The bull is back! The recent breakout of stock market indexes above their two-year trading range clearly signals that a new bull market is at hand. Many of the old stocks that worked well in the old bull market will not provide decent returns during the next several months and years.
I have begun to purge some less desirable stocks from my models. I consider stocks to be undesirable when the company reports poor sales and earnings for several consecutive quarters. Yesterday, I pointed out that Fastenal (FAST) and Ensco (ESV) need to be sold. Corning (GLW) and Matthews International (MATW) reached their Minimum Sell Prices and should also be sold.
Today I am adding C.H. Robinson (CHRW) and Synaptics (SYNA) to my list of sell recommendations. CHRW and SYNA reported poor second quarter results which has become a regular occurrence for these two companies. Without further ado, I advise selling C.H. Robinson and Synaptics now.
In summary, during the past two weeks, I have recommended that you sell the following Cabot Benjamin Graham stocks:
* C.H. Robinson (CHRW)
* Corning (GLW)
* Ensco (ESV)
* Fastenal (FAST)
* Fortive (FTV)
* Matthews International (MATTW)
* Synaptics (SYNA)
Twenty-two of my Benjamin Graham companies reported quarterly financial results or other noteworthy news. Prices appearing after each stock symbol are the closing prices on Thursday, July 28. Reports are for the quarter ended June 30, 2016 unless otherwise stated. Sales and earnings increases and decreases are based on year ago comparisons.
In addition, I present two Indexes. These list companies featured in the Cabot Value Model or in the Cabot Enterprising Model during the most recent four months. The Indexes identify the companies and indicate when my summaries of the companies were published. Reading the list alphabetically by company name, you can quickly find my recent write-ups for stocks appearing in the models.
My next Weekly Update will be sent to you on Friday, August 5, 2016. My schedule for the next five weeks will be:
* Thursday, August 4, Cabot Enterprising Model issue 265E
* Friday, August 5, Weekly Update
* Friday, August 10-12, Cabot Conference - No Weekly Update
* Friday, August 19, Weekly Update
* Tuesday, August 23, Cabot Wealth Advisory
* Friday, August 26, Weekly Update
* Thursday, September 1, Cabot Value Model issue 266V
* Friday, September 2, Weekly Update
Company Reports
AbbVie (ABBV 64.72) reported excellent second quarter financial results. Sales climbed 18% and EPS surged 17% after increasing 18% and 22% respectively in the prior quarter. The launch of several new drugs and a small acquisition bolstered sales and earnings increases. Management raised its earnings forecast for the remainder of 2016. Buy at 66.83 or below.
Aflac (AFL 73.32) reported decent results that beat estimates. Revenue advanced 3% and EPS climbed 14% after increasing 4% and 12% in the prior quarter. Management expects growth to accelerate somewhat near the end of 2016, resulting from increased marketing and technology upgrade expenditures. Hold.
Alphabet (GOOG 745.91) easily beat analysts’ forecasts. Sales surged 21% and EPS soared 42% after increasing 17% and 18% in the prior quarter. Shares jumped 5% after the report. Alphabet’s revenues were fueled almost entirely by Google’s advertising business. Alphabet is the parent holding company of Google, which operates the world’s leading internet search engine. Management predicts similar results during the next several quarters, reflecting the successful investments made during the past decade or more in mobile, video and other rapidly growing businesses. Buy at 729.52 or below.
Apple (AAPL 104.34) delivered better than expected sales and earnings results. Sales fell 15% and EPS dropped 23% after declining 13% and 18% in the prior quarter. Sales were weak in China, but high inventories will disappear quickly. Apple sold far more iPads than expected, and sales in India soared. Sales of iPhones will probably be soft, ahead of the expected September launch of the iPhone 7. Sales and earnings comparisons should begin to show positive comparisons before the end of 2016. Buy at 101.95 or below.
BJ’s Restaurants (BJRI 39.15) reported solid sales and earnings improvement, but same store sales declined 0.2% which sent shares tumbling. Total sales advanced 8% and EPS climbed 19% after increasing 8% and 31% in the previous quarter. Sales growth was aided by three new restaurant openings, but protests and shootings in the U.S. led to lower industry sales. The Texas market was especially weak, whereas California was strong. BJ’s will open more restaurants and increase marketing efforts to expand awareness of its brand. Buy at 43.91 or below.
C.H. Robinson (CHRW 69.23) produced weak results which caused its stock price to fall. Sales declined 7% but EPS rose 6% after sales decreased 7% and EPS increased 14% in the prior quarter. Intermodal revenue plunged 22% as lower demand weighed on pricing. Lower costs, including lower labor costs, allowed the company to grow earnings, but management forecast similar results for the remainder of 2016.
C.H. Robinson has reported several disappointing quarters during the past two years. Sell now and move on. Sell.
Celanese (CE 66.18) reported mixed second quarter results. Sales fell 9% and EPS inched ahead 1% after sales declined 3% and EPS increased 6% in the previous quarter. Management expects EPS growth to accelerate during the second half of 2016. Buy at 67.21 or below.
Corning (GLW 22.29) recorded improved second quarter results, and management provided a positive outlook for the next several quarters. GLW’s stock price catapulted past my Min Sell Price and is now overvalued. Corning should now be sold. Sell at 21.59 or higher.
Danaher (DHR 81.18) exceeded expectations. Sales surged 17% and EPS climbed 16% after increasing 15% and 16% in the previous quarter. Danaher’s recent purchase of Pall Corp. bolstered sales and earnings considerably. Management’s forecast for the remainder of 2016 was muted by adjustment costs related to the company’s recent spinoff of its Fortive unit. Buy at 79.38 or below.
