The broad market remains in fine health, with all major indexes trending higher and sentiment measures still telling us this market has not yet reached the stage where amateurs are sucked in to buying at the top. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.
However, I will note that the fact that the Cabot Stock of the Week portfolio is now full, and that it is difficult to choose a stock to sell, is a sign that, at least in the short term, the market is high and thus ripe for a correction. If that makes sense to you, you might want to hold off on new investments.
In any case, today’s recommendation is a true diversification play, a small but high-potential Indian company that is destined to benefit from that country’s growth and the growth of tourism in the years ahead.
Cabot Stock of the Week 255
[premium_html_toc post_id="181203"]
The broad market remains in fine form, with all our trend-following indicators positive and many indexes hitting new highs. Furthermore, investor sentiment is nowhere near a high as investors continue to worry about tariffs, dictators, interest rates, oil, politics and more—which from a contrary opinion angle is a plus. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that can help you meet your investment goals. Today’s investment might provide a good dose of that diversification as it’s located in India! The stock was originally recommended (though technically it’s not in his portfolio yet) by Carl Delfeld of Cabot Emerging Markets Investor, and here are Carl’s latest thoughts.
MakeMyTrip Limited (MMYT)
Last month, India’s population hit 1.37 billion, on a path to surpass China as the world’s most populous country sometime in the next decade. Furthermore, India’s economy is growing at a 7% clip—a bit faster than China’s—so there are some great investment opportunities in the country.
The travel and tourism industry, for example, is India’s third largest foreign exchange earner, contributing almost 10% of GDP and 8% of total employment.
India’s total travel and tourism industry is the third largest in the world; a record-breaking 10 million foreign tourists travelled to India in 2017, and the Indian Government is aiming to double that number in 2020.
Additionally, domestic travel in the country was $186 billion in 2017, also third largest in the world, accounting for 87% of direct travel and tourism GDP. Industry experts forecast that India will become the world’s third largest aviation market by 2022 and there are plans to double the number of operational airports over the next 20 years.
The government has also become more open to foreign investment in this sector and now permits 100% foreign investment in the hotels/tourist industry, a change that attracted $49 billion in capital investment in 2017 alone.
As discretionary incomes and GDP per capita in India continue to trend upwards, this creates a great opportunity for investment in the travel sector, particularly in companies with the potential to leverage the power of the internet.
According to a recent McKinsey report, data costs in the country have fallen by 95% since 2013 and total online users will grow by another 40% to cross 750 million by 2023, driven by the continued adoption of smartphones.
Amazon has invested close to $4.7 billion in building its e-commerce operations in India. It is also heavily investing in Amazon Pay, the digital wallet platform.
But Amazon is a giant, and growth-oriented investors will have far better chances of making big gains if they target smaller companies in the sector, like MakeMyTrip. (Feel free to check out its web site.)
Founded in 2000 to serve the travel needs of the U.S.-based Indian community, MakeMyTrip has evolved into a leading travel company as India evolves into a digital marketplace by providing a comprehensive range of travel and travel-related services.
MakeMyTrip has made key acquisitions and strategic partnerships and its strong balance sheet should allow it to continue expanding its dominant market share.
One key alliance is with Ctrip, China’s largest online travel company. In 2016, Shanghai-based Ctrip invested about $180 million in MakeMyTrip, gaining it one board seat, and Ctrip recently announced that it intends to increase its position in MakeMyTrip to 49% in a share swap deal with Naspers.
Ctrip wanted even more shares but decided to stay under the 50% threshold to avoid regulatory scrutiny and political issues. “With the investment, we can get more exposure to the Indian travel market,” said Ctrip CEO Jane Sun. “MakeMyTrip can now leverage our experience and knowledge at Ctrip and Skyscanner. We’ll explore more ways to work together.”
Sun highlighted MakeMyTrip’s fast growth, experienced management, the Indian population’s size and youthful population, and how fast India’s economy is growing as key appealing factors driving Ctrip’s interest.
MakeMyTrip has enjoyed a 43% a year compound annual growth rate in the value of merchandise processed during the past few years but is not yet profitable, though its loss is shrinking, with analysts projecting a loss of $1.00 per share this year and $0.87 next year. With Ctrip’s help, I believe the company will do even better.
