In this Weekly Update, I include a summary for Five Below (FIVE) which reported quarterly financial results during the past week. I also include a question from a subscriber along with my answer. Prices appearing after each stock symbol are the closing prices on Thursday, June 8, 2017.
Investors’ muted reaction to the media frenzy surrounding the James Comey testimony, the British election, and the European Central Bank’s monetary policy meeting in Estonia was expected. The chance for a surprise was negligible, and that’s the way it turned out.
The next big event that could affect stocks will be the meeting of the Federal Open Market Committee scheduled for Wednesday, June 14. Most investors and economists expect the Fed to raise interest rates by one-quarter percent. Although investors will attempt to ascertain from Janet Yellen’s remarks if the Committee will increase rates once more in 2017 or if additional hikes are likely. Stay tuned.
Also in this Update, I present two indexes, which list companies featured in the Cabot Value Model or in 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.
Here’s my schedule for the next five weeks:
Tuesday, June 13, Wall Street’s Best Daily
Wednesday, June 14, Wall Street’s Best Daily
Thursday, June 15, Cabot Enterprising Model issue 275E
Friday, June 16, Weekly Update
Friday, June 23, Weekly Update
Friday, June 30, Weekly Update
Friday, July 7, Weekly Update
Thursday, July 13, Cabot Value Model issue 276V
Friday, July 14, Weekly Update
Company Reports
Five Below (FIVE 52.94) recorded excellent results for the quarter ended April 30. Sales surged 21% and EPS jumped 25% after increasing 19% and 17% in the prior quarter. The company opened 31 new stores and ended the quarter with 553 stores in 32 states. Stores open more than one year increased sales 2.3%. Management raised its sales and earnings outlook for the current quarter and full year ending January 31, 2018.
One of the catalysts to Five Below’s success is the mushrooming sales of fidget spinners, the quirky $5 toy that has three prongs with a bearing in the middle, allowing users to spin them with a flick of their fingers. The spinner craze is expected to last another quarter before fading out. Five Below is one of the few retailers that is growing rapidly. Buy at 52.16 or below.
Questions and Answers
Question: I again see nothing new affecting CBI, as bad as it is acting the past few days. Do you see anything out there? (from subscriber I.M.)
Roy: Chicago Bridge & Iron (CBI 19.57) continues to plummet. The latest drop is caused by a Wall St. analyst at Macquarie Group who lowered his price target for CBI from 18.00 per share to 11.50 and kept an Underperform rating. The analyst’s price target reduction was based on an assumption that management is borrowing heavily against CBI’s line of credit. In my opinion, this is fake news. I have never seen a stock plummet based on drawing money from the company’s previously established credit line.
CBI is due to close on the sale of its Capital Services business at the end of June. The $755 million proceeds will be used to pay toward total debt of $1.8 billion, of which $500 million is due within five years. CBI is expected to generate $500 million in cash flow in 2017 and 2018. Long-term debt divided by current assets produces a ratio of 39% which is low for an industrial company with heavy capital commitments.
Latest analysts’ estimates call for $3.55 EPS in 2017 and $4.40 in 2018. The stock is way undervalued, but investors probably won’t jump in until President Trump gets an infrastructure bill passed. The lawsuit involving Westinghouse is scheduled for arbitration before the end of 2017, which should lift a burden off the stock. This year is a lost cause, but 2018 should bring a sharp recovery for CBI under new management. I advise holding your position. It will take a while for CBI’s stock price to establish a base. Hold. ?
Index of Latest Summaries – Recommendations featured in recent issues.
