Please ensure Javascript is enabled for purposes of website accessibility
Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 285

There’s an old saying that a bull market climbs a wall of worry, and today is a perfect example, with many of our stocks hitting new highs despite the widespread fears of coronavirus. Thus I continue to recommend that you be heavily invested.
However, not all our stocks are strong, and this week three in particular have turned too weak to hold any longer. So out they go.

As for the new recommendation, it’s an insurance company (investment company) that pays a dividend but has great prospects for capital gains. Full details in the issue.

Cabot Stock of the Week 285

[premium_html_toc post_id="198333"]
The market remains in a strong uptrend, shrugging off fears of coronavirus (the worst selling occured nearly a month ago) and instead focusing on earnings reports, which in general are showing great growth. Thus, I continue to recommend that you be heavily invested in stocks that will help you meet your investing goals. Today’s recommendation has a healthy chart and a great growth story —as well as an earnings report due next week. The stock was originally recommended in Cabot Undervalued Stocks Advisor by Crista Huff and here are Crista’s latest thoughts.

Equitable Holdings (EQH)
Today’s business headlines announced a big financial merger, with global investment manager Franklin Resources (Ben) buying Legg Mason (LM), a retail investment firm. I was thrilled by the news – I bought LM for several family members in recent months – but I wasn’t surprised, because there are far more investment and insurance companies on my buy list right now than any other industry. Since I screen stocks, first and foremost, for strong earnings growth, it makes sense to me that a bigger company would want to own a smaller, very profitable company.
You’re in luck! There are many additional small- and mid-cap financial firms that warrant attention right now, including Equitable Holdings (EQH), a leading U.S. provider of financial advice, asset management and protection solutions. The company has $701 billion in assets under management through two principal franchises: Equitable Life Insurance Co. and a majority stake in AllianceBernstein Holdings L.P. (AB), an investment management firm.

French insurer AXA S.A. (AXAHY) had held a 39.1% stake in AXA Equitable Holdings (EQH) until last month. At that time, AXA S.A. sold 144 million shares of EQH in a secondary stock offering in order to raise cash to fund last year’s $15 billion purchase of XL Group (XL). (XL Group was featured in Cabot Undervalued Stocks Advisor when they received the buyout offer from AXA in March 2018.) AXA S.A.’s ownership in EQH is now down to about 10%. Equitable subsequently changed their name from AXA Equitable Holdings to Equitable Holdings.

This year, Equitable announced an agreement to sell U.S. Financial Life Insurance Company and MONY Life Insurance Company of the Americas, Ltd. to Heritage Life Insurance Company. The transaction is expected to close in early 2020.

“This transaction simplifies our balance sheet and is aligned with our strategy to improve the return on capital of our Protection Solutions segment,” said Anders Malmstrom, Chief Financial Officer of AXA Equitable Holdings.

Last week, AllianceBernstein reported a huge fourth-quarter revenue and profit beat. Net income was $0.85 per unit vs. the analysts’ consensus estimate of $0.70, and revenue was $817 million vs. the $769.8 million estimate. The good news propelled both AllianceBernstein’s and Equitable’s stocks higher. After a great 2019, the AB shares are up another 16% so far this year. AllianceBernstein’s bullish results are great news for Equitable, because as a majority shareholder, Equitable’s value is also enhanced. Wall Street is expecting AllianceBernstein’s profits to rise another 17% in 2020.

Next up: Equitable’s fourth-quarter results, due out on the afternoon of February 26. Per the third-quarter report, the company is successfully increasing both insurance premiums and net inflows in all business divisions, which include Individual Retirement, Group Retirement, Investment Management & Research and Protection Solutions. The market’s expecting fourth-quarter earnings per share (EPS) of $1.17, within a range of $1.10-$1.25, and $3.4 billion revenue, within a range of $3.2-$3.5 billion. Full-year 2019 profits are expected to finish the year up 20%.

With so many of their insurance and investment peers outperforming expectations this earnings season, and guiding analysts’ 2020 forecasts upward, I naturally expect Equitable to follow suit. Amazingly, Equitable’s 2020 price/earnings ratio (P/E) is only 5.5. For comparison, Legg Mason’s 2020 P/E was 10.9 before the buyout offer was announced, and 13.4 at the $50 buyout price. Equitable has additional insurance and investment peers with much higher valuations: Ameriprise Financial (AMP) with a 9.7 P/E and Voya Financial (VOYA) with a 12.9 P/E. So there’s room for Equitable to rack up serious capital gains without even coming close to their peers’ valuations.

