Bearish sentiment has risen a bit last month, following the market’s up and down gyrations—mostly due to COVID-19 (although new cases finally seem to be slowing), as well as the continuing drama from Congress, who doesn’t appear to be able to agree on anything!
However, the economy is continuing on a strong bent. Durable goods manufacturing has risen, the unemployment rate remains healthy, and housing is strong. Building permits and housing starts—along with prices—continue to rise. There has been some abatement in the rate of pricing increases, which is a good sign. We are seeing a little more inventory, just not enough to put a big damper on prices as of yet.
It’s a mixed outlook for the markets right now—we’re seeing some major pullbacks in certain big names, but today’s action was very positive. We may continue to see some dips in the next few weeks, but overall, I’m optimistic that the economy is still strong. And as long as earnings continue to outperform, the markets should hold up nicely.
I’m looking forward to the colorful fall, which is already starting here in Tennessee. I wish you a pleasant autumn and hope you will email me with your thoughts and questions. I look forward to hearing from you.
Happy Investing!
State of the Markets | WSBS 1021
The broad markets see-sawed this past month but are showing new positive action as I write this. We’re probably due for some more volatility, but it shouldn’t be anything too worrisome. There is some resistance at this level, but the Dow Jones Industrial Average continues to trade above its 200-day moving average, which is favorable.
Dow Jones Industrial Average
S&P 500
Nasdaq Composite Index
Feature Recommendation | WSBS 1021
Our new pick, Evolent Health, was founded in 2011. The company provides healthcare IT technology, including provision of health care delivery and payment services, population health management, health plan and third-party administration, network performance and pharmacy benefit management, risk adjustment, analytics and performance improvement, and technology and electronic medical record integration.
Evolent operates through two segments: Services and True Health. The Services segment includes clinical and administrative solutions such as total cost of care management, specialty care management and comprehensive health plan administrative services. The True Health segment offers a physician-led health plan for employer-sponsored health coverage.
Evolent Health, Inc. was founded in 2011 and is headquartered in Arlington, Virginia.
The company serves a national base of leading payers and providers and is the first company to receive the National Committee for Quality Assurance’s Population Health Program Accreditation.
Medical technology was rapidly evolving until the arrival of COVID-19, which pushed it to almost-revolutionary stages. The global lockdown, travel, and hospital visitation limits have significantly boosted the opportunities for digital healthcare, including teleconsultation. Additionally, the rising number of pandemic patients has created a need for more data maintenance and storage, as well as analytic capabilities. Lastly, the emphasis on preventive care is also creating significant growth in the industry.
And with the advent of artificial intelligence, the internet of things and big data, the sky seems to be the limit for industry expansion.
According to Grandview Research, the global healthcare IT market size was valued at $74.2 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 10.7% over the next few years.
Right now, North America—Evolent’s marketplace—is the place to be for healthcare IT, now and for the near future. But the market is very fragmented, with most market share owned by these five companies:
- GE Healthcare
- Philips Healthcare
- Siemens Healthcare
- Cerner Corporation
- Allscripts Healthcare Solutions Inc.
And that’s great news for Evolent! The company has added to its products by a few strategic acquisitions. In 2018, Evolent purchased New Century Health, a specialty care management company that focused primarily on cancer and cardiac care.
And last month, Evolent announced that it is acquiring Vital Decisions, a New Jersey-based telehealth company and a leading provider of technology-enabled advance care planning services. The price tag is $85 million, and the deal is expected to close by the end of this year.
For its second quarter, Evolent saw revenues grow 42.3%, to $222.1 million, driven by seven new partnerships. Adjusted EBITDA was $13.3 million.
Looking forward, Evolent raised its 2021 full-year revenue guidance range to $870M - $900M, which would reflect a very nice 30% growth rate. The company also increased its full-year adjusted EBITDA guidance range to $50-58M.
The company’s EPS was $0.02, which did improve from -$0.03 last year and outperformed the estimated -$0.06 analysts had expected.
For the last four quarters, the company has surpassed both consensus EPS and revenue estimates.
And while I love the revenue growth and how the company is getting closer to positive earnings, I really like this company as a takeover candidate.
