The S&P 500 index has been trading sideways between 2,040 and 2,100 since mid-March, and could slip down to 2,000 before it’s finally ready to rise past 2,100. That’s perfectly normal, considering that the index rose 14.9% from its February lows to its April highs. Markets—and individual stocks—need to rest after making big moves.
Most quality stocks move somewhat in synch with the S&P. That means you might be getting bored and frustrated with your stock portfolio right now.
I like to keep cash on the sidelines, so that I have something to look forward to while I’m waiting for my stocks to do something! During these boring markets, I like to buy low, as various stocks rise and fall within their trading ranges. Buying a stock while its price is low gives me something to feel good about while I’m waiting for the market to rise.
I also keep an eye out for that rare stock that’s out of synch with the current market and ready for a run-up. A couple of weeks ago, I bought Kraft Heinz (KHC), and caught the early-May run-up. And if I were buying a stock today, I’d go straight to Adobe Systems (ADBE) because it appears ready to climb, just like KHC did.
But I don’t have endless supplies of cash and I just bought a bunch of stock for myself in recent weeks, so I’m going to miss the ADBE opportunity for now. If you’re going to buy a stock today, ADBE is an excellent choice! There’s always something good to buy in the stock market. Even during huge market corrections, I rarely go more than two weeks without jumping in to buy low.
Last week, I removed Axiall (AXLL) from the Buy Low Opportunities Portfolio.
After several weeks in a row of quarterly earnings reports and news articles, our portfolio stocks delivered very little news last week. Most of them are experiencing price pullbacks along with the S&P. However, there are a few buy-rated portfolio stocks that appear likely to rise in the near-term:
• Growth Portfolio: Adobe Systems (ADBE) and Chemtura (CHMT)
• Growth & Income Portfolio: General Motors (GM)
• Buy Low Opportunities Portfolio: Boise Cascade (BCC)
It’s certainly okay to buy low on your favorite holdings. Try not to buy anything that’s actively falling, though. The goal is to invest in stock that’s likely to rise sooner rather than later. If you buy something that’s falling, then it will take you longer to get to the goal.
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. TheStreet published a list of companies researched by Bank of America/Merrill Lynch that might begin paying dividends. The list features Adobe, citing the company’s sales and EPS growth, margin expansion, low debt levels and high cash levels.
This month, Adobe agreed to acquire Livefyre for its social engagement platform to enhance Adobe Experience Manager. The aggressive growth stock is undervalued based on both 2016 and 2017 earnings (November year-end). ADBE shares are not trading in synch with the S&P 500 pullback. The stock appears ready to begin a new run-up at any time now. Buy ADBE now. Rating: Strong Buy.
Chemtura (CHMT) is a specialty chemical manufacturer. CHMT is small-cap growth stock, very undervalued based on both 2016 and 2017 earnings (December year-end).
In April I wrote, “a surge in the S&P 500 could propel CHMT to 29.50. If the latter scenario takes place, traders should exit.” Sure enough, the stock proceeded to close at 29.51 two days in a row, then fell back to short-term price support after the earnings announcement. Both traders and longer-term investors should buy now. The next time CHMT passes 29.50, there’s additional upside resistance around 32. 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 has pulled back with the market. Rating: Buy.
Delta Air Lines (DAL) is a global passenger and cargo air transportation company. This undervalued stock has a dividend yield of 1.3%. I expect the stock to rise again when the S&P turns more bullish. Rating: Buy.
Dollar Tree (DLTR) is the nation’s leading operator of discount variety stores. A May Forbes article talks about the phenomenon of retail dollar stores stealing market share from grocery store chains. Dollar Tree’s first quarter results are expected on May 19. DLTR is a large-cap, undervalued aggressive growth stock, with a low degree of volatility. The stock has been trading sideways for six months. I expect it to rise above that range as soon as the S&P 500 turns bullish. Rating: Strong Buy.
E*Trade (ETFC) offers financial brokerage and banking products and services. This month, Asian investment banker CLSA advised clients that Goldman Sachs could benefit from buying E*Trade.
E*Trade was featured in the May issue of Cabot Undervalued Stocks Advisor. The stock is having a small pullback during an uptrend, in tandem with the broader market. There’s a little upside price resistance at 28, and then medium-term resistance between 30.50 and 31.50, where it traded repeatedly last year. Rating: Buy.
Priceline (PCLN) is an online travel service company. PCLN is a slightly-undervalued growth stock. EPS are expected to grow 15% to 17% in both 2016 and 2017 (December year-end). The share price is correcting alongside the S&P 500. Rating: Hold.
Royal Caribbean Cruises (RCL) is a global cruise vacation company. RCL offers investors very strong earnings growth, a low P/E, an attractive 2% dividend yield, big dividend increases and share repurchases. The stock is significantly undervalued.
