Here is your March Wall Street’s Best Digest issue 839.
Happy almost Spring!
The daffodils are in blooming here in Tennessee, COVID-19 shots are reaching 2 million per day, and many children are going back to school full-time. I think that is certainly a nice beginning to the warmer season.
And the markets are continuing to surpass expectations, with the Dow Jones Industrial Average hovering at almost 33,000. We don’t know how long this bull run will last, but as you can see from our Advisor Sentiment Barometer and Market Views, investors and contributors continue to be mostly optimistic.
We begin this issue with our Spotlight Stock, the nation’s largest fully regulated, natural gas-only distributor. My Feature article further highlights the stock and summarizes the current state of the industry. We move on to Growth stocks, where we include ideas in the medical education, construction materials, and retail industries. In Growth & Income, you’ll find recommendations for transportation, pizza, and industrial companies.
This month, Value stocks have come rocketing back, and here we feature a food and a home building business. Financial stocks are also doing better, and our contributors offer several insurance companies and a Business Development firm for your review. Our Healthcare picks are focused on opioid management and COVID-19.
In Technology, you’ll find companies from the cybersecurity, wireless, semiconductor, credit scoring, hardware, and artificial intelligence sectors. We have quite a few offerings for you from the Resource & Energy industries, including miners, royalty companies, power conversion, timber, and utilities sectors. We also offer one Low-Priced stock for your consideration, heralding from the mobile device solutions business. And our Preferred Stock is backed by a banking institution.
Lastly, our Funds & ETFs section includes a couple of bond ideas, as well as a small cap fund.
I’m looking forward to getting my garden started soon and hope that you will also have much to look forward to this season. Please don’t hesitate to send me your feedback and questions. My address is nancy@financialfreedomfederation.com.
Market Views 839
Bulls took charge this past week with a furious rally on strong volume—what turned out to be one of the strongest 5-day periods on record. This market clearly still belongs to the bulls, and the only confirmation left is a close above 3950 to set off the next leg higher.
Equity-only put-call ratios continue to move higher, despite the broad market’s big rally. These indicators are thus on sell signals and will continue to be as long as they are rising.
Market breadth has been very strong in the past week, and both breadth oscillators are on buy signals. If the market is to continue on a new leg into all-time high territory, it is imperative that these oscillators get overbought (as they have) and stay there.
Volatility has remained one of the more bullish indicators all along. The $VIX “spike peak” buy signal of March 4th is still in effect, and the trend of $VIX is downward, and that is bullish for stocks.
In summary, since the $SPX chart is the most important indicator, if it closes above 3950, it’s an all-clear for the bulls. If that happens, $SPX would have to fall back well into the previous trading range to cancel out that bullish signal.
Lawrence G. McMillan, The Option Strategist, optionstrategist.com, 973-328-1303, March 12, 2021
Could go either Way
Up is good, so last week’s rebound in growth and continued push higher in the broad market was encouraging. That said, nothing much has changed with the overall evidence—resilience and upside from here would suggest the huge pullback earlier this month was more of a shakeout, but renewed selling pressure would hint toward another leg down. Right now, we’re playing things halfway—we’re OK with some buying, but we’re not pushing the envelope and need to see more from growth before concluding the storm has passed.
Michael Cintolo, Cabot Top Ten Trader, cabotwealth.com, 978-745-5532, March 15, 2021
Stable for Now
The passage of the $1.9 trillion COVID-19 relief bill and further relaxing of COVID-19 restrictions led to gains in the S&P 500 this week.
Economically-speaking, this week’s reports showed that attitudes are improving as they relate to the economy. Consumer Sentiment from the University of Michigan rose to the highest level in a year, while NFIB Small Business Optimism improved for the first time in five months.
The technical environment remains stable, but with key areas to watch. The Gorilla Index has been our primary focus, as it continued to break down early this week. While our Gorilla Index has yet to register a warning flag, continued underperformance by these mega-cap darlings warrants watching closely.
James Stack, InvesTech Research, www.investech.com, 800-955-8500, March 12, 2021
Spotlight Stock 839
Atmos Energy was founded in 1906 in Texas and has an $11.2 billion market capitalization. Atmos is a utility that distributes and stores natural gas in eight states, serves over 3 million customers, and generates more than $3 billion in revenue annually. The company operates more than 71,000 miles of underground distribution and transmission mains, as well as more than 5,000 miles of gas transmission lines. Atmos also has an exceptional 37-year streak of dividend increases.
Atmos reported first-quarter earnings on February second, and results were mixed, as has been typical of recent reports for Atmos. Revenue rose 4.4% year-over-year to $915 million, but was $70 million lower than expectations. The company reiterated guidance for 2021, but investors sold the stock to a new post-pandemic recovery low.
On a segment basis, distribution operating income was up $29 million to $210 million, while pipeline and storage operating income rose $17 million to $89 million. Gains were accrued from increases in rates and customer growth, but were slightly offset by depreciation and property taxes, as well as declining service revenues. Nonrecurring declines in operating and maintenance expenses bolstered the Pipeline business as well, and overall, operating earnings were up $46 million year-over-year.
Earnings-per-share came to $1.71 in the first quarter, which was a strong improvement from $1.47 in the year-ago period. Our current estimate for 2021 is earnings-per-share of $5.05. Atmos said in early March that its exposure to the harsh winter storm that hit Texas was $2.5 billion, down from a prior estimate of $3.5 billion, and that it would fund this with a mix of debt and equity.
Atmos has a similar competitive advantage to other utilities in that it lacks direct competition in its service areas. Atmos’ core business is natural gas, and discretionary use of it is low, meaning economic downturns don’t tend to impact it one way or the other. Atmos has a diversifying impact on an investor’s portfolio for this reason; earnings hold up quite well during recessions. As seen by the surprise winter storm in Texas in February, the weather is often a bigger threat than recessions.
