This will be a busy week for Wall Street as analysts speak with the companies within their stock purviews and write updated research reports. I expect to relay lots of changes in consensus earnings estimates in next week’s update.
For investors who enjoy Wall Street gurus’ prognostications for the coming year, I suggest Byron Wiens’ 10 Surprises for 2019. Mr. Wiens was Senior U.S. Investment Strategist while I was at Morgan Stanley, and now serves as Vice Chairman of Private Wealth Solutions at Blackstone Group (BX). Mr. Wiens expects a stable fed funds rate, low inflation, continued U.S. economic growth, a positive yield curve, a 15% return on the S&P 500 index—all in 2019—and no sign of a recession through 2021.
Of particular interest is Mr. Wiens’ bullish outlook for emerging markets:
The profit outlook for emerging markets brightens and investor interest intensifies because the price earnings ratio is attractive compared to developed markets and historical levels. Continuous expansion of the middle class in the emerging markets provides the consumer buying thrust for earnings growth. China leads and the Shanghai composite rises 25%. The Brazil equity market also comes to life under the country’s new conservative leadership.
I mention emerging markets because Mr. Carl Delfeld has just joined Cabot as Chief Analyst of Cabot Emerging Markets Investor. You can learn more about Carl and equity opportunities within emerging markets here.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from January 4 and 7 in which I mentioned news, rating changes and/or price action on Apple (AAPL), Commercial Metals (CMC), Delta Air Lines (DAL) and GameStop (GME).
Quarterly Earnings Release Calendar
January 7 am: Commercial Metals (CMC) – 1Q
January 10: Delta (DAL) – 4Q
January 16 am: Comerica (CMA) – 4Q
January 17 am: BB&T Corp. (BBT) – 4Q
January 18 am: Regions Financial (RF) – 4Q
January 24 am: Southwest Airlines (LUV) – 4Q
January 25 am: D.R. Horton (DHI) – 1Q
January 29 pm: Apple (AAPL) – 1Q
January 31 am: Baker Hughes (BHGE) and Blackstone Group (BX) – 4Q; WestRock (WRK) – 1Q
February 1 am: Apollo Global Management (APO) – 4Q
Buy-Rated Stocks Most Likely* To Rise More Than 5% Near-Term:
Apollo Global Management LLC (APO)
Blackstone Group, LP (BX)
DowDuPont (DWDP)
*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:
Apollo Global Management, LLC (APO) joins the Growth & Income Portfolio.
Delta Air Lines (DAL) moves from Strong Buy to Buy.
DowDuPont (DWDP) moves from Strong Buy to Buy.
Southwest Airlines (LUV) moves from Strong Buy to Hold.
Voya Financial (VOYA) moves from Strong Buy to Hold.
WestRock (WRK) moves from Strong Buy to Buy.
Updates on Growth Portfolio Stocks
CIT Group (CIT – yield 2.5%) 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 an undervalued aggressive growth stock with an attractive dividend yield. The 2018 earnings estimate has been steadily rising since early October. Analysts now expect EPS to increase 23.7% and 20.7% in 2018 and 2019. The 2019 P/E is 8.3. Presuming that the worst of the market correction is behind us, the stock will likely trade between 36 and 44 for several months. I’ll give CIT a Buy recommendation when a more solid trading pattern emerges. Hold.
D.R. Horton (DHI – yield 1.6%) is America’s largest homebuilder by volume, operating in 27 states, and also providing mortgage and title services. Wall Street expects EPS to increase 13.4% and 7.6% in fiscal 2019 and 2020 (September year end). The 2019 P/E is 7.9. The price chart is tentatively improving. The stock might rise past 38 soon. Hold.
KLX Energy Services (KLXE) is an undervalued aggressive growth stock. Analysts expect EPS and revenue to rise 35.1% and 17.2%, respectively, in fiscal 2020 (January year end). The 2020 P/E is quite low at 7.9, as are the P/Es of most other oilfield services companies. I will not be issuing a Buy recommendation on a company that has only two analysts contributing to consensus earnings estimates. The share price appears capable of rising past 25 very soon and heading toward price resistance at 30. Hold.
