As summer winds down, the markets are not showing any signs of weakness. The Dow Jones Industrial Average passed 35,000 and is treading pretty close to that number, minus a few pullbacks. The outlook for the markets continues bullish, with a bit of belt-tightening, as our barometer depicts.
As long as the economy continues its strengthening, so should the markets. According to FactSet, 89% of the S&P 500 companies have reported second quarter earnings so far, and 88.8% have surpassed their forecasts! In addition to great earnings reports, the employment picture brightened last week, as we saw the unemployment rate drop from 5.7 to 5.4. That’s great news!
In this month’s issue, we begin with our Spotlight Stock, a cell tower provider, who is enjoying the 4G expansion around the world, and is poised to continue its leadership as 5G rolls out. In my Feature article, I further explore the growth of both of those technologies.
Our Growth ideas this month include a flooring retailer, a SPAC for car parts, an automobile dealer, and a pet products manufacturer. More and more companies are paying dividends, and you’ll see a wide variety of them in our Growth & Income section, including an eyecare company, the biggest retailer in the world, a mattress manufacturer, an infrastructure company, a consumer products maker, and a lithium miner.
We offer three Value stocks from the auto dealer, construction, and shoe retailing businesses. As Finance, Healthcare, and Tech stocks are producing big gains this year, our contributors are adding to their portfolios with these banks, pharma, and transaction service companies.
A big category for our advisors this month is Resources, Energy & Utilities, where you’ll find an energy exploration company, a silver miner, two utilities, and a resources land ownership business. In Low-Priced Stocks, we offer an amusement park company and a lithium miner.
Lastly, in our Funds & ETFs section, you’ll find ideas from the contra, small cap, international growth, and covered call arenas.
I hope you’ll join me on Thursday, August 11, 2021, at 1:20 pm - 1:50 pm ET, for my Money Show virtual presentation: Failing to Plan = Planning to Fail: How to Jump-Start Your Retirement with a Simple Stock and ETF Strategy.
And, of course, I hope to see you at our Cabot Smarter Investing, Greater Profits Online Conference next week, August 17-19, 2021. As always, please don’t hesitate to email me with your feedback and questions. My address is nancy@cabotwealth.com.
Market Views 844
We recently highlighted a number of emerging divergences in secondary indexes, which indicated that market breadth had started to deteriorate. Weak breadth has now resulted in a divergence in the Advance-Decline (A-D) Line, which has failed to make a new high for the past month alongside the S&P 500.
While it’s still early, divergences in the A-D Line have historically preceded market downturns, as a narrowing of participation occurs as investors become increasingly selective. For instance, the most recent divergence in the A-D Line occurred in August 2020, prior to a -9.6% drawdown in the S&P 500. As such, this emerging warning flag will remain near the top of our watchlist in the weeks ahead.
James Stack, InvesTech Research, investech.com, 800-955-8500, August 6, 2021
Uncertainty Pushing Dollar Higher
Stocks closed last week generally higher on the heels of a solid jobs report, which may have quelled worries that economic growth was slowing. Nevertheless, equity returns were volatile for much of the week, reflecting ongoing uncertainty as variant strains of the virus spread and concerns rose over the possibility that the Federal Reserve may begin reeling in its asset-purchasing program sooner than expected. Financials led the market sectors, advancing 3.6% for the week, followed by utilities, which rose 2.3%. Crude oil prices closed the week at $68.50 per barrel, down more than 7.0% from the prior week’s closing price. Gold slipped, the dollar rose, and the yield on 10-year Treasuries climbed higher.
Brian W. Kelly, Moneyletter, moneyletter.com, 800-890-9670, August 9, 2021
The Bull is Still Alive
While the bull market has struggled in recent months, it is not dead yet. And as second-quarter reports have increasingly been revealing an economy that continues to expand at faster-than-expected rates, buyers have been rewarding a wide variety of stocks, on both the value and growth side. Here in Cabot Stock of the Week, of course, I preach a diet of variety, the better to build and nurture a resilient, diversified portfolio, so I’m happy to recommend all kinds of stocks.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, August 9, 2021
Spotlight Stock 844
American Tower is an equity REIT, and its portfolio is composed of cellphone towers. American Tower is one of the largest cellphone tower owners in the world. The company reported owning 185,641 of these towers at the end of fiscal-year 2020.
The large cellphone carriers are American Tower’s primary tenants, includingAT&T (T), Verizon (VZ), and T-Mobile (TMUS). Lease payments from these three behemoths accounted for 55% of American Tower’s $8 billion of revenue in 2020. That still leaves another 45%. Lease payments from radio and television broadcasters, government agencies, and municipalities account for the remainder.
Towers in the United States and Canada generated 56% of the annual revenue last year. That said, more of the business is being generated over there. The rest of the world offers ample growth opportunities, particularly Latin America and Africa.
The 4G penetration rate is only 50% among the countries south of our border. It is a barren 10% in Africa. American Tower is positioning itself to supply the requisite infrastructure. It acquired Eaton Holdings for $1.85 billion in 2019. Eaton brings 5,500 sites across five African markets. Revenue generated in these markets increased 53% year over year in 2020.
American Tower bought Spanish telecom Telefónica’s tower business, Telxius Towers, for about $8.8 billion earlier this year. Telxius owns 30,722 communications sites in Germany, Spain, Brazil, Chile, Peru and Argentina. The Telxius acquisition should be a meaningful growth driver for the decade ahead.
As for growth in our own backyard. American Tower CEO Thomas Bartlet said that U.S. mobile data usage is expected to grow at a compound annual growth rate (CAGR) of more than 25%. He mentioned that 5G device adoption is still in the early days.
5G is the broadband cellular technology of tomorrow. Tomorrow fast approaches. The major carriers continue to invest billions of dollars annually for 5G coverage. The 5G infrastructure market is expected to reach $44.9 billion in 2025, up from $12 billion in 2020.