Share repurchases and dividend payouts are a priority for Equitable. The current dividend yield is 2.2%; it was most recently increased in May 2019.

The company’s IPO was issued in May 2018. EQH rose to a new all-time high this month, and the price chart remains bullish. Barring a downturn in the broader stock market, I expect continued capital gains from EQH this year.

eqh21820

EQHearnings21820

Current Recommendations

csowportfolio21820

Many stocks in the portfolio have been hitting new highs, and that’s terrific. But a few have been going the wrong way, and as I’ve told you many times, the key to success is to get rid of them. Thus, with no fanfare, I’m cutting three stocks from the portfolio this week, all because while the market has been going up, they’ve been going down. Details below.

Changes
Axonics (AXNX) to Hold.
Disney (DIS) to Sell.
Qorvo(QRVO) to Sell.
Yeti (YETI) to Sell.

Alexandria Real Estate Equities (ARE), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Safe Income Tier, is pricey but strong; the stock has hit new highs the past six trading days! In his update last week Tom wrote, “The research lab and life science REIT seems to like the coronavirus. The company doesn’t have any exposure to possible negative effects in the global economy and it benefits as money flees overseas markets into the U.S. It’s also a defensive play as the market becomes uncertain. Of course, it was strong in the up market too. It’s also at a brand new all-time high. At this point, there’s no reason not to keep riding this bronco. It’s getting pricey but the momentum is to die for.” BUY.

Axonics (AXNX), originally recommended by Tyler Laundon in Cabot Early Opportunities, has a disruptive solution for patients who suffer from overactive bladder (OAB), Urinary Retention (UR) and Fecal Incontinence (FI). This is a market where Medtronic leads, but Axonics’ neurostimulator is better and cheaper so doctors are switching teams fast. Analysts see sales growing from $14 million in 2019 to $80 million in 2020 (up 470%). The stock tagged its 25-day moving average two weeks ago and since then has been up for eight consecutive days, hitting new highs on the last few. Short-term traders could take quick profits here, but I’ll stay put—though I will downgrade the stock to hold as it is now out of trend. HOLD.

Broadcom (AVGO), originally recommended by Crista Huff for the Growth & Income portfolio of Cabot Undervalued Stocks Advisor, continues to trade in a range between 300 and 325, building a base for its next advance, so buying here looks sensible. In Crista’s latest update, she wrote, “Broadcom is a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions that serve the world’s most successful companies. Last week, Broadcom announced the world’s first Wi-Fi 6E client device, the BCM4389. Wi-Fi 6E extends the Wi-Fi 6 standard to support the soon-to-be-operational 6 GHz band with wider 160 MHz channel bandwidths that double Wi-Fi speeds and cut latency in half compared to Wi-Fi 5. The BCM4389 delivers over 2 Gbps of real-world speeds and up to five times better battery utilization, making it an ideal solution for flagship smartphones and future AR/VR devices. The company will report first-quarter results on the afternoon of March 12. Wall Street expects EPS to grow 9.2% and 9.9% in 2020 and 2021 (November year end). AVGO has been trading steadily between 300-325, touching upon a new all-time high again this month. The price chart remains bullish. AVGO is a great choice for technology investors, dividend-growth investors, and large-cap growth investors.” BUY.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his High-Yield Tier, enjoyed record-high closes every day last week! In his update last week Tom wrote, “The company announced positive earnings on Monday that beat expectations with 11% funds from operations (FFOs) growth over last year’s quarter and a 7% year-over-year distribution hike. Brookfield’s capital recycling program, which involves trading up old assets for higher-margin new ones, contributed. New assets in North American railroads, Canadian natural gas pipelines and data infrastructure came on line in the fourth quarter. The stock moved 1.31% higher on the day following the announcement. Last week I sold one-third of the position as a precaution ahead of earnings. That probably cemented the good earnings report. Nevertheless, the stock is still strong and we’ll see if it continues to forge higher in the weeks ahead.” BUY.

