Cabot Prime Pro Week Ending September 1, 2017
Cabot Weekly Review
In this week’s stock market video, Paul Goodwin talks about the market’s excellent week that pushed all three of the major indexes atop their 25- and 50-day moving averages. It’s not a complete all-clear signal, but it’s definitely a welcome bullish move. Paul runs through the leading sectors for the week and gives a couple of examples of strong stocks in each sector. He notes the recent strength of certain commodities, including gold, and reminds everyone to watch for the strongest charts.
Cabot Growth Investor
Other Stocks of Interest September 1: Follow ups to stocks featured March 29, 2017 (issue 1364) to August 30, 2017 (issue 1375). 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.
Bi-weekly Issue August 30: Mike adds GrubHub (GRUB) to the Model Portfolio, believing it can be a leading glamour stock of the bull market. Elsewhere in the issue, he discusses the recent long-term breakout by Chinese stocks.
Special Bulletin August 28: Veeva Systems (VEEV) closed below our mental stop of 58 on Friday so we’ll book our small profit today.
Cabot Top Ten Trader
Movers & Shakers Weekly Update September 1: Mike is encouraged by the action of the past two weeks, but not yet fully bullish. If the market and leading stocks can hold (or build on) their gains next week, then the odds would improve that the longer-term uptrend is resuming. At this point, he’ll likely bump up the Market Monitor a notch or two next Tuesday, and further strength could have him flooring the accelerator.
Weekly Issue August 28: This week’s Top Ten list is more varied than we’ve seen in recent months. In addition to growth names, we’re starting to see money move into materials as well. Our Top Pick is Alcoa (AA), a well-known metals stock that is just emerging from a consolidation thanks to spiking prices and cash flow.
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 September 1: Traders are betting on which stocks will rise and fall because of the tragedy in Texas. Here are some ideas.
Trade Alert August 31: Buy-Write: Buy Pulte (PHM) Stock and Sell the October 26 Calls (exp. 10/20) for a net of $25.15 or less.
Market Update August 29: Jacob updates his positions on Sprouts Farmers Market (SFM), Micron (MU) and Bank of America (BAC).
Position Updates August 28: Consumer Staples has been the out of favor sector recently, likely attributable to Amazon’s announcement that Whole Foods would cut prices on staples starting today, but options order flow tells Jacob to stay in our Sprouts Farmers Market (SFM) and Kraft Heinz (KHC) positions.
Weekly Market Update August 28: With earnings season almost completely over, traders this week will be focused on a slew of economic data including GDP, Consumer Confidence and Friday’s Jobs Report.
Daily Watch List: Order Flow Reading is a strategy Jacob uses to follow the biggest hedge funds or traders into their trades. These are recent large order flows that Jacob has spotted, plus two covered call ideas.
Cabot Undervalued Stocks Advisor
Weekly Update August 29: No ratings changes. Buy-rated stocks most likely* to rise more than 5% near-term: Alexion Pharmaceuticals (ALXN), Apple (AAPL), Blackstone Group (BX), Boise Cascade (BCC), Commercial Metals (CMC) and Molina Healthcare (MOH).
Monthly Issue August 1: Today’s featured stocks include Quanta Services (PWR) and two new additions to the portfolios: Weyerhaeuser (WY) and Alexion Pharmaceuticals (ALXN). Also, Tesoro (TSO) has officially changed its name to Andeavor (ANDV), and TiVo (TIVO) is a Sell.
Cabot Stock of the Week
Weekly Issue August 29: This week’s Stock of the Week is Planet Fitness (PLNT)—the stock is little known among investors, but the company has a national brand name and an excellent cookie cutter growth story. The stock recently reacted well to earnings and has tightened up a bit; we think the next big move is up. Sell GameStop (GME).
Cabot Emerging Markets Investor
Bi-weekly Update August 31: The iShares EM Fund is holding up well, staying comfortably above its 25-day moving average, so our Buy signal remains in place. While our stocks are holding up well, there’s a lot of sideways movement in the portfolio. We have no changes to the portfolio tonight.
Bi-weekly Issue August 24: While U.S. indexes have been choppy-to-down during the past few weeks, emerging market stocks remain in good shape and our Emerging Markets Timer is positive. Many of our stocks are doing great, but we are cutting our loss in our half position in NetEase (NTES), which is now a Sell. On the flip side, our new recommendation, Sociedad Quimica (SQM) looks like one of the best ways to play the general boom in electric vehicle production in the years ahead.
Cabot Benjamin Graham Value Investor
Weekly Update September 1: Roy summarizes the latest news on Walt Disney (DIS), Five Below (FIVE), Gilead Sciences (GILD), LyondellBassell (LYB) and Tech Data (TECD).
