I’m featuring this morning’s earnings reports on CIT Group (CIT) and Regions Financial (RF) right here in the introduction. Below this section, you’ll notice that I’m moving another five stocks from Strong Buy to Hold. It’s a normal seasonal pattern in the market that any stock that’s trading at its low point for the year during the fourth quarter will then remain low through the very last days of 2018 due to tax-loss selling. And unfortunately, the stock market has decided to present us with another correction, so most stocks are down in recent weeks.
You can’t fight the tape! No matter how excellent a company may be, the stock will succumb to selling pressure until January, at which time there’s usually no more selling pressure on the stock—unless, of course, the company is not thriving.
When we experienced the large market correction back in February, I was happy to buy low. The seasonal tax-loss selling that takes place in the fourth quarter is not a factor in the first half of the calendar year. Therefore, we had every reason to believe that shares of thriving companies would rebound.
In the coming weeks, my suggestion is that you focus your buying activity on two types of stocks: stocks that offer large dividend yields, which become larger as share prices drop; and stocks of companies with neutral-to-bullish price charts. Stay away from the stocks that are hitting annual lows. You’ll have plenty of time to buy them at lower prices after Christmas.
CIT Group (CIT – yield 2.1%) reported third-quarter diluted EPS from continuing operations of $1.13. Third-quarter diluted EPS from continuing operations excluding noteworthy items was $1.15. The consensus estimate was $1.14 EPS, ranging between $1.00-$1.27. Third-quarter revenue of $476 million came in on target. Loans and leases remained flat to second quarter volumes. The company repurchased $291 million of common stock during the quarter, and expects to repurchase a total of $459 million of stock during the fourth quarter.
CIT Group 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 has a very strong and stable earnings outlook, low valuation and an attractive dividend yield. CIT Group was featured in the October issue of Cabot Undervalued Stocks Advisor.
Full-year EPS are expected to grow aggressively at 25.4% and 24.9% in 2018 and 2019. I will consider a Buy recommendation when the price chart turns bullish. Hold.
Regions Financial Corp. (RF – yield 3.4%) reported third-quarter diluted EPS from continuing operations of $0.32 this morning, below the consensus estimate of $0.36. A large gain from the sale of its insurance subsidiary brought diluted EPS up to $0.50. The market will most likely react to the $0.32 number. The quarter featured increases in loans and leases, and in net interest income and margins; and decreases in non-performing loans and non-interest expenses vs. the second quarter of 2018. Revenue of $1.46 billion was in line with the consensus estimate of $1.5 billion. The company repurchased $581 million of common stock through open market purchases, and also agreed to an accelerated repurchase of $700 million of stock through year end.
Regions Financial is an Alabama-based superregional bank serving the South, Texas and the Midwest via 1,500 banking offices. The bank offers commercial and consumer loans, wealth management, and insurance products and services. Prior to today’s earnings report, full-year EPS were expected to increase by 31.5% and 11.3% in 2018 and 2019. I do not expect those numbers to adjust very much as analysts revise their outlooks for Regions Financial in the coming days.
As with so many stocks affected by the current market downturn, I expect RF to remain low throughout tax loss selling season, then to rebound well in January when all of the selling pressure is gone. I’m moving RF from Strong Buy to Hold, where it will likely remain until the first week in January. Hold.
Send questions to Crista@CabotWealth.com.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from October 18, 19 and 22 in which I mentioned news, rating changes and/or price action on BB&T Corp. (BBT), Blackstone Group (BX), Comerica (CMA), DowDuPont (DWDP), Interpublic Group (IPG), Schlumberger (SLB), Skechers (SKX) and Synchrony Financial (SYF).
