Here is your May Wall Street’s Best Digest issue 841.
Earnings season is upon us! According to FactSet, this may be a quarter with the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. So far, 91% of companies in the S&P 500 have reported, and 86% have reported a positive EPS surprise and 76% have reported a positive revenue surprise. These positive surprises were led by Consumer Discretionary stocks, whose earnings grew by 50.3%.
That’s good news for the markets—which despite a small downturn a week ago—continues to hold its own. The Dow Jones Industrial Average is up about 1,400 points since our last issue. Our advisors are still cautiously bullish, and overall investment sentiment remains the same.
Job openings are up, unemployment claims are down, and Q2 GDP is forecast at a rousing 8.2%. That sounds like a strengthening economy to me!
And, as you know, earnings drive stock prices, and that bodes well for the remainder of 2021.
We begin this issue with an equipment rental company that weathered the pandemic very well, and is now in a position to see a big growth spurt as the economy gets back on track. Next, our Growth stocks include companies from the furniture, crypto, aviation, cruise line, and gaming industries. In Growth & Income, you’ll find ideas from the chemical, fertilizer, RV, consumer products, and motorcycle sectors.
Moving on to Financials, a sector that is quickly recovering, our contributors are recommending several banks, a research, and a FinTech company. In Technology, we offer a hardware, speaker components, and a semiconductor stock. Our Resources & Energy ideas include companies from the mining and production, as well as utility sectors.
We give you one Low-Priced Stock this month, heralding from the communications industry. And in High-Yield and REITs, you’ll see ideas in the communications and mortgage REIT sectors.
Lastly, our Funds & ETFs section includes some income, as well as growth ideas.
Don’t forget to register for my monthly webinars, along with Kate Stalter, my partner on the Wall Street’s Best Stocks and Wall Street’s Best ETF newsletters. The next one is June 8 at 2 p.m. And I hope to see you (virtually, at least!) at our August 17-19 Summit, entitled Smarter Investing, Greater Profits. You can register here.
Please note, our publication date for Wall Street’s Best Digest is changing to the second Thursday of the month, so please watch your inbox for our next issue in just a few weeks.
Please don’t hesitate to send me your feedback and questions. My new address is nancy@financialfreedomfederation.com.
Market Views 841
Breadth remains a rather fickle indicator. NYSE breadth has been much stronger than NASDAQ breadth. Hence the two breadth oscillators are split at the current time: NYSE breadth is on a buy signal, while “stocks only” is not.
New 52-week Highs vs. New 52-week Lows has also given a sell signal.
While this bit of stock market mini-carnage was taking place, $VIX rose sharply, entering “spiking mode” on May 11th. While $VIX is in “spiking mode,” it is negative for the market, but it also leads to a “spike peak” buy signal eventually. That buy signal came at the close of trading on Thursday, May 13th.
In summary, the market has been wounded by this sharp decline. Even so, I would not say that the $SPX chart is bearish. It would have to break support at 4000 and 3870 in order to “earn” that negative appellation. But we do feel the bears have the upper hand short-term.
Lawrence G. McMillan, The Option Strategist, optionstrategist.com, 973-328-1303, May 14, 2021
Rotation Ahead
It appears that an at least somewhat meaningful shift may be taking place in terms of market leadership, with investors losing their appetite for stocks related to the “stay at home/work from anywhere” thesis that proved to be a very lucrative one to follow during the pandemic while simultaneously growing hungry for most anything that a) might benefit from “the reopening,” b) pays a dividend and doesn’t seem to be overvalued (something that is always in the eye of the beholder, of course!), or c) will likely benefit from the trends that are underway (and perhaps gaining strength) when it comes to inflation and commodity prices, in general.
Nate Pile, Nate’s Notes, NotWallStreet.com, 707-433-7903, May 14, 2021
Bullish, but Cautious
Last week, the selling that had been concentrated in growth names spread to the rest of the market through Wednesday, though a late-week bounce helped a bit. Still, not much has changed with the overall environment—growth stocks remain in the dumps, and while the broad market is obviously in better shape, even there the action is turning choppy and challenging. We continue to think it’s best to stay relatively cautious until we see broad buying power emerge.
Michael Cintolo, Cabot Top Ten Trader, cabotwealth.com, 978-745-5532, May 17, 2021
Spotlight Stock 841
Herc Holdings is a rental equipment company, whose EPS barely flinched during 2020, its BI Rank is an impressive 10.7, and its 3-5 year annual growth rate is estimated at 31.5% (per 9 anlaysts)—not to mention that EPS growth this year is forecasted at 43% and next year at 28%. The potential market is $51 billion, of which Herc has 4%.
The company rents boom/crane equipment, forklifts, and other material handling equipment, scissor platforms, earth moving equipment, paving equipment, pumps, all manner of trucks and trailers, tools, generators ... even equipment like grips and lighting for making movies, TV shows, commercials or even videos. One intriguing area that is getting a lot of play is the renting of its equipment for disaster recovery—be it a flood, hurricane, tornado, fire, earthquake, or whatever. Herc even got some business due to the big freeze in Texas back in February which will help Q1.
The company also does some business with the energy industry, such as oil and gas exploration/production (deemphasized), pipeline, refinery or clean energy building wind or solar farms.
Contractors are naturally the biggest source of revenues, including residential and non-residential, accounting for 33%. Industrial is next, at 30% of revenue. This includes equipment for refineries and petrochemical operations, automotive, aerospace, power, mining, agriculture, paper, food and beverage industries, etc. And of course, infrastructure. Government customers are another big source of revenue at 18%, with all other accounting for the remaining 19%. This is where the movies, entertainment and special events like golf tournaments fit in, to name just a few, about 5-6% of revenue.
Herc operates out of 277 locations in 39 states and 5 Canadian provinces, primarily in midsize and especially large urban markets where it can get more efficient utilization of equipment.
