment technology company that joined the Buy Low Opportunities Portfolio specifically because it’s a takeover target. (See the Special Bulletin from March 5.) I expect patient investors to be rewarded with capital gains in 2018, either from a buyout offer or from price increases related to the current low valuation. Expect volatility. Strong Buy.
Universal Electronics (UEIC) is a manufacturer and cutting-edge world leader of wireless remote control products, software, and audio-video accessories for the smart home; with a strong pipeline of new products. UEIC is an undervalued micro-cap growth stock, with minimal debt on the balance sheet. Analysts expect EPS to grow 21.7% and 20.8% in 2018, with corresponding P/Es of 14.5 and 12.0. Keep in mind that small, financially-strong companies make attractive takeover targets. I expect UEIC to rebound to 66, where it last traded in October 2017. Strong Buy.
