“Siri, don’t let me book anything in May.”
Each year, I forget to block out my calendar in May, when I should be declining all appointments and social engagements. As a result, I’m confronted with all of my regular activities, meetings and appointments, plus this year’s crop of high school graduations (middle daughter and two nieces), high school testing weeks, various family members’ musical performances (I sang a little solo!), and state political conventions, where we select that fall’s crop of candidates. (Fortunately, 2017 is an off year in state politics.) My kids will have additional graduations in 2018, 2019, 2021, and 2023. So what I really need is a calendar that refuses to allow me to schedule ANYTHING in May, so that I stop double-booking my days.
The bad news is that Friday morning’s high school graduation was delayed due to a snowstorm. My eldest daughter was amused to note that her Colorado college’s campus was closed on Thursday due to the weight of the snow causing falling branches all over campus … during her summer vacation!
The good news is that my middle daughter received a very large academic scholarship to a prestigious school that’s so close to home that I don’t even have to take the highway when I visit her. Her graduation party went well, with lots of divorced spouses in attendance who ALL BEHAVED WELL. Hahaha! In addition, my daughters and I supplemented the catered food with homemade desserts, and are thrilled to report that the guests ravaged the dessert table. (If any of my readers are experienced bakers who would like a great recipe for lemon cheesecake, let me know. The consistency was incredibly creamy, the visual appearance was outstanding, and the guests loved it.)
Amid the flurry of activity, I may have missed a pertinent news story for one of our stocks. Mea culpa! I will catch up this week.
Feel free to send questions and comments to Crista@CabotWealth.com.
Portfolio Notes
Make sure to review the Special Bulletins from May 17 and 22, in which I mentioned news, rating changes and/or price action on BP plc (BP), Blackstone Group (BX), Cavium (CAVM), H&R Block (HRB), Total SA (TOT) and Vertex Pharmaceuticals (VRTX).
Buy-Rated Stocks Most Likely to Rise More Than 5% Near-Term:
Blackstone Group (BX)
Boise Cascade (BCC)
Cavium (CAVM)
ExxonMobil (XOM)
Legg Mason (LM)
Schnitzer Steel (SCHN)
Tesoro (TSO)
Thermon Group (THR)
Vertex Pharmaceuticals (VRTX)
Vulcan Materials (VMC)
Today’s Portfolio Changes: (none)
Last Week’s Portfolio Changes:
Total SA (TOT) moved from Strong Buy to Hold on May 22.
Vertex Pharmaceuticals (VRTX) moved from Hold to Strong Buy on May 22.
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a fairly-valued software company with aggressive earnings growth. ADBE’s upward climb was briefly interrupted last week during the quick pullback in the broader market, and the stock immediately rebounded to new highs. Hold.
American International Group (AIG – yield 2.1%) is a very undervalued diversified insurance company with strong projected earnings growth. Full-year 2017 earnings estimates have been rising all month. AIG is trading between 61 and 63, with additional upside resistance at 67. Strong Buy.
Cavium (CAVM) is a manufacturer of semiconductor processor chips and related products. Cavium was featured in the May issue of Cabot Undervalued Stocks Advisor. CAVM is an undervalued, mid-cap aggressive growth stock. The stock broke past 73 last week, then pulled back a little with the broader market. I expect the stock to continue rising promptly, as long as the broader market remains neutral-to-bullish. Buy CAVM now. Buy.
Dollar Tree (DLTR) offers the strongest earnings growth within its discount retail peer group. However, the stock is overvalued based on 2019 numbers (January year-end). The stock rose in May to a range between 78 and 83, and could rise to November’s high near 90 this year. My intention is to sell the stock at 90. Hold.
Goldman Sachs Group (GS – yield 1.4%) is a premier Wall Street investment bank. Consensus EPS estimates came down in May, now reflecting growth of 16.9% and 9.8% in 2017 and 2018. The stock is slightly undervalued. I have a strong hunch that analysts are lowballing their estimates. GS is sitting at the bottom of a six-month trading range, and could retrace its March highs above 250 this year. Buy.
Johnson Controls (JCI – yield 2.3%) is a multi-industry company with the following business mix: fire & security services, residential and commercial HVAC/R (heating, ventilation, air conditioning and refrigeration), automotive batteries and building equipment. The stock is showing strength right now, and could rise to 45.5 in the coming months. Strong Buy.
Martin Marietta Materials (MLM – yield 0.7%) is an aggressive growth stock that’s quite undervalued based on 2018 numbers. MLM had a big run-up in April, followed by a partial pullback in May. Buy MLM now. There’s short-term price resistance at 240. Strong Buy.