Tim’s note: Technically, MMYT’s chart is neither weak nor strong; it’s basically where it was in late January. But it’s been advancing since the end of May, turning the stock’s 25-day moving average upward and thus the stock’s pullback on Monday seems to be presenting a decent entry point for opportunistic investors.
MakeMyTrip Limited (MMYT)
Building No. 5
19th Floor DLF Cyber City
Gurgaon 122002
India
91 12 4439 5000
www.makemytrip.com
CURRENT RECOMMENDATIONS
The addition of MMYT brings the portfolio to 21 stocks, which is one more than my limit, but finding something to sell is devilishly difficult today. One possibility is the most famous company in the portfolio, Apple (AAPL), which failed to break out to new highs in June but otherwise looks fine. The worst thing I can say about it is that it’s very popular, and thus there are very few investors available to “discover” it and add it to their portfolios. Another candidate is The Trade Desk (TTD), which did hit a new high in June and has been on a normal pullback since. The worst thing I can say about it is that Mike sold the stock from his portfolio a while ago (he got knocked out in May), and thus I no longer have his lead to follow—though if I ask him he says it looks fine. But the third candidate, and the one that will get the axe, is Axis Capital Holdings (AXS), which has been in the portfolio just five weeks, and in that time inched out to a new high. Trouble is, Crista now sees limited upside. Details below.
Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, remains above all its moving averages, working its way back to last year’s high of 223. In her update today, Crista wrote, “AAPL is a great stock for a high quality, buy-and-hold equity portfolio. The company has $38 billion in cash, raises the dividend annually, and repurchases tens of billions of dollars of its stock each year. Wall Street expects EPS to fall 4.0% in fiscal 2019, then to rise 10.3% in 2020. Apple will report third quarter results on the afternoon of July 30 (September year end).” HOLD.
Axis Capital Holdings (AXS), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, hit a new high last Friday, capping a six-day advance, but Crista says it’s time to downgrade the stock to hold. Here’s her latest, from earlier today. “Axis is an A+-rated global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity of $5.3 billion and locations in Bermuda, the United States, Europe, Singapore, Middle East, Canada and Latin America. AXS is a small-cap stock. Axis reported full-year 2018 EPS of $1.92 in 2018, and is expected to report $4.99 and $5.50 in 2019 and 2020. AXS broke past price resistance at 60 last week, and is now rising toward its March 2017 all-time high of 66. I’m moving AXS from Strong Buy to Hold, and will very likely sell the stock near 66 due to fair valuation and price resistance.” If you’re on board, holding with Crista is an easy choice. For this portfolio, which is limited to 20 stocks, the tough choice, given this limited upside, is to sell here and try to pick up another of Crista’s stocks that has more upside potential. SELL.
Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson for Cabot Dividend Investor, broke out to another new high yesterday and held up at the same altitude today. In Tom’s latest update, he wrote, “This global infrastructure giant has been upgrading its property portfolio by selling mature businesses and using the money to invest in higher return opportunities. Its most recent purchase is a railroad with properties in North America, Australia and Europe. It also owns diverse infrastructure including data centers, pipelines, toll roads and utilities around the world. The company knows what it’s doing as it’s grown cash flow and the dividend consistently for ten years.” BUY.
CIT Group (CIT), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth Portfolio, is intriguing, technically, as it’s primed to break out above resistance at 54 that has thwarted the stock’s advance four times since March 2018; eventually, it should break through, and that’s one reason I’m upgrading the stock to a buy today. In today’s update, Crista wrote, “CIT operates both a bank holding company with $30 billion in consumer deposits and a financial holding company. CIT Group provides financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT is an undervalued growth stock with an attractive dividend yield. Wall Street expects EPS to increase 19.3% and 13.7% in 2019 and 2020. The P/E is 10.8.” BUY.
