Prime Week Ending February 10, 2017
Cabot Growth Investor
Bi-weekly Issue: February 1: We’re selling PayPal (PYPL), leaving us with about 18% in cash, and we’ll look to invest that cash should the market resume its uptrend. We also write about the improvement in growth stocks, including many old favorites that are beginning to come back to life; we’re looking for real uptrends to develop before we buy.
Cabot Top Ten Trader
Weekly Issue February 6: The market remains mostly confined to its tight seven-week range, and until that changes, we’ll probably keep our Market Monitor at a level 7 (out of 10)--we’re still much more bullish than not, but would like to see the uptrend resume before getting more aggressive. That said, we’re very encouraged by what we’ve seen from earnings season thus far; many stocks have gapped up, and most have held those gains and are trading tightly since, both of which are great to see. Our Top Pick is strong chip stock Ally Financial (ALLY), which just exploded to 18-month highs on its second highest weekly volume ever.
Movers & Shakers February 3: Last week’s encouraging breakout by the major indexes turned into this week’s retreat, although this morning’s jobs-related rally is good to see. Overall, of the five major indexes we track regularly, one is looking fine (Nasdaq), but the other four have made hardly any progress during the past seven weeks.
Cabot Undervalued Stocks Advisor
Monthly Issue February 7: Today’s featured stocks include Vertex Pharmaceuticals (VRTX), Exxon Mobil (XOM) and a new addition to the Growth Portfolio, Martin Marietta Materials (MLM). Crista also mentions four additional growth stocks, which she encourages you to research on your own and ask her about.
Cabot Stock of the Week
Weekly Issue February 7: Tim’s recommendation today is Square (SQ), which has a unique brand and business, which big investors will often pay up for. The issue also includes two ratings changes: Adobe (ADBE) Buy to Hold and Biogen (BIIB) Hold to Buy.
Cabot Emerging Markets Investor
Bi-weekly Update February 2: The Emerging Markets Timer continues to flash a buy signal, as the iShares Emerging Markets Fund (EEM) remains above its lower 50-day moving average. We have no changes in the portfolio today.
Cabot Benjamin Graham Value Investor
Special Bulletin January 31: Biogen (BIIB) will spin off its hemophilia division to Biogen shareholders on February 1, 2017. For each share of Biogen, stockholders will receive two shares of the new company, called Bioverativ (BIVV).
Monthly Value Issue February 2: This month’s Cabot Value Model contains a diversified list of buy recommendations, with a focus on stocks featuring low price to earnings ratios, high growth prospects and generous dividends. These companies will prosper whether the stock market continues to meander, or if stocks rise or fall.
Weekly Update February 3: Twelve of my Benjamin Graham companies reported quarterly financial results or other noteworthy news during the past week.
Cabot Dividend Investor
Special Bulletin February 3: Today we’re providing special updates on four stocks that have made significant moves since our last update: General Motors (GM), Mattel (MAT), Automatic Data Processing (ADP) and UPS (UPS).
Weekly Update February 8: Investors looking to put money to work will find the best options in the Dividend Growth and Safe Income tiers; Carnival Corp (CCL), Costco (COST), Prudential Financial (PRU), U.S. Bank (USB), and Home Depot (HD) are all buyable today.
Wall Street’s Best Investments
Monthly Issue January 18: In our annual Top Picks issue, we celebrate the average return of 25.4% for our Top Picks of 2016, and our contributors pinpoint their Top Pick choices for 2017.
Daily Alert February 6: Buy Hawkins Chemical (HWKN) From Positive Patterns
Daily Alert February 6: Sell: WebMD Health Corp. (WBMD) From Positive Patterns
Daily Alert February 7: Sell: Dycom (DY) From BI Research
Daily Alert February 7: Buy: Hudson Technologies (HDSN) From BI Research
Daily Alert February 8: Buffalo Wild Wings (BWLD) From Validea Hot List
Wall Streets Best Dividend Stocks
Monthly Issue February 8: The Dow Jones Industrial Average finally managed to cross the 20,000 milestone near the end of January, but has stayed in a trading range since then, due to uncertainty and backlash over the new administration’s flurry of executive orders.
Daily Alert February 6: Buy General Electric Corp. (GE) From Argus Weekly Staff Report
Daily Alert February 7: Trim CSX Corp. (CSX) From The Prudent Speculator
Daily Alert February 7: Buy Amgen (AMGN) From Dow Theory Forecasts
Daily Alert February 8: Boston Properties Inc. (BXP) From Barclays Capital Equity Research
This Week’s Q&As
Cabot Undervalued Stocks Advisor
Question: I have been an investor in the market now for about 2 years (my primary retirement money is in funds that our Financial Advisor addresses for us).
