This is my last Weekly Update. I am retiring today after 50 years in the investment business, including 15 years writing the Cabot Benjamin Graham Value Investor. I am sad in many ways because I will be losing contact with my subscriber friends as well as my friends and associates at Cabot Wealth Network.
I hope you have benefited in many ways from my attempts to offer an educational experience based on the knowledge that I have gained through the years. One of the biggest surprises attained from my job as Chief Analyst of Cabot Benjamin Graham Value Investor is the valuable knowledge that I have learned from my subscribers. You shared a lot of your insights with me and asked profound questions that required deeper thinking on my part. Thank you.
Azmath Rahiman will become the new Chief Analyst of the Cabot Benjamin Graham Value Investor. Azmath has many fresh ideas which he will merge seamlessly into the Investor. I’m confident Azmath will help you to continue on your road to financial success!
In this Weekly Update, I summarize the latest news for two companies, Nike and Thor, and include two questions from subscribers with my responses. Prices appearing after each stock symbol in this Update are the closing prices on Thursday, September 28, 2017.
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.
Company Reports
Nike (NKE 52.63) posted disappointing results for the quarter ended August 31. Sales rose 4% and EPS fell 22% after increasing 21% and 29% respectively in the previous quarter. Strong revenue growth in international markets and consumer direct sales were offset by a decline, as expected, in North America wholesale revenue. Nike’s effort to sell direct to consumer is gaining traction, but the transition to sell direct while maintaining important relationships with wholesalers and retailers is disruptive. In addition, Adidas and others are resonating with North American consumers with more fashionable athletic wear.
Nike management is implementing a new plan to increase sales with more fashionable products and increase profits by marketing on a more personal and digitally-connected platform. These changes should begin to produce better sales and earnings in the current quarter and in 2018. Buy at 62.39 or below.
Thor Industries (THO 123.07) produced exceptional sales and earnings for the quarter ended July 31. Sales popped 50% and EPS surged 44% after increasing 57% and 40% in the prior quarter. Towable RV backlog soared 92.7% compared to a year ago and motorized RV backlog increased 98.3% from a year ago. Demand for travel trailers is accelerating, which bodes very well for 2018. The surge in sales and earnings will boost my Max Buy Price by about $12 to 118 or more in October. Buy at 106.55 or below.
Questions and Answers
Question: What is happening with ADS? Should we consider selling at this point? Thanks for your guidance. (from subscriber J.R.)
Roy: Alliance Data Systems (ADS 220.61) reported disappointing second-quarter sales and EPS. Sales rose 4% and EPS advanced 4%, after increasing 12% and 2% in the prior quarter. Ed Heffernan, president and chief executive officer of Alliance, stated that sales will remain solid during the remainder of 2017, but $0.40 of EPS will be delayed until 2018. Analysts had been expecting accelerating sales and earnings growth in 2017. ADS shares dropped 9.5% after sales and earnings were released on July 20.
Management, however, remains quite optimistic about 2018. Sales are forecast to climb 12% and EPS are expected to jump 19% to $21.50. Since 2018 is only three months away, I advise holding ADS. At 11.9 times current EPS, Alliance Data Systems shares are a bargain. I am looking for a nice rebound in ADS in 2018. Hold.
Question: Not too long ago, you talked about how Canada is having good growth and there were some stocks at a good price but were not directly available in the U.S. market. Are there any ETFs that we can buy that may have the correct sectors in Canadian stocks? (from subscriber S.L.)
Roy: There are many ETFs that concentrate on Canadian stocks; the one that I like is SPDR MSCI Canada Strategic Factors ETF (QCAN 59.82).
QCAN seeks to track the performance of the MSCI Canada Factor Mix A-Series Capped Index. The Index replicates the performance of leading large- and mid-cap Canadian companies. QCAN offers the mixed performance of quality, value and low volatility factor strategies. The ETF is an equal weighted combination of three indexes, the MSCI Canada Value Weighted, MSCI Canada Minimum Volatility and MSCI Canada Quality Indexes, in a single multifactor index.
Sector weightings for QCAN include Financials 40.3%, Energy 11.8%, Consumer Staples 9.2%, Consumer Discretionary 8.5%, Materials 7.9% and Industrials 7.7%. The six largest holdings are: Toronto Dominion Bank, Royal Bank of Canada, Canadian Imperial Bank, Bank of Nova Scotia, Sun Life Financial and Canadian National Railway.
The average P/E for stocks in the QCAN ETF is 17.7 and the dividend yield is 1.9%. QCAN’s year-to-date return is 9.3%, one-year is 12.5% and the three-year is minus 0.7%. The expense ratio is low at 0.30%. The ETF’s concentration in banks and financials bodes well for the next six to 12 months. The Bank of Canada has raised the benchmark interest rate twice this year by a quarter point, which will help banks and insurance companies in QCAN’s portfolio.
Index of Latest Summaries – Recommendations featured in recent issues.