Quarterly Earnings Release Calendar
October 24 a.m.: Alexion Pharmaceuticals (ALXN) – 3Q
October 24 p.m.: Knight-Swift Transportation (KNX) – 3Q
October 25 a.m.: Aaron’s (AAN)*, Baker Hughes, a GE Co. (BHGE), Royal Caribbean Cruises (RCL)* and Southwest Airlines (LUV) – 3Q and Commercial Metals (CMC) – 4Q
October 26 a.m.: Total S.A. (TOT) – 3Q
October 30 p.m.: Voya Financial (VOYA) – 3Q
November 1 a.m.: DowDuPont (DWDP), Marathon Petroleum (MPC) and Stratasys (SSYS)* – 3Q and Lumentum (LITE)* -- 1Q
November 5 a.m.: WestRock (WRK) – 4Q
November 6 p.m.: Delek US Holdings (DK) – 3Q
November 7 p.m.: TiVo (TIVO) – 3Q
November 8 a.m.: D.R. Horton (DHI) – 4Q
November 8 p.m.: Universal Electronics (UEIC) – 3Q
First half of November: Martin Marietta Materials (MLM), Quanta Services (PWR), Supernus Pharmaceuticals (SUPN)
Second half of November: GameStop (GME), Guess? (GES) and KLX Energy Services (KLXE)
Virtually all companies offer extensive information on their websites pertaining to their quarterly earnings releases, including press releases, conference calls, slide shows and/or webcasts.
*Not featured in the current Cabot Undervalued Stocks Advisor portfolios.
Earnings Season Scorecard
Big earnings beat: Comerica (CMA) Skechers (SKX) and Synchrony Financial (SYF)
Earnings within 5% of consensus estimate: BB&T Corp. (BBT), Blackstone Group (BX), CIT Group (CIT), Delta Air Lines (DAL), Interpublic Group (IPG) and Schlumberger (SLB)
Big earnings miss: Regions Financial (RF)
Today’s Portfolio Changes:
Baker Hughes, a GE Co. (BHGE) moves from Strong Buy to Hold.
DowDuPont (DWDP) moves from Strong Buy to Hold.
Marathon Petroleum (MPC) moves from Strong Buy to Hold
Regions Financial (RF) moves from Strong Buy to Hold.
Voya Financial (VOYA) moves from Strong Buy to Hold.
Last Week’s Portfolio Changes:
Blackstone Group L.P. (BX) moved from Hold to Strong Buy.
CIT Group (CIT) moved from Strong Buy to Hold.
Commercial Metals (CMC) moved from Strong Buy to Hold.
D.R. Horton (DHI) moved from Strong Buy to Hold.
Interpublic Group (IPG) moved from Hold to Sell.
Southwest Airlines (LUV) moved from Buy to Strong Buy.
Updates on Growth Portfolio Stocks
CIT Group (CIT) (The stock review appears above, in the Introduction.)
D.R. Horton (DHI – yield 1.4%) is America’s largest homebuilder, also providing mortgage, insurance and title services. The company is expected to report fourth-quarter EPS of $1.22, within a range of $1.17-$1.31, on the morning of November 8 (September year-end). In each of the last three years, D.R. Horton announced dividend increases of 25%-27% in November. A similar increase in 2018 would take the quarterly payout from 12.5 cents per share to 15.5 or 16 cents. DHI is an undervalued aggressive growth stock. Recent data on building permits and U.S. mortgage activity has been weak, leading to a continued sell-off among housing stocks. I will most likely return DHI to a Buy recommendation at the end of tax-loss selling season. Hold.
KLX Energy Services Holdings (KLXE) spun off from KLX Inc. (KLXI) in a 4-for-10 ratio and began trading on September 17. (A person with 100 shares of KLXI received 40 shares of KLXE.) At a current price of 36, KLXE now represents a value of 14.40 per your original KLXI share. Here’s some news on KLX Energy Services that emerged in recent days:
• KLX Energy Services agreed to purchase Motley Services, LLC. Motley’s coiled tubing services add to KLX Energy’s portfolio of well completion services. The acquisition is expected to close within weeks and to immediately be accretive to earnings.
• KLX Energy pre-announced adjusted third quarter EPS of $0.96, reflecting combined profit from KLX Energy Services and Motley Services. (The market seems thrilled with that number.)
• In a September 28 regulatory filing, Vanguard Group reported a 10.02% passive stake in KLXE.
I’m awaiting the publication of the cost basis allocation between shares of KLXI and KLXE. I corresponded with a KLX’s investor relations executive in September, when the information was not yet available, and I sent him another inquiry in recent days. I’ll share that with you as soon as it’s available. Consensus earnings and revenue estimates will not likely be available until well after quarterly results are reported, and we also don’t know if an adequate number of analysts will provide research coverage on the stock. The price chart remains bullish. Hold.
Knight-Swift Transportation Holdings (KNX – yield 0.8%) is a truckload carrier formed from the September 2017 merger between Knight Transportation and Swift Transportation Company. Knight-Swift is an undervalued industry leader with an exemplary management team. The company’s CEO and CFO will present at the 2018 Stephens NY Investment Conference on November 7.
September was a seasonally slow month for carriers, although business was stronger than in previous years. Business is now ramping up for carriers, heading into the Christmas season. Rates are rising, fully keeping pace with increased costs that are especially associated with drivers’ salaries. A comprehensive research report from a major Wall Street investment firm that polled trucking company executives revealed that only 1%-4% of executives had a negative view of industry supply, demand or rates. Those responding with positive views ranged between 54% and 85%, with the balance of views being neutral.
Knight-Swift is expected to report third-quarter EPS of $0.58, within a range of $0.56-$0.63, on the afternoon of October 24. Third-quarter revenue is estimated to be $1.4 billion, within a range of $1.3-$1.4 billion. KNX is a mid-cap aggressive growth stock. Analysts expect full-year EPS growth of 65.2% and 17.5% in 2018 and 2019. The corresponding P/Es are 13.3 and 11.3. When the price chart turns bullish, I’ll move KNX back to a Buy recommendation. That might not happen until early January. Hold.
Marathon Petroleum (MPC – yield 2.5%) 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. Investors might like to read this Moody’s commentary on Marathon’s financial health in the wake of the recent Andeavor (ANDV) acquisition. Marathon is expected to report third-quarter EPS of $1.71, within a range of $1.64-$1.81, on the morning of November 1. Analysts expect revenue of $23.6 billion, within a range of $21.3-$25.8 billion.
Refining stocks have been weak of late. Contributing factors include slightly elevated gasoline inventories vs. the five-year average and a completion of seasonal refinery maintenance by mid-November; negatives that are somewhat offset by episodic regional supply and logistical restraints. Marathon will host an Investor Day on December 4 that should give clarity on cost synergies associated with the Andeavor acquisition and the company’s business prognosis. Expect a rash of new Wall Street research reports immediately following the event, with potential good news bringing more investors in off the sidelines. Considering that earnings estimates for Marathon continue to rise, it appears that Marathon’s future continues to look bright and that analysts are attuned to that good news.
The 2019 consensus earnings estimate has reached a high point for the year. The market is now expecting aggressive EPS growth of 37.3% and 51.1% in 2018 and 2019. Corresponding price/earnings ratios (P/Es) are quite low at 13.8 and 9.2. The share price fell suddenly last week with other refining stocks. I’m moving MPC from Strong Buy to Hold until the share price stabilizes, with the intention of identifying a good buying point near year end. Hold.
Martin Marietta Materials (MLM – yield 1.2%) is a supplier of crushed stone, sand, gravel, cement, concrete and asphalt. Management is bullish on the construction recovery in the U.S. accelerating in the second half of 2018 and continuing next year. The company is expected to report third-quarter EPS of $2.79, within a range of $2.30-$3.26, in early November. MLM is an undervalued growth stock. The price chart remains bearish. I anticipate a strong rebound in January, once tax-loss selling is over. Hold.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Here’s a Zacks Equity Research review of Quanta Services from October 19. Quanta will present at the Stephens NY Investment Conference on November 6 and at the Baird Industrials Conference on November 7. PWR is an undervalued mid-cap growth stock. Full-year earnings estimates haven’t fluctuated by more than a penny per share since mid-July. Wall Street expects full year EPS to grow 38.6% and 16.5% in 2018 and 2019. The corresponding P/Es are 11.8 and 10.1. I will return PWR to a Buy recommendation when the price chart turns bullish. Hold.
Southwest Airlines (LUV – yield 1.1%) 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. Southwest Airlines is expected to report third-quarter EPS of $1.06, within a range of $0.98-$1.12, on the morning of October 25. Wall Street expects full-year EPS to grow aggressively at 18.0% and 20.3% in 2018 and 2019. The corresponding P/Es are 14.1 and 11.7.
