In reviewing the charts of the major U.S. stock market indexes, I noticed that the Dow, the S&P 500 and the NASDAQ each look as if somebody is slogging uphill in deep thick mud. That’s a bit like a “two steps forward one step back” pattern. I like it when price charts appear orderly, thereby not contributing to any market worries. We have enough to worry about, yes? Hurricanes and flooding, stocks that languish, Senate confirmation hearings…
I’m removing a few stocks from the portfolios today, and will add a few new stocks shortly. Please consider Delta Air Lines (DAL), which I wrote about today on the Cabot website. In addition, Blackstone Group (BX) in the Growth & Income Portfolio appears to be beginning a new run-up, which will likely be enhanced by excitement at the company’s upcoming Investor Day.
Finally, I introduced 25 new undervalued growth stocks to investors who attended the 2018 Cabot Wealth Summit in August. At that time, I recommended Aaron’s (AAN), a specialty retailer, as the one stock that I felt was most likely to rise immediately. The stock is rising, and appears capable of continuing its run-up, so hold that stock!
Send questions to Crista@CabotWealth.com.
PORTFOLIO NOTES
Buy-Rated Stocks Most Likely* To Rise More Than 5% Near-Term:
Blackstone Group (BX)
Marathon Petroleum (MPC)
TiVo (TIVO)
*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:
Apple (AAPL) moves from Hold to Retired.
Bank of America (BAC) moves from Hold to Retired.
KLX Inc. (KLXI) moves from Hold to Sell.
KLX Energy Services Holdings (KLXE) spun off from KLX Inc. (KLXI) and is now rated Hold.
Royal Caribbean Cruises (RCL) moves from Buy to Retired.
Last Week’s Portfolio Changes:
Blackstone Group (BX) moved from Hold to Buy.
Guess? (GES) moved from Buy to Strong Buy.
Schlumberger (SLB) moved from Strong Buy to Hold.
Southwest Airlines (LUV) moved from Strong Buy to Buy.
Updates on Growth Portfolio Stocks
Apple (AAPL – yield 1.3%) manufactures a wide range of popular communication and music devices, and many services as well. Apple launched new iPhone models last week. Higher-than-expected average selling prices (ASPs) should serve to increase consensus estimates for Apple’s fiscal 2019 revenue and earnings per share (EPS). In addition, dual SIM capabilities that facilitate the use of two mobile numbers on one iPhone are expected to increase iPhone demand in China.
Last week, Apple’s consensus earnings estimates increased to their highest point yet. Analysts now expect EPS to increase 27.8% and 16.2% in fiscal 2018 and 2019 (September year end). (We are two weeks away from Apple’s fiscal year end. It would be prudent, for those of you who analyze a company’s fundamentals, to focus on Apple’s projected 2019 performance expectations as you assess the stock.) The 2019 P/E is 16.4 and the stock is fairly valued. I’m retiring AAPL from the Growth Portfolio today due to valuation. I’ll be happy to own the stock again in the future, but in the interim, I’d like to make room for a more undervalued growth stock to join the portfolio. Longer term investors should feel confident in continuing to own AAPL. Retired.
Bank of America (BAC – yield 1.9%) is an undervalued growth stock that benefits from rising home prices and rising interest rates. I’m retiring BAC now to make room for a smaller bank to join the Growth Portfolio. Longer-term investors should feel confident in continuing to own BAC. Retired.
CIT Group (CIT – yield 1.9%) 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. Investors may access CIT Group’s September 14 webcast and presentation at the Barclays Global Financial Services Conference. Analysts expect full year EPS to grow aggressively at 21.8% and 28.1% in 2018 and 2019. The corresponding P/Es are low at 14.3 and 11.1.
CIT has some upside resistance at 55. There’s room for the 2019 P/E to rise to 13 (near its industry peer average), pushing the share price to about 63, and offering new investors a potential 18% profit in the next 6-18 months. Buy CIT now. Strong Buy.
D.R. Horton (DHI – yield 1.2%) is America’s largest homebuilder and also provides mortgage, insurance and title services. DHI is an undervalued growth stock. Analysts expect EPS growth of 41.5% and 18.6% in 2018 and 2019 (September year end). The 2019 P/E is 9.2. The stock is bouncing around within a wide trading range. There’s 23% upside as DHI approaches its January high at 53. Strong Buy.
