It’s time to anticipate rising inflation, more commonly thought of as the increase in the cost of goods and services. There are a variety of reasons that inflation could increase, including scarcity of goods that are in demand, rising prices on raw materials (e.g. energy), wage increases and monetary policy. The ebbs and flows of inflation are normal components of the economic cycle. There isn’t any particular reason that rising inflation would be a catalyst to a big stock market downturn unless inflation numbers rose rapidly.
I’ve mentioned repeatedly this year that there’s an extreme shortage of truck drivers. Trucking companies are therefore paying higher wages, and sometimes significant five-figure signing bonuses, in order to hire enough drivers to move their cargo. Trucking companies are compensating for these increased costs by raising rates that are charged to their clients. Those costs get passed on to you, the consumer, and are reflected in rising inflation numbers.
It’s important to note that there is currently no alleviation of the truck driver shortage on the horizon. Whereas energy prices can rise and fall somewhat rapidly over relatively short time frames, the truck driver shortage poses a more prolonged problem. It takes a fair amount of time for potential drivers to get licensed and learn how to drive trucks well.
One obvious effect of rising inflation is rising interest rates. That’s because the Federal Reserve uses the fed funds rate as its primary weapon to control inflation. As the fed funds rate rises, a ripple effect travels through the bond market, pushing interest rates higher along the yield curve. As interest rates rise, people become more likely to save their money (because they want to earn the currently-higher interest rates) and less likely to spend their money (thus lowering the demand for products and hopefully lowering inflation).
The current cycle of strong GDP growth was bound to lead to price inflation, but with rising wage and energy costs, be prepared for rising interest rates and falling bond prices. If you typically own bonds, but aren’t quite sure how to position yourself for a rising interest rate environment, speak with your financial advisor. Bonds aren’t complicated. If I wanted to own bonds right now, I’d simply create a laddered bond portfolio going out two to ten years. Each time the shorter term bonds came due, I’d buy ten-year bonds, thus raising the yield on my bond portfolio as the years progressed. Naturally you’d need to continue monitoring interest rates and inflation. Your financial advisor can guide you through the process, and discuss intricacies such as taxable vs. tax-free bonds; and AAA-rated or pre-refunded bonds vs. lower-rated and junk bonds.
Mario Gabelli’s 2018 Outlook and Performance — I recommend reviewing Mario Gabelli’s investment market and economic outlook in this July 14 article from Barron’s, “Mario Gabelli on Tariffs, Treasuries, Taxes and Technology”. His comments seem entirely reasonable to me. His first half 2018 stock portfolio performance reflected decent results in light of the prolonged 2018 stock market correction. Gabelli’s featured portfolio is up approximately 2.9% year-to-date through June 30. That’s not exciting, for sure, but you don’t hire Mario Gabelli for excitement. You hire Mario Gabelli for wisdom and expertise. And despite his tiny year-to-date investment gains, Gabelli still outperformed the S&P 500.
Want a little excitement? Stick with your investment plan. (Caveat: if the same thing goes wrong two or three times within your portfolio, figure out what caused it and adjust your investment strategy.) The market doesn’t sit still. We’ll probably see better investment returns in the second half of 2018, with some interesting M&A activity, a random corporate scandal, and maybe a surprising new product or FDA approval as well.
Canadian Rig Count — The number of Canadian rigs drilling for crude oil and natural gas rose by fifteen last week to a total of 197, up 6 vs. a year ago. Fifteen is quite a spike! Canadian investors should pay attention to their domestic energy stocks, and also consider job prospects within the sector.
Earnings Season – Second quarter earnings season began late last week. Your brokerage firm probably provides quarterly earnings estimates on a thousand stocks. Call your advisor or use their website chat box to find out where to locate the quarterly earnings estimates.
When a company reports quarterly results, investment professionals will compare the non-GAAP (a.k.a. “diluted” or “adjusted”) earnings per share (EPS) to the consensus earnings estimate. They will not compare the number to last year’s number. Of course, news headlines will compare current numbers to last year’s numbers, because the comparison sounds both relevant and dramatic. Investment professionals, however, already know how the company performed last year, and they already know what they’re expecting the company to report this year. So the only thing that really matters is “How did the company do in the second quarter vs. my expectation, as reflected in the consensus earnings estimate?”
