Sell Kroger (KR) at 27.00.
In this Weekly Update, I report on Kroger (KR), a sell candidate, plus four companies that raised their dividends. I also include one question from a subscriber with my answer. Prices appearing after each stock symbol are the closing prices on Thursday, June 15, 2017.
Investors have become jittery. The standard procedure these days is to hit the Sell button when bad news pops up, and ask questions later. To wit, sellers hit Kroger hard this week after the company provided a weaker than expected outlook for the remainder of 2017. Down went the stock. Was it justified? I think not, but the best action to take now is to wait for a bounce and then sell. More details below.
Also, in this Update, I present two Indexes. These 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.
My schedule for the next five weeks will be:
Friday, June 23, Weekly Update
Friday, June 30, Weekly Update
Tuesday, July 4, Wall Street’s Best Daily
Friday, July 7, Weekly Update
Thursday, July 13, Cabot Value Model issue 276V
Friday, July 14, Weekly Update
Thursday, July 20, Cabot Enterprising Model issue 276E
Friday, July 21, Weekly Update
Company Reports
FedEx (FDX 210.45) raised its quarterly dividend to $0.50 from $0.40. The new rate provides a 1.0% yield for investors. Buy at 203.52 or below.
Kroger Co. (KR 24.56) reported mixed results for the quarter ended May 31. Sales rose 5%, which beat estimates by a small margin, and EPS sank 17% as expected. In the prior quarter, sales were flat and EPS declined 7%. The sales increase in the latest quarter was bolstered by the recent purchase of ModernHEALTH. Same-store sales excluding gasoline fell 0.2%, the third consecutive decline. Management noted that current quarter same-store sales are trending positive, which is encouraging.
Walmart’s price war against competitors has been effective. Walmart’s grocery same-store sales increased for the second consecutive quarter compared to Kroger’s slide. Analysts expect the grocery industry to get even more competitive, as Walmart continues its pricing pressure and German discount grocer Aldi plans a major expansion in the U.S.
Kroger will match competitors’ prices to retain customers, but the consequences will include lower earnings during the remainder of 2017, as management confirmed in their quarterly report. The lowered expectations caused Kroger’s stock price to drop 19%, which seems overdone. I expect KR shares to rebound during the next few days and recommend selling your shares at 27.00. I’ll provide an update next week. Sell KR at 27.00.
Lowe’s Companies (LOW 80.39) hiked its quarterly dividend to $0.41 from $0.35. The resulting yield is 2.0%. Buy at 80.92 or below.
LyondellBassell (LYB 80.14) increased its quarterly dividend to $0.90 from $0.85, which will generate a generous yield of 4.5% for investors. Buy at 78.85 or below.
UnitedHealth Group (UNH 180.38) raised its quarterly dividend to $0.75 from $0.625. The resulting yield is 1.7%. Buy at 182.48 or below.
Questions and Answers
Question: I am a new subscriber, but I am a little confused. How and when is someone to use the two different recommendations (Value and Enterprise). Do you use one or the other or do you use a combination? Do you use one with a certain type of market and the other with another type of market? What is the distinction between the two? (from subscriber T.C.)
Roy: The reason I have two Models is to provide both low-risk stocks (Cabot Value Model) and moderate-risk stocks (Cabot Enterprising Model). I advise basing your portfolio on the Cabot Value stocks to form a solid base for your holdings. Then if you want to add some extra dividend yield, for example, you can look for higher yielding stocks in the Enterprising Model. If you desire additional growth, for another example, you can find stocks in the Enterprising Model with high Growth Ratings.
Cabot Value stocks tend to be less volatile—rising less when the stock market is advancing, but declining less when the market is falling. Enterprising stocks usually perform very well when the market is rising, but can fall a tad more when the market is pulling back. Surprises can occur in any stock in either Model, however.
Index of Latest Summaries – Recommendations featured in recent issues.
