Weekly Update: Who Benefits From Apple Share Repurchases?
Negative people really irk me. As soon as Apple announced a new $100 billion share repurchase authorization last week, a vocal contingent of citizens opined at Apple’s selfishness, twisting the good news into an attack on free-market capitalism. You probably meet these people occasionally, so I’m going to give you a little bit of ammunition in order to help them reason things through.
The new federal income tax legislation provided a way for U.S. companies to bring overseas cash back to the U.S., by allowing them to pay a lower income tax rate on the cash than they would have previously been subjected to. In so doing, Apple found itself with an astonishing amount of money with which to deploy. Keep in mind that Apple was not required to do anything at all with that money. They could have just parked it in U.S. Treasuries or built factories around the world. Instead, they’re giving it back to American citizens.
“What? How could that be? Capitalists are horrible people! You must be wrong, Crista. I’m sure Apple is planning to buy yachts for rich people with that money!”
Let’s examine how Apple is giving the money away, and who’s receiving it, shall we? We can start by answering the question, “Who owns Apple stock?”
According to a Gallup poll spanning eight years between 2009 and 2017, 54% of adults polled responded that they own stock investments, either individually, or jointly with a spouse. There are approximately 245 million adults in the U.S. If 54% of them own stock investments, that means 132 million adult Americans own stock investments.
• There are 167 exchange-traded funds (ETFs) that count AAPL among their top 15 stock holdings. (And of course, there are many additional ETFs that also own AAPL.)
• AAPL makes up 4.0% of the S&P 500 index, which means your S&P index mutual funds own AAPL.
• AAPL is also a weighty component of the Dow Jones Industrial Average and the Russell 3000 Index, and each of those indices are duplicated by many mutual funds.
• AAPL is a component of many hundreds of growth stock mutual funds, growth & income mutual funds, balanced mutual funds and large-cap mutual funds. No matter what your investment objective, AAPL probably holds a place in your investment portfolio.
If you are an investor who owns mutual funds or ETFs, either in taxable accounts, IRA accounts, children’s custodial accounts, variable annuities, pension funds, 401(k) plans or 403(b) plans, you probably own AAPL as part of those funds’ portfolios. In addition, many Americans own AAPL within their stock portfolios. So I think it’s fair to estimate that of the 132 million adult Americans who own stock investments, at least 100 million investors own AAPL.
Great! Everybody owns AAPL! Now let’s examine how much money Apple is giving away, and how investors receive that money.
Apple just raised its quarterly dividend payout from $0.63 to $0.73, or an increase of ten cents per share. The annual increase is forty cents per share. There are 4.915 billion shares of Apple common stock outstanding. If we multiply the number of shares times the dividend increase, that means shareholders are receiving an extra $1.966 billion in annual dividend income from Apple, beginning right now and continuing until the day that Apple can no longer afford to pay that dividend. Apple is therefore contributing to the personal income of 100 million Americans via its dividend payout.
$1.966 billion in dividend income is an exciting number, for sure. But it pales in comparison to the $100 billion that Apple is also giving away through its latest share repurchase authorization. Here’s how that works.
Apple will periodically buy its common stock on the open market until it spends the entire $100 billion. Share repurchase authorizations usually last between one and three years, and after companies spend the allotted money, they very often authorize new dollar amounts to be repurchased.
As Apple buys its stock, the purchasing power serves to shore up the share price during down or stagnant markets, and to push the share price higher during bull markets. As a shareholder, to a very large extent, you don’t have to worry that the AAPL share price will ever plummet. That’s because Apple has the discretion to decide when to repurchase shares. They will naturally repurchase more shares during down markets while the share price is lower, and that buying activity will provide price support.
As an AAPL shareholder, you benefit because you own a stock that will not fall very much, and if it falls, it will probably recover quite soon. In addition, there’s a guarantee of $100 billion of purchasing power that will be directed specifically to AAPL shares, which will drive its price up, thereby increasing your personal net worth and the net worth of the 100 million other investors who also own AAPL.
Does this dividend and share repurchase activity sound like a selfish action on the part of a greedy company that’s trying to curry favor among yacht-owners? Or does this activity sound like a blessing to you and your neighbors’ net worths?
