Next week, my premium advisory, Smart Investing in Turbulent Times, will transition to the Cabot investor website, renamed Cabot Undervalued Stocks Advisor. So I thought now would be a good time to review some of the opportunities I’ve recommended in Investment of the Week and update you on my current advice.
Several of my recommendations still have more gas in their tank, so you should continue to hold them until they reach their full value. And one of my recommendations is now fully valued. Here are the details.
Four Stocks with More Gains Ahead
Charles Schwab (SCHW)
If you bought shares of financial services company Charles Schwab (SCHW) based on my March 3, 2016 recommendation, congratulations! You were brave enough to buy low after the winter’s market correction—not an easy thing to do! Thus far, the share price has risen 12%, but there’s definitely more potential upside, so hold on tight. The company’s earnings outlook remains unchanged since early March. SCHW is still an undervalued aggressive growth stock.
As I mentioned in March, “There isn’t much stopping the stock price from reaching upside price resistance at 32 before June.” The best-case scenario will see SCHW revisiting last summer’s all-time highs around 35-36, at which point the stock will be fairly valued, based on both 2016 and 2017 EPS expectations. At that point, traders should exit, and longer-term investors can continue to own an excellent growth stock.
Big Lots (BIG)
Wall Street’s consensus earnings estimates have come way down on discount retailer Big Lots (BIG) since my October recommendation. The company is expected to grow EPS by 11.1% and 13.9% in 2017 and 2018 (January year-end). So the stock is now overvalued. However, with a P/E of 12.5 and a dividend yield of 1.8%, BIG is undervalued based on 2018 EPS.
In March 2016, the company increased its dividend, and authorized a $250 million share repurchase.
The share price is up one dollar from my original recommendation, and it’s approaching all-time highs for the fourth time in 18 months. When it breaks past 51, I expect a new run-up. Without previous chart patterns in place, there’s no real way to make a share price prediction. However, based on expected 2018 EPS, the stock will be fairly valued at 59.
BIG is a good choice for growth & income investors.
Martin Marietta Materials (MLM)
Shares of construction aggregate supplier Martin Marietta Materials (MLM) are up 20% since my February 18, 2016 recommendation, when the price was 141.87. The stock is up $28, fast-approaching its all-time closing high of 176.51 from September 2015.
If you bought MLM for a short-term trade, it’s time to unwind your position in the stock, because the run-up will naturally cease as it approaches upside price resistance.
But if you’re looking for an aggressive growth stock to hold for longer-term capital gains, you’re in luck! Earnings per share are still expected to grow 48.4% and 34.7% in 2016 and 2017 (December year-end). The corresponding P/Es remain low at 25.5 and 18.9, and the dividend yield is 1%.
MLM is a very undervalued aggressive growth stock. I would consider any pullback below 160 to be an excellent buying opportunity.
Zions Bancorporation (ZION)
It’s only been two weeks since I recommended Zions Bancorporation (ZION). The stock’s up 6.6% so far, partly because it’s an extremely undervalued aggressive growth stock, and partly because the market is showing strong favor to the financial sector right now.
Don’t trade out of ZION too early! It could rise to 32 this year, as long as the market remains neutral or bullish. At that point, all but the most short-term traders should hold the stock for future capital gains.
This Stock is Nearing Full Value
CBS Corp. (CBS)
Shares of media and entertainment company CBS Corp. (CBS) are up 22% since I first featured the stock as an Investment of the Week on January 7, 2016, when the price was 46.13. Earnings per share are now expected to grow 20.2% and 10.6% in 2016 and 2017. While CBS is undervalued based on 2016 numbers, the 2017 earnings growth rate is slowing down. Therefore, it’s prudent for us to focus on 2017 numbers, to assess any ongoing capital gain opportunity in the stock.
CBS has a 2017 P/E of 12.8, and the dividend yield is 1.1%. Based on current 2017 EPS projections, the stock is fairly valued.
Despite the stock’s fair valuation, the bullish price chart indicates additional short-term capital gain potential. CBS is rising toward medium-term upside price resistance at 62, where it traded throughout the first half of 2015. Once it reaches 62—which could literally happen this spring if the overall market remains neutral or bullish—I expect the stock to cease its run-up, possibly for the rest of the year. At that point, traders should sell CBS and move into a more undervalued growth stock. Longer-term investors should hold their shares.
Happy Investing,
Crista Huff
Chief Analyst, Smart Investing in Turbulent Times
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