PulteGroup (PHM – yield 1.5%) is a single-family U.S. homebuilder. PHM is a very undervalued growth stock. We could see PHM break past 24.5 soon, and rise to the upper 20s this year. Buy PHM now. Strong Buy.
Quanta Service (PWR) is an undervalued aggressive growth stock. The stock gave back most of its gains from its big November-through-February run-up. Earnings estimates remain very strong, with analysts expecting EPS to grow 29.1% and 19.0% in 2017 and 2018. P/Es are low, in the mid-teens. The stock is a bargain at this price, but it’s not yet ready to rebound. Strong Buy.
Vulcan Materials (VMC – yield 0.8%) is an aggressively growing supplier of construction aggregates, asphalt and concrete. This undervalued stock has been ratcheting upwards toward recent highs at 135, and could surpass that ceiling this year. Strong Buy.
XL Group (XL – yield 2.1%) is a very undervalued, aggressive growth insurer and reinsurer. As this issue goes to press, the price chart appears to be exhibiting a shakeout pattern. If the stock follows through with a quick rebound towards 42.5 this week, then there’s a strong likelihood that we could see a breakout past 43 in the coming weeks. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BP plc (BP – yield 6.4%) is an undervalued integrated oil company that’s experiencing very strong earnings growth in 2017 and 2018. Despite the huge first-quarter earnings beat, analysts have lowered their estimates for the full-year to reflect 90.5% EPS growth. That’s a bit odd, but perhaps analysts are being cautious on their projections for oil pricing for the balance of 2017.
The share price is up 10% since early May, retracing recent highs from January. While we could easily see BP surpass 37.50 soon, the stock’s likely to have a small and temporary pullback before it gathers enough strength to climb again. Try to buy below 35.5. Strong Buy.
Blackstone Group LP (BX – variable large payouts) is an alternative asset manager. When EPS growth is viewed in conjunction with the large dividend, the stock is decidedly undervalued. BX broke out of a four-month trading range in late April, had a brief pullback—which is a common post-breakout occurrence—and has now resumed its upward climb. BX could rise as high as 38 this year, where it will likely establish a new trading range. Strong Buy.
ExxonMobil (XOM – yield 3.7%) is the largest U.S. integrated oil company. ExxonMobil was featured in the May issue of Cabot Undervalued Stocks Advisor. XOM is an extremely undervalued stock, experiencing aggressive multi-year earnings growth. XOM appears close to breaking past upside resistance at 83, at which time it could climb to 91. Buy XOM now. Strong Buy.
GameStop (GME – yield 6.3%) is a retailer of games, collectibles and technology; with additional ventures in the entertainment field. The company will report first-quarter results (January year-end) on the afternoon of May 25. Expect volatility.
Each time GameStop announces quarterly results, the news media harps on the company’s declining physical gaming business, but does not usually mention its rapidly-growing collectibles, technology and entertainment businesses. Investors should note that similar changes and news reporting happened at Adobe Systems (ADBE). The company switched to a subscription revenue model in 2013, which turned out to be extremely successful and profitable. Yet four years later, each quarterly earnings report is greeted with news articles questioning whether the revenue transition will be successful. Unfortunately, many news writers know that readers will tune in to worrisome headlines, no matter how stale and inaccurate that news may be, and we’re seeing that phenomenon repeat itself with GameStop.
The stock could break above 26 if there’s a strong earnings beat that gets accurately reported. The stock could temporarily fall as low as 22.5 under virtually any other news reporting scenario, regardless of the strength of the actual earnings report. Hold.
H&R Block (HRB – yield 3.4%) is a nationwide tax preparation company. The company announced management changes last week, which I reported in a Special Bulletin on May 17. The leadership changes are potentially constructive, bringing a fresh perspective to optimizing Block’s current businesses and new ventures. HRB is most likely to trade between 25 and 27 until fourth-quarter results (April year-end) are reported on June 13. Hold.
Royal Caribbean Cruises (RCL – yield 1.8%) is an undervalued growth stock in the travel industry. RCL could break past 109 in the coming weeks. I still anticipate selling when the run-up appears to peak due to travel industry concerns. Hold.
TiVo (TIVO – yield 4.5%) is a digital entertainment company that provides technology licensing and related services that enable people to access online and televised entertainment. The U.S. International Trade Commission is expected to make an initial determination this week on six cases of patent infringement, in which TiVo is the complainant and Comcast (CMCSA) is the defendant. Additional cases are being litigated in the Southern District Court of New York.
TIVO is an extremely undervalued small-cap stock. Current consensus estimates project EPS increasing 11.3% and 43.7% in 2017 and 2018. The corresponding P/Es are 10.2 and 7.1. I expect TIVO to deliver outsized capital gains over the next six to 24 months. Strong Buy.
