Market volatility has eased a bit this past month, with the Dow Jones Industrial Average gaining almost 1,000 points. The service industry, according to ISM, improved, and the unemployment rate dropped to 7.9% for September.
As you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment remains about the same. It seems investors are awaiting the election results before they make any big moves.
Nonetheless, our contributors have been very busy selecting ideas that look interesting—no matter how the election turns out.
We begin this issue with our Spotlight Stock, a specialty chemical company that is growing its global market share. In my Feature article, I explore the catalysts that are driving industry growth, as well as the unique properties that should keep our Spotlight Stock in an industry-leading position.
Moving on, our Growth ideas include companies in the retail, electronics, and e-commerce sectors. In Growth & Income, you’ll find a transportation stock and a restaurant business. Value stocks are still lagging, and remain heavily discounted, and here, we offer two food producers.
We include one Financial stock, operating in the pawn store sector, and in Healthcare, our contributors recommend companies in the medical equipment, therapeutics, diagnostic monitoring, and pharmaceutical sectors.
Technology companies continue to be the market darlings, and this month, we feature ideas from the enterprise software, cloud database, big data, and e-commerce industries. In Energy & Resources, we offer a gas company, a utility, and a gold miner.
Our Low-Priced stocks include a coal producer, biotech, and a maker of CBD products. We offer banking, asset management, food producers, and a refiner in our Preferred & High Yield section. And we also include a Short-Sale candidate from the restaurant/entertainment sector.
Lastly, in Funds & ETFs, our offerings this month focus on biotech, health sciences, and blue chips.
There’s a lot of uncertainty today—with a fiercely fought presidential election, and especially, with the COVID-19 pandemic. Fortunately, the markets seem to be holding up well, and I think they’ll continue to do so post-election results. In the meantime, it is my hope that you and your families stay healthy.
As always, please don’t hesitate to email me with your feedback and questions. My address is nancy@cabotwealth.com.
The next Wall Street’s Best Investments issue will be published on November 19, 2020.
Market Views 834
The recovery has progressed more quickly than generally expected. The most recent projections by FOMC (Federal Open Market Committee) participants at our September meeting show the recovery continuing at a solid pace. The median participant saw unemployment declining to 4% and inflation reaching 2% by the end of 2023. The outlook remains highly uncertain, in part because it depends on controlling the spread and effects of the virus. The expansion is still far from complete. At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, October 12, 2020
Oil Lower; Gold Higher
Oil futures settled lower, as the Gulf of Mexico begins to recover from Hurricane Delta, previously on-strike oil workers return to work in Norway after a wage agreement, and Libya increases production. November-dated crude fell $1.17, or 2.9%, to settle at $39.43 a barrel.
Gold futures rose for the third-straight session as uncertainty about the upcoming election brings investors back to the haven commodity. December gold rose $2.70, or 0.1%, to settle at $1,928.90 an ounce, extending Friday’s three-week high.
Bernie Schaeffer, Schaeffer’s Investment Research, SchaeffersResearch.com, 800-327-8833, October 12, 2020
The Bull is Still Alive
Market breadth is improving, sentiment is fine, and technicians are excited by the rotation from large caps to small. Three weeks ago, the top fear was a contested election leading to a constitutional crisis. Now, it’s a Democratic landslide leading to stock-market-crushing tax hikes.
A higher capital-gains tax from Biden would probably do no more than cause a one-time dip in stocks as investors sold gains before the new tax kicked in.
Jason Kelly, The Kelly Letter, jasonkelly.com/kellyletter, October 11, 2020
Spotlight Stock 834
Celanese Corporation is a global specialty chemical company that produces high performance-engineered polymers materials used for thousands of applications. It operates 25 production plants and six research centers where the company is constantly looking for new ways to find new uses for its product.
CE is a cyclical company and is economically-sensitive. This will be a down year for CE, but it has done very well and is already seeing things improving (especially in China). For 2020, earnings should be around $9.00 a share.
CE operates in three segments. Engineered Materials makes up about 40% of total sales, and develops polymers for a broad array of businesses, including automotive, medical, industrial, and many consumer products that we use every day. One big seller is acesulfame potassium, a sweetener used widely in the beverage/drink and confection business.
Acetate Tow comprises 9% of total sales, and is made from purified wood pulp—an environmentally friendly product. Margins are good here and when the economy is humming, it is especially good. This product is used in thousands of different types of “filters”. The filter business is going to benefit from the problems we face with COVID-19 and other clean indoor air issues that will be front and center for the next five years, at least.
Acetyl Chain is the biggest division at Celanese and a bit more than 50% of sales. Acetyl is sold, largely in the form of acetic acid, vinyl acetates, hot melt adhesives, and acetic esters, that are used for paints, adhesives, colorants, pharma-products, construction materials, glass fibers, many textiles, carpets, flooring products, flexible package products, and paper applications.
The company is the biggest CH3CO producer in the world--# 1 in vinyl acetate monomer (VAM)—which is a widely used product with thousands of applications. VAM is a colorless, liquid organic compound that is the precursor to polyvinyl acetate. CE does have competitors but from looking at this “niche”, I believe the company is truly superior.
Blackstone bought Celanese in 2003 in a takeover, gave it a “new-coat-of-paint” and then sold it in a public offering 27 months later for a “5-bagger”. Since 2007, when Blacksonte sold its last large block, Celanese has been independently run.
Big institutional owners include Vanguard, with 12% of the shares; Dodge, 9%; Wellington, 8%; Capital, 7%; and Blackstone, around 7%.
Margins are pretty steady, Celanese has clean accounting, steady management and all the right stuff for a quality cyclical. Just remember this is NOT a buy/keep stock and is best for an IRA, etc.