Secondarily, second quarter earnings reports often contain commentary that projects third quarter or full-year results. The stock will usually react more strongly to third quarter or full-year projections than it will to second quarter results. So if you know how to look up third quarter and full-year consensus estimates, have them handy. When the earnings press release comes out – virtually always while the stock market is closed – read the press release for the CEO’s comments. (Don’t bother with news reports. Journalists will get all their data from a company’s press release, and they often don’t know which numbers are important, which is why they say irrelevant things like “Sales were up 12% vs. a year ago.” Hint: nobody cares! Everybody already knew that sales were rising! What’s worse, many of these news stories are written by bots that search the press releases for specific numbers. But the bots often mangle the numbers and misreport them, literally causing traders to buy and sell based on false news! It happens every earnings season.) The CEO’s comments will tell you whether the company’s sales and profit outlook is better or worse than the market was expecting, and that’s most likely to determine the direction of the share price when the market opens.
Send questions to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletin from July 16 in which I mentioned news on Bank of America (BAC).
Quarterly Earnings Release Calendar
July 17 am: Comerica (CMA) – 2Q
July 19 am: BB&T Corp. (BBT) and Blackstone Group (BX) – 2Q
July 19 pm: Skechers (SKX) – 2Q
July 20 am: Baker Hughes, a GE Company (BHGE) and Schlumberger (SLB) – 2Q
July 24 am: CIT Group (CIT) and Interpublic Group of Companies (IPG) – 2Q
July 25 pm: Knight-Swift Transportation (KNX) – 2Q
July 26 am: Alexion Pharmaceuticals (ALXN), PulteGroup (PHM) and Southwest Airlines (LUV) – 2Q, and D.R. Horton (DHI) – 3Q
July 31 pm: Apple (AAPL) – 3Q
August 1 pm: CF Industries (CF) – 2Q
August 2 am: Voya Financial (VOYA) – 2Q, and WestRock (WRK) – 3Q
August 8 pm: TiVo (TIVO) – 2Q
First Half of August: Delek US Holdings (DK), DowDuPont (DWDP), Martin Marietta Materials (MLM), Quanta Services (PWR), Supernus Pharmaceuticals (SUPN) and Universal Electronics (UEIC) – 2Q
Second Half of August: GameStop (GME), Guess? (GES) and KLX (KLXI) – 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:
Alexion Pharmaceuticals (ALXN)
PulteGroup (PHM)
Skechers USA (SKX)
Southwest Airlines (LUV)
Universal Electronics (UEIC)
*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:
Alexion Pharmaceuticals (ALXN)
moves from Strong Buy to Buy.
Last Week’s Portfolio Changes:
Blackstone Group LP (BX)
moved from Strong Buy to Buy.
Updates on Growth Portfolio Stocks
Apple (AAPL – yield 1.5%) manufactures a wide range of popular communication and music devices. MarketWatch published an interesting and bullish data-intense article on July 14, “How iPhone buying patterns have changed over time, in one chart”. In other news, June quarter App Store revenue reached a new high, running ahead of analysts’ estimates, which means that Apple’s quarterly earnings report might also exceed expectations. (Earnings estimates have barely changed since early May.)
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 16.7 and 14.4. There’s a $100 billion share repurchase authorization in effect. AAPL rose to a new all-time high in May, proceeded to have a small pullback, and is now heading back to its recent high. The stock could easily begin a new run-up from there. Buy AAPL now. Strong Buy.
Bank of America (BAC – yield 2.0%) is an undervalued growth stock that benefits from rising home prices and rising interest rates. Please refer to the Special Bulletin from July 16 to review Bank of America’s second quarter results. Bank of America is an undervalued growth stock. I’ll report revised earnings estimates next week as analysts re-work full-year projections in light of yesterday’s second quarter results. The share price rose in reaction to the good earnings report. I expect BAC to return to its 2018 high near 33 within several months. Hold.
CF Industries Holdings (CF – yield 2.8%) is North America’s largest nitrogen fertilizer producer, serving America’s corn growers. The company benefits from low natural gas costs (a significant component in the company’s cost structure) and an extensive shipping network, neither of which can be matched by foreign competitors, and from consistent demand from South American customers. CF Industries was featured in the July issue of Cabot Undervalued Stocks Advisor.
CF is a mid-cap stock with significant institutional ownership. Earnings estimates rose last week. After taking a small loss in 2017 (December year-end), the company is expected to earn $0.99 per share in 2018 and $1.79 per share in 2019. The 2019 earnings growth rate of 80.8% far exceeds the 2019 P/E of 23.6.
CF broke out of a trading range in mid-June and has now pulled back to the top of its May trading range. There’s some price support at 41.5-42. 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 second quarter EPS of $0.96 on the morning of July 24, within a range of $0.84 to $1.10. Analysts expect full-year EPS to grow 24.8% and 26.1% in 2018 and 2019. The corresponding P/Es are low at 13.6 and 10.8. 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 21% profit. CIT is rising within a steady trading range, between 49 and 56. Buy CIT now. Strong Buy.
