The stock market continues to recover from the recent correction. It’s important to know that not all stocks move up in tandem but there are always good bargains to be found. For the most part, industry groups tend to move together. That’s why we’re seeing so many financial stocks climbing in recent days.
In that light, if you want to find stocks that have lots of room left in their rebounds, look at Chemtura (CHMT) in the Growth Portfolio, Carnival (CCL), GameStop (GME) and General Motors (GM) in the Growth & Income Portfolio, and Harman International Industries (HAR) in the Buy Low Opportunities Portfolio.
* I’m changing the following stock ratings: BorgWarner (BWA) to Hold, E*Trade Financial (ETFC) to Buy, H&R Block (HRB) to Hold and Vulcan Materials (VMC) to Hold.
* Quarterly earnings were reported last week by Big Lots (BIG, upside surprise) and H&R Block (downside surprise).
* There’s dividend news on Big Lots (BIG).
* There’s stock repurchase news on Big Lots (BIG), Delta Air Lines (DAL) and H&R Block (HRB).
I’ll be heading to Washington D.C., March 14-18, where I’ll be meeting with Congressional and Senatorial staffers to oppose the Trans-Pacific Partnership (TPP) trade agreement. It’s a huge piece of legislation. I could speak for hours about all its negative effects to U.S. citizens, jobs and the economy. But the real deal-breaker is that the TPP gives up U.S. sovereignty in myriad areas of American life, putting us under the whim of a global commission and global court that have the power to continually add to and change the document in perpetuity.
If you are acquainted with a Republican member of the House of Representatives who would like to discuss the TPP with me, send me their name (or their staffer’s name) and your connection to them. I’ve got 54 “NO” votes on the Republican side so far, but 70 is my goal. And please be assured that there are good activists working the Democrat side of the aisle, as well. TPP opposition has strong bipartisan participation.
If we want free market capitalism to endure in the U.S., so that companies can conduct daily business without being strangled by government regulations, there are ways to accomplish that. But sitting on the couch watching Netflix isn’t one of them. Please say a prayer for my success in D.C.!
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. The company is expected to report first-quarter 2016 results on March 17 (November year-end). Here’s a good article from last week, which mentions Adobe’s transition to a subscription revenue model.
ADBE is a fairly valued aggressive growth stock. It was the third-largest holding in ValueAct Capital’s hedge fund portfolio at the end of 2015.
In recent weeks, ADBE rose as much as 24% from its February lows. My expectation is that the stock will trade between 84 and 90 in the near-term, before returning to December’s all-time high around 96. Rating: Hold.
Chemtura (CHMT) is a specialty chemical manufacturer. CHMT is an undervalued small-cap growth stock. Last week, I reported the company’s fourth-quarter earnings beat.
CHMT reached new all-time highs in November; then fell with the broader market. The share price has recently traded between 24.50 and 27. There’s additional short-term upside resistance around 28.50. Rating: Strong Buy.
D.R. Horton (DHI) is a homebuilder. U.S. home resales rose to a six-month high in January, while economists had been expecting a decrease in the pace of resales. DHI is a very undervalued growth stock with a 1.2% dividend yield. New investors should try to buy on a pullback to 27. Rating: Buy.
Delta Air Lines (DAL) is a global passenger and cargo air transportation company. As per company guidance to Wall Street analysts, Delta is expected to repurchase $775 million of stock this month. DAL is one of the biggest holdings at Lansdowne Partners, one of the most successful hedge funds in the world. DAL is a growth stock with a 1.1% dividend yield. In recent weeks, the stock rose from 40 to 49, and is now trading between 47 and 50. Try to buy below 48. 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’s price correction appears to be over. I’m changing the rating from Hold to Buy. There’s near-term upside price resistance at 28, and medium-term resistance at 31. A few down days in the market could take the stock price down to 24, at which point both traders and longer-term investors should buy! Rating: Buy.
Priceline (PCLN) is an online travel service company. PCLN is a fairly valued growth stock. The share price had a tremendous rebound in February, and has since traded sideways. There’s probably more money to be made in the stock this year. If a market downturn takes the price down to 1,150, I’d be a buyer. Rating: Hold.
Royal Caribbean Cruises (RCL) is a global cruise vacation company. RCL is a very undervalued growth stock with a 2.0% dividend yield. The stock is gradually rising toward short-term upside price resistance at 85, which represents a 15% increase over the current price. Rating: 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 is a volatile small-cap stock, and was featured in the March issue of Smart Investing in Turbulent Times. The share price is actively rising, and could promptly reach 59 before pausing. UEIC is a good choice for growth investors and value investors. Rating: Strong Buy.