The price/earnings ratio is around 11-12 times 2021 projections. Zacks’ estimates are for $6.87 this year—obviously not a great year—but still very profitable. Year 2021 consensus is for $9.00. The shares are cheap, as long as earnings are headed north. Now, obviously this is a cyclical company, but Celanese is innovative, finds new markets, and grows earnings. I believe it’s going to be better earnings ahead the next 3-5 years.
In the last 4-5 years, the company has bought back about 15% of its stock and currently has plans to buyback another $1.5 billion over the next few years—about 11-12%. Celanese recently sold a business for $1.6 billion, which is possibly to be used for paying down debt and buying back more stock.
In the last 15 years, EPS growth averaged over 16%—really impressive. I would also note that this is a SPX-beating number and Celanese has beaten the SPX in the last seven years with a stock performance that is 1.5 times better than the SPX.
The stock was $15 in 2005 and now 15 years later, it is a very impressive “7-Bagger”—not bad. Technically speaking, Celanese has a nice, long ‘stair-step’ gain of a chart since going public (again) on the Blackstone cashing-in-its -chips deal. It IPO’d at $15, then got clobbered in 2009 (this IS an economically-sensitive stock), briefly falling to as low as $5, and ever since then has made nice, steady gains. CE has been able to “smooth-out” the ‘downs’ so the earnings swings aren’t so big.
CE crashed briefly to $50 in the March smash, only to double and more since then. $129 is the next-hurdle to be jumped. This can be a volatile stock, and I think now is the time to buy it. There should be lots of support in the $100-110 area.
I am moving my buy suggestion up to $120 (but don’t chase it past that) and note that most of the stocks that have doubled off their March bottoms, like Celanese, are showing good earnings and are COVID-19/survivors. Celanese is prospering and is in good shape, so I do think there is a chance the stock can double ahead—maybe more.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, October 2, 2020
Celanese Corporation (CE):
52-Week Low/High: $52.70 - 128.88
Shares Outstanding: 118.29 million
Institutionally Owned: 99.05%
Market Capitalization: $13.88 billion
Dividend Yield: 2.1%
celanese.com
Why Celanese:
- Global market leader
- Rising global demand, especially in China
- Widely-diversified
- Undervalued
Feature 834
Although COVID-19 has temporarily slowed revenue growth down for our Spotlight Stock, Celanese (CE) is part of a global marketplace that has lots of potential. According to marketsreportworld.com, the global acetyl market size is forecasted to reach 67 million by 2026, from $53 million in 2020.
The marketplace consists of several types of acetyls: Acetic Acid, Acetic Anhydride, Vinyl Acetate, and Ethylene Acetate. And Celanese has product offerings for the majority of market segments, as well as the various acetyl applications, which include Food and Beverages, Oil and Gas, Pharmaceutical, Paints and Coatings, and Furniture.
As contributor Bob Howard, editor of Positive Patterns, mentioned, the company is the biggest CH3CO producer in the world--# 1 in vinyl acetate monomer (VAM). Made from acetic acid, which makes up 28% of the total global acetyl market, VAM applications are growing at an annual rate of 6.3%. The Asia-Pacific market uses 41% of global acetyl, and that is accelerating. In the last quarter, despite the coronavirus, Celanese said its Asian business was up 2%.
Catalysts for growth in the acetyl market include green applications, advancements in organic chemistry, as well as increased demand in growing economies such as India, Philippines, and Singapore, and in sectors—particularly healthcare—that are finding new uses for acetyl.
Celanese has seen several markets for its materials rebounding, especially electric vehicles, where the market for its products is 30% more than traditional automobiles. It is also expecting higher demand in healthcare, from disinfectants and sterilization, pharma compliance, supplies, and the increase in elective surgeries (which was a $10 million surprise for the company last quarter). And it expects new uses for the 5G marketplace, in LCP printed circuit boards.
During second quarter, Celanese earned $155 million or $1.30 per share, considerably higher than the $1.05 analysts were predicting. The company’s focus on improving productivity (a $200 million target) is working, and it has so far saved about $135 million.
The company will also pick up a cool $1.575 billlion from selling its 45% stake in joint venture Polyplastics, to Daicel. The deal should close later this year.
It has a history of 12% annual growth organically, and 20% due to acquisitions. For next quarter, Celanese is forecasted to earn $1.70 per share on $1.34 billion in revenues.
Yes, the company, as Bob Howard says, is cyclical, but as long as the global economies continue their recovery, Celanese should be a happy participant.
Growth 834
Costco Wholesale Corporation (COST) | Daily Alert September 21
Costco Wholesale has been another major beneficiary of the pandemic—big box stores have thrived. The combination of low prices and enhanced on-line pick-up and delivery services combined with the shut-down of many small businesses 4 have boosted sales and profits.
The company’s third-quarter 2020 results (to May 10) were solid. Sales were up 7.3% year-over-year, to $36.45 billion. Net income for the quarter was down slightly from the same period last year, due mainly to unanticipated costs related to the coronavirus.
The fourth-quarter results should be better, based on sales. Costco reported an 11.1% increase in June sales, a 14.1% jump in July, and a 15% improvement in August.
There is no reason to believe this pattern won’t continue throughout the pandemic and beyond, although online sales growth may slow somewhat.
Gordon Pape, Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, September 14, 2020
Universal Electronics Inc. (UEIC) | Daily Alert September 23
Universal Electronics is a major producer of universal remote controls that subscription broadcasters (cable and satellite), TV/set top box/audio manufacturers and others provide to their customers. The company pioneered the universal remote, named the ‘One for All’, which was quickly adopted by consumers after its launch in 1986. Since then, the company has expanded into a range of remote control devices for smart homes, safety and security and other residential and commercial applications, driven by its proprietary technology. The company has a global roster of customers, with about 40% of sales produced outside the United States.
