Tuesday, January 19, 2016 is an important day in U.S. stock markets. The chart of the S&P 500 is showing us that the index may be finishing a double-bounce pattern; bouncing at the same low of approximately 1,880 where it touched down twice during the late summer 2015 market correction.
If the S&P 500 completes the double-bounce chart pattern, I will breathe a big sigh of relief, and expect equity markets to begin stabilizing. There’s a smaller chance the index could bounce at 1,860, for a day or so.
If the S&P falls any farther, then it’s got more room to fall.
As a reminder, equity markets fall for different reasons, including when they are overvalued or overextended, when there’s a sector “bubble,” when there’s war or natural disasters and when strong financial trends in other markets are affecting equities. We are experiencing the latter scenario, amid falling oil prices. Many investors will remember similar market problems in recent decades, with junk bonds, U.S. Treasuries, technology stocks and housing.
I intend to wait for the downturn to run its course, and I look forward to buying low, as opportunities present themselves. I hope you’ll join me!
Seven Smart Investing stocks saw their earnings estimates increase last week: Adobe Systems (ADBE), Delta Air Lines (DAL), D.R. Horton (DHI), e*Trade (ETFC), General Motors (GM), Harman International (HAR) and Johnson Controls (JCI).
Four Smart Investing stocks saw their earnings estimates decrease last week: Axiall (AXLL), Big Lots (BIG), Priceline (PCLN) and Federated Investors (FII).
The only stock in the Smart Investing portfolios that has a bullish chart right now is Adobe Systems (ADBE). The two stocks that I’d buy for their 5%+ dividends right now--despite their weak charts--are General Motors (GM) and GameStop (GME).
I lowered the rating on four stocks to Hold, due to continued weakness in the stock market: BorgWarner (BWA), Carnival (CCL), e*Trade (ETFC) and Royal Caribbean Cruises (RCL).
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. Analysts recently increased their 2016 and 2017 EPS growth estimates on ADBE to reflect 33.2% and 36.1% growth (November year-end). ADBE is a fairly-valued aggressive growth stock, with a much stronger chart than most other stocks right now. The stock rose to new all-time highs in mid-December; with a current trading range of 88-96. Rating: Strong Buy.
Chemtura (CHMT) manufactures specialty chemicals. EPS growth expectations remain strong at 92% and 27% in 2015 and 2016 (December year-end), with a 2016 P/E of 13.1. CHMT is a vastly undervalued aggressive growth stock. CHMT reached new highs in November but has since fallen below recent price support. Wait for the price to stabilize before buying. Rating: Hold.
D.R. Horton (DHI) is a homebuilder. Last week’s December housing report showed a slight improvement in current demand. Morgan Stanley reported “93% of builders expect sales to be higher or flat in the next six months” with gross margins largely expected to equal those of 2015. The biggest risk to 2016 gross margins is labor shortages.
DHI is an undervalued growth stock with a 1.2% dividend yield. Analysts slightly increased their 2016 EPS estimate for D.R. Horton last week; now expecting 17.0% and 13.3% growth in 2015 and 2016 (December year-end). The 2016 P/E is 11.4. The stock broke past annual highs in late November, then fell to last summer’s support levels. Wait for the price to stabilize before buying. Rating: Hold.
Delta Air Lines (DAL) reports fourth-quarter 2015 results today with comments from the CEO. Analysts are expecting 40.2% EPS growth. Major airlines raised their fares by about $6 this month, to make up for lower revenue per seat-mile in 2015. It’s possible that the CEO will talk about overcapacity in the used jetliner market. Expect volatility.
Delta is a very undervalued aggressive growth stock with a 1.2% dividend yield. The 2016 consensus EPS estimate rose yet again last week, to 42.0% (December year-end), enhanced by low fuel prices. The 2016 P/E is 6.75. The stock reached new highs in December. This week’s price action will show us whether the stock will fall lower or maintain support at 44. Rating: Strong Buy.
E*Trade (ETFC) offers financial brokerage and banking products and services. e*Trade will report fourth-quarter and full-year results on January 21 after the market closes. Last week, analysts slightly increased their 2015 consensus EPS estimate, now reflecting 4.5% and 35.6% growth in 2015 and 2016 (December year-end). The 2016 P/E is 15.8.
ETFC is a very undervalued aggressive growth stock. The share price has been weak with the recent market downturn. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
The Priceline Group (PCLN) is an online travel service company. This month, analysts lowered their 2016 EPS growth expectation from 18.8% to 18.6%--all-in-all, a non-event. The 2016 P/E is 15.9. PCLN is an undervalued growth stock.
PCLN reached new all-time highs in November, then experienced a big pullback, dropping below recent price support. Wait for the price to stabilize before buying. Rating: Hold.
Royal Caribbean Cruises (RCL) Analysts are bullish on Royal Caribbean’s strong demand in the Caribbean, market share gains, and low P/E vs. peers. RCL is a very undervalued aggressive growth stock with a 1.8% dividend yield. EPS are expected to grow 41.9% and 29.5% in 2015 and 2016 (December year-end).
The share price reached an all-time high in late December, then became weak with the recent market downturn. I’m changing the rating to Hold until the price stabilizes. Rating: Hold.