Vulcan Materials (VMC) produces construction aggregates. The share price is approaching its recent peak price of 106.84 from November 2015, and it’s up 30% from its January lows. The upward movement of the stock will probably stall out very soon, and commence some sideways trading. I’m changing the rating to Hold, and encouraging traders to Sell, because the short-term upside is quite limited at this point. VMC is a very undervalued aggressive growth stock, and a great portfolio holding for longer-term investors. The stock would be a Buy on any dip to 98, and a Strong Buy at 94. Rating: Hold.
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. WCG is up over 30% from its February lows, and still climbing! The price could rise to 98, but please expect a pullback at that point. My Strong Buy rating on WCG reflects its long-term prospects, but in the short-term, try to buy on a pullback to 85. Rating: Strong Buy.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/07/16 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 85 | 0% | Hold |
| Chemtura (CHMT) | 10/6/15 | 31 | 26 | -16% | Strong Buy |
| D.R. Horton (DHI) | 10/6/15 | 31 | 28 | -8% | Buy |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 48 | 5% | Buy |
| E*Trade Financial (ETFC) | 11/12/15 | 29 | 25 | -13% | Buy |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,291 | 1% | Hold |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 74 | -20% | Buy |
| Universal Electronics Inc (UEIC) | 03/1/16 | 54 | 57 | 5% | Strong Buy |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 103 | 0% | Hold |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 94 | 11% | Strong Buy |
| Growth Portfolio Total Return | -2.5% |
Growth & Income Portfolio
Big Lots (BIG) is a discount retailer in the U.S. and Canada. Last week, Big Lots reported adjusted fourth-quarter 2016 EPS of $2.00, vs. the consensus estimate of $1.98. The company increased the quarterly dividend from $0.19 to $0.21, giving the stock a current yield of 1.9%, and announced a new $250 million share repurchase authorization. BIG is a growth & income stock with a strong balance sheet. The stock has strong upward momentum right now. It could easily rise to 45, and could possibly rise to 48 before establishing its next trading range. 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 1.8% dividend yield. CAH is currently climbing toward 86, where it might rest before continuing onward to 90. At that point, I’ll likely change the rating to Hold, because the stock will be fairly valued, and the near-term upside will have been maxed out. Rating: Buy.
Carnival (CCL) is a global cruise vacation company. CCL is a very undervalued stock with a 2.5% dividend yield. The stock is trading in a tight, flat range between 47 and 49--a pattern typically preceding a near-term run-up. Traders and longer-term investors should buy now. There’s upside resistance at 55. Rating: 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 3.5% 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. The stock was featured in the March issue of Smart Investing in Turbulent Times. As I mentioned in a Special Bulletin on March 3, GameStop rolled out its new Ship from Store process in all 4,100 of its U.S. stores in late February. Ship from Store gives employees an easy ability to locate a product for a customer at another GameStop location, and ship it to them quickly. Ship from Store is boosting both sales volume and profit margins because fewer products are being marked down.
GME is a very undervalued, mid-cap growth & income stock with a 4.7% dividend yield, appropriate for both traders and long-term investors. The stock could climb to 38 during March, depending on overall stock market activity and GameStop’s March 24 earnings report. Rating: Buy.
General Motors (GM) is an American auto manufacturer. GM is a vastly undervalued growth & income stock with a 4.8% dividend yield. The stock is actively rising and could reach 34 quickly. Rating: Strong Buy.
H&R Block (HRB) is a leader in tax preparation services. H&R Block reported third-quarter 2016 results last week. A 1% revenue miss led to a 3% miss on earnings per share. The company announced a $3.5 billion share repurchase authorization last September, and has thus far repurchased $1.9 billion of stock. The share price fell last week on the earnings report, and it’s expected that H&R Block will take advantage of the lower 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 overvalued based on 2016 numbers and undervalued based on 2017 numbers (April year-end).