The shares appear to be approaching support at 38. UEIC shares have 17% upside to our 47 price target. We are patient for now with UEIC shares because of the larger opportunity set on the horizon, potential for better results in the third and/or fourth quarter, and the relatively low valuation.
UEIC shares trade at 11.2x estimated 2020 earnings of $3.57 and 9.3x estimated 2021 earnings of 4.31. The estimates appear to have bottomed out. BUY.
Bruce Kaser, Cabot Undervalued Stocks Advisor, cabotwealth.com, 9787455532, September 16, 2020
1-800-FLOWERS.COM, Inc. (FLWS) | Daily Alert October 6
Covid-19 has been a boon for 1-800-Flowers (FLWS), a leading e-commerce seller of flowers, gourmet snacks and fruit, and candy. In the June quarter, sales jumped 61% and per-share profits surged 277%. For the September quarter, management targets sales growth of 40% to 45%, fueled by a 70% increase in e-commerce.
In August, the company acquired a leading e-commerce provider of personalized gifts, including digital printing, engraving, and embroidery.
Shares have blossomed in 2020, gaining 74%. Yet the stock has retreated 23% from a recent all-time high, opening an attractive entry point. To be sure, 1-800 Flowers is a speculative holding, partly because of its large short interest. Investors who sell short borrow a stock and sell it, betting they will buy the stock back later at a lower price. In addition, the company’s founder and family trusts control most of the voting power.
Still, 1-800-Flowers seems capable of climbing at least 15% in the year ahead. The stock is being started as a Buy.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, October 2020
Growth & Income 834
FedEx Corporation (FDX) | Daily Alert September 17
We look for growth to pick up in FY22 for FedEx and are maintaining our EPS forecast of $12.00. Our five-year earnings growth rate forecast is 8%.
We think that FDX shares are attractively valued at current prices near $220. On a technical basis, they had been in a bearish pattern of lower lows and lower highs since establishing an all-time high of $274 in January 2018, but the stock recently formed a double-bottom, and the trend since then has been higher.
FDX shares are trading at 18-times our FY22 EPS estimate, above the midpoint of the historical range of 9-21, though we note that margins are historically low and likely to rise. On a price/sales basis, the shares are trading at a multiple of 0.9, near the high end of the five-year range of 0.5-1.0. The yield of about 1.1% is below the midpoint of the five-year range.
We are raising our 12-month target to $250, or 21-times our FY22 EPS estimate, at the high end of the stock’s historical range as earnings recover.
Jim Kelleher, CFA, Argus Weekly Staff Report, argusresearch.com, 212-425-7500, September 10, 2020
Darden Restaurants, Inc. (DRI) | Daily Alert October 9
Darden Restaurants
52wk H. 124.01 52wk L. 26.15
Mkt Cap:$13.11B, EPS: -0.43, Beta: 1.34
DIV/YLD: 1.20(1.19%)
The restaurant chain is the owner of Olive Garden, Capital Grill and LongHorn Steakhouse, to name a few. DRI’s earnings report signaling improved recovery the basis for reinstating a dividend. Has been trading in death cross mode since March ’20 reversal rocketed its exits in recent sessions: (75-81) to (83-89) to (90-96) to high of 101. Volatile.
BUYING RANGE: 92-105
NR TERM OBJ: 121
INTERMED OBJ: 146
STOP LOSS: 83
Joseph Parnes, Shortex Market Letter, shortex.com, 800-877-6555, October 1, 2020
Value 834
The J. M. Smucker Company (SJM) | Daily Alert October 12
While J M Smucker is best known for fruit spread, SJM also produces peanut butter, canned milk, baking ingredients, juices and just about everything in between.
Smucker benefitted greatly from the pandemic-related pantry stock-up frenzy, but management remains on track with its consumer-centric growth strategy, while endeavoring to remain agile to keep up recent momentum to deliver on financial commitments.
As consumers spend more time away from the center aisles at the grocery store, we appreciate efforts to add healthier foods to the company’s brand portfolio (through both new and reformulated items).
We also like the company’s diversification via pet food offerings, while specialty coffee, Uncrustables and pantry products continue to post strong growth numbers.
We think the current price multiple of 14, compared to 5-and 10-year averages of 19, offers an attractive entry point for patient investors to add a strong stable of consumer staple brands to their portfolios, while garnering a just-increased dividend.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, October 2, 20206
*Kellogg Company (K)
The Kellogg Company produces cereal and convenience foods, including brands Froot Loops, Apple Jacks, Corn Flakes, Frosted Flakes, Rice Krispies, Special K, Cocoa Krispies, Keebler, Pringles, Pop-Tarts, Kashi, Cheez-It, Eggo, Nutri-Grain, Morningstar Farms, and many more. Its products are manufactured in 18 countries and marketed in over 180 countries.
Kellogg is considered a defensive stock, because it provides a constant dividend and stable earnings, regardless of the state of the overall stock market, because of the constant demand for its products.
Kellogg has paid dividends to investors since 1923, and has increased its payments for fifteen consecutive years. During the past five years Kellogg has increased its dividends at an average rate of 3%, and its quarterly payment is $0.57 per share.
According to Morningstar, the stock is trading at a 23% discount, making it attractive for investors with a long-term investment horizon. Technically (from the chart’s perspective) K also looks attractive, trading 25.9% below its all-time high), while it is forming a long price consolidation pattern between $72 and $52 approximately, in which $52 is acting as a strong technical support level.
Vita Nelson, directinvesting.com, 914-925-0022, October 1, 2020
Financials 834
*FirstCash, Inc. (FCFS)
FirstCash operates retail pawn stores in the U.S. and Latin America. Its pawn stores lend money on the collateral of pledged personal property and retail merchandise acquired through collateral forfeitures and OTC purchases of merchandise directly from customers.