The company classifies as a REIT, with means it retains little of its earnings. Most of what it earns it must pass along to investors as dividends.
One number is more important than the others when relating numbers to individual shares. That is funds from operations (FFO). FFO is the cash flow that supports the dividend. As FFO goes, so goes the dividend, and so goes the share price.
Yes, American Tower’s share count grows, but the FFO per share grows faster. FFO (rather adjusted FFO, to be specific) increased 18.7% year-over-year in the second quarter to $1.1 billion. FFO exceeded dividend growth.
The dividend has grown 15% over the past year. That’s actually a conservative growth rate. American Tower could have afforded more. The payout ratio for the latest quarter consumed only half the FFO. Most REITs use 70% up to 100% of FFO to pay the dividend.
Management has guided for $4.3 billion in FFO for 2021. That distills to $9.50 per share. Based on the share price as I write, American Tower shares trade at 30 times current-year FFO. Within the REIT realm, the multiple is pricey.
But price is what you pay, value is what you get.
American Tower more or less operates in a duopoly (Crown Castle International is its primary competitor) with Hoover-dam sized barriers to entry. Demand for the company’s service appears insatiable. Its network of towers is already stressed by increased demand by data-hungry mobile applications like videoconferencing. The next wave of mobile data, which is 5G, is still in its infancy, and we haven’t really seen all the applications for it yet.
American Tower is an enviable long-term growth story in the REIT realm. The dividend grows at a 15%-to-20% clip annually. The yield of the future based on the price today will surely be higher.
I am more bullish than most analysts. I have a $320 price target for American Tower shares based on the 30 times FFO multiple applied to my projected FFO of $10.65 for 2022. I think it’s reasonable to pay 30 times FFO for exemplary business. After all, we’re in a market where many investors think nothing of paying 30 times revenue.
Buy American Tower shares up to $295.
Ian Wyatt and Stephan Mauzy, Personal Wealth Advisor, wyattresearch.com, August 6, 2021
American Tower Corporation (AMT) 52-Week Low/High: $197.50 - 289.51 | Why American Tower:
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Feature Article 844
Our Spotlight Stock, American Tower (AMT)—as Ian Wyatt and Stephen Mauzy of Personal Wealth Advisor said, is one of basically two companies leading the cell tower industry. Right now, that marketplace is worth around $10.4 billion, just in the U.S., and has grown at an annual rate of 8.7% since 2016.
The global telecom towers market was valued at 4,342.520 thousand units in 2020, and it is estimated to reach 5,308.088 thousand units by 2026. And there is big money in the tower market, as you can see by the investment returns to AMT, depicted in the graph below.
The advent of 5G technology is one of the major catalysts behind that rise. As you can see by the graph below—while 4G continues to rapidly grow—the next four years will see major expansion of 5G also.
The rapid adoption of cell phones worldwide is also stoking 5G growth. While the U.S. remains extremely competitive in mobile, according to Reportlinker.com, a 2020 Communications Monitoring Report noted that Canadian mobile wireless service is also exploding, with revenue “reaching CAD 28 billion in 2019, representing over 55.5% of all telecommunications service revenues.”
And as you can see in the graph below, AMT is participating in both the U.S., Canada, and across the world. Last December, the company completed its acquisition of InSite Wireless Group LLC for nearly $3.5 billion. American Tower expects this purchase to generate $150 million in property revenue and some $115 million in gross margin this year.
In its latest quarter, AMT saw total revenue increase 20.2% to $2,299 million, and net income was up 66.8% to $748 million. And analysts are continuing to increase their future earnings projections.
We are just at the tip of the 5G revolution, and AMT is going to continue be one of the leaders. The stock isn’t cheap, but I think it’s going to continue its upward trend as 5G adoption gears up.
Growth 844
Floor & Decor Holdings, Inc. (FND) | Daily Alert July 20
Floor & Décor is currently one of our favorite retail cookie-cutter stories out there, and it has all the characteristics of a stock that should do very well over time.
Fundamentally, the big idea is that the company is upending the hard-flooring retail industry; at the end of Q1, Floor & Décor operated 140 warehouse-style stores that have everything professionals and DIYers need. Whereas the typical competitor might have a couple hundred different products available in-house, Floor & Décor has 1,400 or so, allowing customers to see/touch/feel/buy whatever they want right away.
Specifically, the top brass generally aims to increase the firm’s warehouse count by 15% to 20% annually, and they see the potential for at least 400 locations in the U.S. alone. Given that Floor & Décor had just 140 warehouses open at the end of Q1, there’s obviously years of rapid store growth ahead, and that doesn’t even account for the likelihood that management’s target of 400 locations is probably conservative. Indeed, for this year, the company is aiming to open 27 new locations (just over 20% growth from year-end 2020), and seems on track, with 13 announced openings by the end of June.
With shares bouncing off their 40-week line on good volume and heading higher since, there will likely be wiggles, but we believe there’s a good chance the next up move has started. BUY.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, July 12, 2021
Holley Inc. (HLLY) | Daily Alert August 4
Investing after a company merges with a SPAC can reduce investors’ risks. By waiting, investors have the opportunity to understand the underlying (acquired) company, explore regulatory filings, select the more promising ones while avoiding those with speculative or suspect business models, and then wait for an attractive entry price.
Holley, Inc. was founded in 1903. The company is the iconic manufacturer of high-performance after-market car parts, which is an attractive growth industry. After eight sizeable acquisitions in the past seven years, the company has a portfolio of 60 brands across all major categories of parts, with many of its brands holding the #1 market share position. Holley’s revenues are nearly triple its nearest competitor, a significant advantage that it is extending by acquiring companies in the otherwise fragmented industry.
Holley is also an innovator, with 40% of its sales coming from new products introduced over the past five years, including a growing roster of high-performance electric vehicle parts. And, unlike original car manufacturing, which will migrate to electric vehicles, there will likely be enduring long-term demand for high-performance gas-powered vehicle after-market parts. Holley is also expanding its online distribution platform which should build its brand value. Holley has attractive margins, generates solid free cash flow, and has a reasonable debt load. At about 10.8x projected 2022 EBITDA, the shares of this high-quality company sell at a large discount to peers.