My stock portfolio is fairly diversified based on the advice I receive from Cabot. I’m 69 years old and have another year to work before I transition to more free time (by choice, I want to work some to stay involved). Our retirement income is secure.
1. My normal philosophy is to purchase stocks in lots of 100, and to keep those purchases under $100.00 per share. Right now I own 21 different stocks ranging in price from $5.73 to $123.00 (purchase price). 18 are 100 share lots and 5 are 50 share lots.
2. I keep noting your Buy Strong recommendations on GS, but one 100-share lot is $24,000!
3. I can purchase a few different “Strong Buy” stocks for that amount of money and have more diversification, but am interested in your view of the growth power of one GS vs three or four other lesser priced recommendations.
4. Also, do you have a recommendation of how much cash an account should have in it?
Crista Huff: My experience has shown me that the share price is NOT an indicator of future performance, but that EPS and P/E are good indicators. Therefore I’ll buy stocks with big share prices, without hesitation. (Long ago, I had a small cash balance in an account, and I bought ONE SHARE of Google. It turned out to be a wise investment.)
In my own portfolio, I buy random numbers of shares, focusing instead on the total dollars invested per stock. For example, if the maximum I’m willing to invest per stock is $10,000, I’ll begin with a $5,000 purchase. Then later, if the stock breaks out, or falls to price support -- both of which present good buying opportunities -- I’ll invest another $2,500. I am thereafter willing to purchase another $2,500 if a good buying opportunity arises. At that point I will not add to the position, because I don’t want to overweight my portfolio in any particular stock. (Keep in mind that I’m always trying to minimize the risk associated with stock investing.)
As for cash balances within equity accounts, that’s a personal choice. For me, I’m most likely to go “all in” during market corrections, because there are so many attractive opportunities during those times. And I’m most likely to accumulate cash when the market has a big run-up and/or appears overvalued.
Question: Your Cabot Undervalued Stock Advisor reports are very informative and helpful in my stock trading. Your frequent updates reflect the time and hard work you put into maintaining the quality of your reports.
If you will, I have a question re a stock. I can’t recall if NVCR was mentioned in any of your earlier reports; however, I bought this stock at 15.5/share and unfortunately did not sell on the drop and have a substantial loss.
Based on your knowledge, do you feel this stock will return to a price of around 15/share, within a reasonable timeframe? I realize the term “reasonable-time-frame” is subject to the investors’ status and is speculative.
Crista Huff: The essential problem with NVCR is that the company has no net income and is projected to continue losing money in 2017, compounded by price weakness throughout the pharmaceutical sector. My suggestion is to switch from NVCR to Vertex (VRTX), which is expected to have rapid earnings growth for many years to come, and has a price chart that has already begun to rebound.
I would not hold a stock that was not expected to achieve rising profits, because it would not attract institutional investors. Those are the folks who buy enough shares to move the share price upward.
Cabot Stock of the Week
Question: Tim, I’m ready to accept your challenge of doubling my account over the next 12 months. Now I need a little more info on how to do this. I have been an investor and subscriber to Cabot Growth Investors for many years. With that service the portfolio has at the most held 12 positions at one time.
Now with one stock recommendation a week, what is the investment plan? Let’s assume I have a $50,000 account. Buying 1 stock each week would mean buying about $1,000 of stock each week. That seems like it will be way too much diversification and result in market type returns, which of course will not double an account in 12 months. I realize that some of the positions will be sold along the way but I still see a portfolio with many positions. I can’t add much additional cash so how do I allocate the $50,000 to start?
Tim Lutts: While I do recommend 50 stocks a year, I don’t expect readers to buy every one—only those that are appropriate for their investment styles and goals. Furthermore, I limit the portfolio to 20 holdings, which means I am continually pruning.
With every issue, I explain this process, along with the goal of keeping the portfolio both high performing and diversified.
Thus, to start, you might divide your $50,000 into 20 slices, and proceed from there.
Cabot Emerging Market Investor
Question: I’ve gotten some videos that suggest that the EU will collapse, followed by Japan and the BRIC countries. I am not getting the gloom and doom from Cabot, and I tend to trust you guys more than the others. What do you think? Should I keep all of my EM stocks?
Paul Goodwin: Online commentators will say just about anything to get you to click on their stories. Mike and I pay zero attention to predictions of disaster and predictions of prosperity. The only thing you can be sure of is what’s happening right now, and you can learn all you need to know about that by looking at charts of the major exchanges.
