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 298

The overall market continues to look healthy—though we still haven’t yet received an “all-clear” signal from our long-term timing indicator—and our stocks, in general, continue to reward, with many hitting new highs in recent days as the economic outlook improves.

Long-term, the prospects for the economy and market have improved, but short-term, the relative elation of recent days has brought numerous growth stocks to what seem like unsustainable heights—so I’ve lowered the ratings on three of our positions to Hold, and if you’d like to take partial profits, that’s fine with me.

As for today’s recommendation, it’s a very unusual one for me. But the chart is strong and the story has some validity, so we’ll give it a shot!

Full details in the issue.

Cabot Stock of the Week 298

[premium_html_toc post_id="205596"]

The broad market remains in an uptrend, according to our intermediate-term market timing indicator, though the longer-term trend is still down. Thus, it’s not yet prudent to return to full investment. Still, our recommended stocks have been performing quite well, and with every week’s recommendation we are once again drawing closer to full investment. As always, however, diversification remains essential—and that brings me to today’s somewhat unusual feature stock, which was first recommended by Mike Cintolo in Cabot Top Ten Trader. Here are Mike’s latest thoughts.

Barrick Gold (GOLD)
We’ve never really been gold bugs, as the big money is made over time by owning shares of firms with new, revolutionary products that change the way we work and live. But like every sector, gold enjoys its moments in the sun, and the combination of virus-related economic uncertainty, central bank liquidity and government stimulus has created an excellent backdrop for the yellow metal.

Indeed, after seven years in the dumps, gold prices had already been on an upswing for over a year, and the recent global chaos has only helped that along—gold is currently sitting around $1,640 per ounce, its highest level since the very beginning of 2013.

Obviously, then, it’s a good time to be a gold miner, and while everyone in the group should benefit, we usually prefer to go with one of the blue chips in the group. Enter Barrick Gold, one of the larger gold producers in the world, with $10 billion in revenue last year that is cranking out around five million ounces of gold annually, mostly from a half dozen Tier 1 mines. It also does a decent business in copper (can be up to 10% of revenue), but gold is clearly the driver here.

Barrick’s Tier 1 mines are found all over the globe, but it’s putting a lot of effort into North America in general, and Nevada in particular; the firm’s Carlin Trend, Cortez and Turquoise Ridge mines in that state make up nearly 40% of its gold output, and all three (along with another mine called Goldrush, which is still in the exploratory phase) contain plenty of expansion opportunities going forward. Outside of the U.S., mines in Argentina, Mali, Congo, the Dominican Republic and Papua New Guinea are all key contributors.

That’s not to say Barrick is necessarily firing on all cylinders. First-quarter total gold production of 1.25 million ounces was off a bit from a year ago, and more important, the company shuttered its mine in Papua New Guinea due to what appears to be a political dispute (it’s headed to the courts). That caused the top brass to cut production guidance for 2020 to around 4.8 million ounces from 5.0 million previously.

Even so, Barrick is raking in the cash and seeing earnings lift nicely. In Q1, it realized $1,589 per ounce of gold sold, up more than 21% from a year ago, all while keeping costs in check (all-in costs of $954 per ounce). That allowed earnings to leap 45% while free cash flow tripled from Q1 2019. And the top brass is using the windfall not just to boost exploration but to shape up the firm’s balance sheet; after slashing debt by a whopping 47% in 2019, Barrick cut debt by another 17% in Q1 alone, and it has no debt maturities until 2033. It’s also hiked the dividend, which now yields around 1% annually.

Going forward, Barrick isn’t likely to see huge production growth, but it should be consistent and leveraged to the price of gold. Management has a goal of around five million ounces of output annually for the next 10 years, and while long-term forecasts in this sector can quickly go up in smoke, Barrick does have the mines and infrastructure already in place to achieve those goals. More important to us is the near future, where analysts see earnings rising 53% this year and another 27% next, both of which could prove conservative if gold prices continue to firm up.

As for the stock, it topped at 23.5 back in 2016, dropped as low as 9.5 in 2018 and made a run at new highs earlier this year before the market’s crash dragged it down into early March. But that proved to be a shakeout, as GOLD immediately showed tennis ball action; shares motored up six weeks in a row to new highs, and recently, have rested for a couple of weeks as the 25-day line has caught up. We think that marks a solid entry point right around here. BUY.

Tim’s note: As Mike said at the start, we’ve never been big fans of gold. But I do believe in charts, and when a positive chart (like GOLD’s) is accompanied by a tale of great potential growth—thanks in part in this case to central banks printing money—I listen.