Designer Brands Inc. (DBI), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Buy Low Opportunities portfolio, is still a loser for us, and still not rising, but Crista remains patient, focused on the long term. In her update last week, she included DBI on her list of best stocks to buy now. BUY.

Disney (DIS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, reported its quarterly results two weeks ago, and while the stock gamely held up in a basing area for a few days after, it’s now fallen off that base, telling us investors are moving on. Thus, it’s time to sell and do the same. SELL.

Endava (DAVA), originally recommended by Tyler Laundon in Cabot Early Opportunities, jumped 14% last Thursday after a great earnings report. In his update, Tyler wrote, “Endava just reported Q2 fiscal 2020 results that beat on the top and bottom lines. The U.K.-based company reported that revenue was up 19.6% (to £85.9 million) and adjusted EPS of EPS £0.30 was up 50% and beat by £0.09. Cutting through all the details the punchline is that digital transformation remains a priority for companies around the world and Endava is helping in those transitions, particularly in the area of payments and financial services (53% of revenue). It sees constant currency revenue up 25% to 26% for the full fiscal year, with adjusted EPS of £0.95 to £0.99. The stock’s reaction is a big pop that has sent it to a new all-time high. While I like it, let’s not get too aggressive. I’m keeping at hold to see how Endava digests the report.” BUY.

Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential so large that I’ve resolved to hold the stock through normal technical sell signals. The stock suffered from the original selling wave as coronavirus fears spread, but it bottomed three weeks ago and is now back in its consolidation pattern (which is two years old), setting up for the next uptrend. Long term, I remain bullish on its prospects as China’s leading hotel operator. BUY.

Inphi (IPHI), originally recommended by Mike Cintolo in Cabot Growth Investor, has been trending higher for two years, though it’s currently catching its breath after rocketing to a new high on big volume two weeks ago. In last week’s update, Mike wrote, “All three of our stocks that have reported earnings thus far have topped estimates and given solid guidance, but the stocks then suffered short-term wobbles as profit taking set in. IPHI was no exception, as Q4 sales (up 19%) and earnings (up 4%) topped expectations, led by all things cloud-related, where sales were up 43% from a year ago. While absolute growth didn’t wow anyone, that should change going forward—despite a relatively conservative view of demand out of China, Inphi repeatedly stated that they see widespread strength continuing through 2020 and beyond, and analysts responded by hiking estimates in a big way; Wall Street now sees the company’s earnings up 40% this year and another 48% in 2021 (thanks in part to the accretive buyout of eSignal, which closed in early January). Shares were wild the day after the report, but since then, IPHI has been relatively calm, mostly gyrating in the low- to mid-80s. A drop below the rising 50-day line (now near 78) would probably have us going to Hold (and maybe even taking partial profits), but right here, the trend is up and growth looks set to accelerate, both of which keep us bullish.” BUY.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, peaked at 50 in mid-January, bottomed at 27 (on huge volume) at the end of January, effectively washing out all the weak hands, and now the buyers are in control again. In his latest update, Carl wrote, “I would still be a buyer of LK at 40, which is 10 points below its recent high.” BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, continues to hit new highs! In his update last week, report, Tom wrote, “Okay, I’ll just say what I say every week. The market loves utilities right now and this is the best of the lot. It has one of the best regulated utilities in the country in Florida Power and Light and it also has growth from its alternative energy business, the biggest of its kind in the world. Another week has gone by and it has set another all-time high. After returning over 50% last year, the stock price is up 20% this year. The stock is expensive by every measure but it just wants to keep climbing higher. Let’s just keep riding the trend for now.” BUY.

Qorvo (QRVO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is weakening—and I don’t see any buyers coming in to reverse the trend. One of the rules of growth stock investing is that you shouldn’t let a profit become a loss—and we’re at risk of doing exactly that with QRVO. Thus, I recommend selling now and putting the money in a healthier stock. SELL.