Delta Air Lines (DAL), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, has hit many new highs since early last week when the company announced that it served an all-time monthly record of 18.9 million passengers in the month of June. In today’s update, Crista wrote, “Second quarter results will be delivered on the morning of July 11. Last week, Delta announced higher-than-expected June traffic numbers, and also told investors to expect second quarter EPS within a range of $2.25-$2.35, higher than the recent consensus estimate of $2.24. In addition, the company guided both second quarter revenue and pre-tax margin toward the high end of the company’s most recent guidance in April. Delta announces their annual dividend increase at some point between mid-July and mid-August. Last year’s announcement of a 15% increase took place during the release of second quarter results. Full year earnings estimates have been climbing since early March, rising again last week. Delta is now expected to achieve 21.4% and 6.0% EPS growth in 2019 and 2020, and the P/E is 8.6. If the projected 2020 EPS growth rate doesn’t improve, subsequent to the second quarter earnings release, I will likely retire DAL from the Growth & Income Portfolio. In the meantime, the price chart is bullish, second quarter results are expected to be quite bullish, and we’re about to hear of a dividend increase. I expect additional near-term capital gains.” BUY.
Everbridge (EVBG), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, has just advanced for eight consecutive days and is nearing its June high of 98. I love the growth potential and the recurring income from this company’s Mass Notification and Incident Communications services, but the stock is too high to buy now. HOLD.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, hit another new high today, though volume on the advance has been waning. The company’s revolutionary, non-invasive Cologuard test for colorectal cancer (which is the second leading cause of cancer death in the U.S.) is obviously making great inroads, but the stock remains too high to comfortably buy, so if you don’t own it, you should wait for a serious pullback. HOLD.
Huazhu Group Limited (HTHT), originally recommended in Cabot Emerging Markets Investor, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential so large that I’ve resolved to sit through normal technical sell signals. Long-term, China’s largest hotel operator will only get bigger. The stock had a great June, but has corrected over the past week. HOLD.
Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, and featured here three weeks ago, is a relatively high-risk investment, given that it’s a very young stock and Chinese, to boot. But the long-term prospects are great, so the greatest challenge is finding a good entry point. In his latest update, Carl wrote, “As of March, Luckin had about 2,370 stores in 28 Chinese cities and is on track to surpass Starbucks by the end of 2019 as the largest coffee network in China by number of stores. This growth represents a 25% compound annual growth rate from 2018 to 2023.” BUY.
Match Group (MTCH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains in a consolidation pattern, cooling off after its big spike higher in May but still above all its moving averages, and thus likely to resume its advance in time. Long-term prospects for the world’s leading matchmaking service remain great. HOLD.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, continues to trend higher; it had a record closing high yesterday. In his update last week, Tom wrote, “It seems like every single week this best-in-class utility forges still higher. The stock is up over 20% so far this year and over 10% in the last three months. Investors love utility stocks in general and this one in particular right now. That said, NEE is selling at valuations well in excess of the five-year averages and is no bargain at current levels. That’s why it is only rated a HOLD. High historic valuations and strong momentum are staples among the defensive stocks in this portfolio. There’s no point in fighting the tape and NEE will remain a HOLD for now.” HOLD.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, has rebounded from its sharp selloff of late June, but the rebound has only taken the stock back up to its 25- and 50-day moving averages, but not above—so this could be a good time to take partial profits, as Mike did recently. In his last update he wrote, “We took half our profit off the table with Planet Fitness last week after shares suffered four straight huge-volume down days, slicing through support in the process. Happily, the stock has bounced back decently, and we’re content to give our remaining shares some rope, with a mental stop in the mid-to-upper 60s. Fundamentally, nothing has changed, so we’re hopeful that, after some rest, the stock can continue higher. But PLNT hasn’t seen much selling this year, and so the recent downmove increases the odds of a deeper correction. If you sold some, practice some patience with your remaining position—and if you’re not yet in, we’d favor buying some other, stronger situations right now.” HOLD.
Snap (SNAP), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a record high today. In last week’s Cabot Growth Investor, Mike wrote, “We admit that it’s unlikely that Snap will grow up to be another Facebook or Google, but that’s OK—there’s still great potential here, and the reason surrounds its appeal to young audiences. In fact, 75% of 13- to 34-year-olds use Snap’s popular app, which is more than even Instagram. The first couple of years of this stock’s life were brutal, but new management and a slew of new products (including more camera-based and some augmented reality offerings, video collections, games and even a bit of original content) and technology (including a new Android app that loads faster and has boosted engagement) helped the user count to increase in Q1 (to 190 million) and kept revenue growth strong (up 39% in Q1, expected to be up 30% to 40% both this year and next). Earnings are still in the red but quickly approaching breakeven, and the stock’s action is hard to ignore.” BUY.
STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, looks just fine, having bounced off its 50-day moving average two weeks ago, and climbed back above its 25-day moving average soon after. Solid, dividend-paying conservative investments like STAG remain in favor with the market, even though growth stocks are acting great, and if the pattern holds, STAG should be hitting new highs once again before long. HOLD.
Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) so I’m committed to holding as long as the prospects are good. The stock bottomed with the market at the end of May, surged higher in June, and has now spent more than a week above its 50-day moving average, telling us the odds are increasing that a new uptrend has begun. And there’s reason for that optimism: last week the company announced that it had achieved record production of 87,048 vehicles and record deliveries of approximately 95,200 vehicles in the second quarter of 2019, beating analyst expectations soundly. Over 80% of production and deliveries were of the company’s mass-market Model 3 vehicle, so of course analysts, instead of projecting continued success in the mass market, worried that the company was cannibalizing demand of its higher-end Model S and Model X. HOLD.
The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor, continues to ride its 25-day moving average higher, working its way back to last month’s high of 258. As the number one company in the programmatic ad buying market, The Trade Desk is growing fast and its chart looks fine, so even though Mike no longer has the stock in his portfolio, I feel comfortable holding here. HOLD.
Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, has a good-looking chart as well as a great growth story as its communications network enables improved communication using the wide variety of today’s systems and devices. In his update last week, Mike wrote, “The growth story is as good as it gets. Earnings are likely out in early August.” BUY.
Valero (VLO), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Dividend Growth Tier, and featured here last week, has a fat 4.4% yield and good growth prospects as demand for refining booms. In his update last week, Tom wrote, “This is in my view the best refiner in the country. The longer trend is still strong for American refiners with the advantage of cheaper crude oil feedstock and Valero is cheap because of temporary factors. Things are turning around and it should also get a boost from the new fuel standards required by the IMO starting in 2020. I like the stock longer term and I think the timing could be very good.” BUY.
Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, hit another new high last Friday and has pulled back minimally since. In today’s update, Crista wrote, “Voya Financial is a retirement, investment and insurance company serving millions of individuals and 49,000 institutional customers in the United States. Voya has $547 billion in total assets under management and administration. CEO Rodney O. Martin, Jr. recently stated, “We intend to increase our common stock dividend to a yield of at least 1% and we expect to do so beginning in the third quarter of 2019.” Investors should expect that announcement during the last week of July, at which time the share price could easily jump as institutional investors who focus on dividend stocks will have yet another good reason to buy VOYA. Analysts expect full-year EPS to grow 35.9% and 14.8% in 2019 and 2020, and the current P/E is 10.4. VOYA just began reaching new all-time highs after running up against price resistance at 55 repeatedly for 18 months.” BUY.
Zillow (Z), originally recommended in Cabot Growth Investor by Mike Cintolo and featured here two weeks ago, was bought at a perfect time, as the stock has advanced for nine consecutive days since then, hitting new highs on the most recent two. Short-term traders could take profits here, but I’m sticking with it. In his update last week, Mike wrote, “The housing market is obviously going to play a big role in the perception of this stock, but with the Fed likely to ease sooner or later, that should help the cause. And besides, Zillow is far more than just another housing-related stock—its new Offers business (and other ancillary services) has great longer-term potential regardless of the short-term wiggles of housing activity and prices. Bottom line, Z continues to have the look of a new leader.” BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED July 16, 2019
We appreciate your feedback on this issue. Follow the link below to complete our subscriber satisfaction survey: Go to: www.surveymonkey.com/r/CSOW
Neither Cabot Wealth Network nor our employees are compensated by the companies we recommend. Sources of information are believed to be reliable, but are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on the information assume all risks. © Cabot Wealth Network. Copying and/or electronic transmission of this report is a violation of U.S. copyright law. For the protection of our subscribers, if copyright laws are violated, the subscription will be terminated. To subscribe or for information on our privacy policy, call 978-745-5532, visit www.cabotwealth.com or write to support@cabotwealth.com.