In choosing today’s stock, I leaned conservative, and found a dividend-paying stock with strong growth prospects. When I selected it yesterday, the stock was at the bottom of its recent range, but today it shot up to near the top of that range. It’s still a good story, but I’d like it better where it was yesterday.
Cabot Stock of the Week 171
[premium_html_toc post_id="140865"]
The leading indexes remain in a long-term uptrend and economic indicators remain positive, with inflation reasonable and interest rates slowly increasing. Thus, I remain bullish and continue to recommend that you be heavily invested in a diversified group of stocks. However, you should remember that the market is overdue for a serious correction, and that when it comes, your task will be to identify the stocks in your portfolio that are worth holding and the ones that should be quickly sold before they fall further. My job is to help. Meanwhile, in choosing today’s stock, I leaned back toward the conservative side of the spectrum, finding a dividend-paying stock with strong growth prospects that’s trading at the lower end of its recent range. The stock was originally recommended by Chloe Lutts Jensen for Cabot Dividend Investor. Here are Chloe’s latest thoughts.
Wynn Resorts (WYNN)
Wynn is one of the biggest names in luxury casino resorts, with two properties in Las Vegas, Nevada, two in Macau, China, and one under construction near Boston, Massachusetts.
A majority of the company’s revenue now comes from Macau, the only place in China where gambling is legal. So it was a huge blow to Wynn when the Chinese government launched an intense anti-corruption program in late 2014. The government shut down several large junket operators, which are high-end travel agents who organize casino trips to Macau and front credit to help gamblers avoid currency controls. Tourism to Macau—especially by high rollers—fell off a cliff.
Wynn’s adjusted net income fell 55% from 2014 to 2015. (Casino companies report adjusted net income per share in addition to EPS to make year-over-year and quarter-over-quarter comparisons more accurate. It doesn’t include pre-opening costs and certain other non-operating costs.) Management slashed dividend payments by two-thirds, and from March 2014 to January 2016, Wynn’s stock declined 77%, from just under 250 to just above 50.
That was the bottom—for both WYNN and Macau—but the recovery since has proceeded in fits and starts. After initially rebounding to 100 by the end of the first quarter 2016, WYNN spent the next 11 months in a trading range between 85 and 110. Tourists were returning to Macau, but the specter of more government regulations reared its head every few months, keeping a lid on buying pressures. Wynn opened its newest resort, The Wynn Palace on the Cotai Strip, in August 2016, but construction activity around the property depressed foot traffic.
It all added up to a lot of nothing for the stock and the company: for the full-year 2016, Wynn’s adjusted net income declined 1%.
But as the second quarter of this year started, the stars finally aligned for Wynn. There’s still construction around the Wynn Palace, but foot traffic (which drives mass-market business) is increasing thanks to improved food offerings, more events and reworked player programs. Gaming revenues in Macau are rising month after month, increasing 16% year-over-year in September. Wynn’s revenues grew by approximately 45% in each of the first three quarters of 2017. And the stock is reflecting the improvement; after a minor pullback this summer, WYNN broke out to new 52-week highs in early September.
Going forward, Wynn has big plans to maintain its growth trajectory. Next year, Wynn is expanding its Las Vegas property, adding a new 1,500-room hotel overlooking a 1,600-foot long lagoon with white sand beaches. The lagoon area will include a mile-long boardwalk and carnival-themed attractions like bumper cars and a nightly parade. And in 2019, Wynn will open the first (and for now, only) casino resort in the Boston area.
Analysts expect EPS to increase 53% this year, and 27% next year.
As income rebounds, so too will dividends. Wynn has a variable dividend policy, which allows the company to pay high dividends even though it’s in a cyclical industry. That means dividends are vulnerable when times get tough, but can rise quickly when the company is growing. Between 2010 and 2013, Wynn doubled its dividend twice, and also paid large special dividends every January. Wynn’s cash flow-linked dividend policy means investors who own the stock during an up cycle—like that one that is underway now—can get paid twice, by both the rising stock price and rapidly growing dividends.
Tim’s note: I would have loved to get on board WYNN at yesterday’s low near 140, but the stock bounced strongly today, so we’re stuck with tomorrow’s average, whatever it is. If you’re patient, you still might be able to buy at 140.