Wealth Advisory Earnings Grade: A
FirstCash was down a little this month. It actually rallied as the tech correction took the rest of the markets down, but pulled back some in the second week of September, and finished down 1%. We’re still convinced this stock can get back up and will turn out to be a profit for us. There’s a wave of foreclosures and evictions coming if people can’t pay rent next month. And it’s looking more and more like D.C., in its profound wisdom, won’t get out any more stimulus money before the presidential election in November. Pawn shops give underbanked people who are short on cash a better alternative to payday lenders: a competitive rate and cash in hand. That’s where FirstCash can help.
FirstCash Inc. stock is a “Buy” under $80. The 12-month price target is $100.
Brit Ryle and Jason Williams, The Wealth Advisory, www.angelpub.com, 877-303-4529, September 2020
Healthcare 834
Hologic, Inc. (HOLX) | Daily Alert September 24
Hologic joins the Long-Term Buy List. The company produces medical-diagnostic products, imaging systems, and surgical products, with a focus on women’s health. Hologic’s Quadrix Overall score of 83 reflects its strong operating momentum, solid long-term growth trends, and rising profit estimates.
Although sales slipped 1% for the 12 months ended June, per-share profits rose 9% and operating cash flow increased 11%. That growth accelerated in the June quarter, with earnings per share up 9% and operating cash flow up 36%.
Analyst profit estimates are up sharply over the past 60 days, with the consensus projecting 62% growth in the September quarter on 14% higher sales. For fiscal 2021 ending September, Hologic is expected to grow earnings 37% and sales 20%.
The stock trades below norms for both the S&P 1500 health-care sector and health-equipment industry based on trailing earnings, estimated 2020 earnings, and estimated 2021 earnings. Hologic is being initiated as a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, September 7, 2020
Seres Therapeutics, Inc. (MCRB) | Daily Alert September 28
We see interesting evidence for Seres Therapeutics’ SER-287 success in ulcerative colitis, based on four prior randomized studies for fecal microbiota transplant. Similar to recurrent C Difficile, we believe this lowers clinical risk for SER-287. 7
We are raising our peak sales estimate for SER-287 in ulcerative colitis to $620M from $486M in the US based on higher confidence in success. We assume only about 10-11% share for the severe UC population, and about 3-4% share for the mild/moderate population. However, given the favorable safety profile, share could be higher, especially since SER-287 would likely be used ahead of infused therapies such as TNF-a inhibitors.
We are raising our price target to $42 from $38 on higher peak sales for SER-287 in Ulcerative Colitis. We believe success here is likely because FMT has shown success in both recurrent C. Difficile, and also ulcerative colitis. SER-287 is currently in Phase 2b, and we await updates from management on enrollment and data timing. We continue to expect FDA approval for SER-109 in recurrent C. Difficile in 2021.
John Newman, Ph.D., CFA, Canaccord Genuity Research, canaccordgenuity.com, September 21, 2020
BioTelemetry, Inc. (BEAT) | Daily Alert October 1
BioTelemetry came public as CardioNet in 2008. The company provides remote cardiac monitoring for medical diagnostics and clinical trials and is pushing into other outpatient monitoring markets. It launched a blood glucose monitoring system in 2018 and acquired Centene’s remote patient monitoring subsidiary earlier this year. It also owns Geneva Health Solutions, a software product that helps physicians keep track of their patients remotely.
Following the $250 million acquisition of Swiss competitor LifeWatch in 2017, BioTelemetry is the clear leader in the cardiac market. Physicians prescribe heart monitors to track cardiac arrhythmias. In clinical trials the company demonstrated superiority of its devices compared to older technologies in diagnosing atrial fibrillation.
The company’s newest Mobile Cardiac Telemetry (MCOT) patch is a wireless heart monitor which communicates with a receiving device by Bluetooth radio. MCOT was approved in 2016 and launched at the end of 2017. Its rapid success led to a stock price increase of more than 100% in 2018, but the stock has weakened significantly as the company has seen deceleration compared to its spectacular 2018 growth rates.
We model 16% compound EPS growth, with a P/E range of 20 to 35. Our forecast low price is 16.4, the product of $0.82 per share in trailing GAAP EPS and the aforementioned low P/E of 20. Our forecast high price is 144. The upside/downside ratio is 4.2 to 1.
Doug Gerlach, InvestorAdvisoryService.com, 1-877-33-ICLUB, October, 2020
*Madrigal Pharmaceuticals, Inc. (MDGL)
MDGL is the leader in the NASH (nonalcoholic steatohepatitis—a liver disease) space with a potential best in class once a day pill that will be priced competitively. The resmetirom data has been outstanding to date with both excellent efficacy and importantly safety. With so many potential NASH competitors running into problems over the last 12 months, MDGL’s is poised to enter and dominate the NASH market. In our view, non-invasive diagnosis will be a key for larger market penetration. As such, MDGL is working very hard with industry leaders to change the diagnosis paradigm from invasive/expensive liver biopsies to non-invasive tools like the PRO-C3 biomarker, fiborscans and MRIs for both diagnosis and to track disease progression or reduction.
MDGL is a BUY under 200 with a TARGET PRICE of 275
John McCamant, The Medical Technology Stock Letter, bioinvest.com, October 8, 2020
Technology 834
SAP SE (SAP) | Daily Alert September 29
SAP is a foreign investment worth highlighting. It is a German-based technology company. Per-share profits and revenue should show nice growth this year and next. The stock has done well of late in line with the tech sector. These shares provide a nice way to play the tech space while gaining exposure to international equities.
Minimum initial purchase in the SAP direct-purchase plan is $200. The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50. Purchase fees are $5 plus $0.06 per share. Selling fees are $10 plus $0.10 per share. The plan administrator is AST Financial. For enrollment information call (866) 706-8374 or visit www.astfi nancial.com.