Just in the past few days, rumor has it (via Bloomberg) that Walgreens Boots Alliance is thinking about making a play for Evolent. No one has confirmed it, and even if this suitor doesn’t materialize, I think Evolent is a likely target.
Its stock is cheap; the company is growing rapidly; and the pandemic is boosting industry growth that should enhance Evolent’s top and bottom lines.
| Evolent Health, Inc. (EVH) 52-Week Low/High: $9.44 - 31.88 Shares Outstanding: 87.27M Institutionally Owned: 98.11% Market Capitalization: $2.752B Dividend yield: n/a Website: evolenthealth.com | Why Evolent?
|
Top Institutional Holders
| Holders | Shares | Date Reported | % Out | Value |
| Vanguard Group, Inc. (The) | 14,315,560 | 30-Mar-21 | 9.03% | 198,843,128 |
| Blackrock Inc. | 13,233,458 | 30-Mar-21 | 8.35% | 183,812,731 |
| Impax Asset Management Group Plc | 12,096,848 | 30-Mar-21 | 7.63% | 168,025,218 |
| Nuance Investments, LLC | 8,826,343 | 30-Mar-21 | 5.57% | 122,597,904 |
| Price (T.Rowe) Associates Inc | 7,976,765 | 30-Mar-21 | 5.03% | 110,797,265 |
| Franklin Resources, Inc. | 7,277,184 | 30-Mar-21 | 4.59% | 101,080,085 |
| Dimensional Fund Advisors LP | 5,763,178 | 30-Mar-21 | 3.64% | 80,050,542 |
| Eaton Vance Management | 5,088,631 | 30-Mar-21 | 3.21% | 70,681,084 |
| Gamco Investors Inc | 4,150,781 | 30-Mar-21 | 2.62% | 57,654,348 |
| State Street Corporation | 3,287,143 | 30-Mar-21 | 2.07% | 45,658,416 |
Source: Yahoo! Finance
Technical Analysis
The shares of Evolent are up an astonishing 241% so far this year and have outperformed the industry. But I think they have lots more room to grow, especially if the Walgreens acquisition rumors turn out to be true. There’s some resistance around 33 and support around 29.50.
Price Target: $41
Stop Loss: $27.50
Sector Round-Up | WSBS 1021
Although the markets have pulled back recently, there are three sectors that outshone the others so far in 2021. They are Energy (up 37.44%), Financial Services (up 27.31%), and Real Estate (up 21.58%). The laggards are Consumer Staples (up 2.06%), Utilities (up 1.88%), and Materials (up 9.28%).
Our pick this month is an aggressive growth strategy, both internally, and as a takeover candidate.
Flows for 09/24/2021 - 09/30/2021
| Top 10 Creations (All ETFs) | ||
| Ticker | Fund Name | Net Flows |
| VTI | Vanguard Total Stock Market ETF | 1,289.24 |
| TQQQ | ProShares UltraPro QQQ | 1,147.14 |
| XLF | Financial Select Sector SPDR Fund | 887.85 |
| XLE | Energy Select Sector SPDR Fund | 740.70 |
| PDP | Invesco DWA Momentum ETF | 585.09 |
| IJR | iShares Core S&P Small-Cap ETF | 550.24 |
| IWF | iShares Russell 1000 Growth ETF | 485.35 |
| MTUM | iShares MSCI USA Momentum Factor ETF | 456.35 |
| IWM | iShares Russell 2000 ETF | 452.00 |
| SOXL | Direxion Daily Semiconductor Bull 3X Shares | 392.73 |
| Top 10 Redemptions (All ETFs) | ||
| Ticker | Fund Name | Net Flows |
| IVV | iShares Core S&P 500 ETF | -4,446.86 |
| QQQ | Invesco QQQ Trust | -2,567.88 |
| SPY | SPDR S&P 500 ETF Trust | -1,312.40 |
| ARKK | ARK Innovation ETF | -693.82 |
| XLV | Health Care Select Sector SPDR Fund | -680.80 |
| EMB | iShares JP Morgan USD Emerging Markets Bond ETF | -512.24 |
| SPYG | SPDR Portfolio S&P 500 Growth Fund | -392.91 |
| SHV | iShares Short Treasury Bond ETF | -374.48 |
| VGT | Vanguard Information Technology ETF | -243.37 |
| XLU | Utilities Select Sector SPDR Fund | -187.97 |
Source: ETF.com
Portfolio Updates | WSBS 1021
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)
After its very good second-quarter report, KO is looking forward to another good quarter. The company is forecast to post EPS of $0.58 on revenues of $9.79 billion.
And just in case you didn’t know, Coca-Cola is one of Warren Buffett’s long-time favorite stocks. It accounts for 8% of his Berkshire Hathaway holdings. Hold
Sun Life Financial Inc. (SLF)
Estimates are also moving higher for SLF, with EPS for 2021 and 2022 forecast at $4.77 and $5.15. Shares look undervalued to me. Buy
Mueller Water Products, Inc. (MWA)
Insiders are piling into the shares of Mueller Water Products. Shares are trading at a very attractive level. Buy
TC Energy Corporation (TRP)
We’re seeing nice movement in the shares of TRP. Canadian oil production is still gaining momentum. And since new pipelines need regulatory approval, those already in place like TRP’s are in the right place at the right time. Hold
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)
National Storage Affiliates is the smallest self-storage REIT, so it has lots of opportunities to expand. The REIT currently has interest or ownership in 844 properties, 667 of which are wholly owned, 379 of which are managed by its participating regional operators (PROs), and 177 which are jointly owned. Shares are still climbing. Hold
Spirit Realty Capital, Inc. (SRC)
This REIT is also gathering strength. Estimates are rising, with next quarter’s EPS expected to come in at $0.80 and for full-year 2021 at $3.24. Third-quarter earnings are due to be released on November 2, 2021. Hold
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)
This personal installment-loan company will release third-quarter results on October 20, 2021. Earnings estimates are $2.29 per share on revenues of $880.67 million. OMF has 2.2 million customers and more than 1,400 branches in 44 states. The shares are trading at a P/E ratio of 5.47. If you do not own the stock right now, I’m going to put it back on a Buy rating.
Primoris Services Corporation (PRIM)
We’re still waiting on the infrastructure bill to be passed by Congress. I’m optimistic! And once the monies become available, I believe we will see some positive movement in PRIM.
In fact, a recent report from Oxford Economics, PwC noted that “worldwide capital expenditures on infrastructure like power generation, oil drilling and refining, and transportation are apt to reach a full-year tally of $9 trillion in 2025.” Furthermore, the U.S. Energy Information Administration reports that “a great deal of that spending will be on new power transmission lines alone, which has nearly quadrupled between 2000 and 2019, with more such spending growth on the way.” And that will be great for Primoris.
In other news, Primoris Services declared a dividend of $0.06 per share, payable on the 15th of October. Buy
Textainer Group Holdings Limited (TGH)
Estimates are rising for TGH, with next quarter’s EPS expected to be $1.22 on $191.61 million. These shares are up nicely. Continue to Hold.
ETFs & Mutual Funds
Our funds and ETFs are doing well, although First Trust Dow Jones Global Select Dividend Index Fund (FGD) is slightly in the red. I’m keeping my eye on it; but I’m placing it back on Hold for now.
I want to take some money off the table from the Vanguard Dividend Appreciation Index (VIG), which is up 49%. Let’s Sell One-Half.