Bruce Kaser, Cabot Turnaround Letter, cabotwealth.com, 978-745-5532, July 28, 2021
LMP Automotive Holdings, Inc. (LMPX) | Daily Alert August 9
LMP Automotive’s plan was to bring the subscription model to the auto market. It would buy partial interest in a bunch of dealerships for the inventory and then use their own fulfillment system to power the subscription model from the cloud.
This last quarter, LMP’s revenue went from about $6 million to $33 million. LMP turned a profit of about $2 million. It added $1.3 million to its cash balance. And gross margins doubled to 18%.
LMP says 2Q revenue should jump to $147 million (don’t forget, that’s from $33 million). Gross profit is expected to go from $6 million to $26 million. And the company is going to double its cash position.
LMP is no longer doing the “subscription” car business. It’s because there isn’t enough inventory to go around...
Turns out this is a pretty amazing problem to have. Demand for cars is incredibly strong—that’s why those gross margins are surging. Plus, it turns out the first step of the LMP business model—buying into dealerships—is strong enough to sustain the whole operation. Once supply is resolved in a couple years, LMP will revisit the subscription idea and we may have a whole new upside catalyst.
In the meantime, own it because the company is about to see a surge in revenue and profit. LMP Automotive is a speculative buy under $25.
Jason Williams, The Wealth Advisory, angelpub.com, 877-303-4529, July2021
*Chewy, Inc. (CHWY)
52wk H. $120.00 52wk L. 52.22
Mkt Cap: $37.85B, EPS: -0.01, Beta: 0.08
The provider of pet food/products, pet medications for dogs, cats, fish, birds, horses and reptiles. Engaged through e-commerce. Pet owners during pandemic flocked to Chewy. Guidance for year ’21.
Revenue growth of $9.00B and $11B for ’22. Could surge $200M for ’21 and $440M from ’22. Topping at 120 in March ’21. Sinking to low 50s in May ’21.
Reversal has broken through death cross: (70-73), gapping up (75-83) to recovery high of (83-90).
Volatile.
BUYING RANGE: 78-91
NR TERM OBJ: 103
INTERMED OBJ: 126
STOP LOSS: 69
Joseph Parnes, Shortex Market Letter, shortex.com, 800-877-6555, August 2021
Growth & Income 844
Alcon Inc. (ALC)| Daily Alert July 13
Alcon (TSINetwork Rating: Extra Risk) is the world’s biggest eye-care company. Specifically, it’s the leader in ocular surgical supplies and No. 2 in contact lenses.
While Alcon is based in Switzerland, it’s headed by an American, reports results in U.S. dollars, and gets 44% of its sales in that market. It also generates 25% of its revenues from emerging markets, one of the highest percentages among competitors in the industry.
In the quarter ended March 31, 2021, Alcon’s revenue rose 4.8%, to $1.91 billion from $1.82 billion. Per-share earnings in the first quarter rose 8.9%, to $0.49 from $0.45. Meanwhile, Alcon spends a high 10% of its sales on research, which makes it appear less profitable than it really is.
The company gives you two exciting ways to profit. First, it offers you exposure to rapidly expanding, worldwide demand for its contact lenses and cataract surgery products; and two, its global operations and technological leadership enhance the possibility of it attracting a lucrative takeover bid from a rival or a global health-care giant.
Alcon is a Power Buy.
Patrick McKeough, Power Growth Investor, www.tsinetwork.ca, 888-292-0296, July 2021
Walmart Inc. (WMT)| Daily Alert July 15
Walmart is the world’s largest bricks and mortar retailer with 11,400 stores in 26 countries, plus a rapidly expanding e-commerce operation. It employs some 2.2 million people worldwide and had revenue in the 2021 fiscal year of $559 billion.
Walmart recently released results for the first quarter of fiscal 2022. Total revenue was $138.3 billion, an increase of $3.7 billion, or 2.7% over the same period last year.
Consolidated operating income was $6.9 billion, an increase of 32.3%. eCommerce sales were up 37% and have doubled in the past two years. Walmart is seeking to expand this part of the business even more through its partnership with DroneUp, a major US drone services provider.
In April, Walmart also announced an investment in Cruise, an all-electric autonomous vehicle company. The goal is to achieve the fastest possible delivery, whether by air or land.
Buy. The shares hit a year-to-date low of $127.33 in early March but have rallied since.
The stock is still trading well below its 52-week high.
Gordon Pape, Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, July 5, 2021
Tempur Sealy International, Inc. (TPX) | Daily Alert July 21
Tempur Sealy develops, manufactures, and markets mattresses, foundations, pillows, and other bedding products.
The 2021 EPS estimated has lifted from $2.42 to $2.75, while the 2022 estimate has risen to $3.16 from $2.71. The shares have pushed higher since then and are now up 89%. The shares also remain in the IBD- 50. In fact, Investor’s Business Daily gives the stock a highest possible 99 composite rating (the highest in the Furniture industry) as well as 89’s for both relative earnings strength and relative strength (of the stock). The Zacks Rank is 2.
On June 28th, the Company announced that Sealy and Tempur-Pedic were named the #1 and #2 mattress brands in America.
Q2 results are due out around late July with analysts expecting $.56 on sales of $1.14 billion. Hard to believe the shares traded down to $7! last Spring when all the stores were closed and investors did not yet have a clue that the pandemic would be good for mattress sales, and for that matter, almost anything found in a home as people spent more time there. The shares are up almost 500% in the 15 months since then and business is fantastic.
The BI Rank at 10.2 agrees- Buy.