Wynn Resorts (WYNN 147)
3131 Las Vegas Boulevard, South
Las Vegas, NV 89109
702-770-7555
www.wynnresorts.com
CURRENT RECOMMENDATIONS
As the bull market rolls on, the majority of our stocks continue to participate, which is very rewarding. But the addition of WYNN means that I need to hunt for one stock (or more) to sell to keep the portfolio at 20 or fewer, and the victim this time is Vertex (VRTX). The stock has brought us a respectable profit in the five months we’ve owned it, but that profit is at risk, and I don’t want to lose it. Details below.
Also, I recently wrote that you don’t need to buy all the stocks I recommend, only the ones that fit your risk/reward profile. But one reader questioned that advice, writing, “I thought you limited the portfolio to 20 stocks so we could buy all of them and still have a manageable number.” Technically that’s true, but historically, I’ve found that most readers use their own filters (either fundamental or technical or psychological) to screen out at least a few. Or to put it more simply, sometimes people think they know better! Still, if all my recommendations make sense to you, by all means feel free to do just what he’s been doing and buy and sell them all in sync with me.
BB&T Corp. (BBT), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, broke out to new highs last Thursday after reporting excellent third quarter results and can still be bought. In her latest update, Chloe wrote, “ BB&T Corp is a regional bank offering a broad range of financial services in the South, the mid-Atlantic region, Texas and some of the Midwest. BB&T reported third-quarter earnings before the open on Thursday. Revenues rose 1.4% year-over-year, and EPS rose 2.6%, meeting estimates. While the stock opened lower, it closed higher, as analysts shifted their focus to the bank’s forward-looking announcements. BB&T continues to optimize its loan portfolio, replacing fixed-rate mortgages with floating rate loans in anticipation of rising rates. The company is also closing some branches due to declining demand for in-person banking services, and will use the savings to invest in improving its digital offerings. CEO Kelly King also noted the company is actively looking to invest in or acquire fintech companies. The company announced a 10% dividend increase, to $0.33 per quarter.” BUY.
Biogen (BIIB), originally recommended by Cabot Benjamin Graham Value Investor, found support at the 310 level and is now stabilizing. It’s not one of Azmath Rahiman’s featured buys, but is a firm hold, sitting smack in the middle of his current 30-stock portfolio (which he is still focused on slimming). Azmath calculates that BIIB has a fair value of 375. HOLD.
BioTelemetry (BEAT), originally recommended by Tyler Laundon of Cabot Small Cap Confidential, has sold off a little more over the past week (amid scattered weakness in medical technology stocks), and with our loss in the double-digits, is a definite candidate for sale. Yet Tyler still has confidence. In his latest update, he wrote, “Over the past week, both SunTrust and Raymond James initiated coverage of the heart monitoring specialist with price targets of 41 and 37, respectively. Those targets represent 23% to 36% upside from here, which you’d expect would motivate a few clients to hit the buy button. Not yet, it appears. I have a relatively high level of conviction that BioTelemetry will recover from this weakness, so I’m keeping it at Buy. The company should provide an earnings date soon given that the event should occur within the next two weeks.” Given that, plus the fact that selling pressures appear to be drying up, I’ll simply downgrade the stock to Hold. HOLD.
Broadridge Financial Solutions (BR), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, has been trending steadily up since mid-August, which is great—but it’s been getting increasingly distant from its 50-day moving average (now at 81), so short-term risk is growing. In her latest update, Chloe wrote, “ Broadridge is a tech company that provides information and services to financial companies. The stock is hitting 52-week highs and looks very healthy. Dividend growth investors who don’t own it can buy a little here, or on a pullback to the 50-day.” HOLD.
China Lodging Group (HTHT), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is the biggest hotel chain in China, yet still has great growth potential. In Paul’s update last week, he wrote, “HTHT announced on Monday that it will pay a special cash dividend of 64 cents per American Depositary Share (ADS) to holders as of December 4. The dividend will be paid on or around December 15. The company also announced an offering of convertible senior notes of up to $425 million, with the proceeds going toward paying off existing debt and financing a capped call transaction. HTHT dipped to 123 early in today’s session, but rebounded quickly to above its 25-day moving average. There is still no word on the company’s Q3 earnings date, but it will probably be around the middle of November.” If you don’t own it yet, you can buy here. BUY.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, is today’s big winner. The company, which has a revolutionary, cheap, easy-to-use test that replaces the need for a colonoscopy, announced its third quarter results last night. Quarterly test volume grew 136 percent to 161,000 completed tests. Quarterly revenue grew 158% to $72.6 million (analysts were looking for $64.7 million). And the company increased revenue guidance for the full year to $254-257 million from $230-240 million. In response, the stock gapped up this morning on big, but not huge, volume. If you don’t own it yet, try to buy on pullbacks. BUY.
Facebook (FB), originally recommended by Mike Cintolo in Cabot Growth Investor, had a failed breakout two weeks ago, after which the stock pulled back to its 50-day moving average, but on Friday the stock gapped up and blasted out to new highs on big volume. And on Monday it continued to climb! The stock market is clearly saying that it expects a great earnings report tomorrow afternoon, and we’ll see how the stock acts in response. HOLD.
Grupo Supervielle (SUPV), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor and featured here last week, looks fine. In his latest update, Paul wrote, “SUPV has stayed true to its pattern of popping higher, then giving part of its gains back in a quick correction. Grupo Supervielle will report its latest quarterly results on November 8, with the consensus numbers at $197.6 million in revenue and 44 cents per share in earnings. The stock’s temporary weakness looks like a good buying opportunity.” BUY.
HubSpot (HUBS), originally recommended by Mike Cintolo in Cabot Top Ten Trader and featured here two weeks ago, has been building a base between 82 and 86 over the past month, and today the stock inched out to a new high—though volume was below average. This breakout could fail, but the near-term will come down to earnings, which are due out tomorrow. We’ll stay on Buy but will see how investors react to the report. BUY.
Nucor (NUE), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, has pulled back normally over the past week on falling volume and now sits right at its 25-day and 50-day moving averages—a great entry point. In Crista’s latest update, she wrote, “Nucor is a low-cost producer of a diversified portfolio of iron and steel products. This undervalued growth stock was featured in the October 2017 issue of Cabot Undervalued Stocks Advisor. I expect NUE to stop rising when it retraces its December 2016 high of 65. I love the outlook for the steel industry and steel stocks.” BUY.
PayPal (PYPL), originally recommended by Mike Cintolo of Cabot Growth Investor, has been climbing steadily higher in the week since it gapped up following an excellent earnings report, but the volume has been fading in recent days, suggesting that a pullback is imminent. In Mike’s latest update, he wrote, “PayPal’s growth story continues to crank ahead, as the firm’s third-quarter report topped on just about every metric: Sales rose 21%, earnings rose 31%, payment volume lifted 29% on a currency-neutral basis (to $114 billion!), active accounts rose 8.2 million (now totaling 218 million, up 14% from a year ago) while each account performed an average of 33 transactions (up 9%). Also encouraging was the fact that money-transfer service Venmo saw volume rise 93% in the quarter, and PayPal cranked out $841 million of free cash flow (about 69 cents per share), up 32%. Combine all of those figures with a sanguine early look at 2018 and the stock popped to new highs. A pause or pullback is certainly possible, but the trend is up and I continue to think the fundamental growth story has a long way to run. Hold on if you own it, and if you don’t, try to buy on dips.” BUY.
Pembina Pipeline (PBA), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, remains the highest-yielding stock in the portfolio, and is thus particularly attractive for investors seeking current income. Also, the stock bounced off its 200-day moving average last week, so now the short-term trend is up, and heading for the old high of 35.50. In her latest update, Chloe wrote, “Pembina will report third-quarter results on November 2 after the close. Analysts are expecting 37% revenue growth, to $1.06 billion, and 50% EPS growth, to $0.30. Risk-tolerant high yield investors can buy a little here.” BUY.
Planet Fitness (PLNT) originally recommended by Mike Cintolo in Cabot Top Ten Trader, touched its 50-day moving average three times over the past two weeks and now is aiming at the old high of 27. In my opinion, the stock has a good chance of breaking through. Earnings will be released next Tuesday, November 7. BUY.
Pulte Group (PHM), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth portfolio, has enjoyed a nice run since it zoomed higher a week ago following an excellent third quarter earnings report. In her recent updates, Crista wrote, “The growing economy, combined with low interest rates and high levels of consumer confidence, is fueling new home purchases. Following the earnings report, analysts’ estimates subsequently increased a bit, and at least six analysts raised ratings and price targets on the stock. The UBS analyst swung for the fences with a new price target of 38! PHM is up 38% since joining the Growth Portfolio in February. It’s going to need to rest eventually.” Also, just yesterday, competitor Lennar announced it was buying CalAtlantic Group for $5.7 billion to create the country’s largest homebuilder! (Pulte is third largest.) The wind is definitely at the group’s back. BUY.
