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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 238

The market remains in an uptrend, though the correction that started last week may do a little more damage. If so, try to take advantage of it, remembering that buying low is the goal.
Today’s stock is a name you know—a name all Americans know—and I think it’s a good buy here after correcting 39% last fall. Crista Huff is the Cabot analyst who recommended it most recently, in part on fundamental grounds, and my reading of the chart confirms her conclusion.
As for the current portfolio, we continue to make great progress, but there’s always room for improvement. The only changes this week are two upgrades from Hold to Buy. Details inside.

Cabot Stock of the Week 238

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If you’ve already glanced at the name of today’s stock recommendation, you’ve probably already had a reaction, and to some extent, formed an opinion. After all, everybody knows Apple, and most of you have an Apple product, or two or three. And without a doubt, some of you already own the stock. Me, I have one paper share that I bought at a Macworld Expo back in the 1990s for roughly $100 (including framing) that is now 28 shares (because of splits) and worth about $5000. But that’s not why I’m recommending the stock today. I’m recommending the stock today because Crista makes a good argument and because AAPL has a very favorable long-term chart, which shows major corrections that bottomed in 2013 and 2016 right on the stock’s 50-month moving average, and kicked off multi-year runs to new highs, and if the pattern holds, the correction that ended in December will do the same. Here are Crista’s thoughts.
Apple (AAPL)

Shares of Apple just began a new run-up; you don’t have to be an expert at technical analysis to see the bullish activity on the price chart. So the question to be answered is this: “Can I buy AAPL today and make money before the run-up is over?” My answer is a profound “Yes!”

Apple Inc. is a manufacturer and provider of many popular technology devices and services, including the iPhone, iPad, Mac, App Store, Apple Care, Apple Pay, iCloud and more. There are over 1.4 billion active Apple devices globally, which provide a strong and growing revenue base for Apple Services.

The company reported a good first quarter in January (September year end), beating earnings and revenue estimates, and delivering record revenues for Services, Mac and Wearables. iPhone revenue fell — a widely known phenomenon that was already baked into the share price. Revenue from non-iPhone products and services grew 19% year-over-year. That’s a huge growth rate, commonly seen with small companies, but highly unusual with large companies.

Apple’s share price gets as much attention as their products and services. The stock rose to $1 trillion in market capitalization in 2018, to much fanfare, only to experience a breathtaking price correction in the fourth quarter. The rebound has certainly begun. At a share price of 181, there’s 27% upside as AAPL travels back to its 2018 high of 230.

Why does AAPL make such big & rapid short-term moves? The company gets a lot of media air time. Last fall, all anybody talked about was iPhone sales figures, effectively scaring the heck out of investors and sending Wall Street analysts cowering under their desks.

What they all failed to acknowledge and discuss is that Apple is not a one-product company. Rather, Apple is a multi-faceted company, with a variety of popular products. What’s more, the folks who buy the products also purchase a big variety of Apple Services, including over two million apps. Two million!

And now Apple is introducing additional, exciting new services. Apple just announced a Special Event that will be live-streamed on March 25. The company historically announces new and improved products and services at such events. The media invitation is brief, featuring the words “It’s show time.” Analysts are expecting Apple to update its news offering into a subscription service, and to reveal a streaming video service.

Fortunately, there is the occasional analyst who accurately perceives Apple’s value. In January, Barron’s published an Apple recommendation with this nifty title: You Should Look at Apple Because It Has Cash but Everyone Hates It. And just this week, Bank of America Merrill Lynch raised their rating on AAPL from Neutral to Buy, with a 210 price target.

Keep in mind that Wall Street research reports go to institutional portfolio managers around the globe. These are people just like you and me who are trying to decide which stocks to buy. So be aware that a recommendation from a major investment firm can go a long way toward assisting your capital gain potential.

There’s one more piece of good news on the horizon. Apple announces an annual dividend increase around May 1. Last year’s 16% increase took the quarterly payout from $0.63 to $0.73. We know that the company has tons of cash available, because they announced a $100 billion share repurchase authorization in tandem with last year’s dividend increase, so we have every reason to expect another generous dividend increase this spring.

Wall Street is expecting EPS to fall 4% in fiscal 2019 (September year-end), then rise 12% in fiscal 2020. Subsequent year numbers are virtually always cautious estimates, so I’m quite pleased with the 2020 12% earnings growth estimate.

