The markets have been mostly positive in the past month, with the Dow rising about 1,000 points. The economy is rolling along nicely. Consumer confidence is up, employment is steadily rising, and the housing market is still booming.
That bodes well for the next few months, and we remain bullish on the markets, albeit with a dose of caution.
We are expecting—once this first Biden stimulus package gets underway—that Infrastructure spending will be next on the new president’s agenda, and that is where our Feature Recommendation should shine. The company is already seeing double-digit sales and earnings increases, as the economy recovers, and rising Infrastructure outlays should exponentially boost its profits.
We are taking some profits this month with the sale of Clean Energy Fuels Corp. (CLNE), which has gained 388%. We’ll be looking at some additional opportunities to cash in, and we’ll make sure to alert you should we make those decisions or any other portfolio changes between issues.
Happy Investing!
State of the Markets | WSBS 321
Dow Jones Industrial Average
S&P 500 
Nasdaq Composite Index
Feature Recommendation | WSBS 321
Dallas-based Primoris Services is no newcomer. This specialty contractor was founded in 1960 and services customers in the U.S. and Canada by providing infrastructure services, including construction, fabrication, maintenance, replacement, and engineering services. The company has five major divisions: Power, Industrial, and Engineering; Pipeline and Underground; Utilities and Distribution; Transmission and Distribution; and Civil.
Power, Industrial, and Engineering segment ($795 million in revenues):
Engineering, procurement, construction, retrofit, upgrade, repair, outage, and maintenance services for the petroleum and petrochemical industries, and traditional and renewable power generators.
Pipeline and Underground segment ($897 million in revenues):
Pipeline construction, maintenance, facility, and integrity services; installation of compressor and pump stations; and metering facilities for entities in the petroleum and petrochemical industries, as well as gas, water, and sewer utilities.
Utilities and Distribution segment ($907 million in revenues):
Installation and maintenance services for natural gas utility distribution systems; and pipeline integrity services for companies in the gas utility market.
Transmission and Distribution segment ($459 million in revenues):
Installation and maintenance services for electric utility transmission, substation, and distribution systems for businesses in the electric utility market.
Civil segment ($433 million in revenues):
Highway and bridge construction, airport runway construction, demolition, site work, soil stabilization, mass excavation, flood control, and drainage projects for entities in the petroleum and petrochemical industries, state and municipal departments of transportation, and airports.
For 2021, these five segments will be realigned into three divisions: Utilities, Energy and Pipeline Services.
Primoris’ customers have included leading energy and utilities companies such as Southern California Gas, Oncor Electric, Duke Energy, Sempra Energy, Williams, NRG, Atmos Energy, Honeywell, Chevron, Calpine, Kinder Morgan, Dominion, Valero, Phillips 66, Enterprise Pipeline, Xcel Energy and Sasol, many of whom operate under Master Service Agreements (MSAs), which provide recurring revenues to the company. In fact, around 35% of Primoris’ $2.8 billion backlog business comes from MSAs. And the backlog is diversified across the company’s segments:
- Power, 28%
- Utilities, 22%
- Civil, 21%
- Transmission, 15%
- Pipeline, 14%
A Very Good Quarter and Year
For its fourth quarter, Primoris saw its earnings per share rise 24.53%, to $0.66, from the year ago period. Revenues were up 13.62%, coming in at $897,338,000. Both earnings and revenues handily beat analysts’ estimates.
For all of 2020, revenues, at $3.5 billion, rose 12% and set a record for the company, while EPS increased 34%, to $2.16.
The company’s Pipeline segment was the growth leader in 2020, pushing revenues up by 77.6%. That was followed by the Power segment which saw solar energy boosting sales by 9.1%. And the mix of business in the Transmission segment produced a 9.8% rise in margins.
Going forward, Primoris expects 2021’s EPS to be between $2.40 and $2.60, and analysts are forecasting revenues of $3.788 billion. And EPS estimates are rising, with three analysts increasing their forecasts for the company in the past 30 days.
Since 1983, Primoris has made more than 26 acquisitions. The company intends to pursue accretive acquisitions, and during the first quarter of this year, Primoris affected its largest acquisition to date, purchasing Future Infrastructure Holdings, LLC in an all-cash transaction valued at $621.7 million. The transaction accomplishes two things: 1) Expands Primoris’ reach in the utility industry, and 2) Confirms the company’s stated strategy to grow in large, higher-growth, higher-margin markets.
The Future Looks Bright
Primoris is focusing on the growing markets of: Solar / Renewables, Telecom, Utilities, and Pipeline Integrity. As well, the company intends to continue expanding its geographic presence, increasing its MSA revenue, and focus on higher margin businesses. Its current tracked marketplace is valued at $22 billion, but Primoris sees an even bigger opportunity in its targeted market, estimated at $88 billion.