Tom Bishop, BI Research, biresearch.com, July 14, 2021
Quanta Services, Inc. (PWR) | Daily Alert July 28
Quanta Services shares have gained 23% this year but slipped 4% over the past three months. The shares could see room for more price appreciation, as President Biden’s U.S. infrastructure plan appears to be gaining momentum after several months of stalled talks. A bipartisan group of U.S. lawmakers has settled on a plan for about $600 billion on new physical infrastructure, encompassing roads, bridges, railways, and pipes. Biden’s initiatives for investing in human infrastructure—covering areas like public education and health care—is slated to be part of a separate $3.5 trillion budget plan. We might not see a vote on some parts of the plan for several months.
Raising its full-year outlook in May, Quanta noted strong demand even without the U.S. infrastructure plan. Analyst estimates have ticked higher in the past 30 days, with the consensus projecting growth of 16% for earnings per share and 9% for revenue in 2021, followed by 13% higher profits on 7% sales growth in 2022.
For the June quarter, Quanta is expected to report earnings per share of $1.03, up 40%, on revenue of $2.98 billion, up 19%. Quanta has topped the consensus profit estimate in seven straight quarters. But it has struggled to manage analysts’ sales expectations, missing the consensus in three of the past four quarters.
Quanta is a FocusList Buy and a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, July 19, 2021
CRA International, Inc. (CRAI) | Daily Alert August 3
CRA International is expected to report June-quarter results on Aug. 7, with the three-analyst consensus calling for per-share profits of $0.93, up 16%. Revenue is projected to hit $138 million, up 12%. The company has topped consensus profit estimates in seven of the last eight quarters. Notably, March-quarter earnings surged 63% and exceeded Wall Street expectations by 66%—the largest surprise since 2017.
The stock’s Quadrix Overall score is 92, helped by an 88 in Earnings Estimates and 91 in Momentum.
Founded in 1965, CRA specializes in legal, business, and management consulting. The company is primarily retained for mergers and acquisitions, major product launches, capital investments, and complex litigation.
CRA is benefiting from improve operating efficiency and a growing workforce—areas we’ll scrutinize on upcoming earnings releases. In the March quarter, utilization reached 76%, up from 71% a year earlier. The consultant count hit 837, up 5%. The stock is a Best Buy.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, August 2021
*Oxford Industries, Inc. (OXM)
Oxford Industries is an apparel company that designs, sources, markets, and distributes products of lifestyle worldwide. The company’s primary brands are Tommy Bahama, Lilly Pulitzer, and Southern Tide. It also designs, sources, markets, and distributes products through www.thebeaufortbonnetcompany.com, www.duckhead.com and wholesale specialty retailers. In addition, the company licenses the Tommy Bahama brand for various products that include indoor furniture, outdoor furniture, beach chairs, bedding and bath linens, fabrics, leather goods and gifts, headwear, hosiery, sleepwear, shampoo, toiletries, fragrances, cigar accessories, distilled spirits, and other products.
OXM offers products through its retail stores and e-commerce sites, department stores, specialty stores, multi-branded e-commerce retailers, offprice retailers, and other retailers. It operates 187 brand-specific full-price retail stores; 20 Tommy Bahama food and beverage locations; and 35 Tommy Bahama outlet stores.
Kelley Wright, IQ Trends, iqtrends.com, info@iqtrends.com, 866.927.5250, First August 2021
*Albemarle Corporation (ALB)
Lithium is the lightest metal on Earth. It is also highly reactive, giving up its electrons easily. Since 1991, researchers have rushed to improve lithium-ion batteries with great success; today’s power packs are far more energy-dense with better longevity.
The problem is mining lithium is messy and requires expertise. Getting enough high-grade lithium to power most of the world’s future vehicles will not be easy.
Albemarle Corp. is a specialty chemical manufacturing company headquartered in Charlotte, North Carolina. The company has lithium mines in U.S., Chile and Australia. It’s ideally positioned to take advantage of the heady expected growth in lithium demand. Albemarle also has the scale, experience and infrastructure to service big customers.
Currently, 60% of the demand for lithium comes from EV companies, phone and wearable manufacturers. Glass, grease and aerospace companies consume 20% of supplies. And the remaining 20% is used in specialty applications like synthetic rubber, pharmaceuticals and agricultural products.
A May filing with the Securities and Exchange Commission (SEC) revealed sales increased to $829.3 million during the first quarter, up 10% year over year. Profitability in the quarter rose 10% to $95.7 million.
An investor presentation, also released in May, showed that managers expect battery-grade lithium demand will increase at a 47% compound annual growth rate (CAGR) from 2020 to 2025.
Lithium is becoming the connective tissue to the global economy. From camcorders to smartphones and now EVs, the lightweight metal is crucial in how we’re building and connecting to our world. Albemarle managers are racing to serve global markets with potential megaprojects in China, Silver Peak, Nevada and Kemerton, Australia.
Companies like Albemarle that extract minerals out of the ground will play a key role. Investors should consider accumulating shares before the real gold rush to EVs begins.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, July 26, 2021
Value 844
America’s Car-Mart, Inc. (CRMT) | Daily Alert July 26
America’s Car-Mart operates 151 used car dealerships in 12 states. It serves customers with impaired credit or minimal credit histories and finances the loans on its own balance sheet at double-digit interest rates. As it retains the associated credit risk, Car-Mart’s business model is a hybrid between a car dealer and a consumer finance company.
The company has grown by steadily expanding its dealership network, very occasionally through acquisitions, and has lately concentrated more energy on growing dealership level productivity.
The current stimulus-rich consumer environment has been a huge boon to Car-Mart. Customers have used their stimulus payments to stay current on their car notes, and Car-Mart has experienced below-average default rates despite the pandemic’s damage to the jobs market and the economy overall.
A shortage of used car inventory has played into the company’s hands as well because customers have accepted price increases while the collateral on Car-Mart’s loan book has depreciated more slowly than credit models would have originally assumed.
In the past four quarters, sales increased 23% while EPS more than doubled, yet shares sport a trailing P/E of just 10. Those are the kind of multiples you see at cyclical peaks.
We model 10% compound EPS growth, which could generate EPS of $24.08 in five years. That figure, combined with a high P/E of 17.4, generates a high price of 419.
Doug Gerlach, InvestorAdvisoryService.com, 1-877-33-ICLUB, July 2021
Tutor Perini Corporation (TPC) | Daily Alert August 5
Tutor Perini Corp.is an old-line construction/engineering company becoming attractive with or even without infrastructure legislation. The company is trying to clean up past project difficulties and has established a better governance process.
It is a little further down the risk spectrum than our prior Ball Corp. (BLL) recommendation, so investors should allocate any purchases appropriate to one’s risk profile, goals, and objectives. Should this latest stock market rally continue, we will be once again more in net profit taking mode.
Alan B. Lancz, The Lancz Letter, www.lanczglobal.com, 419-536-5200, July 21, 2021
*Shoe Carnival, Inc. (SCVL)
Shoe Carnival Inc.’s stock price has been on a tear all year, but it has pulled back from its high of just a few weeks ago. SCLV actually delivers its 2 for 1 split on Monday.
Shoe Carnival is retailer of footwear and accessories through its 383 stores in 35 states and Puerto Rico. Insiders own about a third of this company so they definitely have shareholders’ interests in focus. The company has no long-term debt, a PE under 15, and has been increasing its dividend consistently for the last seven years.
As long-time readers know, I am not a fan of apparel and fashion businesses. However, Shoe Carnival is definitely not in the high-end fashion business. This is a retailer focused on middle-class families, selling a product that we all need and will continue to need forever.
Neil Macneale, 2 for 1 Stock Split Newsletter, 2-for-1.com, 408-210-6881, July 2021
Financials 844
F.N.B. Corporation (FNB) | Daily Alert August 6
Unlike REITs and telcos, smaller banks are loaded with gunpowder right now. That’s because interest rates appear poised to bottom out, and a return to even a 2% 10-year yield would effectively stuff their pockets with cash—sending prices into orbit and fueling further rounds of super-sized dividend hikes.
We get above the 4% yield mark with FNB Corp. Not to be left out, FNB is on the M&A warpath itself, announcing in mid-July the acquisition of Baltimore-based Howard Bancorp, which will roughly double its Baltimore deposits as a result.
Dividend growth is nonexistent here; the payout hasn’t budged in years, and while analysts are forecasting a recovery from 2020’s difficulties, there’s not enough in that growth to suggest a higher payout is nigh. Still, core loan growth is re-accelerating, so this could be a GARP (growth at a reasonable price) opportunity, with shares trading at 10 times estimates.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, September 30, 2021
Healthcare 844
Rhythm Pharmaceuticals, Inc. (RYTM) | Daily Alert July 30
Rhythm Pharmaceuticals announced an exclusive distribution agreement with Medison Pharma to commercialize Imcivree in Israel. With the exclusive distribution agreement with Medison Pharma, positive Committee for Medicinal Products for Human Use (CHMP) opinion for Imcivree, and dataflow paving the way for potential setmelanotide utility in additional MC4R-driven obesity indications, we reiterate our BUY.
Medison is a global pharmaceutical company and one of the top three in Israel by sales. Medison Pharma provides a full spectrum of services, including registration, reimbursement, distribution, marketing for biotech companies looking to enter markets in Israel. We view the expansion of RYTM’s commercial footprint into Israel as a positive.
Arlinda Lee, Ph.D., and Benedict Shim, Canaccord Genuity Research, canaccordgenuity.com, July 23, 2021
Technology 844
EVERTEC, Inc. (EVTC) | Daily Alert August 2
Evertec, headquartered in Puerto Rico, provides electronic-transactions services. The company operates in three main areas—merchant acquiring, payment processing, and business solutions. Evertec operates in 26 countries in Latin America and the Caribbean. The firm owns and operates the largest debit network in the Caribbean.
Given the company’s smallish size, the company has takeover potential. These shares have appeal aside from any takeover possibilities. Operating momentum has been solid, with the company’s per-share profits outpacing the consensus earnings estimates in each of the last four quarters. Earnings estimates have been trending higher.
The stock is trading at just 19 times the 2021 earnings estimate of $2.31 per share. I look for decent top- and bottom-line growth this year and next, and I like the long-term growth prospects of the company’s business.
The stock has been performing fairly well in recent trading, and a breakout above $45 would be especially bullish. The stock provides an under-the-radar play in the payments business and an interesting takeover candidate.
Charles B. Carlson, CFA, DRIP Investor, dripinvestor.com, 800-233-5922, July 2021
Resources, Energy, & Utilities 844
Devon Energy Corporation (DVN)| Daily Alert July 14
Energy stocks have thus far retreated normally, so we still think the group in general (and Devon Energy in particular) will see higher prices ahead. Oil prices are still holding north of $70, while natural gas prices have actually surged (partly due to the crazy heat in many parts of the country).
While we don’t like to do too deep of a dive into numbers projections, the fact that the company paid a 34 cent per-share dividend based on Q1 cash flow (paid out yesterday) should translate into more than that for Q2, as prices have clearly been higher during the past three months. Of course, we’re never complacent, especially with energy stocks, which can turn tail in a hurry, but we continue to think DVN will see higher prices ahead.
If you don’t own any, we’re OK taking a swing at it here. BUY
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, July 1, 2020
Fortuna Silver Mines Inc. (FSM) | Daily Alert July 19
Fortuna Silver closed its acquisition of Roxgold, creating a low-cost, diversified, growth-oriented intermediate gold and silver company. We are very bullish on this combination.
The stock price has dropped from almost $8 a share immediately before the merger announcement down to where it traded a year ago. This will not last long; Fortuna is a strong buy at the current price.
Adrian Day, Adrian Day’s Global Analyst, adriandayglobalanalyst.com, 410-224-8885, June 11, 2021
Pinnacle West Capital Corporation (PNW) | Daily Alert July 22
Pinnacle West Capital is a utility that provides electric service to more than 1.2 million customers via its Arizona Public Service unit. PNW’s owned power plants include the Palo Verde nuclear facility, several coal-fired and gas/oil-fired plants, as well as more than ten solar farms.
Management has deferred earnings guidance for 2021 until it receives a decision on its most recent rate case, which is expected this quarter. But we continue to think PNW ought to benefit from Arizona’s population growth that remains above the U.S. average, and from opportunities to invest in the growth of renewable energy.
We also note that a couple of the world’s largest semiconductor companies (TSMC and Intel) have both announced plans to build several Arizona factories in the next few years. Pinnacle has earned an average return on equity of 10% over the past decade and sports a rich dividend yield.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, July 2, 2021
Essential Utilities, Inc. (WTRG) | Daily Alert August 10
Municipal buyouts benefit communities by turning over systems to financially stronger entities that can utilize scale benefits to cut costs, and improve service by quickly and methodically replacing failing infrastructure. They benefit by acquiring utilities by increasing their scale at a low cost, therefore providing reliable fuel for earnings and dividend growth. And the more companies grow, the more profitable and able to add scale they become.
My view, however, is it will also provide a big boost to takeover activity in states with “fair market legislation” where utilities are now focusing their efforts, for example Texas. And with investor owned utilities already making great strides replacing obsolete pipes and mains, they know exactly how to put any federal dollars to good use.
My favorite water stock remains Essential Utilities when it trades at 50 or less.
Roger Conrad, Conrad’s Utility Investor, ConradsUtilityInvestor.com, 888-960-2759, August 2021
*Pardee Resources Company (PDER)
If you want a deep legacy natural resource royalty/only asset play, Pardee Resources is it. Pardee has deep metallurgical coal asset/reserves, probably 3-4 times the average coal company-proven reserve in the ground. 100,000 acres of almost all timberland that are well-located in the east and near good markets that need that product. There’s some developable real estate in these 100,000 acres and also some nice energy assets (mostly natural gas). I would guess 80% of the value here is coal and timber and I consider both timely here.
Contrary to popular belief by the public/media, conventional wisdom, etc., coal usage is still rising globally and net coal prices are strong. I expect the dividend to be raised next year on higher earnings ahead and below $200 this is a bargain.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, July 20, 2021
Low-Priced Stocks 844
*Parks! America, Inc. (PRKA)
Parks! America owns three Wild Animal Safari theme parks located in Pine Mountain, GA; Strafford, MO; and Bryan/College Station, TX.
Parks! America’s three theme parks are open year round but experience increased seasonal attendance, typically beginning in the second half of March through early September. Historically, this has resulted in the third and fourth quarters totaling 68% to 72% of its annual sales. The outstanding second quarter 2021 earnings report put the stock on our radar because it implies even stronger results by the end of the year.
In the most recent quarter, attendance-based sales increased 238% year-over-year to $2.5 million. Net income over the same period grew to $538,048, compared to a net loss of $190,152.
PRKA insiders own 73% of the outstanding shares, which is rare for an OTC-listed stock. The stock’s exceptional performance over the past few months would typically prompt insiders to unload shares, but that is not the case. Insiders have purchased 38,000 and 635,550 shares within the last three months and year, respectively.
All three parks have grown explosively in 2020 despite the anticipated industry-wide negative effects of COVID-19.
The stock is up 82% in just two months following blowout quarterly earnings and increased attendance. While it is overvalued, it is alright to pay a higher premium as long as net income does not reverse its upward trend.
We believe that PRKA is growing rapidly and is showing all the signs of a company with huge potential. Increased consumer spending rates and plateaued COVID-19 infection rates in the U.S. create a sales outlook. As long as growth maintains and long-term debt continues to decrease, we are confident PRKA will keep rewarding its shareholders.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, July 2021
*Lithium Americas Corp. (LAC) Opportunity No. 3 – Lithium Americas
LAC is still one of the top stocks to consider with the lithium boom. Remember, the global push for electric vehicles is only accelerating. All as the world pushes for lower emissions.
The U.S. for example just pledged to reduce emissions by up to 52%, which could provide a sizable boost to the EV industry. The UK just announced plans to stop the sale of diesel and gasoline vehicles by 2030, opting for EVs. Germany unveiled a budget, which includes subsidies for electric vehicle buyers. Israel announced it will phase out fossil fuel vehicles by 2030.
In addition, according to “A new report by Cairn Energy Research Advisors, a research firm focused on the battery and EV industries, predicts a surge in electric vehicle sales in 2021 as countries around the world push new programs to encourage consumers to buy battery powered vehicles. Cairn estimates global sales of EVs in 2021 will jump 36% and top 3 million vehicles for the first time ever.”
However, for the EV industry to succeed, it must have far more supply of lithium, which is where Lithium Americas comes into play.
Ian Cooper, The Cheap Investor, support@thecheapinvestor.com, August 2021
Preferred Stocks, REITs, & High Yield 844
Whitestone REIT (WSR)| Daily Alert July 9
Whitestone is a retail REIT that owns about 58 properties with some 5.0 million square feet of gross leasable area, primarily in top U.S. markets in Texas and Arizona.
Its tenant base is very diversified with nearly 1,400 tenants. The top five industries are restaurant & food service, grocery, financial services, salons, and medical & dental.
During the pandemic, the REIT rightly halted acquisitions and development projects, and reduced expenses, as it focuses on improving its financial position and liquidity. The February 2021 dividend increase is a good sign.
Management believes, post-pandemic, investments in acquisitions, re-development, and development projects can drive returns of at least 10%.
At the end of 2020, Whitestone had a debt-to-equity ratio of about 2.1x. Whitestone has no real estate debt maturing in 2021.
Ben Reynolds & Bob Ciura, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, 800-531-0465, July 2, 2021
VICI Properties Inc. (VICI) | Daily Alert July 29
VICI Properties Inc., a real estate investment trust (REIT), focuses on experiential properties. It has one of the largest portfolios of gaming, hospitality, and entertainment destination real estate. This includes the world-renowned Caesars Palace.