The stock is slowly recovering from the winter stock market downturn. Your best-case scenario in the coming months is for RCL to return to December’s all-time high of 103.40. And by the way, at 103.40, the stock would still be undervalued based on both 2016 and 2017 earnings expectations. 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 growth stock. The stock is slightly undervalued based on 2016 EPS estimates, and overvalued based on 2017 EPS estimates. UEIC rose 52% from its January lows to its April highs, and is now trading sideways between 61 and 69. Rating: Hold.
Vulcan Materials (VMC) produces construction aggregates. VMC is a very undervalued aggressive growth stock. Earnings estimates continue to increase, with 2016 EPS now expected to grow 61%, followed by 34% growth in 2017. The share price continues to climb. Rating: Strong Buy.
WellCare Health Plans (WCG) is a very 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’s trading range has been ratcheting higher since March. It will likely reach 98 promptly, and could rise significantly higher when the market turns bullish. Buy WCG now. Rating: Strong Buy.
Updates on Growth & Income Portfolio Stocks
Big Lots (BIG) is an American discount retailer. First quarter results are due on May 23. BIG is a very undervalued growth & income stock with a strong balance sheet and a 1.9% dividend yield. The share price has temporarily pulled back with the overall market. Rating: Buy.
Cardinal Health (CAH) is one of the largest U.S. distributors of healthcare products and services. This month, Cardinal increased the quarterly dividend to 45 cents, giving the stock a current yield of 2.3%. The company also announced a new $1 billion share repurchase plan.
The share price has corrected down to its February lows. It needs to stabilize before it can rebound. Rating: Strong Buy.
Carnival (CCL) is a cruise vacation company, and the largest leisure travel company in the world. Carnival was featured in the May issue of Cabot Undervalued Stocks Advisor. The stock is extremely undervalued, with a current dividend yield of 2.8%.
CCL is rebounding from a brief price correction. I expect it to return to 53, then continue climbing to its 2015 high of 55.77 in the coming months. The stock will likely pause there before its next run-up. Rating: Strong Buy.
Federated Investors (FII) is a global investment management company. Strong earnings growth in 2016 is expected to be followed by much slower growth in 2017. The stock rose 38% from its February low to its April high, and has now pulled back a little with the overall market. Rating: Hold.
GameStop (GME) is a video game and consumer electronics retailer. GME is an extremely undervalued stock with a 5.1% dividend yield and a strong balance sheet. The stock pulled back in recent weeks. There’s price support at 28. GME has short-term upside price resistance at 33, and more resistance at 38. Rating: Buy.
General Motors (GM) is an American auto manufacturer. On May 8, a Forbes article emphasized GM’s incredibly low stock valuation, and its big 4.9% dividend yield. There’s upside price resistance at 35.50. Patient investors should buy GM now to lock in the huge dividend while awaiting the share price rebound. Rating: Buy.
H&R Block (HRB) is a leader in tax preparation services. The stock fell in April on news of disappointing tax season results. As a result, the company plans to amend its marketing and pricing strategies, pare down its work force and replace its CFO.
Block completed its 2016 fiscal year in April; those results will be reported after the market closes on June 9. The 2017 outlook offers 14.9% EPS growth, a 10.2 P/E and a 4% dividend yield.
The company is still very profitable, but any corporate disappointment that affects earnings is going to cause its stock price to fall in the short-term. I’ll let you know when the stock appears ready to turn upward so that you can take advantage of the rebound. If you are wondering if this is a good time to buy HRB in order to lock in the 4% dividend yield, here’s my answer: We’re near the bottom on the stock price. If you are patient, and willing to wait several months for the price to begin climbing, then yes, buy HRB now. Rating: Hold.
Kraft Heinz (KHC) is a global food and beverage producer. KHC has aggressive earnings growth, an undervalued P/E and a 2.7% dividend yield. The stock price launched upward to new highs after the company reported strong first-quarter results. The stock will likely rest now then produce additional capital gains later this year. Rating: Strong Buy.
Updates on Buy Low Opportunities Portfolio Stocks
Boise Cascade (BCC) is a leading U.S. wholesaler of wood products and building materials. Revenue is benefiting from a strong home-building market, but profits are suffering due to weak plywood pricing due to increased foreign & domestic competition, and a strong dollar. Demand for wood products correlates with trends in single- and multi-family housing starts. Housing starts, which were 1 million and 1.11 million in 2014 and 2015, are forecasted to rise to 1.23 million in 2016.
Analysts continue to increase their 2016 earnings outlook for Boise Cascade since the company reported better-than-expected first-quarter EPS in May. Analysts are now expecting EPS to fall 1.5% in 2016, then to rise 50.4% in 2017. The 2016 and 2017 price/earnings ratios (P/E) are 16.8 and 11.2.
