During the 10 days since the elections in the U.S., we have witnessed one of the most dramatic shifts in the stock market in recent memory. Our new President-elect, Donald J. Trump, will attempt to lead the country in quite a new direction than President Barak Obama.
Mr. Trump’s proposed policies will benefit some companies, but others will be unaffected or possibly suffer because of the changes. President-elect Trump will possibly attempt some or all the following:
Readjust tax rates for individuals and corporations.
Repeal or change Obamacare.
Renegotiate trade agreements.
Allow multinational companies to repatriate overseas cash at lower tax rates.
Spend heavily on infrastructure in the U.S.
Impose tariffs on some imports.
Reduce government restrictions on several industries, most notably banks and financial institutions.
I have recommended selling nine stocks in November because of high stock prices and a turnover in the market caused by the election of the new President. So where should you invest the proceeds of your sales?
I advise investing in any of the following 10 undervalued stocks, which I believe will perform well if President-elect Trump enacts some or all of his proposed policies:
Alphabet (GOOG)
Biogen (BIIB)
Cognizant Technology (CTSH)
Danaher (DHR)
Facebook (FB)
Johnson Controls (JCI)
LKQ (LKQ)
Starbucks (SBUX)
Synchronoss Technologies (SNCR)
Zimmer Biomet Holdings (ZBH)
In addition, the following stocks have reacted very favorably to the stock market’s new direction. These 10 stocks are currently slightly overvalued, but if the stock market retreats from its current high level, I advise buying any of the following stocks on dips:
Alliance Data Systems (ADS)
Blackstone Group LP (BX)
FedEx (FDX)
Home Depot (HD)
Maiden Holdings (MHLD)
Schwab, Charles (SCHW)
Scripps Networks (SNI)
Stifel Financial (SF)
Ulta Salon (ULTA)
UnitedHealth Group (UNH)
As a review, my Sell recommendations in November included the following nine stocks:
AbbVie (ABBV)
Aetna (AET)
Benchmark Electronics (BHE)
CVS Health (CVS)
Harman International (HAR)
Knight Transportation (KNX)
McKesson (MCK)
Prudential Financial (PRU)
Southwest Airlines (LUV)
You should continue to hold your remaining stocks. The new stock market direction during the past 10 days has ignited many of our previously neglected stocks including Avigilon (AVO.TO) up 44%, Big Lots (BIG) up 14%, Bristow (BRS) up 16%, Eaton Vance (EV) up 14%, Fortress (FIG) up 10% and Korn/Ferry (KFY) up 17%. These six stocks and others are still well below their respective Min Sell Prices, so you should continue to hold.
In this Weekly Update, three Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. I also include questions from subscribers along with my answers. Prices appearing after each stock symbol are the closing prices on Thursday, November 17, 2016. Reports are for the quarter ended September 30, 2016 unless otherwise stated. Sales and earnings increases and decreases are based on year ago comparisons.
I also 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 five weeks will be:
• Tuesday, November 22, Wall Street’s Best Daily
• Friday, November 25, No Update – Thanksgiving Weekend
• Thursday, December 1, Cabot Value Model issue 269V
• Friday, December 2, Weekly Update
• Thursday, December 8, Cabot Enterprising Model issue 269E
• Friday, December 9, Weekly Update
• Friday, December 16, Weekly Update
Company Reports
Avigilon (AVO.TO 11.67 on the Toronto Stock Exchange; AIOCF 8.62 on the US Over the Counter) reported superb third-quarter results. Sales surged 32% and EPS advanced 4%, after sales increased 17% and EPS dropped 50% in the prior quarter. Management plans to continue growing sales, but with a “stronger focus” on increasing profitability. Avigilon shares soared 45% after the news.
Sales have been strong during the past five years, but earnings have been lagging. Now, the company’s earnings will likely grow at a much livelier pace. Avigilon also successfully introduced new lower-priced surveillance systems and lowered the prices of older high-priced systems. This strategy created more sales volume.
Avigilon’s new earnings growth path should send the company’s stock price substantially higher during the next 12 months and beyond. Shares should double within the next two years. Hold.
Cisco Systems (CSCO 30.05) reported mixed results for the quarter ended October 29. Sales declined 3% while EPS rose 3%, after sales decreased 2% and EPS increased 7% in the previous quarter. Routing equipment revenue rose 6%, but switching gear sales dropped 7%. Cisco completed three small acquisitions during the quarter. Management provided a conservative forecast for current quarter results, reflecting the trend away from in-house data center hardware to cloud computing. Cisco is laying off 5,500 workers to reduce costs. President-elect Trump’s growth initiatives and foreign cash repatriation efforts could provide a lift for Cisco. Hold.
Home Depot (HD 128.93) delivered another stellar quarter. For the quarter ended October 30, sales advanced 6% and EPS surged 19%, after increasing 7% and 19% in the prior quarter. Same-store sales rose an impressive 5.5%. Management raised its EPS forecast for the full year to $6.33, based on the better than expected third-quarter results. The robust housing market in the U.S. and an increasing desire to spend on home-improvement projects by homeowners helped to bolster Home Depot’s sales. Buy at 121.79 or below.
Questions and Answers
Q. Please help on CTSH. (from subscriber C.P.)
A. Cognizant Technologies (CTSH 56.38) will likely benefit from recent changes in the healthcare and financial industries. Trump’s election should also help Cognizant in some areas, even though the company employs a lot of workers in India.
The healthcare industry is in need of more sophisticated computer systems, and Cognizant is the leading provider of these services. The increase in mergers in the healthcare sector will also require added consulting services to companies who need help in assimilating two different technology systems.
In the financial sector, Mr. Trump will likely be successful in loosening current regulations, which will force banks to comply with the changes. CTSH has been the leading consulting firm offering helpful services.
If Trump’s new policies provide a boost to the U.S. economy, Cognizant’s business will increase. Also, if cash repatriation taxes are lowered, Cognizant has a lot of cash sitting overseas, which can be put to better use in the U.S. Lastly, I don’t know if Trump’s policies will hinder the company’s use of employees who reside in India. Cognizant has fewer international employees than its competitors, and I doubt that any negative impact will be significant. Buy at 55.65 or below.
Q. I have my personal portfolio with you such that I own all stocks equally weighted in each current portfolio. When you move a security out of the portfolio to a Hold position, I have been retaining same. The only problem is when you buy more stocks and move less to Hold, I do not have the resources to own the portfolio stocks as well as all the Hold-rated stocks.
I am impressed with your returns, but is that measured from changing the portfolio each week such that it excludes the holds and only takes into account the recommended fluctuating value and enterprising portfolios each week? How is the best way that I should handle this? (from subscriber L.L.)
A. I measure my returns by including all Buy and Hold stocks for each model. The good news is that the model’s Buy stocks outperform the Hold stocks by a small margin.
The total number of Hold stocks varies from month to month, as you mentioned, but the number of Buy stocks does not vary. The Value Model contains 16 stocks each month, and the Enterprising Model also contains 16. If you make the same changes that I make each month, it will require multiple transactions, but your results should be quite satisfactory and your portfolio will consistently contain 32 stocks if you include both models.
Q. As long as the BSJ ETFs are held to their maturities, I can still reasonably expect the minimum $25.00 return per share, right? (from subscriber S.S.)
A. You are correct. The Guggenheim BulletShares (BSJ) high grade corporate bond series will very likely cash out at $25.00 or higher when they expire. The BSC High Yield corporate bond series will very likely cash out at $20.00 or higher when they expire. Guggenheim doesn’t guarantee the prices, though.
Index of Latest Summaries – Recommendations featured in recent issues