Additionally, with President Biden’s election, it is expected that $1 to $2 trillion in funds will be pouring into the infrastructure industry, especially in Utilities, Transmission, and Renewable Power—all sectors in which Primoris can ply its trade.
With double-digit growth, billions of dollars in opportunities, and trading at a very reasonable price earnings ratio of 15.78, the time is right to add this company to your portfolio.
Primoris Services Corporation (PRIM) 52-Week Low/High: $ 9.42 - 36.26 Shares Outstanding: 49.15 million Institutionally Owned: 93.09% Market Capitalization: $1.72 billion Dividend yield: 0.69%, paid quarterly Website: primoriscorp.com |
Why Primoris: Focusing on higher margin businesses Accretive acquisition strategy Big infrastructure funding expected Undervalued
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Technical Analysis
by Kate Stalter
Primoris rallied to an all-time high of $36.26 after reporting earnings on February 23. It reversed lower intraday, but finished the session $1.04 higher, closing at $34.54. The stock broke out of a sideways consolidation on February 22, and is currently extended 15% from its 50-day moving average. Upside volume has been stronger than downside turnover lately, an indicator of institutional support. The stock raced higher along its 10-week moving average for eight weeks in a row in November and December. The number of mutual funds holding shares has grown over the past three quarters. The only technical caveat with this stock is to be cautious about buying just before a shakeout. Even short-term pullbacks can scare investors who lack conviction in a stock.
Price Target: $48
Stop Loss: $27
Sector Round-Up | WSBS 321
| Percent Gains | |||
| 1 Month | 3 Month | YTD | |
| Basic Materials (XLB) | 1.3 | 8.38 | 4.13 |
| Communication Services (XLC) | 4.83 | 12.23 | 6.82 |
| Consumer Discretionary (XLY) | -3.12 | 6.6 | 1.75 |
| Consumer Staples (XLP) | -0.28 | -2.19 | -4.09 |
| Energy (XLE) | 14.31 | 35.82 | 26.85 |
| Financial Services (XLF) | 8.22 | 21.02 | 11.24 |
| Healthcare (XLV) | -3.24 | 4.76 | 0.19 |
| Industrial (XLI) | 3.27 | 5.73 | 3.11 |
| Real Estate (XLRE) | 4.24 | 4.62 | 4.9 |
| Technology (XLK) | -0.47 | 10.35 | 1.61 |
| Utilities (XLU) | -3.83 | -4.42 | -3.64 |
Source: State Street SPDR
The SPDR Select Financials Sector ETF is up 11.64% year-to-date. The ETF overcame technical resistance between $31 and $32, and notched several consecutive weeks of upside trade. Investors are growing more optimistic about the post-COVID economy. Economic expansion favors banks, as it drives increasing demand for credit, and more customers are able to pay their debts.
The largest stocks in the sector, by market cap, are Berkshire Hathaway (BRKB), JP Morgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). All these stocks notched strong performances in recent weeks.
Analysts are expecting the big banks to post strong profits in 2021, after widespread earnings declines in 2020.
The SPDR Select Real Estate Sector ETF is up 5.17% year-to-date.
Sector leaders with strong year-to-date performance include shopping mall operator Simon Property Group (SPG). That one may come as a surprise, as malls were under pressure from online retailers even before the pandemic.
In general, analysts believe 2021 will mark a rebound for retail, in a combination of pent-up consumer demand and another round of stimulus checks.
Another strong real-estate performer is timberland owner and operator Weyerhaeuser (WY), which is up 4.47% year-to-date. The stock recently overcame resistance above $34.70, but is struggling to gather much momentum above that price. On the plus side, it’s trended above its 50-day average since February 2.
Portfolio Updates | WSBS 321
PORTFOLIO UPDATES
Conservative Stocks
As a conservative investor, you are less willing to accept market swings and significant changes in the value of your portfolio in the short- or long-term. Capital preservation is your primary goal, and you may plan on using the principal from your investments in the near-term, preferably as a steady income stream. The average level of return you expect to see is 5%-10%, annually.
Unilever PLC (UL)
The U.K.-based producer of food, household and personal-care goods gapped down 5.82% on February 4, after missing analysts’ earnings forecasts. The stock is down 10% year-to-date, but Wall Street views the company as a long-term play, as it adapts to demands of new consumers. The company is shifting its focus to rapidly expanding markets such as plant-based foods, nutritional supplements and health and beauty products.
