Two of our stocks released earnings in the past week but there was no significant news. The economy, in general, is doing great, corporate profits are reaching record highs, and the European economy is improving. Although market reacted sharply to inflationary concerns, inflation is in line with Fed expectations. As a precaution to inflationary pressures, last week, I recommended STORE Capital (STOR), 75% of whose leases are hedged for inflation.
Market valuations, in general, may appear less favorable considering the increasing interest rates, but I’m still finding ample undervalued individual stocks.
Home Depot (HD) reported a 7.5% increase in comparable-store growth. This was in line with company’s focus on store renovation rather than store expansion. Together with a healthy housing market, Home Depot is enjoying the fruits of its aggressive expansion years ahead of Lowe’s. (Lowe’s (LOW), which is also in our portfolio, is expected to increase its focus on comparable store growth rather than its current global expansion strategy.) At this stage, Home Depot is the clear winner in execution and strategy. Sales were $23.9 billion for the fourth quarter of fiscal 2017. The operating margin of Home Depot dipped slightly last quarter to 9% from 9.3% a year ago. The company expects its operating margin to reach double digits in a few years. HOLD.
Magna International (MGA) released its fourth-quarter earnings, surpassing analyst expectations. Magna recorded $10.39 billion in revenue, a 12.3% YoY growth. Annual sales in 2017 were $38.9 billion, up 7% from 2016, despite a 5% dip in North American light vehicle production. Adjusted EBIT increased 7% to $3.11 billion on an annual basis. Complete vehicle production increased 129% as Magna launched a BMW 5-Series and Jaguar E-Pace assembly facility in Graz, Austria. The operating margin also showed some improvement. The stock is an excellent bargain, and the company is well positioned to take advantage of the industry shift toward autonomous driving. I continue to recommend MGA as a Buy. BUY.