After trading in almost a flat line throughout February—a bullish pattern on the price chart—AAPL just began a new run-up. Buy AAPL now for near-term capital gains, fueled by price chart momentum, excitement surrounding the March 25 announcement at Apple’s Special Event, and the upcoming annual dividend increase.

sow238-aapl

Apple (AAPL)
One Apple Park Way
Cupertino, CA 95014
United States
408-996-1010
http://www.apple.com

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CURRENT RECOMMENDATIONS

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The market’s major trends remain up, and the odds are still good that the market will be higher months from now. Short-term, however, the correction that began last week will likely last a bit longer and, ideally, lead to an increased level of fear, uncertainty and doubt before the market resumes its uptrend. In the meantime, my game plan remains the same: Manage a diversified portfolio of stocks, chosen using a variety of disciplines, and continually upgrade the portfolio by dropping laggards and stocks whose prospects have dimmed. Last week I sold two stocks for the latter reason, and this week the only changes are two upgrades to Buy. Details below.

AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, hasn’t done anything for us yet, but the chart says it’s a very low-risk buy here and Tom says the long-term prospects are great. Here’s Tom’s latest: “This is a “show me” stock right now. It has more than enough firepower in recently launched drugs to offset increasing overseas competition for Humira, its top selling drug. But until the company starts showing absolute proof of that, investors probably won’t be snapping up the stock. That’s okay. It shouldn’t take too long and, in the meantime, you collect a 5.3% yield. This should be a winner over the longer term.” BUY.

Apollo Global Management (APO), originally recommended by Crista Huff for the Growth & Income Portfolio of Cabot Undervalued Stocks Advisor, dipped below 28 last week, hitting its lowest point in its five-week correction, but volume was low, so technically this looks like a good entry point. In her latest update, Crista wrote, “Apollo is an alternative asset manager with assets under management (AUM) totaling $280 billion, dispersed among credit, private equity and real estate investments. A recent Barron’s article, Apollo Thinks It’s Big Enough, Tough Enough to be GE Capital, discussed Apollo’s growing credit business, with comparisons to the monstrously large GE Capital of former decades. In other news, Apollo is working with Wall Street heavyweights to clean up risky transactions in the credit default swap market, and Apollo is also cashing in their investment in Caesar’s Entertainment (CZR). APO is an undervalued mid-cap growth & income stock. The stock is pulling back a bit with the market. There’s price resistance at 32 and 35.” BUY.

Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and also recommended by Tyler Laundon in Cabot Small Cap Confidential, looks great; it broke out to new highs on big volume yesterday and held onto those gains today. In his update last week, Tyler wrote, “In 2018 revenue was up 41% while EPS came in at -$0.54. Forward guidance came in ahead of consensus ($185.6 million) at $195.1 million to $196.6 million, implying around 33% growth this year. There is scarcity value here, and the company has done a great job of executing its growth agenda. Just keep new positions small and average in.” BUY.

Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, and featured here two weeks ago just before it entered into a sharp correction, has rebounded strongly in recent days. In his update last week, Mike wrote, “Exact Sciences has been all over the place during the past month, with a dip to 81, a post-earnings spike to 97 and then a pullback to 84 yesterday. Part of the reason for the recent dip may have been revealed yesterday; Exact Sciences sold $650 million of convertible notes, which, in the short term, pressures the stock (funds that buy the convert usually short the stock as a hedge). Whatever the reason, EXAS looks like a lot of growth stocks—it’s been a bit sloppy recently, but the quarterly report was solid and this dip hasn’t broken any key support. A drop below 80 would be a yellow flag, but right here, we’re comfortable with our Buy rating.” BUY.

General Motors (GM), originally recommended in Cabot Dividend Investor for the High-Yield Tier, sold off a bit last week with the market but has bounced back well this week. In his latest update, Tom Hutchinson wrote, “This is a good car company now, but does anyone care? There have been five straight years of auto sales over 17 million and GM stock has done nothing in those five years. The stock sells at less than six times earnings (compared to near 20 times for the overall market) with a near 4% dividend yield. But I think GM will have to prove resilience in the next recession to get any respect from investors. For now, it might go a few dollars higher so I’ll hold the remaining third of the position.” HOLD.

Huazhu Group Limited (HTHT) (previously known as China Lodging Group) was originally recommended in Cabot Emerging Markets Investor and now it’s one of the Heritage Stocks in this portfolio, which means that I’ll hold through periods of poor performance to benefit from the positive long-term fundamentals of China’s leading hotel operator. The stock has acted pretty much like the market this year, but remains well below its 2018 high of 48, so that’s our near-term target. Fourth quarter results will be released after the market close on March 14. HOLD.

Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest online dating service and has great long-term prospects. Plus, I think the stock is at a great entry point today. Since breaking out to record highs on big volume after an excellent earnings report three weeks ago, the stock has pulled back calmly to near its 50-day moving average. BUY.