I bought more shares of Apple last week. And I mentally moved it from “trading stock” status to “long-term hold” status. I hope you’re also benefiting from Apple’s successes and generosity.
Send questions and comments to Crista@CabotWealth.com
PORTFOLIO NOTES
Be sure to review the Special Bulletins from May 2, 3 and 7 in which I mentioned news, rating changes and/or price action on Apple (AAPL), CIT Group (CIT), Delek US Holdings (DK), KLX Inc. (KLXI), Martin Marietta Materials (MLM), PBF Energy (PBF) and Universal Electronics (UEIC).
Quarterly Earnings Release Calendar
May 8 a.m.: Supernus Pharmaceuticals (SUPN) – 1Q
May 10 p.m.: TiVo (TIVO) – 1Q
Virtually all companies offer extensive information on their websites pertaining to their quarterly earnings releases, often including slide shows or webcasts.
Earnings Season Scorecard
Big Earnings Beat: Alexion Pharmaceuticals (ALXN), Alphabet (GOOGL), BB&T Corp. (BBT), Baker Hughes, a GE company (BHGE), Bank of America (BAC), Blackstone Group (BX), Chipotle Mexican Grill (CMG), Delek US Holdings (DK), Knight-Swift Transportation (KNX), Molina Healthcare (MOH), Morgan Stanley (MS), PulteGroup (PHM) and Quanta Services (PWR)
Slight Earnings Beat: Apple (AAPL), Comerica (CMA), Schlumberger (SLB), Skechers (SKX) and Southwest Airlines (LUV)
Slight Earnings Miss: The Interpublic Group of Companies (IPG), Universal Electronics (UEIC) and WestRock (WRK)
Big Earnings Miss: CIT Group (CIT), Martin Marietta Materials (MLM) and PBF Energy (PBF)
Buy-Rated Stocks Most Likely* To Rise More Than 5% Near-Term:
Apple (AAPL)
CIT Group (CIT)
Commercial Metals (CMC)
PulteGroup (PHM)
WestRock (WRK)
*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:
Supernus Pharmaceuticals (SUPN) moves from Buy to Strong Buy.
Last Week’s Portfolio Changes:
D.R. Horton (DHI) joined the Growth Portfolio as a Strong Buy.
PBF Energy (PBF) moved from the Buy Low Opportunities Portfolio to the Growth & Income Portfolio; and from Strong Buy to Hold.
Updates on Growth Portfolio Stocks
Alphabet Cl. A (GOOGL) 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. Analysts expect Alphabet’s EPS to grow 37.5% and 7.1% in 2018 and 2019. I’ve been wary of Alphabet’s growth & value profile for 2019, and apparently I’m not alone. At his annual shareholder meeting this past weekend, Berkshire Hathaway CEO Warren Buffett concurred. Per a report by The New York Times, “[Buffett] said he was unable to conclude that at Alphabet’s present prices, its ‘prospects were far better than the prices indicated.’ ” I plan to sell GOOGL at the top of its steady trading range at 1,190 if 2019 earnings projections don’t rise toward the mid-double-digits. There’s room for traders to buy below 1,080 and make 10% profit as the stock returns to 1,190. Hold.
Apple (AAPL – yield 1.6%) manufactures a wide range of popular communication and music devices. Apple’s second quarter earnings report was featured in a Special Bulletin on May 2. The company slightly surpassed revenue and profit expectations, increased the quarterly dividend from $0.63 to $0.73, and plans to repurchase another $100 billion of its common stock. It should be noted that Warren Buffett’s Berkshire Hathaway (BRK) is Apple’s largest shareholder. Buffett began buying AAPL only two years ago, and now owns $40.7 billion of the stock amounting to 5% of Apple’s outstanding shares. Buffett approves of Apple’s new repurchase authorization.
Share repurchases serve to provide price support, and also to push the share price upwards. Therefore, AAPL shareholders have less downside risk with AAPL than they do with most other stocks. Apple is an undervalued growth stock, now expected to see EPS increase 24.9% and 14.9% in fiscal 2018 and 2019 (September year-end). The corresponding P/Es are 16.0 and 13.9. (Earnings estimates for 2018 through 2020 have been consistently increasing.)