D.R. Horton (DHI – yield 1.2%) is America’s largest homebuilder, also providing mortgage, insurance and title services. D.R. Horton is expected to see EPS grow 35% and 18.4% in 2018 and 2019. Price/earnings ratios (P/E) remain low at 11.1 and 9.4 for fiscal 2018 and 2019. The industry is rife with cheap stocks, low within their trading ranges. DHI has upside price resistance at 46 where it will likely rest again. Buy DHI now. Strong Buy.
KLX Inc. (KLXI) – Yesterday KLX Aerospace Solutions Group announced an agreement to acquire the assets of John Hassall, LLC’s laboratory operations, and expert technical personnel associated with managing the lab. This acquisition will enhance the KLX assets that are being purchased by Boeing, but should not affect the KLXI share price, and should not affect the value of the upcoming spin-off of KLX Energy Services.
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. 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 combined value of the two transactions could reach $80 this year. The Boeing cash transaction is expected to be completed by September 1, and the KLXE spin-off could happen at any point between now and the completion of the Boeing transaction. 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. Throughout the trucking industry, demand is strong, rates are rising, and there’s an extreme shortage of truck drivers (most significantly due to driving applicants’ inability to pass the drug tests). Knight-Swift is expected to report second quarter EPS of $0.56 on the afternoon of July 25, within a range of $0.45 to $0.60.
KNX is an undervalued mid-cap aggressive growth stock. Knight-Swift is expecting to raise rates by 5-10% in 2019. Analysts expect full-year EPS growth of 67.4% and 19.5% in 2018 and 2019. The corresponding P/Es are 16.4 and 13.7.
Yesterday, Barclay’s raised their recommendation on KNX from equal weight to overweight. One news source misreported the rating upgrade as a downgrade, causing the price to fall. The stock is cheap, and not yet ready to rebound. There’s upside price resistance at 42, where KNX will likely rest before continuing toward its 2018 high of 50. Strong Buy.
Martin Marietta Materials (MLM – yield 0.8%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. Martin Marietta’s CEO was one of several featured guests in this two minute July 13 CNBC video, “Cramer’s Exec Cut: Business is Bigger in Texas”. Analysts expect full-year EPS growth of 28.4% and 23.5% in 2018 and 2019. The corresponding P/Es are 24.6 and 19.9. MLM is resting during an uptrend toward price resistance at 240, where I will sell due to fair valuation. Hold.
PulteGroup (PHM – yield 1.2%) 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 9.0 and 8.0. There’s uniformity among homebuilders in both very strong revenue and profit growth. The industry is rife with cheap stocks, low within their trading ranges. There’s 16% upside as PHM travels back to its January peak at 35. Buy PHM now. Strong Buy.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. PWR is an undervalued mid-cap growth stock. Wall Street expects EPS to grow 39.1% and 15.3% in 2018 and 2019. The corresponding P/Es are 12.3 and 10.7. There’s 20% 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 1.2%) 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 July 9, CNBC “Mad Money” host Jim Cramer commented, “[CEO] Gary Kelly is too good for the stock to be down all the way here at $52. That’s ridiculous. I mean, he’s a really good operator… I think that this is the finest [airline].” Investors should continue to dwell on the fact that Warren Buffett stated earlier this year that he wants to buy a company, he’s interested in airlines, and he specifically mentioned Southwest as a potential candidate.
Wall Street expects EPS to grow 22.0% and 18.3% in 2018 and 2019. The corresponding P/Es are 12.4 and 10.5. LUV appears immediately ready to rise past 53 and begin a run-up. There’s 15% upside to the March high of 61, and 24% 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 27.4 and 20.0. SUPN rose to a new all-time high at 60 in late June, then rapidly pulled back into the low 50’s. 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 25.2% in 2018 and 2019. The corresponding price/earnings ratios (P/Es) are 11.3 and 9.0. VOYA fell to the bottom of its 2018 trading range as financial stocks declined in recent weeks, and has since stabilized. There’s upside price resistance at 50.5, where the stock will likely rest before continuing toward its 2018 high of 55. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 3.1%) 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 second quarter EPS of $1.01 on the morning of July 19, within a range of $0.97 to $1.03. BB&T plans to raise its third quarter dividend by 3 cents to 40.5 cents, an 8% increase, after a vote by its board of directors on July 24. The company also intends to repurchase $1.7 billion of its stock, some of which will be used in the Regions Insurance Group acquisition. Earnings estimates, which are enhanced by growing loan volumes, increased each month in 2018. Analysts now expect full-year EPS to grow 43.4% and 9.0% in 2018 and 2019. Corresponding P/Es are 12.7 and 11.7. BBT is bouncing repeatedly at the bottom of its 2018 trading range, amid price weakness throughout the financial sector. Hold.