Charles B. Carlson, CFA, DRIP Investor, dripinvestor.com, 800-233-5922, October 20208
MongoDB, Inc. (MDB) | Daily Alert October 2
MongoDB, Inc. (Rated “D+”) is a cloud-based, next-generation database platform. CEO Dev Ittycheria told CNBC last March that its Atlas platform hit a $100 million run rate in less than three years and that the business is growing at 400% year-over-year.
The total addressable market for data software is expected to reach $84 billion by 2022.
In Q1, the company had 780 customers with average annual billings of at least $100,000, up 30% from a year ago. The versatility of its product suite has led to a who’s who of customers, including Alphabet Inc. (GOOGL, Rated “B-”), Facebook, Inc. (FB, Rated “B-”), Cisco Systems, Inc. (CSCO, Rated “C+”), Adobe Inc. (ADBE, Rated “B-“), Intuit Inc. (INTU, Rated “B-”), PayPal Holdings, Inc. (PYPL, Rated “B”), Verizon Communications Inc. (VZ, Rated “B”), AT&T Inc. (T, Rated “C-”) and others all depend on the New York-based company to help developers build better products using data.
Investors have been willing to pay a big premium because overall sales growth since 2017 has averaged 58%. Fiscal 2020 revenues, for example, surged 58% to $421 million. Analysts expect the company will grab a big share of the database market going forward.
Based on sales growth alone, MongoDB shares could easily trade to $295 in 12 months, a gain of 31% from current levels. Shares pulled back recently following the company’s first-quarter earnings report and the current weakness is an attractive entry point. Investors should look to pullbacks for opportunities to get in now.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, September 25, 2020
Elastic N.V. (ESTC) | Daily Alert October 8
One of the leading companies in the analytics and Big Data sector is Elastic N.V.
Elastic is a search technology firm that aggregates data from myriad sources and then allows its customers to perform specialized searches of that data to gain all sorts of insights specific to that company’s or organization’s needs.
In its most recent quarter, Elastic earned a profit of six cents per share, a huge beat over the expected loss of 18 cents per share, and a surge of 119% from the prior fiscal Q1. The company’s revenue also soared, up 44% from the previous year to $128.9 million.
While the fundamentals are solid here for ESTC, what we really like is that the company’s fast-money surge over the past 52 weeks has outpaced over 90% of all other publicly traded companies. Even stronger is the company’s year-to-date surge of some 68%.
So, today let’s buy the Elastic N.V. at market, with a protective stop loss at $86.22.
For those willing to take a bigger bet, we recommend you buy the ESTC Jan $115 call options (ESTC210115C00115000) at market, which last traded for $9.15 and expire on Jan. 15, 2021.
Mark Skousen & Jim Woods, FMA Trader Alert, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, September 28, 2020
Vipshop Holdings Limited (VIPS) | Daily Alert October 14
China will soon play host to the biggest shopping day of the year in the world, an event called Singles’ Day, on November 11. Last year, Singles’ Day sales were a record $38.4 billion, and the expectations are that they could hit $45 billion this year.
One of the companies that will surely benefit from China’s upcoming spending binge is Vipshop Holdings. Vipshop is the sixth largest e-commerce company in China, according to eMarketer. Through its website, it sells everything from apparel, cosmetics and jewelry to electronics, home appliances and all sorts of gadgets.
Second quarter revenue increased to $3.4 billion as its total orders grew 15%, to 170.5 million. And the number of its active customers jumped 17% to 38.8 million. Another good sign is that repeat customers accounted for 90% of total active customers.
Despite these solid numbers, VIPS stock pulled back pretty sharply in part due to management lowering expectations for the balance of 2020. But management has a habit of doing just that, and while its third quarter revenue is expected to be just over $3 billion, its fourth quarter, which includes the aforementioned Singles’ Day splurge, could reach $4.8 billion.
The steep pullback has provided us with an opportunity to buy shares at a discount. Trading at just under 16 a share, it is far from its 52-week high of 24. In terms of price to sales and price to book value, VIPS looks inexpensive compared to its larger rivals.
VIPS could be an excellent near-term trade, with a target price over the next 3-6 months in the 20-25 range. BUY A HALF POSITION.
Carl Delfeld, Cabot Global Stocks Explorer, cabotwealth.com, 978-745-5532, October 1, 2020
Energy & Resources 834
*UGI Corporation (UGI)
Things are looking up for UGI Corporation, a Pennsylvania-based holding company. Its subsidiaries run regulated gas and unregulated propane distribution businesses. UGI earned $0.08 a share in the COVID19-impacted fiscal third quarter, bucking analysts’ $0.16 a share loss forecast. It also upped its fiscal 2020 EPS forecast by 11% to over $2.45 a share. UGI is seeking regulatory approval for a $20 million annual distribution rate increase. Its insiders have been notable share buyers. Appealing to income-seeking value investors, UGI shares trade at 11.6X-forward EPS, 25% below the gas utility average. (Next earnings: ~ Nov. 9)
Sam Subramanian, PhD, AlphaProfit Sector Investors’ Newsletter, alphaprofit.com, 281-565-6963, September 2020
NextEra Energy, Inc. (NEE) | Daily Alert October 13
NextEra (Rated “B”) is the electric, wind and solar powerhouse that owns Florida Power & Light, Gulf Power Co., a range of clean-energy affiliates and generation capacity in a handful of other U.S. states.
The Wall Street Journal reported NextEra wants to buy competitor Duke Energy Corp. (DUK, Rated “C”). Duke serves 7.7 million individual electricity customers and 1.6 million natural gas customers in several states in the Midwest and Southeast. It also provides power to a range of commercial businesses. Combining the two firms would create a $60 billion-plus colossus, qualifying any deal as the biggest utility merger ever.