The Coca-Cola Company (KO)
The beverage giant’s stock is forming a sideways consolidation after climbing out of a flat base in early February. It’s currently holding at its 50-day moving average. Analysts expect 10% earnings growth this year, to $2.14 per share. Coca-Cola hopes to take a controlling interest in sports drink BodyArmor, in which it purchased a minority stake in 2018.
TC Energy Corporation (TRP)
The Canadian natural gas transport specialist is forming a consolidation that began in August 2020. It’s a potentially constructive chart pattern, as the lows undercut the previous structure lows. That can set the stage for new institutional buyers to spot a bargain, and drive the price higher again. In promising fundamental news, earnings growth resumed in the most recent quarter, after two quarters of deceleration. Wall Street expects an earnings decline for the full year of 2021, with a growth rebound next year.
Moderate Stocks
As a moderate investor, you seek longer-term investment gains. You are comfortable with some swings in your portfolio’s performance, but generally seek to invest in more conservative stocks that build wealth over a substantial period of time. The average level of return you expect to see is 10%-25% annually.
National Storage Affiliates Trust (NSA)
Despite some downward pricing pressure on the self-storage industry as a whole, analysts have strong expectations for its future. On February 23, Greenwood Village, Colorado-based National Storage Affiliates Trust reported earnings per share of $0.46, up 15% from the year-earlier quarter. The company cited Riverside-San Bernardino, Oklahoma City and Phoenix, as markets with strong same-store sales. Shares vaulted 4.21%, to $39.63, on the earnings news.
Conagra Brands, Inc. (CAG)
The maker of well known packaged food brands, including Duncan Hines, Hunt’s and Healthy Choice continues forming a sloppy price consolidation that began in September 2020. While there’s not a clearly discernible chart pattern at this time, any pullback can be constructive, as it shakes out holders lacking conviction, while potentially opening the door for new buyers to enter while valuations remain lower. The company next reports on April 8, with analysts expecting earnings of $0.58 per share on revenue of $2.71 billion, both increases over the year-earlier quarter.
The Toronto-Dominion Bank (TD)
The stock climbed to new highs in February, regaining its 2018 price of $62.
Aggressive Stocks
As an aggressive investor, you primarily seek capital appreciation and are open to more risk. Swings in the market, whether short term or long term do not impact your investment decisions and you have confidence that volatility is necessary to achieve the high return-on-investment you are looking for. You typically expect a 25%+ return, annually, though you do not need your principal investment immediately.
cbdMD, Inc. (YCBD)
The marketer of CBD products pulled back in February, getting support above its 50-day moving average, after getting a post-earnings boost. In February, the firm’s cbdMD product line and its pet product line, Paw CBD, were named 2021 Product of the Year by consumer researcher Kantar. Investors should be aware: This is a low-priced, thinly traded stock, which could make it more prone to volatility than larger companies.
OneMain Holdings, Inc. (OMF)
After a big run-up in early February, the stock settled into a sideways trading pattern just below its 10-day moving average. The issuer of personal and auto loans issued a secondary stock offering on February 10. In those situations, investors can reasonably expect a short-term pullback as markets digest the new shares. After the new shares were issues, the stock pulled back before settling into its current consolidation. The company instituted an assistance program, including loan deferment, to help Texas customers affected recent winter storms.
Clean Energy Fuels Corp. (CLNE)
*SELL*
We’re selling this in the model portfolio ahead of earnings on March 9. The stock advanced in February, and is showing a gain for the month, but began retreating after reaching an intraday high of $19.79 on February 10. The provider of renewable natural gas for vehicle fleets looks well positioned for the long term, but in the short run, technical weakness, combined with caution ahead of earnings, makes this a “sell.”
Current Portfolio | WSBS 321
| Conservative Stocks | Price Bought | Price Bought | Price on 3/1/2021 | Gain/Loss % | Rating |
| Unilever PLC | UL | $42.84 | $52.64 | 22.88% | Hold |
| The Coca-Cola Company | KO | $41.90 | $49.90 | 19.09% | Hold |
| TC Energy Corporation | TRP | $42.73 | $42.54 | -0.44% | Hold |
| Moderate Stocks | Price Bought | Price Bought | Price on 3/1/2021 | Gain/Loss % | Rating |
| National Storage Af-filiates Trust | NSA | $27.39 | $38.44 | 40.34% | Hold |
| Conagra Brands, Inc. | CAG | $29.87 | $34.15 | 14.33% | Hold |
| The Toron-to-Dominion Bank | TD | $40.82 | $61.45 | 50.54% | Hold |
| Aggressive Stocks | Price Bought | Price Bought | Price on 3/1/2021 | Gain/Loss % | Rating |
| cbdMD, Inc. | YCBD | $2.25 | $4.04 | 79.56% | Hold |
| OneMain Holdings, Inc. | OMF | $29.49 | $48.22 | 63.51% | Hold |
| Clean Ener-gy Fuels Corp. | CLNE | $2.63 | $13.80 | 424.71% | Sell |
Spotlight on Our Portfolio
National Storage Affiliates Trust (NSA)
National Storage Affiliates Trust is a Maryland real estate investment trust focused on the ownership, operation and acquisition of self-storage properties located within the top 100 metropolitan statistical areas throughout the United States. As of September 30, 2020, the Company held ownership interests in and operated 788 self-storage properties located in 35 states and Puerto Rico with approximately 49.5 million rentable square feet. NSA is one of the largest owners and operators of self-storage properties among public and private companies in the United States.