Quanta Services (PWR), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, has closed at a new high a few times in recent weeks, but there’s no power behind the move; investors are waiting for the earnings report. In her latest update, Crista wrote, “Quanta provides specialized infrastructure and network services to the electric power, oil and natural gas industries. The company will release third-quarter results on the morning of November 2. Wall Street expects third-quarter EPS of $0.61, with a range of $0.50 to $0.66. Expect volatility. Last week, Citigroup raised its price target on PWR from 43 to 47. There’s 13% upside to my fair-value price target of 44.” BUY.
Sociedad Quimica y Minera de Chile (SQM), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is a diversified South American miner, but it’s lithium fever that caused the stock to double from June to September (before it suffered a sharp five-day correction that knocked out weak hands) and it’s lithium fever that has brought the stock right back up to near its high over the past five weeks. Lithium, of course, is the key component in electric car batteries, and demand for the mineral is expected to grow substantially for years to come. In Paul’s latest update, he wrote, “SQM has set November 22 (after the close) for its Q3 earnings call and analysts estimate revenue at $519 million and EPS at 41 cents.” The prudent course is to stay on hold until after the earnings report, but I like this chart pattern a lot and I think you can buy here, so I’m upgrading SQM to Buy. BUY.
Square (SQ), originally recommended by Mike Cintolo in Cabot Growth Investor, has a very powerful chart. First, the stock advanced for 15 consecutive days (a very impressive run by itself), then it paused for seven trading days, and now it’s reeled off another four big days up! Translation: the buyers are in control here. Yesterday, the company announced Square Register, a “versatile, fully integrated point-of-sale system, built in-house to work seamlessly with any business.” In addition to accepting magnetic stripe, contactless, and chip credit card payments, Square Register features end-to-end hardware that allows for fast payment processing, built-in software from Square that will receive regular updates, and two displays—one for the business and one for the customer. It’s priced at $999, which is a big step up for the company. If you don’t own yet, this is probably not a great time to rush in. Wait for a bit of cooling off. BUY.
Tesla (TSLA), a recommendation of Cabot Top Ten Trader, is not participating in this bull market, but the stock does continue its long consolidation pattern, with resistance at 390 and support at 310—though the fact that the stock just touched its 200-day moving average at 318 suggests that the lower end of that range is coming up. Generally, when a stock trades in a wide range, you’re going to see good news at the top of the range and bad news at the bottom, so it’s no surprise that we’re now seeing stories that cast doubts on Tesla’s ability to ramp up Model 3 production. But the long-term trend remains up, and I still have great optimism about the company’s future (it’s still miles ahead in the electric car race), so if you don’t own the stock yet, you have my permission to buy in this low area. The rest of you, hold. Earnings will be released tomorrow November 1, after the market close. HOLD.
Vertex Pharmaceuticals (VRTX), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor in her Buy Low Opportunities Portfolio, fell out of its base last Wednesday and Thursday after reporting earnings, rallied back up to the base on Friday, but now is sinking again—and our profit is shrinking. In her latest update, Crista wrote, “The company reported a huge third-quarter earnings and revenue beat last week. The latest full-year consensus EPS estimates represent 104% and 66.5% growth in 2017 and 2018, with corresponding P/Es of 86.8 and 52.1. Those are big numbers, as befitting a biotech stock, yet VRTX is still undervalued.” Crista still has the stock rated buy, and in the long run, I hope she’s right. But I don’t like the short-term action here (plus there’s been some weakness in the sector—remember CELG?) and I fear further downside, so I’m going to sell here. SELL.
VMware (VMW), originally recommended by Cabot Benjamin Graham Value Investor, was officially “fully valued” when it hit 118.75, so it can be sold anytime. But given that the stock’s main trend remains up, I’m sticking with it for now. The stock hit 121 last Friday and has pulled back only slightly since. If you like using stops, 118 would be a good, tight one. I’ll just watch carefully. HOLD.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED NOVEMBER 7, 2017
We appreciate your feedback on this issue. Follow the link below to complete our subscriber satisfaction survey: Go to: www.surveymonkey.com/r/CSOW
Neither Cabot Wealth Network nor our employees are compensated by the companies we recommend. Sources of information are believed to be reliable, but are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on the information assume all risks. © Cabot Wealth Network. Copying and/or electronic transmission of this report is a violation of U.S. copyright law. For the protection of our subscribers, if copyright laws are violated, the subscription will be terminated. To subscribe or for information on our privacy policy, call 978-745-5532, visit www.cabotwealth.com or write to support@cabotwealth.com.