Whirlpool (WHR – yield 2.4%) is a global manufacturer of home appliances. WHR rose in April, then rested quietly in May until the disruptive day in the market on May 17. The stock is now rapidly rebounding, but I need to see another two days or so of price activity before I can foresee what’s likely to happen next. Basically, if WHR rebounds to 186 by mid-week, that’s very bullish for prospects of a near-term breakout past 190. Alternately, WHR could trade between 177 and 187 for a little while, before resuming its trading pattern within the mid-180s.
My recommendation on WHR is Buy, rather than Strong Buy, because 2017 numbers are not compelling. But the stock is definitely undervalued based on strong 2018 EPS growth expectations. I would have no hesitation about buying WHR right now. Buy.
Updates on Buy Low Opportunities Portfolio Stocks
Archer Daniels Midland (ADM, yield 3.1%) is somewhat overvalued based on 2018 numbers. During the last year, ADM traded between 41 and 44 for five months, then raised the top of its trading range to 47. The stock could realistically reach 47 again in the coming months. Hold.
Boise Cascade (BCC) is a wood products manufacturer and building materials distributor. This aggressive growth stock remains significantly undervalued. The share price had a big pullback after the very-bullish first-quarter earnings report. Traders and longer-term growth investors should immediately take advantage of the opportunity to buy BCC below 28. I think the stock will retrace 31 by July. Strong Buy.
Chipotle Mexican Grill (CMG) is an undervalued aggressive growth stock. The price chart remains bullish, with a near-term target of 530, where CMG last traded in March 2016. Hold.
Legg Mason (LM – yield 2.9%) is a seriously undervalued asset management and financial services company with aggressive earnings growth. Legg Mason was featured in the May issue of Cabot Undervalued Stocks Advisor. LM appears ready for an immediate breakout past 38.5. There’s medium-term price resistance at 44-45 soon, at which point it will still be undervalued. Buy LM now. Strong Buy.
Mattel (MAT – yield 6.8%) is a global toy manufacturer and an undervalued growth stock. I expect MAT to return to its recent trading range of 25 to 26, then dwell there for a while. Traders, growth investors and dividend investors should buy MAT now. Buy.
Schnitzer Steel Industries (SCHN, yield 3.9%) is a scrap metal recycling company, expected to achieve 133% EPS growth in 2017. SCHN could reach short-term price resistance at 21 within two months. Buy.
Tesoro (TSO – yield 2.6%) is a very undervalued aggressive growth stock in the oil refining and marketing industry. Consensus earnings estimates change weekly for Tesoro. Analysts currently expect EPS to grow 20.3% and 35.5% in 2017 and 2018; with corresponding P/Es of 16.1 and 11.9. The price chart is bullish. TSO could reach 88 quickly; with additional capital gains likely this year. Strong Buy.
Thermon Group Holdings (THR) is an aggressive growth stock in the electrical equipment industry. The company will report fourth-quarter and full-year 2017 results on the morning of May 24 (March year-end). Full-year EPS are expected to fall 46.1% to $0.48. Looking forward to fiscal 2018, analysts are expecting earnings growth of 35.4% to $0.65 per share. I expect THR to break past 21 quite soon, and rise to upside resistance at 25. Buy THR now. Strong Buy.
Total SA (TOT – yield varies, approx. 4.1%) is an international oil and gas company that’s based in France. TOT is a greatly undervalued growth stock. Yesterday, I changed my recommendation from Strong Buy to Hold in a Special Bulletin. The stock has been rising toward long-term resistance at 55, where it will likely rest for a while. Traders should exit near 55, and everybody else should hold TOT, and considering buying additional shares on pullbacks. We could see additional capital gains later this year.
To reiterate, I believe TOT is a great total return stock for investors who plan to hold it for another six to 24 months; but that TOT has probably maxed out its near-term capital gain prospects. Hold.
Universal Electronics (UEIC) is a consumer electronics company. The company will make a presentation at the B. Riley & Co. Investor Conference on May 25 in California, which is available to investors via a live webcast. This growth stock is overvalued based on 2017 numbers, but undervalued based on 2018 numbers. There’s plenty of room for investors to make money in the short term within UEIC’s trading range. Buy.
Vertex Pharmaceuticals (VRTX) is an undervalued, aggressive growth biotech company that corners the market in treatments for cystic fibrosis. Yesterday, I moved VRTX from Hold to Strong Buy in a Special Bulletin because the stock appears capable of breaking past 120 this week, after trading sideways for two months. The best-case scenario this year is that VRTX could rise to its 2015 high around 140. Strong Buy.
