Surprisingly good earnings reports boosted many stocks in our portfolios in recent weeks, and the same factor has turned the trends of the major indexes favorable; it’s good to be invested.
But we must never grow complacent, and one way I reduce risk in the Cabot Stock of the Week portfolio is by diversifying by both industry group and investment style.
This week’s recommendation, for example, is a growth stock; it was originally recommended by Mike Cintolo in Cabot Top Ten Trader. But it’s in an industry that’s generally regarded as conservative, and where stocks are usually appraised on a value basis. I think you’ll enjoy it.
Cabot Stock of the Week 198
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Though most major indexes have yet to break out to new highs, trends are definitely improving. In fact, both our long-term and intermediate-term market timing indicators are now positive. Equally important, the stocks in our portfolio, for the most part, are doing well. But nasty surprises are common in this business, and one of the best ways to prepare for them is to hold a diversified portfolio, and to hold stocks for which there are more potential buyers than sellers—in other words, stocks that are not investor favorites. Which brings us to today’s recommendation, a growing but little-known company in the banking industry. The stock was originally recommended by Mike Cintolo in Cabot Top Ten Trader, and these are Mike’s latest thoughts.
Green Dot (GDOT)
Green Dot is a little-known financial services outfit (it’s actually a bank holding company) with a great story and an amazingly broad reach. In fact, the company believes it has the most widely distributed financial services and banking franchise in the U.S.! It works behind the scenes in most cases, but that’s been enough to produce an enviable track record of growth in recent years.
The company has both a product and a platform business. On the product side, Green Dot has a slew of offerings, though its core products are simple things like bank accounts, checking accounts, prepaid (and reloadable) debit cards and credit cards with a slew of perks. The firm has an ASAP direct deposit service (quicker deposits of paychecks and government benefits), for example, as well as a 5% cash back Visa card (albeit with a $100 annual limit on the cash back).
Interestingly, the firm’s distribution network for its products is amazingly large, with more than 100,000 (!) brick and mortar locations selling its cards, as well as online and app offerings.
There’s also Green Dot’s platform business, which it refers to as banking-as-a-service, which allows partners to develop customized banking and financial offerings for their customers. And Green Dot does more than just lend its technology platform; it also provides compliance, marketing, risk assessment and money processing services to clients.
One example is Apple Pay Cash (launched late last year), which is Apple’s peer-to-peer money transfer service (similar to Venmo for PayPal) that goes along with an Apple Pay debit card account. Customers can easily transfer money digitally (which goes on the card), though there’s a maximum of $20,000 per account, and that card can be used to purchase things using Apple Pay.
Walmart is also a Green Dot customer; its MoneyCard offers cash-back benefits for customers and allows them to pay bills and send money to another Green Dot card and has the same ASAP direct deposit features mentioned above.
There’s also Intuit’s Turbo card, which allows customers to direct deposit their tax refund right onto the card. In all of these examples, Green Dot basically runs everything from charging to clearing to money transfers—and collects fees in the process.
Green Dot makes money from transaction fees, recurring monthly account fees, interchange fees and interest income. And all four areas have been growing steadily as the company expands its partnership and reach.
In the first quarter, gross dollar volume loaded on all Green Dot cards and accounts totaled $11.7 billion, up 56% from a year ago, while purchase volume from those cards came in at $7.5 billion, up 36%. Other sub-metrics like cash transfers (at-the-register reloads of debit cards, etc.) totaled 10.1 million and active accounts rose 21% to just over six million (up 21%).
Revenues climbed 25% (though, backing out an acquisition last year, that figure was 16%), while earnings lifted 40%, and management is now looking for revenues to rise about 13% this year, cash flow to rise 18% and earnings to surge 37% or so, to nearly $3 per share.
All in all, Green Dot isn’t changing the world, but its offerings are pervasive and, thanks to its platform, the company is positioned to be one of the go-to providers of payment services to a variety of corporate clients in the future. It’s a solid story.
Investors agree as well. GDOT broke out of a big base in early 2017 and had an uninterrupted run through early November, when it tagged 65. While the stock had some ups and downs after that, it was sitting at nearly the same level in early May, having taken six months of consolidation to digest the prior upmove. Then came the Q1 earnings report two weeks ago, which topped estimates and sparked a strong gap up to new highs.
Like many stocks, GDOT has held those earnings gains (there is no selling pressure), but hasn’t built on them—yet. That will come in time, so if you like the story, and it fits your portfolio, this is a fine time to buy.
Green Dot (GDOT)
3465 East Foothill Boulevard
Pasadena, CA 91107
626-765-2000
http://www.greendot.com
CURRENT RECOMMENDATIONS
The addition of Green Dot to the portfolio brings the number of stocks to 20, my self-imposed maximum, so once again I ask myself whether there are any stocks that deserve to be sold. And the answer is no. Certainly, there are profit-taking opportunities for investors who are happy with short-term profits, or who want to free up cash for new opportunities. But in this portfolio, I try to keep things simple and avoid micromanaging position sizes. In fact, I don’t even discuss position sizes. I’ve found that every investor has their own risk tolerance, and thus you are the best judge of how to control risk in your portfolio. So, if you want to take some profits, go right ahead. And if you do, consider holding the cash until the next “shocking” drop comes along. Me? I’m sitting pat for now, though the addition of a new stock next week means I will have to sell one—and I may sell more!