We expect 6.5% earnings-per-share growth annually for Atmos in the coming years as it continues to grow organically, and through acquisitions. This growth could accrue from continued improvements in operating margins. In addition, Atmos makes acquisitions from time to time that are complementary to its existing business, as well as filing rate cases with local authorities that help it boost prices over time.
We see Atmos producing $5.05 in earnings-per-share in 2021, and with the share price at $89, the stock trades for a price-to-earnings ratio of 17.4. That is below our fair value estimate of 19 times earnings, and we therefore see a modest tailwind to total returns from a rising valuation over time. The dividend is currently $2.50 per share annually. Finally, we see 6.5% annual earnings-per share growth, totaling 10.6% in total annual returns projected for the next five years. Atmos remains quite cheap compared to recent years, and we see the stock as a buy on this weakness.
Key Statistics, Ratios, & Metrics
- Years of Dividend Increases: 37
- Most Recent Dividend Increase: 8.7%
- Estimated Fair Value: $96
- Retirement Suitability Score: B
Ben Reynolds, Bob Ciura, Josh Arnold, Eli Inkrot, & Samuel Smith, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, March 2021
*2nd Opinion
As in any crisis, what happened in Texas will bring opportunity for investors as well. And best in class utilities and essential services companies did once again prove unquestionable resilience with solid calendar Q4 earnings and robust 2021 guidance. That should earn companies like Atmos Energy (ATO) the benefit of the doubt from investors as they confront the fallout from recent events. There’s also a rate base opportunity for gas utilities, both for onsite storage and greater usage of renewable natural gas and eventually hydrogen that can be more easily locally sourced. That’s another reason I favor the likes of Atmos, still a buy up to 100.
Roger Conrad, Conrad’s Utility Investor, www.ConradsUtilityInvestor.com, 888-960-2759, March 8, 2021
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Feature Article 839
Our Spotlight Stock is a company that I’ve know for many years. In fact, Atmos Energy (ATO) was the first stock I ever owned. I actually won shares at an investment conference when I was very young. And I would have been very smart if I had held on to them—as they would have increased almost 800%!
Oh, well; now, I have another chance!
And the timing is good. The U.S. Energy Information Administration raised its natural gas forecast last month, by “3.60 Bcf/d to 98.68 Bcf/d its total gas marketed production estimate for the U.S. in the first quarter, and pushed up its Q2 forecast as well by 2.74 Bcf/d to 97.95 Bcf/d.”
The EIA reported, “Estimates for the total marketed natural gas production over the next two years also rose, by 2.42 Bcf/d, to average 98.34 Bcf/d in 2021, and by 1.31 Bcf/d to 98.93 Bcf/d on average in 2022.”
EIA forecasts that U.S. consumption of natural gas will average 82.5 billion cubic feet per day (Bcf/d) in 2021, down 0.9% from 2020, due to less natural gas consumed for electric power generation because of higher natural gas prices compared with last year. For next year, it’s expected that residential natural gas consumption will average 13.1 Bcf/d (up 0.4 Bcf/d), commercial consumption will average 9.3 Bcf/d (up 0.7 Bcf/d), and industrial consumption will average 23.8 Bcf/d in 2021 (up 1.3 Bcf/d), due to increasing manufacturing activity amid a recovering economy. EIA estimates that total natural gas consumption in February was the highest on record, at 111.8 Bcf/d, because cold weather affected much of the United States and increased natural gas demand for heating and power generation.
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And that’s great news for Atmos Energy, which is the nation’s largest fully regulated, natural gas-only distributor. The company has embarked on a modernization plan to upgrade its infrastructure throughout the eight states and five storage facilities that it serves.
Historically, Atmos carries an ROE (return on equity) of 9.8%, and for its Fiscal 2021, the company has guided to an EPS range of $4.90 - $5.10.
As contributors Ben Reynolds and company from Sure Dividend newsletter explained, there is no other natural gas company like Atmos. It is the only pure-play natural gas delivery business in the U.S. Atmos has a diversified asset base, a constructive regulatory environment, a strong rate base, and lots of growth potential.
And investors should not forget the company’s track record—37 consecutive years of dividends. That’s a great commitment to shareholders.
Growth 839
Afya Limited (AFYA)| Daily Alert March 8
Afya is a leading medical education company based in Brazil. The company operates a physician-centric system of learning tools, delivered both online and in-person, that serve medical students and doctors through their medical residency preparation, graduate programs, and continuing medical education activities.
We project long-term growth for the company’s revenues and EPS of 15% a year or greater. Analysts are projecting sales growth of 27.7% for the next two years, and we expect EPS growth in the next two fiscal years to also be above 20% annually, so our conservative outlook could have an even greater upside.
We see Afya’s shares reaching $45 by fiscal 2025, with a downside of 20% from the current price of $22.50. The reward/ risk ratio is 4.9-to-1 and the projected total return is estimated at 14.7% annually over the next five years.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, March 2021
Eagle Materials Inc. (EXP) | Daily Alert March 9
Eagle Materials sells basic construction materials, but there is nothing basic about its sales momentum. The company has delivered nine consecutive years of higher revenue, with gains in 17 of the last 20 quarters.
Eagle is leveraged to surging home sales, reflecting favorable demographic trends, low mortgage rates, and a flight to the suburbs fueled by the pandemic.
Eagle has rallied 37% since reporting December-quarter results on Jan. 28. Per-share earnings increased 29%, while revenue advanced 18% and topped expectations, fueled by shipment growth of 9% for wallboard and 28% for cement. Spurred by improved volumes and prices, analysts expect per-share profits to jump 23% in fiscal 2021 ending March. Sales are expected to climb 11%.
The stock, capable of climbing 20% in the year ahead, is rated Buy.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, March 1, 2021
Bed Bath & Beyond Inc. (BBBY) | Daily Alert March 17
The shares of home goods retailer are fresh off a Jan. 27, six-year high of $53.90, and currently sport a mind-blowing 233.5% year-over-year lead. What’s more, the stock’s latest pullback has it near a historically bullish trendline, which could serve as a springboard for BBBY moving forward.