NSA beat analysts’ EPS estimates by five cents in its latest quarter, and is expected to grow at a rate of 37.7% this year.
The More You Know | WSBS 321
Today, I want to talk about a very important aspect of investing—a form of protecting your investment. And that subject is stop losses.
I recommend that you set a stop-loss limit the day you purchase your stocks. For aggressive investors, the stop-loss could be 30% or more. For more conservative investors, you might be happier with a stop-loss of 10%. The actual percentage is not as important as being disciplined in exercising the stop losses. Sure, no one likes to lose money, but a stock riding momentum down can clean you out in no time, so it’s best to take your losses. If the stock bounces back, you can always buy back into it. Many of our advisors provide stop losses for you, but it’s always a good idea to consider your own investing strategies when setting your stop losses.
A stop-loss is simply an order—either formally placed with your broker—or a ‘mental’ reminder—to sell your stock when it reaches a certain price threshold.
It’s painless to place when you buy your stock through your broker’s web site, or, if you prefer, you can just set an alert on whatever portfolio tracking web site you use, so that if the stock reaches that price, you can make an instant decision on whether to cut it loose or keep it. That’s what I call a ‘mental’ stop.
I’m a big believer in stop-losses for one simple reason: If your stock doesn’t go the way you think it will (up in most cases!)—for whatever reason—this little tool will limit your potential losses.
Sure, it’s true that if you are diligent in the use of stop-loss orders, you can be stopped out of what could turn out to be a very good stock. But you know what? You can always get back in, and more importantly—stop-losses can also save you money—as well as lots of sleepless nights—if market or industry forces cause your stock to take a nose-dive.
The actual percentage you set is up to you, according to your personal risk tolerance. In these pages, we will suggest a stop loss, but really, it is up to you. Very conservative investors may want to place their stops at a level that is 10%-15% below their purchase prices. Moderate risk takers would probably feel most comfortable setting stop losses at 15%-25% below their buy prices and Aggressive investors who have a longer time frame and the ability not to panic at short-term losses, may desire to set stop-losses at 25%-35% of their purchase prices. To easily determine your risk tolerance, take my Investor Profile Survey, which I discussed in Investing 101 (click here).
Here’s how it works: If you buy a stock at $3.00, and use a 20% stop, you would be stopped out at $2.40 (20% or $0.60 less, in this case, than you paid for it).
In normal times, I often find that a 20% stop is sufficient for most stocks; up to 35% if the company operates in a fairly volatile industry.
But in a bull market, you may want to use trailing stops—stop-losses that continue to move up as your stock rises—rather than stops based on the absolute value of your purchase price. A trailing stop is more flexible than an absolute stop, as it continues to allow you to protect your portfolio in case the price of your stock declines. But as the price rises, the trailing stop is based on the new price, helping you to lock in your gains and reduce your overall risk.
It works this way: Using the above scenario. You buy a stock at $3.00 and place a 20% trailing stop. If the stock falls to $2.40, you are stopped out. But let’s say it rises to $3.50. Your new stop would be 20% of $3.50, or $0.70. So, if the shares then fall to $2.80 ($3.50-$0.70), your stop will kick in. But now, you see, that instead of losing the $0.60 that you would have with the absolute stop, you only lose $0.20 (your original investment of $3.00 minus the stop price of $2.80).
I want you to know that there are plenty of advisors who don’t believe in stops. But I believe that wise investors should use all the credible tools at their disposal. And I have found that stop-losses have worked very well for my subscribers and are great tools for stemming potential losses.
With technology and biotech stocks—which tend to be more volatile than more conservative companies—it’s a good idea to set your stop losses a little wider. For example, with those kinds of stocks, I would usually suggest a 30% trailing stop. That way, if the market just causes the shares to slip a bit one day, it allows you to ride out a temporary drop, without inadvertently cashing out of a company with excellent long-term potential.
The next Wall Street’s Best Stocks issue will be published on April 6, 2021.