Knight-Swift Transportation Holdings (KNX – yield 0.9%) – Hold.*
Marathon Petroleum (MPC – yield 3.0%) is a leading, integrated, downstream energy company and the nation’s largest energy refiner, with 16 refineries, majority interests in two midstream companies, 10,000 miles of oil pipelines, and product sales in 11,700 retail stores.
MPC is an undervalued aggressive growth stock with an attractive dividend yield. Wall Street expects EPS to increase 33.7% and 46.9% in 2018 and 2019, while the 2019 P/E is just 8.1. Management expects to increase the dividend payout by at least 10% in 2019. The last dividend increase was announced in late January 2018.
Presuming that the worst of the market correction is behind us, the stock will likely trade between 57 and 65 in the coming weeks. I’ll give MPC a Buy recommendation when a more solid trading pattern emerges. Hold.
Martin Marietta Materials (MLM – yield 1.1%) is a supplier of stone, sand, gravel, cement, concrete and asphalt. The company foresees a continuing growth trajectory, fueled by strong demand combined with increased government spending. Wall Street expects EPS to grow 14.5% and 17.6% in 2018 and 2019. The 2019 P/E is 18.2. The price chart is tentatively improving. MLM is likely to trade between 170 and 200 in the coming weeks. Hold.
Quanta Services (PWR – yield 0.5%) was featured in the January issue of Cabot Undervalued Stocks Advisor. PWR is an undervalued growth stock. The stock is rebounding more quickly than most growth stocks from the December market correction. The trading range is wide and erratic. The best opportunity awaits investors who buy on dips to 30. 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. Mr. Herbert Kelleher, co-founder of Southwest Airlines, passed away on January 3, 2019 at the age of 87.
LUV is an undervalued growth stock. Analysts expect EPS to grow 18.6% and 16.4% in 2018 and 2019. The 2019 P/E is 9.9. Presuming that the worst of the market correction is behind us, the stock will likely trade between 47 and 54 in the coming weeks. Hold.
Supernus Pharmaceuticals (SUPN) -- Hold. *
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 an undervalued aggressive growth stock. Analysts expect EPS to increase 107% and 36.4% in 2018 and 2019, and the 2019 P/E is 7.6. Management intends to increase the dividend yield to 1% in 2019. Hold.
Updates on Growth & Income Portfolio Stocks
Apollo Global Management, LLC (APO – yield 7.6%*) is an alternative asset manager with assets under management (AUM) totaling $270 billion, broken down as follows: credit (68%), private equity (27%) and real estate (5%). Apollo also manages over $70 billion AUM for Athene, a fixed-annuity provider. Last week, Reuters reported that Apollo “is working on an offer to acquire General Electric Co’s aircraft leasing operations, which are worth as much as $40 billion.” And as I reported on January 4, Apollo is also reportedly vying to acquire GameStop (GME). Apollo Global Management was featured in the January issue of Cabot Undervalued Stocks Advisor.
APO is an undervalued mid-cap stock growth & income stock. The quarterly dividend payout varies, totaling $1.93 in 2018, and $1.85 in 2017. Presuming that the worst of the market correction is behind us, the stock will likely trade between 24 and 29 in the coming weeks. Try to buy below 26. Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.93 and yielding 7.6%.
BB&T Corp. (BBT – yield 3.6%) is a 145-year-old financial holding company with $222.9 billion in assets and 1,900 financial centers that serve businesses and individuals. The company is expected to report fourth-quarter EPS of $1.04 on the morning of January 17. BBT is an undervalued growth & income stock. Presuming that the worst of the market correction is behind us, the stock will likely trade between 43 and 48 in the coming weeks. Buy.
Blackstone Group LP (BX – yield 8.0%*) 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. BX is an undervalued growth & income stock. Speculative investors have an opportunity for outsized capital gains if BX converts from an L.P. to a C-corp. next year. Economic net income (ENI) is expected to grow 5.1% in 2019, and the P/E is 9.8.
BX is an undervalued growth & income stock. Presuming that the worst of the market correction is behind us, the stock will likely trade between 29 and 35 in the coming weeks. Dividend investors should lock in this extraordinary yield. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.42 and yielding 8.0%.
Comerica (CMA – yield 3.4%) 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. The company is expected to report fourth-quarter EPS of $1.86 on the morning of January 16.