KLX Inc. (KLXI) –Now that KLX has spun-off its energy services group, the remaining portion of the company will be exchanged for $63 cash per share at some point in the near future, as a result of its purchase by Boeing (BA). Investors should sell KLXI, which will likely trade close to 63 in the interim. (If you do not sell KLXI, you will eventually receive $63 per share for your stock.) Sell.
KLX Energy Services Holdings (KLXE) was spun off from KLX Inc. and began trading on September 17. KLXE will also promptly join the S&P SmallCap 600 Index on September 18. I plan to hold KLXE for a short while, in order to assess any newly available information on the company and to be prepared to capitalize on any near-term price appreciation. I do not expect selling pressure on the stock, because anybody who owned KLXI and did not favor the prospects for KLXE would have already sold their shares of KLXI. 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. Knight-Swift is an undervalued industry leader with an exemplary management team. Truckload demand in the spot market has been unusually strong and is expected to continue through the fourth quarter. The company is making good progress in attracting qualified drivers, despite industrywide driver shortages. KNX is a mid-cap aggressive growth stock. Analysts expect full year EPS growth of 65.2% and 18.4% in 2018 and 2019. The corresponding P/Es are 16.0 and 13.5. KNX is resting within an overall uptrend, and can reasonably be expected to rise to 42 during the next three months, where it will still be undervalued. Strong Buy.
Marathon Petroleum (MPC – yield 2.2%) is the nation’s second-largest energy refiner, with interests in processing facilities, 10,000 miles of oil pipelines, and product sales in 8,000 retail stores. Marathon is purchasing Andeavor (ANDV), which brings 10 refineries and another 3,300 retail stores under Marathon’s umbrella. The merger is scheduled to go through on October 1. Marathon Petroleum was featured in the September issue of Cabot Undervalued Stocks Advisor.
Last week, Marathon’s 2018 consensus earnings estimate rose to its high point to date. The market is now expecting aggressive EPS growth of 39.1% and 27.4% in 2018 and 2019. Corresponding price/earnings ratios (P/Es) are quite low at 15.6 and 12.2. After four months of sideways trading, MPC began rising above 82 in late August. The stock briefly traded between 82 and 84, and appears to have just commenced the awaited run-up. Now is the time to buy MPC. Strong Buy.
Martin Marietta Materials (MLM – yield 1.0%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. Analysts expect EPS growth of 29.9% and 19.9% in 2018 and 2019. The corresponding P/Es are 20.8 and 17.3. Management is bullish on the construction recovery in the U.S., believing it will accelerate in the second half of 2018 and continue next year. MLM is an undervalued aggressive growth stock. The share price has been weak recently, without any negative news to substantiate the weakness. There’s 18% upside as the stock eventually rebounds to its June peak at 230. Strong Buy.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Quanta will present at the D.A. Davidson Diversified Industrials and Services Conference on September 20. PWR is an undervalued mid-cap growth stock. Wall Street expects full year EPS to grow 40.1% and 16.1% in 2018 and 2019. The corresponding P/Es are 12.6 and 10.9. PWR has been ratcheting upward since late July. There’s 15% upside as the stock heads back to its January high of 40. Buy PWR now. Strong Buy.
Southwest Airlines (LUV – yield 1.0%) 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. Wall Street expects full year EPS to grow aggressively at 19.1% and 21.6% in 2018 and 2019. The corresponding P/Es are 15.0 and 12.3. Warren Buffett has shown enough interest in purchasing an airline that I’m standing pat until he makes a final decision. 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 aggressive growth stock. Analysts expect EPS to increase 54.8% and 33.8% in 2018 and 2019. The corresponding P/Es are 24.6 and 18.4. SUPN is resting during an uptrend and could rise to 55 in the coming weeks. I would also expect additional capital appreciation after that. 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. Wall Street expects Voya’s full year EPS to grow 123% and 24.5% in 2018 and 2019. The corresponding P/Es are 11.5 and 9.3. The stock has upside resistance at 51, and again at 55. Buy VOYA now. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 3.2%) is a 145-year-old financial holding company with $222 billion in assets and 2,100 financial centers that serves businesses and individuals. The market expects BB&T to make a significant acquisition in the coming year. BB&T canceled their presentation at the Barclays Global Financial Services Conference on September 13 due to Hurricane Florence. Analysts expect full year EPS to grow 41.9% and 9.6% in 2018 and 2019. Corresponding P/Es are 12.7 and 11.6. BBT has traded consistently between 50 and 55 all year, and currently sits at the bottom of that range. Hold.