Its properties are leased to the big names in the business including Caesars Entertainment, Penn National Gaming, Inc. (PENN) and Hard Rock International.
It also owns four championship golf courses and 34 acres of undeveloped land adjacent to the Las Vegas strip.
VICI’s REIT status requires it to pass through most of its money to its partners or shareholders. The company currently pays a solid 4%+ dividend yield, and shares are up 31% year to date. So, I’d strongly suggest not buying those “sell”-rated casino stocks above. Instead, I’d collect a dividend from VICI since it has a “buy” rating with more diversified risk.
Kelly Green, Weiss Ratings, Weiss Ratings, 1-877-934-7778, weissratings.com, July 22, 2021
Wells Fargo & Company Depositar (WFC-PA) | Daily Alert August 11
Wells Fargo & Company; 4.70% Fixed Rate, Series AA, Non-Cumulative Perpetual; Par $25.00; Current Price $26.14; Current Indicated Yield 4.49%; Call Date 12/15/25 at $25.00; Yield to Call 3.58%; Pay Cycle 3m; Moody’s Baa2, S&P BB+; CUSIP 94988U128
Wells Fargo & Company (WFC) is a diversified, regional-based financial services institution with $1.95 trillion in total assets.
The company has a relatively new management team in place, focused on improving earnings and profitability and strengthening internal controls. WFC’s 4.70% fixed rate preferred is callable on 12/15/25 or any dividend payment date thereafter, at par plus any declared and unpaid dividends.
The company reported 2Q 2021 net income of $6.0 billion or $1.38 per share, topping analysts’ $0.97 estimates. Earnings largely benefited from a $1.6 billion decline in the loan loss provision, as WFC released reserves as expected pandemic- related losses never materialized. Revenue of $20.3 billion was also ahead of analysts’ expectations of $17.8 billion. Dividends on this preferred issue are qualified and taxed at the 15% - 20% rate.
This investment is suitable for low- to medium-risk taxable portfolios. WFC’s senior debt is rated A2 by Moody’s and BBB+ by S&P. Buy at or below $26.35, which represents a current yield of 4.46% and a yield to call of 3.38%.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, May 2021, August 2021
*Healthcare Trust, Inc. 7.375% A Cumulative (HTIA)
Healthcare Trust (HTA), a REIT, holds a portfolio of medical office buildings, mostly on campuses of hospitals and universities located in the U.S. Not credit rated. Recently traded $25.01 per share. The market yield was 7.4% and the yield to its 12/11/24 call date is also 7.4%.
Harry Domash, Dividend Detective, dividenddetective.com, 866-632-1593, August 2021
*Manulife Financial Corp. (MFC, MFC.TO)
Manulife is Canada’s largest life and health insurance company by market capitalization. It has operations in the U.S. under the John Hancock banner and a large and growing presence in Asia serving the growing Asian middle class.
Manulife reported first-quarter net income of $783 million ($0.38 per share) compared with $1.296 million ($0.64 a share) a year earlier with strong growth in Asia and Global Wealth and Asset Management.
Manulife’s current quarterly dividend is $0.28 quarterly. Over the past five years, the company has boosted its dividend by 9.85% compounded annually.
Canadian dividends in non-registered accounts are eligible for the dividend tax credit.
Manulife is recommended for income-oriented investors looking for stable income stream and the potential for capital gains.
Buy. With a price to book value of 1.04 for the most recent quarter, a forward price/earnings ratio of 7.12, and a nice dividend yield, Manulife is cheap, even after its rebound since last October’s lows.
Gordon Pape, The Income Investor, buildingwealth.ca, 1-888-287-8229, July 2021
Funds & ETFs 844
Fidelity Contrafund Fund (FCNTX)| Daily Alert July 8
For the record, we haven’t heard of any plans that legendary Manager Will Danoff is set to retire (he’s 61). Nor do we think he’s having trouble eyeing “best of breed” growth stocks. Last year for example, Contra gained 32.5% versus 18.4% for the S&P 500. And while slightly trailing his benchmark this year, the fund’s comparatively low risk of 1.03 is the result of Will investing almost 40% of Contra’s assets in value (7%) and blend (29%) stocks at the expense of growth.
Should growth stocks continue to wax and wane, Contra could wind up performing better than its more pedal-to-the-metal large-cap growth peers like Fidelity OTC Portfolio (FOCPX) and Fidelity Growth Company (FDGRX).
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, fidelitymonitor.com, 800-397-3094, July 2021
Invesco S&P SmallCap Industrials ETF (PSCI) | Daily Alert July 12
Invesco S&P SmallCap Industrials ETF is bound to be a direct beneficiary of US infrastructure spending as well as a general increase in construction spending as the economy continues to open up and recover.
Its price action is based on the S&P SmallCap 600® Capped Industrials Index which is designed to measure the overall performance of the securities of U.S. industrial companies. These domestic companies are engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace, and defense, as well as general manufacturing.
Management has maintained an emphasis on stocks with low financial leverage and strong returns on equity. Since the inception of the PSCI in April 2010, this ETF has had an annual return of 13.5%. During the last 5 years, the annual return has been 16.6%. The accent is on growth. The current income is small, currently close to 1%.
Gray Cardiff, Sound Advice, soundadvice-newsletter.com, 800-825-7007, June 30, 2021
Vanguard International Growth Fund Investor Shares (VWIGX) | Daily Alert July 16
Vanguard International Growth is a diversified, multi-manager mutual fund. Although performance relative to benchmark and peers has struggled thus far this year, the fund remains a category leader when looking at trailing-returns going a year back and beyond.
Baillie Gifford Overseas manages 60% of the fund’s assets. That firm uses a bottom-up, stock driven approach to country and asset diversification, looking for companies that have above-average earnings and cash flow growth.