The market was relatively shocked at Apple’s quarterly success and announcements, and the stock rose to a new all-time high. It’s common that when stocks break out of trading ranges, they pull back once more for a brief period of time before commencing a new run-up. You might therefore get one more chance to buy AAPL in the upper 170’s this month. Buy AAPL now and buy more on pullbacks. Strong Buy.
Bank of America (BAC – yield 1.6%) has seen its consensus earnings estimates rising gradually throughout April. At this point, EPS growth rates are projected to be 39.9% and 13.3% in 2018 and 2019. The corresponding P/Es are 11.4 and 10.1. The stock came back down to price support last week. There’s 12% upside for new shareholders as BAC rebounds toward its recent high near 33. At that point, I will likely sell in favor of a small bank or property & casualty insurance company in order to position the portfolio to potentially capture future M&A activity. Hold.
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. If interested, you may review the Special Bulletin from May 3 in which I discussed CIT Group’s Dutch auction tender offer. I am not recommending that investors sell CIT. Analysts expect EPS to grow 27.0% and 25.9% in 2018 and 2019. The corresponding P/Es are quite low at 13.6 and 10.8. I expect CIT to rise to its March high at 56 in the short term, with additional capital gains in 2018. Strong Buy.
D.R. Horton (DHI – yield 1.1%) is America’s largest homebuilder, based in Ft. Worth, TX and operating in 26 states. The company also provides mortgage, insurance and title services. D.R. Horton was featured in the May issue of Cabot Undervalued Stocks Advisor. After achieving 16.9% earnings growth in 2017 (September year-end), D.R. Horton is expected to see EPS grow 33.6% and 19.7% in 2018 and 2019. Price/earnings ratios (P/E) remain low at 12.1 and 10.1 for fiscal 2018 and 2019. There’s 18% upside as DHI rebounds toward 53, where it peaked in January. I anticipate additional capital gains later this year. Buy DHI now. Strong Buy.
Delek US Holdings (DK – yield 1.6% $1.00) is a diversified downstream energy company and a very undervalued small-cap stock. The company reported first quarter adjusted diluted earnings per share of $0.33 last night, when the market was expecting (-$0.13). The surprisingly high profit was enhanced by the net effect of RIN waivers and mark-to-market adjustments, and harmed by an extended period of downtime at Delek’s Big Springs refinery and an operating loss at its asphalt operations. Revenue of $2.35 billion exceeded the consensus estimate of $2.1 billion. CEO Uzi Yemin was very pleased with results, stating “Delek is the premier Permian Basin refining company.” Highlights from the quarter include:
• After raising the annual dividend payout by 33% in February, Delek raised the dividend by another 25% yesterday to $1.00 per share. The company additionally repurchased $95.3 million of stock during the quarter.
• The company completed a simplification of its debt structure, which is expected to yield $20 million in annual interest savings.
• The company increased its goal of total cost savings from its acquisition of Alon USA Energy.
• The company is divesting various non-core assets acquired in its July 2017 Alon USA purchase. Delek sold some California assets in the first quarter, and is expected to sell an asphalt business in the second quarter.
Prior to first quarter results, Wall Street expected full-year EPS to grow 164% and 25.7% in 2018 and 2019, and P/Es were in the low-to-mid teens. I expect those numbers to improve as analysts adjust their projections on the heels of the earnings & revenue beat. DK could appeal to investors who have a focus on value, growth or dividend income. DK presents an astonishing value to investors; however, after 12 weeks of uninterrupted price appreciation, I won’t be encouraging investors to buy again until the stock rests for a while. Hold.
KLX Inc. (KLXI) – Please refer to the Special Bulletins from May 2 and 7 in which I described the KLX decisions to allow Boeing (BA) to acquire its Aerospace Solutions Group (ASG), and to spin off its Energy Services Group (ESG) to shareholders. At a current price of $72 per KLXI share, minus the value of the Boeing-ASG transaction at $63, the market is valuing the ESG business at $9 per share.
