Recent gains in the stock market are impressive. Ms. Market seems very determined to climb a wall of worry. Economic growth in the U.S. continues to barely inch ahead, while employment is robust. Oil prices could falter if Russia, Saudi Arabia and other major producers fail to agree to freeze output at their meeting in Qatar on April 17. Oil-market experts see a 50-50 chance for a freeze, but the experts don’t foresee any impact on crude oil supply because most of the countries are already pumping at full capacity. A dip in the price of oil, which is likely, could cause a dip in stock prices.
Four Cabot Benjamin Graham Value Investor companies reported financial results or were otherwise in the news during the past week. In this Update, I include an interesting question about performance from a subscriber with my responses. Prices appearing after each stock symbol are the closing prices on Thursday, April 14.
I also present two indexes that list companies featured in the Cabot Value Model and the Cabot Enterprising Model during the most recent four months. The indexes indicate when my summaries of the companies were published so you can quickly find my analysis for stocks appearing in the models.
My next Weekly Update will be sent to you on Friday, April 22, 2016. My schedule for the next five weeks will be:
* Friday, April 22, Weekly Update
* Tuesday, April 26, Cabot Wealth Advisory
* Friday, April 29, Weekly Update
* Thursday, May 5, Cabot Value Model issue 262V
* Friday, May 6, Weekly Update
* Thursday, May 12, Cabot Enterprising Model issue 262E
* Friday, May 13, Weekly Update
* Friday, May 20, Weekly Update
Company Reports
Baker Hughes (BHI 43.20) shares spiked after rumors surfaced proclaiming that Halliburton and Baker Hughes are negotiating with private equity firm Carlyle Group to sell assets worth $7 billion. Baker and Haliburton will need to sell substantial assets if the companies want to gain antitrust approval for their merger. Carlyle is competing against General Electric, which has already been in discussions to buy many of the assets. In my opinion, the assets will be sold, but the merger will probably fail nevertheless. Hold.
Fastenal (FAST 45.77) reported solid first-quarter results. Sales advanced 4% and EPS rose 2% after flat sales and a 3% decline in EPS in the prior quarter. Sales were hindered by lower prices of the company’s fastener products, weak sales to customers in the oil and gas industry, and weakness in the industrial sector. Fastenal now operates 56,900 vending machines, a 17.2% increase from a year ago. Sales from vending machines accounts for 44.5% of total company sales. Management provided an upbeat forecast for the remainder of 2016. The company will accelerate its store openings based on “very strong” new account signings. Sales will likely rise 5% and EPS will climb 8% in 2016. Hold.
Synaptics (SYNA 87.21) shares surged after reports that a state-backed Chinese investment group might acquire the company. According to a Bloomberg news report, Synaptics could receive an offer of $110 per share. A similar rumor circulated in January 2016, but no deal was announced. Synaptics could benefit greatly if the company can gain closer ties to potential customers in China. Gaining necessary approvals from U.S. regulators could become a stumbling block. Hold.
Taiwan Semiconductor ADR (TSM 25.30) reported weak first-quarter results, but the weakness will be temporary. Sales fell 13% and EPS dropped 21% after decreasing 11% and 14% in the previous quarter. The February earthquake in Taiwan caused delays in shipments, but the company will increase shipments in the second and third quarters to make up for the delays. Hold.
Questions and Answers
Q. Can you please advise me what the annualized rate of return for each model is? (from subscriber M.B.)
A. The Cabot Value Model, through the 3/31/16, has increased at an annual compound rate of 13.18% per year since inception on 12/31/95, compared to an annual rate of 5.78% for the Dow Jones Industrial Average. These returns do not include dividends. After a slow year in 2015, the Value Model has performed very well thus far in 2016, with a gain of 5.39% for the Model against a 1.19% gain for the Dow.
The Cabot Enterprising Model, through 4/5/2016, has increased at a compound rate of 7.28% per year since inception on 3/10/05, compared to an annual compound rate of 4.87% for the Standard & Poor’s 500 Index. The model underperformed from mid-2014 through the end of January 2016, before jumping 13.50% in February.
Value stocks, in my opinion, will begin to noticeably outperform growth stocks during the next several years because undervalued stocks have become more undervalued due to neglect. That dynamic is in the process of changing, which will benefit my Models.
Index of Latest Summaries - Buy recommendations featured in recent issues.