Here is your September Wall Street’s Best Digest, issue 845.
Thank you to all who attended our Cabot Wealth Summit last month. It was an information-packed few days, with lots of new ideas shared by all of our analysts. We hope next year we can resume our in-person meetings, as we miss seeing you!
Despite COVID’s resurgence, the markets are holding up surprisingly well. The economy is still strong, housing is robust, but businesses need employees. The unemployment rate for August fell to 5.2%, but new jobs added were much less than anticipated. Once those numbers improve, and COVID recedes, we should be in for an even stronger economy. And that’s great news for the markets!
In this issue, our Spotlight Stock revisits an old favorite of mine—a net-lease REIT that has boosted its dividend for 31 consecutive years! In my Feature article, I discuss all the reasons why this stock has been a perennial winner.
In our Growth section, you’ll find a lot of familiar names, including companies in the retail, hospitality, and communications realms, as well as a couple of newer ones in the fast food franchising, and electric vehicle charging arenas. There are a lot of great names to choose from in Growth & Income, including many industrial-related companies, as well as a home products and chemical manufacturer.
Our Financial offerings include a bank and a money exchange company. And in Healthcare, you’ll find options in biopharma, equipment, and 3-D. And speaking of 3-D, our contributors for technology stocks include one of those companies, as well as a semiconductor, cloud, and two payments businesses.
Resources, Energy, and Utilities continue to be popular fields, as our advisors offer several utilities and midstream energy companies here. Our Low-Priced Stocks are in two relatively new arenas—carbon credits and lab-grown gems. And in Preferred Stocks, High Yield, & REITs, you’ll find a couple of investment/capital corporations.
Lastly, our Funds & ETFs provide a variety of ideas, including cryptocurrency, consumer staples, alternative energy, and water sustainability.
Don’t forget to tune into my monthly Platinum Club webinars. Our October program is scheduled for October 6, at 2pm Eastern. And as always, please don’t hesitate to email me with your feedback and questions. My address is nancy@cabotwealth.com.
Market Views 845
Market breadth has improved quite a bit. Both breadth oscillators are on buy signals, and they are finally both overbought, but that is what we expect (and want) to see with $SPX making new all-time highs.
Indicators involving implied volatility remain bullish for the stock market as well. The $VIX “spike peak” buy signal of August 19th remains in place. The trend of $VIX remains downward, as it is below both its 20-day and 200-day moving averages, and those are both declining.
In summary, the indicators are bullish, for the most part. Therefore a “core” long position should still be maintained. It is still wise to avoid complacency. Continue to raise stops where appropriate and, most importantly, adhere to your stops if they are hit. One of the worst forms of complacency is ignoring your sell stops in a bull market.
Lawrence G. McMillan, The Option Strategist, optionstrategist.com, 973-328-1303, August 3, 2021
Not Cheap, but Still Attractive
With the major market averages moving up in the last two weeks, folks became more optimistic. The CNNMoney Fear & Greed Index rebounded from Fear into Neutral. Extreme Fear readings for Stock Price Breadth and Stock Price Strength were offset by Extreme Greed for Junk Bond Demand and Put and Call Options, as well as Greed in Market Momentum.
Certainly, we respect that a forward P/E ratio of 22.3 for the S&P 500 is not cheap by historical standards, but one cannot look at equity valuations in a vacuum. After all, there is a big difference between what presently is available on Main Street as far as a risk-free rate (the yield on a popular money market fund is 3 basis points today) compared to what could have been had back in the year 2007 and 2000.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, September 6, 2021
Look for Shakeout
If our macro view remains valid; then a shakeout or correction would be within-context of the Bull Market that began as identified on March 23rd of “last” year; and that means technicians tracking based on the 2009 lows are missing a bigger picture being compressed into a smaller timeline vs. past long-term patterns (that means March last year was a cycle low).
Essentially, we are overdue and vulnerable for an S&P and big-cap NDX drop; but it promises to be a shakeout more than calamity; provided algorithms are not triggered for blindless thinking managers failing to override; which is what some of them did as we made the (nailed) “Inger Bottom” on March 23 2020. I have to emphasize I do not expect that extend of vulnerability this go-round; I do however allow for a regression to the mean (of sorts) this month or next. It is such a grinding market (almost neutral) that timing closer is not feasible yet.
Gene Inger, The Inger Letter, ingerletter.com, September 3, 2021
Spotlight Stock 845
One of our favorite areas of the REIT sector to invest is in the net lease subsector.
This is where you’ll find the well-known triple net lease names who’ve not only provided reliably growing dividends for investors for decades, but also generated tremendous amounts of wealth for individuals who were confident enough to stick with these names through thick and thin.
National Retail Properties offers a quality score of 94/100 and a value score of 70/100, meaning that its total IQ+IV rating of 164 is even higher than Realty Income’s, which comes in at 159.
Not only does NNN have a higher aggregate IQ/IV score than O, but it also has a longer annual dividend increase streak. Realty Income often gets the love from income-oriented investors (and rightfully so), but the fact is, NNN’s 31-year annual dividend increase streak is more impressive than O’s 26-year streak.
What’s in the past is in the past—we know that. But multi-decade streaks like this show that management teams have the proven ability to conservatively navigate a wide variety of economic conditions and environments.
A 30-plus-year streak means that NNN has successfully navigated numerous dips, sell-offs, and several deep recessions, all the while providing its shareholders with the safe and reliable dividend income that they desire.
It appears that the company can now add the COVID-19 pandemic and recession to that list as well. NNN struggled a bit early on in the recession with rent collection and AFFO results; however, the company has quickly bounced back. We recently reported on NNN’s second-quarter report. In this article, one of the most impressive stats was NNN’s Q2 occupancy ratio of 98.3% and its 99% rent collection figure.
In short, NNN is now achieving pre-pandemic type of performance metrics and after seeing its AFFO fall by 10% during 2020, the company’s management team has the ship righted again, with 20% AFFO growth expected to occur this year.