Specifically, Bed Bath & Beyond stock just came within one standard deviation of its 40-day moving average, after spending weeks above this trendline. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, five similar signals have occurred in the past three years. The security enjoyed a positive return one month later in 75% of those cases, averaging an impressive 26.2% gain for that period. From its current perch, a move of similar magnitude would put BBBY just over the $35 mark—a bit closer to its January peak.
Bernie Schaeffer, Schaeffer’s Investment Research, SchaeffersResearch.com, 800-327-8833, March 10, 2021
Growth & Income 839
Carrier Global Corporation (CARR)| Daily Alert February 25
Key players in the logistics of transporting the vaccine are freezer box and dry ice manufacturers.5
Once the vaccine reaches its destination, it needs to be transferred to an ultra-low temperature freezer where it can stay for six months. If that’s not possible, the dry ice can be replaced every five days for up to a month. And it can be refrigerated for only five days.
That’s the long way of saying it looks like there’s increased demand for freezer boxes and dry ice.
Back in December, Carrier Global Corp. issued a press release that its brand, A&M Cold Storage, recently made available 90 “Carrier Pods monitored by Sensitech” to assist with the storage and movement of the vaccines. This’s just one of the solutions Carrier offers through its “Healthy, Safe, Sustainable Cold Chain Program” which is designed to preserve and protect the supply of food and medicine.
These specific pods offer temperature control down to -40 Celsius. The dry ice can bring conditions all the way down to -95 Celsius.
This is not a new task for the company. And it wasted no time in stepping up to support the need.
Shares of the company are up 25% in the last six months and shares are still labeled a “Buy” according to the Weiss Ratings system.
Kelly Green, Weiss Ratings, Weiss Ratings, 1-877-934-7778, weissratings.com, February 18, 2021
Domino’s Pizza, Inc. (DPZ) | Daily Alert March 12
We think that Domino’s Pizza is better positioned than most competitors during the pandemic, given its strong brand and emphasis on online ordering and pizza delivery. We also expect product innovations going forward, and believe that these will strengthen customer loyalty.
Domino’s 4Q20 results saw revenue rise 18% year-over-year to $1.36 million. Operating earnings rose to $3.85 per share from $3.13 a year earlier.
Domino’s announced its two-to-three year guidance. It projects global retail sales growth between 6% and 10% and global net unit growth between 6% and 8%. Domino’s has been spending aggressively on its e-commerce platform, and e-commerce sales now account for more than 70% of U.S. revenue.
DPZ shares are trading at just above 26-times our 2021 estimate, below the industry average of 35. Since the company’s IPO in July 2004, they have traded at an average multiple of 26.9. The price/sales ratio of 3.3 and the price/ cash flow multiple of 12.4 are consistent with peer averages. As such, we are maintaining our BUY rating and lowering our target price target to $400 from $455. At current prices, our target, if achieved, offer investors the prospect of a 17% total return.
Jim Kelleher, CFA, Argus Weekly Staff Report, argusresearch.com, 212-425-7500, March 5, 2021
*Parker-Hannifin Corporation (PH)
Parker-Hannifin joins the Focus List. An industrial conglomerate, Parker-Hannifi n offers strong cash-flow trends, expanding profit margins, and steady dividend growth.
Analysts are increasingly bullish on the company’s year-ahead prospects, with the consensus calling for double-digit profit growth for each of the next four quarters.
Up 10% this year, the stock trades at 25 times trailing earnings, below the median of 29 for industrial-machinery stocks. Parker-Hannifin is also a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, March 8, 2021
Value 839
General Mills Inc. (GIS)| Daily Alert February 18
General Mills is a leading global manufacturer and marketer of branded consumer foods, such as ready-to-eat breakfast cereals, refrigerated dough and other baking items, snack foods, ice cream, and yogurt. Its portfolio of well-known brands includes Cheerios, Betty Crocker, Pillsbury, Haagen-Dazs, and Yoplait. Sales outside the U.S. account for just less than one fourth of total sales.
Consensus estimates call for the company to earn about $3.76 per share this year, up from $3.61 per share in 2020. GIS has paid dividends to investors since 1898 and during the past twenty years the company has increased the dividends from 41 cents per share in the year 2001 to $1.98 per share in 2020.6
According to Morningstar, the stock is trading at a 2% discount, making it attractive for investors with a long-term investment horizon.
Technically (from the chart’s perspective) GIS also looks attractive, trading 20.4% below its all-time high), while it is forming a long base pattern, between $66 and $36 approximately, in which $36 is acting as a technical support level.
With the stock being fundamental and technically attractive, this company might be an appropriate holding for investors who wish to build a holding over the long term.
Vita Nelson, www.directinvesting.com, 914-925-0022, February 2, 2021
*Green Brick Partners, Inc. (GRBK)
Green Brick is a diversified homebuilding and land development company primarily focused on the Dallas-Fort Worth market with operations to a lesser extent in Atlanta, Port Saint Lucie (FL) and Colorado.
It is engaged in all aspects of the homebuilding and selling process primarily operating through master planned communities. It has about 102 of these with 12 opened recently and 22 more in various stages of development.
For 2020, Green Brick expects to report a 90% increase in diluted EPS to $2.21 - 2.23 on residential unit revenue of around $930 million, an increase of over 22%. But here’s the good part. In Q4 the company delivered 585 new homes and booked orders for 848! For the full year the company delivered 2,208 homes (+28.4%), while net new home orders surged 50% to 2,885 and backlog increased 98% to $687 million. As a result of all this, Green Brick started a whopping 1,004 new homes in Q4 and expanded its owned and controlled lots by 61% to 14,468 as of year-end.
