Sell Whirlpool (WHR)
Stock indexes stumbled again yesterday, June 29, led by large-cap tech stocks. Thus far, the profit-taking looks normal. Technology stocks have been on a tear in 2017, so investors are taking advantage of sky-high prices to harvest extraordinary gains. I expect further declines in our future, as the summer swoon makes an early appearance. I am not overly concerned, though, because the abundance of cash sitting on the sidelines will be used to buy the dips. I suggest using extra cash to buy stocks that will diversify your portfolio.
In this Weekly Update, I recommend selling Whirlpool (WHR) and summarize the latest news for three other companies. I also include one question from a subscriber with my answer. Prices appearing after each stock symbol are the closing prices on Thursday, June 29, 2017.
Also in this Update, I present two indexes that 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 four weeks will be:
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
Tuesday, July 25, Wall Street’s Best Daily
Friday, July 28, Weekly Update
Company Reports
Chicago Bridge & Iron (CBI 21.57) soared 59% during the past week after plunging 62% since I first recommended buying CBI seven months ago. The unusual swing is caused by a positive ruling from the Delaware Supreme Court against Westinghouse Electric. The dispute involves the 2015 sale of CBI’s nuclear construction business to Westinghouse Electric. The court’s decision restricts the ability of Westinghouse to raise the bulk of its challenges to CBI’s calculations of the sale price. A court-appointed independent auditor will be called upon to set a price for the sale. The ruling does not end the dispute, but investors believe the final sale price will be in Chicago Bridge & Iron’s favor. Hold.
Gilead Sciences (GILD 70.86) After falling steadily during the past 11 months, Gilead shares finally staged a vigorous rally last week. Gilead won a court case against Merck which could save Gilead billions in patent royalties, analysts raised their forecasts for Gilead’s 2017 and 2018 EPS, and biotechnology stocks strengthened last week amid a growing sense that President Trump will not push drug companies to lower prices. Based on new data and improved prospects for the company, I have raised my Min Sell Price for Gilead Sciences to 79.79 from 71.83. Hold.
Nike (NKE 53.17) surprised investors once again when it reported better-than-expected sales and earnings. Sales rose 5% and EPS surged 22% after increasing 5% and 24% in the prior quarter. Sales in China and emerging markets outpaced lackluster sales in North America. Management stated the company will eliminate 1,000 jobs, step up online offerings, and sell directly on the Amazon.com website. Nike’s stock price spiked 8% higher after the news in after-hours trading. Nike will also trim a quarter of its shoe styles in an effort to become more agile. Buy at 52.34 or below.
Whirlpool (WHR 188.04) declined after London investigators concluded that the Grenfell Tower fire started in a Hotpoint fridge freezer manufactured by a subsidiary of Whirlpool. The initial investigation is focused on the manufacturer of the external cladding on the building after the cladding failed safety tests. Both Whirlpool and the cladding maker could face severe penalties after 79 victims died in the tragedy. Whirlpool’s liability cannot be determined yet, and the investigation and settlements could take many months. I recommend selling your WHR shares now. Sell.
Questions and Answers
Question: I’m concerned about GHL. The short-term 10 day moving average is now below the 50-day moving average. I realize it can be volatile, depending on large fees that the company earns on mergers and acquisitions, but GHL has dropped a great deal since March’s buy recommendation.
The new directors added in the first quarter added cost, but what about revenue?
With reduced revenue, increased costs and reduced net and cash flow, the company must be borrowing money to pay the high dividends. If so, and with interest rates going up, if they decide to reduce dividends, the perceived value would definitely, I believe, see more selling of the stock. Buy, sell or hold? (from subscriber G.H.)
Roy: I like Greenhill & Co. (GHL 20.25) for several reasons. The stock has declined 10% during the past 10 days and is now selling at 11.2 times latest 12-month EPS. The company posted weak first quarter results, but management reported that revenue and earnings in April more than made up for the short-fall in the first three months.
Greenhill is gearing up for the future even though M&A activity has stalled. The company added seven new managing directors year to date to bolster its M&A team. The added members will add cost and additional revenue will be slow to develop. Noticeably better revenue and earnings should begin to develop in the fourth quarter, though. Another problem facing the company is that merger and acquisition activity has slowed as companies wait for President Trump’s tax and regulation policy to evolve (or not evolve). Predicting how Trump’s agenda will play out is difficult, but M&A activity has picked up noticeably this month.
I am not in favor of Greenhill’s current dividend policy. In my opinion, quarterly dividends should be based on earnings and fluctuate accordingly. The company’s balance sheet is solid, but the high dividend payout is limiting extra growth. GHL shares dropped to 15.60 a year ago, but I believe the stock will climb higher during the next six to 12 months. If the company reports better revenue and earnings for the second quarter, I will probably raise my opinion to Buy. For now, Hold.
Index of Latest Summaries – Recommendations featured in recent issues.