AllianceBernstein (AB), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, has just notched five consecutive up days, thanks in part to rising earnings estimates from analysts. If you don’t own it yet, I continue to recommend that you wait for a pullback. But if you own it and you’re enjoying the dividends, holding is an easy choice. BUY.
Alphabet (GOOGL), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor, is still a hold. In her latest update, Crista wrote, “Google is the world’s largest internet company. Revenue is derived from Google’s online ads, with the balance coming from the sale of apps, digital content, services, licensing and hardware. YouTube announced new versions of YouTube Music and YouTube Premium (formerly YouTube Red), each designed to increase revenue and capture market share through subscription services by emphasizing local authenticity. Alphabet’s EPS is expected to grow 37.6% and 7.2% in 2018 and 2019. GOOGL is ratcheting toward the top of its steady trading range near 1,190, where I plan to sell because the stock is quite overvalued based on 2019 earnings projections. Traders who buy below 1,080 could make 10% profit within that trading range.” HOLD.
Autohome (ATHM), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, has been building a little base at the 105 level since jumping up here two weeks ago on an excellent earnings report. In his latest update, Paul wrote, “Analysts see earnings up 25% this year and another 23% next. If you don’t own any, you can grab some around here with a stop just below the 50-day line, which is currently above 93 and rising steadily.” BUY.
Axon Enterprise (AAXN) originally recommended by Mike Cintolo of Cabot Growth Investor, is a strong stock with a great growth story—perhaps the best non-mass-market growth story in the market today. In fact, it’s clear that even now, analysts are crunching the numbers to determine how big the business of managing cloud storage of video evidence for police departments all over the country might grow. But there is risk here; right now the stock is 35% above its 50-day moving average, down at 44. Thus, as I said last week, traders might take some profits here—though I’m holding tight. Also, it’s worth noting that readers who followed the advice of Cabot’s options expert, Jacob Mintz, are now looking at profits of 250%! I’ll leave it rated buy but suggest you wait for a pullback if you don’t own it yet. BUY.
BB&T Corp. (BBT), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, and subsequently recommended by Crista Huff, continues to work to break out of a trading range that dates back to January. Chloe (more focused on dividends) continues to rate it a Hold for Dividend Growth investors, while Crista notes, “BB&T is in a multi-year cycle of increasing its net interest margin (NIM) as the company earns higher income from investments and its growing loan portfolio, while keeping costs down via an increase in non-interest bearing deposits and extending maturities on lower-yielding CDs. Analysts expect full-year EPS to grow 43.7% and 8.2 % in 2018 and 2019, with corresponding P/Es of 13.7 and 12.7. BBT appears capable of beginning a new run-up soon, after which I will sell in favor of a financial stock with stronger 2019 prospects.” HOLD.
Broadridge Financial Solutions (BR), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Dividend Growth Tier, continues to consolidate those gains made after its excellent earnings report. In her latest update, Chloe noted, “Following management’s guidance boost on the earnings call, analysts have increased their current-year earnings estimates for Broadridge to an average of $4.21 per share, up from $4.09 a week ago. The new estimate represents year-over-year growth of nearly 35%, at the high end of management’s guidance range. BR is a Buy for dividend growth.” HOLD.
China Lodging Group (HTHT), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, is one of our Heritage Stocks, meaning that the company’s long-term growth prospects are so good—and our profit cushion so ample—that I can afford to sit through market gyrations in pursuit of major long-term profits. And I did sit through a sharp selloff in March. But last week brought an excellent earnings report (not only are the number of hotel rooms growing, but the average rate per room is rising), and today the stock is trading at record highs. The future looks bright for the biggest operator of hotels in China. HOLD.
Everbridge (EVBG), recommended by Tyler Laundon in Cabot Small-Cap Confidential, is trading at record highs, thanks to a great earnings report. In his latest update, Tyler noted, “Revenue was up 31% to $30.5 million (beating by $900,000) and EPS of -$0.17 beat by $0.03. The quarter was highlighted by 49% of revenue coming from new products (other than the core Mass Notification solution), 100 new customers (up to 3,811), more multi-product deals, and 19 six-figure, or larger, deals. Guidance for 2018 implies 30% revenue growth. But as I said last week, management left the door open for accelerating growth. I’ve seen a number of price target increases, including several to 46. While those targets might imply near-term upside is limited, the stock’s trend suggests any little dips will be bought. So, I suggest buying on the dips.” BUY.
iQIYI (IQ), originally recommended by Paul Goodwin of Cabot Emerging Markets Investor, had a normal pullback just as I suggested was likely but surged higher today in what is likely to be a resumption of the main trend. In his latest update, Paul wrote, “IQ is about as volatile a stock as you’ll see, with 15% to 20% swings every few days not uncommon since the stock came public at the start of April. Still, I like the overall pattern, with IQ blasting to new highs last week and pulling back normally during the past few days. Fundamentally, of course, the current growth (revenues growing at 63% each of the past two quarters) and potential future growth (as advertising and membership revenues boom for its video offerings) are outstanding.” BUY.
PayPal (PYPL), originally recommended by Mike Cintolo of Cabot Growth Investor, has had a great May, surging from 71 to over 80, but remains below its January high of 86. In his latest update, Mike wrote, “PYPL may have turned the corner—it had three legs down to its correction (like the market as a whole) with a shakeout below its 200-day line two weeks ago, before spiking up nearly 10 points. That said, the stock has still etched a series of lower highs in recent months, so we’re staying on Hold. Analysts have been nudging up their estimates of late (earnings estimated to rise 23% this year, 21% next, with free cash flow even better).” HOLD.
PulteGroup (PHM), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor, sold off last Tuesday and has been working to find support at its 200-day moving average ever since. In her latest report, Crista wrote, “PulteGroup is a U.S. homebuilder and a very undervalued aggressive growth stock. Consensus earnings estimates, which rose last week, reflect 60.7% and 12.4% EPS growth in 2018 and 2019. The corresponding P/Es are 9.0 and 8.0. Keep in mind that analysts’ earnings estimates reflect all known influences to company operations, including changes in interest rates, income tax rates, wages and other economic data. Despite constant headlines about rising interest rates, the average analyst on Wall Street still expects PulteGroup to see profits rise 60.7% in 2018!” Crista has the stock rated buy for investors looking to ride a rebound to the January high of 35, but I’m going to downgrade it to hold now given the stock’s latest weakness. I think there are better stocks to buy. HOLD.
Stag Industrial (STAG), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, completed its pullback and looks like a decent buy here. In her latest update, Chloe wrote, “STAG is an industrial REIT that mostly owns warehouses, which are in high demand from e-commerce companies competing to fulfill orders faster. The stock pays monthly distributions that don’t qualify for the lower dividend tax rate. High-yield investors can buy some here.” BUY.
Supernus (SUPN), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy-Low Opportunities Portfolio but since upgraded to her Growth Portfolio, has pulled back normally since its big blastoff. In her latest update, Crista wrote, “Supernus focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy, migraine and ADHD. SUPN is an undervalued, small-cap stock. Analysts expect full-year EPS to grow 50% and 37% in 2018 and 2019, with corresponding P/Es of 29.7 and 21.9. Investor’s Business Daily gives SUPN a composite rating of 98, making it their #1-ranked stock among the leading biomedical and biotech companies After reaching a new all-time high in May, SUPN could easily have a brief pullback before continuing its upward trajectory. Don’t be rattled if the stock falls 10%-15%, and consider buying more on pullbacks. I have every intention of keeping the stock for future capital appreciation.” BUY.
TD Ameritrade (AMTD), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues to trade just under resistance at 62, which has constrained it since early March. Patience will be rewarded. HOLD.
Teladoc (TDOC), originally recommended by Mike Cintolo in Cabot Growth Investor, has had a fabulous run—from 42 to over 50 in just three weeks—but volume on the advance has been waning, so a correction is increasingly likely. Thus, traders can consider taking profits here. Me, I’m attracted to the firm’s long-term growth potential so I’m sitting tight. If you don’t own yet, look to get in on a normal correction. BUY.
Tesla (TSLA), originally recommended in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio; we have a fat profit, and I have confidence in the firm’s long-term growth prospects as it leads the automotive revolution for both electric and autonomous cars. But today the stock remains in a long consolidation pattern, weighed down by short-term concerns about the production ramp of the Model 3. HOLD.
WestRock (WRK), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth & Income Portfolio, has climbed back on top of its 200-day moving average and is now pausing before moving (hopefully) to attack the 66 level it was at in April. In her latest update, Crista wrote, “WestRock is a global packaging and container company. WestRock will be meeting with analysts at the KeyBanc Capital Markets’ Industrials & Basic Materials Conference on May 31. The company’s acquisition of Kapstone Paper and Packaging is expected to close in the early fall. Analysts expect full-year EPS to increase 53.8% and 16.1% in 2018 and 2019. The corresponding P/Es are low in comparison at 15.4 and 13.3. The share price suffered in late May and has begun its rebound. There’s 14% upside as the stock gradually retraces its January high at 70.” HOLD.
Wingstop (WING), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains right on its 25-day moving average, consolidating its big blastoff after earnings three weeks ago took it out to new highs. This looks like a fine entry point for the stock of this cookie-cutter growth business. BUY.
Zillow (Z), originally recommended by Mike Cintolo of Cabot Growth Investor and featured here last week, is also sitting right on top of its 25-day moving average. As the #1 player in the business of putting real estate properties in front of consumers’ eyeballs, and getting brokers to pay for advertising to these consumers, Zillow has a bright future. Plus, as I mentioned last week, it’s experimenting on the buying and selling side as well. BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED MAY 29, 2018
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