Ring Central (RNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is one of the leading providers of Unified Communications Services, which integrate a variety of communications technologies using cloud-based services and thus enable both employees and customers to get what they need from enterprises large and small. The stock gapped up last Tuesday after an excellent earnings report and has climbed higher since. BUY.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is another growth stock that’s been hitting new highs! In Mike’s update in Cabot Growth Investor last week, he wrote, “Sea isn’t going to make many headlines, as few people write much about overseas e-commerce and online gaming outfits, and if they do, they usually talk about the huge Chinese outfits. But we think Sea’s story has many growth drivers that should keep buyers interested. Just this week, one analyst hiked his price target and talked about the gaming opportunity in India, where there are expected to be 350 million gamers by 2022, while also talking about the fact he sees big potential for improved monetization in many of Sea’s e-commerce markets; the cut it takes on each sale in some markets is well below the competition’s, despite its dominant position. As for the stock, we still wouldn’t be shocked to see some selling (the 50-day line is just above 41), but there’s no question the main trend is up. Earnings will be released on March 3.” BUY.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) and it’s certainly been a star this year, propelled by fundamental developments, changes of investor sentiment and short-covering. The stock’s recent blowoff high of 969 may stand for a while, so traders could take profits here, but long term, I remain optimistic, as the company not only leads the electric car revolution but is also making great strides in the energy business and beginning to compete in the automobile insurance business (in California). Last week the company announced a $2 billion common stock offering (it’s easier to raise money when your stock is up) and the market barely blinked. As for the “competition,” General Motors is retreating, pulling out of Australia, New Zealand and Taiwan. HOLD.

Trulieve (TCNNF), originally recommended by yours truly in Cabot Marijuana Investor, gapped up on Friday as Canopy Growth’s excellent quarterly report sparked buying across the entire marijuana sector, and the stock continued higher today, coming close to breaking out above all its moving averages. The company is the market leader in Florida, with 45 medical dispensaries, as well as nascent operations in California, Massachusetts and Connecticut. BUY.

Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, hit record highs last Tuesday and has backed off slightly since. In last week’s update, Mike wrote, “VRTX has seen plenty of sloppy action since earnings—shares are still in fine shape, but there’s been lots of up-down-up-down action, which often signifies distribution after a good run. That’s something to keep an eye on, and if the sellers show up for more than a day or two, we could go to a Hold rating. But to this point, we’re not overly worried as the damage has been limited and it’s possible the volatility is caused by some investors gaming out political uncertainties in the sector, which would likely prove temporary. (We’re not touching politics with a 100-foot pole; we’re simply reporting on the scuttlebutt that’s out there.) Moreover, the big picture is as bright as ever—analysts see earnings surging both this year (up 44%) and next (up 33%), and the fact that the stock just got going in October after two-plus-years in the doghouse means it should have lots of gas left in the tank for a longer-term upmove. All in all, we’re sticking with our Buy rating, though we’ll be watching the action to see if things settle down a bit.” BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is on the verge of giving us a 300% profit—after just 10 weeks! If you bought on the original recommendation, congratulations. And if you’ve been waiting for a pullback before buying, I understand your frustration. This is a one-of-a-kind stock. You can’t buy into Jeff Bezos’ rocket company or Elon Musk’s. So all the public money that wants into this sector is here. Of course, the stock will cool off sometime in the future, and if you’ve got a big profit you can consider taking partial profts here. But long-term, the prospects are bright. In last week’s update, Carl wrote, “Media attention to the private space race has centered on Jeff Bezos, who founded Blue Origin, in 2000, Elon Musk’s SpaceX, which was founded in 2002 with colonizing Mars as its ultimate mission, and of course Richard Branson, who started Virgin Galactic in 2004. This is an aggressive idea that has made a strong move since being added to the Explorer portfolio but I believe there is more upside as the company is likely to remain in the media spotlight throughout 2020. This stock has a lot of momentum behind it.” BUY.

Yeti (YETI), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here last week, has quickly become a loser, thanks to an underwhelming earnings report. Mike recommended selling last week, and now I’m doing the same. SELL.


The next Cabot Stock of the Week issue will be published on February 24, 2020.

Cabot Wealth Network
Publishing independent investment advice since 1970.

CEO & Chief Investment Strategist: Timothy Lutts
President & Publisher: Ed Coburn
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | support@cabotwealth.com | CabotWealth.com

Copyright © 2020. All rights reserved. Copying or electronic transmission of this information is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. No Conflicts: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to its publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved.