We’re happy to see that the markets – despite a brief pullback – continue to rise. Home prices – as calculated for the Case-Shiller Index of 20 metropolitan areas – now stand at 246.04, up from 220 a year ago.
Consumer confidence and sentiment continue to increase, and that’s great for the economy. In the first quarter of 2021, GDP rose 6.4% – the second-fastest pace for growth since the second quarter of 2003!
This month, our Feature Recommendation is a French company that is the leading fiber telecom platform in rural France. The company has been awarded 4.5 million FTTH (fiber to the home) lines spread across 23 Public Initiative Networks. Additionally, investors will like the very nice 5.60% annual dividend yield.
We’re taking some more profits this month, with the sale of Unilever PLC (UL). Earnings performance has not been great, and it’s having a lot of trouble clearing resistance. We’ll take our 37.5% return to the bank and use it for our new recommendation.
We hope to see you on our May Platinum Club webinar; it’s scheduled for May 6 at 2pm. In the meantime, don’t hesitate to reach out to us if you have any questions.
Happy Investing!
Nancy Zambell and Kate Stalter
State of the Markets | WSBS 521
Market Commentary
The large-cap rally that sputtered in March resumed in April, with the S&P 500 index ending the month with a gain of more than 5%.
Much of that broad market strength was due to the largest S&P 500 components notching gains in April. Here are the top S&P components and their one-month returns:
Apple (AAPL): 9.96%
Microsoft (MSFT): 7.34%
Amazon.com (AMZN): 8.27
Facebook (FB): 13.30%
Alphabet A (GOOGL): 16.96%
Alphabet C (GOOG): 18.19%
Trading volume in the S&P 500 was lower in April than in March. That’s less-than-ideal, as heavy volume indicates greater confidence among institutional investors. A great deal of capital has been infused into markets over the past year, which could legitimately raise the question of the rally’s staying power.
The Nasdaq Composite, whose biggest companies are Apple, Microsoft, Amazon and Tesla (TSLA), also advanced more than 5%. That’s not a surprise, given the overlap between that and the S&P 500, when it comes to the large stocks that drive performance.
The Dow Jones Industrial Average is a different beast. It consists of just 30 large-cap stocks, and is price-weighted, rather than market-cap weighted. For that reason, it looks quite different than the S&P 500.
Its top components are UnitedHealth Group, Goldman Sachs, Home Depot, Microsoft and Visa. It’s not top-loaded with the big, fast-moving techs, and its performance may diverge, at least somewhat, from the S&P. For example, in April, it lagged the S&P 500, with a gain of 2.82%.
Dow Jones Industrial Average
S&P 500
Nasdaq Composite Index
Feature Recommendation | WSBS 521
Orange is a telecom company that boasts the leading fiber platform in rural France with 4.5 million awarded FTTH (fiber to the home) lines spread across 23 Public Initiative Networks. Headquartered in Paris, Orange was founded in 1990, and changed its name from France Telecom in 2013.
Its products include a variety of fixed telephony and mobile telecommunications, data transmission, and other value-added services to customers, businesses, and other telecommunications operators in France and internationally.
Its offerings include mobile services, such as voice, SMS, and data; fixed broadband and narrowband services, as well as fixed network business solutions, including voice and data; and convergence packages. Additionally, the company sells mobile handsets, broadband equipment, and connected devices and accessories.
Orange also provides IT and integration services comprising unified communication and collaboration services, such as LAN and telephony, consultancy, integration, and project management; hosting and infrastructure services, including cloud computing; customer relations management and other applications services; security services; and video conferencing, as well as sells related equipment.
Orange operates in France; Spain and Other European Countries; The Africa and Middle East; Enterprise; International Carriers & Shared Services; and Mobile Financial Services segments. But, as you can see in the following map, the heartbeat of Orange’s business is in rural France.
Orange recently sold a 50% co-controlling stake to a consortium of high-profile financial partners with an extensive track-record in infrastructure management and highly involved in local development in France. Its partners include Banque des Territoiries (Part of Groupe Caisse des Dépôts, founded in 1816); CNP Assurances, which has 390 billion euros in assets under management; and eDF Investment, which has 7 billion euros in assets under management.