In short, there is a nationwide housing shortage (but especially in the company’s markets, like Texas) and a big trend to people moving out of cities and into locations with more space. And Green Brick is benefiting, big time.
GRBK earns an IBD rating of 95 and trades at just 7 times 2021 EPS expected to grow 24% to $2.83, after doubling in 2020. The BI Rank is 11.2- Strong Buy.
Tom Bishop, BI Research, www.biresearch.com, March 10, 2021
Financials 839
Safety Insurance Group, Inc. (SAFT) | Daily Alert March 3
Boston-based Safety Insurance Group is a property and casualty insurance provider selling through a network of 900 independent agents in Massachusetts, New Hampshire, and Maine.
Private passenger automobile policies account for 55% of premiums while homeowners policies make up 23% of revenue. Safety is the largest commercial automobile carrier, with a 15% share of the Massachusetts market.
The company reports fourth quarter results this Wednesday, February 24. (Nancy’s note: SAFT reported 4Q EPS of $2.55, and full-year EPS of $8.64, handily beating analysts’ estimates). Earnings for all of 2020 are expected to grow 41% to $7.40 per share, giving the stock a trailing 12-month price-earnings ratio of 10.5. That’s 39% below SAFT’s five-year average P/E of 17.2. It also trades at discounts to five-year average multiples of book value, cash flow, and sales.
The yield is a juicy 4%+. Dividends have grown at a 7.8% compound annual rate over the past 10 years, and the ex-dividend date for the next $0.90 per share payout is coming up on March 4. Insiders were big buyers of the stock last fall in the high $60s and low $70s.
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, February 24, 2021
AXA SA (AXAHY) | Daily Alert March 10
AXA is an insurance company that provides life and non-life insurance, savings and pension products, and asset management services to more than 100 million customers. Management expects a strong bounce back from a difficult 2020 that was marred by 1.7 billion euros of COVID-19 claims.
CEO Thomas Buberl said, “Many of the negative effects that we have seen in 2020 will not repeat. Therefore, we are very confident in our outlook. Also, given the very good business momentum that we can achieve, the 3% to 7% underlying earnings per share growth based on the normalized re-based underlying earnings of 6.3 billion euros.”
The firm has focused on improving its health insurance technology and broadly rerating customer policies given the tight market, particularly in Europe, driving premiums 20% higher over 2020.7
We think steps to reduce earnings volatility and shifts toward shorter duration property & casualty lines will ultimately be rewarded by investors. AXAHY trades below book value, with a forward P/E ratio near 8.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, March 3, 2021
Aviva plc (AVVIY) | Daily Alert March 11
Aviva, PLC, based in London, England, is a major European insurance company specializing in life insurance, savings, and investment management products. Its market cap is about $21 billion, and is expected to generate about $65 billion in revenues and about $2.8 billion in profits in 2020.
Long a mediocre company, the frustrated board last July installed Amanda Blanc as the new CEO, with the task of fixing the business. She is aggressively refocusing the company on its core geographic markets (UK, Ireland, Canada), with its continental Europe and Asia operations potentially on the selling block. The turnaround also includes improving Aviva’s product competitiveness, rebuilding its financial strength and trimming its bloated costs.
With the company’s aggressive operating and strategic improvement, we expect higher earnings and a modest multiple expansion will lift the shares to our $14 price target.
BUY.
Bruce Kaser, Cabot Undervalued Stocks Advisor, cabotwealth.com, 978¬-745¬-5532, March 3, 2021
*Main Street Capital Corporation (MAIN)
Main Street Capital is set up as a business development company (BDC). Legally, a BDC is a closed-end investment company, similar to closed-end mutual funds (CEF). The difference is that a CEF owns stock shares, bonds, and other marketable securities, while a BDC makes direct investments into its client companies.
Main Street classifies the largest portion of its portfolio (47%) as lower middle market (LMM), where the company takes equity stakes along with providing debt financing.
Lower middle market companies are smaller than the typical BDC client and have annual revenues between $10 and $150 million; there are more than 200,000 companies in this revenue bracket in the U.S. Main Street has 70 lower middle market clients with loans and equity investments worth $1.228 billion.
In recent years, Main Street has been growing what it calls its Private Loan Portfolio. These are loans originated through strategic relationships with other investment funds on a collaborative basis and are often referred to in the debt markets as “club deals.” The private loan portfolio makes up 29% of the overall MAIN portfolio and carries an average yield of 8.6%.
Most BDCs pay an attractive yield but struggle to maintain NAV levels. Main Street Capital is unique because of its history of growing both NAV and the monthly dividend.
Finally, the historical yield for Main Street hovered around 6.0%, and the current yield indicates the shares are undervalued. The market has not yet priced in a renewed growth profile.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, March 2021
Healthcare 839
*Ocugen, Inc. (OCGN)
OVGN is working on a CV-19 vaccine with Bharat Biotech, and the treatment had an efficacy rate of 81%.
“Today’s results from the interim analysis of Bharat Biotech’s Phase 3 trial of COVAXIN mark a milestone in the development of another critical vaccine option for the US market. COVAXIN has been shown to induce immune responses against multiple protein antigens of the virus potentially reducing the possibility of mutant virus escape.”
Should the company provide further positive news on the CV-19 vaccine, we believe the stock could double, if not triple this year. Analysts are just as bullish. In fact, HC Wainwright just noted that, “Compared to COVID-19 vaccines currently authorized under EUA, COVAXIN could induce more broad immunity targeting multiple viral proteins, potentially resulting in better protection against emerging mutant viruses, such as the UK and South African variants.”