Ensco plc (ESV 8.79) reported another weak quarter. Sales and earnings declined because of lower rig utilization (61%) and lower contract leasing rates. Ensco sold 66 million shares of common stock at $9 per share to raise additional corporate funds. The company is financially sound, but any meaningful rebound in demand for the company’s services will require several years. Sell.
Fortress Investment (FIG 4.91) produced solid revenue and distributable earnings. Assets under management decreased 2% from a year ago. Management announced plans to discontinue its Fortress Centaurus Global fund business. The operation is very small and will have no noticeable effect on FIG’s sales and earnings. Management anticipates strong results for the second half of 2016. Buy at 5.04 or below.
Gildan ActiveWear (GIL 29.46) missed estimates. Sales dipped 4% and EPS fell 2%, after sales declined 7% and EPS increased 17% in the prior quarter. Weak sales to department stores was partially offset by the acquisition of Alstyle Apparel. Another small purchase, Peds Legwear, is expected to close before year-end. Buy at 30.41 or below.
Gilead Sciences (GILD 81.24) was mistakenly omitted from yesterday’s Cabot Benjamin Graham Value Investor. Gilead is a buy recommendation in the Cabot Value Model and should have been included on page 10 of the Investor in the Top 275 stocks section.
The updated information for Gilead is: current 7/28/16 price for the stock is 81.05; the new Max Buy Price is 94.64; Min Sell Price is 124.38; P/E is 6.7; yield is 2.3%; Total Rating is 8.03; the PEG ratio is 0.56; and the Forecast 5-year EPS Growth is 10.0%. If you receive the Top275 on Google Drive (which will be available later today, July 29), Gilead will be included in the spreadsheet.
Gilead reported disappointing second quarter sales and EPS. Sales dropped 6% and EPS declined 8%, after sales increased 3% and EPS decreased 8% in the prior quarter. Sales were weak in the U.S. and Europe, but strong in Japan and elsewhere. Sales of hepatitis C drugs (51% of total sales) fell 18% while sales of HIV and other antiviral drugs increased 15%.
Gilead lowered its second half sales forecast by a hefty amount. Investors expect the company to start utilizing its $25 billion cash hoard to acquire a company with the potential to add significant growth in future years. No rumors yet, but stay tuned. Buy at 94.64 or below.
Knight Transportation (KNX 29.78) recorded declining sales and earnings. Sales dropped 8% and EPS plunged 21% after declines of 6% and 22% in the prior quarter. Excess trucking capacity and lower demand created a difficult operating environment. Significantly declining new truck orders, increased bankruptcies of small rivals, and reductions in the driver workforce will help Knight to rebound during the next couple of quarters. Hold.
Lear Corp. (LEA 110.06) delivered excellent results. Sales rose only 2% but EPS surged 30% after increasing 3% and 49% in the prior quarter. Management increased its sales and profit forecast for the remainder of 2016. New business wins and better operating efficiency will buoy results. The current weakness in the stock price is providing an excellent buying opportunity. Buy at 110.16 or below.
LKQ Corp. (LKQ 33.62) produced strong second quarter sales and earnings. Sales surged 33% and EPS advanced 18%. Management raised its earnings guidance for the rest of 2016. Hold.
Matthews International (MATW 60.61) reached its Minimum Sell Price of 58.91 on July 28. Sales and earnings are bumping along at a reasonable pace, but the shares are now overvalued. Sell at 58.91 or higher.
McKesson (MCK 193.44) exceeded analysts’ estimates by a wide margin. Sales rose 5% and EPS advanced 11% after sales increased 4% and EPS decreased 17% in the previous quarter. Growth received a boost from several recent acquisitions. International pharmaceutical distribution and services revenue increased 8%. Management provided an optimistic forecast for the next three quarters. Hold.
Penske Automotive (PAG 37.12) delivered strong second quarter sales and earnings. Sales advanced 7% and EPS rose 5% after increasing 8% and 6% in the previous quarter. Penske’s purchase of additional dealerships in Canada and Europe will add sales and EPS during the next several quarters. To date, the company’s dealerships in the United Kingdom have had no negative affect on sales and earnings performance. Hold.
Smith, A.O. (AOS 93.57) reported very good results. Sales only increased 2% but EPS surged 24% after increasing 3% and 28% in the previous quarter. Management’s EPS estimate for the remainder of 2016 exceeds analysts’ forecasts. Profits were aided by lower raw material costs and higher water heater prices received by the company. Hold.
Synaptics (SYNA 53.78) recorded disappointing results. Sales dropped 32% and EPS plunged 71% after decreasing 16% and 27% in the prior quarter. Management forecast similar results for the next two quarters.
Synaptics’ balance sheet is very strong, which could attract a buyer. Also, Synaptics is a big supplier to Apple which reported improved second quarter results. Apple expects sales to improve in future quarters which could create added demand for SYNA’s products. However, the company’s recovery or a sale of the company could be far off in the future. Therefore, I recommend selling your Synaptics shares now. Sell.
Zimmer Biomet Holding (ZBH 127.47) reported exceptional results. Sales soared 66% and EPS surged 28% after increasing 68% and 96% in the prior quarter. Acquisitions are fueling Zimmer’s spectacular growth. Management raised its sales and earnings forecast for the remainder of 2016. Buy at 124.44 or below.
Index of Latest Summaries – Recommendations featured in recent issues.