Cabot Prime Pro Week Ending June 30, 2017
Cabot Wealth Summit
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Cabot Weekly Review
In this week’s market video, Mike Cintolo takes a deep dive into the market’s selloff this week, relaying all the good and bad he’s seeing and advising on how to adjust to it. (Hint: Trimming your sails makes sense, but not wholesale selling.) He also highlights areas that are attracting money now, plays out a few scenarios for the market in the weeks ahead, and shares some stocks that are showing excellent relative strength—names that could be leaders if this turns out to be a month-long shakeout.
Cabot Growth Investor
Special Bulletin June 29: In the Model Portfolio, we’re taking one small action today, selling one-third of our remaining shares of Shopify (SHOP), as the stock continues to come under distribution after a big run. The partial sale will boost our cash position to around 25%.
Bi-weekly Update June 28: Our trend following indicators remain bullish and most growth stocks are still in good shape, so Mike is sticking with his current stance. Mike’s only change tonight is that he’s placing Universal Display (OLED) on Hold. Our cash position stands at 22%.
Bi-weekly Issue June 21: Our trend-following indicators are both positive, and the vast majority of leading growth stocks are holding support. Thus, we remain mostly bullish, but we’ll simply take our cues from the market going forward. Mike gives his latest thoughts on each of our stocks and takes a deep dive into the issue of handling big winners—a skill that few practice, but done right, it will make a huge difference in your portfolio.
Other Stocks of Interest June 23: Follow ups to stocks featured January 18, 2017 (issue 1359) to June 21, 2017 (issue 1370). Since they’re not in the Model Portfolio, you don’t see them followed on a regular basis. However, we are monitoring these stocks, and this listing gives their current momentum status.
Cabot Top Ten Trader
Movers & Shakers Weekly Update June 30: We have seen some rotation and some opportunities appearing in sectors like biotechs and financials. We’d be careful buying off-the-bottom stuff like energy stocks, which are still in overall downtrends. And if the Nasdaq really keels over, our guess is that even the newly strong areas will fall with it, at least for a bit.
Weekly Issue June 26: We’re seeing some rotation in the growth arena—late-stage areas like chips look iffy, but we saw some big breakouts last week in biotech and this week’s Top Ten has a few other new names that look enticing. Our Top Pick is Celgene (CELG), a big-cap leader in biotech’s new uptrend.
Cabot Options Trader and Cabot Options Trader Pro
Note that the current week’s Weekly Update, earnings updates, position updates and stocks on watch are posted on the website in the Market Update section, which is deleted each week.
Market Update June 29: Because of the extreme selling in the Nasdaq today, Jacob is debating whether to exit a position, but he can make a good case for keeping all our positions. That said, if the selling continues into the close, and the market opens weak again tomorrow, he will sell a position and raise cash.
Position Update June 28: Cypress Semiconductor (CY) is trading higher by 8.5% today at 14.35, its highest level since late April, following an upgrade from Barclays this morning.
Trade Alert June 28: Buy Unisys (UIS) Stock and Sell August 13 Calls (exp. 8/18) for a net of $12.20 or less.
Market Update June 27: Round two of growth stock selling is hitting today as the wild sector rotations continue. The Nasdaq is trading lower by 1.5%, led down by the Semiconductors (SMH) and Biotechs (XBI) which are falling by more than 2% each (the exact opposite of last week’s action).
Weekly Update June 26: With the start of earnings season approximately three weeks away and little economic data this week to shake the market, traders will be focused on the continued gyrations below the market’s surface.
Cabot Undervalued Stocks Advisor
Special Bulletin June 29: As expected, the Federal Reserve reported on the capital plans of 34 U.S. banks yesterday, following the annual stress test. Of the dozen banks that Crista reviewed, the best stocks to buy today are Bank of America (BAC) and KeyCorp (KEY).
Weekly Update June 27: KLX (KLXI) joins the Growth Portfolio as a Strong Buy and TiVo (TIVO) moves from Strong Buy to Hold.