In what seemed like an extreme overreaction to the earnings report, the share price fell through support last week. HRB is most likely to trade between 29 and 32 in the near-term. I’m changing the rating to Hold until the share price stabilizes and gains momentum. Rating: Hold.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/07/16 | Total Return | Rating |
| Abercrombie & Fitch (ANF) | 11/9/15 | -- | -- | 15% | Sold 11/30/15 |
| Big Lots (BIG) | 10/6/15 | 49 | 46 | -7% | Buy |
| Cardinal Health (CAH) | 01/4/16 | 88 | 84 | -4% | Buy |
| Carnival (CCL) | 10/6/15 | 50 | 47 | -6% | Buy |
| Federated Investors (FII) | 11/30/15 | 31 | 28 | -10% | Buy |
| GameStop (GME) | 10/6/15 | 43 | 31 | -28% | Buy |
| General Motors (GM) | 10/6/15 | 32 | 32 | -2% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 28 | -21% | 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 | -3.7% |
Buy Low Opportunities Portfolio
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. You can read more here.
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 slowly improving, and the distinct possibility of a higher takeover offer remains. I encourage all shareholders to use stop-loss orders. If any bad news were to emerge, the company is not currently slated for the kind of earnings growth that would bring a dependable rebound to the stock price in 2016. Rating: Hold.
Boise Cascade (BCC) is a leading U.S. wholesaler of wood products and building materials, benefiting from a strong home-building market. I issued a Special Bulletin on February 19, pertaining to Boise’s fourth-quarter 2015 earnings report. The company reported much lower-than-expected profits for the quarter due to weak plywood pricing, which resulted from increased foreign competition. (A strong dollar harms exporters and benefits importers.)
Analysts’ consensus earnings estimates for the company have changed dramatically since the company reported full-year 2015 results. Weak plywood pricing is expected to lead to a drop in 2016 profits. While the company remains solidly profitable, the stock no longer meets my investment criteria.
BCC is actively rising toward upside price resistance around 20. Once it reaches 20, your best opportunity for capital gains will be to sell BCC and buy a stock with a stronger earnings growth outlook, since earnings growth is what really drives stock prices over the medium- and long-term. If you would prefer to switch into another rising stock right now, my suggestion is to buy General Motors (GM) for capital appreciation and its 5% dividend. Rating: Hold.
BorgWarner (BWA) is a maker of engineered automotive systems for power train applications. The share price could rise as high as 40 in the short-term, depending on the overall strength of the market. I’m changing the rating to Hold because 2016 earnings growth prospects have slowed to a moderate rate. When the near-term 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. FDX is an undervalued growth stock. The stock is actively climbing. There’s some upside price resistance at 145 and additional price resistance at 152. Rating: Buy.
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 1.7% dividend yield. HAR could appeal to both traders and longer-term investors. The share price is now rising, with upside resistance at 88, and again at 95. Rating: Buy.
Intuit (INTU) is an industry leader in developing and marketing financial management software solutions. The company announced this month that it has found a buyer for its Quicken personal finance software unit and the sale will close in April. (Quicken accounts for less than 2% of Intuit’s revenues, and doesn’t fit with the company’s long-term business plan.) 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. I expect INTU to trade between 96 and 103 for a few months before continuing upward. 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.
JCI is an undervalued growth & income stock with a 3.1% dividend yield. The stock is actively climbing. There’s upside resistance at 39 and again 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 2.1% dividend yield. The share price is rebounding from the recent market correction and could rise to 43.50 before resting. Rating: Hold.
Whirlpool (WHR) is a global appliance manufacturer. WHR is a very undervalued growth stock with a 2.2% dividend yield--a fantastic choice for blue-chip stock investors. In February, Moody’s Investors Service raised its rating for Whirlpool’s senior unsecured debt to Baa1.
WHR rose 25% in the three weeks following its February lows. The stock’s going to need to rest for a while before gathering enough momentum to break past 170. My Strong Buy rating reflects the company’s excellent longer-term outlook. In the short-term, be ready to buy WHR on any pullback to 150. Rating: Strong Buy.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 3/07/16 | Total Return | Rating |
| Axiall (AXLL) | 11/9/15 | 22 | 21 | -4% | 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 | 17 | -43% | Hold |
| BorgWarner (BWA) | 12/30/15 | 44 | 35 | -20% | Hold |
| FedEx (FDX) | 01/4/16 | 145 | 145 | 0% | Buy |
| Harman International Industries (HAR) | 10/6/15 | 105 | 81 | -23% | Buy |
| Intuit (INTU) | 10/6/15 | 91 | 99 | 9% | Strong Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 38 | -13% | Buy |
| Robert Half International (RHI) | 10/6/15 | 51 | 42 | -19% | Hold |
| Whirlpool (WHR) | 11/3/15 | 160 | 159 | -1% | Strong Buy |
| Buy Low Portfolio Total Return | -10.4% |