CMA is an undervalued growth & income stock. Consensus earnings estimates grew consistently all year, and are now expected to rise 50.8% and 12.0% in 2018 and 2019. The 2019 P/E is 8.9. Investors can expect Comerica to continue to make significant share repurchases and a dividend increase in 2019. The share price remains weak. Hold.
Commercial Metals Company (CMC – yield 3.0%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. I wrote about first quarter results in yesterday’s Special Bulletin. You might have seen differing news reports, because the Zacks earnings estimate was $0.38 while the Thomson Reuters estimate was $0.33 and the FactSet estimate was $0.35. (Commercial Metals reported $0.35.) All in all, I was pleased with the non-GAAP EPS number. The stock could easily trade anywhere between 15 and 21 in the coming months as the market gets its bearings. Buy.
Delta Air Lines (DAL – yield 2.9%) is a U.S. and international passenger and cargo airline with an extensive and efficient hub complex. I wrote about the first quarter earnings preannouncement in yesterday’s Special Bulletin. DAL is an undervalued growth & income stock. Analysts expect EPS to grow 13.0% and 20.1% in 2018 and 2019. The 2019 P/E is 7.1. I expect wide price swings for several more weeks. Buy.
DowDuPont (DWDP – yield 2.8%) plans to break up into three companies by June 2019: Corteva Agriscience, Dow Chemical and DuPont. DWDP is an undervalued growth stock with an attractive dividend yield. Consensus estimates indicate EPS growth rates of 22.3% and 15.1% in 2018 and 2019. The 2019 P/E is 11.6. Presuming that the worst of the market correction is behind us, the stock will likely trade between 51 and 60 in the coming weeks. Buy.
GameStop (GME – yield 10.0%) – I wrote about current M&A rumors in a January 4 Special Bulletin. Hold.*
Guess?, Inc. (GES – yield 4.2%) 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. The fiscal 2020 earnings estimate rose last week (January year end). Analysts now expect EPS to grow 58.6% and 23.4% in fiscal 2019 and 2020. The 2020 P/E is 15.6.
GES is an undervalued aggressive growth stock with a big dividend yield. The stock is most likely to trade between 19.5 and 24 in the coming months. Strong Buy.
Regions Financial Corp. (RF – yield 4.0%) 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. The company is expected to report fourth-quarter EPS of $0.38 on the morning of January 18. Full year 2017 EPS rose 24.1% to $1.08, and full year 2018 EPS are expected to increase 40.7% to $1.52. The stock needs to stabilize. An exuberant reaction to a good earnings report could temporarily bring the share price up to about 16.5. Hold.
Schlumberger (SLB – yield 5.0%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas fell by eight last week to a total of 1,075, up 151 vs. a year ago. Analysts expect EPS to grow 15.2% in 2019. The 2019 P/E is 20.6. Dividend investors can buy now, while growth investors should wait for the price chart to improve. Buy.
Total S.A. (TOT – yield 5.6%) is a French multinational oil and gas company operating in over 130 countries. TOT is an undervalued growth & income stock with a large dividend yield. Analysts expect EPS to grow 30.8% and 6.9% in 2018 and 2019. The 2019 P/E is 9.5. The stock is most likely to trade between 52 and 58 in the near future. Strong Buy.
WestRock Company (WRK – yield 4.6%) is a global packaging and container company. WRK is an undervalued growth & income stock with a big dividend yield. Analysts expect EPS to grow 12.5% in fiscal 2019 (September year end), and the P/E is 8.7. The stock is likely to trade between 37 and 48 for a few months. 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. The company’s aim is to build four sustainable blockbuster drug franchises. Management will present at the 37th Annual J.P. Morgan Healthcare Conference on the morning of January 8.
Investors may listen to the webcast of Alexion CEO Ludwig Hantson’s January 3 presentation at the Goldman Sachs 11th Annual Healthcare Conference. In addition to detailing current experiences and plans with Alexion’s pharmaceutical products and acquisitions, Mr. Hantson commented:• 2018 was an excellent year.
• We had the best launch in the history of Alexion.
• We’re going to move into [exploring treatments for] ALS as well as PPMS [amyotrophic lateral sclerosis and primary-progressive multiple sclerosis] …
• Our ambition is to show double-digit revenue growth, year after year.
