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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 168

Today’s recommendation is a classic steelmaker that has great growth prospects as the U.S. economy speeds along and protectionist measures improve our country’s competitive position. Also, the stock is cheap, so downside risk is limited.

Cabot Stock of the Week 168

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The market remains in a strong and broad uptrend, and thus I continue to recommend that you be heavily invested in a portfolio of stocks that help you meet your investment goals. At the same time, I want to issue a note of caution. The strong uptrend that we’ve enjoyed recently will not last forever. At some point, a major correction will get under way. And it’s best to prepare for that event before it hits you. The bottom line is that every time you buy a stock, you should know what will trigger a sell of that stock, and if you don’t know, now is a good time to figure it out. The Cabot website has a lot of information on strategies for selling both growth stocks and value stocks, and I urge you to do the research now, before you need it. As for today’s stock, it was originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor. Here are Crista’s latest thoughts.
Nucor (NUE)

Japanese steel and aluminum maker Kobe Steel announced on October 8 that it falsified data in products used by about 200 companies, putting into question the safety and reliability of cars, aircraft and space rockets. Affected companies include Boeing, Mitsubishi Heavy Industry and Toyota Motor. Kobe Steel stated that the deception might have been occurring for up to 10 years!

A Japanese industry leader commented, “These are improper actions that could shake the foundation of fair trade.”

News flash: the foundation of fair trade has been shaken for so long that it’s now supported by a wheelchair. The U.S. steel industry was already battered by a long list of egregious trade practices, including BAT taxes, VAT taxes, tariffs, currency manipulation, illegal dumping and cheating in the area of automobile rules of origin, which all serve to favor foreign steel producers and inhibit U.S. competition.

Fortunately, the new U.S. Trade Representative Robert Lighthizer has extensive experience in international trade, and is well aware of the problems that lead to trade deficits and the solutions that can bring about balanced trade. Lighthizer landed in Washington D.C. and jumped into action. His office is in the process of renegotiating NAFTA and KORUS. In addition, unfair trade practices led to the Trump administration’s Section 232 investigation into the national security implications of steel imports.

The political apple cart has been upset. You’re not likely to hear anything positive about the aforementioned negotiations and investigations from the mainstream media. But for American industry, it’s win-win. Any progress leading to more fair or balanced trade, no matter how small, will enhance American manufacturing. In fact, even the threat of such discussions can cause U.S. trade partners to scale back illegal dumping and other forms of trade cheating.

There might be no U.S. industry that’s been more damaged by illegal dumping than the steel industry. But a turnaround is firmly in place! As typically happens when industries are emerging from downturns, the companies begin thriving financially long before share prices recover, creating incredible opportunities for investors who yearn for capital gains.

Look no further than Nucor (NUE – yield 2.7%), a low-cost producer of a diversified portfolio of iron and steel products. Despite all the talk of improvements in economic, political and trade landscapes, Nucor is thriving without relying on “what ifs” and “could bes.” Strong global industrial demand and a weak U.S. dollar are contributing to Nucor’s multi-year double-digit earnings growth. The company’s earnings per share (EPS) grew 27.7% in 2016, and are expected to grow another 73.5% and 14.3% in 2017 and 2018. Those are huge earnings growth rates, able to stand proudly alongside your favorite FAANG stocks.

Want more good news? Unlike FAANG stocks that can have astronomical price/earnings ratios (P/Es), Nucor’s 2017 and 2018 P/Es are only 14.2 and 12.5.

But wait, the news gets better! Any of the following economic scenarios will serve to increase Nucor’s product demand and profits: post-hurricane rebuilding, a new infrastructure bill and lower U.S. corporate income tax rates. In addition, history has shown that increases in the price of oil are typically followed by increases in industrial production.

Nucor’s dividend yield is attractive at 2.7%, and the long-term debt-to-capitalization ratio is low at 25%. The growth, value, dividend and price chart situations make this mid-cap stock attractive to virtually all types of stock investors … except maybe the bears!

NUE hit a high of 65 in December 2016, and then pulled back in 2017 along with most industrial stocks. That previous peak is now our price target. I’m recommending that traders buy NUE today for approximately 18% upside. NUE will still be an undervalued growth stock at 65, and therefore it’s also an attractive stock for longer-term investors. BUY.
Nucor (NUE 55)
1915 Rexford Road
Charlotte, North Carolina 28211
704-366-7000
www.nucor.com

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CURRENT RECOMMENDATIONS

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In a strong bull market like this, keeping the portfolio limited to 20 stocks is a challenge, particularly since I add a new one every week. But I believe the discipline involved in culling the herd has actually strengthened my game a bit, because it makes me work hard to identify the lowest-potential stocks. Today the task of identifying the “biggest loser” was easy; JinkoSolar bites the dust. Details below.

Autohome (ATHM), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, rebounded to its 50-day moving average last Wednesday and has been tracking it closely since. Short-term, the stock may need more time to process the company’s recent abrupt change in leadership, but long-term, the bright future of the company should eventually get it back on the upward track. In his latest update, Paul wrote, “With the Chinese automobile market booming, Autohome has a very bright future, but I’ll keep the stock rated Hold until I see confirmation that investors are supporting the stock.” HOLD.

BB&T Corp. (BBT), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, ran into resistance at the 48 level in February and September and just last week. But as it gathers its strength at the current level, I’m confident that’s it’s only a matter of time before we see a breakout to new highs. In her latest update, Chloe wrote, “BB&T Corp is a regional bank offering a broad range of financial services in the U.S. south, the mid-Atlantic region, Texas and some of the Midwest. The stock has started to make up for its recent underperformance, advancing 5.0% over the past two weeks vs. the financial sector’s 3.6%. Financials are likely to continue to advance as long as interest rates remain firm, and I think dividend growth investors can buy BBT on pullbacks.” BUY.

Biogen (BIIB), originally recommended by Roy Ward in Cabot Benjamin Graham Value Investor, hit a record high yesterday and notched another new high today. Roy’s old Minimum Sell Price in Cabot Benjamin Graham Value Investor was 362, but Roy is now enjoying his retirement, so we’ll see this week what his replacement, Azmath Rahiman, thinks of the stock. HOLD.

BioTelemetry (BEAT), originally recommended by Tyler Laundon of Cabot Small-Cap Confidential, has pulled back normally over the past week, offering you a buying opportunity. In his latest update, Tyler wrote, “Jim Cramer came out in support of the stock, and had the CEO in studio for an interview this week. The video is available on Yahoo! Finance (click here). It’s worth watching.” BUY.

Broadridge Financial Solutions (BR), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, hit another new high today. In her latest update, Chloe wrote, “Broadridge is a tech company that provides information and services to financial companies. BR has remained above 80 since its breakout a week and a half ago, and hit a new 52-week high yesterday. BR looks very healthy, and dividend growth investors who don’t own it can buy a little here.” Alternatively, if you’re in the mood for trading, taking a 10% profit after just two months would be fine, too. The stock is unlikely to maintain this rate of ascent. BUY.

Celgene (CELG), recommended by Roy Ward in Cabot Benjamin Graham Value Investor, sold off big after an analyst downgrade last week, but remains above its 50-day moving average. Roy’s Minimum Sell Price was 173, so it’s still worth holding on that basis, and Mike Cintolo still thinks the stock is attractive on a growth basis. Later this week, we’ll get Azmath’s opinion on the stock. HOLD.

China Lodging Group (HTHT), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is the biggest hotel chain in China, yet has a small share of the market; thus, growth potential is enormous. And investors have certainly noticed; the stock has doubled since late April, and hit another new high yesterday on big volume. Eventually a serious correction will be needed and in anticipation of that you might want to take some partial profits here. But I’ll keep it rated Buy as long as the stock keeps climbing. BUY.

Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here last week, is at a decent buying level here, though prudent investors will wait for a deeper correction. In his latest update, Mike wrote, “EXAS briefly spiked above 50 yesterday after one analyst bumped his price target, partly because he sees increasing re-order rates among physicians for Cologuard (which was one of the key points of contention by a short-selling outfit earlier this year).” BUY.

Facebook (FB), originally recommended by Mike Cintolo in Cabot Growth Investor, has bounced very impressively over the past two weeks. In hindsight, we can say the stock washed out some weak hands. In his latest update, Mike commented on the same pattern writing, “FB had a good-sized shakeout last Monday and a multi-day recovery since, but net-net, the stock hasn’t gone anywhere since late July. That’s not a horrible sign, and in fact, the immediate snapback last week is definitely a positive. But given the lack of movement, Hold is the appropriate rating.” HOLD.

JinkoSolar (JKS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, announced recently that “its practical sized (245.83cm 2) P-type multi-crystalline silicon solar cells reached the world’s highest conversion efficiency of 22.04%. It is the second time that JinkoSolar has broken this world record since October 2016.” Unfortunately, it takes more than first-class science to drive a stock, and in recent weeks, the stock of this Chinese solar power firm has suffered as investors fear that U.S. protectionist measures will cut into earnings. Today the stock fell through support just under 24, and while selling volume was light, suggesting that there’s a bounce ahead somewhere, I can’t wait. JKS is not only our weakest stock, it’s also our biggest loser, and one key strategy of successful growth stock investors is selling losers. SELL.

