My favorite sources of energy information are OilPrice.com and Paul Sankey, Managing Director at Mizuho. Last week, Mr. Sankey discussed the tight oil supply, strong worldwide energy demand and prospects for triple-digit oil prices on Bloomberg TV. Some of you may remember that in the April 11, 2017 weekly update I discussed how the Energy Policy and Conservation Act of 1975 made it illegal for U.S. companies to export crude oil without a license to all countries except Canada. By passing this law, Congress was trying to conserve U.S. oil reserves and discourage foreign imports. At that time, I commented:
How, exactly, was a law that limits OIL EXPORTS supposed to stop OIL IMPORTS? So instead of becoming energy independent, the U.S. actually became reliant on Canada, Latin America, the Middle East and Africa for our oil. One major reason that the U.S. became so heavily reliant on foreign energy sources was that, in the ensuing decades, bureaucrats in Washington D.C. implemented official and unofficial policies that limited and delayed U.S. production of oil, natural gas, nuclear power, coal and green energy sources.
The result was that energy production was hamstrung in the U.S. for four decades, forcing the U.S. to buy oil from other countries rather than effectively producing our own oil.
In summary, prior to 1973, the U.S. was free to produce energy for domestic consumption, produce energy for foreign buyers, and purchase energy from foreign countries. By the year 2015, only the latter of those three methods of commerce remained relatively unfettered. At that point, somebody in Congress finally convinced their peers to perform triage on the crippled U.S. energy industry.
Congress authorized the export of U.S. crude oil to most countries, without requiring a license, in December 18, 2015, reversing the harmful effects of the Energy Policy and Conservation Act of 1975.
It gets tiresome being a logical person in an illogical world. If you’re not using logic to make decisions, then you’re pretty much using whims, emotions, convenience and ulterior motives as the basis of your decisions, right? I just want to push people aside and tell them “How about if we let the adults make the decisions and clean up this mess?” And that’s probably how I ended up with such a wide variety of past projects on my resume!
Fast forward to 2018. We’re in the midst of a global economic boom with strong and rising energy demand. Maybe you don’t like the resulting rising price of oil, but imagine how high it would be if the U.S. was not now supplying much of the world with oil? If you removed the increase in U.S. oil production from the global oil supply and demand equation, I guarantee you that consumers would be screaming about gasoline prices. Well good news, people: crisis averted! That doesn’t mean that oil prices won’t rise. It just means they’ve risen more slowly than they would have if Congress had not allowed U.S. energy companies to produce and sell energy again.
I have every intention of remaining invested in various oil industry stocks in the foreseeable future.
Results of the 2018 Dodd-Frank Act Stress Test (DFAST)
All 35 banks that participated in the Federal Reserve’s 2018 Dodd-Frank Act Stress Test (DFAST) passed their assessments last week, indicating that their capital ratios are above 4.5%, and theoretically strong enough to weather the type of severe global recession that occurred a decade ago. U.S. banks with the highest and lowest Common Equity Tier 1 (CET1) capital ratios are Northern Trust (NTRS) at 11.7% and State Street (STT) at 5.3%. Recent changes to the U.S. tax code that affect deferred tax assets, carry-forward and carry-back provisions harmed this year’s DFAST results, which seems to be a one-time occurrence (unless the tax code is changed again!). At least one major bank is expected to challenge the Federal Reserve over the calculations used in assessing how changes in the tax code affected its capital ratios.
Both BB&T (BBT) and Bank of America (BAC) delivered 7.9% capital ratios. Results for two of our portfolio stocks – CIT Group (CIT) and Comerica (CMA) – were withheld because recent bank legislation removed the mandate that these financial institutions participate in the DFAST test.
The Fed will subsequently issue results of its annual Comprehensive Capital Analysis and Review (CCAR) on the afternoon of June 28. CCAR measures not only capital ratios, but overall bank operations. Banks that fail the CCAR are then constrained from raising dividends and authorizing new share repurchases until they meet minimum CET1 capital requirements. Most banks that pass the review will file 8-K reports with the Securities and Exchange Commission within hours of the Fed’s CCAR announcement, notifying shareholders of their new capital plans that will extend from third quarter 2018 through second quarter 2019.