Monthly Issue June 6: The market seems to be lending itself to more bullish price action in June, and Crista is looking forward to making money this month. Today’s issue features Cavium (CAVM), Schnitzer Steel (SCHN) and Invesco (Ltd), which is a new addition to the Growth & Income Portfolio. There’s also one rating change: Thermon Group Holdings (THR) moves from Hold to Sell.
Cabot Stock of the Week
Weekly Issue June 27: Today’s recommendation is steel stock, Schnitzer Steel (SCHN). It’s a sector that nobody is excited about, but the value proposition is great, and the stock has just blasted off following an excellent earnings report. As to our current holdings, overall, the progress has been great, but Tim does have a few rating changes. Tesla (TSLA) and Weibo (WB) are downgraded to Hold, while Ulta Beauty (ULTA) is downgraded to Sell.
Cabot Small-Cap Confidential
Weekly Update June 30: There’s been some turbulence in our portfolio this week, but nothing we haven’t experienced at some point in 2017. Small caps are up 1% from last week, and would have been up more if not for another bout of selling in technology stocks yesterday. No ratings changes.
Monthly Issue June 2: This month’s stock, AppFolio (APPF), has a cloud-based software solution tailor-made for property managers. It’s growing revenue by more than 30%, has no debt, is on track to become profitable this year, and the chart is solid. Tyler believes the company will ultimately be sold, hopefully at a nice premium to where shares trade today.
Cabot Emerging Markets Investor
Bi-weekly Issue June 29: While the Cabot Emerging Markets Time remains technically positive, there’s no doubt that all EM stocks, including many of our own holdings, have been under pressure in recent weeks. Paul is taking steps today to lower our exposure by selling Weibo (WB) and half our JD.com (JD) position, but he’s also adding a strong Korean stock, LG Display (LPL), to the portfolio.
Cabot Benjamin Graham Value Investor
Weekly Update June 30: Roy recommends selling Whirlpool (WHR) and summarizes the latest news for Chicago Bridge & Iron (CBI), Gilead Sciences (GILD) and Nike (NKE).
Special Bulletin June 27: Based on new data and improved prospects, Roy is raising his Min Sell Price for Gilead Sciences (GILD) to 79.79 from 71.83.
Enterprising Model Issue June 15: Roy initiates coverage on Thor Industries (THO), which is thriving in the recreation vehicle sector. Demand far exceeds supply in this industry, and Thor is adding two new manufacturing facilities to meet record new orders which have nearly doubled from a year ago.
Monthly Value Model Issue June 8: This month’s Cabot Value Model contains a wide variety of stocks, with a slight focus on companies in the technology and financial sectors. Roy features four companies and one ETF (exchange traded fund): Walt Disney (DIS), Facebook (FB), T. Rowe Price (TROW), UnitedHealth (UNH) and WisdomTree International Hedged Quality Dividend Growth ETF (IHDG).
Cabot Dividend Investor
Monthly Issue June 28: Chloe is adding Welltower (HCN), a very income-focused play on the healthcare sector, to the High Yield Tier. There are no rating changes in the portfolio, although Verizon (VZ) has weakened and could be sold soon. On the buy side, Broadridge (BR), Carnival (CCL), and Wynn Resorts (WYNN) still look strong, and 3M (MMM), Cummins (CMI) and Pembina (PBA) are offering good buy points.
Wall Street’s Best Investments
Daily Alert June 30: NMI Holdings (NMIH) from Cabot Stock of the Week
Daily Alert June 29: Alphabet (GOOGL) from Hendershot Investments
Daily Alert June 28: Optex Systems (OPXS) and (OPXXW) from S.A. Advisory
Daily Alert June 28: Quadlogic Control Corp (QDLC) from S.A. Advisory
Daily Alert June 27: Innodata (INOD) from Contra the Heard Investment Letter
Daily Alert June 26: Goldcorp (GG) from Adrian Day’s Global Analyst
Monthly Issue June 21: While the Dow Jones Industrial Average has gained some 700 points since our last issue, our contributors and advisors, in general, remain bullish. Our Spotlight Stock is Extreme Networks (EXTR) and Nancy’s feature further examines the networking industry and the phenomenal potential of the company as applications continue to expand for its products and services.