The equipment is typically new at the time of purchase and the average age of the equipment fleet is generally in the 40 to 50 month range, currently 46 months.
The company plans to open 15-20 green field sites this year. In addition, in December Herc made its first acquisition, CSI, which added 4 locations in Texas.
Herc doesn’t give much guidance, but it does expect 2021 EBITDA to be in the range of $730 - $760 million.
While residential construction was a bright spot in 2020, commercial was slow, especially in Q2 and Q3. And yet, despite all this pandemic hurt, the company was able to earn adjusted EPS of $3.01, almost equal to the $3.15 reported pre-pandemic in 2019. Thanks to vaccinations, Herc is operating lean and mean and stepping on the gas.
For 2021, EPS estimates are $4.30 to $4.37 2021, about 43% growth. And analysts are expecting a further 33% gain in EPS, to $5.73 next year, and 31.5% annual growth over the next 3-5 years. This gives HRI a PEG of 0.7 (22.5 PE for 2021 / 31.5), a valuation very hard to come by in this market, as is 6.8 times free cash flow. The consensus for the seasonally slow Q1 is $.25, up from a pandemic impacted $.04. And note that the last 4 EPS surprises were 119%, 141%, 59% and 31.
And with just 4% of this $51 billion market, there is a lot of open road ahead, including M&A potential. There are lots of smaller rental companies out there. Meanwhile the BI Rank is 10.7 and Zacks gives the shares a 1 rank- Buy.
Herc’s earnings were a blowout (EPS of $1.10 vs. a consensus of $.25!). I speculated that full year EPS would have to be heading up from $4.30 to over $5 to maybe even $5.50. Well, analysts surprised me with their bravery and the consensus is now $5.96! Investors bid the shares to $110 … but they have illogically slipped back a bit. Go figure, though it’s actually nice when one of our stocks kneels down to let investors climb on. The valuation is only more compelling now—Buy.
Tom Bishop, BI Research, biresearch.com, April 21 & May 3, 2021
Herc Holdings Inc. (HRI) 52-Week Low/High: $23.06 - 114.74 | Why Herc Holdings:
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Feature Article 841
The equipment rental business is returning to fantastic health, according to the American Rental Association (ARA). Last year, the pandemic threw a wrench into the industry, causing an 11.7% revenue decline. Now for this year, the business is coming back, expected to grow sales to more than $50.2 billion. Looking forward, the ARA is forecasting revenues reaching $55.9 billion in 2022 and $60.5 billion in 2024.
It’s important to note that the forecast does include the latest COVID-19 economic relief bill passed in December, but it does not reflect funds that will trickle down to it from the $1.9 trillion American Rescue Plan being proposed by the Biden administration.
All in all, it’s expected that average rental rates as well as fleet utilization should add to the bright revenue picture.
And that’s great news for Herc! With 56 years in the equipment rental business, but just 4% market penetration, the growing industry presents an incredible opportunity to expand by acquiring the company’s less successful competition. Right now, Herc ranks as the #6 equipment rental company in the world, according to Insider Monkey. It is also one of the oldest. The industry began in 1955, just 65 years ago, but is now worth around $100 billion, worldwide.
And Herc is ready to move up!
As you can see from this picture, the company’s revenues are well-diversifed.
While its mainstream businesses are all rising as this pandemic subsides, Herc is also seeing a nice boost in entertainment rentals, as well as growth coming from urban rentals.
And its market continue to rebound, as you can see in this chart of revenue growth.
The shares of Herc look very attractive, and we aren’t the only ones to think so! Zack’s recommends the stock as a ‘Strong Buy’, based on sales efficiency, revenue and earnings growth, and upwardly revised earnings estimates. The shares are currently rated ‘Overweight’ at KeyBanc and Barclays. Some estimates for the share price are as high as $143. At this level, the shares appear undervalued.
Growth 841
The Lovesac Company (LOVE) | April 26
Lovesac reported strong 4Q21 results, with 41% y/y total revenue growth and record profitability, capping off a year when the company’s omnichannel strategy enabled it to successfully navigate COVID. A record number of product demos were completed last year despite showroom closures and restrictions, and Lovesac grew total transactions 32% y/y and saw AOV expand 11% y/y, as reduced promotional activity and a mix shift to higher-value products fueled a gross margin recovery.
Management continues to execute on a variety of strategic initiatives, and we expect improving marketing efficiency, product innovation, and a focus on sustainability will drive market share gains over time.
We are raising our estimates and PT to $77 (from $65), based on 2.5x our fiscal 2023 revenue estimate (vs. 2.4x 2022 prior) and supported by DCF valuation.
Maria Ripps, CFA, Michael Graham, CFA, Jason Tilchen, CFA, Canaccord Genuity Research, canaccordgenuity.com, April 15, 2021
Coinbase Global, Inc. (COIN)| Daily Alert May 6
Coinbase Global, Inc. is the largest platform for buying, selling, and trading cryptocurrencies. It has a commanding lead over all other competitors in most every way that counts. Coinbase has more users, more volume, more value exchanged, and greater reach than any other platform out there.
Coinbase is already figuring out plenty of alternate profit centers, beyond transaction fees. You can take out loans against your cryptos with Coinbase. And holders of cryptos can benefit—as many cryptos now allow owners to get paid an interest rate, as compensation if and when cryptocurrencies are used as collateral for other loans.
Coinbase is about to release a crypto-backed debit card—so you can spend your crypto currencies anywhere Visa is accepted. And, of course, Coinbase offers generous rewards to help grow its user base and get consumers comfortable with trading cryptos.
Cryptocurrencies are a very volatile market. We want to slowly build our position up over time, on the theory that sometimes we’ll buy high, sometimes low, but they should average out to good value prices. Known as dollar-cost averaging, this is a solid strategy to use when investing in volatile markets.