With this 20% AFFO growth in mind, we see that NNN currently trades with a forward P/AFFO ratio of 15.75x.
Not only is this much cheaper than the ~20x multiple that we’re seeing attached to Realty Income, but it’s cheaper than NNN’s long-term average P/AFFO multiple of 16.1x.
NNN’s growth is expected to slow, back down to the low single digits in future years, which plays a role in our relatively conservative price target. Right now, we place a “Buy Up To” price of $49/share on NNN, pointing towards near-term upside potential of approximately 3.5%.
NNN currently yields 4.47%, which is roughly 50 bps higher than O; this high yield, combined with the stock’s relatively low valuation, reliable bottom-line growth prospects, and the potential for multiple expansion to occur, pushing NNN’s P/AFFO back up towards its long-term average, presents investors with an opportunity to pay a sub-market multiple for a dividend aristocrat that has the potential to generate high-single-digit/low-double-digit total return CAGRs over the medium to long term.
Due to the attractive nature of the triple net lease business model, where landlords pass along expenses related to taxes, maintenance, and insurance costs onto tenants, these companies generate some of the highest margins and most reliable cash flows that we’re aware of in the entire market.
For investors looking to put cash to work in today’s market and to take advantage of this model, the net lease space provides a handful of attractive opportunities.
Brad Thomas, Forbes Real Estate Investor, forbes.com/newsletters, brad@theintelligentreitinvestor.com, August 31, 2021
National Retail Properties, Inc. (NNN) 52-Week Low/High: $31.41 - 50.33 | Why National Retail Properties:
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Feature Article 845
As many of you long-time subscribers know, I love Real Estate Investment Trusts! Their nice cash flow and general stability have kept many of my portfolios out of hot water during uncertain—and bullish—markets.
And National Retail Properties is a personal favorite! I have been in and out of these shares for more than 20 years, and my subscribers have made a bundle.
There are several reasons why I was, and continue to be, attracted to this REIT. First, it is a triple net lease REIT, which means that the the tenants or lessees agree to pay—in addition to rental and utility fees—all the expenses of the property, including real estate taxes, building insurance, and maintenance. In a typical lease, the landlord is responsible for these items. So, in effect, these very expensive outlays are passed on to the tenant, which gives the landlord (or owner) much more financial flexibility.
The second reason—which contributor Brad Thomas, editor of Forbes Real Estate Investor, mentioned—is that National Retail acquires single-tenant retail properties. Consequently, there is no need to worry about a huge shopping center with a primary anchor store that may ultimately go out of business—such as Sears, JCPenney, and others, which can take the entire center down. Also, the leverage held by a significant anchor can also limit the landlord’s net income over time.
Third, who doesn’t like 31 consecutive years of dividend increases? And with a dividend yield of 4.47%, that’s a lot of cash flow!
And lastly, I especially like the REIT’s geographic and industry diversification. As of second-quarter 2021, National Retail Properties operated 3,173 properties in 48 states, which gives the company significant protection against weak regional economies and natural disasters in particular regions. As an example, last year when COVID was at its worst, many states were hit so badly they locked down, but others didn’t suffer as much, so revenues there helped mitigate the losses.
| Top 10 Tenants | Properties | % Base Rent |
| 7-Eleven | 139 | 5 |
| Mister Car Wash | 120 | 4.7 |
| Camping World | 47 | 4.3 |
| LA Fitness | 30 | 3.8 |
| GPM Investments (Convenience Stores) | 153 | 3.3 |
| Flynn Restaurant Group (Taco Bell/Arby’s) | 204 | 3.2 |
| AMC Theatre | 20 | 3 |
| Couche-Tard (Pantry) | 83 | 2.7 |
| BJ’s Wholesale Club | 11 | 2.5 |
| Sunoco | 59 | 2.2 |
Source: NNN Presentation, as of 6/30/21
Even so, National Retail Properties’ funds from operations (FFO, the REIT equivalent of earnings) declined from 2019 to 2020 but began recovering this year. For the second quarter, FFO came in $.077 per share, up from $0.65 last year, and beating the consensus estimate of $0.74.
And for this year, the REIT expects that adjusted funds from operations will increase to $2.95 to $3.00 this year—5% to 7% over the pre-pandemic year of 2019.
In summary, I think National Retail Properties is a good bet on long-term economic prosperity.
Growth 845
Arcos Dorados Holdings Inc. (ARCO) | Daily Alert August 23
Arcos Dorados, which is Spanish for “golden arches,” is the world’s largest independent McDonald’s franchisee. Based in stable Uruguay and listed on the NYSE, the company produces about 72% of its revenues in Brazil, Mexico, Argentina, and Chile. Arcos’ leadership looks highly capable, led by the founder/chairman who owns a 38% stake.
The shares are undervalued as investors worry about the pandemic, as well as political/social unrest, inflation, and currency devaluations. However, the company is well-managed and positioned to benefit as local economies re-open.
The stock will likely remain volatile until we have more clarity on its earnings and the effects of the pandemic, including the Delta variant, on its outlook. We remain steady in our conviction in the company’s recovery. The low share price offers a chance to add to or start new positions in ARCO.
Bruce Kaser, Cabot Undervalued Stocks Advisor, cabotwealth.com, 978-745-5532, August 11, 2021
Airbnb, Inc. (ABNB) | Daily Alert September 7
This morning, Airbnb stated that it would look to provide housing for 20,000 Afghan refugees. Estimates are that there may be as many as 2.5 million refugees. So, while it’s a small humanitarian gesture, one odd thing is happening. Shares are rallying.
I think there are a few reasons for this rally, and why it makes sense.
First, Airbnb has created a hub with millions of potential users and hosts. Second, with Covid still impacting global travel, there are likely a lot of potential Airbnb hosts who don’t want to have guests for a few nights, or at all. Or there may be local restrictions on such travel that doesn’t apply to refugees. But those hosts might open up a spare room or guest house for a few months for a person or family who needs it now. That’s especially true with Airbnb footing the bill.
Finally, things will change in time. Refugees will find permanent homes (whether in their original country or a new one). The goodwill that Airbnb is earning from its move today will be remembered by millions for years to come.
Already, news of this program has saved Airbnb millions on advertising—and it’s just the first day.
While Airbnb is a relatively pricey stock as judged by its financial fundamentals, the truth is it’s probably about as affordable as it will ever be. While shares have popped higher today, they’re well under our maximum buy price of $215.
Ian Wyatt, Ian Wyatt’s Million Dollar Portfolio, wyattresearch.com, August 24, 2021
T-Mobile US, Inc. (TMUS) | Daily Alert September 8
T-Mobile US Inc., the second-largest carrier in the U.S., boasts the first and largest nationwide 5G network.
5G is superfast (can operate up to 100 times faster than 4G networks), has low latency and will open doors for a new generation of apps that include virtual reality and will likely allow for more automated factories, thus potentially speeding up economic activity. T-Mobile’s Extended Range 5G covers 305 million people and 1.7 million square miles (more geography than Verizon and AT&T combined), and its superfast Ultra Capacity 5G that covers 165 million people is expected to reach 200 million nationwide by the end of this year.
T-Mobile is said to have a huge 2-year lead in 5G deployment over competitors.
Q2 had record financial results, with total revenues of $20 billion (up 13% year-over-year, boosted by its merger with Sprint), services revenues of $14.5 billion (up 10% year-over-year), and adjusted earnings that increased by 765% to 78 cents per share from a year earlier. T-Mobile had been the industry leader in postpaid phone subscriber additions for several years standing.
T-Mobile repurchased reduced shares outstanding by 10.387% in the last 12 months.
David R. Fried, The Buyback Letter, buybackletter.com, 888-289-2225, August 13, 2021
*ChargePoint Holdings, Inc. (CHPT)
ChargePoint Holdings (CHPT) has more than 112,000 charging points in North America and Europe, ChargePoint is one of the biggest EV charging companies in the world. The company claims to control 70% of the public charging market share in North America.
This lead is a huge advantage because of network effects as the company already has partnerships with more than roughly 60% of the Fortune 50 companies. I believe the market may be undervaluing ChargePoint’s strong growth outlook. Consequently, I believe that the stock can be accumulated at its current levels. The company is expected to release financial results for the second quarter after market close next Wednesday, September 1. BUY A HALF
Carl Delfeld, Cabot Explorer, cabotwealth.com, 978-745-5532, August 26, 2021
*Victoria’s Secret (VSCO)
Has been an interesting spin-off. It looked really cheap in when-issued trading (at ~$45/share) and traded up massively on its first day of trading.
Most recently, it reported a good quarter, but issued disappointing guidance for Q3 and traded down modestly. Nonetheless, it looks attractive and I think it’s probably worth $80. I think Gap (GPS) is its best comp. Gap trades at 16.4x while VSCO is trading at 9.0x.
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, stockspinoffinvesting.com, 617-750-7454, August 25, 2021
Growth & Income 845
Fastenal Company (FAST) | Daily Alert August 20
We like Fastenal Co. (Rated “B”) for three specific reasons:
- Fastenal is one of the nation’s largest suppliers and distributors of a wide range of construction and manufacturing products. Pumps, fasteners, plugs, tape, motors, drills, gloves, hydraulic hoses, fans, ice makers, locks, and two-way radios.
- Fastenal delivered a 10% rise in revenue and a 17% increase in earnings. Profit margins are increasing sequentially this year as well, while construction activity is ramping up nicely. Increased infrastructure spending in 2021 and 2022 will only help future results.
- Fastenal’s yield beats the yield on the S&P 500 by 60 basis points. FAST is also breaking out to the upside again on the charts.
Buy a 2.5% position in Fastenal Co. at the market.
Mike Larson, Safe Money Report, 1-877-934-7778, weissratings.com, August 2021
Dover Corporation (DOV) | Daily Alert August 25
Each of Dover’s five business segments posted organic revenue growth relative to pre-pandemic second-quarter 2019.
The upward arrows don’t stop with organic sales growth. Backlog in the second quarter rose 16% sequentially, 69% year-over-year, and 82% versus 2019’s second quarter.
Other positive signs include fresh revenue and earnings guidance for 2021, as well as Dover’s dividend (recently increased for the 66th consecutive year). Finally, the most important upward arrow—the stock price—has been trending higher, with these shares recently moving to an all-time high. Dover is rated Buy and Long-Term Buy.
Strong revenue growth in the quarter fueled a nice jump in per share profits, which grew 82% and beat the analysts’ consensus estimate of $1.84. In the wake of a boost in full-year guidance, Dover expects revenue growth of 15% to 17% and per-share-profit growth of 29% to 31% in 2021.
Trading at 23 times the 2021 profit consensus, Dover is neither cheap nor excessively valued. The stock offers a nice combo of capital-gains potential and a rising income stream.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, August 16, 2021
Expeditors International of Washington, Inc. (EXPD) | Daily Alert August 26
Right now, the Weiss Ratings system has marked 1,125 stocks as a solid “Buy.”
One such company is Expeditors International of Washington. This giant logistics company is based in Seattle but has a global network of 176 offices in over 60 countries spread over six continents.
The company is service-based, so it doesn’t own the aircraft, ships, or trucks it uses every day. This also allows EXPD to be incredibly flexible to find the best route for the best price.
EXPD has only dropped into the “Hold” range twice since 2014. The company pays a small dividend, and shares are up 25% since the beginning of the year.
Kelly Green, Weiss Ratings, Weiss Ratings, 1-877-934-7778, weissratings.com, August 19, 2021
Spectrum Brands Holdings, Inc. (SPB)| Daily Alert September 1
Spectrum Brands Holdings, Inc. is a home essentials retailer that has been slightly lower since being added to the portfolio earlier this month as the delta variant has hurt consumer confidence. But this is no ordinary retailer. Demand for home products is stronger with bad virus news. Plus, demand for home products is likely to remain strong after the pandemic stuff is long over. It’s still a good entry point for the stock if you don’t own it already. BUY.
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, August 25, 2021
*Waste Management, Inc. (WM)
WM is the leading waste management company in North America, providing collection, transfer, recycling and resource recovery, and disposal services to residential, commercial, industrial and municipal customers. It is also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S., and it has the largest network of recycling facilities, transfer stations and landfills (even receiving revenue in certain regions from competitors that use its landfills), while it has been making acquisitions to diversify its geographic footprint.
WM recently turned in another solid quarter, earning $1.27 per share in Q2 on revenue of $4.48 billion, both ahead of analyst estimates. Although the stock has risen handsomely since our initial recommendation in March 2020, we continue to think WM offers additional lower-risk capital appreciation potential with a decent, growing dividend.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, August 3, 2021
*2nd Opinion
Waste Management is a great performer for us. Our cost basis is $27.66 with the purchase date in September of 2005. Of the 18 analysts who follow the stock, 9 recommend “Strong Buy” or “Buy,” 7 say “Hold,” and 2 recommend “Sell.” One analyst has a bull target of $228, which we agree with.
WM’s size and scale gives it a unique advantage as its asset network gives it a wide moat relative to other players within the industry. Efficiencies achieved during the pandemic will have a significant impact as we see it.
WM is the biggest residential recycler in North America and the largest operator of landfills in the country. We are quite impressed with at the management skills of Jim Fish, CEO; he is a 58-year-old dynamo and has been quite instrumental in WM’s growth.
Sean Christian, The Personal Capitalist, 9524 East 81st Street, Suite B #1715, Tulsa, OK 74133, August 17, 2021
*Element Solutions Inc (ESI)
Element Solutions Inc. produces and sells specialty chemical products for the electronics industry and for other industrial applications such as the control fluids for offshore deep-water oil production and drilling applications.
Wealth Advisory Earnings Grade: A+
We added Element Solutions as a play on both the continued growth of the consumer electronics market and the resurgence of the offshore oil industry. With fewer new oil discoveries coming, offshore wells will become efficient again and ESI will supply the chemicals to keep them running.
And as electronics become more affordable and more accessible, ESI will sell more products for their treatment and production. There’s a long future ahead of this company, and we’re happy to add shares below the new limit price.
Element Solutions Inc. stock is now a “Buy” anywhere under $30. The 12-month price target is $45.
Jason Williams, The Wealth Advisory, angelpub.com, 877-303-4529, August 21, 2021
Financials 845
KeyCorp (KEY) | Daily Alert August 17
You can see the correlation between the 10-year Treasury rate and regional banks pretty clearly in this chart, which uses the SPDR S&P Regional Banking ETF (KRE) to represent shares of smaller banks.
Smaller lenders are the best place to hunt for undervalued dividend payers (and growers) in the financial space. Consider KeyCorp., whose roughly 1,000 branches are mainly in Ohio and New York. It starts us off with a nice yield, plus a payout that’s surged an incredible 517% in the last decade. The numbers behind that dividend growth are staggering: if you bought KeyCorp 10 years ago, you’d be yielding 9.4% on your buy now!
And with the bank’s payout occupying just 35% of net income, it’s got plenty of room for further growth, and that’s before accounting for any rise in its loan income due to an increase in rates.
KEY trades just a hair above book value (1.18-times, to be exact), or what its physical assets would be worth if they were sold off. That means we’re getting KeyCorp’s banking business for next to nothing. The historically low P/E ratio of 8.5 is further proof of the stock’s value.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, August 10, 2021
*International Money Express, Inc. (IMXI)
International Money Express offers plenty of what we want in a growth stock—and in a value stock. A leading global provider of money transfers, the company is expected to deliver per-share profit growth of 23% this year on a 25% sales increase. Analyst estimates for 2022 are rising but still seem low, calling for 10% profit growth on 11% higher revenue.
The stock trades at only 13 times the 2021 estimate and earns a Value score of 66.
Known as Intermex, the company’s services allow customers to send money from the U.S. and Canada to 17 countries in Latin America, including Mexico, seven in Africa, and two in Asia.
Fueled by strong online transaction growth, June-quarter revenue jumped 37%, reflecting a 33% increase in money transfers to $10.1 million. Emerging market transactions jumped 41%. During the quarter, estimated market share hit 21%, up from 17% three years earlier.
The stock is being initiated as a Buy.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, September 2021
Healthcare 845
*Amneal Pharmaceuticals, Inc. (AMRX)
Amneal Pharmaceuticals Inc. is gaining traction after the company announced positive top-line results from a pivotal Phase 3 Parkinson’s disease trial.
According to a company press release, “clinical trial that evaluated the novel formulation, IPX203, in patients with Parkinson’s disease (PD) who have motor fluctuations. The trial met its primary endpoint, demonstrating superior ‘Good On’ time from baseline in hours per day at the end of the 13-week double-blind treatment period with IPX-203 CD/LD extended-release capsules compared with immediate-release CD/LD. Based on these topline results plus other supportive data, Amneal plans to submit a New Drug Application (NDA) for IPX-203 with the U.S. Food and Drug Administration (FDA) in mid-2022.”
Analysts at RBC Capital also raised their price target on AMRX to $6, with a sector perform rating. If the company can continue to produce solid numbers, it could double, if not triple with a good deal of patience. Buy and hold, long-term.
Ian Cooper, The Cheap Investor, support@thecheapinvestor.com, September 2021
*Intuitive Surgical, Inc. (ISRG)
Intuitive Surgical’s stock price topped $1000 recently, so it was clearly a split candidate. Talk of a split has been in the air for months. I was only mildly interested because 1) I don’t usually take a look at a stock until after a split is actually announced; and 2), this stock’s fundamentals are way off from what I would consider a good 2 for 1 Index candidate.
With a PE of 76, no dividend, and being a “popular” name, ISRG definitely does not fit the ideal 2 for 1 Index profile. But then, last week, there was a 3 for 1 split announcement and, here’s the thing. This is an incredibly successful company. It has no debt on the books, it is twice as profitable as the average medical device company, with an operating margin of 31%, and it has been growing sales at almost 13%/year for the last five years.
Neil Macneale, 2 for 1 Stock Split Newsletter, 2-for-1.com, 408-210-6881, August 13, 2021
*Globus Medical, Inc. (GMED)
Better-than-expected robotic sales, strong uptake from Globus Medical’s new products like the 3D printed spacers, and continued momentum in trauma bode well for the rest of 2021.
We continue to view the underlying opportunity in spine positively and see the next 18 months as having the potential to be a breakthrough period for GMED as it emerges into a “diversified ortho” player and drives meaningful growth in trauma, total joints, and capex (robots/imaging), on top of the core spine business.
GMED posted impressive Q2/21 results highlighted by +64% growth Y/Y in US spine and +281% growth in enabling technologies. Q2 revenues came in at a blistering $251.0M, +68.6% Y/Y, vs CG/consensus estimates of $227.6M/$225.5M.
At this point, it’s obvious that GMED is taking material share in the U.S. market and given management’s continued commentary regarding strong competitive rep hiring in 2020 and through the 1H/21, we’re inclined to believe this is only the beginning.
GMED raised full-year 2021 guidance for revenue to $925M-$950M (vs $880-$925M previously). We view both revenue and EPS guidance as conservative and not reflective of the fundamental strength in the business.
We raise our price target to $90 from $80, based on an average of a P/E, EV/EBITDA, and EV/Sales multiple analysis and our updated 2022 estimates. Our P/E analysis applies a 30.7x multiple to our 2022E EPS of $2.28.
Kyle Rose, Canaccord Genuity Research, canaccordgenuity.com, August 5, 2021
Technology 845
Texas Instruments Incorporated (TXN) | Daily Alert August 13
Texas Instruments (High-Growth Dividend Payer Portfolio, Dividend Sustainability Rating: Above Average) last raised its quarterly payment in November 2020. Investors now receive $1.02 a share, up 13.3% from $0.90. The new annual rate is $4.08.
Demand for the company’s chips has surged in the past few months as manufacturing activity continues to rebound from last year’s COVID-19 shutdowns. In the quarter ended June 30, 2021, Texas Instruments’ revenue jumped 41.4%, to $4.58 billion from $3.24 billion a year earlier. As well, earnings shot up 39.9%, to $1.93 billion from $1.38 billion. Earnings per share gained at a slower pace of 38.5%, to $2.05 from $1.48, on more shares outstanding. If you factor out unusual items, earnings in the latest quarter still rose 34.5% to $1.99 a share.
Texas Instruments is a buy.
Patrick McKeough, Dividend Advisor, tsinetwork.ca, 888-292-0296, August 2021
Dynatrace, Inc. (DT) | Daily Alert August 16
Dynatrace’s all-in-one platform helps thousands of mid- and large-sized companies that are transitioning their systems and apps to the cloud to get data, context and information about their apps, infrastructure and even the end user experience. And for massive firms, this is a process that can take years. That’s thanks in part to the company’s first-class automation and artificial intelligence capabilities.
And it works no matter what cloud platform(s) a client uses, too. Because of that, the company has garnered a who’s who list of big customers. On average, these customers are boosting their spending with the company by north of 20% per year. And new clients are hopping onboard (135 new logos in Q2; total customers just over 3,000). All of that is creating 30%-plus recurring revenue growth and booming remaining performance obligations (all money owed to it under contract), which rose 46%.
Profits are solidly in the black, but heavy spending means the focus is on capturing business, which Wall Street seems fine with. After a long consolidation, DT has been persistently pushing higher for a few weeks, moving to new highs. It’s not the most volatile name, so we’re going to add a full-sized (10% of the portfolio) position here and use a 15%-ish loss limit. BUY
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, August 5, 2021
Square, Inc. (SQ) | Daily Alert August 27
Investors /traders should focus on Square’s corporate Q-2 record earnings of $52.26B and record profit margin of 13.6% with revenues and earnings remain at high 80%. The Dow Jones Industrial /^DJI/ consisting of 30 companies earnings weighted average of $1,484.00 with P/E of 25 could visit 37,100. Applying the same technique towards S&P 500 /^GSPC/ which consists of 11 sectors with weighted average earnings of $191.00, P/E of 24 could visit 4,584.00.
Square, Inc @ 264.78
Down from 276.20. Building a trading base (261-264). Add to long positions. Retain same stop loss of 243.
Volatile
Joseph Parnes, Shortex Market Letter, shortex.com, 800-877-6555, August 18, 2021
*Desktop Metal, Inc. (DM)
Desktop Metal Inc. manufactures 3D printers to make metal and carbon fiber 3D printing.
The additive manufacturing (AM) market is still in the infant stages of a decades-long boom. The AM market is currently valued at around $12 billion but is projected to grow 11-fold to $146 billion by 2030.
During the second quarter of 2021, Desktop increased revenues 68% quarter over quarter to $19 million.
Not only has the company recently acquired Aerosint to boost its multi-material capabilities for its second-generation AM product portfolio, but it also scooped up Beacon Bio, which added the PhonoGraft biofabrication platform to the company’s health portfolio. The PhonoGraft technology is being studied for potential use in an implantable device for repairing damaged eardrums.
However, it’s Desktop Metal’s most recent acquisition that made us pull the trigger. On August 11, 2021, the company announced it was acquiring ExOne Co. for approximately $575 million. ExOne is a manufacturing tech company specializing in metal 3D-printing technology and has substantial ties to the U.S. auto industry. Back in March 2021, it inked a deal with Ford under which the auto giant will use ExOne’s metal printing technology to manufacture “tissue box-sized” aluminum parts at high volume starting next year.
By purchasing ExOne, Desktop Metal will greatly expand its product portfolio and accelerate the adoption of additive manufacturing for mass-production applications.
We rate Desktop Metal a “Buy” under $15.00. The risk level is “Medium.”
Keith Kohl, Technology & Opportunity, angelpub.com, 877-303-4529, August 2021
*Affirm Holdings, Inc. (AFRM)
Affirm Holdings Inc. announced that it is entering into a partnership with Amazon.com (AMZN), that will allow the e-commerce giant’s customers to make monthly payments on purchases of $50 or more.
Analysts already seem to love the move, with at least two brokerages hitting Affirm stock with massive bull notes. Specifically, Truist Securities and Mizuho raised their target prices on AFRM to $120 and $110, respectively. The majority of the brokerage bunch was already bullish toward the security coming into today, with six of the nine in coverage rating the stock a “buy” or better.
Though the equity boasts significant growth from its May 11 all-time low of $46.50, AFRM still remains slightly below its Jan. 13 debut close of $97.24.
Bernie Schaeffer, Schaeffer’s Investment Research, SchaeffersResearch.com, 800-327-8833, August 30, 2021
Resources, Energy, & Utilities 845
American Electric Power Company, Inc. (AEP) | Daily Alert August 12
American Electric Power Co. Inc. reported second-quarter non-GAAP operating earnings of $1.18 per share was solidly up from $1.08 per share in 2Q20, and beat the consensus estimate of $1.14.
We like the company’s consistent record of dividend growth, with a 5.7% compound annual increase over the last five years. The current yield is above the peer average of 3.0%.
We also like AEP over the long term, as the company ranks among the nation’s largest generators of electricity, with substantial exposure to states with strong population growth, like Texas.
Turning to our estimates, we are maintaining our 2021 adjusted EPS estimate of $4.74. We are also maintaining our 2022 estimate of $5.05. Our long-term earnings growth rate estimate is 6%.
We think that AEP shares remain attractively valued at current prices near $89, above the midpoint of the 52-week range of $75-$94. The shares trade at 18.8-times our 2021 EPS estimate, below the midpoint of the five-year historical range of 17.0-21.3 and below the peer average of 20.5. AEP also trades at a price/book multiple of 2.1, below the peer average of 2.3.
We view AEP as an attractive holding for investors seeking regular dividend payments as well as the potential for moderate capital appreciation. Our target price is $102
Jim Kelleher, CFA, Argus Weekly Staff Report, argusresearch.com, 212-425-7500, August 5, 2021
Magellan Midstream Partners, L.P. (MMP) | Daily Alert August 30
Magellan Midstream Partners is a master limited partnership (MLP) that engages in the transportation, storage, and distribution of refined petroleum products in the United States.
Magellan’s model is fee-based, meaning it has very small exposure to commodity prices, making it attractive during commodity bear markets.
Magellan reported second-quarter net income of $280 million. Diluted net income per unit was $1.26, or $0.95 per unit excluding the impact of gains on asset sales, nearly double the $0.59 per unit in the 2020 second quarter. Growth was due to higher-than-expected refined products shipments, higher commodity prices that primarily benefited the partnership’s fractionation activities, and lower expenses due to timing.
Distributable cash flow came to $268 million for the quarter, up 28% year-over-year. With 2021 likely being the bottom of the cycle for Magellan, units are attractively priced, as is the high distribution yield.
Magellan has sizable scale in an industry where scale means better margins. The company invested $355 million in growth projects last year, with more than $500 million of potential growth projects under consideration.
We estimate fair value at 12 times DCF-per-unit, but the valuation is currently only at 9.3 times this year’s estimated DCF-per-unit of $5.00. We see outstanding projected total returns of 14.7% annually over the next five years, the result of 3% annual DCF-per-unit growth, the distribution yield, and a 5.5% tailwind from valuation gains.
Ben Reynolds, Bob Ciura, Josh Arnold, & Eli Inkrot, Sure Retirement Newsletter, suredividend.com, ben@suredividend.com, August 8, 2021
*AGL Energy Limited (AGLXY)
Aggressive Holding AGL Energy is Australia’s leading electric company. We’ve discussed at length the numerous factors dragging this stock lower, most importantly a sharp drop in earnings due to the combination of a pandemic-related drop in electricity demand, rapid proliferation of wind and especially solar and cyclical oversupply of energy.
I believe this round of results marks a bottom in AGL’s fortunes for three main reasons. First, there’s little chance of bankruptcy for either the fossil generation business or the rest of AGL. The company is still Australia’s largest electricity generator from both fossil fuels and renewable energy. It’s also the leading retailer of energy in the country’s competitive market and continues to gain share. And it’s the number one provider of distributed energy down under as well, including rooftop solar and battery storage.AGL is arguably the company Australia arguably loves most to hate.
Second, despite concerns about the execution of the spinoff, the sum of AGL’s parts is worth considerably more than its current price.
Third, after years of battling the ruling National Liberal coalition on federal energy policy, AGL and other major Australian electricity companies are on the verge of catching a major breakthrough. For all its growing unpopularity, coal is still the source of 70% of Australia’s electricity. Yet cheap solar is making giant baseload power plants increasingly uneconomic during daylight hours. With coal plant losses rising and shutdowns looming, the government is now considering a capacity market that will pay operators to keep facilities operating. If it becomes law, that alone will provide a major boost to AGL.
But there’s growing potential for something more comprehensive, possibly along the lines of the coal power phase-out plans we’ve seen so far in Alberta and Germany. In those countries, utilities have been made whole financially in return for speeding an orderly transition from coal to renewables. Such a possibility is clearly not reflected in AGL’s current share price.