PayPal (PYPL), originally recommended by Mike Cintolo of Cabot Growth Investor, has rallied back strongly since selling off with the broad market three weeks ago, and last Thursday, the stock broke out to a new high. In his latest update, Mike wrote, “The stock has had some wobbles during the past couple of weeks, but so far, remains entrenched within a well-defined uptrend. At some point, the stock will have a “real” correction, but I continue to think PYPL is a liquid leader that’s relatively early in its overall uptrend. The next big event will likely be earnings, which are due October 19.” BUY.

Pembina Pipeline (PBA), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, is the highest-yielding stock in the portfolio, and while I don’t expect great upward movement from the stock, I do recognize that the stock has a long-term uptrend in place. Over the past week, the stock has pulled back to its 25-day moving average, and that provides a good (but not great) entry point. In her latest update, Chloe wrote, “Pembina completed its merger with Veresen, another Canadian pipeline company, last week. Management then immediately hiked the monthly dividend by 5.9%, as planned. The new dividend of 18 Canadian cents per month is currently worth about 14 U.S. cents, for a yield of 4.9%.” HOLD.

Planet Fitness (PLNT) originally recommended by Mike Cintolo in Cabot Top Ten Trader, has now pulled back to its 25-day moving average. Last week, I suggested such a pullback would present a good entry point, so if you’re not on board and you’re hungry for a classic mass-market growth stock, look no further. BUY.

Pulte Group (PHM), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth portfolio, has pulled back over the past week (after advancing for nine consecutive trading days), but remains above its 25-day moving average, so isn’t a great buy yet. In her latest update, Crista wrote, “Pulte is a U.S. homebuilder, and a very undervalued aggressive growth stock. Wall Street expects EPS to grow 30.2% and 30.0% in 2017 and 2018, with corresponding P/Es of 13.2 and 10.2. PHM has been slowly ratcheting upward since breaking out from a long-term trading range in July. There’s market talk that housing industry stocks are beginning to take the stage. In that light, PHM might surprise investors with significant additional capital gains in the coming months.” BUY.

Quanta Services (PWR), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, continues to trade extremely tightly just under the 38 level, where the stock found resistance back in February. It’s a fascinating chart. In her latest update, Crista wrote, “Quanta provides specialized infrastructure and network services to the electric power, oil and natural gas industries. PWR is an undervalued, aggressive growth stock. I expect PWR to rise to 38.5, where it traded in February, then rest again before climbing further. There’s 17% upside to my fair-value price target of 44.” BUY.

Sociedad Quimica y Minera de Chile (SQM), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is the biggest lithium miner on the planet, and recent weeks have brought both a blow-off top and a subsequent selloff, but the main trend remains up and today it looks as though the stock is settling into a basing formation in the upper 50s. In his latest update, Paul wrote, “The Chilean miner of lithium and other chemicals and minerals remains in play, not least because demand for lithium is expected to increase by 400% by 2025. The strength of the current rebound—as well as the volume that drove it—has been reassuring, but I’ll keep the stock’s rating at Hold until the stock calms down a little. HOLD.

Square (SQ), originally recommended by Mike Cintolo in Cabot Growth Investor, has now advanced for 11 consecutive days—powerful evidence of an institutional appetite for accumulation. If you haven’t bought yet, I recommend waiting for a lower-risk entry point. BUY.

Tesla (TSLA), a recommendation of Cabot Top Ten Trader, has been trading in a tightening range since June, with a high at 390 and a low at 300, so it’s now roughly in the middle of the range. But the stock’s long-term bias remains up, and a new report from Morgan Stanley, which raised its price target for the stock from 317 to 378, adds more weight to the bullish case. The report, which focused not on Tesla’s cars, but on the global need for huge new infrastructure investments to support the electric car revolution, noted that the firm already has a big lead in both charging stations and battery production and noted, “Tesla’s gigafactory in Reno, Nevada is by far the world’s largest battery manufacturing plant today. According to our numbers, we may need as much as another 100 of them by 2040… and that’s just to supply global EV sales penetration of 64%.” HOLD.

Vertex Pharmaceuticals (VRTX), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor in her Buy Low Opportunities Portfolio, has climbed from 147 to 157 over the past two weeks but remains at the lower end of its 12-week trading range. In her latest update, Crista wrote, “Vertex is an aggressive growth biotech company that corners the market in treatments for cystic fibrosis. VRTX is fairly valued based on 2017 EPS, but distinctly undervalued based on 2018 earnings projections. In addition, one major investment bank expects the company’s operating margins to rise from 17.4% in 2016 to 52.5% in 2020. The stock’s been trading sideways between 147.5 and 167.5 since its big run-up in July. VRTX is not yet showing readiness to rise above 168.” BUY.

VMware (VMW) is the third of Roy Ward’s value stocks in this portfolio, and it’s looking good, once again hitting new highs. Roy’s official Minimum Sell Price was 118.75, so I’ll continue holding, while awaiting the guidance of Roy’s replacement, Azmath. HOLD.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED OCTOBER 17, 2017

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