Buy a small stake in Coinbase at market. Every month—or at a frequency you feel comfortable with—add to that stake, until you eventually grow your COIN holdings into a full position. You don’t want to start out investing more than 1% of your total portfolio ($1,000 out of a $100,000 portfolio, for instance), and you shouldn’t go higher than 5% of your overall portfolio once you’ve finished investing via dollar-cost averaging. Hold through the likely volatility.
Ian Wyatt and Ryan Cole, Ian Wyatt’s Million Dollar Portfolio, wyattresearch.com, April 30, 2021
2nd Opinion
Coinbase is the premier platform for the exchange of cryptocurrencies … and right now, it has an incredible advantage and lead in the race.
Coinbase is an extremely profitable business, making most of its profit from charging fees to customers to buy and sell cryptocurrencies, most notably Bitcoin and Ethereum (ETH).
The company is expected to have made $1.1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) and around $750 million in net income in Q1 2021. Coinbase usually charges around 1.5% commission on trades for its retail-facing platform, but customers are able to get lower commissions (around 0.5%) for large amounts on Coinbase Pro.
It’s especially important to point out this net income number because it is more than the company earned in all of 2020.
Coinbase logged $1.14 billion in sales during 2020, up 139% year over year. Profits came in at $322 million versus a loss of $30 million. Gross income surged to $527 million, up 2,000%. And managers said two weeks ago that revenue during the first quarter was $1.8 billion, up 900% from a year ago. Profits are expected to be in the range of $730 million to $800 million. If you take the midpoint, that is a year-over-year increase of 2,300%.
The business looks a lot like Mastercard, Visa, Square, PayPal et al., and it is not by accident. Coinbase is operating a purely transaction-based platform where customers must pay to play. They pay a lot because Coinbase is the most trusted platform.
Overall, it looks like a good business, and the valuation really isn’t that crazy. The stock is more speculative than most, meaning more downside and upside, but there is a lot to like.
Savvy investors should strongly consider using recent weakness as a buying opportunity.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, April 30, 2021
Allegheny Technologies Incorporated (ATI)| Daily Alert May 14
ATI is a small cap ($3B) company that sells specialty titanium materials to the aviation business. The company has two Segments: high performance materials & advanced alloy solutions. The “customer” at ATI is the aviation business. The company lives or die on aviation business, and of course, last year was awful, and this year won’t be that good, But 2022 will be better and 2023 should be ‘back-to-normal’.
Allegheny makes titanium sponges—ingots, billets, bars, rods, wires, seamless tubes, precision components, and forgings. This is a dirty business, and while the company does find customers in other places, the focus at ATI is aviation orders.
So, for the next few years (it’s a trade) I am placing a bet at the table on RED 36 (ATI). It’s risky, but also could be big-time rewarding. Buy the stock up to $26; it’s plenty liquid as it trades 1.5 million shares a day.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, May 4, 2021
Royal Caribbean Group (RCL)| Daily Alert May 11
Shares of Royal Caribbean were crushed in the midst of pandemic-related shutdowns last year, but the rebound has been dramatic, as cruisers are a hearty bunch with bookings for future sailings surprisingly robust.
RCL disclosed that 80% of those with bookings told the company they are vaccinated or would be at the time of sailing, while crew members achieved a “mid-90s” percent vaccination rate for the flu shot (despite not being mandatory), leading management to expect similar rates of acceptance.
Although there remain questions about regulatory approvals in many locales for cruises to resume, we like that RCL has sufficient liquidity ($5.8 billion) to keep it afloat through 2023, even as we expect most ships to be sailing by 2022.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, May 4, 2021
Roblox Corporation (RBLX)| Daily Alert May 18
Gaming name Roblox Corp just posted its first earnings report since going public back in mid-March, and the results were mixed. The firm reported losses of 46 cents per share for its first quarter, which was wider than Wall Street’s forecasts. On the other hand, its revenue rose 140% from a year ago and topped expectations, coming in at $387 million. The company said its app, targeted towards children, had a successful debut a few month ago because of school shutdowns and stay-at-home orders.
All four analysts in coverage are optimistic on the Wall Street freshman, with “strong buy” ratings across the board. Adding to this, the 12-month consensus price target of $78.17 is a 23% premium to last night’s close.
Option traders appear to be in a similarly bullish boat. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RBLX sports a 50-day call/put ratio of 4.69. This means during the past 10 weeks the number of calls picked up has more than quadrupled the number of puts.
Bernie Schaeffer, Schaeffer’s Investment Research, SchaeffersResearch.com, 800-327-8833, May 11, 2021
Growth & Income 841
Hawkins, Inc. (HWKN) | Daily Alert April 23
There have been several split announcements since the last adjustment to the index. When compared with the various splits going back a few months, none of the recent splits quite measure up. Therefore, I’m going with Hawkins, Inc.
Hawkins announced a 2 for 1 split back in January and I’ve been watching it with interest since then. A recent dip in its price makes it more attractive than it was last month. Hawkins is a company that meets all of the desirable criteria noted in the paragraph above, including an insider ownership around 9.4%.
HWKN is a small cap business based in Minnesota making and selling specialty chemicals used in industrial processes, water treatment, and food preparation. Reasonable valuation numbers, good growth over the last few years, a very dependable dividend, and a low measure of volatility all make HWKN a good fit for the 2 for 1 Index.
Neil Macneale, 2 for 1 Stock Split Newsletter, 2-for-1.com, 408-210-6881, April 2021
Nutrien Ltd. (NTR, NTR.TO) | Daily Alert May 4
Nutrien is the world’s largest producer of agricultural fertilizers. This includes nitrogen and phosphates which it sells in bulk and at the retail level to farmers.
The Saskatchewan-based company was formed in 2018 from the merger of Agrium Corp. and Potash Corp. This network dominates in North America and Australia and is expanding in Latin America. The merger provided a way to compete with large producers in Belarus and Russia.
In its latest quarter, sales of $4.05 billion were 17% higher than a year earlier. Net earnings of $316 million or $0.55 cents per share compared with a loss of $48 million (-$0.08 per share) in the prior year. Note that the company reports in U.S. dollars.