LUV dropped down to its 200-day moving average earlier this month, then promptly turned upward. A typical surge in airline stocks during the fourth quarter could push LUV to the mid-to-upper 60s before year end. 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. Supernus posted an October Investor Presentation on their website. Supernus is expected to report third-quarter EPS of $0.39, within a range of $0.23-$0.49, in early November. SUPN is an undervalued, small-cap aggressive growth stock. Analysts expect EPS to increase 46.8% and 31.9% in 2018 and 2019. The corresponding P/Es are 26.1 and 19.8. The stock is on a gradual uptrend. Once SUPN passes 50, there’s additional price resistance at 55. 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. Voya is expected to report third-quarter EPS of $1.18, within a range of $1.13-$1.22, on the afternoon of October 30. The company will host an Analyst Day on November 13 in which Voya will highlight their business plan through 2021. Investors should therefore expect a slew of new and bullish research reports that are likely to generate additional investor interest in the stock.
VOYA is an undervalued aggressive growth stock. Earnings estimates have been steadily climbing all year. Wall Street now expects Voya’s full-year EPS to grow 124% and 24.2% in 2018 and 2019. The corresponding P/Es are 10.8 and 8.7. The share price is weak. I’m moving VOYA from Strong Buy to Hold until the price chart turns bullish. Hold.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 3.4%) is a 145-year-old financial holding company with $222.9 billion in assets and 1,900 financial centers that serve businesses and individuals. CEO Kelly King spoke with CNBC at length about third quarter loan performance. BB&T will host an Investor Day on Wednesday, November 14. The company expects to repurchase $375 million of stock during the fourth quarter. Analysts expect full year EPS to grow 41.9% and 9.6% in 2018 and 2019. Corresponding P/Es are 12.4 and 11.3. The price chart has been bearish in recent months. Last week’s strong earnings report might certainly have been a catalyst for the price to begin improving. Hold.
Blackstone Group LP (BX – yield 7.0%*) is the world’s largest and most diversified alternative asset manager with $456.7 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Blackstone agreed to acquire Ulterra, an oilfield services company, last week—one of several October M&A transactions in the oilfield services space. Presuming that Blackstone does not become a C-corp, analysts expect Blackstone’s full-year ENI to grow 5.7% and 9.1% in 2018 and 2019. The P/Es are 11.7 and 10.7.
BX is an extremely attractive investment for yield investors and growth & income investors. Buy now while BX is at the bottom of a stable trading range and lock in the higher yield, while also potentially earning 14% upside to its recent high. Speculative investors have an opportunity to make even more profit if BX converts from an L.P. to a C-corp. next year. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.42 and yielding 7.0%.
Comerica (CMA – yield 2.9%) 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 variable rate loans amounting to almost 90% of total loans, and non-interest bearing deposits totaling 52% of all deposits, thus benefiting from rising interest rates. Comerica plans to repurchase $500 million of stock during the fourth quarter.
Subsequent to Comerica’s strong third-quarter report last week, full-year earnings estimates rose to their highest level all year. Wall Street now expects EPS to increase by 50.2% and 12.2% in 2018 and 2019. The corresponding P/Es are 11.8 and 10.5. CMA is an undervalued growth & income stock. The stock is cheap and the share price is suffering. I expect CMA to perform very well beginning in January, after tax-loss selling subsides. Buy.
Commercial Metals Company (CMC – yield 2.7%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. The company is expected to report fourth-quarter EPS of $0.43, within a range of $0.34-$0.49, on the morning of October 25 (August year-end). Expect volatility. Quarterly revenue is expected to be $1.3 billion, within a range of $1.2-$1.5 billion.
CMC is an undervalued aggressive growth stock. Wall Street analysts expect full-year EPS to grow 101% and 58% in 2018 and 2019. The 2019 P/E is 8.0. The share price is languishing, with upside resistance at 22.5. I’ll move CMC to a Buy recommendation after the price chart turns bullish. Hold.
Delta Air Lines (DAL – yield 2.6%) is a U.S. and international passenger and cargo airline with an extensive and efficient hub complex. Delta Air Lines was featured in the October issue of Cabot Undervalued Stocks Advisor. Wall Street expects Delta’s full-year EPS to grow from $4.93 in 2017 to $5.53 in 2018 and $6.36 in 2019, reflecting growth rates of 12.2% and 15.0% in 2018 and 2019. The stock’s 2018 and 2019 P/Es are quite low at 9.7 and 8.4, respectively. Full-year 2018 revenue is expected to rise about 8%, and margins are expected to increase in 2019. DAL has traded sideways, between 48 and 60, since reaching a new all-time high in January 2018. There’s more than 10% upside within the stock’s steady trading range, and additional capital gain opportunities thereafter. Buy DAL now. Strong Buy.