As of the end of last month, Duke was still rebuffing NextEra’s overtures. But NextEra reportedly isn’t giving up. Even if the deal ultimately doesn’t go through, the company’s strong financial results and almost 2% dividend yield are attractive. It doesn’t hurt that NextEra has also pursued a series of smaller deals over the last few years, all of which are adding to the top and bottom line.
Mike Larson, Safe Money Report, 1-877-934-7778, www.weissratings.com, October 2020
*Agnico Eagle Mines Limited (AEM)
The gold stocks have been lagging bullion since 2011, and the gap continues to be wide. In fact, the gap between gold and gold stocks is wider today than it ever has been. If you are bullish on gold, you should be even more bullish on gold stocks.
And the gold stocks remain considerably cheaper than they were in 2010-2012. Despite the big run up in gold stocks this year—and up 350% since early 2016—they are still significantly less expensive than there were at the previous peak.
Agnico-Eagle, along with Barrick, is my favorite of the big cap miners. With a focus on Canada, it has first-rate management, solid balance sheet, a good pipeline, and spends money on exploration and alliances with exploration companies.
Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885, September 12, 2020
Low-Priced Stocks 834
*Ramaco Resources, Inc. (METC)
Ramaco Resources (Speculative LT Buy) is a young metallurgical coal company with 250 million tons of high-quality reserves, low cash costs and no debt that can operate in any cycle. At the recent annual production rate of about 2 million tons, reserves would last for over 100 years, but the company plans to double production to 4 million tons per year over the next few years.
Ramaco has among the lowest debt ratios, lowest mining costs and lowest amount of legacy liabilities (from pensions and such) vs. its direct peers.
Met coal prices at the Australian port have been rebounding lately. The demand (for steel) is picking up and ergo also for met coal to make it. And China has been levying import tax at its ports to help its domestic met coal industry, which is taking full advantage by charging $30-40 more per metric ton. The word is that China is now starting to relax these 10 restrictions and let more imported coal in.
Looking longer term, the markets should return to normal, or perhaps a new normal within the next year or two. This is a good company, and we’ll wait it out. Most important to keep in mind is that Ramaco has outlined plans whereby it can increase its production at least 100% at relatively little cost within a couple years on a return to more reasonable pricing. And that should combine to really help the share price. Accordingly, I think Ramaco would even be a tasty acquisition treat for a bigger player, perhaps one who wants to diversify away from declining thermal coal demand (used in power plants).
Tom Bishop, BI Research, www.biresearch.com, September 23, 2020
*Unity Biotechnology, Inc. (UBX)
Unity Biotechnology is a biotech startup focused on targeted therapies that treat common joint and eye diseases by slowing the aging process at the cellular level. The firm holds 13 patents and is working on three drugs: an arthritis drug candidate called UBX0101 and two ophthalmologic drug candidates called UBX1967 and UBX1325. It has garnered large investments from Jeff Bezos, Peter Thiel, the Rockefeller Family, BlackRock, Renaissance Technologies and Goldman Sachs.
In mid-August, Unity’s knee-pain drug candidate failed to differentiate itself from a placebo in a clinical trial. Later in the month, the firm appointed former Compass Therapeutics CFO Lynne Sullivan as CFO.We rate Unity Biotechnology a “Buy” under $5.50. The risk level is “High.
Jason Stutman, Technology & Opportunity, angelpub.com, 877-303-4529, September 2020
*cbdMD, Inc. (YCBD)
cbdMD, Inc. produces and distributes various cannabidiol (CBD) products. The company’s product categories include CBD tinctures, capsules, gummies, bath bombs, topical creams, and animal treats and oils.
The company has achieved sales of $39.7 million in the past twelve months. Its market share has increased dramatically, and annual sales have skyrocketed 787% since 2017. Profits have consistently improved. One of the biggest catalysts is the growth of its e-commerce, direct-to-consumer sales. E-commerce sales in 3QFY20 were $8.2 million, an increase of 77% from the same period last year, now accounting for 77% of the company’s total revenue, compared to 58% in 3QFY19.
The company’s trailing-twelve month net income is $29.8 million, compared to a net loss of $50.4 million in FY19.
cbdMD insiders hold 37% of the outstanding shares and have been accumulating shares over the past year. Institutions account for 10% of the outstanding shares, with The Vanguard Group as the largest holder at 2.3%.
Analysts estimate a CAGR between 24-44% for the CBD industry over the next five years, which means that the North America market alone could increase to $54 billion by 2026.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, October 2020
Preferred & High Yield 834
*Hancock Whitney Corporation - 6 (HWCPZ)
Hancock Whitney Corp.; 6.25% Fixed Rate Subordinated Notes (PET Bonds), due 06/15/2060; Par $25.00; Annual Cash Interest Payment $1.5625; Call Date 06/15/25; Yield to Call 3.86%; Pay Cycle 3m; Ratings, Moody’s Baa3, S&P BBB-; CUSIP 410120406
Hancock Whitney Corp. (HWC) operates bank offices and financial centers in Mississippi, Alabama, Florida, Louisiana, and Texas. With total assets of over $33.0 billion on 06/30/20, HWC ranks as a small regional banking company.
The company’s fixed rate, preferred exchange traded notes (PET Notes) may be redeemed on 06/15/25 or on any interest payment date thereafter. HWC reported a 2Q 2020 net loss of $117.1 million or $(1.36) per share, in line with analysts’ estimates. The loss reflects a provision for credit losses of $306.9 million that included both a special provision tied to the sale of almost $500 million in energy loans and an additional reserve build of $146.8 million for potential losses tied to COVID-19.
The company’s capital metrics remain solid, while reserve coverage of problem loans is strong. This issue is suitable for low- to medium-risk taxable portfolios. Dividend distributions are qualified and taxed at the 15%-20% rate. Buy up to $28.00 for a current yield of 5.58% and a 3.49% yield to call.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, October 202011
Principal Financial Group, Inc. (PFG) | Daily Alert September 22
Principal Financial Group operates several businesses including insurance, primarily life insurance, and investment management, retirement solutions and asset management.