There is concern over whether all of the foreign banks with U.S. holding companies will pass the CCAR test. I would certainly expect Deutsche Bank (DB) to be one of the banks in question.
Investors who want to closely follow CCAR results and other banking news can use AmericanBanker.com as an information source.
Finally, for those of you interested in General Electric (GE), here’s my article from last week: Why GE Stock Got Booted from the Dow.
Send questions and comments to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletin from June 21 in which I mentioned news, rating changes and/or price action on Commercial Metals (CMC) and Skechers (SKX).
Buy-Rated Stocks Most Likely* To Rise More Than 5% Near-Term:
Alexion Pharmaceuticals (ALXN)
DowDuPont (DWDP)
Supernus Pharmaceuticals (SUPN)
*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:
PulteGroup (PHM) moved from Hold to Strong Buy.
Updates on Growth Portfolio Stocks
Apple (AAPL – yield 1.6%) manufactures a wide range of popular communication and music devices. Last week, Variety reported that Apple is teaming up with Sesame Workshop to create a new slate of original kids’ live action and animated programming for Worldwide Video. Also, watch for three new iPhone models coming this fall. AAPL is an undervalued growth stock, expected to see EPS increase 24.8% and 15.3% in fiscal 2018 and 2019 (September year-end). The corresponding P/Es are 16.1 and 14.0. Investors should always be aware of the recently-announced $100 billion share repurchase authorization. I cannot stress enough how bullish that will be for the share price in the coming years. If I only owned one stock, it would be AAPL. AAPL rose to a new all-time high in May, and has since pulled back. Always buy AAPL on pullbacks. Strong Buy.
Bank of America (BAC – yield 1.7%) is an undervalued growth stock. It’s rumored that Bank of America will boost its dividend by 50% when CCAR results are announced on June 28. Wall Street expects to see EPS increase 38.8% and 14.6% in fiscal 2018 and 2019. The corresponding P/Es are 11.4 and 10.0. The stock bounced repeatedly at 29 for four months, then fell further during yesterday’s market volatility. If the share price rebounds immediately, BAC would be a good buy at the current price, offering more than 10% upside to the recent high of 32.75. I still plan to sell near 33. Hold.
CIT Group (CIT – yield 1.3%) 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 is rapidly increasing money market fund deposits via its online banking. Analysts expect EPS to grow 25.4% and 25.2% in 2018 and 2019. The corresponding P/Es are quite low at 13.3 and 10.7. There’s room for the 2019 P/E to rise to 13 (near its industry peer average) as investors see CIT achieve its stated financial goals, pushing the share price to about 63, and offering new investors a potential 25% profit. CIT is trading between 49 and 56. Buy CIT now. Strong Buy.
D.R. Horton (DHI – yield 1.2%) is America’s largest homebuilder, based in Ft. Worth, TX and operating in 26 states. The company also provides mortgage, insurance and title services. There were $5.5 million of equity call options on DHI purchased by one investor last week, as reported by Jacob Mintz, Chief Analyst of Cabot Options Trader. The 2018 consensus earnings estimate rose again last week, with D.R. Horton expected to see EPS grow 35% and 19% in 2018 and 2019. Price/earnings ratios (P/E) remain low at 10.9 and 9.2 for fiscal 2018 and 2019. There’s more than 10% upside as DHI travels back to the top of its trading range, between 41 and 46. The stock may have fallen through price support yesterday, and we’ll know within a day or so. If it rebounds immediately, buy DHI now. If it falls a little more, let it establish price support before jumping in. Strong Buy.
KLX Inc. (KLXI) – In the coming months, Boeing (BA) will acquire KLX’s Aerospace Solutions Group (ASG) and KLX will spin off its Energy Services Group (ESG) to shareholders. The stock has been quiet since the announcement of the buyout by Boeing. There’s no recent news and the share price has traded flat at $72. If you own KLXI and 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. KLXI can potentially rise to 80 this summer, reflecting a more fair value of the KLXE spin-off. Hold.