If you buy KLXI and are willing to wait for the two M&A transactions to take place, you will have $63 cash per share returned to you, and you will own shares of the new KLX Energy Services (KLXE). The Boeing cash transaction is expected to be completed by September 1, and the KLXE spinoff could happen at any point between now and the completion of the Boeing transaction. (You are free to sell KLXI on any business day prior to the spinoff and prior to the completion of both transactions. You could, for example, receive the spinoff shares in July, at which time your remaining shares of KLXI will trade near $63 until the Boeing transaction is completed. You could sell your remaining KLXI shares on the open market, or just wait for the Boeing transaction to be completed, at which time the cash will show up in your brokerage account.)
I expect KLXI to rise to a more fair valuation in the coming weeks, reflecting a true value of the ESG spinoff. I see incredible value here. Please visit the KLX website and view the webcast and slide presentation to learn more about KLX’s rapidly-growing ESG business. Strong Buy.
Knight-Swift Transportation Holdings (KNX – yield 0.6%) is a truckload carrier formed from the September 2017 merger between Knight Transportation and Swift Transportation Company. Analysts expect EPS to grow 67.4% and 18.6% in 2018 and 2019. The corresponding P/Es are 16.9 and 14.2. KNX is an undervalued mid-cap stock. The stock seems to have found price support at 38-39 after a recent fall. It’s not yet ready to rebound. There’s 28% upside as KNX eventually rebounds to its 2018 high at 50. Strong Buy.
Martin Marietta Materials (MLM – yield 0.9%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. The company reported $0.16 adjusted first quarter EPS this morning, below the consensus estimate of $0.22 per share. Revenue of $802 million exceeded the consensus estimate of $778 million. The company saw strong shipment volumes on days not impacted by typical winter weather. New full-year revenue guidance in a range of $4.3 billion to $4.5 billion exceeds the consensus estimate of $4.0 billion. The company expects price increases for all products and segments this year.
The company recently acquired Bluegrass Materials Company, which strengthens Martin Marietta’s position in the southeastern and Mid-Atlantic regions. The acquisition is expected to add to earnings per share within its first full year with Martin Marietta.
CEO Ward Nye stated, “As we start the year, we are encouraged by ongoing customer optimism and our first-quarter results, both of which are consistent with our expectations. We believe the United States is in the midst of a steady, multi-year construction recovery.” Prior to first quarter results, consensus estimates pointed to full-year EPS growth of 18.5% and 24.3% in 2018 and 2019.
MLM surged last week after industry peer Vulcan Materials (VMC) reported first quarter results that were far better than Wall Street had expected. The stock continues rising this morning, on its way to short-term price resistance at 210. Buy MLM now and buy more on pullbacks. 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. The company will receive important news regarding Washington State contracts around May 22. Hold.
PulteGroup (PHM – yield 1.2%) is a U.S. homebuilder and a very undervalued aggressive growth stock. Consensus earnings estimates rose again last week, now reflecting 60.2% and 12.4% EPS growth in 2018 and 2019. The corresponding P/Es are 9.4 and 8.4. PHM is recovering from a big 2018 price correction experienced by most of its homebuilding peers. (After their huge 2017 run-ups, the extended pullback is not surprising.). Buy PHM now for 12% upside on the rebound, and additional capital gains thereafter. Strong Buy.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Quanta reported first quarter 2018 EPS of $0.40 when the market expected $0.32; and record quarterly revenue of $2.42 billion, above all analysts’ estimates. The company repurchased $179.3 million of its common stock during the quarter, with $76.1 million remaining in the current repurchase authorization. The earnings press release additionally describes two large new projects, and five acquisitions in the last five quarters.
PWR is an undervalued mid-cap growth stock. Full-year consensus earnings estimates jumped last week, now reflecting 34.0% and 17.4% EPS growth in 2018 and 2019. The corresponding P/Es are 13.2 and 11.3. What’s more, Quanta guided full-year 2018 numbers higher than analysts’ revisions, reflecting approximately 39.6% 2018 EPS growth, within the mid-range of its guidance. The strong earnings report caused the share price to shoot upward. There’s short-term price resistance at 36. In the coming months, I expect PWR to rise to its January high of 40, with additional capital gains thereafter. Buy PWR now and buy more on pullbacks. 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. LUV is an undervalued stock that’s experiencing aggressive earnings growth this year. Earnings estimates came down last week. Analysts now expect EPS to grow 28.9% and 18.2% in 2018 and 2019. The corresponding P/Es are 11.7 and 9.9. LUV is not yet ready to rebound toward its recent high of 66. That being said, patient investors who buy LUV now will be getting quite a bargain. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 2.8%) is a 145-year-old financial holding company with $222 billion in assets and 2,100 financial centers that serves businesses and individuals. Earnings estimates have steadily risen for the past four months. Analysts expect full-year EPS to grow 43.4% and 8.5% in 2018 and 2019. The pace of loan growth in the balance of 2018 will likely be key to BBT’s desirability as a portfolio holding in 2019. I’ll therefore be closely monitoring 2019 earnings estimates, which are currently a little lower than I prefer. The stock could reach short-term price resistance at 56 quite soon. Hold.