Wall Streets Best Dividend Stocks
Daily Alert June 30: Altria Group (MO) from Positive Patterns
Daily Alert June 30: Optex Systems (OPXS) and (OPXXW) from S.A. Advisory
Daily Alert June 29: Texas Instruments (TXN) from Dividend Advisor
Daily Alert June 28: Greenhill & Co. (GHL) from Cabot Benjamin Graham Value Investor
Daily Alert June 27: Mattel (MAT) from Cabot Undervalued Stocks Advisor
Daily Alert June 26: Prudential Financial (PRU) from Cabot Dividend Investor
Monthly Issue June 14: Our issue this month is packed with a variety of great investing ideas, beginning with our Spotlight Stock, Western Digital (WDC), a company that is helping to manage Big Data requirements around the world. My Feature examines the opportunities ahead for this industry and company in more detail.
This Week’s Q&As
Cabot Growth Investor
Question: Mike, we’ve clearly seen a lot of growth stocks getting hit, but what do you think are the odds that this is quarter-end stuff that will be reversed as we head into July?
Mike: Honestly, I try not to think about that. Or, check that—I do think about that, but I don’t act on it. Stuff like that is something that you can never know except in retrospect, unless there is some consistent historical pattern (which in this case, there isn’t).
Really, it’s fine to be open to many scenarios (and to think of them ahead of time and how you’d react to them), but it’s best to just go with the evidence you see in front of you. In this case, after a long run, many growth stocks are showing wear and tear over the past few weeks, with some breaking down. Thus, we’ve raised a little more cash and are taking our cues from the market going forward.
Cabot Undervalued Stocks Advisor
Question: I would like to know your outlook on Zion bank.
Crista: Zions Bancorp (ZION) is one of my favorite bank stocks. The company is experiencing strong profit growth, including EPS growth rates of 29.6% and 15.9% in 2017 and 2018. The stock is undervalued.
Zions was one of the many banks whose capital plans were approved on June 28 by the Federal Reserve. Here’s Zions’ plan to increase the dividend and repurchase shares in the coming year, as reported by Fox 29 WFLX: Zions’ capital plan for the period spanning July 1, 2017 through June 30, 2018 includes the following capital actions:
Increasing the common dividend to $0.24 per share by Q2 2018, following the path of:
$0.12 per share in Q3 2017
$0.16 per share in Q4 2017
$0.20 per share in Q1 2018
$0.24 per share in Q2 2018
This schedule indicates approximately $140 million in total common dividends over the four-quarter period.
Up to $465 million of common stock redemption.
The current dividend yield is 0.73%. The payout is expected to triple during the coming year.
The stock had a big run-up in late 2016, and thereafter proceeded to trade sideways between 39 and 46 this year. ZION is most likely to rise past 46 this year if we see a sector rotation out of tech stocks, if the broader market continues reaching new highs, if interest rates continue to rise, and/or if Congress lowers income tax rates.
Cabot Stock of the Week
Question: I know we bought Ulta Beauty (ULTA) because of Mike’s recommendation, but you mentioned that Roy was also recommending it. As a growth stock, it should be sold, but is Roy still holding or did he decide to sell also?
Tim: Thanks for asking. Roy remains unmoved, as he should be. The fundamental long-term case for investing in ULTA remains intact. But as I explained in my intro, I have to work to keep the portfolio at 20 stocks or fewer, and the recent loss of momentum by ULTA means the stock’s fruition will now take more time than previously expected—and that makes it the one to be cut from the Cabot Stock of the Week portfolio this week. What you do in your own portfolio depends in part on how patient you can afford to be.