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. KNX is an undervalued mid-cap aggressive growth stock. Analysts expect full-year EPS growth of 67.4% and 19.0% in 2018 and 2019. The corresponding P/Es are 17.0 and 14.4. There’s 27% upside as KNX eventually retraces its 2018 high of 50. Buy KNX now while it’s bouncing at the bottom of its trading range. Strong Buy.
Martin Marietta Materials (MLM – yield 0.8%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. Analysts expect full-year EPS growth of 28.4% and 23.5% in 2018 and 2019. The corresponding P/Es are 24.7 and 20.0. MLM has paused in an uptrend, trading quietly near 230. MLM will almost certainly cease its run-up once it reaches 240. Be prepared to sell in the upper 230’s. Hold.
PulteGroup (PHM – yield 1.3%) is a U.S. homebuilder and a very undervalued growth stock. Consensus earnings estimates reflect 60.7% and 12.4% EPS growth in 2018 and 2019. The corresponding P/Es are 8.5 and 7.6. There’s 23% upside as PHM travels back to 35 where it peaked in January. Strong Buy.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Investors may access Quanta Services’ May/June 2018 Investor Presentation here. PWR is an undervalued mid-cap growth stock. Wall Street expects EPS to grow 39.6% and 14.9% in 2018 and 2019. The corresponding P/Es are 12.3 and 10.7. PWR has come down to secondary price support at 33.5. There’s 19% upside as the stock heads back to its January high of 40. Once the stock breaks past 40, there will be no upside price resistance in sight. Buy PWR now. Strong Buy.
Southwest Airlines (LUV – yield 1.3%) 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. On the Investor Relations page of Southwest’s website, you may access the company’s 33-page Investor Presentation Booklet that clearly demonstrates Southwest’s financial successes, operational strengths and competitive advantages. The company was featured in the June issue of Cabot Undervalued Stocks Advisor.
LUV is an undervalued stock that’s experiencing aggressive earnings growth, although this year’s profit growth expectation has fallen quite a bit since LUV joined the Growth Portfolio in November 2017, due mainly to rising fuel costs. At this point, analysts expect EPS to grow 22.6% and 19.1% in 2018 and 2019. The corresponding P/Es are 12.0 and 10.0. The stock is trading at long-term price support. There’s 19% upside to the March high of 61, and 28% upside to the January high of 66. Buy LUV 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, migraine and ADHD. SUPN is an undervalued, small-cap stock with a high degree of institutional ownership. Analysts expect full-year EPS to grow 50% and 37.0% in 2018 and 2019. Corresponding P/Es are 30.0 and 21.9. After reaching a new all-time high in May, SUPN began a consolidation phase, trading between 54 and 58. I expect new highs again in the coming weeks. Buy SUPN now. Strong Buy.
Voya Financial (VOYA – yield 0.1%) is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. This Fortune 500 company manages $541 billion in assets. Wall Street projects Voya’s earnings per share (EPS) to grow 119% and 25.5% in 2018 and 2019. The corresponding price/earnings ratios (P/Es) are 11.7 and 9.3. VOYA fell down to price support at 49 as the broader market declined in recent days. Buy VOYA 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 in a multi-year cycle of increasing its net interest margin (NIM) as the company earns higher income from investments and its growing loan portfolio, while keeping costs down via an increase in non-interest bearing deposits and extending maturities on lower-yielding CDs. Wall Street expects BB&T to commence with M&A activity by buying a smaller bank within its region shortly after BB&T is in compliance with new bank legislation and its related requirements. Analysts expect full-year EPS to grow 43.4% and 8.8% in 2018 and 2019. Corresponding P/Es are 12.9 and 11.9. Bank stocks pulled back in recent weeks. This week’s CCAR results could prompt a rebound. 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 3.6% and 11.0% in 2018 and 2019. Corresponding P/Es are 11.2 and 10.1. BX offers a large dividend yield plus 11% upside as it eventually rebounds to its January high of 35.5. 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. Investors may access President Curt Farmer’s recent presentation at the Morgan Stanley Financials Conference here. Comerica guided analysts upward on this quarter’s loan growth, as much as 50% higher than what analysts were expecting. 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 (90% variable rate vs. 10% fixed rate loans), compounded by a high percentage of non-interest bearing deposits.