NIO (NIO), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, has certainly delivered the volatility expected—on both the upside (following the publicity on 60 Minutes) and the downside (following last week’s quarterly report, which revealed sharply reduced deliveries in the first two months of 2019 compared to the second half of 2018; there were no deliveries in the first half of 2018.) But the story is far from over, and I’m sticking with it. In his latest update for his readers, Carl wrote, “While NIO reported positive sales numbers in the fourth quarter, management offered the market some negative news regarding a softer economy and uncertainty about subsidies, both of which brought out the sellers. Total revenues for the quarter were $492 million, an increase of 133.8% from the third quarter of 2018, with positive gross margins. Production of the ES8 totaled 8,069 in the fourth quarter, compared with 4,206 vehicles produced in the third quarter. Production of the ES8 reached 12,775 for full-year 2018. Deliveries of the ES8 reached 7,980 in the fourth quarter, compared with 3,268 vehicles delivered in the third quarter. Deliveries of the ES8 reached 11,348 for full-year 2018. The company also scrapped plans for a factory in Shanghai. Instead, the company will continue to rely on its existing relationship with Jianghuai Automobile Group. I looked over the earnings conference call transcript, and I noticed that 2019 expectations have not changed. On the heels of my advice last week to take profits in part of our position in NIO, I’m going to stick with the remainder of the position, as the stock is back in its prior base (support) and because I still have a positive view of China’s electric vehicle market.” Additional data points: Auto sales in China have now declined for eight straight months, with January and February down 15% from the year before. The exception has been electric vehicles, which saw sales double in the first two months and accounted for 4.5% of the total market—which means there’s a long way to go. The IPO lockup expiration for NIO was yesterday, March 11, so the selling pressures should end soon. If you haven’t bought yet, you could nibble here and average up as the stock rises. I’m upgrading it to Buy. BUY.

Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, has now advanced for eleven consecutive days, telling us the buyers are in total control. In last week’s update, Mike wrote, “PLNT has shot ahead to new price and relative performance (RP) peaks, and on many days of huge volume to boot. Analysts now see earnings up 26% this year and another 22% next; management sees EBITDA (a measure of cash flow and probably a better measure of profitability than earnings for Planet Fitness) rising about 20% this year, though it frequently lowballs these figures. PLNT is not going to be a go-go stock, so some backing-and-filling is possible, but after a few shakeouts, the stock’s uptrend has resumed. Try to buy on a dip of a couple of points if you’re not yet in.” BUY.

STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, is up 15% year-to-date which is pretty fantastic for a REIT. In his latest update, Tom Hutchinson wrote, “STAG is a great REIT. It leases to single tenants in the industrial and light manufacturing space, like warehouses and discount centers. There are many players in this market and STAG does it very well, consistently outperforming its peers. The stock has been a spectacular performer. I like everything about STAG except the price. For now it’s a hold, but if it can form a base here I’ll likely upgrade it to a buy.” HOLD.

Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, is the leader in the virtual medical care market, and has a very bright future, but right now the stock is in consolidation mode. If you’ve got a big profit like the portfolio, and you want to stick with it, good; I think patience will be rewarded. But if your profit is minimal or non-existent, selling and moving on may be your best choice. HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio, and I’ll continue to hold as long as I believe the stock has great growth potential. On the positive side, the company is still growing fast, it has finally made available the “affordable” $35,000 Model 3, it has bought a bunch of car-hauling trucks and trailers (using stock) to improve its delivery logistics, and Thursday will (probably) see the unveiling of the Model Y, a lower-priced crossover vehicle based on the Model 3 platform. On the negative side, the media is focused on the company closing stores (though not as many as first announced) to reduce costs, and raising vehicle prices by about 3% on average worldwide. Last week I wrote, “there’s little question in my mind that the stock is a better buy here than a sell,” and the stock is up a bit since then. HOLD.

The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here last week, closed at record highs yesterday and today. In his latest update, Mike wrote, “TTD has had a big run since last May, which isn’t ideal, but after a long, deep base, shares catapulted to new highs on earnings two weeks ago and have held most of those gains since.” BUY.

Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, had a sharp dip to its 25-day moving average last week, and if you bought then as I suggested, you’re off to a great start, as the stock broke out to record highs today. In his update last week, Mike wrote, “As with most growth stocks, further dips are possible, but at this point the uptrend looks good.” BUY.

Van Eck Rare Earths/Strategic Metals (REMX), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, is a diversification play with potential for great growth, as technology requires more rare earths. Plus, it has a yield of 13.9%. The stock sold off a bit last week, but the main trend remains up, as it has been since late December. BUY.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, had a great run through January and February. In her latest update Crista wrote, “Voya is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. VOYA is an undervalued aggressive growth stock. Analysts expect EPS to grow 34.4% and 15.1% in 2019 and 2020, and the P/E is 9.1. I anticipate VOYA trading between 45 and 55 in the coming months. Now that the stock has pulled back a bit, I’m moving VOYA from Hold to Buy. The company is prioritizing share repurchases and a large dividend increase this year, which should each contribute to share price appreciation.” I’ll follow suit. BUY.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED March 19, 2019

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