Vulcan Materials (VMC) produces construction aggregates. VMC is a dramatically undervalued aggressive growth stock. EPS are expected to grow 116% and 66% in 2015 and 2016 (December year-end). The 2016 P/E is 25.1. VMC reached an annual 2015 high in late November, then fell with the weak market. Wait for the price to stabilize before buying. Rating: Hold.
WellCare Health Plans (WCG) WCG is a dramatically undervalued aggressive growth stock in the managed healthcare sector. EPS are expected to grow 88% and 32% in 2015 and 2016 (December year-end). The 2015 number is well guided by the company and analysts, and therefore should cause neither excitement nor disappointment when fourth quarter 2015 earnings are reported. The 2016 P/E is 16.0.
The share price has begun to stabilize, although please give it a little more time to establish support before buying. Rating: Hold.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/15/16 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 89 | 4% | Strong Buy |
| Chemtura (CHMT) | 10/6/15 | 31 | 25 | -19% | Hold |
| D.R. Horton (DHI) | 10/6/15 | 31 | 27 | -13% | Hold |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 45 | -4% | Strong Buy |
| E*Trade Financial (ETFC) | 11/12/15 | 29 | 25 | -15% | Hold |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,087 | -15% | Hold |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 83 | -10% | Hold |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 84 | -11% | Hold |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 72 | -14% | Hold |
| Growth Portfolio Total Return | -10.60% |
Growth & Income Portfolio
Growth & Income Portfolio stocks have bullish charts, good projected earnings growth, dividends of 1.5% and higher, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels.
Big Lots (BIG) is a discount retailer. The company commented that fourth-quarter sales are coming in on target, up 1%-2% vs. a year ago (January year-end). BIG is an undervalued growth & income stock with a strong balance sheet, and a 2.1% dividend yield. EPS are expected to grow 20.3% and 11.5% in 2016 and 2017. Wait for the price to stabilize before buying. Rating: Hold.
Cardinal Health (CAH) is one of the largest U.S. distributors of healthcare products and services. Cardinal’s second-quarter earnings will be reported on February 1, 2016 [note: the previously reported date was January 27]. CAH is an undervalued stock with a 1.9% dividend yield. EPS are expected to grow 21.0% and 13.2% in 2016 and 2017 (June year-end). The 2016 P/E is 15.3. CAH appears to be finding support around 80. Rating: Strong Buy.
Carnival (CCL) is a cruise vacation company. CCL is an undervalued stock with a 2.4% dividend yield. EPS are expected to grow 24.4% and 16.4% in 2016 and 2017 (November year-end). The P/E is 14.8. CCL reached a 2015 high in late December, then fell with the recent market downturn. I’m changing the rating to Hold until the price stabilizes. Rating: Hold.
Federated Investors (FII) is a global investment management company. As an industry leader in the management of money market funds, Federated is uniquely positioned to increase its net income from asset management fees as interest rates rise. Last week’s mutual fund reports showed inflows into money market funds, as investors moved money out of equities. FII is one of the best possible financial stocks to own, to capitalize on rising interest rates.
FII is a very undervalued stock, with a hefty 3.9% dividend yield. EPS are expected to grow 12.7% and 22.5% in 2015 and 2016 (December year-end). Analysts lowered the 2016 number last week. The P/E is 12.9. Wait for the price to stabilize before buying. Rating: Hold.
GameStop (GME) owns and operates 6,200 video game and electronics stores in the U.S., Canada, Australia and Europe. Analysts lowered their EPS estimates for GME last week, to reflect 6.9% and 10.2% growth in 2016 and 2017 (January year-end). This undervalued stock continues to suffer, and as a result, the current dividend yield is 5.6%. It could be several months before the rebound begins. Watch for the company’s full-year 2016 earnings report on March 24. The huge dividend yield is going to bring new money into the stock, during the market downturn. Rating: Buy.
General Motors (GM) in an American auto manufacturer. The company raised its 2016 earnings guidance, and increased its dividend last week. They also increased the share repurchase program by another $4 billion. GM is a vastly undervalued growth & income stock with a 5.1% dividend yield. EPS are expected to grow 57.7% and 14.3% in 2015 and 2016 (December year-end). The huge dividend yield is going to bring new money into the stock during the market downturn. Rating: Strong Buy.