For its second quarter, Principal Financial Group recorded revenues of $460 million for its retirement and income solutions fee business, up 19% from the previous year’s second quarter. Assets under management (AUM) grew to $702 billion, based on the global equity market recovery during the quarter.
Over the last five years, 80% of the company’s AUM outperformed its peer average over the last five years, while 77% of AUM holds a Morningstar rating of 4 or 5 stars.
Earnings-per-share were $1.46, which easily beat the consensus estimate. Full-year profits will likely be down versus 2019 due to the coronavirus, but we do not see this as reflective of the underlying earnings power of Principal Financial.
Principal stock trades for a P/E ratio of 8.6, below our fair value estimate of 11. Expansion of the P/E multiple could fuel 5% annual returns through 2025. The combination of 5% expected EPS growth, the dividend yield, and an expanding P/E multiple leads to expected total returns of 15.5% per year over the next five years.
Ben Reynolds & Bob Ciura, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, 800-531-0465, September 14, 2020
B&G Foods, Inc. (BGS) | Daily Alert September 30
The stock of packaged food company B&G Foods has been on a ride recently. After soaring about 70% for the year, BGS pulled back over 15% from the high during the recent market selloff. It is rebounding and has moved up over 5% from the recent low. Operationally, things are terrific. Volume sales were up 34.5% in the second quarter. And the eat-at-home trend is widely expected to continue beyond the pandemic. The stock is also still relatively cheap despite the big YTD move. Currently under 30 per share, this was a 50 stock a few years ago. And things are vastly improved since then. An under 30 price makes BGS a buying opportunity. BUY
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, September 23, 2020
Valero Energy Corporation (VLO) | Daily Alert October 7
Valero Energy has been maintaining the dividend. However, such a high yield reveals that the market believes the dividend will be reduced and current cash flows do not support the dividend. If, and more likely when, the company reduces the dividend, it is not likely to cause a substantial adverse reaction in the stock price because it is already expected.
Valero has the flexibility to refine substantial quantities of a variety of crude oil types. The company also has access to the US pipeline network for delivery to its gulf coast locations. This flexibility and access allows Valero to capture the highest margins among its competitors because it can take advantage of the temporary local gluts of crude, whether it’s low or high-quality crude, or light sweet (low sulfur) or heavy sour (high sulfur), and receive the best discounts for its feedstocks.
Declining oil prices adds profits to petroleum-based products because profits come from the “crack-spread”, the difference between the cost of oil as a feedstock and the price of refined products, predominantly gasoline and jet fuel.
Valero is in a joint-venture partner with Diamond Green Diesel, which is producing renewable diesel at large profitable margins even during the COVID-19 pandemic. Renewable diesel does not gel at low temperatures which means it can be easily transported through pipelines. Use for sustainable aviation fuel is expected to be a primary escalating demand factor.
Gray Cardiff, Sound Advice, soundadvice-newsletter.com, 800-825-7007, September 30, 2020
The Kraft Heinz Company (KHC) | Daily Alert October 8
Kraft Heinz makes and markets food and beverage products that include condiments and sauces, cheese and dairy, and complete meals.
The company reported second-quarter earnings that topped analysts’ forecasts, as pandemic-fueled buying buoyed profits. Earlier this month, it announced plans to cut $2 billion of costs and to focus on its premier brands. Warren Buffett’s Berkshire Hathaway is a big shareholder. Revenue this year is expected to grow 3% to $25.74 billion, with earnings down 6.6% to $2.66 per share, giving the stock a price-earnings ratio of 10.9.
With a debt-to-equity ratio of 0.58, Kraft Heinz is much less leveraged than many of its food peers like Campbell Soup, which sports a debt-to-equity ratio of 2.4. Kraft Heinz pays a quarterly dividend of $0.40 per share. Free cash flow per 12 share of $3.15 is nearly double the $1.60 in annual dividends. Technically, the stock is oversold and the MACD is turning positive.
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, September 25, 2020
*Artisan Partners Asset Management Inc. (APAM)
Artisan Partners Asset Management is an investment manager primarily serving pension and profit sharing plans, trusts, endowments, foundations, charitable organizations and government agencies.
Analysts are forecasting Artisan’s 2021 earnings at $3.27 per share, up 22% over its 2019 total.
Artisan pays quarterly dividends approximating 80% of each quarter’s “cash flow,” and also pays a special dividend in February based on excess cash generated in the previous year and other factors.
Harry Domash, Dividend Detective, www.dividenddetective.com, 866-632-1593, October 5, 2020
Short-Sale 834
Dave & Buster’s Entertainment, Inc. (PLAY) | Daily Alert October 9
Dave & Buster’s
52wk H. $48.80 52wk L. 4.61
Mkt Cap: $779.13M, EPS: -2.28, Beta: 1.69
This provider of entertainment dining venues is a victim of Covid-19. It is faced with continued QTR losses. Reversal has managed to challenge the bottom leg of its death cross (12-13) topping at (18-19) plunging (19-15) with heavy volume.
SHORT RANGE: 14-18
COVER SHORT: 8
STOP LOSS: 33
Joseph Parnes, Shortex Market Letter, shortex.com, 800-877-6555, October 1, 2020
Funds & ETFs 834
SPDR S&P Biotech ETF (XBI) | Daily Alert September 18
SPDR S&P Biotech ETF seeks to mirror the S&P 500 Biotechnology Select Industry Index. The index and ETF provide industry exposure across large-, mid-, and small cap stocks, with primary exposure in the mid- and small cap range. The ETF will hold roughly 130 companies and takes a modified equal weight approach, meaning you will not see the top 10 holdings representing a majority percentage of total net assets. At the end of the second quarter, the Top 10 were 14.3% of total net assets.