The stock chart is leaning bullish. Shareholders should expect the run-up in the share price to pause at 25. Buy BCC now. Rating: Buy.
BorgWarner (BWA) is a maker of engineered automotive systems for power train applications. BWA is slightly overvalued based on 2016 numbers, and quite undervalued based on 2017 numbers. The dividend yield is 1.6%.
I recently issued a Special Bulletin to buy BWA, as the stock completed a classic cup-and-handle chart pattern. The stock then pulled back with the overall market. The price pullback gives traders and growth & income investors one more opportunity to buy BWA before it rises to upside price resistance at 44-45—a 35% near-term capital gain opportunity. After the stock rests near 45 for a while, I expect it to rise toward additional upside price resistance at 50, at which point it will be fairly valued. Rating: Buy.
FedEx (FDX) is an international package delivery company. The company is benefiting from a macro trend toward increasing e-commerce and an inward focus on reducing overcapacity and improving margins within its Express business. (Read more in this Barron’s recommendation from May 4.)
FedEx expects to close on its purchase of TNT Express in the first half of 2016. FDX is fairly valued based on fiscal 2017 EPS (May year-end). The stock is having a pullback in tandem with the S&P 500, after surging 36% from its January lows through its April highs. There’s good price support at 152.50. Hold FDX for additional capital gains. 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. Full-year 2016 earnings expectations now reflect 8.4% growth (June year-end). The company is about to begin its 2017 fiscal year. Analysts expect 13.2% EPS growth, with a P/E of 10.4. HAR is still an undervalued growth & income stock with a 1.9% dividend yield.
The share price has been correcting in recent weeks. There’s upside price resistance at 89, and again at 110. Buy HAR now. Rating: Buy.
Intuit (INTU) is a maker of business and financial management solutions, including Quickbooks and TurboTax tax preparation software. Intuit was featured in the May issue of Cabot Undervalued Stocks Advisor. Third-quarter earnings will be reported on May 19 and will reflect very strong performance from the 2016 income tax filing season. After transitioning to a cloud-based subscription model, Intuit is expected to reach record profit levels in 2016 and again in 2017.
INTU is a slightly undervalued, aggressive growth stock with a strong balance sheet and a 1.2% dividend yield. INTU has paused in an uptrend, trading between 100 and 105. There’s a little upside resistance at last July’s all-time high at 108. Rating: Buy.
Johnson Controls (JCI) operates in the areas of energy management and auto batteries. The market expects EPS to grow by 14.3% and 10.2% in 2016 and 2017 (September year-end). The dividend yield is attractive at 2.8%. JCI is a very undervalued large-cap growth & income stock.
Here’s a recap of upcoming M&A activity:
• The company plans to spin off Adient (ADNT), its automotive seating and interiors business, on October 3, 2016. At that time, JCI shareholders will receive one share of ADNT for every 10 shares of JCI that they own.
• The company 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. The deal is expected to close on June 13, 2016.
JCI appears to be having an orderly price pullback within an uptrend. The stock will continue to be undervalued when it reaches medium-term upside price resistance at 45. I expect the price to stop climbing at that point and trade sideways for a while. Hold JCI for additional future capital gains. Rating: Buy.
Robert Half International (RHI) is a staffing and consulting company. RHI fell in late April, to support levels established in February. Earnings estimates came down after the first-quarter report, now reflecting 9.7% and 10.2% growth in 2016 and 2017. RHI is a growth & income stock with a strong balance sheet and a 2.3% dividend yield. A rebound to the early April high of 47 would give new investors a 21% profit. Buy RHI now. Rating: Buy.
Toll Brothers (TOL) is the leading U.S. luxury homebuilder. The company will report second quarter results on May 24. Analysts expect EPS growth of 31.5% and 16.6% in 2016 and 2017 (October year-end). TOL is a greatly undervalued, mid-cap growth stock.
After trading sideways for a few months, the share price is correcting again. This doesn’t appear to be any more than a short-term annoyance. There’s upside resistance at 30, then 34, and again at 38. Even at 38, the stock would still be vastly undervalued, with a 2016 P/E of 14.7. Buy TOL now. Rating: Buy.
is a global appliance manufacturer. Consensus EPS estimates reflect growth of 19.2% and 16.0% in 2016 and 2017 (December year-end). In April, Whirlpool announced a $1 billion share repurchase plan, and increased the quarterly dividend from $0.90 to $1.00 per share, currently yielding 2.4%. WHR remains very undervalued.
In April, I mentioned that “the short-term outlook has become speculative. The stock will need to rest soon.” That pullback has arrived. There’s price support at 165. Rating: Strong Buy.