Consensus earnings estimates for Comerica have risen during most weeks since I began recommending the stock. Earnings per share are now expected to increase by 41.2% and 12.2% in 2018 and 2019. The corresponding P/Es are 14.0 and 12.5. The ex-dividend date was June 14. CMA has traded sideways since February. You can see on the price chart that the lows within the trading range have become incrementally higher as the months pass, and that’s a constructive price chart pattern. CMA could surpass 102 to hit new all-time highs in the next few months. I will likely sell CMA after that run-up, due to fair 2019 valuation, although if 2019 earnings estimates continue to rise, my outlook for the share price will become more bullish. Hold.
Commercial Metals Company (CMC – yield 2.1%) 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. CMC is an undervalued aggressive growth stock. Wall Street analysts expect full-year EPS to grow 103% and 56.9% in 2018 and 2019 (August year-end). The 2019 P/E is 10.3. The company reported good third quarter results on June 21 (see the Special Bulletin from June 21). CMC immediately fell about 5%, then rose about 5% the next day, and fell again with yesterday’s market volatility. There’s upside price resistance at its 2018 high of 26. Strong Buy.
DowDuPont (DWDP – yield 2.3%) -- The Dow Chemical Company (DOW) and E.I. du Pont de Nemours & Company (DD) finalized their merger on August 31, 2017, forming DowDuPont, which is composed of three divisions: Agriculture, Materials Science and Specialty Products. DowDuPont intends to separate these divisions into three publicly-traded companies in 2019. DowDuPont was featured in the June issue of Cabot Undervalued Stocks Advisor.
Wall Street analysts project EPS to grow aggressively at 23.8% and 17.5% in 2018 and 2019. The respective price/earnings ratios (P/Es) are 16.1 and 13.7. DWDP has been ratcheting upward since bottoming in early April. There’s upside resistance at the stock’s January high of 76. I expect additional capital appreciation after the stock rests near 76 for a while, and additional gains as the spinoffs add to the total return. Buy DWDP now. Strong Buy.
GameStop (GME – yield 10.1%) – COO & CFO Rob Lloyd presented at Oppenheimer’s 18th Annual Consumer Conference on June 19. (Click here to access the transcript and webcast.) One thing I learned from the webcast was that Michael Mauler, who was recently promoted to CEO after prior CEO J. Paul Raines passed away, resigned amid conflict with GameStop executives. The other company leaders wanted to focus on improving current components of GameStop’s businesses, while Mauler wanted to diversify the company even further. The webcast is certainly informative. There will be many new game titles coming out in October, including from Pokemon, Assassin’s Creed, Super Smash Brothers and more. GameStop made a brief public statement on June 19:
GameStop Corp. (NYSE:GME), today confirmed it is in exploratory discussions with third parties regarding a potential transaction. There can be no assurance any agreement will result from these discussions. GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so.
The stock is hovering around 15.5 per share after shooting upward in mid-June. I fully expect that there will either be a buyout, or that GameStop will hire a prominent CEO to head up the company, and that either piece of news would cause the share price to advance further. Sell Half.
The Interpublic Group of Companies (IPG – yield 3.6%) 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). CEO Michael Roth discussed his bullish outlook for the industry in this Reuters article last week. I guess investors were worried that Alphabet and Facebook would somehow disrupt the advertising industry, but I would think it obvious that the range of services offered by advertising giants such as Interpublic cannot be beaten. Then again, I worked in advertising on Madison Avenue “back in the day”, so I never took the internet/social media threat seriously. It’s not as if advertising professionals are blind to such things and unprepared to use them to their advantage.
