SELL ALERT: Sell Aflac (AFL) and Activision Blizzard (ATVI) now. See details below.
In this Weekly Update, I include summaries for 13 Cabot Benjamin Graham Value Investor companies that reported quarterly financial results or other noteworthy news during the past week. In addition, I include questions from subscribers along with my answers. Financial reports are for the quarter ended March 31, and prices appearing after each stock symbol are the closing prices on Thursday, April 20, 2017.
Also, in this update, I present two indexes that identify indicate when my reviews of the companies were published so you can quickly find my recent write-ups for stocks appearing in the models.
Here’s my schedule for the next five weeks:
- Friday, April 28, Weekly Update
- Thursday, May 4, Cabot Value Model issue 274V
- Friday, May 5, Weekly Update
- Monday, May 8, Wall Street’s Best Daily
- Thursday, May 11, Cabot Enterprising Model issue 274E
- Friday, May 12, Weekly Update
- Monday, May 15, Wall Street’s Best Daily
- Friday, May 19, Weekly Update
- Friday, May 26, Weekly Update
Company Reports
Activision Blizzard (ATVI 49.95) eclipsed 50.00 and is now overvalued despite not reaching my Min Sell Price of 58.33. Analysts have lowered their first quarter EPS forecast to $0.22 from $0.32 during the past 90 days, and reduced their 2017 estimate to $1.95 from $2.09. ATVI shares now sell at 25.6 times 2017 EPS estimates, which is well above its 10-year average P/E of 18.3. I advise taking advantage of the recent strong rally in ATVI to sell at the current high price. Activision is due to report financial results on May 5.
Activision was first recommended five months ago in the November 2016 Cabot Enterprising Model using my Graham-Buffett methodology. Activision has appreciated 27.4% while the Standard & Poor’s 500 Index has risen 8.8%. Sell ATVI now.
Aflac (AFL 74.17) has climbed within a whisker of my Min Sell Price of 75.50 even though the company’s outlook is cloudy at best. Fourth-quarter results came in below expectations, and analysts expect the company to report lower earnings in each quarter of 2017. Aflac is due to report first-quarter results on Thursday, April 27, which could disappoint investors and send the stock down.
Aflac was first recommended five years ago in the March 2012 Cabot Value Model using my A-List methodology. Aflac has appreciated 64.2% while the Standard & Poor’s 500 Index has risen 71.9%. Sell AFL now.
Alliance Data Systems (ADS 260.62) beat revenue and earnings forecasts. Management expects EPS growth to accelerate in the second half of 2017, which will send the stock higher by 8%. Revenue advanced 12% and EPS climbed 2% after increasing 5% and 13% in the previous quarter. ADS’s LoyaltyOne program remains on track to return to solid growth by the third quarter of 2017. Hold.
Blackstone Group LP (BX 30.22) easily beat estimates as the company sold $16.6 billion of investment assets. Revenue doubled and EPS rocketed 165% after increasing 79% and 84% in the prior quarter. Blackstone took advantage of buoyant markets to sell private equity, real-estate and other assets. The company’s buyout and private-equity segments sold $12.9 billion during the quarter at an average 2.6 times what the firm paid for the investments.
Meanwhile, Blackstone invested $11.7 billion in the first quarter, marking it the second-biggest quarter ever for putting new money to work. The quarterly dividend, which is based on income, was boosted to $0.87 per share up sharply from $0.28 paid a year ago. Blackstone’s dividend yield, based on latest 12-month dividends, is 7.0%. Buy at 29.63 or below.
Celanese (CE 89.50) recorded mixed first quarter results. Sales rose 5% and EPS decreased 1% after sales fell 2% and EPS increased 22% in the prior quarter. Recent acquisitions, new products and international expansion bolstered sales. Management expects 10% EPS growth in 2017, in line with my forecast. Hold.
Danaher (DHR 82.89) produced solid first-quarter sales and earnings. Sales advanced 7% and EPS climbed 8% after increasing 6% and 15% in the previous quarter. Management’s guidance for the remainder of 2017 fell within analysts’ forecasts. Danaher’s recent acquisitions of Pall and Cepheid performed very well. Despite these positive results, softness in industrial markets including China and North America are likely to restrict the company’s growth in 2017. Hold.
