Note that Cabot Benjamin Graham Value Investor issues are published on the second Thursday of the month, and Weekly Updates are published on all other Thursdays.
In this Weekly Update, I summarize the latest news for companies reporting earnings or other newsworthy events in the past week. Prices appearing after each stock symbol in this Update are as of mid-morning on October 26, 2017.
This week, the market remained cautious as S&P 500 is down 0.16%. The healthcare sector fell nearly 3% led by pullbacks from some large biotech stocks. However, from a fundamental side, we saw some solid numbers, particularly in housing sales and durable goods orders.
We saw a 2.2% month-over-month growth in durable goods orders led by a 5.1% increase in orders for transport equipment.
Sales of previously owned homes rose to a seasonally adjusted annual rate of 5.39 million in September, beating market expectations. At the same time, sales of new single-family homes rose a staggering 18.9% to a seasonally adjusted annual rate of 667 thousand in September, beating the market expectation by a significant margin. This indicates a continuing strong demand in the housing market—positive news for Toll Brothers (TOL 45), which is ranked sixth in our portfolio. HOLD.
This week, Gentex (GNTX 19), ranked first in our portfolio, released its third-quarter earnings on Monday, which were in line with Wall Street estimates. However, the price has declined nearly 7% in the past week, mainly due to a decrease in sales in North America and management’s reduced growth forecasts. Sales of its rear view mirrors were down 7% in North America because of an 8% quarter-over-quarter decrease in light vehicle production in North America. The reduction in light vehicle production could be a result of an attempt by automakers to reduce excess inventories or a cyclical demand shortage for light vehicles. However, the drop in North American sales was offset by a 12% increase in international sales of its rear view mirrors and a 6% increase in sales of other products. Gentex’s full-display mirrors are getting an overwhelming response from OEMs but Wall Street is skeptical about Gentex’s competitive advantage in the full-display category.
I believe Gentex will be able to continue to maintain its monopoly in the rear view mirror category because of its in-depth market penetration and strategic R&D. I would hold this stock at no more than 3%-5% of the portfolio and patiently wait until Wall Street gives it a proper appraisal. HOLD.
Blackstone’s (BX 34) third-quarter earnings climbed to $384 million from $313 million, due to increased interest on private equity funds by institutional investors. The EPS beat the street estimates by a wide margin. The asset under management (AUM) rose from $387.4 billion from $361 billion a year earlier. Importantly, performance-based fees rose 33% this quarter. Blackstone’s infrastructure fund has got additional traction from a $20 billion infusion from Saudi Arabia’s Public Investment Fund. I recommend that you hold this stock. HOLD.
