Note: We are publishing this issue early due to our office being closed this Friday for a holiday.
The daffodils and Bradford pear trees are in bloom here in Tennessee; I’ve already begun my spring cleaning; I’ll get my second COVID-19 shot on Monday; and the markets and economy are holding up nicely--all in all, a great way to usher in a new season.
The Dow Jones Industrial Average has managed to stay above 32,000, housing continues to be strong, and more people came back into the job market this month, as unemployment claims declined to 684,000.
In this issue, our Feature Recommendation is a company operating in the container ship industry, which is recovering from crushing blows dealt by the coronavirus pandemic last year. As the flow of goods and services continues to climb, this stock should also profit.
And speaking of profits, we are banking some dollars with the sale of cbdMD, Inc. (YCBD), gaining about 76%.
Many thanks to subscribers who joined us on our first monthly Platinum Club call. We hope you can tune in for our next one on April 13.
We’ll check in with you with a Special Alert if anything major occurs in our portfolio. In the meantime, please let us know if you have any questions or concerns.
Happy Investing!
State of the Markets | WSBS 421
Market Commentary
The month of March has been choppy for stocks, with downside action in the first week followed by a rally attempt. Starting on March 18, the S&P 500 resumed trending lower.
As of this writing, the broader index is holding at its 50-day moving average, a sign that so far, big institutional investors appear to be paring positions, rather than stampeding for the exits.
So what does this latest market wobble tell us? First, it’s instructive to view sector rotation. The once red-hot consumer discretionary sector is up just 0.35% year-to-date, following a one-year rampage that sent it 83.11% higher.
The two largest stocks in the sector, Amazon (AMZN) and Tesla (TSLA) are well below previous highs. Those two stocks alone will have outsized impact on the sector.
Meanwhile the energy sector is continuing its run-up. Expectations for a busier summer travel season in the U.S., along with greater demand as businesses ramp up again, is driving prices. Some oil-producing nations are also keeping a lid on production, which also contributes to price increases.
The energy sector is up 29.49% this year, on the heels of a 104.67% one-year return.
Oil and gas companies are also leading the sub-industries notching solid performance.
One thing to be aware of, pertaining to the current market pullback: The rally that began on March 24, 2020, just celebrated its first birthday. We may be seeing some selling as big investors who jumped into the market in the spring of 2020 are now in the zone of long-term capital gains, which are taxed at a lower rate than short-term gains.
Of course, numerous factors go into market action, but selling after long-term capital gains may be among those for the next several months.
Dow Jones Industrial Average
S&P 500 
Nasdaq Composite Index
Feature Recommendation | WSBS 421
Textainer Group has been in business since 1979 and is based in Bermuda. The company holds a place as one of the world’s largest lessors of intermodal (can be used across different modes of transport—from ship to rail to truck—without unloading and reloading their cargo containers). The company has more than 4 million TEU (twenty-foot equivalent, up from 3.6 million in the prior quarter) new and used containers in its owned (88% of the fleet) and managed fleet. The company operates from 14 offices and 400 depots around the world, including Asia, Europe, and North/South America. The majority of its revenue comes from Asia.
Textainer operates from four divisions: Container Ownership, Container Management and Container Resale, with Container Management generating the lion’s share of revenues for the company.
Its leasing customers number some 250 customers, which includes all of the world’s leading international shipping lines, and other lessees. The company’s fleet is comprised of standard dry freight, dry freight specials, and refrigerated intermodal containers. It also leases tank containers and is the primary supplier of containers to the U.S. Military.
Textainer has a robust business (again, one of the largest) buying and selling used containers, and sold an average of almost 140,000 containers per year for the last five years to more than 1,500 customers.
The company’s two largest customers in 2020 were Mediterranean Shipping Company S.A., which accounted for $136.6 million or 20.5% and CMA-CGM S.A., which accounted for $84.5 million or 12.7% of its total owned and managed fleet’s 2020 lease billings. Textainer has built a formidable competitive business and claims its top 20 customers, as measured by revenues, have on average been its customers for 27 years. That’s some pretty good loyalty, and intangible goodwill!
In its last quarter, Textainer beat earnings by a whopping $0.31 cents, posting EPS of $0.81, on revenues of $161.49 million, a result of the gradual reopening of the U.S. economy, and helped by rising utilization and average rental rates.
The upside was driven by the recovery of the U.S. economy. Notably, lease rental income is being aided by the increase in fleet size, utilization (98.5%) and average rental rates (increasing 8% to $161 million). Textainer took advantage of the rebounding U.S. economy by investing $470 million in new containers. But globally, the container industry is also perking up. Statista.com expects growth of 4.8% worldwide this year, with rates also rising.
The company also took steps to shore up its financial strength, buying back 779,034 shares during 2020, some 12% of its outstanding shares, as well as reducing its debt costs by 3.1%.