Blackstone Group LP (BX – yield 6.0%*) is the world’s largest and most diversified alternative asset manager with $439 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Analysts expect Blackstone’s economic net income (ENI) to grow 9.3% and 5.2% in 2018 and 2019. The corresponding P/Es are 12.0 and 11.4.
For the first time in four years, Blackstone Group will host an Investor Day on September 21. There’s a possibility that a bullish Investor Day announcement could trigger a new run-up past 37 in the share price. If we do not receive news that Blackstone will change from a partnership to a C-corp format and/or ENI estimates do not increase, then I will likely retire the stock from the portfolio. Buy.
*The payout varies each quarter, with the total of the last four announced payouts yielding 6.0%.
Comerica (CMA – yield 2.6%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica is one of the most asset-sensitive banks in the U.S., with a very high percentage of variable rate loans, thus benefiting from rising interest rates. Consensus earnings estimates for 2019 rose last week to their highest level thus far. Analysts now expect EPS to increase by 48.5% and 12.2% in 2018 and 2019. The corresponding P/Es are 13.2 and 11.8. CMA is an undervalued growth & income stock. I’ll reassess Comerica’s position in the portfolio after its next breakout past 102. Buy.
Commercial Metals Company (CMC – yield 2.3%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Commercial Metals specifically benefits from recently-increased tariffs on Turkish steel products. CMC is an undervalued aggressive growth stock. Wall Street analysts expect EPS to grow 108% and 60.8% in 2018 and 2019 (August year-end). The 2019 P/E is 9.0. There’s 15% upside as CMC returns to its recent high of 24.50, and additional appreciation potential thereafter. Buy CMC now. Strong Buy.
DowDuPont (DWDP – yield 2.2%) intends to break up into three companies by June 2019.
- The agriculture division of DowDuPont will be called Corteva Agriscience and will be spun off by June 1, 2019.
- The specialty products division of DowDuPont will be called DuPont and will be spun off by June 1, 2019. DowDuPont CEO Ed Breen will become CEO of DuPont.
- After Corteva Agriscience and DuPont are spun off, the remaining materials science division of DowDuPont will be called Dow Chemical. DowDuPont executive Jim Fitterling will become CEO of Dow Chemical.
As the separated companies compete head-to-head with their various industry peers, DowDuPont management expects the share prices to rise, in accordance with normal industry stock valuations. DowDuPont is currently expected to see strong EPS growth rates of 24.1% and 17.3% in 2018 and 2019. The corresponding P/Es are 16.4 and 14.0. The stock is resting as it ratchets toward its January high of 76. I expect additional capital appreciation in 2019 as the spin-offs take place. Buy DWDP now. Strong Buy.
GameStop (GME – yield 9.3%) is a potential buyout candidate. In recent weeks, management reiterated that they are actively pursuing a strategic review, which could lead to the sale of the company. The share price chart exhibited a shakeout pattern in late August, which is almost always bullish for the near-term price action. Hold.
Guess?, Inc. (GES – yield 4.0%) 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. Wall Street expects EPS to grow 48.6% and 27.9% in 2019 and 2020 (January year-end). Corresponding P/Es are low in comparison to earnings growth rates, at 21.5 and 16.8. The stock is low within a stable trading range. Buy GES now. Strong Buy.
The Interpublic Group of Companies (IPG – yield 3.7%) is a large conglomerate of advertising, marketing, communication and public relations companies serving all global markets. Investors may listen to the webcast of Interpublic’s presentation at the Goldman Sachs 27th Annual Communacopia Conference on September 13. The share price has been slowly improving since mid-July, and could retrace to its 2018 high near 25 later this year. I will likely retire the stock from the Growth & Income Portfolio thereafter, due to slowing 2019 earnings growth. Hold.
Schlumberger (SLB – yield 3.3%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas rose by seven last week, a total of 1,055, up 119 vs. a year ago. SLB is an aggressive growth stock, undervalued based on 2019 numbers. Analysts expect EPS to grow 22.0% and 48.1% in 2018 and 2019. The corresponding P/Es are 33.5 and 22.6. The share price has recently weakened toward price support dating back to December 2017. I will recommend its purchase after the share price stabilizes. Hold.
Total S.A. (TOT – yield 4.8%) is a French multinational oil and gas company – one of the industry’s seven “supermajors” -- operating in over 130 countries. Total was featured in the September issue of Cabot Undervalued Stocks Advisor. Analysts expect EPS to grow 30.1% and 17.4% in 2018 and 2019. The corresponding P/Es are low in comparison at 11.7 and 10.0. TOT has been ratcheting upward since March, in a slowly ascending trajectory, and touched upon a new all-time high of 65 in July. The stock could continue to trade anywhere between 59 and 65 in the coming weeks, and I expect TOT to move higher as the months pass. Strong Buy.
