Those Evil Oil Companies
A couple days ago, an attorney was talking at me on social media (not talking with me, because he wouldn’t address any of my points) about those evil oil companies and how they don’t pay their fair share of taxes; with his focus on all the government tax breaks from which oil companies benefit. As proof, he posted a chart showing that oil companies receive a total annual tax break of $3.93 billion for four various income tax deductions that he deemed to be unfairly advantageous to oil companies; thereby cheating the U.S. government out of income tax revenue.
Just in case any of my subscribers wants to invest in energy companies, but feel bad that perhaps those companies are cheating America, there are three things I’d like to point out about ExxonMobil (XOM):
1. ExxonMobil’s pre-tax net income, from 2012 through 2016, was $218.0 billion. After benefiting from approximately one billion dollars per year of those supposedly unfair income tax deductions, ExxonMobil paid $78.3 billion in income taxes, which amounts to a 35.9% tax bill.
2. ExxonMobil has approximately 71,000 employees. Some of those employees are married to other employees, so you can estimate that ExxonMobil supports at least 65,000 families, including their mortgages, cars, health insurance, children, tuition, food, clothing and birthday presents.
3. In addition to providing for 65,000 families, 43% of ExxonMobil’s income tax payments, totaling $33.7 billion, went to help people living in the U.S. If you use the government’s expense breakdown as described in this pie chart, ExxonMobil provided $18.0 billion dollars toward the healthcare of poor people and illegal immigrants, $11.0 billion toward education and $4.7 billion in welfare payments over the last five years. Bravo!
I know that there’s a faction of people in the U.S. who like to portray oil companies as “evil.” From my point of view, any company that keeps 65,000 families afloat, and also contributes an additional $33.7 billion dollars (over five years) toward the health, education and welfare of poor people, deserves a tip of the hat. Thank you, ExxonMobil.
Were you worried that buying shares of ExxonMobil and its energy peers was somehow contributing to America’s problems? Stop worrying. Our country has large problems, but coercing oil companies to pay billions of dollars in federal taxes is not one of them.
One More Bank Stock
At the request of a subscriber who wanted one more bank stock recommendation, I wrote about Citizens Financial Group (CFG) in “The One Bank Stock to Buy Today.” My other favorite bank stocks include Bank of America (BAC), Goldman Sachs (BAC), KeyCorp (KEY), Morgan Stanley (MS) and Zions Bancorp (ZION).
Send questions and comments to Crista@CabotWealth.com.
Portfolio Notes
Make sure to review the Special Bulletin from July 10 in which I mentioned news, rating changes and/or price action on Cavium (CAVM), Goldman Sachs (GS), Invesco (IVZ), PulteGroup (PHM), Quanta Services (PWR), Tesoro (TSO), Universal Electronics (UEIC) and XL Group (XL).
Buy-Rated Stocks Most Likely To Rise More Than 5% Near-Term:
Boise Cascade (BCC)
Cavium (CAVM)
Commercial Metals Company (CMC)
Goldman Sachs (GS)
PulteGroup (PHM)
Quanta Services (PWR)
Tesoro (TSO)
Universal Electronics (UEIC)
XL Group (XL)
Today’s Portfolio Changes: (none)
Last Week’s Portfolio Changes:
Commercial Metals Company (CMC) joined the Growth & Income Portfolio as a Strong Buy.
Dollar Tree (DLTR) moved from Hold to Buy; and moved from the Growth Portfolio into the Buy Low Opportunities Portfolio.
Legg Mason (LM) moved from Hold to Strong Buy.
Updates on Growth Portfolio Stocks
American International Group (AIG – yield 2.0%) is a diversified insurance company. The stock meets all of my growth & value criteria. I expect AIG to rise toward short-term price resistance at 67 in the near future, where it will still be undervalued. Strong Buy.
Bank of America (BAC – yield 1.9%) will report second-quarter results on the morning of July 18. Investors may access the earnings webcast on the company’s website. I want to clarify a detail about the dividend increase that was announced on June 28. The new $0.12 quarterly payout per share that investors will receive in late September has not yet been officially declared, and therefore it’s not reflected when you pull up stock quotes on investor sites such as Schwab.com or NASDAQ.com. The official declaration will take place near August 1. BAC was featured in the July issue of Cabot Undervalued Stocks Advisor.
BAC is an undervalued large-cap bank with strong earnings growth. BAC has short-term upside price resistance at 25.5, which it could easily surpass this year, possibly even this summer. Strong Buy.
Cavium (CAVM) is a very undervalued, aggressive growth semiconductor stock. CAVM and the NASDAQ composite, and most tech stocks, exhibited double-bottom chart patterns last week; a harbinger of an immediate upturn in share prices. Risk-tolerant investors should buy CAVM now. 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. JCI is an undervalued growth stock. JCI is rising toward price resistance at 45.5, where it will still be quite undervalued. Strong Buy.