Ian Cooper, The Cheap Investor, support@thecheapinvestor.com, March 8, 2021
*Pacira BioSciences, Inc. (PCRX)
While the strong Q4/2020 revenues ($430 million) were pre-announced, PCRX is on track for another record year with EXPAREL sales approaching $460-500 million for 2021. Sadly, the COVID-19 pandemic has worsened the opioid crisis. 8
As a result, EXPAREL’s position as a safe and effective option for opioid-sparing pain management is growing. On top of the addiction crisis with opioids, COVID-related delays in necessary surgical procedures have ironically boosted the need for EXPAREL and its ability to expedite recovery and shorten hospital stays. Specifically for Pacira and its continued logistics strategy, the shift to accelerating the migration of elective procedures to outpatient sites is also driving use.
In addition, the clinical uses of EXPAREL keep broadening. Add in the fact that competition keeps getting delayed, Pacira’s dominant franchise is even more solidified. With the investment in manufacturing complete coupled with stable revenue growth, margins (i.e., operating leverage) keep expanding (e.g., $113 million in EBITDA in 2020). The JNJ/DuPuy partnership ended in January and with more than 8 million patients being treated with EXPAREL since the launch, PCRX is showing it can go it alone. But it can also be swallowed up by JNJ (or someone else in the meantime). With consistent and sustainable growth, improved financial leverage and astute management, PCRX remains sound. Raising BUY and TARGET.
PCRX is a BUY under 70 (from 60) with a TARGET PRICE of 90 (from 80).
John McCamant, The Medical Technology Stock Letter, bioinvest.com, March 2021
Technology 839
CrowdStrike Holdings, Inc. (CRWD)| Daily Alert February 19
A recent industry survey showed that (a) security spending growth is set to accelerate in 2021, (b) 90%-plus of firms are dedicating more money toward cloud security solutions, and (c) CrowdStrike itself was cited as the leader in vulnerability management and as taking share on endpoint security. In a nutshell, there’s little standing in the way of this company getting much, much bigger over time.
Of course, the company is not the stock, so we’re never complacent; our combined cost basis is just under 197, so some abnormal selling into the low/mid-180s (less than a 10% loss) could have us concluding something is off. But there’s no sign of that today—while the recent bounce has come on low volume, CRWD is perched near its all-time highs, and we’re putting more emphasis on the stock’s six-week rest and supporting action two weeks ago. We filled out our position last week and continue to think the next big move is up. BUY.
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, February 11, 2021
TELUS Corporation (T.TO) | Daily Alert February 23
TELUS Corporation is Canada’s second largest wireless telecom company. This month, it spun off TELUS International in a $1.36 billion initial public offering, the largest technology IPO in TSX history. Its TELUS Health unit is Canada’s largest telehealth provider.
For the year, revenue rose 5.5% and earnings before interest taxes and depreciation (EBITDA) rose 0.2%. EBITDA is often used as a clearer measure of performance.
TELUS is bullish on 2021.
Despite the pandemic, TELUS Health saw increased demand for its virtual care solutions in 2020. The pandemic limited visits to its health care clinics, but even so it is expanding its fleet of mobile clinics. It added seven in 2020, and two more in January, bringing the
TELUS is growing these businesses out of the limelight and plans to retain a big stake after spinoffs. It enhances value for TELUS shareholders and offers a model for growth outside its core business.
TELUS raised its dividend 7% with the January payment to $0.31 per share.
Buy.
Adam Mayers in Gordon Pape’s Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, February 15, 2021
Taiwan Semiconductor Manufacturing Company Limited (TSM) | Daily Alert March 4
The conditions in the “semi” space, i.e., the “semiconductor” space, are more than just semi-bullish. In fact, they are uber-bullish.
Taiwan Semiconductor Manufacturing is one of the world’s leading semiconductor chipmakers, and it is known as a “foundry” firm, meaning it is a contract manufacturer that produces chips for other branded chipmakers. The great thing about TSM’s market positioning is that it has managed to create the smallest, and fastest, chips on the market. The company is mass-producing chips at a scale of five nanometers, whereas Intel’s chips are double that size at 10 nanometers. And in the chip world, smaller is better, faster, and more efficient.
What we further love about TSM is that the company is an earnings growth powerhouse, with earnings per share (EPS) growth over the past several years that has outpaced about 90% of all stocks in the market.
Let’s buy Taiwan Semiconductor Manufacturing at market, with a protective stop at $105.00.
For those willing to make a bigger bet, we recommend the TSM July $140.00 call options (TSM210716C00140000), which last traded for $9.85 and that expire on July 16.
Mark Skousen & Jim Woods, FMA Trader Alert, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, February 24, 2021
Fair Isaac Corporation (FICO) | Daily Alert March 5
Fair Isaac is best known for its FICO Scores software. It lets lenders make better decisions about customer creditworthiness. The company also makes programs that help credit-card issuers reduce fraud and analyze the spending patterns of cardholders.
For the fiscal 2021 first quarter, ended December 31, 2020, Fair Isaac’s revenue rose 4.7%, to $312.4 million from $298.5 million a year earlier. Excluding one-time items, Fair Isaac earned $81.6 million, up 50.5% from $54.2 million. It spent $50.0 million on share buybacks in the quarter, so earnings per share gained 52.2%, to $2.74 from $1.80.
The stock trades at 41.5 times the projected fiscal 2021 earnings of $11.21 a share. That’s high, but still acceptable, as Fair Isaac should continue to benefit as it shifts its products to an online subscription model. The pandemic, which has forced employees to work from home, is also spurring demand for its fraud-detection products.
Fair Isaac is a buy.
Patrick McKeough, Wall Street Stock Forecaster, www.tsinetwork.ca, 888-292-0296, March 2021
*Cisco Systems, Inc. (CSCO)
Cisco reported second quarter revenues were relatively flat at $12 billion with net income down 12% to $2.5 billion. During the first half of the fiscal year, Cisco paid $3 billion in dividends and repurchased $1.6 billion of its common stock. Cisco announced a 3% increase in its dividend, marking the tenth consecutive year of dividend increases. The dividend hike reflects Cisco’s financial strength and management’s confidence in future growth.
Cisco is seeing encouraging signs of strength across its business segments with 3.5% to 5.5% sales growth expected in the fiscal third quarter. Buy.