The stock surged last week on strong volume. I will sell IPG soon for the same reason that I sold GOOGL: prospects of dramatically slower 2019 EPS growth. I’m jumping out as IPG nears its February high of 25. It’s a good company with a good dividend. Hold it if you like, but I’m moving on to a company with stronger future earnings growth. Hold.
Schlumberger (SLB – yield 3.1%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas declined by seven last week to a total of 1,052, up 111 vs. a year ago. A June 12 Schlumberger presentation at the Wells Fargo West Coast Energy Conference seems to be the cause of recent share price weakness in SLB and in Baker Hughes’ (BHGE) shares, compounded by weakness in the price of oil, which is now recovering. Schlumberger is experiencing slower-than-expected revenue growth in Russia and the Middle East this quarter, offset by strength in Asia, Europe, Africa and Latin America. While the company is already making progress on ramping up revenue after some project delays, the quality of earnings was temporarily affected, causing Schlumberger to project slower second quarter earnings growth than analysts had expected. You can access the audio presentation, transcript and slides here.
A lack of sufficient pipeline space in the Permian Basin is also causing oilfield service stocks to decline of late. Unfortunately, the decline in the affected companies’ stocks is pulling the share prices down of international oilfield service companies, which are obviously barely affected by the problem, as investors throw the baby out with the bathwater. I would encourage you to hold your shares of the bigger oilfield service companies. The market will come to its senses and refocus on the growth and value offered by BHGE and SLB, once again pushing their share prices upward.
Consensus earnings estimates declined last week, with EPS now expected to grow 30.7% and 49.5% in 2018 and 2019. The corresponding P/Es are 34.0 and 22.7. There was a $172,000 August call option purchased on SLB last week at a 70 strike price, as reported by Jacob Mintz, Chief Analyst of Cabot Options Trader. SLB is an aggressive growth stock, undervalued based on 2019 numbers. Buy SLB now. Strong Buy.
WestRock Company (WRK – yield 3.0%) is a global packaging and container company. Investors may access WestRock CEO Steve Voorhees’ presentation at this month’s Vertical Research Partners 2018 Materials Conference here. The June quarter performance is coming in on track with the company’s previous earnings guidance. Shipments and backlogs remain strong. WestRock repurchased 1.7 million shares of stock thus far in the third quarter (September year-end). The company’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 15.4% in 2018 and 2019. The corresponding P/Es are low in comparison at 14.4 and 12.5. The stock is sitting at its lows from November 2017, and does not appear ready to rise. There’s 18% upside as WRK retraces its January high at 69. 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. Last week, Alexion asked the U.S. Food and Drug Administration (FDA) for a priority review of its new drug ALXN 1210 for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH). A priority review shortens the approval process from 12 months to eight months. Alexion will also apply for new patents in Europe and Japan during 2018. The stock reacted with a strong upswing because the market now anticipates ALXN1210 adding to 2019 revenue and profit. Even at last week’s high closing price of 127, the stock was undervalued based on 2019 earnings prospects. Additional profit that lands in fiscal 2019 from an earlier product launch will add to EPS, and either lower the P/E or cause additional investor buying that pushes the share price higher.
ALXN is an undervalued aggressive growth stock. Prior to any boost from ALXN1210, the company is expected to achieve 19.6% and 21.7% EPS growth in 2018 and 2019. The corresponding P/Es are 18.2 and 15.0.
ALXN traded as high as 210 in 2015. Let’s lower our sights, though, because there are a few layers of price resistance before ALXN retraces 210. My next price target is 147, where ALXN last traded in September 2017. Now that ALXN reached my recent price target of 127, it could rest or continue immediately climbing. If it climbs, and you missed the opportunity to buy before the breakout, put in a buy order at 127. It’s very common that stocks will have one brief pullback after a breakout, thus giving investors one last chance to buy before the bigger run-up commences. 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 declined by seven last week to a total of 1,052, up 111 vs. a year ago. Wall Street expects full-year EPS to grow 83.7% and 100% in 2018 and 2019. The corresponding P/Es are 41.2 and 20.7. These numbers represent both tremendous earnings growth and value. It looks like oil prices bounced at price support twice during June, and now they’re racing back toward recent highs.