Wall Street has been jumping on board these shares, and boosting EPS estimates by more than 75% in the last three months. Analysts are looking for earnings growth of 122% this year.
Although shares have been on a very nice uptrend lately, they are still trading at a P/E of just 20—about one-half that of the container industry. It’s a small-cap stock, which can be volatile, but that sector is getting lots of investor attention right now. There could be a small pullback in the short term, but Textainer shares look attractive as a bet for worldwide economic recovery.
Textainer Group Holdings Limited (TGH)
52-Week Low/High: $ 6.75 - 29.36 Shares Outstanding: 50.5 million Institutionally Owned: 58.5% Market Capitalization: $1.409 billion Website: www.textainer.com | Why Textainer: Large fleet size Diversified revenue Highly scalable Undervalued; trading at a valuation one-half of its industry
|
Technical Analysis
by Kate Stalter
Recent earnings and revenue growth helped drive Textainer Group higher. The stock boasts a year-to-date return of 37.38% and a one-year return of a whopping 264.45%.
Unlike many techs, the shipping container leasing specialist took its time emerging from the spring 2020 correction. It took off with a vengeance in August, following a better-than-expected quarterly earnings report.
The stock bolted 19% in heavy turnover, kicking off a rally that’s now in its eighth month. The stock paused its rally in late December through early February, pulling just below its 50-day line.
That pause set the stage for new investors to scoop up shares at a lower price before the stock resumed its uptrend in mid-February. The stock is now trading at its best levels since 2015. Investors worried about sitting through a pullback should be aware that the stock is extended beyond that last foray to the 50-day line, and it wouldn’t be surprising to see some selling as investors take some profits.
Price Target: $42
Stop Loss: $18.90
Sector Round-Up | WSBS 421
| Percent Gain/Loss | |||
| 1 Month | 1 Year | YTD | |
| Communication Services (XLC) | 3.57% | 13.84% | 11.66% |
| Consumer Discretionary (XLY) | 0.46% | 5.18% | 3.07% |
| Consumer Staples (XLP) | 2.93% | 0.92% | -0.67% |
| Energy (XLE) | -1.52% | 24.82% | 26.20% |
| Financials (XLF) | 0.76% | 14.70% | 12.48% |
| Health Care (XLV) | 0.48% | 3.01% | 0.93% |
| Industrials (XLI) | 3.16% | 7.33% | 6.65% |
| Materials (XLB) | 0.66% | 6.99% | 5.13% |
| Real Estate (XLRE) | 0.91% | 9.11% | 6.13% |
| Technology (XLK) | -1.23% | 2.22% | 0.79% |
| Utilities (XLU) | 3.06% | 2.95% | -0.21% |
Source: Select SPDR ETFs
This month’s featured stock, Textainer Group Holdings (TGH) hails from the industrials sector.
It’s a small cap, so not tracked in the S&P industrials sector, but the large-cap industrials sector has been cooling off after a red-hot year. The Industrial Select Sector SPDR ETF (XLI) posted a one-year total return of 75.89%.
The most heavily weighted industrials are Honeywell International (HON), Union Pacific (UNP) and Boeing (BA).
The industrials sector as a whole has seen some selling lately. This is traditionally considered a value sector, and while there have been some indications that value is rotating into leadership, we’re still not seeing broad strength in the sector.
On the other hand, the current pullback is moderate. The industrials ETF is currently holding 5% above its 50-day moving average, a sign that the selling is still moderate.
The Technology Select Sector SPDR Fund (XLB) tracked one of the top leading sectors in 2020, ending the year with a total return of 43.61%.
The ETF has been forming a flat base since mid-February, when tech stocks came under selling pressure. It’s an orderly consolidation, not a panicked selloff. However, we deemed this ETF a “sell” in our sister publication, Wall Street’s Best ETFs, as it’s clear that institutional investors are paring back their positions.
Portfolio Updates | WSBS 421
Determine Your Investing Style
It’s critical to take your investing temperature so that you know how much of a risk-taker you are, which will help you determine your investing strategy. I’ve devised a simple questionnaire to help you determine your investing style and risk temperament. You can access it here.
It is an important first step along your path to investing. Once you’ve taken the quiz, you will know if you are an aggressive, moderate, or conservative investor. And that will drive your investing decisions.
PORTFOLIO UPDATES
Conservative Stocks
As a conservative investor, you are less willing to accept market swings and significant changes in the value of your portfolio in the short or long term. Capital preservation is your primary goal, and you may plan on using the principal from your investments in the near term, preferably as a steady income stream. The average level of return you expect to see is 5%-10%, annually.
Unilever PLC (UL)
This well-established consumer goods firm skidded 5.69% the week ended February 5, after the company reported a year-over-year earnings decline to $0.69 per share, below analysts’ expectations. Its well-known brands include Ben & Jerry’s, Dove, Lipton Pond’s and Popsicle. In March, the company said it would make a $15 million investment in Closed Loop Partners’ Leadership Fund in an effort to recycle U.S. plastic packaging waste. With the stock’s plunge in February, its 10-day line is now below the longer-term averages. The current consolidation is occurring in an orderly manner. It’s been trending higher lately, and the 10-day average is close to crossing above the 50-day, a potentially bullish signal.
The Coca-Cola Company (KO)
Coke’s stock lost its fizz to start the new year, skidding 6.86% the week of January 4. Wall Street analysts’ consensus rating is a buy, with a price target of $54.19, which represents a 4.67% upside. Sales and earnings took a big hit in 2020 from pandemic-driven closures of restaurants, movie theaters and other out-of-home venues, where most of the company’s sales are made. However, with greater optimism about reopenings this year, expectations for Coca-Cola are clearly rising. Analysts expect earnings of $2.14 per share this year, which would be a 10% increase.
TC Energy Corporation (TRP)
Shares of the oil-and-gas transportation and storage company are up 4.7% since TC’s last earnings report on February 18. In March, the company completed its merger with subsidiary TC PipeLines in a stock transaction worth $1.68 billion. The stock has been in a first-stage consolidation since August, and undercut its previous structure low. These fresh bases may offer institutional investors an opportunity to enter the stock at a lower price if they have conviction about its prospects. An attractive aspect of this stock: A 5.87% forward dividend yield.
Moderate Stocks
As a moderate investor, you seek longer-term investment gains. You are comfortable with some swings in your portfolio’s performance, but generally seek to invest in more conservative stocks that build wealth over a substantial period of time. The average level of return you expect to see is 10%-25% annually.
National Storage Affiliates Trust (NSA)
The self-storage REIT surpassed its February, 2020 high of $38.22 in light volume. It continued trending along its 50-day line in light volume, with upside volume picking up the week ended March 12. It’s holding 3.6% above its 50-day line. National Storage reported fourth-quarter results in February, notching earnings of $0.46 per share on revenue of $114 million, beating Wall Street expectations on the top and bottom lines. The company added 33 wholly-owned self-storage properties and two more expansion projects to its existing portfolio during the fourth quarter.
Conagra Brands, Inc. (CAG)
The packaged foods company is due to report fiscal third-quarter results on April 8. Wall Street has pegged earnings at $0.58 per share and revenue at $2.71 billion. Both would mark year-over-year increases. The trend of eating at home is continuing, despite a growing number of vaccinated adults in the U.S. This could potentially benefit the company going forward. Conagra is among 17 food producers that warned higher commodity prices could result in higher food prices for consumers. Conagra owns a number of familiar brands, including Duncan Hines, Hunt’s, Marie Callender’s and Healthy Choice.
The Toronto-Dominion Bank (TD)
This multinational bank stock is a favorite for investors who are seeking dividend yield. It’s currently paying out an annual dividend of $2.48 per share. Dividends are historically a reason investors hold large cap stocks that may not appreciate as quickly as small caps. However, the price appreciation on this stock has been stellar. Its one-year return is 74.01% and its year-to-date return is 16.15%. The company offers consumer, commercial and wholesale banking services. It’s been investing in artificial intelligence technologies to enable better customer service. It rallied to a new all-time high on February 19, and is up 7.93% in March, to $65.18.
Aggressive Stocks
As an aggressive investor, you primarily seek capital appreciation and are open to more risk. Swings in the market, whether short term or long term do not impact your investment decisions and you have confidence that volatility is necessary to achieve the high return-on-investment you are looking for. You typically expect a 25%+ return, annually, though you do not need your principal investment immediately.
OneMain Holdings, Inc. (OMF)
The personal lending company, which specializes in customers with subprime credit, is trading at all-time highs, after breaking out of a consolidation in mid-August. The stock pulled back in March, but bounced off its 10-week average, a good sign that investors are stepping in to support the stock. The company reported fourth-quarter results on February 9, with earnings coming in at $2.67 per share on revenue of $850 million. That was a beat on the bottom line, but a miss on the top line. The company has been innovating with technologies, including some that allow customers to close on their loans electronically, rather than in person.
SELL cbdMD, Inc. (YCBD)
This Charlotte, North Carolina-based maker of CBD products is a sell with this issue. The stock is up 27.80% year-to-date, to $3.91. It’s up 76% since the portfolio’s inception. The stock is currently down 42% from its February 10 high of $6.83. For that reason, and to preserve good profits, we’ve deemed this a sell.