Ingrid R. Hendershot, Hendershot Investments, hendershotinvestments.com, 703-361-6130, March 2021
*NVIDIA Corporation (NVDA)
Artificial intelligence will replace scientists, and deep learning will create robots that read. It’s crazy, true and coming faster than most investors believe.
AI is still the early stages, but NVIDIA Corp. is best positioned to capitalize on this trend.
NVIDIA makes the powerful deep-learning infrastructure that is becoming foundational to the development of AI.
During Q4, the company had $5 billion in sales, the first in its 22-year history. The 61% year-over-year growth in the quarter mirrors spectacular full year sales of $16.7 billion, up 53%. And profits rose 53% to almost $1.5 billion.
All of this was planned. Under CEO Jensen Huang, NVIDIA has been forging ahead with a larger plan to bring the company’s expertise in graphics to hyperscale data centers. Today, its CUDA software, Mellanox switches, cables and adaptors and continually evolving line up of high-performance graphics processing units are commonplace in cloud computing.
Investors should consider taking advantage of the current NVIDIA share price weakness. It most likely will not persist.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, March 8, 2021
*Cirrus Logic, Inc. (CRUS)
While the good news is that Cirrus Logic has managed to hold above $65 (as was cited as an important level in the February issue), the bad news is that the stock has done nothing but slide since last month’s issue went to press, and such price action, especially in the context of what is going on with the overall market (and the chip sector, in particular), is hardly the sort of action we would like to see at this stage of the game.
I have already taken a lot of our chip money off the table as part of respecting my own sleeping levels, so I am not selling more this month; however, you also probably do not need to be terribly aggressive about making new purchases just yet either. CRUS remains a strong buy under $75 and a buy under $90.
Nate Pile, Nate’s Notes, NotWallStreet.com, 707-433-7903, March 2021
Resources & Energy 839
Anglo American plc (NGLOY) | Daily Alert February 26
Anglo American is in a strong uptrend and has a diverse portfolio of assets. Anglo American is the largest producer of platinum with about 40% of the world’s output. It also engages in exploring, mining, and processing various other metals and minerals worldwide. The company explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores.
Anglo American has a primary listing on the London Stock Exchange with a secondary listing on the Johannesburg Stock Exchange.
Anglo American is diversified, combining a large copper business with significant exposure to rare assets such as palladium, plus diamond assets, reflecting its ownership of De Beers. Anglo is a big and expanding player in copper; its large project in Peru is one of the world’s few new copper mines. The commodities sector and Anglo seem to be coming out of pandemic-focused 2020 with some momentum.
Anglo reports that second-half 2020 production returned to 95% of 2019 rates, benefiting from strong performances in copper in Chile and in iron ore in Brazil. Anglo American’s diamond business has also recovered smartly after collapsing last March.
Let’s begin with a half position.
Carl Delfeld, Cabot Global Stocks Explorer, cabotwealth.com, 978-745-5532, February 18, 2021
Dorchester Minerals, L.P. (DMLP) | Daily Alert March 1
Dorchester Minerals is not a spin-off, but is a very interesting company. It is in the oil and gas business, and it’s one of the highest quality companies that I’ve ever seen.
Dorchester owns a bunch of mineral rights and royalties. As such, it doesn’t spend anything on capex and spews cash flow. Better yet, it pays out all of the cash that it receives as dividends and has no debt.
The latest insider purchases happened in December 2020, but insiders have been buying aggressively for quite some time.
The stock is well below its pre-pandemic levels despite oil prices back above $60/bbl.
One other positive is this stock can be owned in retirement (non-taxable accounts). Most partnerships should not be owned in non-taxable accounts as they can generate unrelated business taxable income (UBTI) that you will have to pay (eliminating the tax advantage of your retirement account).
However, one of Dorchester’s corporate goals is to be “UBTI-free”.
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, stockspinoffinvesting.com, 617-750-7454, February 22, 2021
Exxon Mobil Corporation (XOM)| Daily Alert March 2
Exxon Mobil, the biggest loser last year (down 41%), is up 32%, and is benefiting from the “economic reopening” theme is helping to drive the energy sector, as a jump in economic activity should fuel demand for energy. Also, energy prices have gotten a lift from the winter storms that have been battering a large swath of the nation.
Investors searching for yield in this low-yield environment are probably helping the stocks as well. Finally, investors have shown a willingness to buy into “troubled” stocks and groups so far this year, reflecting an increased appetite for risk. That “risk-on” mentality has helped these stocks.
I think the stock can breach the $60 level over the next 12 months.
Charles B. Carlson, CFA, DRIP Investor, dripinvestor.com, 800-233-5922, March 2021
Advanced Energy Industries, Inc. (AEIS)| Daily Alert February 24
Advanced Energy reported better than expected Q4 adjusted earnings as revenues rose nearly 10% year over year to $371M. The full year 2020 non-GAAP EPS was a record $5.23, more than double the $2.44 from full year 2019. The company issued in-line guidance for the first quarter seeing EPS of $1.10-$1.40, and revenues of $335M-$3.65M. 11
It also announced that Yuval Wasserman will retire as President and CEO and also as a member of the board, effective March 1. Wasserman became President and CEO in 2014 after joining the company 14 years ago. Former Amkor Technology President and CEO, Steve Kelley, will take over as Advanced Energy’s new President and CEO.
AEIS initiated a quarterly cash dividend of $.10 per share, payable March 5, 2021 to shareholders of record as of February 22 2021. AEIS is our number one performer. The 52-week low is $33.38. We have enjoyed the ride, going back to our original investment in Plasmatherm (7/25/92), which became RF Power and ultimately AEIS, making us long-term holders with a remarkable cost basis.
AEIS continues to have a bright future. Timing seems good for the semiconductor sector.