In February, Nutrien raised its quarterly dividend for the third time in three years to $0.46 per share (about C$0.58), up a penny. It also plans to buy back up to 5% of its shares over the next year.
Nutrien is a buy.
Adam Mayers in Gordon Pape’s Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, April 26, 2021
LCI Industries (LCII) | Daily Alert April 29
LCI Industries is a market leading maker of components used in recreational vehicles, buses, trailers, trucks, boats, trains, and manufactured housing. LCI makes all kinds of products, including windows, axles, showers and sinks, awnings, electronics, and chassis. Each new towable RV sold in the U.S. has an average of $3,390 of LCI content, while each new motorhome RV has $2,479 in LCI components on average. These numbers have increased nearly every year since 2012.
The company serves markets in North America and Europe, but is executing on a strategy to expand its sales in its Europe, International, aftermarket, and adjacent industries and thus reduce the cyclical impact of the North American RV industry. To that end, it has been acquiring businesses outside the U.S. and in its non-RV-related products, making more than 50 acquisitions in the last 20 years, most focused outside of North America.
For the full year 2020, sales were up 17.9% year compared to fiscal 2019, while EPS grew 31.1% year-over-year. These gains were largely due to increased industrywide demand for RV shipments as consumers sought alternatives for vacation and travel. Total wholesale RV shipments in 2020 were the fourth highest on record.
In mid-April, management pre-announced sales for the company’s Q1 ended March 31, 2021, reporting sales would exceed $1.0 billion, up more than 50% over Q1 2020. The estimated EPS are up more than 90% from the prior year quarter.
Analysts who follow LCI Industries are seeking 20% annual EPS growth on average in the next half-decade. We are conservatively projecting revenues to grow 12% annually, with EPS growing at 15.2% driven by an increase in margins.
The company’s stock trades at a current P/E of 19.1, below its adjusted average P/E of 16.3. At a future high P/E ratio of 22.1 and future EPS of $14.81, the stock could reach $327 from the recent price of $139.57.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, May 2021
3M Company (MMM) | Daily Alert April 27
3M is being added to the Focus List. 3M occupies an attractive position that straddles both the pandemic and post-pandemic worlds. In the past year, 3M has increased capacity for respirator masks to 2.5 billion annually, four times higher than 2019 levels.
3M also makes products for the industrials, transportation, and consumer markets, which should get a lift from an economic rebound as the pandemic subsides. The consensus calls for 10% higher earnings per share for 2021 on 7% revenue growth.
Shares trade at 20 times estimated 2021 profits, a 28% discount to the median S&P 1500 Index industrial conglomerate. 3M is also a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, April 12, 2021
H.B. Fuller Company (FUL) | Daily Alert May 12
Founded in 1887, H.B. Fuller first made adhesives for barrels, shoes, and wallpaper. Today, it’s a global leader in adhesives, sealants, and other specialty chemicals, with operations in 35 countries.
Total revenue hit $2.8 billion last year, up from about $157,000 nearly a century ago. A broad and expanding customer base spans several growing markets, including electronics, automobiles, medical, and construction materials.
H.B. Fuller is benefiting from healthy volume growth and improved profit margins. Consensus earnings estimates have risen 7% over the last 90 days, with the average projecting 25% higher per-share profits for fiscal 2021 ending November. Generous cash flow should help sustain operating momentum and reward shareholders. Trailing 12-month free cash flow increased 11% to $207 million, providing flexibility to capitalize on internal expansion and acquisitions.
Last month, the company increased its quarterly per-share dividend 3% to nearly $0.17.
The stock earns an Overall score of 89, versus the average of 56 for the 37 specialty chemical stocks in Quadrix®. The stock is being started as a Buy.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, May 3, 2021
Harley-Davidson, Inc. (HOG) | Daily Alert May 13
52wk H. 50.67 52wk L. 17.80
Mkt Cap: $7.33B, EPS: 1.24, P/E:, 38.50 Beta: 1.50,
The motorcycle manufacturer’s current March quarter earnings of $1.68/shr up 200%+ surprised the analysts. Demand for motor bikes is running its factories at full capacity. Erratic chart pattern since Dec ;20. Surge in price movement appeared in its reversal in April ’20: (33-35) to (36-38), gapping up (38-40) with an upped-gap (42-44) to new high of 50.67
BUYING RANGE: 44-50
NR TERM OBJ: 61
INTERMED OBJ: 78
STOP LOSS: 38
Joseph Parnes, Shortex Market Letter, shortex.com, 800-877-6555, May 6, 2021
Financials 841
FactSet Research Systems Inc. (FDS) | Daily Alert April 15
I decided to take a look at the highest-rated diversified financials right now.
FactSet Research Systems Inc. FactSet creates data and software solutions for tens of thousands of investment professionals around the world. By providing instant access to financial data and analytics, its clients can feel informed to make crucial decisions.
The company has been around for over 40 years and has clients in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. Plus, FactSet has a 90% client retention rate. Not only do clients keep coming back, but the Weiss Ratings system keeps coming back to a “buy” rating, one FactSet has held since 2014.
Even through COVID-19, the company not only continued to pay its dividend but issued its expected increase. Shares are up 20.6% over the past year.
Kelly Green, Weiss Ratings, Weiss Ratings, 1-877-934-7778, weissratings.com, April 8, 2021
SelectQuote, Inc. (SLQT) | Daily Alert April 16
We’re taking a swing at SelectQuote, which has all the makings of a winner. The story is outstanding, as it operates the biggest insurance marketplace out there, and the firm has legitimate barriers to entry, thanks to the network effect and its own technology and history (one billion data points it integrates into its lead generation and routing efforts).