Blackstone Group LP (BX—yield 7.8*) is the world’s largest and most diversified alternative asset manager with $450 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. Analysts expect Blackstone’s economic net income (ENI) to grow 3.1% and 11.7% in 2018 and 2019. Last week, Blackstone’s industry peer KKR & Co. LP (KKR) announced that it will change from a partnership to a corporation as of July 1. Lower U.S. income tax rates were the decisive factor, as KKR weighed the benefit of attracting more investors vs. paying significantly higher income tax rates under a new corporate structure. KKR estimates that it will attract investments from mutual funds that are not permitted to invest in limited partnerships. Blackstone’s shares rose in tandem with KKR’s price spike upon the announcement, although there’s no current and credible buzz that Blackstone will follow KKR down the path to C-corp structure. BX is rising toward its January high near 36. BX could appeal to dividend investors, growth & income investors, and traders who would be happy with a potential 10% capital gain this year. Buy BX now. Strong Buy.
*The payout varies each quarter, with the total of the last four announced payouts, plus the $0.30 special 2018 distribution, yielding 7.8%.
Comerica (CMA – yield 1.4%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. The company is in a strong position to capitalize on rising interest rates that contribute to increases in net interest margin (NIM) through its variable rate loan portfolio. Comerica is expected to increase EPS by 41.0% and 11.5% in 2018 and 2019. The corresponding P/Es are 14.0 and 12.6. The stock is trading quietly between 92 and 102. I expect additional capital appreciation this year. Buy CMA now. Buy.
Commercial Metals Company (CMC – yield 2.2%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. U.S. industrywide pricing is expected to remain strong due to robust economic activity, lower steel supply, and lower import volumes due to tariffs. Commercial Metals was featured in the May issue of Cabot Undervalued Stocks Advisor. Wall Street analysts expect EPS to grow 97.2% and 65.0% in 2018 and 2019 (August year-end), with corresponding P/Es of 15.7 and 9.5. The disparity between the earnings growth rates and the P/Es is somewhat absurd. CMC is actively rising toward its March high of 26. I expect additional gains thereafter. Buy CMC now. Strong Buy.
GameStop (GME – yield 11.0%) 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. Sell Half.
The Interpublic Group of Companies (IPG – yield 3.5%) is a large conglomerate of advertising, marketing, communication and public relations companies serving all global markets. Its clients include Alphabet (GOOGL), Microsoft (MSFT) and Coca-Cola (KO). Wall Street expects full-year 2018 EPS to grow 22.0%, and the P/E is 13.8. IPG is an undervalued growth & income stock with an attractive dividend yield. IPG is trading near its former high of 25 from July 2017. I expect additional capital gains in 2018, and will likely sell later this year if 2019 earnings projections don’t increase. Strong Buy.
Morgan Stanley (MS – yield 1.9%) is a major U.S. investment bank and wealth manager, and an undervalued, large-cap growth stock. MS is sitting at the very bottom of its 2018 trading range, offering new investors 12% upside as MS retraces its March high at 59. I expect additional capital appreciation thereafter. Buy MS now. Strong Buy.
PBF Energy Inc. (PBF – yield 3.0%) is one of the largest U.S.-based petroleum refining and marketing companies, serving the U.S., Canada and other international locales. PBF reported a first quarter loss of ($0.29) per adjusted share when the market was expecting ($0.20); and $5.8 billion revenue vs. the $5.37 billion consensus estimate. The company completed turnarounds in four of its five facilities during the quarter. The market did not scowl at the earnings miss, and earnings estimates rose again last week. Wall Street now expects aggressive full-year EPS growth rates of 155% and 37.1% in 2018 and 2019. The corresponding P/Es are very low at 13.5 and 9.9. PBF continues to reach new all-time highs. I moved PBF from Strong Buy to Hold yesterday. I’d like to see the stock rest for a while before encouraging people to buy. Hold.