DowDuPont (DWDP – yield 2.7%) intends to break up into three companies by June 2019. DWDP is an undervalued growth stock with an attractive dividend yield. Analysts expect third-quarter EPS of $0.72, within a range of $0.64-$0.80, to be reported on the morning of November 1. Quarterly revenue is expected to be $20.2 billion, within a range of $19.4-$20.6 billion. Full-year projections reflect EPS growth rates of 22.9% and 15.5% in 2018 and 2019. The corresponding P/Es are 13.9 and 12.1.
The stock fell in recent weeks as demand and pricing for ethane—a DowDuPont product—waned in October vs. September, primarily due to unscheduled outages in ethylene production. (Ethane is a feedstock in ethylene and polyethylene production. Ethane pricing is still much higher than in early 2018.) Both the outages and the lower ethane pricing are seen as temporary. In addition, inventory drawdowns in polyethylene will likely create additional demand for ethane in the near term.
I’m moving DWDP from Strong Buy to Hold while I wait for the share price to stabilize. I anticipate that the stock will struggle through year end, with a very strong rebound in the first quarter of 2019 as Wall Street focuses on the strong earnings growth, the valuation, the enhanced value offered from the spin-offs. Hold.
GameStop (GME – yield 10.1%) is a potential buyout candidate. Management states that they are actively pursuing a strategic review, which could lead to the sale of the company. There’s upside price resistance at 16.75 and again at 18. Hold.
Guess?, Inc. (GES – yield 4.4%) 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 55.7% and 22.0% in 2019 and 2020 (January year-end). Corresponding P/Es are low in comparison to earnings growth rates, at 18.3 and 15.0. The share price is suffering—possibly until the third-quarter earnings release in late November, or even through year end—giving investors an opportunity to lock in a high yield on new purchases. Strong Buy.
Regions Financial Corp. (RF) (The stock review appears above, in the Introduction.)
Schlumberger (SLB – yield 3.5%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas rose by four last week to a total of 1,067, up 154 vs. a year ago. SLB is an aggressive growth stock, undervalued based on 2019 numbers. Earnings estimates have been trending downward in recent months. Analysts now expect full-year EPS to grow 17.3% and 35.2% in 2018 and 2019. The corresponding P/Es are 33.2 and 24.6. The share price has been weak and is not yet ready to rebound. Patient investors can accumulate shares while locking in the attractive yield. Buy.
Total S.A. (TOT – yield 4.9%) is a French multinational oil and gas company—one of the industry’s seven “supermajors”—operating in over 130 countries. Total signed a joint venture with Saudi Aramco this month, in which the two companies will eventually build a $5 billion petrochemical complex in Saudi Arabia. Total is expected to report third-quarter EPS of $1.43, within a range of $1.37-$1.49, on October 26. Earnings from new projects and acquisitions and higher refining margins are expected to contribute to attractive quarterly results.
Last week, full-year earnings estimates rose to their highest point yet. Analysts now expect full-year EPS to grow 33.5% and 20.2% in 2018 and 2019. The corresponding P/Es are low in comparison at 11.1 and 9.2. The price chart is relatively constructive, marching upwards in a way that appears like a giant is slogging uphill through deep mud. Nevertheless, it’s a more attractive price chart than many stocks are exhibiting! Buy TOT now and buy more on pullbacks. Strong Buy.
WestRock Company (WRK – yield 4.2%) is a global packaging and container company. Hurricane Michael caused extensive damage to WestRock’s Panama City containerboard and pulp mill. Here’s an update from October 18:
“…all of Panama City mill’s employees have been accounted for and are safe. … the linerboard production system will return to full production capacity within 30 days. Market pulp production is expected to begin by the end of November, but will likely be limited to no more than 50% of the mill’s market pulp production capacity for an estimated period of approximately six months. While the Company maintains property damage and business interruption insurance coverage, there will be a time lag between the initial incurrence of costs and the receipt of insurance proceeds…”
WRK is an undervalued growth & income stock. WestRock is expected to report fourth-quarter EPS of $1.25, within a range of $1.20-$1.29, on the morning of November 5 (September year-end). Analysts expect full-year EPS to increase 54.6% and 10.1% in 2018 and 2019. The corresponding P/Es are 10.5 and 9.5. The share price is weak, and will not likely deliver any capital gains until January, when tax-loss selling season is over. However, income investors can accumulate WRK now while the yield is over 4%. Hold.