Numbers-wise, sales and earnings grew at triple-digit rates in Q4, and analysts see the bottom line up 83% this fiscal year (ending in June) and another 48% next year, both of which are likely conservative. The only hitch here is that about three-quarters of revenue comes from senior-related health plans (especially Medicare Advantage), but SelectQuote is taking share rapidly in that field and, of course, it’s a solid long-term growth area as long as the government doesn’t get overly involved.
BUY A HALF.
Nancy’s Note: Mike changed his rating on SelectQuote to SELL on May 13: SelectQuote (SelectQuote was the latest earnings dud, and the report wasn’t even that bad—sales (up 57%) and earnings (up 80%) were solid, and metrics for the firm’s key senior health-related sales were strong (up triple digits again). But management also cut cash flow guidance because of higher spending. Analysts still think the firm will earn 83 cents per share this fiscal year (ending in June) and $1.27 in fiscal 2022, but none of that mattered—SLQT completely disintegrated after the report as any bad news attracted the bears. If you want to hold onto a piece of the stock for a possible bounce, that’s fine, but in these rare instances the main focus should be on making sure a bad situation doesn’t get much worse. We sold our half-sized stake. SOLD
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, April 8, 2021
Farmers & Merchants Bancorp (FMCB) | Daily Alert April 19
Founded in 1916, Farmers & Merchants Bancorp is a locally owned and operated community bank with 32 locations in California. F&M Bank has paid uninterrupted dividends for 86 consecutive years and has raised its dividend for 56 consecutive years.
F&M Bank reported (2/4/21) financial results for 2020. Despite the pandemic and the suppressed interest rates, the bank grew its earnings-per-share 4.8% over the prior year, and thus achieved record earnings-per-share of $74.03 for the full year. Net interest income grew 6.2% in 2020, thanks to 16.1% growth in loans, while deposits grew 24%.
Unlike most banks, which recorded significant loan loss provisions due to the pandemic, F&M Bank has booked provisions for loan losses equal to only 1.9% of its total portfolio. It was also able to enhance its net interest margin from 3.80% in the third quarter to 3.86% in the fourth quarter. Despite the impact of the pandemic on the economy, management is optimistic for this year thanks to the sustained business momentum.
Shares trade for a P/E ratio of ~10, compared with our fair value estimate of 12. An expanding valuation multiple could increase annual returns modestly each year. Combined with 5% expected EPS growth and the dividend yield, total returns are expected to reach 10.2% per year over the next five years.
Ben Reynolds & Bob Ciura, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, 800-531-0465, April 9, 2021
Broadridge Financial Solutions, Inc. (BR) | Daily Alert April 21
Broadridge Financial Solutions Inc. serves the investment industry in three main areas: investor communications, securities processing, and transaction clearing.
Broadridge last raised its quarterly dividend by 6.5% with the October 2020 payment, to $0.575 a share from $0.54.
The company is now buying Itiviti Holding AB, a leading provider of trading and connectivity technology to the capital markets industry. Headquartered in Stockholm and with offices in 16 countries, Itiviti serves 24 of the top 25 global investment banks and over 2,000 leading brokers, trading firms and asset managers across 50 countries.
The acquisition should be a good fit for Broadridge. It will add Itiviti’s front-office trade order and execution management systems to its own industry-leading post-trade product offerings and other capital market capabilities.
In addition, Itiviti’s strong presence in the Asia-Pacific region, as well as Europe, the Middle East, and Africa, will significantly expand Broadridge’s revenues outside of North America and enhance its international footprint in key markets. Itiviti’s blue-chip client base should also provide significant cross-selling opportunities for Broadridge and further enhance the company’s long-term growth.
Broadridge has increased its average annual dividend by 13.9% over the past 5 years. Its TSI Dividend Sustainability Rating is Above Average.
Patrick McKeough, Dividend Advisor, tsinetwork.ca, 888-292-0296, April 9, 2021
Citizens & Northern Corporation (CZNC)| Daily Alert May 7
Wellsboro, Pennsylvania-based Citizens & Northern operates as a holding company for Citizens & Northern Bank, which provides an extensive range of banking services, and deposit and loan products for personal and commercial customers.
It competes in Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron and McKean counties in Pennsylvania, and Steuben and Allegany counties in New York.
Net interest income is expected to rise 14% to $78.4 million. Earnings are expected to be $1.75 per share, giving CZNC a price-earnings ratio of 13.3, a discount of 12% to the stock’s five-year average P/E of 15.1.
Members of the board of directors have been avid buyers of CZNC shares over the past two years, including this month. Citizens & Northern pays a quarterly dividend of $0.27.
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, April 9, 2021
Technology 841
Dell Technologies Inc. (DELL)| Daily Alert May 3
Dell Technologies announced last Wednesday that it plans to proceed with the spinoff of its 81% ownership of enterprise software maker, VMware, which it intends to complete in the fourth quarter of 2021.
Under the terms of the spinoff, VMware will distribute a special cash dividend of $11.5-12B to all VMware shareholders. This special cash dividend also includes Dell, which will receive $9.3-9.7B that it will use to pay down debt to position the company for investment grade ratings.
I’ve updated my sum-of-the-parts model and think Dell is conservatively worth $118, implying ~16% upside. This valuation assumes Dell trades at 6.0x EBITDA and 4.8x FCF. This is probably too conservative.
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, stockspinoffinvesting.com, 617-750-7454, April 26, 2021
Sonos, Inc. (SONO)| Daily Alert April 28
Sonos was the first company to introduce multi-room wireless audio solutions. Its smart speakers, amplifiers, ports, and other audio accessories are easy to set up and offer a premium sound experience, without all the expense and hassle of running wires throughout a home.
This relative simplicity makes Sonos’ solutions a perfect fit for the millions of homes, apartments and commercial buildings that were not previously hard-wired for audio systems, and for owners that don’t want to invest in hard wiring during construction.
With over 100 content providers (Pandora, Spotify, Apple Music, etc.) these components will stream podcasts, music, audiobooks, and internet radio to any in-range areas of a property that contain Sonos’ speakers, giving owners flexibility to expand their system to suit their needs.