Monthly Value Model Issue August 31: The Cabot Value Model contains 16 securities this month with three new stocks: Apple (AAPL), Home Depot (HD) and Ross Stores (ROST). Three stocks transition out of the Model: Disney (DIS), FleetCor Technologies (FLT) and Lowe’s (LOW).
Special Bulletin August 30: Two of Roy’s stock recommendations, Gilead Sciences (GILD) and VMware (VMW), are approaching their Min Sell Prices but Roy’s September computer-generated price targets for the stocks will increase, so the stocks remain Holds.
Enterprising Model Issue August 10: Roy highlights five interesting companies that offer great promise, including Citizens Financial Group (CFG) which is the first bank in a very long time that he find’s truly undervalued. Ratings changes: Alliance Resource (ARLP) Buy to Hold, Avigilon (AVO.TO) Hold to Buy, Big Lots (BIG) Buy to Hold, Chicago Bridge & Iron (CBI) Buy to Hold, GNC Holdings (GNC) Buy to Hold, Greenhill & Co. (GHL) Hold to Sell, Spectra Energy (SEP) Hold to Buy, Stifel Financial (SF) Buy to Hold, Ulta Beauty (ULTA) Hold to Buy and WestJet Airlines (WJA.TO) Hold to Buy.
Cabot Small-Cap Confidential
Monthly Issue September 1: This month’s Cabot Small-Cap Confidential candidate is Tactile Systems Technology (TCMD), a medical device company that specializes in at-home treatment for lymphedema, a vascular disease in which the lymphatic system fails to work properly. It has a life altering product, and what appears to be a lucrative business model. Not only is the company making life better and more convenient for people with this chronic condition, it’s growing revenue by over 30% in the process.
Cabot Dividend Investor
Monthly Issue August 30: We’re trimming our portfolio a little further by selling GameStop (GME) and adding a healthy new financial stock, BB&T Corp. (BBT), to the Dividend Growth Tier.
Wall Street’s Best Investments
Daily Alert September 1: Calyxt (CLXT) from The Cutting Edge
Daily Alert August 31: Valmont Industries (VMI) from Positive Patterns
Daily Alert August 30: China Lodging Group (HTHT) from Cabot Stock of the Week
Daily Alert August 29: Cott Corporation (COT) from Internet Wealth Builder
Daily Alert August 28: Newell Brands (NWL) from DRIP Investor
Monthly Issue August 16: In this monthly issue, Nancy’s Spotlight Stock is Aegean Marine Petroleum Network (ANW), a company that operates in the Oil Services area. Beaten down by low oil prices, this company is pulling out all the stops to cut costs and expand into new geographical arenas—efforts that are attracting some very interesting institutional interest in its stock. Her Feature article further explores the strategies that the company and its new management team are applying to manage—and expand—the company’s footprint.
Wall Streets Best Dividend Stocks
Daily Alert September 1: Coca-Cola European Partners (CCE) from Argus Weekly Staff Report
Daily Alert August 31: Clorox (CLX) from Investment Quality Trends
Daily Alert August 30: Himax Technologies (HIMX) from Technology & Opportunity
Daily Alert August 29: T. Rowe Price Group Inc. (TROW) from Dividend Advisor
Daily Alert August 28: V.F. Corporation (VFC) from Canaccord Genuity Research
Monthly Issue August 9: Nancy’s contributors have found a very nice variety of investments for your consideration this month, beginning with our Spotlight Stock, AT&T (T), which has seen many economic and market cycles, and managed—even with a huge footprint—to keep up with technology and sector innovation and revolution. Nancy’s Feature discusses the coming disrupters in the telecom industry and focuses on the advantages that AT&T offers in this next cycle of change.
This Week’s Q&As
Cabot Growth Investor
Question: I see you have both Workday (WDAY) and ServiceNow (NOW) on your Watch List in Cabot Growth Investor. Whether it’s these two or two others, how do you generally decide between two stocks in the same group?
Mike: I simply apply the same analysis I do to any two stocks, looking for the best combination of story, numbers and charts. In this case, I am a bit biased toward NOW as they seem to have a good-sized chunk of a big market to themselves (or nearly to themselves), plus their free cash flow projections (and history of meeting or exceeding those projections) is also a plus.
I think your question might be more pointed toward two stocks that are in the same group, and that group is very homogeneous—like a copper stock or oil stock, something like that. In that case, when the group tends to swim together, I tend to favor (a) the strongest chart, (b) the largest earnings estimates and (c) anything proprietary one might have (a low-cost mine or exceptionally high well returns, etc.) versus their competition.