In general, the only future event that causes us to change our behavior is an upcoming earnings report. We’re never wrong because we don’t predict. So hold on to your EM stocks until the charts tell you otherwise.
Question: As I subscriber to Cabot Emerging Markets Investor, I have been following ZTO Express and Tencent Holdings. I have been thinking of making an investment in both companies but not sure of the timing. I know you have ZTO on watch but it seems to bounce off the low 12s and Tencent is not mentioned since you issued a sell, but it looks like volume is picking up now. What are your thoughts?
Paul Goodwin: I agree that ZTO looks like it has found support at 12. But before I recommend it for the portfolio, I need to see some evidence that investors are ready to drive the stock higher. I see no evidence of that now. Personally, I would like to see the stock move past its old resistance at 14 on rising volume. I’m also keeping mind that ZTO is a relatively recent IPO, so higher volatility is to be expected.
TCEHY is a different matter. The stock ha bounced nicely from its late-December low and showed a positive volume spike on January 10. I think it’s buyable right now on any weakness. I considered adding it to the portfolio last week, but decided to go with Alibaba instead. Partly that’s because BABA is closer to clearing resistance. The rest is simply the scale of BABA’s business. But if you want to buy some TCEHY, I don’t see any absolute reason not to.
Question: Seaspan (SSW) was one of your favorite stocks months ago and has fallen badly since it reached the 20s. It seems to be reviving at this point. Questions: Do you feel the dividend at this high rate is still probable? Do you feel this stock will continue to rise? What risk factor do you see at this moment? Prior to the Korean bankruptcy, you felt very safe with this stock and it was a top selection for the long term.
Paul Goodwin: SSW looks like a pretty good rebound story. The company has come through the HanJin crisis in good shape and even bought four additional ships at attractive prices. Seaspan also has plenty of cash on hand to continue paying its dividend. (That’s the opinion of Cabot’s value expert, Roy Ward, who crunched the numbers for me.) And it agrees with Yahoo Finance’s estimate of $541 million in cash and CE on hand.
While the global economy isn’t exactly at the boil, and shipping rates remain under pressure, Seaspan has remained profitable (after-tax profit margin 19.4% in Q3). All in all, with the stock’s triple bottom and recent rally, it looks good to me.
I have no predictions on whether the price appreciation will continue, preferring to stick to what the chart actually tells me.
Question: Paul I can’t remember. Did we miss WB? Motley Fool must think they have more to run: “3 Hot Stocks to Buy in January”
Paul Goodwin: I’ve always liked the Weibo story. And, as you know, we had it in the portfolio from April 8 to November 8. But the real question isn’t whether WB is attractive. The question is whether it’s the best stock to buy right now. And I don’t think it is.
On the other hand, it’s a great stock to feature in a promotional email like “3 Hot Stocks for January.” The company is fundamentally sound, so it’s unlikely to backfire completely. And it has a really great story. I haven’t checked the P/E or other valuation metrics, but it’s probably not bad now.
But if you look closely at the chart, you see a stock that’s still tightening up after two intermediate lows without an intermediate high. So I’d hold off until we see evidence that the whales are getting interested.
Question: MOMO seems to be moving. Opinion?
Paul Goodwin: MOMO is moving, but there’s a ton of overhead at 23–25 from September and October. This may just be a reflection of a rally in the broader market. I think I’d hold off for now.
Cabot Dividend Investor
Question: If I buy BSJI or one of the other BulletShares funds and keep it until maturity would I lose money? Because if they raise rates, bond funds lose money.
Chloe Lutts Jensen: You’re correct that bond prices decline when rates rise. That’s why we own bonds through the defined-maturity BulletShares funds instead of traditional open-ended bond funds.
Traditional bond funds own bonds within a given maturity range, but don’t hold bonds to maturity. For example, IEI, the iShares Barclays 3-7 Year Treasury Bond Fund, holds bonds with maturity dates between 3 and 7 years from today. When the bonds’ maturity dates get closer than that (2020 bonds they own today for example) the fund has to sell them, at whatever price they’re trading at. That can result in the fund losing money if bond prices are depressed.
The BulletShares ETFs, by contrast, own bonds maturing in the year specified, and hold them until maturity. At maturity, the bonds are redeemed for their par value. So while declines in bond prices may affect the Net Asset Value of the ETF in the meantime, as long as you hold to maturity (and don’t pay too much) you can be relatively sure you won’t lose money.