For those who already have positions in AGL—which has been a recommendation in this advisory for some time—my advice is to stick with what you have. But for anyone with the patience to add a high potential battered stock at what increasingly looks like the beginning of a long recovery, AGL is again a buy up to USD7 for the OTC-traded American Depositary Receipts traded under the symbol AGLXY.
Roger Conrad, Conrad’s Utility Investor, ConradsUtilityInvestor.com, 888-960-2759, August 13, 2021
*Hess Midstream LP (HESM)
Hess Midstream Corp was one of a handful of North American midstream companies able to grow dividends at a steady clip last year. This year, it’s picked up the pace with an 11.4% lift announced in late July increasing the payout 15.6% above year ago levels. Q2 results strongly backed that growth, with the DCF coverage ratio coming in at a robust 1.4 times. And management also raised full-year EBITDA guidance to a range of $880 to $900 million, while lifting guidance for expansion CAPEX to $165 million for 2021.
At the core of these strong results is a presence in some of the most prolific areas of the Bakken, the value of which has been enhanced again by Energy Transfer’s expansion of Dakota Access Pipeline capacity.
And while the vast majority of its business remains with Hess Corp, the company is seeing revived activity from third parties, which accounted for 15% of crude oil gathering and 10% of gas gathering volumes in Q2.
Hess Midstream is a buy up to 30.
Elliott H. Gue and Roger S. Conrad, Energy Income Advisor, energyandincomeadvisor.com, 888-960-2759, August30, 2021
Low-Priced Stocks 845
*Carbon Streaming Corporation (NETZ.NE, OFSTF)
An impressive array of both creative and financial energy is behind this fairly new company which—where the latter is concerned—recently announced the closing of a bit over $100 million financing. Among its larger investors are Ross Beaty, Marin Katusa and Osisko Gold Royalties.
The company just finished listing on Canada’s trendy new exchange, the NEO.
In NETZ’s case it is set to make a big, initial splash into the nascent but potentially monstrous market for the voluntary carbon credits regimen.
Take some time to peruse (along with the rest of the site) Carbon Streaming’s Corporate Presentation where, among other things, the company explains the difference between that and the more established system of “Compliance” credit markets. NETZ finances a carbon credit regimen and shares in the rewards.
NETZ’s share price has surged to near C$3.00 in recent days; and may well pull back or at least consolidate/pause somewhat. But the long-term story and potential here are great enough that you need not be too cute in trying to time any correction that may come along.
Chris Temple, The National Investor, nationalinvestor.com, 224-308-2587, August 15, 2021
*Charles & Colvard, Ltd. (CTHR)
Charles & Colvard operates as a fine jewelry company, providing gemstones and jewelry to market through its Forever One™ Moissanite brand and Caydia™ Lab Grown Diamond brand. Its unique differentiator, moissanite—the World’s Most Brilliant Gem®, is core to its environmentally and socially responsible fine jewelry and fashion jewelry.
Charles & Colvard reported solid earnings and revenue growth in the third quarter. Its brand awareness combined with the demand spike for socially responsible jewels generated net sales of $9.4 million for the quarter, up 45% from the same period last year. Net income for the past nine months is $4.4 million, totalling $0.15 earnings per diluted share.
Industry outlook is amazing due to the worldwide acceptance of lab-created gems and increased traffic for online engagement ring shopping. Online engagement ring shopping will be a big catalyst moving forward and should keep driving online sales.
Millennials make up a majority of online traffic and are clearly the key demographic. In fact, 1 in 4 millennials will buy their engagement ring online, and CTHR has put itself in a strong position to capture more market share by launching new websites and focusing on online sales.
The Charles & Colvard business model is shifting from value to growth. While we believe around $2.20 and below is the optimal entry point, the stock is undervalued relative to its competitors. Strong fundamentals and an experienced management team make CTHR a unique long-term investment opportunity with strong potential.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, August 2021
Preferred Stocks, REITs, & High Yield 845
Gladstone Investment Corporation (GAIN) | Daily Alert August 31
Gladstone Investment made several significant investments in the last quarter. First, it acquired, together with senior management, Utah Pacific, a leading provider of steel components used in bridge replacement and construction in the western United States.
And it also supported the buyout of a luxury apartment rental company. In both, it provided equity and senior debt to complete the management buyouts. These were two of several investments and exits in recent months.
In its latest earnings report, Gladstone reported Net Investment Income of 24 cents per share, up from 20 cents for the prior quarter. Net Asset Value increased over a dollar to $12.66/share, largely from higher valuations for its equity holdings, which account for about 25% of NAV.
Although the regular monthly dividend stays at 7 cents, where it has been since the beginning of 2020, the company paid a special distribution (from net capital gains) of 6 cents in June and announced another 3 cents for next month. The yield, and the 1.14 times NAV, mean that Gladstone is trading towards the upper end of its historical valuations. But in today’s environment, a fully covered yield that high is attractive.
Adrian Day, Adrian Day’s Global Analyst, adriandayglobalanalyst.com, 410-224-8885, August 24, 2021
Owl Rock Capital Corporation (ORCC)| Daily Alert September 2
Owl Rock Capital Corp. is a Business Development Company. By law, BDCs provide financing solutions to small and medium-sized corporations. A BDC may provide loans or make equity investments in its client companies. As of the 2021 second quarter, the company had a portfolio value of $11.9 billion.
The portfolio earns an asset yield of 8.1%. Owl Rock has a BBB investment grade credit rating from four different rating agencies and pays an average of 3.0% on outstanding debt.
At the end of the second quarter, the Owl Rock book or net asset value (NAV) was $14.90 per share. Net investment income came in at $0.30 per share, with a total net income of $0.38 per share.
Owl Rock is a BDC whose peers trade at a premium to NAV. The stock currently trades at a slight discount. Ares Capital (ARCC) is a comparable, large BDC that trades for 1.1 times NAV. Owl Rock, at a similar valuation, would sell for $16.40 per share.