WestRock Company (WRK – yield 3.1%) is a global packaging and container company. WestRock canceled participation in the Credit Suisse 31st Annual Basic Materials Conference on September 13 due to Hurricane Florence. Analysts expect full year EPS to increase 55.3% and 12.8% in 2018 and 2019. The corresponding P/Es are 13.7 and 12.2. The share price is beginning to perk up. This is a good time to buy low. 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. Investors may listen to the webcast of Alexion’s September 14 presentation at Morgan Stanley’s 16th Annual Global Healthcare Conference. ALXN is an undervalued aggressive growth stock. Analysts expect EPS to grow 23.4% and 19.1%. The corresponding P/Es are 16.2 and 13.6. The stock recently pulled back near four-month price support at 115, and is slowly rebounding. There’s 24% upside to 147 where ALXN last traded in September 2017. Buy ALXN now. Strong Buy.
Baker Hughes, a GE co. (BHGE – yield 2.2%) offers products, services and digital solutions to the international oil and gas community. Baker Hughes’ management expects good international revenue growth in the second half of 2018. The number of U.S. rigs drilling for crude oil and natural gas rose by seven last week, a total of 1,055, up 119 vs. a year ago.
BHGE is an undervalued aggressive growth stock with a very low debt-to-market cap ratio. Analysts expect EPS to grow 69.8% and 107% in 2018 and 2019. The corresponding P/Es are 43.2 and 20.9. BHGE is trading between 31 and 37, and will probably trade higher next year, barring a downturn in the broader market. 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’s consensus 2018 earnings estimate rose to $5.58 per share last week, its highest point to date. Analysts now expect EPS to grow 398% and 48.4% in 2018 and 2019. The corresponding P/Es are extremely low at 8.4 and 5.6. DK pulled back to four-month price support last week. There’s 28% upside as DK rebounds to its June high at 60, and additional appreciation potential thereafter.
To reiterate, growth stock investors, dividend investors and traders should consider buying DK right now due to aggressive earnings growth, rising earnings estimates, extremely low P/E, the stock’s trading at price support within a wide trading range and the company plans to immediately buy a large amount of stock (which could easily lead to a rising share price). Strong Buy.
Royal Caribbean Cruises Ltd. (RCL – yield 1.9%) -- I’m moving RCL from Buy to Retired as it races toward my short-term price target of 133. Longer term investors should feel confident in continuing to own RCL. Retired.
Skechers USA Inc. (SKX) is an apparel company that designs and manufactures affordable footwear for people of all ages. Skechers is the third largest footwear brand globally, behind Nike and Adidas. International revenue is growing dramatically, including huge growth in China. Skechers remains an incredibly successful and rapidly growing company, with huge ongoing growth opportunities in international markets. Analysts expect EPS to fall (1.7%) in 2018 and then rise 14.9% in 2019. There’s 21% upside to short-term price resistance at 33. Strong Buy.
Synchrony Financial (SYF – yield 2.6%) is a consumer finance company with 74.5 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. The company has been investing in mobile capabilities and expanding its online savings account into a full-service bank. Synchrony Financial was featured in the September issue of Cabot Undervalued Stocks Advisor. Earnings per share (EPS) are expected to increase by 32.1% and 30.1% in 2018 and 2019 (December year end). The corresponding price/earnings ratios (P/Es) are extremely low at 9.4 and 7.2. The stock has been gradually rising for five weeks. My current price target on SYF is 40, where the stock reached an all-time high in January. Buy SYF now. Strong Buy.
TiVo (TIVO – yield 5.3%) creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences. TIVO is an undervalued growth stock with a very attractive dividend yield. Management is in strategic discussions with entities that are considering buying TiVo’s product and/or IP licensing divisions. Investors should expect a final, lucrative M&A announcement any time between now and year end. Buy TIVO now. Strong Buy.
Universal Electronics (UEIC) is a manufacturer and cutting-edge world leader of wireless and voice remote control products, software and audio-video accessories for the smart home, with a strong pipeline of new products in the areas of safety and security, climate control and lighting. UEIC is an undervalued micro-cap stock. UEIC has been ratcheting upward since early May. The next run-up could take the stock to 50 or 55. Be prepared for volatility. Strong Buy.
