CF Industries (CF) Joins The Growth Portfolio
Today’s new stock is CF Industries Holdings (CF – yield 2.7%), one of the world’s largest producers of nitrogen products, serving customers on six continents. The company operates nine nitrogen production complexes in Canada, the U.K. and the U.S.
CF Industries has the right earnings outlook, valuation, dividend yield and price chart to fit into any of our three portfolios, but since the earnings outlook reflects such aggressive growth, CF will join the Growth Portfolio. CF was previously featured in the Growth Portfolio during July 2018 as a short-term trade. I then sold CF after it rose rapidly following its second quarter earnings release.
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. You can see on this natural gas price chart that CF’s input costs are currently much lower than when natural gas prices spiked upward in November.
Consensus earnings per share (EPS) estimates are now over 50% higher than when I first recommended the stock in July 2018. After a small loss in 2017 (December year-end), the company is expected to deliver $1.54 EPS upon the full-year 2018 earnings release, and $2.69 per share in 2019. The 2019 earnings growth rate of 74.7% far exceeds the 2019 P/E of 16.5.
The dividend yield is 2.7%. The company repurchased three million shares of stock during the first three quarters of 2018 within an ongoing share repurchase authorization.
CF is a cyclical mid-cap stock, affected by both currencies and energy prices. I’m far more likely to trade this stock than I am to hold it long term. I expect the stock to trade anywhere between 42 and 53 in the coming months. Risk-tolerant traders and growth stock investors should buy CF now. Strong Buy.
PORTFOLIO NOTES
Be sure to review the Special Bulletins from January 8 and 11 in which I mentioned news, rating changes and/or price action on DowDuPont (DWDP), Guess? (GES), D.R. Horton (DHI), KLX Energy Services (KLXE), Marathon Petroleum (MPC), SYNNEX (SNX) and TiVo (TIVO).
QUARTERLY EARNINGS RELEASE CALENDAR
January 15 am: Delta (DAL) – 4Q
January 16 am: Comerica (CMA) – 4Q
January 17 am: BB&T Corp. (BBT) -- 4Q
January 18 am: Regions Financial (RF) and Schlumberger (SLB) – 4Q
January 24 am: Southwest Airlines (LUV) – 4Q
January 25 am: D.R. Horton (DHI) -- 1Q; Synchrony Financial (SYF) – 4Q
January 29 am: CIT Group (CIT) and Knight-Swift Transportation (KNX) – 4Q
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
February 4 am: Alexion Pharmaceuticals (ALXN) – 4Q
February 5 pm: Voya Financial (VOYA) – 4Q
EARNINGS SEASON SCORECARD
Big earnings beat: Commercial Metals (CMC) and SYNNEX (SNX)
BUY-RATED STOCKS MOST LIKELY TO RISE MORE THAN 5% NEAR-TERM
Blackstone Group, LP (BX)
WestRock (WRK)
*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:
CF Industries (CF) joins the Growth Portfolio as a Strong Buy.
Schlumberger (SLB) moves from Buy to Hold.
LAST WEEK’S PORTFOLIO CHANGES:
D.R. Horton (DHI) moved from Hold to Buy.
SYNNEX Corp. (SNX) joined the Buy Low Opportunities Portfolio as a Strong Buy, got downgraded to a Buy, and was subsequently Retired.
UPDATES ON GROWTH PORTFOLIO STOCKS
CIT Group (CIT – yield 2.3%) – Hold.*
D.R. Horton (DHI – yield 1.5%) is America’s largest homebuilder by units, operating in 27 states, and also providing mortgage and title services. The company is expected to report first quarter EPS of $0.78 on the morning of January 25, within a range of $0.73-$0.86. DHI is an undervalued mid-cap stock. Wall Street expects EPS to increase 12.9% in fiscal 2019 (September year end). The 2019 P/E is 9.2. Various Wall street firms raised their price targets to 45 and 46 last week, while others lowered their price targets to 37 and 35.5. After emerging from a sideways trading pattern last week, DHI is now rising toward price resistance at 42. Buy.
KLX Energy Services (KLXE) – Hold.*
Knight-Swift Transportation Holdings (KNX – yield 0.8%) is the largest full truckload carrier in North America and an industry leader with an exemplary management team. KNX is an undervalued mid-cap stock. The 2018 consensus EPS estimate has been consistently rising for over a year, out of synch with the stock’s poor performance. At this point, analysts expect EPS to increase 71.0% and 13.1% in 2018 and 2019. The 2019 P/E is 10.7. The share price will need to stabilize before recovering. Hold.