This flexibility is one of the key selling points for first-time buyers. Management says 41% of customers came back to purchase additional products in 2020. That trend with repeat customers also helps illustrate the large opportunity in front of Sonos, which has just expanded its addressable market by up to four times (from $25 billion to $100 billion) by introducing products and partnerships beyond the home audio market and into the global audio market.
Sonos management is now pitching the company as no longer owning roughly 5% of the home audio market, but owning a much smaller slice of the much larger global audio market. That’s a compelling proposition for investors, especially as they realize that the company is increasingly open to licensing certain IP, which could drive wider adoption of services, like Sonos radio HD.
Revenue was up 11% in 2019 then expanded by a comparatively meager 5% in 2020 (to $1.3 billion) owing to Covid impacts in the first half of the year.
Analysts are currently looking for sales to grow 18% to $1.56 billion in 2021, then by 11% next year. Adjusted EPS was -$0.18 in 2020 but should flip positive to $0.81 this year and grow by roughly 25% in 2022.
Sonos was originally recommended by Tyler Laundon in Cabot Early Opportunities. BUY.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, April 12 and 19, 2021
Marvell Technology, Inc. (MRVL)| Daily Alert May 10
Marvell Technology Group shares were flat this week after the company announced last week the completion of its acquisition of Inphi Corporation. The combination creates a U.S. semiconductor powerhouse positioned for end-to-end technology leadership in data infrastructure. Marvell designs, develops, and sells a wide variety of semiconductor products that are at the core of 5G-capabable networks. The company’s processors and products are cutting-edge and already generate $3 billion in annual sales.
Marvell’s markets include drones, data integration and consumer and industrial robotics. These are all huge markets giving Marvell an opportunity to post double-digit growth in both sales and net profit in 2021. Despite these high-growth markets, the stock is trading at a reasonable 22 times earnings. I suggest we take advantage of the pullback in tech stocks to begin with a half position. BUY A HALF
Carl Delfeld, Cabot Explorer, cabotwealth.com, 978-745-5532, April 29, 2021
Resources & Energy 841
Sibanye Stillwater Limited (SBSW) | Daily Alert April 26
SBSW is a South Africa-based producer of precious metals that develops and extracts mineral properties. Its diverse portfolio includes platinum metal operations in the United States and South Africa, gold operations and projects in South Africa and copper, gold, and platinum metal exploration properties in North and South America. Sibanye is the largest primary producer of platinum, the second-largest primary producer of palladium and ranks third among global gold producers on a gold-equivalent basis.
What we like about SBSW is that it has been at the top of the list of mining stocks in terms of share price performance over the past year. In fact, its 190% spike over the past 52 weeks has vaulted the stock into the top 10% of all public companies for share price performance over the past year.
The company is also an earnings powerhouse, with EPS surging in its most recent quarter and year-over-year earnings per share (EPS) estimates for growth of more than 60% in fiscal 2021.
Technically speaking, SBSW has formed a very bullish cup-with-handle pattern over the past eight weeks. Moreover, today’s slight giveback means that there is a chance for us to get in on SBSW before it stages its next big move higher.
Let’s buy Sibanye Stillwater Limited at market, with a protective stop at $15.90.
For those willing to make a bigger bet, we recommend the SBSW July $22.50 call options (SBSW210716C00022500), which last traded for $1.10 and that expire on July 16.
Mark Skousen & Jim Woods, FMA Trader Alert, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, April 19, 2021
Franco-Nevada Corporation (FNV)| Daily Alert May 5
Franco-Nevada has expanded into iron ore, buying some of Vale’s outstanding Participating Debentures from the Brazilian government. The debentures provide holders with life-of-mine net sales royalties on Vales’s low-cost iron ore systems in Brazil and some gold and copper operations. The weighted life of the iron ore mines is 30 years with potential for extension for many decades. Based on current economics, the debentures return a 10% yield.
At the same time, Franco announced it had acquired a 9.9% investment in Labrador Iron Ore Royalty Corp., purchased over “a number of years” for an average cost of $14.72; the units are trading today at $38 a share. These investments diversify the commodity exposure and provide “a base of low-risk, long-life cash flow”, according to CEO Paul Brink.
Franco is a cornerstone holding for us: top management, diversified asset base and extensive pipeline, solid balance sheet all make it our go-to gold investment. Given the jump from $105 in the last two months, we are not chasing it. But it you do not own it, look for any opportunity to buy.
Adrian Day, Adrian Day’s Global Analyst, adriandayglobalanalyst.com, 410-224-8885, April 25, 2021
*Rio Tinto Group (RIO)
I recommend you target a new, diversified global materials giant for generous income and juicy potential gains. I’m talking about Rio Tinto Group (Rated “B-”). London-based Rio Tinto produces everything from iron ore and aluminum to copper, diamonds and titanium. It has more than 47,500 employees spread across 60 locations in 35 countries.
Among its far-flung operations are the large iron ore mining, rail transport and shipping facilities in Pilbara, Western Australia ... the Oyu Tolgoi copper mine in Mongolia ... the Argyle and Diavik rough diamond mines in Australia and Canada ... and a long-running borate mine in California, which supplies a mineral used in fertilizer, glass and home insulation.
Rio Tinto managed to report a 3% rise in sales, 6% growth in cash flow from operations and a 20% increase in core earnings last year despite the COVID-19 pandemic. That’s because materials demand and pricing rose strongly in the second half of 2020 as stimulus kicked in.
Rio Tinto couldn’t avoid business hiccups entirely. Its aluminum results weren’t as strong as I’d like to see, and currency market movements put upward pressure on costs. But the firm’s overall outlook is solid. Net debt has been coming down. Rio Tinto’s U.S.-traded shares sport a dividend yield of almost 6%, courtesy of generous regular and special dividends (the firm pays out on a semiannual basis).