KLX Inc. (KLXI) is a manufacturer of aerospace fasteners, consumables and logistics. KLXI was featured in the June 27 weekly update, and also in a July 6 article from Zacks. KLXI is a seriously undervalued aggressive growth stock. (The company is projecting much higher fiscal 2018 earnings growth than is reflected in Wall Street’s aggressive growth estimates.)
KLXI rose to a new high near 53 in early June, fell about 10%, and quickly rebounded. If the broader market remains stable-to-strong, KLXI could easily begin reaching new highs this month. Buy KLXI now. Strong Buy.
Martin Marietta Materials (MLM – yield 0.7%) is an aggressive growth stock that’s quite undervalued based on 2018 numbers. There’s recent price weakness throughout Martin Marietta’s peer group. The stock could rise above short-term price resistance at 240 this year. Strong Buy.
PulteGroup (PHM – yield 1.4%) is a single-family U.S. homebuilder. PHM is a very undervalued growth stock. The stock just broke out of a very long-term trading range, and that’s an optimal time to own a stock. There’s lots of upside. Buy PHM now. Strong Buy.
Quanta Services (PWR) is recovering from an exaggerated—and seemingly unwarranted—price correction in May. The corporate outlook remains fantastic, with aggressive earnings growth and a low P/E. PWR signaled the beginning of a new run-up on July 7, and could retrace its February high around 38.5 this year. Buy PWR now. Strong Buy.
Vulcan Materials (VMC – yield 0.8%) is an aggressively growing supplier of construction aggregates, asphalt and concrete. Stocks within Vulcan’s peer group traded sideways all year. VMC could retrace 135 this summer, then possibly head higher. Strong Buy.
XL Group (XL – yield 2.0%) is an aggressively growing insurer and reinsurer. Despite this year’s run-up in the share price, the stock remains extremely undervalued. XL shares began another run-up on June 7. Buy XL now. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BP plc (BP – yield 6.9%) is an undervalued, aggressive growth integrated oil company. Shares of integrated oil companies are trading at the bottoms of their recent price ranges. I encourage growth investors and dividend investors to buy BP, with a maximum upside of about 44 during the next year. Strong Buy.
Blackstone Group LP (BX – variable large payouts) is an undervalued alternative asset manager. The company will report second-quarter results on the morning of July 20. This summer, BX appears capable of surpassing its recent trading range, between 32.5 and 34. I intend to sell when BX reaches long-term price resistance at 38. Buy.
Commercial Metals Company (CMC – yield 2.5%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. CMC was featured in the July issue of Cabot Undervalued Stocks Advisor. Commercial Metals operates on an August fiscal year, and is currently expected to have huge earnings growth in fiscal 2018. The stock is now ratcheting higher. In the coming months, I expect CMC to retrace its December 2016 high around 24, at which time it will still be significantly undervalued. Buy CMC now. Strong Buy.
ExxonMobil (XOM – yield 3.8%) is the largest U.S. integrated oil company. On July 6, Investor’s Business Daily reported, “RBC Capital Markets reinstated Exxon with an outperform rating and 95 price target,” and Barron’s elaborated at this link. XOM is an undervalued aggressive growth stock. Shares of integrated oil companies are trading at the bottoms of their recent price ranges. Continue to buy XOM in anticipation of a maximum run-up to 91 this year as it eventually retraces highs from July and December 2016. Strong Buy.
GameStop (GME – yield 7.3%) is a retailer of games, collectibles and technology, with additional ventures in the entertainment field. The company is transitioning through a multi-year process of diversifying its product areas away from a dependence upon physical game revenue. The stock is volatile, currently trading between 20.5 and 22, and not yet signaling an upturn. Hold.
Invesco Ltd. (IVZ – yield 3.2%) is an undervalued growth & income stock in the asset management industry. Consensus earnings estimates continue to slowly rise each week, since early May. IVZ is approaching upside price resistance at 38-39 where it last traded in March 2015. I will very likely issue a sell recommendation this week when IVZ surpasses 38, to avoid a prolonged sideways trading period. Hold.
TiVo (TIVO – yield 3.9%) is a digital entertainment company that provides technology licensing and related services, which enable people to access online and televised entertainment. TIVO is an extremely undervalued small-cap stock. TIVO recovered from its drop in May, and is now resting. I expect the stock to continue rising toward short-term price resistance at 21. Hold.
Updates on Buy Low Opportunities Portfolio Stocks
Archer Daniels Midland (ADM – yield 3.1%) is fairly valued, with double-digit earnings growth expected in 2017 and 2018. ADM has traded between 41 and 43 since early May. The stock could realistically reach 47 again later this year. Hold.