Marathon Petroleum (MPC – yield 2.8%) 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 37.8% and 32.8% in 2018 and 2019, while the 2019 P/E is just 9.1. Management expects to increase the dividend payout by at least 10% this year. The last dividend increase was in late January 2018, so this year’s hike could be announced soon.
The stock has risen about 18% to 65 in recent weeks. I expect a pullback soon, and a maximum short-term upside of 70. I’ll probably give MPC a Buy recommendation when the first big pullback occurs. Hold.
Martin Marietta Materials (MLM – yield 1.1%) – 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 trading range is wide and erratic. The best opportunity awaits investors who buy on dips below 31. 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. The company is expected to report fourth quarter EPS of $1.07 on the morning of January 24, within a range of $1.02-$1.12.
LUV is an undervalued growth stock. The 2019 earnings estimate rose last week. Analysts now expect EPS to grow 18.6% and 17.6% in 2018 and 2019. The 2019 P/E is 9.9. The share price needs to continue stabilizing before gathering enough strength to advance. LUV will likely trade between 47 and 54 in the coming weeks. Hold.
Supernus Pharmaceuticals (SUPN) focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy and migraine. Supernus has five pipeline products, in various phases of clinical trials, which aim to treat ADHD, impulsive aggression, bipolar disorder, depression and severe epilepsy. If you want to, you can learn more in the company’s 33-page Investor Presentation from this month or listen to the webcast of management’s January 9 presentation at the 2019 J.P. Morgan Healthcare Conference.
SUPN is an undervalued, small-cap aggressive growth stock. Wall Street expects EPS to grow 46.8% and 28.6% in 2018 and 2019. The 2019 P/E is 15.8. The share price is rising, fueled by both the rebound in the broader stock market and excitement over recent M&A activity within the pharmaceutical industry. Longer-term investors could buy SUPN now, but shorter-term traders should probably wait for a pullback, at which time I’ll give the stock a Buy recommendation. 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 35.5% in 2018 and 2019, and the 2019 P/E is 7.9. Management intends to increase the dividend yield to 1% in 2019. The stock could trade anywhere between 39 and 47 in the coming months. I will likely return VOYA to a Buy recommendation on the next pullback. Hold.
UPDATES ON GROWTH & INCOME PORTFOLIO STOCKS
Apollo Global Management, LLC (APO – yield 7.4%*) 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. Apollo Global Management was featured in the January issue of Cabot Undervalued Stocks Advisor.
APO is an undervalued mid-cap stock growth & income stock. 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 per share and yielding 7.4%.
BB&T Corp. (BBT – yield 3.5%) 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, within a range of $1.00-$1.08. BBT is an undervalued growth & income stock. The stock will likely trade between 43 and 48 in the coming weeks. Buy.
Blackstone Group LP (BX – yield 7.6%*) 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. this year or next. The stock is advancing and could reach as high as 35 before pulling back. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.42 per share and yielding 7.6%.
Comerica (CMA – yield 3.3%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica is expected to report fourth quarter EPS of $1.87 on the morning of January 16, within a range of $1.80-$1.93.
CMA is an undervalued growth & income stock. Consensus earnings estimates grew consistently all year, and are now expected to rise 50.8% and 11.8% in 2018 and 2019. The 2019 P/E is 9.1. Investors can expect Comerica to continue to make significant share repurchases and hike the dividend in 2019. The share price needs to continue stabilizing before gathering enough strength to advance. Hold.
Commercial Metals Company (CMC – yield 3.0%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Subsequent to the January 10 earnings release, the 2020 consensus earnings estimate rose significantly (August year end). At this point, analysts expect EPS to rise 43.6% and 16.4% in fiscal 2019 and 2020. The 2019 P/E is quite low at 7.4.
Goldman Sachs raised their recommendation on CMC from Neutral to Buy yesterday, pushing the share price up. The stock needs to continue stabilizing before gathering enough strength to advance. Patient investors could buy now to lock in the attractive dividend yield. 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. Delta is expected to report fourth quarter EPS of $1.26 on the morning of January 15, within a range of $1.14-$1.30. DAL is an undervalued growth & income stock. Analysts expect EPS to grow 13.0% and 19.6% in 2018 and 2019. The 2019 P/E is 7.3. The share price needs to continue stabilizing before gathering enough strength to advance. 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 14.6% in 2018 and 2019. The 2019 P/E is 11.7. DWDP will likely trade between 54 and 59 in the coming weeks. Buy.