And our Weiss Ratings system upgraded the stock to “Buy” territory in December.
Buy a 2.5% position in Rio Tinto Group at the market.
Mike Larson, Safe Money Report, 1-877-934-7778, weissratings.com, April 2021
*Southwest Gas Holdings, Inc. (SWX)
Southwest Gas would seem to be a good candidate for a spinoff, combining a leading utility construction company Centuri with a solidly growing gas distribution utility (customer growth, 1.7%). Shares trade at just 16.6 times expected next 12 months earnings.
The Centuri unit has seen solid earnings momentum the past few years, realizing $90.5 million of incremental revenue this winter from emergency services alone. And with a solid base of regulated utility contacts, it’s easy to see higher US infrastructure spending directed at the electric industry flowing to its bottom line.
Management appears to be making very conservative assumptions for Centuri this year, with a 1% to 4 % increase in revenue and operating income of 5.3 to 5.8% of sales. And a real opportunity to grow faster may prompt at least a partial spinoff to raise needed capital.
Southwest is a buy up to 75.
Roger Conrad, Conrad’s Utility Investor, www.ConradsUtilityInvestor.com, 888-960-2759, May 2021
Low-Priced Stocks 841
*KonaTel, Inc. (KTEL)
KonaTel provides cellular products and services to individual and business customers in various retail and wholesale markets in the U.S. KonaTel’s subsidiary, Apeiron Systems, is a global cloud communications service provider employing a dynamic “as a service” (CPaaS/UCaaS/CCaaS/PaaS) platform. Its other subsidiary, Infiniti Mobile, is an FCC authorized wireless Lifeline carrier with an FCC approved wireless Lifeline Compliance Plan, authorized to provide government-subsidized cellular service to low-income Americans.
KonaTel revenue grew to $9.5 million in 2020, up 2% from 2019. The uptick was due to increasing work-from-home usage trends and strong organic growth in its Hosted Services business. Quarterly revenue grew 36% yoy to $2.6 million, its highest growth rate in years.
Outlook for revenue has also drastically improved due to the Biden Administration’s pledge to allocate more funds to the Lifeline program. This would increase monthly revenue by as much as $300,000, which would bolster the company’s growth.
Net income jumped to $238,618 in 2020, up significantly from a net loss of $1,585,000 in the prior year.
For a stock that was trading on the OTC Pink Sheet Markets one year ago, KonaTel has great fundamentals. Cash and cash equivalents grew to $715,195 in 2020, up 273% from $191,474 in the prior year. Total liabilities are down to $1.4 million, which is attributable to lower accounts payable.
Insiders account for 85% of the outstanding shares. The largest holder is CEO and President David McEwen, who holds 13.5 million shares.
The ideal entry point for the stock is under $0.50, but the stock could easily trade over $1 if the Lifeline program grows as expected.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, May 2021
High-Yield & REITs 841
*BCE Inc. (BCE)
BCE is Canada’s largest communications company, providing a comprehensive suite of broadband, mobile, landline, and cable communication services to residential and business customers through Bell Canada and Bell Aliant.
The chart looks very choppy but the stock has gradually moved up in recent weeks, although it is still off its 52-week high of $60.14.
Net earnings attributable to common shareholders totalled $642 million, ($0.71 per share), down 5.3%. The decrease was due to higher severance, acquisition, and other costs as well as higher depreciation and amortization expenses.
The company’s balance sheet is in good shape, with $6.5 billion in available liquidity at quarter-end.
BCE raised its quarterly dividend by 5% to $0.875 per share ($3.50 a year), effective with the March payment. The stock yields 5.9% at the current price.
The company is forecasting revenue growth of 2-5% this year. Adjusted earnings per share are projected to increase 1-6%.
Buy.
Gordon Pape, Income Investor, buildingwealth.ca, 1-888-287-8229, May 13, 2021
AGNC Investment Corp. (AGNC)| Daily Alert May 17
Mortgage REIT (Real Estate Investment Trust) AGNC Investment Corp. has been in an uptrend for over a year that has steepened over the past couple of weeks.
AGNC will benefit from a stronger economy (as demand for mortgages increases) as well as rising interest rates and has been moving higher in anticipation. In the past few weeks, a stronger economy and likely rising rates have become more of a reality, and the stock is reacting accordingly.
I expect more of the same over the course of the year. BUY
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, May 5, 2021
Funds & ETFs 841
Reaves Utility Income Fund (UTG) | Daily Alert April 20
The Reaves Utility Income Fund is a publicly listed closed-end fund with an emphasis on paying a high distribution to shareholders through dividends and capital gains generated by the Fund’s investments. The Fund invests in infrastructure stocks, predominantly utilities.
If the stock market gets ugly—and it will come at some point—UTG will be one of your most stable income investments.
This closed-end fund pays monthly dividends and just announced an unchanged $0.18 per share to be paid at the ends of April, May, and June. The next ex-dividend date for UTG is Thursday, April 22nd.
Buy or Accumulate Shares of UTG up to $36.00, locking in a 6% or higher yield.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, April 13, 2021
Columbia Seligman Premium Technology Growth Fund (STK)| Daily Alert April 30
The Columbia Seligman Premium Technology Growth Fund (STK), which, as the name suggests, holds tech stocks, including leaders like Microsoft (MSFT), Alphabet (GOOGL) and Broadcom (AVGO). Year to date, STK has posted an impressive 25% total return, beating both the S&P 500 and the tech-focused NASDAQ 100:
STK Beats the Indexes (Handily)
And, of course, STK sells call options on its portfolio to generate extra income, which it hands to us in the form of its 4.3%-yielding dividend. (That’s a bit below the yield on the average covered-call CEF, due to the fact that the fund’s price has soared.)
From the chart above, it seems like it is roaring indeed, and it’s definitely a fund any CEF investor should have their eye on.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, April 22, 2021
Vanguard Total Bond Market Index Fund ETF Shares (BND)| Daily Alert May 19
Our portfolios are shifting to a more neutral stance until we get that NASDAQ Seasonal Sell Signal.