General Motors (GM 34.10) closed its lone manufacturing facility in Venezuela after authorities seized its property and equipment. GM laid off all its 2,700 Venezuelan workers. A government official said that the Venezuelan government is working to resolve differences. General Motors will report quarterly financial results on April 28. Hold.
GNC Holdings (GNC 8.78) reported weak first-quarter results that beat estimates. Sales dipped 4% and EPS plunged 49% after falling 8% and 87% in the prior quarter. Same-store sales slipped 3.9%. On the brighter side, management said it added five million users to its newly launched My GNC Rewards program, which helped to generate 9% more transactions per store. Management’s decision to lower prices across the board pushed average transaction amounts down 12%.
Recent reports speculate that private equity firm KKR has been in contact with the Chinese pharmaceutical company Sinopharm and Chinese investment firm Fosun about a possible takeover of GNC. The company’s improved results, generated from management’s new initiatives and the rumor of a possible takeover of the company, sent GNC shares flying 24%. Buy at 8.97 or below.
Schlumberger (SLB 76.51) sales and earnings improved noticeably. Sales advanced 6% and EPS declined 38% and falling 8% and 81% in the prior quarter. The North American land market continued to strengthen, leading to accelerating deployment of idle capacity for multiple product lines. Revenue growth, which didn’t begin until March, was led by hydraulic fracturing and drilling services. Buy at 80.10 or below.
Taiwan Semiconductor ADR (TSM 31.79) reported strong first-quarter sales and earnings. Sales climbed 22% and EPS surged 35% after increasing 32% and 42% in the prior quarter. Increased demand for Taiwan’s 28-nanometer advanced technology bolstered results. Management expects demand to diminish in the second quarter due to mobile product seasonality and to inventory reductions in the company’s supply chain. Hold.
Travelers Companies (TRV 118.88) produced disappointing first-quarter revenue and earnings. Revenue rose 4% and EPS fell 7% after increasing 8% and 10% in the prior quarter. Catastrophe losses from tornado and hail storms lowered EPS by $0.79 per share (EPS increased 27% excluding catastrophe losses). With the exception of the losses, all other business metrics remain solid, which is encouraging for future growth.
Travelers increased its quarterly dividend to $0.72 from $0.67, resulting in a yield of 2.4%. The company has increased the dividend every year since 2005. Hold.
UnitedHealth Group (UNH 171.54) exceeded revenue and EPS forecasts. Revenue rose 9% and EPS jumped 31% after increasing 9% and 56% in the previous quarter. The company’s exit from most of the Affordable Care Act’s exchanges resulted in higher profits. Rapid growth in UnitedHealth’s Medicare business aided revenue. Management raised its revenue and EPS forecast for the remainder of 2017. Buy at 168.52 or below.
WestJet Airlines (WJA.TO 22.91) announced its intention to launch an ultra-low-cost carrier in Canada to provide Canadians with no-frills, lower-cost travel options. The service is expected to begin in late 2017. Hold.
Questions and Answers
Question: It is not clear to me how you calculate the performance of the Cabot Value Model. Is it based off the BUYS in the model portfolio on Page 3 and all the HOLD rating positions on Page 7? How about the BUY and HOLD ratings in the list of 275 Value Stocks? (from subscriber F.M.)
Roy: I include all current Buy and Hold stocks when calculating the performance of the Cabot Value Model and Cabot Enterprising Model.
All Buy-V and Hold-V stocks in the Top 275 Value Stocks listing on pages 9 thru 12 are included in Value performance along with ETF Buy and Holds which are not listed in the Top 275. Likewise, all Buy-E and Hold-E stocks listed in the Top 275 Value Stocks are included in Enterprising performance along with ETF Buy and Holds
My performance calculations adhere to the Global Investment Performance Standards (GIPS) section of the Chartered Financial Analyst (CFA) Institute.
Index of Latest Summaries – Recommendations featured in recent issues.