Two ETFs that are still good buys are Invesco Aerospace & Defense (PPA) and Invesco S&P Global Water Index (CGW). Buy
We’ll let all our other funds and ETFs ride for now. Hold
Current Portfolio | WSBS 1021
| Wall Street’s Best Stocks Portfolio | ||||||||
| Conservative Stocks | Symbol | Date Bought | Price Bought | Price on 10/4/21 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| The Coca-Cola Company | KO | 2/2/21 | 41.90 | 52.99 | 1.26 | Quarterly | 29% | Hold |
| Mueller Water Products, Inc. | MWA | 8/3/21 | 14.93 | 15.47 | 0.06 | Quarterly | 4% | Buy |
| Sun Life Financial Inc. | SLF | 6/2/21 | 54.08 | 52.96 | 0.44 | Quarterly | -1% | Buy |
| TC Energy Corporation | TRP | 2/2/21 | 42.73 | 49.16 | 2.09 | Quarterly | 20% | Hold |
| Moderate Stocks | Symbol | Date Bought | Price Bought | Price on 9/3/21 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| National Storage Affiliates Trust | NSA | 2/2/21 | 27.39 | 52.93 | 1.14 | Quarterly | 97% | Hold |
| Spirit Realty Capital | SRC | 2/2/21 | 42.27 | 47.73 | 1.89 | Quarterly | 17% | Hold |
| The Toronto-Dominion Bank | TD | 2/2/21 | 40.82 | 67.61 | 1.26 | Quarterly | 69% | Hold |
| Aggressive Stocks | Symbol | Date Bought | Price Bought | Price on 9/3/21 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| Entravision Communications Corporation | EVC | 9/7/21 | 7.45 | 7.35 | 0.03 | Quarterly | -1% | Buy |
| OneMain Holdings, Inc. | OMF | 2/2/21 | 29.49 | 57.21 | 8.85 | Quarterly | 124% | Buy |
| Primoris Services | PRIM | 3/2/21 | 34.98 | 25.11 | 0.18 | Quarterly | -28% | Buy |
| Textainer Group Holdings | TGH | 4/1/21 | 28.77 | 34.44 | 0.00 | — | 20% | Hold |
| ETFs | Symbol | Date Bought | Price Bought | Price on 9/3/21 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| Cohen & Steers REIT and Preferred Income | RNP | 2/2/21 | 23.34 | 25.90 | 1.12 | Monthly | 16% | Hold |
| Consumer Discretionary Select Sector SPDR | XLY | 2/2/21 | 116.94 | 179.37 | 0.79 | Quarterly | 54% | Hold |
| First Trust Dow Jones Global Select Dividend Index Fund | FGD | 5/5/21 | 26.11 | 25.10 | 0.75 | Quarterly | -1% | Hold |
| Invesco Aerospace & Defense ETF | PPA | 4/1/21 | 72.87 | 72.59 | 0.11 | Quarterly | 0% | Buy |
| Invesco S&P Global Water Index ETF | CGW | 6/2/21 | 54.03 | 55.78 | 0.00 | Yearly | 3% | Buy |
| SPDR S&P 500 ETF Trust | SPY | 2/2/21 | 218.25 | 428.64 | 4.08 | Quarterly | 98% | Hold |
| Vanguard Dividend Appreciation Index | VIG | 2/2/21 | 105.13 | 153.74 | 1.89 | Quarterly | 48% | Sell a Half |
| Mutual Funds | Symbol | Date Bought | Price Bought | Price on 9/3/21 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| Artisan Mid Cap Fund Investor Class | ARTMX | 2/2/21 | 37.29 | 53.66 | 0.00 | Yearly | 44% | Hold |
| Fidelity Balanced | FBALX | 2/2/21 | 23.88 | 31.54 | 0.12 | Quarterly | 33% | Hold |
| Sold Positions | ||||||||
| Stocks | Symbol | Date Bought | Date Sold | Price Bought | Price Sold | Div Freq. | Dividends YTD | Gain/ Loss % |
| cbdMD, Inc. | YCBD | 2/2/21 | 3/31/21 | 2.25 | 4.06 | — | 0.00 | 80% |
| Clean Ener-gy Fuels Corp. | CLNE | 2/2/21 | 3/2/21 | 2.63 | 13.66 | — | 0.00 | 419% |
| Conagra Brands, Inc. | CAG | 2/2/21 | 8/3/21 | 29.87 | 33.33 | Quarterly | 0.59 | 14% |
| Investors Bancorp, Inc. | ISBC | 7/6/21 | 8/3/21 | 13.90 | 13.72 | Quarterly | 0.14 | 0% |
| Orange S.A. | ORAN | 5/4/21 | 7/7/21 | 12.61 | 11.16 | Semi Annually | 0.00 | -12% |
| Unilever PLC | UL | 2/2/21 | 5/3/21 | 42.84 | 59.12 | Quarterly | 0.00 | 38% |
| ETFs | Symbol | Date Bought | Date Sold | Price Bought | Price Sold | Div Freq. | Dividends YTD | Gain/ Loss % |
| Technology Select Sector SPDR | XLK | 2/2/21 | 3/2/21 | 42.01 | 133.88 | Quarterly | 0.00 | 219% |
| Mutual Funds | Symbol | Date Bought | Date Sold | Price Bought | Price Sold | Div Freq. | Dividends YTD | Gain/ Loss % |
| T. Rowe Price Blue Chip Growth | TRBCX | 2/2/21 | 4/1/2021 | 90.40 | 169.55 | Yearly | 0.00 | 88% |
| Needham Small Cap Growth Retail Class | NESGX | 2/2/21 | 5/5/2021 | 14.61 | 27.28 | Yearly | 0.00 | 87% |
| Fidelity Select Industrials Portfolio | FCYIX | 3/2/21 | 6/2/21 | 37.95 | 37.66 | Quarterly | 0.73 | 1% |