Sean Christian, The Personal Capitalist, 9524 East 81st Street, Suite B #1715, Tulsa, OK 74133, February 15, 2021
West Fraser Timber Co. Ltd. (WFG)| Daily Alert March 15
I think there is money to be made in lumber stocks, and I believe Western Fraser Group has the best upside leverage for earnings gains. The stock is cheap and should make for a good trade. It is very cyclical and the next 2-4 years should be good. It’s best for an IRA.
WFG produces and sells all sorts of lumber, pulp, paper products, and medium-density fiberboard (MDF) panels that come from mostly Spruce Pine and Douglas Fir. The company makes a lot of paper/ended product that ends up being tissues/toilet paper and paper for print.
WFG operates in the USA in a significant way in the southern part of the country with southern yellow pine lumber (which is very profitable for WFG right now because there is too much soft-pine coming to market).
With locations on the West Coast in Vancouver, Asia is a significant (and growing) customer, and having lots of product right there at the Port of Vancouver is a big deal, for sure.
Home-building is on the upswing. The real estate market is low on inventory—new or used—and the Asian economy is quickly picking up. These are two important factors that point to higher earnings potential for WFG.
This is still a cheap stock, selling for about six times cash flow and less than eight times this year’s earnings estimates. Zacks estimate is for $9.50 this year. Below $70, this is a cheap stock and a good trade for an IRA.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, March 5, 2021
Altius Minerals Corporation (ALS.TO) | Daily Alert March 16
Altius announced fourth-quarter revenues of almost $22 million, up 33% from the previous quarter. Receipts were boosted by a doubling of thermal coal revenue, due to the acquisition of an additional royalty in July; a large dividend from Labrador Iron Ore, which had withheld distributions for most of 2020; and stronger commodity prices overall. Copper revenues account for about 35% of the total, followed by potash at 21%.
Many of the assets as very long term, over 1,000 years in the case of potash, with some of the iron ore and copper assets over 50 years mine life.
The most important recent development was the IPO of Altius Renewable Royalties (ARR.TO). Altius currently owns about 60% of ARR, valued at approximately $60 million in the market, as well as royalties on different assets.
The company also continues with its project generation business. Over $150 million was spent on these properties last year, none by Altius. In the last four years, Altius has successfully sold 61 properties for royalties and shares, and it continues to assemble new projects for which it is seeking partners.
Altius, having spent the lean years assembling properties, is now in the harvesting phase. A higher dividend in the years ahead is a possibility. Altius is a buy.
Adrian Day, Adrian Day’s Global Analyst, adriandayglobalanalyst.com, 410-224-8885, March 6, 2021
*Sempra Energy (SRE)
Sempra Energy is a utility holding company with 88% of its sales in the U.S. and 12% in Mexico. The SDGE segment service area includes 4,100 square miles from Orange County to the Mexican border. SDGE serves 1.47 million electric customers and 895,000 natural gas customers. SoCalGas’s service area includes 24,000 square miles of Central and Southern California, covering 6.03 million natural gas customers. Sempra Mexico develops, owns, and operates, or holds interests in, energy infrastructure in Mexico in two key energy markets: gas and power. Sempra LNG holds an interest in the Cameron LNG joint venture for the development, construction, and operation of a three-train natural gas liquefaction export facility at the existing Cameron LNG facility formerly used for regasification in Hackberry, Louisiana. 12
Sempra seeks to increase earnings through faster growth in its unregulated businesses through both acquisitions and organic growth. Currently, it is focused on building transmission lines and developing export capabilities at its U.S. LNG import terminal.
Kelley Wright, IQ Trends, iqtrends.com/, info@iqtrends.com, 866.927.5250, First-March 2021
Low-Priced Stocks 839
*Information Analysis Incorporated (IAIC)
Information Analysis Inc. provides web-based and mobile device solutions, including electronic forms conversions for various agencies of the federal government, data analytics and legacy software migration and modernization. It also sells third-party software products and provides maintenance services.
Information Analysis has been growing revenues rapidly over the past few years. In 2020, revenues increased 37% to $13.9 million, up $3.7 million year-over-year (yoy), behind strong performance from both the professional fees and software segments. The company delivered its highest annual revenues in decades while expanding its gross margin simultaneously.
The recent uplisting to the OTCQB exchange should start attracting institutional investors.
The aspect that excites us most about the company’s potential is not profitability, but growth via government and non-government contracts. Despite the clear overvaluation, IAIC could also be a buyout candidate down the road.
The stock’s volatility and outperformance might be off-putting, but it also has all the characteristics of an early-stage market leader. Financial outlook is stronger than ever, and the recent leadership changes have set the company up for even more success.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, March 2021
Preferred Stocks 839
First Citizens BancShares, Inc. (FCNCP)| Daily Alert February 22
First Citizens BancShares, Inc.; 5.375% Fixed Rate, Non-Cumulative Perpetual; Par $25.00; CUSIP 319626305. First Citizens BancShares, Inc. (FCNCA) is a regional bank holding company, based in Raleigh, NC, offering retail and commercial banking services.
The company announced in October 2020 that it had entered a definitive agreement to merge with CIT Group, Inc. (CIT), the parent company of CIT Bank, N.A., based in Pasadena, California. Although the terms of the transaction call for an all-stock merger of equals, FCNCA will be the legal surviving entity. The merger is expected to broaden the scope of the combined companies’ commercial lines of business, while creating the nation’s 19th largest bank, based on total assets of over $100 billion. The transaction is expected to close during the first half of 2021.
FCNCA’s preferred issue is fixed at 5.375%, and callable on 03/15/25 or any dividend payment date thereafter. This investment is suitable for medium-risk taxable portfolios. Dividends are qualified and taxed at the 15%-20% rate.
Buy at $27.00 or below for a 4.98% current yield and 3.31% yield to call.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, February 2021
Funds & ETFs 839
*Nuveen AMT-Free Municipal Credit Income Fund (NVG)
Muni bonds are superior to Treasuries two ways. First, they pay more. Even with the 10-year rate popping above 1.6% earlier this week, we can double or triple our dividends with munis.