Schlumberger (SLB – yield 2.8%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas rose by eleven last week to a total of 1,032, up 155 vs. a year ago. Analysts are expecting full-year EPS to grow 40.7% and 43.1% in 2018 and 2019, with corresponding P/Es of 32.6 and 22.8. There’s 11% upside as SLB retraces its January high of 79. Buy SLB now. Strong Buy.
WestRock Company (WRK – yield 2.9%) is a global packaging and container company. WestRock’s acquisition of Kapstone Paper and Packaging is expected to close in the early fall. Analysts expect full-year EPS to increase 53.8% and 16.1% in 2018 and 2019. The corresponding P/Es are low in comparison at 14.7 and 12.7. The share price suffered in late May, and seems to have begun its rebound. There’s 16% upside as the stock gradually retraces 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. Consensus earnings estimates rose again last week. Alexion is now expected to achieve 19.6% and 22.0% EPS growth in 2018 and 2019. The corresponding P/Es are 16.7 and 13.7. ALXN shot upward in late April, then had a quick pullback. I expect the stock to rise toward its March high of 127. Strong Buy.
Baker Hughes, a GE co. (BHGE – yield 2.0%) 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 eleven last week to a total of 1,032, up 155 vs. a year ago. BHGE is a large-cap stock with heavy institutional ownership. Wall Street expects full-year EPS to grow 83.7% and 98.7% in 2018 and 2019. The corresponding P/Es are 45.6 and 22.9. BHGE is hovering near medium-term price resistance at 37. I anticipate a pullback, although the stock could surprise me and keep rising. Buy on dips. 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. Motley Fool featured SKX this month in 2 Stocks That Look Just Like eBay in 1998, citing the company’s rapid international growth and saying, “Skechers can continue to grow at a robust pace for years to come.” Earnings per share are expected to grow aggressively at 18.5% per year in 2018 and 2019. Corresponding P/Es are 13.6 and 11.5. SKX is an undervalued mid-cap growth stock. SKX fell a crazy amount after the earnings release, and seems to be finding price support at 28. It’s going to need to rest before attempting a rebound. I encourage investors to hold SKX, and consider buying more shares while the price is depressed. 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. SUPN is an undervalued, small-cap aggressive growth stock. The company is expected to report first quarter results of $0.33 per share on the afternoon of May 8, within a range of $0.20 and $0.45. Analysts expect full-year EPS to grow 47.6% in 2018, with continued aggressive growth in subsequent years. SUPN rose to 49 in April, and has now pulled back below 46 (which I was hoping it would do). I’m moving SUPN from Buy to Strong Buy. Optimally, buy below 46. Strong Buy.
TiVo (TIVO – yield 5.2%) is an entertainment technology company that joined the Buy Low Opportunities Portfolio in early March specifically because it’s a takeover target. TiVo was featured in the May issue of Cabot Undervalued Stocks Advisor. The company believes that its share price is inappropriately low, leading a TiVo representative to publicly discuss their interest in being acquired or going private. According to the linked article, “multiple buyers have expressed interest in acquiring TiVo.” Yet the share price has barely reacted to the news that emerged in late February.
Analysts expect TiVo to report first quarter EPS of $0.34, within a range of $0.30 to $0.39, on the afternoon of May 10. Full year earnings per share were $1.80 in 2017, and are expected to be $1.53 and $1.98 in 2018 and 2019. The 2018 P/E is just 8.9.
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. The stock additionally has a very attractive dividend yield. Speculative investors and dividend investors should consider owning TIVO today. 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 aggressive growth stock, with minimal debt on the balance sheet. The stock is volatile, and very cheap right now, after plummeting on disappointing news of lower second quarter shipments. The stock is not yet ready to recover, and will likely trade liberally between 30 and 40 for a while. Patient investors could dollar-cost-average into the stock as they await its next upturn. Strong Buy.