The company saw its revenues rise by 0.5% in its first quarter, to 10,315 million euros, on strong growth in Africa and the Middle East (up 7.1% – the best performance in a decade) and Europe (up 2.2%).
Orange also set a new record for first-quarter FTTH net adds. Additionally, the company announced that 5G packages are now available in five countries, and it has 239 municipalities in France with 5G. During the quarter, Orange gained 2.8% convergent customers, now numbering 11.13 million. And mobile financial services added nearly 300,000 business customers, for a total of 1.5 million.
The shares of Orange are trading at a price-earnings ratio of just 6.13 and appear to be heavily discounted.
With a firm foundation of aggressive growth and the substantial assets of its new partners, we look for significant appreciation as the future looks very bright for Orange.
Please note: Orange is an ADR, American Depository Receipt, which is a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares—often one share—of a foreign company’s stock. The ADR trades on U.S. stock markets as any domestic shares would.
As it’s often difficult for U.S. investors to buy shares on a foreign exchange, ADRs offer U.S. investors a way to purchase stock in overseas companies that would not be available otherwise.
Orange S.A. (ORAN) 52-Week Low/High: $ 10.15 - 13.03 Shares Outstanding: 2.66 billion Institutionally Owned: .81% Market Capitalization: $33.451 billion Dividend yield: 5.60%, paid semi-annually Website: orange.com | Why Orange: Rural expansion accelerating 5G offers more opportunities for growth New partnerships deliver financial strength Healthy dividend Undervalued
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Technical Analysis
by Kate Stalter
You’ve heard the phrase, “nowhere to go but up.” While it’s dangerous to say that about any single stock, Orange’s chart sure does bring that saying to mind.
The stock was already in a downtrend prior to the great 2020 meltdown last February and March, having begun its southward migration in late 2019. It posted an almost incomprehensible 10 months in a row of declines.
The stock is up 6.83 % year-to-date and 2.10% in April.
Orange is currently forming a flat base, meaning it’s corrected less than 15% from peak to trough. It’s taking its time etching this formation, which began in early December.
It’s repeatedly hit resistance at $13. That’s the price you want to see it clear, preferably on heavier-than-average volume.
One good sign for the stock is the up/down volume ratio of 1.3. That means upside volume was 30% higher than downside in the past 50 sessions.
The stock is trending along its 10-day moving average, a sign that institutional investors are supporting the stock at a good price level, rather than selling.
Price Target: $17.50
Stop Loss: $10.10
Sector Round-Up | WSBS 521
| Percent Gain/Loss | |||
| 1 Month | 3 Month | YTD | |
| Communication Services (XLC) | 6.52% | 12.99% | 14.11% |
| Consumer Discretionary (XLY) | 7.30% | 7.41% | 10.82% |
| Consumer Staples (XLP) | 0.31% | 5.12% | 1.99% |
| Energy (XLE) | -0.63% | 23.21% | 32.22% |
| Financials (XLF) | 4.57% | 21.67% | 21.91% |
| Health Care (XLV) | 4.41% | 5.32% | 7.70% |
| Industrials (XLI) | 3.63% | 17.60% | 15.06% |
| Materials (XLB) | 4.67% | 15.78% | 15.22% |
| Real Estate (XLRE) | 5.69% | 13.54% | 15.37% |
| Technology (XLK) | 6.84% | 7.35% | 9.02% |
| Utilities (XLU) | 3.36% | 4.98% | 4.63% |
Source: Select SPDR ETFs
Let’s start with a look at communications services, the sector of our featured stock, Orange (ORAN).
Although Orange has a market cap of $33.58 billion, it’s not tracked in the S&P 500, as it’s headquartered in France.
The S&P 500 communications services sector is up 8.35% for the month of April.
The most heavily weighted stocks in the sector, and their April returns:
Facebook (FB): 13.30%
Alphabet A (GOOGL): 16.96%
Alphabet C (GOOG): 18.19%
T-Mobile US (TMUS): 8.55%
Charter Communications (CHTR): 5.23%
Comcast (CMCSA): 2.19%
The solid returns of Facebook and Google, which constitute 47.99% of sector assets, is clearly driving broader sector performance.