Blackstone Group LP (BX—yield 7.0%*) is the world’s largest and most diversified alternative asset manager with $450 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Blackstone Group was featured in the July issue of Cabot Undervalued Stocks Advisor. Blackstone is expected to report second quarter ENI of $0.72 on the morning of July 19, within a range of $0.63 to $0.79. Analysts expect Blackstone’s full-year economic net income (ENI) to grow 3.1% and 11.4% in 2018 and 2019. Blackstone’s corresponding P/Es are 12.1 and 10.9. Blackstone is trading near its January high of 35.5. Buy on pullbacks. Buy.
*The payout varies each quarter, with the total of the last four announced payouts, plus the $0.30 special 2018 distribution, yielding 7.0%.
Comerica (CMA – yield 1.5%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica is expected to report second quarter EPS of $1.64 on the morning of July 17, within a range of $1.46 to $1.73. 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 have consistently risen since CMA joined the portfolio. Full-year earnings per share are now expected to increase by 41.4% and 12.6% in 2018 and 2019. The corresponding P/Es are 13.3 and 11.8. CMA is trading at the bottom of its 2018 trading range amid weakness in the financial sector. Normally I’d say “buy low”, but the price chart is just not showing enough stability. Hold.
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. CMC is an undervalued aggressive growth stock. Consensus earnings estimates have slowly risen for over three months. Wall Street analysts now expect full-year EPS to grow 110% and 56.4% in 2018 and 2019 (August year-end). The 2019 P/E is 9.5. CMC is recently trading between 21 and 24.5. Buy CMC now. Strong Buy.
DowDuPont (DWDP – yield 2.3%) – DowDuPont is comprised of three divisions: Agriculture, Materials Science and Specialty Products. DowDuPont intends to separate these divisions into three publicly-traded companies in 2019. Analysts project EPS to grow aggressively at 24.1% and 17.7% in 2018 and 2019. The respective price/earnings ratios (P/Es) are 15.9 and 13.5. DWDP has been ratcheting upward since bottoming in early April. There’s 16% upside as DWDP travels back to its January high of 76. I expect additional capital appreciation after the stock rests near 76 for a while, and again as the spin-offs take place in 2019. Buy DWDP now. Strong Buy.
GameStop (GME – yield 10.1%) is actively reviewing strategic alternatives and could possibly announce a major corporate change or buyout in the coming weeks. The stock is rising and could reach as far as 18.5 before its next pullback. 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 3.5%) is a large conglomerate of advertising, marketing, communication and public relations companies serving all global markets. Interpublic announced this month that they will buy Arkansas-based Acxiom Corp.’s marketing solutions division for $2.3 billion in cash. Interpublic is expected to report second quarter EPS of $0.42 on the morning of July 24, within a range of $0.40 to $0.44. IPG has traded between 22 and 25 for five months. I’m planning to sell near the February high of 25 due to prospects of dramatically slower 2019 EPS growth. Hold.
Schlumberger (SLB – yield 3.0%) is the world’s largest oilfield service company. Oil prices are resting after a huge advance in late June. I expect prices to remain high for the foreseeable future. The number of U.S. rigs drilling for crude oil and natural gas rose by two last week to a total of 1,054, up 102 vs. a year ago. Schlumberger is expected to report second quarter EPS of $0.43 on the morning of July 20, within a range of $0.42 to $0.46. Full-year earnings per share are expected to grow 28.0% and 49.5% in 2018 and 2019. The corresponding P/Es are 35.5 and 23.7. SLB is an aggressive growth stock, undervalued based on 2019 numbers. The stock is low within its 2018 trading range. There’s short-term price resistance at 74. Buy SLB now. Strong Buy.
WestRock Company (WRK – yield 3.0%) is a global packaging and container company. Shipments and backlogs remain strong. The company’s acquisition of Kapstone Paper and Packaging is expected to close in the early fall. The stock presents great value, with strong earnings growth, low P/Es and a big dividend. Analysts expect full-year EPS to increase 53.8% and 15.4% in 2018 and 2019. The corresponding P/Es are 14.3 and 12.4. WRK is sitting at its lows from November 2017. WRK has short-term upside price resistance at 62, and additional resistance at its January high of 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. Alexion’s new drug ALXN1210 is undergoing an FDA priority review for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH). 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 19.4 and 15.9. ALXN is undervalued based on 2019 numbers, and actively rising. I’m moving the stock from Strong Buy to Buy, in anticipation that it will stop rising and subsequently rest or pullback once it retraces its September 2017 high of 147. Buy.