| Cohen & Steers Infrastructure Fund, Inc | UTF | 2/2/21 | 6/24/21 | 37.95 | 27.85 | Monthly | 0.62 | -25% |
The More You Know | WSBS 1021
As the economy has been recovering, corporations are cash-flow positive from the rise in earnings. Right now, non-financial companies hold $2.6 trillion in cash, or about 5% of their total assets. So, what do they do with that excess cash? They have several options, including:
- Expand their business
- Pay dividends
- Buy back shares
At some point, most companies manage to undertake all three of these strategies. In today’s marketplace especially, we are seeing increases in dividend payouts as well as rising stock buybacks.
Some analysts love dividends; others favor buybacks. But many investment pros like both. I’m in that category. Look, anything that adds value to shareholders’ wealth is good in my book.
And both dividends and buybacks do that. Take a look at this chart from Bloomberg. It illustrates this concept. Dividend and buyback stocks started outperforming the S&P 500 in early 2021.
Why Should a Shareholder Care?
Dividends are essentially a profit-sharing plan. You know (for the most part) when they will be paid. And dividends have amounted to about 41% of total shareholder return since 1932, according to Hartford Funds.
The biggest drawback is the double taxation of dividends. First, they are taxed before a corporation pays them to shareholders. And then shareholders are taxed when you receive them. Of course, there are some ways to reduce that tax bite, including putting your dividend-paying shares into a retirement plan in which you can defer them until later, when your tax obligations should be lighter.
Alternatively, a buyback is when a company purchases its own stock—in the open market—just like investors do. The reason that investors like buybacks is because they reduce the number of shares outstanding, meaning that EPS will be higher, and so will a company’s profitability measures, such as Return on Equity and Cash Flow per Share. And very importantly to shareholders—climbing EPS will often lead to rising share prices. Lastly, there’s no immediate tax on buybacks; you only get hit with tax when you sell your shares at a profit.
The timing of a buyback is also important. Companies want their buybacks to look like a show of strength—confidence in the company’s future. And while share prices can—and often do—rise after a buyback, if, for some reason, they took a dive, the buyback may be considered a failure.
And if the shareholders believe the company should be investing its excess cash back into the growth of a company instead of repurchasing shares, the buyback could backfire.
Also, a company might be using buybacks to camouflage the number of shares it is handing out to its top executives in the form of stock options. The buybacks may balance out the options issuance, keeping the total number of shares constant, and essentially not benefiting the shareholders.
Which Method Rewards Shareholders the Most?
Goldman Sachs says that buybacks will reach $720 billion by the end of 2021. And according to Janus Henderson, dividends are expected to rise to $1.39 trillion this year.
The following chart shows the positive strategies of owning stocks that pay dividends and/or utilize buybacks since 1999.
Total shareholder return of both buybacks and dividends in Q4 2020 rose, by 14.7%, to $249.4 billion.
Historically speaking, from January 2000 to June 2015, the return for both indexes was almost identical, with the Buyback Index gaining 9.90% and the Dividend Aristocrats Index up 9.89%.
So far this year, the S&P 500 Dividend Aristocrats (SPDAUDP) has returned 5.8%, a bit better than the SPDR S&P 500 Buyback ETF’s (SPYB) 4.98%. But, the 1-year total return has the Buyback Index whipping the Aristocrats —18.46% compared to 7.2%.
Bottom line, both buybacks and dividends can be very profitable for investors. Both strategies can pay off in enhanced returns to shareholders.
The next Wall Street’s Best Stocks issue will be published on November 2, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
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