In my March 15 update, I featured GameStop (GME) in a commentary about short interest on Wall Street, and the tremendous opportunity it presented to GME investors. Then on March 18, Reuters published this: “GameStop attracts large investors as shorts back off”.
Hmm. Maybe the Reuters journalist subscribes to Smart Investing in Turbulent Times ...
Anyway, investing in GameStop is still a great idea. Nobody has missed their chance to capitalize on the potential gains!
The stock market has finally disconnected from emotional downward and upward surges, and it’s becoming more of a stock picker’s market. Many of our Smart Investing stocks had large recent run-ups, while others are just gaining steam. In that light, I’m going to occasionally lower ratings on stocks that rose too far, too fast, and raise ratings on the stocks that present the best opportunities today.
- I’m raising the ratings on Carnival (CCL) and Vulcan Materials (VMC) to Strong Buy.
- I’m lowering the rating on FedEx (FDX) to Hold.
Please be cautious with stocks that quickly rose 20%-40%. They need to rest, or even pull back a bit, before they can gather enough momentum to make another attractive upward move. There are always good opportunities available. Never feel pressured to chase one that got away!
In recent news, both Adobe Systems (ADBE) and FedEx (FDX) reported better-than-expected quarterly earnings last week.
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. Adobe reported strong first-quarter 2016 results last week (November year-end), beating expectations for both revenue and profit. Additionally, the company increased its 2016 earnings projection, and is now expecting to earn $2.80 per share.
As a result of the earnings beat, at least nine investment firms increased their price targets for ADBE, including Goldman Sachs and Credit Suisse. While I generally pay little attention to analysts’ price targets, the abundance of price target increases sends a bullish signal to investors that there’s more upside in Adobe’s stock price, which can easily lead to a self-fulfilling prophecy: If investors believe that ADBE will rise, they will buy shares, and that buying activity pushes the price up!
Last week I wrote, “A quarterly earnings beat, combined with an up week in the market, could take the stock up to December’s all-time high around 96; at which point short-term traders should Sell!” The stock rose as high as 98 on Friday!
ADBE has met short-term upside price resistance, and will likely trade sideways between 88 and 96. Stocks need to digest these big upwards moves as a prelude to their next run-up. (ADBE rose 37.5% from its February low to its March high. It needs to rest a little.)
Longer-term investors should hold their shares, and consider buying additional shares on any pullback to 88. Traders should Sell, and move into another growth stock that’s ready to rise, such as Royal Caribbean Cruises (RCL) or WellCare Health Plans (WCG).
Adobe Systems remains an aggressive growth company, and a good choice for long-term investors. Here’s a recent, six-minute video interview with Adobe’s CEO. Rating: Buy.
Chemtura (CHMT) is a specialty chemical manufacturer. CHMT is an undervalued small-cap growth stock. The stock chart looks constructive and chemical stocks are rising. Therefore, I expect CHMT to promptly rise to short-term upside resistance around 28.50, barring any overall market correction.
However, I do want to express some caution. Analysts’ 2017 earnings estimates for CHMT have been repeatedly edging downward. While the company is currently expected to grow EPS at an attractive rate--19.7% and 15.9% in 2016 and 2017 (December year end)--the downward revisions are not a good trend. My suggestion is to continue buying and owning CHMT, but protect your downside with a stop-loss order. Rating: Strong Buy.
D.R. Horton (DHI) is a homebuilder. DHI is a slightly undervalued growth stock with a 1.1% dividend yield. The share price is rising toward short-term upside resistance at 31. I expect DHI to spend some time trading between 28 and 32, as it did in August to November 2015. Watch for opportunities to buy below 29. Rating: Buy.
Delta Air Lines (DAL) is a global passenger and cargo air transportation company. Last week, Delta entered into a codeshare partnership with Jet Airways and KLM Royal Dutch Airlines, in which the companies will market daily, non-stop flights from Amsterdam to Mumbai, New Delhi and Toronto.
Delta is expected to repurchase $775 million of stock this month. Here are some bullish comments on DAL from Investor’s Business Daily.
DAL is a growth stock with a 1.1% dividend yield; currently climbing toward December’s all-time high of 52.77. I don’t anticipate that the stock would have much difficulty breaking past the recent high. Rating: Buy.
E*Trade (ETFC) offers financial brokerage and banking products and services. ETFC is an undervalued aggressive growth stock with a strong balance sheet. The stock appears ready to climb, with some upside price resistance at 28; potentially providing an 11% short-term capital gain. Rating: Buy.
Priceline (PCLN) is an online travel service company. PCLN is a fairly valued growth stock. The share price is steadily climbing toward November’s all-time high of 1,476, potentially providing a 10% short-term capital gain. Rating: Hold.