On the ETF’s chart, you can see a small gap higher on April 28, as Google gapped up on earnings. In the following session, the XLC ETF gapped up another 2.77% following Facebook’s 7.30% move after reporting a blowout quarter.
Another stock in the portfolio, Toronto Dominion Bank (TD), is part of the financial sector, although it, too, is a non-U.S. company and therefore not tracked in the S&P 500.
The Financial Select Sector SPDR ETF (XLF) returned 7.37% in April. It’s the sector’s third month in a row with gains.
Financials underperformed the broader market ever since the great recession in 2008, meaning it’s starting from essentially a position of “value.” That can be a great place for a sector, fund or stock to be, as it can attract investors who have conviction about future prospects but are seeking a lower entry price.
Portfolio Updates | WSBS 521
Determine Your Investing Style
It’s critical to take your investing temperature so that you know how much of a risk-taker you are, which will help you determine your investing strategy. I’ve devised a simple questionnaire to help you determine your investing style and risk temperament. You can access it here.
It is an important first step along your path to investing. Once you’ve taken the quiz, you will know if you are an aggressive, moderate, or conservative investor. And that will drive your investing decisions.
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.
The Coca-Cola Company (KO)
Coke cleared a cup-with-handle base on April 19, passing a buy point above $53.94 in above-average volume. Over the past year, the stock was hit hard by pandemic-driven closures of restaurants, movie theaters and other out-of-home venues, where most of the company’s sales are made. However, with greater optimism about reopenings this year, expectations for Coca-Cola are clearly rising. Analysts’ consensus rating on the stock is “buy,” with a price target of $58.17, a 7.82% upside. Three analysts upgraded their price targets for Coke in April.
TC Energy Corporation (TRP)
The oil-and-gas transportation and storage company is just a few pennies shy of clearing an eight-month consolidation. The stock gapped up on April 29, but volume was below average. Ideally, you’d like to see heavy trade as the stock clears a buy point. One possible catalyst for a move – in either direction – is TC’s first-quarter earnings report on May 7. Analysts pegged earnings at $0.84 per share. The recent uptrend is encouraging, but investors may want to use caution and wait for the report before jumping in.
Unilever PLC (UL)
SELL This well-established consumer goods firm advanced 3% the week ended April 30, following a strong earnings report. The stock returned 38% for the portfolio, so we’ll take this opportunity to book profits.
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.
Conagra Brands, Inc. (CAG)
The packaged foods company is trading below its August 27 high of $39.34, hitting resistance between $38 and $39. The stock didn’t get much of a boost after reporting an earnings and revenue beat on April 8. Still, analysts believe packaged foods, which were in high demand during the stay-home days of the pandemic, have room to run. Analysts have a “hold” rating on the stock, with a price target of $38.11, a 3.31% upside. One possible headwind: Conagra is among 17 food producers that warned higher commodity prices could result in higher food prices for consumers. Conagra owns a number of familiar brands, including Duncan Hines, Hunt’s, Marie Callender’s and Healthy Choice.
National Storage Affiliates Trust (NSA)
The self-storage REIT crushed April, with a price rise of nearly 13%. The stock’s non-stop rally pushed the stock beyond a reasonable buy point at this juncture. However, it reports its second quarter on May 4. The consensus estimate calls for earnings per share of $0.45 on revenue of $117.62 million. This company, which operates self-storage units in the top 100 U.S. metropolitan areas, benefited from moving trends that accelerated during the pandemic. In the last earnings call, CEO Tamara Fischer said, “Customer demand for storage is stronger than ever and has altered the seasonality that we normally experienced in the winter months.” In other words, the usual winter slowdown did not occur in 2020. We’ll learn much more about continued strength on May 4.
Spirit Realty Capital (SRC)
This real estate investment trust. By law, REITs must return at least 90% of their taxable income to their shareholders, annually, which generally translates into very nice yields for the REIT investor, making these investment vehicles very attractive.
Spirit is a net-lease REIT, which means that its tenants are responsible for the payment of most, if not all, operating expenses including property taxes, insurance, and maintenance. Most of Spirit’s investments are in single-tenant, operationally essential real estate assets, subject to long-term leases (usually 10-20 years). The current dividend yield is 5.29%, which mitigates some volatility inherent in the stock’s trading history.
The Toronto-Dominion Bank (TD)
This multinational bank stock cleared an area of tight trading on April 23, rising 2% in volume heavier than the prior session. The stock traded higher for six months in a row, posting a 5.75% gain in April. The stock is currently paying out an annual dividend of $2.52 per share. Dividends are historically a reason investors hold large cap stocks that may not appreciate as quickly as small caps. However, the price appreciation on this stock has been excellent. Its one-year return is 65.24% and its year-to-date return is 25.17%. As of April 30, the stock was in buy range, as it was only 2.5% above its consolidation high price of $67.23.
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.
OneMain Holdings, Inc. (OMF)
The personal lending company, which specializes in customers with subprime credit, is trading at all-time highs. The stock was up 4.09% the week ended April 30. It advanced 132.64% year-to-date and 20.54% over the past 12 months. It’s more than doubled since being added to the portfolio. Earnings growth accelerated in the past two quarters. This is a mid-cap, with a market capitalization of $7.595 billion. Inherently, mid-caps are often more volatile than larger stocks, due to liquidity issues, as well as sparse analyst coverage and lower institutional ownership. This stock has a beta of 1.67, another indication that it is more volatile than the broader market. None of that is necessarily a problem, but investors should be prepared for large price swings on occasion.
Primoris Services (PRIM)
Primoris provides maintenance services for power plants, refineries and other facilities. Yearly earnings per share accelerated over the past two years, and analysts expect that trend to continue this year, with earnings per share of $2.39, a 10% year-over-year gain. The company reports its first quarter on May 5. Wall Street expects a loss of $0.09 per share on revenue of $764.72 million. That would be an improvement on the top line, but not the bottom line. The company beat earnings expectations in the past three quarters. The stock is consolidating below key moving averages ahead of the earnings report.
Textainer (TGH)
The shipping industry has been red hot in recent months, as the pace of online ordering accelerated during the pandemic. Textainer is a Bermuda-based container leasing company, with a one-year price gain of 226.37% and a year-to-date return of 39.36%. The company reports its first quarter on May 17, with analysts eyeing per-share earnings of $0.98 on revenue of $182.88 million. As that revenue shows you, this is a small company. Its market capitalization is just $1.36 billion. Its beta is 1.21, meaning it’s prone to more volatility than the broader market.
Current Portfolio | WSBS 521
| Conservative Stocks | Symbol | Price Bought | Price on 5/3/2021 | Dividends YTD | Gain/Loss % | Rating |
| Unilever PLC | UL | $42.84 | $59.21 | $0.51 | 39% | Sell |
| The Coca-Cola Company | KO | $41.90 | $54.48 | $0.42 | 31% | Hold |
| TC Energy Corporation | TRP | $42.73 | $49.84 | $0.69 | 18% | Hold |
| Moderate Stocks | Symbol | Price Bought | Price on 5/3/2021 | Dividends YTD | Gain/Loss % | Rating |
| National Storage Af-filiates Trust | NSA | $27.39 | $44.81 | $0.35 | 65% | Hold |
| Conagra Brands, Inc. | CAG | $29.87 | $37.50 | $0.00 | 26% | Hold |
| The Toronto-Dominion Bank | TD | $40.82 | $68.59 | $0.00 | 68% | Hold |
| Spirit Realty Capital | SRC | $42.27 | $47.24 | $0.63 | 13% | Hold |
| Aggressive Stocks | Symbol | Price Bought | Price on 5/3/2021 | Dividends YTD | Gain/Loss % | Rating |
| cbdMD, Inc. | YCBD | — | $3.69 | — | — | Sold |
| OneMain Holdings, Inc. | OMF | $29.49 | $56.17 | $3.95 | 104% | Hold |
| Textainer Group Holdings | TGH | $28.77 | $26.73 | $0.00 | -7% | Hold |
| Primoris Services | PRIM | $34.98 | $33.39 | $0.06 | -4% | Hold |
Spotlight on Our Portfolio
The Toronto-Dominion Bank (TD)
This Toronto, Canada-headquartered bank was founded in 1855. The bank extends its services to the United States and offers typical banking products under the TD Bank name, as well as brokerage services under its TD Ameritrade name. Toronto-Dominion operates through a network of 1,085 branches, 3,440 automated teller machines, and 1,223 stores, as well as offers telephone, digital, and mobile banking services.