• 2019 should be a great year for us.
ALXN is an undervalued mid-cap growth stock. Consensus estimates indicate EPS growth rates of 29.9% and 14.3% in 2018 and 2019. The 2019 P/E is rather low for a pharmaceutical stock at 12.2. ALXN is rising from recent lows as the broader market rebounds, additionally fueled by excitement about M&A activity within the healthcare industry. I will wait for the stock to pull back and establish a trading range before moving my recommendation to a Buy. Hold.
Apple Inc. (AAPL – yield 2.0%) is a manufacturer and provider of many popular technology devices and services, include the iPhone, iPad, Mac, App Store, Apple Care, iCloud and more. AAPL is an undervalued growth & income stock.
The diluted outstanding share count, which stood at 5.0 billion on September 30, was reduced to 4.77 billion by December 31. (The share count stood at 6.12 billion in September 2014, and has since been reduced by 22.1%.)
Consensus earnings estimates came down last week. Analysts now expect EPS to rise 3.4% and 11.4% in fiscal 2019 and 2020 (September year end). The respective P/Es are 12.0 and 10.8. The stock might be finding a bottom around 150. I’ll return AAPL to a Buy recommendation when the price chart stabilizes. Hold.
Baker Hughes, a GE co. (BHGE – yield 3.2%) 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 fell by eight last week to a total of 1,075, up 151 vs. a year ago. BHGE is an undervalued aggressive growth stock with an attractive dividend yield and a low debt-to-capital ratio. Analysts expect full year EPS to increase by 51.2% and 102% in 2018 and 2019. The 2019 P/E is 16.8. The share price seems to be stabilizing in the low 20’s. I’ll likely return BHGE to a Buy recommendation when the stock appears ready to rise past 23. Hold.
Delek U.S. Holdings (DK – yield 3.2%) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek is the largest licensee of 7-Eleven stores in the U.S. Delek owns 63.4% of Delek Logistics Partners, LP (DKL), which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminaling. Management will participate in the Goldman Sachs Global Energy Conference on January 8-9. Delek U.S. Holdings was featured in the January issue of Cabot Undervalued Stocks Advisor.
DK is an extremely undervalued, aggressive growth, small-cap stock. Wall Street expects EPS to grow 301% and 36.5% in 2018 and 2019. The 2019 P/E is 5.5. The stock is most likely to trade between 31 and 40 in the near future. Buy.
Skechers USA Inc. (SKX) – Hold.*
Synchrony Financial (SYF – yield 3.3%) – Hold.*
TiVo (TIVO – yield 6.9%) creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences.
Due to the chronically underperforming share price, management is in strategic discussions with entities that are considering buying either or both of TiVo’s two divisions --product and IP licensing -- in order to a higher value for stockholders. Management stated, “It is our intention to complete the strategic review process by no later than our fourth quarter and year-end 2018 earnings call,” which will likely take place in late February. The stock has begun to rise, but could bounce again at 9.5. Risk-tolerant investors could buy now with an expectation of an M&A announcement. Strong Buy.
Universal Electronics (UEIC) is a manufacturer and world leader of wireless and voice remote control products, software and audio-video accessories for the smart home; with over 400 patents and a strong pipeline of new products in the areas of safety and security, climate control and lighting. Dozens of famous business partners include Comcast, Sky, Microsoft, DirecTV, Panasonic, Sony, Yamaha, Bose, Toshiba, JVC, Ingersoll-Rand and Daikin. CEO Paul Arling will present at the 21st Annual Needham Growth Conference on January 16.
UEIC is an undervalued micro-cap stock, appropriate for risk-tolerant investors and traders. The three analysts who are contributing to the consensus estimate are currently expecting 14.8% EPS growth and 7.1% revenue growth in 2019, while the P/E is 9.9. Hold.
* In order to focus attention on newsworthy changes in our portfolio stocks, I’m eliminating descriptions of Hold-rated stocks during weeks when there are no significant news announcements or changes in consensus earnings estimates. As a reminder, Hold does not mean Sell. Hold means that I am not recommending additional purchases of the stock today, either due to price chart action, earnings outlook, or stock valuation. I expect Hold-rated stocks to perform well in the coming months.