Royal Caribbean Cruises (RCL) is a global cruise vacation company. Consensus earnings estimates edged upwards for Royal Caribbean last week, with EPS now expected to grow 26.1% and 16.7% in 2016 and 2017 (December year end).
RCL is one of my favorite stocks, because it offers very strong earnings growth, a comparably low P/E, an attractive 1.9% dividend yield, big dividend increases and share repurchases. On top of all that, the stock has only recently begun its recovery from this winter’s stock market downturn. Nobody has missed their opportunity to buy this excellent stock at a low price. I believe both longer-term investors and traders will be thrilled in a few months if they buy RCL today.
There’s a little upside price resistance at 85, where I expect the stock to pause in its uptrend. Your best-case scenario in the near future is for the stock to return to December’s all-time high of 103.40, giving new investors a potential 33% return! Buy.
Universal Electronics (UEIC) is a manufacturer and cutting-edge world leader of wireless remote control products, software and audio-video accessories for the smart home. UEIC rose 13% in early March on news that the company entered into a warrants agreement with Comcast (CMCSA), in which Comcast will have the opportunity to purchase shares of Universal Electronic’s capital stock, as Comcast achieves pre-agreed upon milestones in their business relationship.
This is very bullish news for shareholders, which not only reaffirms the desirability of UEIC shares as a long-term investment, but there’s an additional implication that Comcast might, at some point, offer to purchase the entire company.
UEIC is a slightly undervalued, volatile small-cap stock, which was featured in the March issue of Smart Investing in Turbulent Times. The stock recently rose to medium-term upside resistance around 66, and is now trading sideways. Any pullback to 58 should be considered a good buying opportunity. Rating: Buy.
Vulcan Materials (VMC) produces construction aggregates. VMC is a very undervalued aggressive growth stock, and a great portfolio holding for longer-term investors. Read last week’s Investor’s Business Daily article, “Markets For This Gravel Supplier Are Solid As A Rock”.
I changed the rating on VMC from Strong Buy to Hold, in early March, because the stock had a significant run-up back to its recent high from November. I certainly expected the stock to rest, and trade sideways for quite a while. However, VMC did not ask my advice, and appears capable of breaking past upside price resistance in the near future. Good! I’m changing the rating back to Strong Buy. Rating: Strong Buy.
WellCare Health Plans (WCG) is an undervalued aggressive growth stock in the managed healthcare sector. The company aims to double its revenue through the year 2021, through a combination of organic growth and acquisition (M&A) opportunities. The stock’s chart looks good. We could see WCG rise to 98 in the near-term, assuming a neutral-to-bullish stock market. A few down days in the market could pull WCG down to 86, which would be an excellent time to buy. Rating: Strong Buy.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/21/16 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 93 | 8% | Buy |
| Chemtura (CHMT) | 10/6/15 | 31 | 26 | -15% | Strong Buy |
| D.R. Horton (DHI) | 10/6/15 | 31 | 30 | -2% | Buy |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 50 | 9% | Buy |
| E*Trade Financial (ETFC) | 11/12/15 | 29 | 25 | -14% | Buy |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,351 | 6% | Hold |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 78 | -15% | Buy |
| Universal Electronics Inc (UEIC) | 03/1/16 | 54 | 62 | 15% | Buy |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 105 | 12% | Strong Buy |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 92 | 9% | Strong Buy |
| Growth Portfolio Total Return | 1.3% |
Updates on Growth & Income Portfolio Stocks
Big Lots (BIG) is an American discount retailer. In early March, Big Lots reported a fourth-quarter earnings beat, increased the quarterly dividend from $0.19 to $0.21, and announced a new $250 million share repurchase authorization. BIG is an undervalued growth & income stock with a strong balance sheet and a 1.9% dividend yield. BIG could trade anywhere between 42 and 49 in the coming months, depending upon the strength of the market. Time your buys and sells accordingly. Rating: Buy.
Cardinal Health (CAH) is one of the largest U.S. distributors of healthcare products and services. CAH is a growth & income stock with a 1.9% dividend yield. The stock fell a bit to recent price support last week when an investment firm lowered its price target on the stock. However, the analyst spoke favorably about Cardinal Health. My suggestion is for investors to use this pullback as a buying opportunity. The best-case scenario is that CAH could rise about 11% to 90 in the coming months. Rating: Buy.
Carnival (CCL) is a global cruise vacation company. CCL is a very undervalued stock with a 2.4% dividend yield. I’m raising the rating to Strong Buy because the chart has become decidedly more bullish. The stock is actively climbing, and could reach 55 in the coming months. 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 an undervalued stock, with a hefty 3.4% dividend yield. The stock is on a tear, spurred on by bullish sentiment among financial stocks, and could climb all the way to 31 before establishing a new trading range. Rating: Buy.