Boise Cascade (BCC) is a wood products manufacturer and building materials distributor. This aggressive growth stock remains significantly undervalued, with earnings estimates rising steadily since early April. BCC could surpass upside price resistance at 31 this summer, then reach the upper 30s later this year. Buy BCC now. Strong Buy.
Chipotle Mexican Grill (CMG) is an undervalued aggressive growth stock. CMG appears to be establishing price support around 415, and will likely need to rest there before it gathers the strength to rise. Strong Buy.
Dollar Tree (DLTR) was featured in the July issue of Cabot Undervalued Stocks Advisor. DLTR is experiencing the strongest current-year earnings growth among discount retail and food companies. The stock appears to be catching its breath after the downturn in food retailers’ share prices that occurred in the wake of the recent Amazon.com-Whole Foods merger announcement. DLTR could easily rest for a while before rising again. I expect the stock to rebound into the 80s this year. Buy.
Goldman Sachs Group (GS – yield 1.3%) will report second-quarter results on the morning of July 18. The stock is more undervalued now than in recent months. GS appears to be embarking on a run-up, and could rise to its recent high above 250 this year. Buy GS now. Buy.
Legg Mason (LM – yield 2.9%) is a very undervalued asset management and financial services company with aggressive earnings growth. I have very different instructions for short-term investors vs. longer-term investors on LM, based on the likely price action in the second half of 2017. Please carefully consider which of the following two scenarios best fits your investment style, then stick with the recommendation:
1. Short-term investors need to know that there’s upside price resistance on LM dating back to late 2015. Therefore, the stock’s current upward momentum is very likely to stop at that price. We will then most likely either see a pullback, or some sideways trading. You will want to sell near 44, but not expect to get a price above 44. If there’s enough room for capital gains between the current price and 44, go ahead and buy the stock today.
2. Longer-term investors should first read what I just wrote to short-term investors. Thanks! If that potential period of three to six months of sideways trading doesn’t phase you, and you actually prefer to own good growth stocks for as long as their earnings outlook is attractive, then LM is a great stock for you to continue to own. Feel free to buy more shares, because even at 44, the stock’s still quite undervalued.I will be moving LM to a Hold recommendation around 40, and selling near 44. I will consider repurchasing the stock later if the price chart once again indicates a strong near-term capital gain opportunity. Strong Buy.
Mattel (MAT – yield 2.9%) is a global toy manufacturer with a new CEO who is redirecting the company’s product and marketing focus. The stock is undervalued based on strong expected 2018 earnings growth (December year-end). The share price recently bounced at a support level from 2015. The strong 2018 earnings growth outlook should help the stock recover in the coming months. Hold.
Schnitzer Steel Industries (SCHN – yield 3.0%) is one of the largest U.S. scrap metal recycling companies. SCHN is an undervalued aggressive growth stock. Shares of steel companies rose in June, followed by a little profit-taking. SCHN could surpass short-term upside price resistance at 27 this summer. SCHN is a small-cap stock in a volatile market sector with relatively little analyst coverage. Buy.
Tesoro (TSO – yield 2.3%) is a very undervalued aggressive growth stock in the oil refining and marketing industry, and it’s currently the top refining stock pick at Wells Fargo. The company will change its name and stock symbol on August 1 to Andeavor (ANDV). As I mentioned last week, “price charts of energy refining and marketing companies look extremely bullish right now. It would not be unusual to see TSO retrace its 2015 high over 110 this year.” Boom! The stock took off. Expect a little resistance around 102. Buy TSO now. Strong Buy.
Total SA (TOT – yield varies, approximately 4.6%) is a French integrated oil and gas company, and a greatly undervalued growth & income stock. Analysts’ consensus earnings estimates came down for Total last week. EPS are now expected to grow 18.3% and 10.5% in 2017 and 2018 (December year-end), with corresponding P/Es of 12.1 and 11.0. Shares of integrated oil companies are trading at the bottoms of their recent price ranges. This is a great time to buy TOT. My plan is to keep TOT in the portfolio until it reaches three-year price resistance in the low 60s. Strong Buy.
Universal Electronics (UEIC) is a consumer electronics company. This growth stock is overvalued based on 2017 numbers, but undervalued based on 2018 numbers. The stock began a run-up on June 7. There’s some price resistance at 74, and again at 79. Buy UEIC now. Buy.
Vertex Pharmaceuticals (VRTX) is an undervalued, aggressive growth biotech company that corners the market in treatments for cystic fibrosis (CF). Vertex raised the price on Orkambi by 5%, which will likely lead to increases in earnings estimates. VRTX is the biggest gainer among S&P 500 stocks year-to-date, and it’s still on a general uptrend. I plan to sell VRTX when it approaches two-year price resistance near 140. Hold.