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 Pharmaceuticals was featured in the October issue of Cabot Undervalued Stocks Advisor. The company is expected to report third-quarter EPS of $1.74, within a range of $1.56-$1.95, on the morning of October 24. Third-quarter revenue is estimated to be $1.0 billion, within a range of $990 million to $1.1 billion. Analysts expect full-year EPS to grow 23.5% and 18.4%. The corresponding P/Es are 17.4 and 14.7.
ALXN shares do not languish. At 126, there’s about 11% capital gain potential within the current trading range. The best-case scenario this year—barring a takeover offer—is that ALXN could rise to the upper 140s by year end, where it will still be undervalued. Strong Buy.
Baker Hughes, a GE co. (BHGE – yield 2.4%) offers products, services and digital solutions to the international oil and gas community. This month, Baker Hughes agreed to invest $550 million to own 5% of Abu Dhabi National Oil Company’s (ADNOC) drilling unit, becoming the first foreign company to own a piece of an ADNOC services company.
As I mentioned earlier, the number of U.S. rigs drilling for crude oil and natural gas rose by four last week to a total of 1,067, up 154 vs. a year ago. Baker Hughes is expected to report third-quarter EPS of $0.21, within a range of $0.18-$0.22, on the morning of October 25. Revenue is expected to be $5.9 billion, within a range of $5.7-$6.0 billion. The company announced a small dividend increase in October 2017, but there’s no long-term track record that would help us know whether the company is likely to do so again this month.
BHGE is an undervalued aggressive growth stock with a very low debt-to-market cap ratio. Analysts expect full-year EPS to grow 59.1% and 106% in 2018 and 2019. The corresponding P/Es are 42.8 and 20.8. The share price is weak. I’m moving BHGE from Strong Buy to Hold until the price chart turns bullish. Hold.
Delek U.S. Holdings (DK – yield 2.7%) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek is expected to report third quarter EPS of $2.12, within a range of $1.90-$2.48, on the afternoon of November 6. Expect volatility. DK is an undervalued, aggressive growth, small-cap stock. Analysts expect EPS to grow 348% and 44.2% in 2018 and 2019. The corresponding P/Es are ridiculously low at 7.5 and 5.2.
Refining stocks have been weak of late. Contributing factors include slightly elevated gasoline inventories vs. the five-year average and a completion of seasonal refinery maintenance by mid-November; negatives that are somewhat offset by episodic regional supply and logistical restraints. I’ll move DK back to a Buy recommendation when the price action becomes bullish. Hold.
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 21.9% third-quarter year-over-year growth in China. Consensus earnings estimates rose last week, and I’d like to see them rise a bit more this week as analysts continue to revise their projections after the strong third-quarter report. Full-year EPS are now expected to rise 2.8% and 9.3% in 2018 and 2019. SKX could easily trade anywhere between 28 and 33 in the coming weeks. Buy SKX now. Buy.
Synchrony Financial (SYF – yield 2.8%) is a consumer finance company with $56.5 billion in deposits and 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 2018 consensus earnings estimate rose to its highest point this year. Analysts now expect full-year EPS to increase by 32.8% and 28.4% in 2018 and 2019 (December year-end). The corresponding P/Es are extremely low at 9.0 and 7.0.
The share price has recently been weak and may now be turning around as the market gains confidence in the company’s very strong business and earnings outlook. There’s short-term price resistance at 33.5, and additional resistance at 40, where SYF reached an all-time high in January. Buy SYF now. Strong Buy.
TiVo (TIVO – yield 5.6%) creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences. The company plans to announce third-quarter results on the afternoon of November 7. 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. The company will report third-quarter results on the afternoon of November 8. UEIC is an undervalued micro-cap stock. The stock moves rapidly when earnings are announced. A good earnings report that pleases the market could promptly bring the stock back to 45. Strong Buy.