GameStop (GME) is a video game and consumer electronics retailer. In last week’s update, I featured GameStop in a commentary about short interest on Wall Street, and the tremendous opportunity it presented to GME investors. Several days later, this article was published by Reuters: “GameStop attracts large investors as shorts back off”. Well then, I guess imitation is the sincerest form of flattery ...
GME is an extremely undervalued growth & income stock with a 4.8% dividend yield. I’m pleased with the stock’s recent tight trading range between 30-32, which is a very constructive chart pattern that often heralds another near-term run-up. GME could climb to 38 in the coming weeks, depending upon overall stock market activity, plus the results of GameStop’s March 24 earnings report. Rating: Buy.
General Motors (GM) is an American auto manufacturer. This week, GM announced that it aims to boost sales in South Korea by 15% in 2016, and that it foresees tremendous sales growth in China, both long-term and short-term. While GM’s EPS growth is not big, the stock remains vastly undervalued, and offers a 4.7% dividend yield. The stock is actively rising, and could reach 34 soon. Rating: Strong Buy.
H&R Block (HRB) is a leader in tax preparation services. H&R Block reported third-quarter 2016 results recently (April year-end). A 1% revenue miss led to a 3% miss on earnings per share, leading to a downward overreaction in the stock price. The company announced a $3.5 billion share repurchase authorization last September, and has thus far repurchased $1.9 billion of stock. It’s expected that H&R Block will take advantage of the current low share price by repurchasing another several $100 million of stock.
HRB is a growth & income stock with a strong balance sheet and a 2.9% dividend yield. The stock is fairly valued based on 2016 numbers, and very undervalued based on 2017 numbers (April year-end).
HRB is most likely to trade between 27 and 32 in the near-term. When the share price gains some momentum, I’ll alert investors to the buying opportunity. Investors who are willing to wait for the price rebound could certainly acquire shares at a bargain price right now. Rating: Hold.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/21/16 | Total Return | Rating |
| Abercrombie & Fitch (ANF) | 11/9/15 | -- | -- | 15% | Sold 11/30/15 |
| Big Lots (BIG) | 10/6/15 | 49 | 45 | -8% | Buy |
| Cardinal Health (CAH) | 01/4/16 | 88 | 81 | -8% | Buy |
| Carnival (CCL) | 10/6/15 | 50 | 50 | 0% | Strong Buy |
| Federated Investors (FII) | 11/30/15 | 31 | 29 | -8% | Buy |
| GameStop (GME) | 10/6/15 | 43 | 31 | -28% | Buy |
| General Motors (GM) | 10/6/15 | 32 | 32 | 0% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 28 | -22% | Hold |
| 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 | -3.4% |
Updates on Buy Low Opportunities Portfolio Stocks
Axiall (AXLL)--formerly Georgia Gulf Corp.--manufactures chemicals, plastics and building products. In January, Axiall rejected a $1.4 billion ($20/share) takeover attempt by Westlake Chemical (WLK). (It’s possible that Westlake will return with a higher purchase offer.) In February, Westlake Chemical informed Axiall that it intends to nominate 10 new directors to Axiall’s Board, at Axiall’s yet-unscheduled 2016 Annual Meeting of Shareholders. The latest news on Axiall includes a Board Chairman appointment, and a letter from the CEO of Westlake Chemical to Axiall’s shareholders.
Axiall divested four non-core businesses since April 2015 in order to focus on its chlorovinyl and derivatives business, and plans to sell its window and door products business to OpenGate Capital. The deal will close on March 31, 2016. Axiall’s Royal Building Products division will continue to produce siding, trim, mouldings, fittings and pipes.
The stock no longer fits my growth criteria, however, the share price is steadily rising, along with most chemical industry stocks. In addition, the distinct possibility of a higher takeover offer remains. I encourage all shareholders to use stop-loss orders. Rating: Hold.
Boise Cascade (BCC) is a leading U.S. wholesaler of wood products and building materials, benefiting from a strong home-building market. The company’s profits are suffering due to weak plywood pricing, which resulted from increased foreign and domestic competition, and a strong dollar. While the company remains solidly profitable, the stock no longer meets my investment criteria.
There’s short-term upside price resistance around 20-21, with stronger resistance at 25. While I’m not thrilled with the downside revision to the 2016 earnings forecast, “you can’t fight the tape.” The stock is climbing in a market that’s providing some stocks with clear paths to huge percentage gains. Therefore, I’m going to wait a bit before seeking a better growth opportunity. Whenever you own a stock that doesn’t have good current earnings growth, please be cautious and use stop-loss orders. Rating: Hold.
