U.S. stock market volatility continues, related to a slowing Chinese economy and falling oil prices.
Please remember that these bouts of volatility often have nothing to do with the health of the companies in which you’re invested. If you own high-quality stocks with rising earnings projections, nothing that’s happening in China or the commodities markets is going to rapidly turn your stocks into poor investments.
The types of U.S. stocks that are harmed by these goings-on include oil-related stocks and multi-national corporations. I’m sure you understand that falling oil prices will lead to falling profits at oil companies; so clearly, that’s not a good place to invest. And at multi-national corporations, the strong U.S. dollar takes a small bite out of profits from exports.
As a rule of thumb, we do not buy low until significant corporate problems are alleviated, stock prices stabilize, profits begin rising and valuations are cheap. Would you please print this page, grab a scissors, cut out that sentence, and tape it to your computer? Here, I’ll isolate it for you, to make that process easier:
As a rule of thumb, we do not buy low until significant corporate problems are alleviated, stock prices stabilize, profits begin rising, and valuations are cheap.
Thank you for humoring me. I’m trying to help you focus on the types of stocks that are most likely to rise, and least likely to fall. I cannot prevent stocks from falling during market downturns. But I can help you improve your longer-term chances of achieving capital gains by imparting lessons that I’ve learned over the decades.
I see extreme value in U.S. stocks, which leads to markets righting themselves. I also hear the gloom & doom crowd telling you to head for the hills.
In the stock market--and I teach this to my daughters as a basic rule of life--the crowd is always wrong. Always. So perhaps the number-one takeaway in this note is that if everybody is doing or saying one particular thing--such as “sell!"--it may be time to buy.
When the storm is over, institutions will buy all of the Smart Investing stocks because these stocks are the cream of the crop, with extreme levels of both growth and value. The very reason I combine those two investment criteria is so that I can find stocks that will appeal to professional investors, who are the people with the buying power to push stock prices up.
Please stay the course.
Rating Change to Buy
I’m raising the rating on GameStop (GME) to Buy. In light of the fact that the share price did not suffer during last week’s stock market shenanigans, it seems that the selling pressure is over for GME. This would be a great time for bargain hunters to jump in, buy the stock while the dividend yield is 5%+, and wait for the rebound.
Rating Changes to Hold
There’s a big difference between buying low on stocks that fell and stabilized, versus buying low on stocks that are currently falling. I want you to buy low on stocks that have the strongest likelihood of rising in the near future. Therefore, I’m asking you to ignore stocks while they’re falling, and instead, concentrate your new purchases on high quality stocks that are done falling.
Today, I’m changing the rating on many Smart Investing stocks to Hold. These rating changes are only about share price. Other than Axiall, none of these stocks are experiencing earnings downgrades or corporate troubles. They are all undervalued growth stocks.
To reiterate, I’m changing the ratings to Hold because I want you to concentrate new purchases on the specific stocks that are rated Buy and Strong Buy.
In that light, I’m changing the ratings on the following stocks to Hold:
* Axiall (AXLL)
* Boise Cascade (BCC)
* Chemtura (CHMT)
* D.R. Horton (DHI)
* Federated (FII)
* FedEx (FDX)
* Harman International (HAR)
* Johnson Controls (JCI)
* Priceline Group (PCLN)
* WellCare (WCG)
* Whirlpool (WHR)
I will raise these stocks’ ratings back to Buy as soon as their charts move from bearish to neutral. For many of these stocks, that change will likely take place this winter.
I realize that stock market volatility can be incredibly disconcerting, but without volatility, there would be no opportunity for capital gains.
If you are seeking to prune or rebalance your stock portfolios, concentrate on removing those stocks with high P/Es and/or falling earnings projections, because those stocks are far less likely to rise than stocks with low P/Es and/or rising earnings.
Best Stocks to Buy Today
Dividend investors should look at General Motors (GM) and GameStop (GME), which are yielding 4.8% and 5.1%.
Bargain hunters should look at stocks with prices that fell and stabilized, such as GameStop (GME) and H&R Block (HRB).
Momentum investors, who prefer stocks with bullish charts, should look at Carnival (CCL).
Lastly, I’d like to include a comment from Morgan Stanley Research, from last week:
“With the weak start to the year, many market commentators will likely recite the popular refrain ‘as goes January, so goes the year,’ with the thinking being a weak January portends a weak year; we should note there is little historical evidence that such is the case.”
“Since 1960, the S&P 500 has posted a loss in January in 23 years, and in those 23 instances, the S&P 500 went on to finish the year positive more than half of the time. Broadly speaking, weakness in January does not have any outsized significance on how markets perform over the rest of the year, and should not be looked at as a prognosticator for the future direction of equity markets.”
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. ADBE is a fairly-valued aggressive growth stock. The stock rose to new all-time highs in mid-December; and recently fell toward price support at 86. For now, ADBE is a Strong Buy for buy-and-hold investors, but short-term investors should be cautious. Rating: Strong Buy.