There’s no question that Roy’s system works. It just takes time. For example, just last week Roy recommended selling Oracle (ORCL). Here’s what he wrote to his subscribers.
“Oracle exceeded its Minimum Sell Price of 48.62 on June 22. The company recorded solid sales and earnings for the quarter ended May 31. Sales advanced 3%, EPS climbed 10%, and cloud revenue surged 64%. ORCL jumped 10% following the report and the stock is now overvalued.
“Oracle was first recommended in April 2006 at 13.73. The company was featured in the Cabot Value Model using the Modern Value analysis. ORCL has climbed 275.89% in the past 134 months compared to a gain of 88.14% for the Standard & Poor’s 500 Index during the same time period. Holding high-quality stocks for long periods of time pays off! I recommend that you sell your ORCL shares now, though. SELL.”
That 11-year investment was an unusually long one, even by Roy’s standards. Typically, his stocks are held for two years. But it paid off!
Cabot Small-Cap Confidential
Question: I took a half position of APPF at 30.78 when you first recommended it. Should I buy another 25 % position in here or wait?
Tyler: As you know, I can’t give individual advice that’s quite that specific. And in reality, your guess is probably about as good as mine as to whether buying more here makes sense or not in the short term. That said, a few general thoughts:
I like the company a lot, it’s in a good industry, has a good business model, and the stock has been powerful for some time. I think the market cap size (roughly $1 billion), revenue and growth rate, and cloud software business model positions APPF about as close to the sweet spot for growth investors as you’ll find (big enough to attract larger investors/funds, but small enough to offer years of growth). Downside is valuation being a little stretched, but that’s the case in just about all stocks like this, so the downside risk (in my opinion) is more market specific than stock specific.
The next hurdle for it to get over (from a fundamental perspective) is to show that it can continue to expand its customer count, especially among clients that manage large numbers of units (it’s making good progress). I would also like to see progress in the legal business (along with new add-on services) so that acquisition is accretive to the big picture (but I suspect it will take time).
The stock is trading near the high end of its range (using Bollinger Bands, 20 days, 2.0 standard deviation), and relative strength (RSI) shows it a little extended as well. That said, these same conditions occurred in August of last year and the stock’s up about 90% since, so keep that in mind.
Pulling it all together, my advice is about the same as in the Weekly Update. I think it can be bought here but in smaller amounts. And it sounds like that’s what you’re thinking too. Again, I think the biggest risk is of a broader market decline, which I wouldn’t be remotely surprised to see. But that can be managed by willingness to reduce position size accordingly and maintaining tighter stops.
Cabot Emerging Market Investor
Question: Paul I used to love roller coasters. Roller Coasters had one big hill but the Nasdaq is climbing a big hill and falling every day. Never seen anything like it. It just keeps descending today with the only support I see 3 months ago. My portfolio full of growth stocks is down 4.40% and falling. Most of my stocks have not broken 50 day but getting close. I‘ll be waiting to hear from you and Mike for wisdom. Is this a perfect storm, a normal sell off, crazy scared institutional sellers? I did hear that institutions were rebalancing portfolios at the end of quarter so maybe they are taking profits out of growth stocks and tech stocks in particular.
Paul: I’ve always said that growth investors are almost as happy being out of a down market as being in during a rally. At least during a bear phase, you know exactly what you need to do. But when you have good profits and the market gets squirrely, decision making can be tough.
As always, the important thing is to know what you’re going to do ahead of time, i.e., have your stops in place. Don’t let the market put a hole in your pocket that keeps leaking.
Today, I’m selling WB and half of JD. And I’ll keep trimming exposure as long the market is pulling prices lower. But it’s the action of the stocks that’s really driving decisions.
Question: Have you looked at Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (EDN) as a possible position?