BorgWarner (BWA) is a maker of engineered automotive systems for power train applications. 2016 earnings growth prospects have slowed to a moderate rate. BWA is up 36% from its January lows, and still climbing. The share price could rise as high as 45 in the short-term, depending on the overall strength of the market. When the run-up appears to be over, I will likely advise investors to sell BWA and move into a stock with stronger earnings growth. Rating: Hold.
FedEx (FDX) is an international package delivery company. I issued a Special Bulletin last week on FedEx, after the company reported strong third-quarter results and higher growth expectations for fiscal 2016. As a result, the 2016 and 2017 consensus EPS estimates are increasing (May year-end).
FDX is an undervalued growth stock. The share price rose more than $40 from its January lows, and reached long-term upside price resistance at 163. It’s unreasonable to expect it to climb further in the short-term. I expect FDX to pull back to about 150 and commence trading sideways.
Traders should sell now, and put the capital into another stock that’s on the verge of a price run-up, such as Harman International Industries (HAR). Longer-term investors still own stock in a great company. Hold your shares. If you want to accumulate more shares, try to buy around 150. Rating: Hold.
Harman International Industries (HAR) is the premiere connected technologies company for automotive, consumer and enterprise markets, best known for its JBL and Harman Kardon audio systems. HAR is an undervalued growth & income stock with a 1.6% dividend yield.
The share price continues to recover from the winter market downturn. Given the huge price rebounds we’ve seen since February in stocks like Whirlpool (WHR) and Fedex (FDX), it appears that HAR could mirror that pattern. The stock could rise to 110 by this summer, given a neutral-to-bullish stock market, which would give it a potential 24% short-term gain. Rating: Buy.
Intuit (INTU) is an industry leader in developing and marketing financial management software solutions. INTU is an undervalued, aggressive growth stock with a strong balance sheet and a 1.2% dividend yield. The stock was featured in the March issue of Smart Investing in Turbulent Times. INTU is surprising me by showing a readiness to retrace last July’s all-time highs around 108. While I expect the stock to pause at 108, upside resistance is not strong. If the stock wants to climb from there, it will do so. Rating: Strong 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.
Johnson Controls intends to purchase a 56% stake in security systems company Tyco International PLC (TYC). The combined company will offer electrical systems and security systems to the building industry. The new company will domicile in Ireland to take advantage of lower income tax rates.
In a March op-ed, CEO Alex Molinaroli responded to an incorrect rumor that Johnson Controls asked for bailout money from the U.S. government during the 2008 Financial Meltdown.
JCI is an undervalued growth & income stock with a 3.0% dividend yield. The stock is actively climbing. There’s upside resistance at 41. Rating: Buy.
Robert Half International (RHI) is a staffing and consulting company. RHI is a fairly valued growth & income stock with a strong balance sheet and a 2.0% dividend yield. RHI has a little upside resistance at 44, and more significant resistance at 50. The stock could reach 50 this spring, giving shareholders an additional 15% short-term upside. Rating: Hold.
Whirlpool (WHR) is a global appliance manufacturer. WHR is a very undervalued growth stock. 2016 and 2017 earnings per share (EPS) are expected to grow 17.8% and 16.3% (December year-end). The 2016 P/E is 12.2, low with its normal annual range of 9-16+, and the dividend yield is 2.0%. (Read more in this March 15 Barron’s article.) In February, Moody’s Investors Service raised its rating for Whirlpool’s senior unsecured debt to Baa1.
The stock rose $50 from its January lows. I’m keeping my Strong Buy rating for WHR’s longer-term outlook. However, shareholders should be prepared for the recent run-up to end immediately. The stock has got to rest now. Wait for a pullback below 165 before accumulating more shares. Rating: Strong Buy.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/21/16 | Total Return | Rating |
| Axiall (AXLL) | 11/9/15 | 22 | 22 | 2% | Hold |
| Bank of New York Mellon (BK) | 10/6/15 | -- | -- | 11% | Sold 11/6/15 |
| The Boeing Company (BA) | 10/6/15 | -- | -- | -13% | Sold 1/27/16 |
| Boise Cascade (BCC) | 11/9/15 | 30 | 19 | -37% | Hold |
| BorgWarner (BWA) | 12/30/15 | 44 | 38 | -14% | Hold |
| FedEx (FDX) | 01/4/16 | 145 | 165 | 14% | Hold |
| Harman International Industries (HAR) | 10/6/15 | 105 | 89 | -15% | Buy |
| Intuit (INTU) | 10/6/15 | 91 | 102 | 12% | Strong Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 39 | -11% | Buy |
| Robert Half International (RHI) | 10/6/15 | 51 | 44 | -15% | Hold |
| Whirlpool (WHR) | 11/3/15 | 160 | 177 | 11% | Strong Buy |
| Buy Low Portfolio Total Return | -5.1% |