The More You Know | WSBS 521
Last month, we delved into the definition of Growth Investing. Today, let’s talk about Value Investing – another investing strategy favored by some of the most successful investors in the world.
Value investors believe that the market is not efficient, that stocks reflect all there is to know about that company, meaning they are always priced at their true value. That’s called the efficient-market hypothesis. But successful value investors like Warren Buffett, chairman of Berkshire Hathaway, have disproved that concept many times over. They know that occasionally, stocks are underpriced or overpriced relative to their true value, providing investors with great opportunities to ‘buy low’.
Value investors seek these undervalued stocks, or shares that trade for less than their intrinsic values. They believe that stocks move sometimes, simply due to overreactions to good and bad news (or investor irrationality), and not because of their inherent fundamentals. For example, an earnings report that is perceived by the market to be less than expected can cause a solid, fundamentally strong company’s shares to plummet — many times, temporarily. And a company that beats analysts’ earnings estimates can also decline, if revenues or forward guidance didn’t meet expectations. Those movements provide opportunities to buy in when the stocks are temporarily discounted.
However, just like with growth investing, value investing also comes with some warnings, including:
- Value is in the eye of the beholder. With the same information, two investors may estimate the value of a company very differently. Some consider only current earnings and assets, without taking growth into account. Others calculate forecasted growth and the cash flow it will generate.
- Just because a company is cheaply priced doesn’t mean it’s undervalued. Many value investors concentrate on the price-equity ratio (P/E) a calculation of four quarters of the company’s earnings, divided by its current stock price, to determine valuation. But a low P/E does not tell the entire story. The stock may be trading cheaply because it’s a dog. Consequently, further analysis is required. But having said that, if you determine you have a good value candidate, make sure that it’s P/E is indeed low, compared to its industry and its five-year historical average P/E.
So, where do you start when looking for an undervalued company? As I mentioned above, you do begin with a low P/E, which should be in the bottom 10% of its peers. Next, the Price to Earning Growth Ratio (PEG, or the P/E divided by the earning’s growth rate over the same period of time) — which should be less than 1. Debt should also be reasonable, at least as much as equity. And lastly, the share price should be less than tangible book value (tangible assets divided by total number of shares outstanding). Tangible assets are assets that you can physically see and touch, such as buildings, machinery, cash and inventory—not patents or goodwill, or other assets that cannot be liquidated for cash.
That’s a short and simple analysis, but there are much more elaborate models to determine value, too.
Certainly, as mentioned above, there are investors — even famous investors — who favor one strategy over another. But for the average investor, it’s essential to note that markets cycle up and down. Sometimes, growth stocks are the big winners, but in other instances (say, an economic downturn, or just a period of uncertainty), investors prefer value-oriented companies. And so far in 2021, value stocks are the leaders, with small caps returning 24.4%, mid-caps, 18.4%, and large caps, 15%.
Some of those cycles are depicted in the following graph.
The ratio in the chart above divides the Wilshire US Large-Cap Growth Index by the Wilshire US Large-Cap Value Index. When the ratio rises, growth stocks outperform value stocks – and when it falls, value stocks outperform growth stocks. The ratio peaked in 2000, during the dot-com mania.
You can see that no one style — value or growth — is always the best strategy to follow. That’s why many investors seek a more balanced portfolio that will include both styles — as well as others.
For example, Peter Lynch, the pioneer of the wildly-successful Fidelity Magellan fund, created a hybrid model of growth and value investing — the growth at a reasonable price (GARP) strategy. From 1977 to 1990, Lynch averaged a 29.2% annual return, making Fidelity Magellan the most successful mutual fund in the world.
Bottom line, a balanced portfolio is optimal for most investors, skewed toward whichever style suits your personal risk assessment.
The next Wall Street’s Best Stocks issue will be published on June 1, 2021.