H&R Block (HRB) is a leader in tax preparation services. HRB is a growth & income stock with a strong balance sheet and a 2.5% dividend yield. EPS are expected to grow 10.3% and 18.7% in 2016 and 2017 (April year-end). The stock is overvalued based on 2016 numbers and undervalued based on 2017 numbers (April year-end). The stock has good price support at 32. Rating: Strong Buy.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/15/16 | Total Return | Rating |
| Abercrombie & Fitch (ANF) | 11/9/15 | -- | -- | 15% | Sold 11/30/15 |
| Big Lots (BIG) | 10/6/15 | 49 | 36 | -27% | Hold |
| Cardinal Health (CAH) | 01/4/16 | 88 | 81 | -7% | Strong Buy |
| Carnival (CCL) | 10/6/15 | 50 | 50 | 0% | Hold |
| Federated Investors (FII) | 11/30/15 | 31 | 25 | -20% | Hold |
| GameStop (GME) | 10/6/15 | 43 | 26 | -40% | Buy |
| General Motors (GM) | 10/6/15 | 32 | 30 | -8% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 32 | -10% | Strong Buy |
| SanDisk (SNDK) | 10/6/15 | -- | -- | 27% | Sold 11/2/15 |
| Union Pacific (UNP) | 10/6/15 | -- | -- | -5% | Sold 11/2/15 |
| Growth & Income Portfolio Total Return | -7.20% |
Buy Low Opportunities Portfolio
Buy Low Portfolio stocks have neutral charts, strong projected earnings growth, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels. (Dividends are not a portfolio requirement, but some of the stocks will have dividends.) Investors should be willing to wait patiently for these stocks to climb.
Updates on Buy Low Opportunities Portfolio Stocks
Axiall (AXLL)--formerly Georgia Gulf Corp.--manufactures chemicals and plastics. Last week, analysts lowered their 2016 earnings growth rate for Axiall to 15.7% (December year-end). AXLL is an undervalued growth stock with a 5.8% dividend yield. Please do not consider buying more shares until the share price stabilizes, and fourth-quarter earnings are reported. Rating: Hold.
Boeing (BA) will report fourth-quarter 2015 results on the morning of January 27. The recent dividend increase boosts the current yield to 3.4%. BA is an undervalued growth & income aerospace stock. EPS are expected to grow 14.3% in 2016 (December year-end). BA is revisiting its August-September lows. Wait for the price to stabilize before buying. Rating: Hold.
Boise Cascade Company (BCC) is a leading U.S. wholesaler of wood products and building materials, benefiting from a strong home-building market. BCC is a volatile, undervalued aggressive growth stock. EPS are expected to grow 27.7% in 2016 (December year-end). Wait for the price to stabilize before buying. Rating: Hold.
BorgWarner (BWA) is a maker of engineered automotive systems for power-train applications. BWA is an undervalued growth stock with a strong balance sheet, and a 1.6% dividend yield. EPS are expected to grow 14.4% in 2016 (December year-end). The share price has been weak with the recent market downturn. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
FedEx (FDX) is an international package delivery company. FDX is an undervalued growth stock. EPS are expected to rise 18.2% and 13.5% in 2016 and 2017. Wait for the price to stabilize before buying. Rating: Hold.
Harman International Industries (HAR) is a manufacturer of in-car technology and entertainment systems, best known for its JBL and Harman Kardon audio systems. HAR is a very undervalued growth stock with a 1.8% dividend yield. Last week, analysts raised their EPS estimates to reflect 14% and 18% growth in 2016 and 2017 (June year-end). Wait for the price to stabilize before buying. Rating: Hold.
Intuit (INTU) is an industry leader in financial management software solutions. INTU is an undervalued aggressive growth stock with a strong balance sheet and a 1.3% dividend yield. EPS are expected to grow 34.4% and 25.0% in 2016 and 2017 (July year-end). The stock price could bounce as low as 90 in the very short-term. Rating: Buy.
Johnson Controls (JCI) operates in the areas of energy management and auto batteries. The company plans to spin off Adient, its automotive seating and interiors business, in October 2016. JCI is an undervalued growth & income stock with a 3.3% dividend yield. Wall Street’s consensus 2017 EPS estimate was increased last week to reflect 12.5% expected growth (September year-end). Wait for the price to stabilize before buying. Rating: Hold.
Robert Half International Inc. (RHI) is a staffing and consulting company. RHI is an undervalued growth stock with a 1.9% dividend yield. 2016 EPS are expected to grow 15.3%. Wait for the price to stabilize before buying. Rating: Hold.
Whirlpool (WHR) is a global appliance manufacturer. WHR is a very undervalued growth stock with a 2.8% dividend yield. 2016 EPS are expected to grow 18.4% (December year-end). Wait for the price to stabilize before buying. Rating: Hold.
Prices as of 1/15/16 market close.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/15/16 | Total Return | Rating |
| Axiall (AXLL) | 11/9/15 | 22 | 11 | -49% | Hold |
| Bank of New York Mellon (BK) | 10/6/15 | -- | -- | 11% | Sold 11/6/15 |
| The Boeing Company (BA) | 10/6/15 | 135 | 126 | -7% | Hold |
| Boise Cascade (BCC) | 11/9/15 | 30 | 19 | -36% | Hold |
| BorgWarner (BWA) | 12/30/15 | 44 | 31 | -29% | Hold |
| FedEx (FDX) | 01/4/16 | 145 | 127 | -12% | Hold |
| Harman International Industries (HAR) | 10/6/15 | 105 | 78 | -26% | Hold |
| Intuit (INTU) | 10/6/15 | 91 | 91 | 0% | Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 35 | -20% | Hold |
| Robert Half International (RHI) | 10/6/15 | 51 | 42 | -17% | Hold |
| Whirlpool (WHR) | 11/3/15 | 160 | 129 | -20% | Hold |
| Buy Low Portfolio Total Return | -18.70% |