Baker Hughes, a GE co. (BHGE – yield 2.2%) offers products, services and digital solutions to the international oil and gas community. Last week, Baker Hughes signed a Strategic Alliance Agreement (SAS) with SGS to provide Predictive Corrosion Management (PCM) services to SGS clients globally. PCM is a digital corrosion monitoring service that uses ultrasonic sensing technology and advanced analytics. SGS is a Swiss company that provides inspection, verification, testing and certification services.
GE CEO John Flannery is being forced to sell GE’s 62.5% stake in Baker Hughes due to overwhelming cash needs at GE, largely due to a multi-billion dollar shortfall in its pension plan. There are no specifics yet on potential buyers.
The price of West Texas crude fell about 11% in late May, rebounded to new 2018 highs, then fell about 5% last week. The trend remains bullish. The number of U.S. rigs drilling for crude oil and natural gas rose by two last week to a total of 1,054, up 102 vs. a year ago.
Baker Hughes is expected to report second quarter EPS of $0.14 on the morning of July 20, within a range of $0.10 to $0.19. Wall Street expects full-year EPS to grow 81.4% and 100% in 2018 and 2019. The corresponding P/Es are 41.8 and 20.9. These numbers represent both tremendous earnings growth and value. BHGE fell dramatically when the 2018 stock market correction arrived, completely recovered by May, and is now trading between 32 and 37. Buy BHGE now. Strong Buy.
Delek U.S. Holdings (DK – yield 2.1%) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek was featured in the July issue of Cabot Undervalued Stocks Advisor. Refining revenue is growing, and higher gross margins in all business sections and lower costs are contributing to a dramatic increase in profits. Analysts expect Delek’s EPS to grow 325% and 46.8% in 2018 and 2019. The corresponding P/Es are extremely low at 10.0 and 6.8. Delek raised its quarterly dividend payout by 33% and 25% in the first and second quarters of 2018. (Consecutive quarterly dividend increases are unusual.) The next dividend announcement is due during the first week of August. There’s 26% upside as DK retraces its recent high at 60. 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 stems largely from expansion in Asia and Europe, while rising operating margins are contributing to multi-year earnings per share (EPS) growth. 2018 earnings estimates rose notably last week. Wall Street now expects EPS to grow 52.9% and 21.5% in 2019 and 2020 (January year-end). Corresponding P/Es are low in comparison to earnings growth rates, at 20.1 and 16.5. GES has traded quietly between 21 and 23 for six weeks. That’s a bullish indication that the stock is preparing for its next run-up. I expect GES to retrace its recent high of 26, with additional gains later this year. Buy GES now. Strong Buy.
Skechers USA Inc. (SKX) is an apparel company that designs and manufactures affordable footwear for people of all ages. Skechers is expected to report second quarter EPS of $0.41 on the afternoon of July 19, within a range of $0.38 to $0.44. SKX is an undervalued mid-cap growth stock, with eight times as much cash as debt on the balance sheet. Full-year earnings per share are expected to grow aggressively at 18.5% per year in 2018 and 2019. Corresponding P/Es are 14.8 and 12.5. SKX is on the move now. The stock could go all the way to 38 before coming to a halt. Buy SKX now. Strong Buy.
TiVo (TIVO – yield 5.6%) 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 on August 8. Earlier this month, TiVo’s CEO Enrique Rodriguez left the company to become the Chief Technology Officer at Liberty Global. I would imagine that he may have left TiVo with an awareness that he might not have a future role at the company if TiVo is sold to a larger company; or perhaps his presence at TiVo was simply a bad fit.
The TIVO share price does not sit still. I expect the stock to promptly head back toward 15 while we await M&A news, at which time I expect a significant surge in the share price. 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. UEIC is a dramatically undervalued micro-cap stock. Earnings estimates rose last week, with only two analysts contributing to the consensus estimate. Analysts now expect EPS to fall 12.1% in 2018, then to rise 47.0% in 2019. The 2019 P/E and the long-term debt ratio are extremely low, at 9.6 and 3% respectively. UEIC is on the move. I expect the stock to reach as far as 42 before then pulling back and resting. Buy UEIC now and buy more on pullbacks. Strong Buy.