Chemtura (CHMT) manufactures specialty chemicals. CHMT is a vastly undervalued aggressive growth stock. CHMT reached new highs in November; but has since fallen below price support. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
D.R. Horton (DHI) is a homebuilder. DHI is an undervalued growth stock with a 1.1% dividend yield. The stock broke past annual highs in late November, then fell last week in tandem with the S&P 500. I’m changing the rating to Hold until the chart becomes more bullish. Rating: Hold.
Delta Air Lines (DAL) Investor’s Business Daily recently reported that DAL is one of the top three most buy-rated stocks in the S&P 500. The 2015 and 2016 consensus EPS estimates rose again last week by a few pennies. Delta is a very undervalued aggressive growth stock with a 1.1% dividend yield. The share price has pulled back to recent price support around 46. Rating: Strong Buy.
E*Trade (ETFC) offers financial brokerage and banking products and services. Last week, analysts slightly increased their 2016 consensus EPS estimate for ETFC, now reflecting 37.9% growth. E*Trade will report fourth-quarter and full-year results on January 21 after the market closes. ETFC is a very undervalued aggressive growth stock. Last week, the price dropped down to recent support around 26.50. Rating: Strong Buy.
Priceline (PCLN) is an online travel service company. PCLN is a slightly undervalued growth stock. PCLN reached new all-time highs in November, then experienced a big pullback, dropping below recent price support. Therefore, I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
Royal Caribbean Cruises (RCL) RCL is a very undervalued aggressive growth stock with a 1.6% dividend yield. RCL reached a new all-time high in late December, then pulled back to recent price support around 91. Rating: Strong Buy.
Vulcan Materials (VMC) produces construction aggregates. VMC is a dramatically undervalued aggressive growth stock. VMC reached an annual high in late November, then fell with the market this month. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
WellCare Health Plans (WCG) In recent days, Wall Street’s consensus 2015 EPS growth expectation for WellCare rose from 67%-68% to 88%; followed by 32% expected growth in 2016. WCG is a dramatically undervalued aggressive growth stock in the managed healthcare sector. The stock price fell through support last week, so I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/11/16 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 89 | 5% | Strong Buy |
| Chemtura (CHMT) | 10/6/15 | 31 | 25 | -19% | Hold |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 47 | 1% | Strong Buy |
| D.R. Horton (DHI) | 10/6/15 | 31 | 28 | -9% | Hold |
| E*Trade Financial (ETFC) | 11/12/15 | 29 | 27 | -9% | Strong Buy |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,136 | -11% | Hold |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 94 | 2% | Strong Buy |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 86 | -8% | Hold |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 73 | -13% | Hold |
| Growth Portfolio Total Return | -6.90% |
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. BIG is an undervalued growth & income stock with a 2.0% dividend yield. 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 January 27 (June year-end). (Note that this date has been updated since my report last week.) CAH is an undervalued growth stock with a 1.8% dividend yield. The stock has pulled back with the market and will probably bounce at 80. Rating: Strong Buy.
Carnival (CCL) is a cruise vacation company. Analysts increased their 2017 earnings estimate for CCL last week to reflect expected 16.4% EPS growth (November year-end). CCL is an undervalued growth stock with a 2.3% dividend yield. The stock rose to annual highs over 55 in late December, pulled back to 52 last week and is heading back to 55. The chart remains bullish. I expect CCL to climb toward all-time highs around 58 this winter. Rating: Strong Buy.
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. FII is one of the best possible financial stocks to own, to capitalize on rising interest rates.
FII is a very undervalued growth stock with a hefty 3.8% dividend yield. The stock fell through price support last week, so I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
GameStop (GME) owns and operates 6,200 video game and electronics stores in the U.S., Canada, Australia and Europe. GME is a wildly undervalued growth & income stock with a 5.1% dividend yield. In light of the fact that the share price did not suffer during last week’s stock market shenanigans, it seems that the selling pressure is over for GME. Therefore, I’m changing the rating to Buy. This would be a great time for bargain hunters to jump in, buy the stock while the dividend yield is 5%+, and wait for the rebound--though it could be several months before the rebound begins. Watch for the company’s full-year 2016 earnings report on March 24. Rating: Buy.
General Motors (GM) is an American auto manufacturer. GM introduced its new electric vehicle, the Chevrolet Bolt, at the Consumer Electronics Show in Las Vegas last week. The Bolt has a range of 200 miles and is expected to cost approximately $30K after its federal income tax rebate. GM is counting on the Bolt to reinvigorate its brand in California, after years of poor performance there.
GM also announced a new $500 million investment in ride-on-demand service Lyft. Business Insider reported, “the auto industry could add another million vehicles in sales next year as more people get jobs and replace old vehicles (the average age of a car on U.S. roads is 11 years).”
GM is the top dividend stock held by Appaloosa Management, one of the best performing hedge funds on Wall Street, and Warren Buffett’s Berkshire Hathaway bought additional shares of GM in the third quarter.
