Four Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news. Prices appearing after each stock symbol are the closing prices on Thursday, July 7. Reports are for the quarter ended May 31, 2016. Sales and earnings increases and decreases are based on year-ago comparisons. I also include some interesting questions from subscribers with my responses.
I also present two indexes that list companies featured in the Cabot Value Model or the Cabot Enterprising Model during the most recent four months. The indexes identify the companies and when my summaries of the companies were published so you can quickly find my recent write-ups for stocks appearing in the Models.
My next Weekly Update will be sent to you on Friday, July 15, 2016. My schedule for the next five weeks will be:
* Friday, July 15: Weekly Update
* Thursday, July 21: Cabot Wealth Advisory
* Friday, July 22: Weekly Update
* Thursday, July 28: Cabot Value Model issue 265V
* Friday, July 29: Weekly Update
* Thursday, August 4: Cabot Enterprising Model issue 265E
* Friday, August 5: Weekly Update
* Friday, August 10-12: Cabot Investors Conference - No Weekly Update
Company Reports
Korn/Ferry International (KFY 20.37) fell sharply after analysts lowered EPS forecasts for 2016 and 2017. The 21% drop in the stock price is a severe over-reaction to the negative 5% EPS adjustment. The company has exceeded EPS estimates in four of the last five quarters. Earnings per share will likely rise 16% in 2016, using the lowered estimates, and 15% in 2017. Korn/Ferry’s 9.0 P/E and 2.0% dividend yield are attractive. Hold.
Priceline.com (PCLN 1,297.26) unveiled a new travel service for business travelers. The site, called Upside, will issue gift cards worth $200 or more to business travelers to use in their favorite stores. In addition, the companies of business travelers will receive a 5% to 15% discount on travel costs in exchange for flexibility on airline flight dates and hotel stays. The service will be aimed at small to mid-sized businesses and will launch in September. Buy at 1,258.99 or below.
Skyworks Solutions (SWKS 60.89) fell 6.0% after Pacific Crest analysts downgraded the stock to Hold amid concerns that Apple, Skyworks’ biggest customer, might sell 10% to 20% fewer iPhone 7s than originally planned. However, the new iPhones will contain 10% to 15% more Skyworks content than previous iPhones. Also, new products and a new business deal with Huawei, China’s biggest cellphone maker, will more than offset lower demand for iPhones. Buy at 62.07 or below.
Synaptics (SYNA 48.31) will likely lose a contract with Apple to supply the OLED (organic light-emitting diode displays) DDIC (display driver integrated circuit) for Apple’s iPhone 8 due in 2017. Samsung will possibly replace Synaptics for at least a portion of the phones, causing Synaptics’ earnings to fall 15% short of current forecasts. Much of this risk has been discounted in the recent stock price, and management will reduce staff to counteract the loss of the contract with Apple. SYNA sells at just 8.1 times current EPS. Hold.
Questions and Answers
Q. What happened to DHR today? Puzzled by the sudden drop this morning. (from subscriber K.B.)
A. Danaher (DHR 80.70) spun off its industrial technologies and instrumentation businesses into a new company called Fortive Corp. The new company began trading on the NYSE today under the symbol FTV. As of July 5, all Danaher investors should receive one-half share of FTV for each Danaher share held. If you owned 100 shares of DHR, you will now own 100 shares of DHR plus 50 shares of FTV. The current stock price for Fortive is 47.74, and your Danaher position is now worth 104.57 per share (DHR 80.70 plus Fortive 47.74 = 104.57). I recommend holding both DHR and FTV.
Q. Is AT&T (T) still a good by now? It looks like it’s been extended quite a while. (from subscriber T.Y.)
A. AT&T (T 43.66) Max Buy Price 42.79; Min Sell Price 54.08 has been performing well lately. The Brexit scare has caused investors to seek conservative, defensive stocks, and AT&T is one of the best choices for that purpose. The stock probably needs a rest sometime soon, though, and I think my Max Buy Price of 42.79 will become a good entry point. Buy at 42.79 or below.
Q. I would like your opinion of WHR. I would also like your opinion of the market reaction to either a Trump or Clinton presidency. (from subscriber R.L.)
A. Whirlpool (WHR 167.88) is one of my favorite stocks. The stock has become a little volatile lately, partly because the company derives a lot of sales from Europe and the U.K. Management believes the U.K.'s exit from the E.U. will have little effect on Whirlpool’s results, so the stock has been solid lately. I think the current price is a tad high, and advise waiting for the stock to pull back to 160 before buying.
Usually the stock market doesn’t react during elections, but this time may be different. I think the market could decline if Trump is elected because investors don’t like uncertainty--and there’s nothing certain about what he might do. If Hillary Clinton gets elected, investors will be relieved, but she probably won’t inspire a big rally, either.
Index of Latest Summaries – Recommendations featured in recent issues