Paul: The company certainly has plenty going for it, including analysts’ estimates of positive earnings in 2017 (after a $1.81/share loss in 2016) and 275% EPS growth in 2018. The main obstacle to including EDN in the portfolio is that it trades just an average 54,000 shares a day. That’s pretty far below the minimum 200k to 300k I like to see to ensure liquidity. If not for that, if the stock can achieve positive momentum after its dip from 37 in April to 31 in recent trading, it could be a candidate. I note also that the stock went through an extended period of flat trading from July 2014 to August 2016, beginning and ending that period under 17.5. The recent more than doubling in price to 37 in April may have worn out the buyers for a while. We’ll see.
Cabot Benjamin Graham Value Investor
Question: I’m concerned about GHL. The short-term 10 day moving average is now below the 50-day moving average. I realize it can be volatile, depending on large fees that the company earns on mergers and acquisitions, but GHL has dropped a great deal since March’s buy recommendation.
The new directors added in the first quarter added cost, but what about revenue?
With reduced revenue, increased costs and reduced net and cash flow, the company must be borrowing money to pay the high dividends. If so, and with interest rates going up, if they decide to reduce dividends, the perceived value would definitely, I believe, see more selling of the stock. Buy, sell or hold? (from subscriber G.H.)
Roy: I like Greenhill & Co. (GHL 20.25) for several reasons. The stock has declined 10% during the past 10 days and is now selling at 11.2 times latest 12-month EPS. The company posted weak first quarter results, but management reported that revenue and earnings in April more than made up for the short-fall in the first three months.
Greenhill is gearing up for the future even though M&A activity has stalled. The company added seven new managing directors year to date to bolster its M&A team. The added members will add cost and additional revenue will be slow to develop. Noticeably better revenue and earnings should begin to develop in the fourth quarter, though. Another problem facing the company is that merger and acquisition activity has slowed as companies wait for President Trump’s tax and regulation policy to evolve (or not evolve). Predicting how Trump’s agenda will play out is difficult, but M&A activity has picked up noticeably this month.
I am not in favor of Greenhill’s current dividend policy. In my opinion, quarterly dividends should be based on earnings and fluctuate accordingly. The company’s balance sheet is solid, but the high dividend payout is limiting extra growth. GHL shares dropped to 15.60 a year ago, but I believe the stock will climb higher during the next six to 12 months. If the company reports better revenue and earnings for the second quarter, I will probably raise my opinion to Buy. For now, Hold.
Cabot Dividend Investor
Question: You had recommended CMI at the end of April. I would like to purchase it, however, I don’t have any additional money in my portfolio. I had decided to sell PRU to purchase CMI when it started to spike (6/5) and I changed my mind thinking perhaps it was time for the market to rotate back into financial stocks. After the last 2 days, I’m rethinking THAT decision.
What is your opinion? Should I sell PRU to buy CMI or just keep PRU and not buy CMI?
Chloe: Good question! PRU and CMI have definitely had their ups and downs recently. But in terms of short- and medium-term constructiveness, I think CMI looks better right now. The stock is in an uptrend, recently hit new highs, and analyst estimates are rising. The current pullback to the 25-day moving average looks like a pretty good buy point.
Unfortunately that means selling PRU near the bottom of its trading range. If you had time, I’d say wait until PRU was back to 110 and then sell—the 102 to 110 bounce has been pretty reliable lately. But if you have a profit in PRU here, there’s no harm in taking it and putting the money to work in a more constructive stock.
Question: I read your article today about restaurant stocks. I looked up Cracker Barrel because it sounded like your favorite. B of A has it listed as underperform, and their target price is $12 less than the current price. What do you think? Is it a good thing to add to my IRA?
Chloe: As always, the advice in Cabot Dividend Investor is my best ideas, and the free articles are additional ideas.
But if you want to add a restaurant stock, QSR and DRI are actually my favorites. Both have better growth prospects than CBRL.
CBRL does have that nice steady dividend, and the special dividends. And margins are improving. But the stock has no momentum. That could change soon—CBRL is at the top of its trading range, and a breakout is possible. I’m sure B of A would change their target price when that happens.