GM is a vastly undervalued growth & income stock with a 4.8% dividend yield. The stock fell last week with the recent market correction. 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 a strong balance sheet and a 2.5% dividend yield. The stock is overvalued based on 2016 numbers and undervalued based on 2017 numbers (April year-end). Rating: Strong Buy.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/11/16 | Total Return | Rating |
| Abercrombie & Fitch (ANF) | 11/9/15 | -- | -- | 15% | Sold 11/30/15 |
| Big Lots (BIG) | 10/6/15 | 49 | 37 | -25% | Hold |
| Cardinal Health (CAH) | 01/4/16 | 88 | 79 | -10% | Strong Buy |
| Carnival (CCL) | 10/6/15 | 50 | 54 | 8% | Strong Buy |
| Federated Investors (FII) | 11/30/15 | 31 | 26 | -17% | Hold |
| GameStop (GME) | 10/6/15 | 43 | 29 | -32% | Buy |
| General Motors (GM) | 10/6/15 | 32 | 30 | -6% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 32 | -9% | 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 | -4.90% |
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. Analysts lowered their 2016 earnings growth rate for Axiall to 20%, down from 81% (December year-end). AXLL is an undervalued aggressive growth stock with a 5.1% dividend yield. I’m changing the rating to Hold because the stock price needs to stabilize before it can rise again. Rating: Hold.
Boeing (BA) had a great year in 2015, delivering a record 762 commercial airplanes to customers. The company will report fourth quarter 2015 results on the morning of January 27. The recent dividend increase boosts the current yield to 3.3%. BA is an undervalued growth & income aerospace stock. BA is revisiting its August-September lows. I expect the stock to rebound in tandem with S&P 500 in the near future. Rating: Hold.
Boise Cascade (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. The share price fell below price support last week. Therefore, I’m changing the rating to Hold until the share price stabilizes. 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 1.4% dividend yield. Rating: Buy.
FedEx (FDX) is an international package-delivery company. Last week, FedEx received approval from the European Union to merge with TNT Express, making FedEx the second largest package delivery company in Europe. FedEx is awaiting merger approval from China and Brazil; however, China can be somewhat of a wildcard, and won’t necessarily rubberstamp the merger. At this point, FedEx expects the merger to be completed in the first half of calendar 2016.
FDX is an undervalued growth stock. The share price fell below its August-September lows last week. I’m changing the rating to Hold until the price stabilizes. 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. TV stock market personality Jim Cramer mentioned Harman last week on CNBC, saying: “I still think that Apple (AAPL) needs to buy Harman. Harman is now the internet security company for cars. You’ve got to have mobility and you’ve got to have security, and that’s why I like HAR.” In other news, Harman agreed to purchase automotive cybersecurity company TowerSec to enhance its offerings designed for connected vehicles.
HAR is an undervalued growth stock with a 1.6% dividend yield. The stock price fell below its August-September lows last week. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
Intuit (INTU) is an industry leader in financial management software solutions. INTU is an undervalued aggressive growth stock with a 1.2% dividend yield. The stock price could fall as low as 90 in the very short-term. Rating: Buy.
Johnson Controls (JCI) operates in the areas of energy management and auto batteries. JCI is an undervalued growth & income stock with a 3.3% dividend yield. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
Robert Half International (RHI) is a staffing and consulting company. RHI is an undervalued growth stock with a 1.8% dividend yield. When the share price stabilizes, I’ll change the rating to Buy. Rating: Hold.
Whirlpool (WHR) is a global appliance manufacturer. Stephen DeNichilo, portfolio manager of three Federated Kaufmann funds, commented on WHR, “This is a very cheap stock; underfollowed, underowned.” General Motors (GM) and Whirlpool are the top two dividend stocks held by Appaloosa Management, one of the best performing hedge funds on Wall Street.
WHR is a very undervalued growth stock with a 2.6% dividend yield. The stock price fell below its August-September lows last week. I’m changing the rating to Hold until the share price stabilizes. Rating: Hold.
Prices as of 1/11/16 market close.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 1/11/16 | Total Return | Rating |
| Axiall (AXLL) | 11/9/15 | 22 | 12 | -45% | Hold |
| Bank of New York Mellon (BK) | 10/6/15 | -- | -- | 11% | Sold 11/6/15 |
| The Boeing Company (BA) | 10/6/15 | 135 | 130 | -3% | Hold |
| Boise Cascade (BCC) | 11/9/15 | 30 | 20 | -33% | Hold |
| BorgWarner (BWA) | 12/30/15 | 44 | 37 | -16% | Buy |
| FedEx (FDX) | 01/4/16 | 145 | 133 | -8% | Hold |
| Harman International Industries (HAR) | 10/6/15 | 105 | 86 | -18% | Hold |
| Intuit (INTU) | 10/6/15 | 91 | 94 | 3% | Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 35 | -19% | Hold |
| Robert Half International (RHI) | 10/6/15 | 51 | 44 | -15% | Hold |
| Whirlpool (WHR) | 11/3/15 | 160 | 134 | -16% | Hold |
| Buy Low Portfolio Total Return | -14.50% |