The remainder of assets (minus a small cash position) is sub advised by Schroder Investment Management North America. Lead portfolio manager Simon Webber oversees a deep international team of global sector specialists who look for reasonably priced companies with strong growth outlooks and maintainable competitive advantages.
The end portfolio is typically overweight the large cap names relative to the benchmark. When it comes to regional exposure the portfolio tends to overweight the developed nations over emerging markets but the emerging markets weight (primarily China), even if underweight, can still be around a 20% allocation, as it currently is.
Vanguard International Growth is one way to gain broad-based global exposure (both developed and emerging markets) led by two well-resourced investment firms that use a forward-thinking approach.
Brian W. Kelly, Moneyletter, moneyletter.com, 800-890-9670, July 2021
J.P. Morgan Exchange-Traded Fund Trust - JPMorgan Equity Premium Income ETF (JEPI) | Daily Alert July 23
JPMorgan Equity Premium Income ETF JEPI differs significantly from most covered call ETFs. First, it does not use a widely followed index or ETF as the underlying portfolio. The fund portfolio uses a proprietary stock selection algorithm.
The portfolio holds 97 stocks with relatively equal weightings. For example, the top 45 stocks carry position weights between 1.2% and 1.57%. Here are the top 10 stock symbols: INTU, MSFT, ACN, TGT, AMZN, GOOGL, LLY, PPG, UPS, and TT. This top 10 represents quite a diverse group of stocks, and the rest of the holdings have a similar spread across the market sectors. The stock holdings account for 85% of the total JEPI portfolio.
The remainder of the portfolio accounts for the fund’s unique strategy to provide covered call returns. The 15% (max of 20% allowed) consists of Equity Linked Notes (ELNs), “derivative instruments that are specially designed to combine the economic characteristics of the S&P500 Index and written call options in a single note form.” The ELNs provide cash flow from written call options to pay JEPI dividends.
All-in-all, JEPI, which launched at the end of May 2020, uses both a stock portfolio strategy and covered call strategy quite different from its peers. I am intrigued.
The fund pays monthly dividends.
In a rising market, JEPI impresses. The yield is excellent, and the total return numbers are outstanding for a covered call strategy.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, July 2021
BlackRock Enhanced Capital and Income Fund, Inc. (CII) | July 27
Blackrock Enhanced Capital and Income Fund is a closed-end fund that is designed to provide a high level of current income by employing a covered call writing (or selling) strategy on a diversified portfolio of large-capitalization stocks, as well as provide capital appreciation as a secondary objective.
Statistics show that about 83% of options expire worthless. Consider the buyer of a call like a gambler in a casino. Every once in a while, he may win big, but the odds are stacked against him.
However, selling, or “writing,” a call when you own the underlying stock position (or a covered call) is a very conservative strategy.
The fund currently yields a very respectable more than 5%, and dividends are paid out monthly. It’s a conservative way to earn a high and regular income without being exposed to the bond market and the risk of rising interest rates.
CII has an excellent track record. It has returned 225% over the last 10 years and 113 over the last five, with average annual returns for the periods of 12.5% and 16.3%, respectively. Even in a bull market, CII has returned on par with the S&P 500 over the last five years and slightly less over the last 10.
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, July 14, 2021
Updates 844
SELL Huazhu Group Limited (HTHT) | Daily Alert July 20
Updated from WSBD 797, September 20, 2017
Huazhu Group Limited, originally recommended in Cabot Explorer, has been in the portfolio for more than five years, and brought a very nice profit over that time. As the biggest hotel operator in China, Huazhu can take advantage of the cookie-cutter effect that Mike Cintolo described above. But today I’m going to sell it, for a combination of reasons. One, because I believe most readers know the power of holding a growth stock long term. Two, because the stock takes up space in the portfolio that I’d like to use for more current stocks. And three, because last week the stock, like many Chinese stocks, weakened as the Chinese government cracked down further on stocks that trade on U.S. exchanges, and that’s not a good trend. If you own HTHT with a big profit, I suggest you consider selling some here, but I don’t think there’s any rush. SELL.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, July 12, 2021
SELL AXIS Capital Holdings Limited (AXS) | Daily Alert July 22
Updated from WSBD issue 300, September 13, 2017
With every stock fighting for its position in our portfolios and other names knocking at the door, we chose to exit a couple of smaller-weighted holdings to free up cash to fund new purchases. We elected to part ways today with Axis Capital Holdings at prices no lower than $49.32. While dividend payouts were sizable over the years, Axis was a lackluster performer.
A sustained period of paltry interest rates across the globe matches poorly with long-duration (and highly uncertain) liabilities typical for a reinsurance operation, so we felt the risk of a continued hold did not justify the reward.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, July 15, 2021
Central Garden & Pet Company (CENT)| Daily Alert August 3
Updated from Wall Street’s Best Digest 832, August 27, 2020
Central Garden & Pet is being downgraded to Sell. The specialty retailer is reasonably valued, reflected in a Value score of 72. But our enthusiasm for the stock has faded, partly because the company faces tough comparisons as it laps outsized revenue and earnings growth at the start of the pandemic.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, August 2021
Sell: H.B. Fuller Company (FUL) | Daily Alert August 3
Updated from Wall Street’s Best Digest 841, May 20, 2021
We dropped coverage of H.B. Fuller because of its weak stock-price action and low Quadrix® scores. The stock has slumped 6% over the past three months, helping push the Performance score down to 27.
The Overall score is 50, down from 89 at the end of March.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, August 2021
*Progyny (PGNY)
Updated from WSBD 843, July 8, 2021
Today, we’re going to sell our weakest stock—Progyny (PGNY) has a great story but hasn’t been able to get out of its own way of late, and today it sank back toward its lows. Our patience has run out, and we’re going to cut the loss in the position and hold the cash.
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, July 27, 2021
Investment Index 844
The next Wall Street’s Best Digest issue will be published on September 9, 2021.
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