As you likely know, we don’t “Sell in May and go away.” We do sell some things, and we do buy some things for the Worst Six Months. Instead of selling in May, we prefer to “Reposition in May.” For the beginning of our Worst Six Months repositioning, we’ve suggested establishing half positions in Vanguard Total Bond Market (BND) with a Buy Limit of $85.65.
Jeffrey A. Hirsch, Stock Trader’s Almanac, stocktradersalmanac.com, 800-762-2974, April 29, 2021
Updates 841
SELL: Exponent Inc. (EXPO) | Daily Alert April 23
Updated from WSBD 806, June 20, 2018
Exponent Inc. will be deleted from the 2 for 1 Index next Monday. EXPO has been one of the best companies 2 for 1 has ever had, with over a 31% annualized overall return over 5½ years. It’s been in the index more than the standard 30 months because it split a second time while it was already on the list.
Hopefully, it will split again soon so we can add it back into the index. Exponent is a great company!
Neil Macneale, 2 for 1 Stock Split Newsletter, 2-for-1.com, 408-210-6881, April 2021
*SELL Trimble Inc. (TRMB)
Updated from WSBI 832, August 27, 2020
We are dropping Trimble from the Focus, Buy, and Long-Term Buy lists. The company delivered strong March quarter results and raised its fullyear outlook. But the shares fell on the seemingly strong report, suggesting Trimble fell victim to heightened expectations and market punishing richly valued stocks.
We’re taking our profits and focusing on more attractive opportunities elsewhere. Trimble is being removed from the Monitored List and should be sold.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922. May 17, 2021
SELL Fonar Corporation (FONR) (SYM) | Daily Alert April 29
Updated from WSBD 822, October 16, 2019
Unfortunately, the company’s recent string of mixed financial results and concurrent weak quarters has caused the market to lose confidence in the company and its technical base to weaken considerably. With nothing on the horizon to indicate that fundamentals might soon return to form, and while the rest of the small-cap segment is having a banner year-to-date, there are many better uses for funds than owning Fonar at this point. As such, we conclude that it’s time to discontinue coverage of Fonar Corp.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, May 2021
SELL Booz Allen Hamilton Holding Corporation (BAH) | Daily Alert April 27
Updated from WSBD 830, June 16, 2020
We are dropping Booz Allen Hamilton from the Long-Term Buy List. The stock has struggled to recover ground lost after its messy December-quarter report. Not helping matters, analyst profit estimates for the March and June quarters dipped after management warned of potentially choppy sales.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, April 12, 2021
PARTIAL SELL Kohl’s Corporation (KSS)
Updated from WSBD 288, September 14, 2016
With the stock at an elevated position size in most of our managed accounts that were following the TPS Portfolio strategy, while cash levels were relatively low as opportunity presented itself elsewhere, we decided to pare our position in Kohl’s back to around 1.2% at prices no lower than $60.80.
We still like the company and the management team, and think that shares trade for a reasonable price, especially when considering that EPS is expected to return to pre-pandemic levels near $5.00 in fiscal 2024. Our Target Price for our remaining Kohl’s stake is $70, but we thought it prudent to take advantage of the 49% year-to-date gain in the stock, even as this was more of a portfolio management decision, given that cash is finite.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, May 5, 2021
*SELL Avid Technology, Inc. (AVID)
Updated from WSBD 836, December 17, 2020
We dropped coverage of Avid Technology. The stock is not among our favorite technology plays, partly reflecting middling Quadrix scores for Value (37) and Financial Strength (39). The stock earns an Overall score of 64, down from 84 at the end of March. Readers are encouraged to lock up gains in Avid.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, May 3, 2021
*SELL Uber Technologies, Inc. (UBER)
Updated from WSBD 836, December 17, 2020
Uber, originally recommended by Mike Cintolo in Cabot Growth Investor, gapped down last week after releasing its first quarter report, so we will now sell and take a modest loss. In last Thursday’s update Mike wrote, “The Q1 report was very solid, with gross bookings actually up 24% from a year ago, driven by a whopping 166% gain in Delivery bookings, with normalized revenue up 11% from the prior quarter (Delivery revenue up 230%!). EBITDA, while in the red, topped expectations as well. But it wasn’t enough, with investors instead keeping their focus on the U.S. decision to classify gig economy workers (like Uber’s drivers) as employees; management said it can handle the cost, but Wall Street is pessimistic, driving the stock toward its 40-week line and below our stop. Honestly, we still think UBER will eventually have a sustained run, and if it shapes up down the road, we could take another swing at it. But the fact that it’s constantly run into resistance in recent months is a sign it needs more time, seasoning and clarity on its business and costs before big investors give it their blessing.” SELL.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, May 10, 2021
*SELL Advanced Energy Industries, Inc. (AEIS)
Updated from WSBD 827, April 10, 2019
Advanced Energy Industries is being downgraded to Sell because of mixed March-quarter results and disappointing guidance. Per-share profits jumped 42% and outpaced the consensus. But revenue was below analyst expectations, reflecting supply shortages. For the June quarter, management targets sales of roughly $360 million, below the consensus of $375 million. Per-share earnings are expected to be $1.10 to $1.40, versus the consensus of $1.42. The stock should be sold.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, May 7, 2021
*SELL Mohawk Industries, Inc. (MHK)
Updated from WSBD 816, March 19, 2020
We are moving Mohawk Industries from BUY to SELL. The company’s turnaround from its modest difficulties yet overly-depressed stock appears complete, and the shares have reached our 220 price target, although they have modestly retreated today.
Bruce Kaser, Cabot Turnaround Letter, cabotwealth.com, 978-745-5532, May 12, 2021
Investment Index 841
The next Wall Street’s Best Digest issue will be published on June 10, 2021.
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