Current Portfolio | WSBS 421
| Conservative Stocks | Symbol | Price Bought | Price on 3/31/2021 | Dividends YTD | Gain/Loss % | Rating |
| Unilever PLC | UL | $42.84 | $55.90 | 0.514 | 32% | Hold |
| The Coca-Cola Company | KO | $41.90 | $52.69 | 0.420 | 27% | Hold |
| TC Energy Corporation | TRP | $42.73 | $45.76 | 0.691 | 9% | Hold |
| Moderate Stocks | Symbol | Price Bought | Price on 3/31/2021 | Dividends YTD | Gain/Loss % | Rating |
| National Storage Af-filiates Trust | NSA | $27.39 | $40.28 | 0.350 | 48% | Hold |
| Conagra Brands, Inc. | CAG | $29.87 | $37.81 | 0.000 | 27% | Hold |
| The Toronto-Dominion Bank | TD | $40.82 | $65.47 | 0.000 | 60% | Hold |
| Aggressive Stocks | Symbol | Price Bought | Price on 3/31/2021 | Dividends YTD | Gain/Loss % | Rating |
| cbdMD, Inc. | YCBD | $2.25 | $4.12 | N/A | 83% | Sell |
| Clean Ener-gy Fuels Corp. | CLNE | — | $13.64 | — | 419% | Sold |
| OneMain Holdings, Inc. | OMF | $29.49 | $54.18 | 3.950 | 97% | Hold |
Spotlight on Our Portfolio
OneMain Holdings, Inc. (OMF)
This Evansville, Indiana consumer finance and insurance company has a very nice effective dividend yield of over 13%, including special dividends. Shares are up some 81% since the stock entered our portfolio. OneMain operates through 1,500 branch offices in 44 states in the U.S. As Kate mentioned above, the company had a nice earnings beat last quarter, and analysts are projecting that its bottom line will grow by 130% this year.
The More You Know | WSBS 421
There are many investment strategies—starting with Growth and Value—that will inform your individual investment selections. Today, let’s talk about Growth.
Both Growth and Value investors focus on capital appreciation. But how they go about it is very different.
Growth Investing: A growth stock is a stock whose earnings are expected to outpace the market average, or, often, companies that are not yet profitable, but are seeing tremendous revenue increases. Earnings growth (or the expectation of earnings growth) is the biggest determinant of stock price appreciation. Consequently, companies whose earnings are growing—or anticipated to grow at a fast pace, all other market and economic factors being equal, should also enjoy above-market returns on their share prices. The average annual market gain for the S&P 500 Index (an index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ) is 9.8% over the past 90 years. Therefore, a growth stock would be expected to enjoy higher returns than the market average.
Examples of growth investments may include smaller companies that have high potential for growth (such as start-ups), cutting-edge technology firms, biotech businesses with promising new drugs, emerging market stocks of less-developed countries, and companies that—for one reason or another—have fallen on hard times but are now turning around.
Legendary growth investors included Thomas Rowe Price, Jr., often called “the father of growth investing” due to his comprehensive research on growth stocks, and Philip Fisher, author of the 1958 book, Common Stocks and Uncommon Profits.
As those two gurus would confirm, growth investments can be extremely profitable. For example, a $100 investment in Apple (AAPL) stock in 1984 would be worth $110,564 today. Likewise, if you bought the shares of Facebook (FB) in 2012, you would be sitting on an 830% gain right now. And a 1992 investment in Starbucks (SBUX) would have given you a 14,111% return!
And while that sounds phenomenal—who wouldn’t want to invest in growth stocks—that’s not the whole story. High-flying stocks also come with some big risks. After all, my mother always said, “what comes up, must come down,” and she was mostly right.
Because growth stocks typically trade at a higher premium (due to demand), those lofty valuations tend to be volatile, and are much more susceptible to rapid declines than their value peers.
Consequently, while a growth investor can reap amazing rewards, it’s important to recognize that they may come with a few sleepless nights. In other words, be prepared to ride out some wild swings if you are a dedicated growth investor.
Here are the four primary characteristics that interest most growth investors:
- Robust historic and forecasted growth rate, usually 10% or more.
- Strong Return on Equity (ROE, or net income divided by shareholder’s equity). Compare the company’s ROE with it five-year average as well as the ROE of its industry.
- Solid advances in earnings per share (EPS) or revenues, in the case of newer companies that have not yet posted profits. A subset of EPS is the pre-tax profit margin, which should surpass the industry average and the company’s five-year average.
- Analysts’ estimated future stock price should indicated growth at least in the double digits, but true growth investors often look for a double in five years.
One more caveat to growth stocks. The higher growth companies do not usually pay dividends, or if they do, they generally have dividend yields less than 2%. (A dividend yield is the annual dividend paid to shareholders divided by the share price). That’s because growth companies usually reinvest their earnings in order to accelerate their growth over a short time period.
The next Wall Street’s Best Stocks issue will be published on May 4, 2021.