A lack of sufficient pipeline space in the Permian Basin is causing oilfield service stocks to decline of late. Unfortunately, the decline in the affected companies’ stocks is pulling the share prices down of international oilfield service companies, which are obviously barely affected by the problem, as investors throw the baby out with the bathwater. I would encourage you to hold your shares of the bigger oilfield service companies. The market will come to its senses and refocus on the growth and value offered by BHGE and Schlumberger (SLB), once again pushing their share prices upward.
As energy stocks declined in June, BHGE seems to have established price support at 32. I would expect the stock to rise with energy prices, but General Electric’s (GE) majority stake in Baker Hughes could be causing a perception problem, implying that GE’s woes could somehow rub off on Baker Hughes’ finances and operations. To be clear, GE’s management does not run Baker Hughes, and cannot harm Baker Hughes’ finances and operations. It’s possible that GE might need to sell some or all of its stake in Baker Hughes in order to raise cash to resolve its financial problems. I imagine various Wall Street investment firms would have little problem finding buyers for the Baker Hughes shares, and that GE CEO John Flannery is already exploring that option. Perhaps Warren Buffett’s Berkshire Hathaway (BRK) will buy GE’s 62.5% stake in Baker Hughes. We know that Buffett is interested in buying an entire company, and since he already floated the idea of buying Southwest Airlines (LUV), which has a $30 billion market cap, he could probably afford to buy GE’s stake in BHGE, which has a $36 billion market cap. Strong Buy.
Guess?, Inc. (GES – yield 4.1%) is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements. Revenue growth largely stems from expansion in Asia and Europe, while rising operating margins are contributing to multi-year earnings per share (EPS) growth. This month, Guess? co-founder Paul Marciano stepped down from his position as Executive Chairman, as the company and the Securities and Exchange Commission made a monetary settlement over complaints of sexual harassment. GES was featured in the June issue of Cabot Undervalued Stocks Advisor. Wall Street expects EPS to grow 42.9% and 32% in 2019 and 2020 (January year-end). Corresponding P/Es are very low in comparison to earnings growth rates, at 22.1 and 17.0. GES is a small-cap stock with a market capitalization of just $1.8 billion. I expect the stock to retrace its recent high of 26, with additional gains later this year. Buy GES now and buy more on pullbacks. 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. Listen to the webcast and watch the slide show from the B. Riley FBR Investor Conference in May. SKX is an undervalued mid-cap growth stock, with eight times as much cash as debt on the balance sheet. Earnings per share are expected to grow aggressively at 18.5% per year in 2018 and 2019. Corresponding P/Es are 14.4 and 12.2. When the stock surpasses 31 – which it appears capable of doing shortly -- it could run as far as 38 before coming to a halt. Buy SKX now. Strong Buy.
TiVo (TIVO – yield 5.2%) is an entertainment technology company that joined the Buy Low Opportunities Portfolio specifically because it’s a takeover target. The company is interested in being acquired or going private because the shares are so undervalued. TiVo intends to complete the process of its strategic review by the time second quarter results are reported in early August. There was a $270,000 call option purchased on TIVO last week, as reported by Jacob Mintz, Chief Analyst of Cabot Options Trader. The share price remains within a narrowing trading range, with the price dips becoming progressively higher over the last four months. I expect a significant surge in the share price when TiVo’s management announces some sort of M&A decision. Expect volatility. Buy TIVO now. 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. Universal Electronics’ management met with institutional investors at this month’s Baird 2018 Global Consumer, Technology and Services Conference. I highly encourage shareholders and fans of home media technology innovation to listen to the half-hour webcast, which is accompanied by a slide presentation.
UEIC is a dramatically undervalued micro-cap stock. Analysts expect EPS to fall 16.4% in 2018, then to rise 43.4% in 2019. The 2019 P/E and the long-term debt ratio are extremely low, at 9.2 and 3% respectively. The stock rose consistently last week, trading four times its average daily volume on June 22. Be ready for a breakout past 33. There’s upside resistance at 40. Buy UEIC now. Strong Buy.