I see the Owl Rock dividend as secure, and the yield is one of the highest from the Dividend Hunter Stable Dividend Investments category.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, September 2021
Funds & ETFs 845
Amplify Transformational Data Sharing ETF (BLOK)| Daily Alert August 18
We recently took huge profits in Bitcoin, but I now prefer to invest in blockchain technologies through Amplify Transformational Data Fund, an actively managed ETF.
According to a new report by Deloitte, 45% of technology firms have already incorporated blockchain into production.
Blockchain-enabled business models will present a seismic shift with regard to how business is conducted in the future. Its impact on commerce will be game-changing, especially given the increasingly digital global economy, the decentralization of business models and the number of stakeholders who are affected by blockchain technology.
Amplify Transformational Data Sharing ETF is the best way to profit from the blockchain technology with reduced risk.
Mark Skousen & Jim Woods, Forecasts & Strategies, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, August 2021
Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) | Daily Alert August 19
Invesco S&P 500 Equal Weight Consumer Staples ETF is unique because it invests equal amounts in a collection of 33 consumer staple stocks within the S&P 500 index.
The nature of these products makes this sector defensive and much less vulnerable to recessions and bear markets.
RHS rebalances the investments at the beginning of each calendar quarter, which has given RHS a superior performance over other consumer staples funds because it has given investors exposure to many consumer staple stocks that are under-weighted in most other portfolios, making those stocks targets for new capital.
Gray Cardiff, Sound Advice, soundadvice-newsletter.com, 800-825-7007, July 30, 2021
Fidelity Envir and Alt Energy Fund (FSLEX) | Daily Alert August 24
Sustainability is a subset of thematic investing, which enables investors to participate in long-term trends. At Fidelity, they have a stable of funds which cover a range of strategies to appeal to different investing objectives.
Where appropriate and aligned with a fund’s investment objectives, Fidelity applies an ESG perspective directly to the products they offer. In broad terms, that means the Boston-based fund company has incorporated one or all the ESG factors into their fundamental research.
According to Fidelity’s research two-thirds of retail customers say social impact is a key to their investing decisions. There are several funds at Fidelity that focus on long-term themes broadly tied to specific areas of sustainability.
Fidelity Environment & Alternative Energy Fund focuses on alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.
YTD Return (through 7/31) = 17.8%
1-Year Return = 54.0%
Brian W. Kelly, Moneyletter, moneyletter.com, 800-890-9670, August 2021
Fidelity Water Sustainability Fund (FLOWX) | Daily Alert September 3
Flooding in Europe and China, mudslides in India and, here in the U.S., a historic drought accompanied by record heat and wildfires—each is stoking the global debate about climate change and what can be done about it. Enter several new Fidelity funds whose investment objectives are more expansive and ambitious than the boilerplate maxim: “long-term growth of capital.” Notably, their investment strategies include the subjective and more altruistic goal of improving earth’s health.
Fidelity Water Sustainability has been upgraded to OK to Buy this month largely because of its 63% stake in various industrials. While the economic recovery should benefit cyclicals, companies engaged in the treatment, distribution and conservation of water may be especially well-positioned over the long term. Surging 7.3% in July, the narrow subsector got a shot in the arm last week when Congress moved one small step closer to passing a $1 trillion infrastructure improvement bill. The plan contains $55 billion to replace lead water lines and $50 billion more to guard against climate-induced droughts and floods.
With expenses presently capped at a highish 1%, Water Sustainability holds the promise of doing well while also doing good.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, fidelitymonitor.com, 800-397-3094, August 2021
Updates 845
PARTIAL SELL Eli Lilly and Company (LLY) | Daily Alert September 1
Updated from WSBD 832, August 27, 2020
Eli Lilly and Company is a phenomenal big pharma player with a fantastic pipeline and a well-run business. Those things are big winners longer term. In the near term, LLY has blown away it peers. The stock is up 57% YTD and 144% over the last two years. LLY tends to pull back and consolidate after a big run as well. For those reasons, we’ll take some money off the table for now. SELL 1/3.
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, August 25, 2021
*BUY MDU Resources Group, Inc. (MDU)
Updated from WSBD 838, February 18, 2021
MDU’s Quadrix® Overall score has slid to 67 from 84 just one month ago, largely due to slowing operating momentum. Analyst estimates still look solid, with the consensus calling for 9% higher earnings per share in 2021 and 7% growth in 2022. The shares look attractively valued at 15 times the 2021 profit estimate, versus a median of 20 for the S&P 1500 Index utility’s sector. Although MDU no longer ranks among our very top picks, the stock remains a Buy and a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, August 30, 2021
*SELL Williams-Sonoma, Inc. (WSM)
Updated from WSBD 833, September 17, 2020
Despite posting strong quarterly results in May, the shares of Williams-Sonoma have struggled in recent months, reflecting concerns that spending growth on home decor may be peaking. Additionally, consensus profit estimates for both the current year and next year have slipped over the past 30 days. The stock has soared 75% since we first recommended Williams-Sonoma in August 2020. We are dropping Williams-Sonoma from coverage. The stock should be sold.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, August 9, 2021
*SELL The Progressive Corporation (PGR)
Updated from WSBD 829, May 21, 2020
The shares of Progressive have recovered some of the ground lost since its disappointing June-quarter report. But its Quadrix Overall score continues to slip, falling to 55 from 94 in April due to slowing operating momentum and falling profit estimates. The auto insurer suffered narrower profit margins last quarter due to rising costs and lower prices, a trend that may continue in the second half of 2021.
Progressive is now rated B (average) and should be sold.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, August 9, 2021
*SELL Half: Lithium Americas Corp. (LAC)
Updated from WSBD 844, August 12, 2021
Sell half of Lithium Americas to protect win. LAC traded at $14.08 when we recommended it. It’s now up to $18.62. Let’s exit half.
Ian Cooper, The Cheap Investor, support@thecheapinvestor.com, September 2021
Investment Index 845
The next Wall Street’s Best Digest issue will be published on October 14, 2021.
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