XBI has easily outperformed the S&P 500 year-to-date (as of July 31, 2020) and over the past trailing year. When evaluating this fund, though, one has to keep in mind the volatility of the biotech industry. It is driven by the success or failure of the research and development. This trait is important because it leads to specific companies being capable of turning in some very big gains over a short period of time or, conversely, some very big losses.
Brian W. Kelly, Moneyletter, moneyletter.com, 800-890-9670, September 2020
Blackrock Health Sciences Trust (BME) | Daily Alert September 25
The objective of Blackrock Health Sciences Trust is to provide total return through a combination of current income, capital gains, and long-term capital appreciation.
BME has top rated management (Dr. Erin Xie, Managing Director, and her team, averaging over 20 years’ experience in healthcare investing). This team, we understand, is one of the very best.
We have followed the trust since our original purchase at $25 per share in April of 2005 (now close to $41). Our yield to cost is over 9%. The older U.S. population (65 and older) means more is being spent on healthcare. The current 13
pandemic requires us, as we see it, to invest in the industry. This is where experienced analysts come into play and Dr. Xie is considered to be one of the very best. BME is our selection to cover the ever important health sciences industry for our portfolio.
Sean Christian, The Personal Capitalist, 9524 East 81st Street, Suite B #1715, Tulsa, OK 74133, September 15, 2020
*Fidelity Blue Chip Growth Fund (FBGRX)
With total assets of $41 billion, Blue Chip Growth needs room to grow. As of December 1, 2020, its investment strategy will be slightly expanded to allow for more stocks outside the orbits of the large-cap S&P 500 and Dow Industrials indexes. This wider universe holds the potential for Manager Sonu Kalra (who also runs OTC) to increase Blue Chip’s exposure beyond its approximate 7% and 2% weights in mid- and small-cap stocks, respectively. In fact, the lower threshold could mean more stocks with market caps of “only” $1 billion.
The new prospectus language may also result in Blue Chip Growth (which is up 39.1% this year) increasing its share of foreign stocks. At present, only 8% of its assets are overseas, including 3% in the emerging markets.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, fidelitymonitor.com, 800-397-3094, October 2020
Updates 834
SELL Swire Pacific Limited (SWRAY) | Daily Alert September 30, 2020
Updated from WSBI 832, August 27, 2020
Swire Pacific shares were again flat this week, and while I was right that this stock’s downside was minimal, the market is telling us that its recovery is going to take longer than I anticipated. Those with a long time frame may wish to keep the stock, but I’m moving this to sell and replacing it in the next issue with an idea with more near-term upside potential. SELL
Carl Delfeld, Cabot Global Stocks Explorer, cabotwealth.com, 978-745-5532, September 17, 2020
SELL LTC Properties, Inc. (LTC) | Daily Alert October 8, 2020
Updated from WSBI 832, August 27, 2020
LTC Properties broke decisively through 10% trailing stops and is being removed from this week’s portfolio.
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, September 25, 2020
*SELL Vertex Energy, Inc. (VTNR)
Updated from WSBI 780, April 20, 2016
Vertex Energy is one of the largest processors of used motor oil (UMO) in the U.S. with processing capacity of over 115 million gallons annually.
The company expects to bleed cash to the tune of $1 to $2 million per quarter until early 2021. Not surprising, given COVID-19 ramifications, Vertex lost a whopping $8.9 million in Q2.
It’s time to officially take our lumps. Accordingly, I’m downgrading this stock from a Weak Hold to– Sell.”
Tom Bishop, BI Research, www.biresearch.com, September 23, 2020
*SELL Leidos Holdings, Inc. (LDOS)
Updated from WSBI 824, December 18, 2019
We are dropping Leidos from the Buy and Long-Term Buy lists. In our view, the stock has
limited 12-month appeal due to its sluggish share-price action, mixed June-quarter report, poor profitestimate trends, and falling Quadrix scores. Given these factors, we prefer putting our money in other technology stocks. Leidos should be sold.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, October 12, 2020
*SELL 1/3 ProShares Ultra S&P500 (SSO)
Updated from WSBI 827, March 19, 2020
The S&P 500 has corrected exactly 10%, which isn’t pleasant but, given the run over the past few months, isn’t abnormal-looking, either—given the positive longer-term trend (Cabot Trend Lines) and the blastoff indicators from earlier this year, we continue to think the S&P (and other major indexes) should be nicely higher than here a few months down the road. However, we’re also not going to ignore the fact that, earlier this week, our Cabot Tides flipped to negative for the first time since April, telling us the intermediate-term trend has turned down. Because of that, we decided to take partial profits on ProShares Ultra S&P 500 Fund, selling one-third of our shares. We’ll hold on tightly to the rest as we aim 14
to wait out this correction. SOLD ONE-THIRD, HOLD THE REST.
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532,, September 24, 2020
*SELL SeaChange International, Inc. (SEAC)
Updated from WSBI 811, November 14, 2018
We are recommending the sale of SeaChange International. SEAC’s results have been hit hard by the pandemic, and its share price has reflected its bleak outlook. In the most recent quarter, sales fell 73% and net loss expanded 3,214%. Management is confident cost savings measures will position the company well. However, we need to see evidence of a turnaround to make this a viable investment once more. In the meantime, we recommend selling any outstanding positions in SEAC.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, October 2020
*SELL Davita Inc. (DVA)
Updated from WSBI 824, December 18, 2019
There is a Dutch Tender Offer issued for Davita. Do NOT tender your shares. Hold onto the shares of DVA until further notice.
David R. Fried, The Buyback Letter, www.buybackletter.com, 888-289-2225, October 7, 2020
Investment Index 834