Plus, munis have tax benefits. iShares National Muni Bond ETF (MUB) is an easy-to-buy vehicle with a tax-advantaged payout that is higher than its stated 2.1% yield.
For investors looking to save on taxes, MUB is a popular option.
We like Nuveen’s AMT-Free Municipal Credit Income Fund, which pays more than three times the skinflint Treasury. 13
NVG is a closed-end fund (CEF), which means it is actively managed.
The muni bond market is a throwback to a simpler time. Many deals are still brokered on good old-fashioned landlines. Nuveen gets the first phone call when muni bonds are issued, and NVG’s superior returns and yield reflect this advantage.
NVG pays us a neat, tax-efficient $0.068 on the second week of the month.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, March 10, 2021
*Fidelity Total Bond Fund (FTBFX)
A recovering U.S. economy is a headwind for bond funds generally, and for longer duration (a measure of interest-rate risk) funds in particular. While there are no perfect solutions to this obstacle, abandoning the lower-risk asset class is not an option for more conservative investors. To that end, Fidelity Total Bond is among our top fund picks. Actively managed by a team of sector specialists, it’s one of Fidelity’s most diversified bond offerings—and one of the industry’s best managed in its class. Holding Treasurys, corporates and mortgages, it also holds high-yield bonds (15%) and emerging-market debt (4%). These riskier bonds provide Total Bond with a yield advantage (1.47% versus 1.16% for U.S. Bond), and they stand to appreciate in a recovery. Why? While a recovering economy risks pushing prices up, GDP growth should eventually mean healthier corporate balance sheets, credit upgrades and lower default rates. That, in turn, should benefit Total Bond.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, fidelitymonitor.com, 800-397-3094, March 2021
*Buffalo Small Cap Fund (BUFSX)
The starting point for Buffalo Small Cap is trend analysis which includes 26 long-term trends. A byproduct of trend analysis is that the fund’s holding period for a stock tends to be 3-5 years, which is typically longer than the average growth manager.
Buffalo is looking to find those companies with proven management teams, strong revenue growth, and solid balance sheets that are not overly dependent upon the capital markets to fund their growth. This overall investment process combines the top down (trend analysis) with the bottom up (fundamental research on individual companies).
Buffalo defines the small cap space as between $500 million to $4.5 billion (Once a stock hits a market capitalization of $10-12 billion, the fund will sell the stock and look for a smaller name to keep this a pure small cap portfolio.) The top three sectors, as of 12/31/2020, are Information Technology (25.6%), Health Care (24.1), and Consumer Discretionary (16.5).
Keep in mind that, there are typically higher expense ratios found in small cap products. And small caps can see some wild swings—both to the upside and the downside. For that reason alone, do not overload in this space.
Brian W. Kelly, Moneyletter, moneyletter.com, 800-890-9670, March 2021
Updates 839
SELL 1/3 Five Below, Inc. (FIVE)| Daily Alert February 19
Updated from WSBI 807, July 18, 2018
We’re going to take partial profits in Five Below. The stock is acting well, but it’s now been running for five months and got a bit out of trend on the upside at the start of the year. We’ll sell one-third of our shares and hold on tightly to the rest. SELL ONE-THIRD OF FIVE, HOLD THE REST
Michael Cintolo, Cabot Growth Investor, cabotwealth.com, 978-745-5532, January 27, 2021
SELL Perficient, Inc. (PRFT) | Daily Alert March 9
Updated from WSBD 822, October 16, 2019
Perficient was dropped from coverage. While Perficient has a history of beating consensus profit estimates, we felt the prudent move was to lock up gains in the stock, which had rallied 20% in 2021.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, March 1, 2021
*Trim Position: The Greenbrier Companies, Inc. (GBX)
Updated from WSBD 822, October 16, 2019
Recent momentum at Greenbrier was fueled in part by the announcement of a new joint venture with The Longwood Group to grow an owned portfolio of leased railcars primarily to be built by Greenbrier. But today’s 5%+ bump was driven by the disclosure that long-time GBX Chairman and CEO Bill Furman had recently purchased 50,000 additional Greenbrier shares. 14
Still, given the sharp move higher and a a difficult near-term outlook for the always cyclical company whereby the current forward P/E ratio is 86, we thought it prudent to capture a portion of our winnings, especially given the big boost in liquidity today, whereby trading volume was the highest since Halloween.
As for our remaining stake, with our view that a better economic climate is ahead and our expectation that railcar deliveries will be markedly higher over the next few years than in their currently challenged state, we are comfortable holding for a revised $50 Target Price.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, February 12, 2021
*Trim Position: Bank of Hawaii Corporation (BOH)
Updated from WSBI 833, September 17, 2020
During the past quarter, Bank of Hawaii’s stock price did the hula by dancing 18% higher. With the stock now appearing fully valued, we decided to bank some profits by trimming our position.
Ingrid R. Hendershot, Hendershot Investments, hendershotinvestments.com, 703-361-6130, March 2021
*SELL Five Prime Therapeutics, Inc. (FPRX)
Updated from WSBD 815, March 13, 2019
This morning, Five Prime announced that it is being bought by Amgen for $38 per share (~80% premium to yesterday’s closing price), representing an equity value of approximately $1.9 billion. AMGN did not wait for final Phase III data and is paying for Five Prime based on bemarituzumab’s FIGHT trial data which demonstrated that approximately 30% of patients with non-HER2 positive gastroesophageal cancers overexpress FGFR2b. With AMGN’s $38 buyout exceeding our TARGET PRICE of 33 we are moving FPRX to a SELL.
John McCamant, The Medical Technology Stock Letter, bioinvest.com, March 2021
Investment Index 839
The next Wall Street’s Best Digest issue will be published on April 15, 2021.