GameStop (GME – yield 9.7%) – Management continues their strategic review for a potential sale of the company. News reports indicate that private equity firms Sycamore Partners and/or Apollo Global Management (APO) might announce a buyout of GameStop in February. This stock is for risk-tolerant investors who are attracted by the prospect of a possible M&A deal. GME is most likely to trade between 14 and 18 while we await M&A news. Hold.
Guess?, Inc. (GES – yield 4.1%) is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements. Analysts now expect EPS to grow 58.6% and 23.4% in fiscal 2019 and 2020. The 2020 P/E is 16.1. GES is an undervalued aggressive growth stock with a big dividend yield. The stock is most likely to trade between 21 and 24 in the near future. Strong Buy.
Regions Financial Corp. (RF – yield 3.8%) 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, within a range of $0.36-$0.42. The share price needs to continue stabilizing before gathering enough strength to advance. An exuberant reaction to a good earnings report could temporarily bring the share price up to about 16.5. Hold.
Schlumberger (SLB – yield 4.9%) is the world’s largest oilfield service company. The number of U.S. rigs drilling for crude oil and natural gas remained unchanged last week at a total of 1,075, up 136 vs. a year ago. The company is expected to report fourth quarter EPS of $0.36 on the morning of January 18, within a range of $0.33-$0.46; and quarterly revenue of $8.1 billion, within a range of $8.0-$8.5 billion.
Analysts expect full-year EPS to grow 12.8% in 2019. The 2019 P/E is 22.6. With 2019 EPS estimates less robust than previously projected, the stock is no longer undervalued. I’m moving SLB from Buy to Hold, and will make a further assessment upon the fourth quarter earnings release. Hold.
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 9.4. The stock is most likely to trade between 52 and 58 in the near future. Strong Buy.
WestRock Company (WRK – yield 4.4%) is a global packaging and container company. WRK is an undervalued growth & income stock with a big dividend yield. Analysts expect EPS to grow 10.0% in fiscal 2019 (September year end), and the P/E is 8.5. 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) – Hold.*
Apple Inc. (AAPL – yield 1.9%) 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. Consensus earnings estimates came down last week. Analysts now expect EPS to rise 1.8% and 11.2% in fiscal 2019 and 2020 (September year end). The respective P/Es are 12.6 and 11.3. I’ll return AAPL to a Buy recommendation when the price chart stabilizes. Hold.
Baker Hughes, a GE co. (BHGE – yield 3.1%) 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 remained unchanged last week at a total of 1,075, up 136 vs. a year ago. BHGE is an undervalued aggressive growth stock with an attractive dividend yield and a low debt-to-capital ratio. The stock probably needs to trade in the low 20’s for a while before advancing further; however, if BHGE rises past 23 without first sending me a memo, it could travel all the way to 27 before its first big pullback. 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. Investors may visit the Delek website in order to view the company’s January 9 presentation at the Goldman Sachs Global Energy Conference. Delek U.S. Holdings was featured in the January issue of Cabot Undervalued Stocks Advisor.
DK is an extremely undervalued small-cap growth stock. Wall Street expects EPS to grow 308% and 14.7% in 2018 and 2019. The 2019 P/E is 6.1. The stock is most likely to trade between 31 and 40 in the near future. Buy.
Skechers USA Inc. (SKX) is an apparel company that designs and manufactures stylish, 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 an expectation of achieving $1 billion in revenue in China in a few short years. With 2019 EPS estimates less robust than previously projected, the stock is no longer undervalued. I will make a further assessment upon the fourth quarter earnings release. The stock has been rising, with short-term price resistance at 26 and again at 28. Hold.
Synchrony Financial (SYF – yield 3.2%) 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. SYF is a very undervalued aggressive growth stock with an attractive dividend yield. Wall Street expects EPS to grow 36.6% and 24.9% in 2018 and 2019. The 2019 P/E is extremely low at 5.8. I’ll likely move SYF back to a Buy recommendation after the next pullback. Hold.
TiVo (TIVO – yield 6.6%) 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 boost shareholder value 10.6%. 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. Risk-tolerant investors could buy now with an expectation of an M&A announcement. Strong Buy.
Universal Electronics (UEIC) – 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.
