Sell Gildan Activewear (GIL) and Team Health (TMH).
No Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. However, I recommend that two companies be sold. I also include questions from subscribers along with my answers. Prices appearing after each stock symbol are the closing prices on Thursday, January 5, 2017.
I also present two indexes that list stocks featured in the Cabot Value Model or the Cabot Enterprising Model during the most recent four months so you can quickly find my recent write-ups for stocks appearing in the models.
My schedule for the next five weeks will be:
• Thursday, January 12, Cabot Enterprising Model issue 270E
• Friday, January 13, Weekly Update
• Friday, January 20, Weekly Update
• Monday, January 23, Wall Street’s Best Daily
• Tuesday, January 24, Wall Street’s Best Daily
• Friday, January 27, Weekly Update
• Thursday, February 2, Cabot Value Model issue 271V
• Friday, February 3, Weekly Update
• Friday, February 10, No Weekly Update – MoneyShow in Orlando
Company Reports
Gildan Activewear (GIL 25.68) has reported disappointing sales and earnings during the last several quarters, but earnings could rebound in 2017 as acquisitions begin to add to profits. However, in other news, Gildan’s offer to purchase American Apparel for $66 million seems in jeopardy. The company made the offer in November 2016 when American Apparel went into bankruptcy, subject to no higher offers being submitted. Amazon and others have stepped into the picture and will likely make offers for American Apparel soon. It’s no big deal if Gildan loses its bid to buy American Apparel, but if Amazon is the winner, Amazon could take a lot of business away from Gildan.
In my opinion, Amazon will win the bidding, causing GIL’s price to decline. Therefore, I believe the prudent move is for you to sell your Gildan Activewear shares now. SELL.
Team Health (TMH 43.35) remains on track to be acquired by Blackstone Group for 43.50 per share in cash. No closing date has been set yet, so I recommend selling your Team Health shares now and redeploying your sale proceeds in stocks with better short-term and long-term potential. SELL
Questions and Answers
Q. I know you just covered Synchronoss recently. But it has dropped this week, is it still a Hold? (from subscriber G.H.)
A. Synchronoss Technologies (SNCR 38.96) has become very volatile. Several months ago, the company announced that it was open to selling the entire company. The stock soared. Recently, the company announced that it will acquire Intralinks Holdings, which sent SNCR plummeting. Investors’ hopes for any takeover of Synchronoss appear to be dashed. Synchronoss also announced that its CEO will step down and the CEO of Intralinks will take over. Through all of this turmoil, Synchronoss’ sales and earnings have increased at a stellar pace.
Synchronoss operates in some of the fastest-growing segments of the technology sector. The company’s business includes cloud, Internet of Things and connectivity, all of which are projected to grow rapidly in the years ahead. Hopefully, new management will provide a solid sense of direction for the company so that it can take advantage of the many opportunities available to it.
Current quarter results, due out in February, should produce accelerating sales and earnings growth. SNCR is clearly undervalued at 15.5 times current EPS. I believe the current weakness in the stock price presents an excellent buying opportunity. Buy at 52.92 or below.
Q. I had some questions on BX and TMH, as well as some better portfolio allocations from your models more suited to someone like me:
I want to get into BX, but should I wait a bit after its 14% run up? And as for TMH, should I sell now or hold out for the actual cash distribution?
Being that I’m still under 30 years old, I’m looking more for capital gains rather than income. I’m fine with slow and steady growth, as most of your recommendations have outpaced their comparative index from what I’ve seen. Which stocks do you currently recommend for someone younger who can handle more risk and is more focused on capital gains? (from subscriber S.S.)
A. Blackstone Group LP (BX: Current Price 30.42; Max Buy Price 28.09; Min Sell Price 35.77) has pulled back from its recent high of 30 and could meander for a few days in the 28+ area before taking off again. In my opinion, financial stocks will be the big winners in 2017, so buying BX now is smart, especially after considering the 5.8% dividend yield. Buy.
TeamHealth Holdings (TMH: Current Price 43.35) has inched toward its sale price of 43.50 and should now be sold. Blackstone is the purchaser and will pay 43.50 per share all cash to TMH shareholders in the first quarter of 2017. I had hoped that another buyer would bid a higher price, but that’s not going to happen. Selling TMH now makes sense. Sell.
You are in a rather unique situation. I advise investing in a mix of undervalued stocks that will perform well in the short-term plus some stocks that possess great long-term growth potential.
My Top 10 Leading Stocks for 2017, published on December 27 and 28, include some undervalued stocks and some solid growth stocks. The following eight stocks are undervalued and should perform well under the new Trump administration:
Alliance Data Systems (ADS)
Celgene (CELG)
Chicago Bridge & Iron (CBI)
EQT Midstream Partners (EQM)
Greenhill & Co. (GHL)
Intercontinental Exchange (ICE)
Johnson Controls International plc (JCI)
Toll Brothers (TOL)
The other two stocks in my Top 10 list, Facebook (FB) and Starbucks (SBUX), should grow quite rapidly and perform well for decades.
Additional stocks that will likely perform well for decades include
Alphabet GOOG)
Amazon.com (AMZN)
Home Depot (HD)
Priceline Group (‘PCLN)
Ulta Salon (ULTA)
UnitedHealth Group (UNH)
Amazon shares are way over-priced but might gain the most during the next 10 years. Home Depot and UntedHealth will grow a bit more slowly than Alphabet, Priceline and Ulta, but HD and UNH will rise at a steady pace through up-markets and down-markets.
My Top 10 list and my additional recommendation of six stocks is a rather long list, but if you own a majority of these stocks, you should be off to the races in 2017.
Q. We have shares of ADNT as a result of the spinoff from Johnson Controls. What is your recommendation regarding this stock? (from subscriber J.J.)
A. I recommend selling Adient (ADNT 57.00). Your holding is probably relatively small and Adient has enjoyed a nice rise during its initial 10 weeks. However, I advise holding your Johnson Controls (JCI 41.94) shares because JCI will likely grow more rapidly than ADNT in 2017. Sell ADNT.
Q. I am now down 15% on TPH. It doesn’t seem like it is rebounding. I am going out of the country on vacation for three weeks and may not be able to keep close watch. Should I sell? (from subscriber B.C.)
A. Tri Pointe (TPH 11.88) has disappointed thus far, but it is a small company and will receive more investor attention in 2017. The outlook for homebuilding is excellent. Hold your Tri Pointe shares.
Q. In the December 8 Value Enterprise issue, CBI was recommended. I bought shares on December 13, but since then this stock has dropped 12% in about 12 trading days. Does CBI still carry a Buy recommendation? (from subscriber A.M.)
A. Chicago Bridge & Iron (CBI 33.05) has started off badly, as you noted. Trump will start ‘trumpeting’ his infrastructure programs soon though, which will quickly provide strong impetus for CBI in 2017. Hold your CBI shares.
Index of Latest Summaries – Recommendations featured in recent issues.