Cabot Options Trader
Question: What is your thought on USG Corp. (USG), the world’s largest sheet rock manufacturer. In reviewing their chart in 2005 when Katrina hit, their stock ran up to 99 by December 1. Prior to the August 23-31, 2005 hurricane, USG was trading at 40.
I am thinking about (1-2018) $34 Calls or (11-2017) $34 calls. Please let me know your ideas regarding this type of trade. I greatly respect your wisdom.
Jacob: It’s a great theory. And others are playing as well. Been big buyers of the following calls today:
October 31 for 1.10
October 34 for $0.33
September 31 for $0.70
Personally, I would go closer to the current stock price. A $4 move is pretty significant.
Maybe October 31 or 32 strike. Or perhaps November for those same strikes. It is unclear if earnings will fall in October or November expiration cycle, so I might lean toward November.
Cabot Undervalued Stocks Advisor
Question: I would like your opinion on USG Corp. (USG). With the devastation in Texas and Louisiana it is expected that tons and tons of sheetrock will be needed for quite awhile.
Crista: USG has flat EPS growth this year, but excellent EPS growth and low P/E for next year, so it’s been on my watch list for possible future inclusion in the portfolios. Regarding the hurricane, the stock is up about 13.5% in recent days. It could climb as high as 34 before its next resting period, giving it about 15% additional upside.
Cabot Emerging Markets Investor
Question: What do you think is driving the downward moves in BZUN, HTHT, MOMO, TAL and other Chinese stocks Friday? Time to take profits??
Paul: I wouldn’t do anything broad at the moment. Except for Baozun (BZUN), which I no longer have in the portfolio, the other stocks you mention all look quite sound. There’s been a little correction in emerging markets—especially in Chinese issues—but there hasn’t been a breakdown in either the market or individual stocks.
I think the Friday moves were partly profit taking and partly a few big investors raising cash to fund moves in September.
Question: What are your thoughts on Weibo (WB) and 58.com (WUBA)? Is there a concern of too much concentration in Chinese positions?
Paul: I like both WB and WUBA. They are familiar companies with good management and solid revenue and earnings growth. I don’t have them in the portfolio right now, but may include them soon.
Since the portfolio for Cabot Emerging Markets Investor is considered to be fully invested when it has 10 stocks, it’s always a challenge to make selections when markets are doing well. I worry a little about stocks that have been going up for months—like WUBA—or stocks that have run from 67 to 100 like WB. I like stocks with positive momentum, but also want to find solid entry points.
These are much nicer problems to have than the challenges that come with a market in decline, but they’re still challenging.
I usually say that I try to be blind to the portfolio’s exposure to countries or sectors, and that’s true. After all, China’s economy isn’t like any other economy in the world, and the opportunities for companies that operate there are enormous. So it’s natural to have a heavy concentration of our capital there.
The bottom line is that I worry about everything, but still try to buy the best stock available as each issue comes out.
Cabot Benjamin Graham Value Investor
Question: Do you still consider GNC a hold since they have cut their dividend? Any idea when to expect an uptrend for this stock. (from subscriber S.P.)
Roy: GNC Holdings (GNC 8.30) reported second-quarter results that showed some noticeable improvement. The stock initially rallied to 11 before falling back to the current level. GNC’s new management is making good progress, but investors are waiting for quarterly comparisons to turn positive. I expect sales and earnings improvement to start in 2018, and expect investors to recognize the brighter outlook and send shares higher in the fourth quarter. GNC is one of the most undervalued stocks in my database. Hold.
Question: I was hoping that you would give us some guidance on the Triumph group. Seeing how they issued bonds at a whopping 7.5% interest rate, I’m a little concerned. (from subscriber L.A.)
Roy: Triumph Group (TGI 26.30) needed to draw cash from a bond sales to pay off part of its debt.
The company has $898 million in debt due within five years, so the $500 debt offering will pay off a big chunk of the company’s short-term debt load. The new debt is due in 2025 and comes with a hefty price tag of 7.75%.
=The new interest rate is considerably higher than the company’s average rate of 5.3% and will add up to $0.25 per share in extra interest expense annually during the next eight years. Analysts are now forecasting EPS of $1.71 for 2017-2018 (fiscal year ends March 31, 2018), then $2.92 for the following year, and $3.73 three years out. The added expense will hurt the current year’s results, but won’t be as noticeable in subsequent years.
The new debt will strengthen Triumph’s balance sheet, but weaken its income statement. On balance, this is slightly negative for shareholders, but I will continue with my Hold opinion for long-term investors based on my forecast of solid sales and earnings growth during the next three years.
However, short-term investors might want to avoid TGI, after the company recently reported very weak sales and earnings, forecast weak results during the next 12 months, and is now adding substantial interest expense which will make matters worse. Long-term: Hold; Short-term: Avoid.