GOLD-051820

GOLDRevenue and Earnings
Forward P/E: 36Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Current P/E: 49($bil)(vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) 10.5%Latest quarter2.7230%0.1645%
Debt Ratio: 24%One quarter ago2.8851%0.17183%
Dividend: $0.28Two quarters ago2.6846%0.1588%
Dividend Yield: 1.0%Three quarters ago2.0621%0.0929%

Current Recommendations

StockDate BoughtPrice BoughtYieldPrice on 5/18/20ProfitRating
AbbVie (ABBV)3/31/20765.1%9321%Hold
Barrick Gold (GOLD)New1.0%27Buy
Blackline Inc (BL)Sold
Fanuc Corp. (FANUY)4/21/20131.4%1724%Buy
Huazhu Group Limited (HTHT)3/30/1690.0%34263%Hold
Luckin Coffee (LK)6/19/19200.0%4.39-78%Hold
Marathon Petroleum (MPC)4/7/20246.6%3545%Buy
NextEra Energy (NEE)3/27/191942.4%23622%Hold
Nvidia (NVDA)3/10/202540.0%35038%Hold
RingCentral (RNG)10/23/191530.0%26876%Hold
Sea Ltd (SE)1/21/20410.0%6969%Hold
Tesla (TSLA)12/29/11300.0%8072623%Hold
Trulieve (TCNNF)4/28/2010.420.0%13.2928%Buy
Tyson Foods (TSN)5/5/20562.8%618%Buy
Verizon Communications (VZ)5/12/20564.4%56-1%Buy
Vertex Pharmaceuticals (VRTX)1/7/202240.0%28527%Buy
Virgin Galactic (SPCE)10/11/199.240.0%1674%Hold
Zoom Video (ZM)03/17/201080.0%16654%Hold
Zscaler (ZS)4/14/20650.0%7414%Hold

With today’s addition of Barrick Gold, the portfolio grows to 18 stocks, two shy of our fully-invested 20—and many of these stocks are hitting new highs! However, short-term, I see increasing risk that these recent gains (on prospects of re-opening) will give way to profit-taking, so today I’m downgrading three of our stocks to Hold. If you want to take partial profits, that may be appropriate. Details below.

Changes
Nvidia (NVDA) to Hold
Zoom Video (ZM) to Hold
Zscaler (ZS) to Hold

AbbVie (ABBV), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, keeps on chugging higher; the stock is almost back to its February high of 96! In last week’s update, Tom wrote, “The biopharmaceutical giant officially completed the purchase of Allergan on Friday. The deal will further diversify AbbVie from Humira earnings and buy time for the new drugs to pick up revenues Humira will lose. The stock had a huge run before the bear market and seems to have caught fire again as investors realize the value. This stock has been hot stuff. It’s a great company that is selling at a good value and the earnings are little affected by the virus. It’s the perfect stock for the remainder of the crisis and beyond.” HOLD.

Fanuc (FANUY), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and also serve as the brains of industrial robots. The stock bounced nicely off its March bottom and has been basing in the 16-17 region over the past few weeks. In last week’s update, Carl wrote, “Fanuc offers investors a pristine balance sheet with zero debt and a sizable $7 billion in cash. Profit margins are impressive and Fanuc also bought back 72 million shares last month. In short, Fanuc is a high-quality play on what seems to be an unstoppable trend. I encourage you to buy this conservative robot play if you have not already done so.” 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 has made no progress over the past two years, but the business keeps growing, so long-term prospects remain good. HOLD.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is still not trading, pending the release of more information from the company. In the meantime, there has been “progress.” Last week, the Luckin board fired its CEO and noted that the company’s stores throughout China remain open. HOLD.

Marathon Petroleum (MPC), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, has not only developed a nice uptrend since the March bottom, in spite of all the bad news about oil—it’s working on a breakout today! In a special update today, Crista wrote, “The stock market is enthused at the prospect of businesses reopening around the globe. This directly benefits the energy industry via increasing demand for oil products. MPC rose above a trading range today, with no upside price resistance in sight. Traders and dividend investors should buy MPC now.” BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, remains lethargic—while regularly paying its dividend. In his latest update, Tom wrote, “This regulated and alternative energy utility is an ideal company for the current economy. Revenues are highly dependable and unaffected by the lockdown. At the same time, the company owns the future with its world-leading alternative energy business. But it has underperformed the overall market in this selloff. The reason is that the price got too high during the bull market and needed a correction. At the same time, the bear market is producing a lot of cheap values and the relative value of NEE is diminished. But now, the stock price is coming back to earth and the stock remains one of the very best long term holdings for conservative investors. The combination of safety and growth doesn’t go out of style for long. If the market again turns south, I will recommend a BUY on NEE at a cheaper price.” HOLD.

Nvidia (NVDA), originally recommended by Crista Huff for the Special Situation and Movie Star portfolio of Cabot Undervalued Stocks Advisor, broke out to another new high on big volume Friday and gapped up even farther today! In a special update today, Crista wrote, “Wall Street is expecting NVIDIA to report $1.68 first-quarter EPS and $3.0 billion revenue on the afternoon of May 21 (January year end). The company beat earnings expectations in each of the last five years and also in the last five quarters, which translates into investor confidence that NVIDIA tends to under promise and over deliver. Be aware that when a popular growth stock has a big run-up prior to an earnings reports, it’s common that it then falls upon the earnings release, no matter whether the earnings report was good or bad. That situation is generally attributed to traders taking profits. The stock has been rapidly rising to new all-time highs, partially influenced by today’s rating and price target upgrades by the Bank of Montreal (a.k.a. BMO). I’m moving NVDA from Buy to a Hold recommendation. At some point soon, it’s going to pull back and rest.” I’ll follow suit. HOLD.

RingCentral (RNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is definitely in the class of companies benefitting from the virus shut-in as more and more people work to master the logistics of working at home. The stock hit another new high this morning, though trading volume on the advance has been fading, so a pause (at least) seems likely. HOLD.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is an Asian e-commerce and gaming giant, and the stock looks great, gapping out to new highs this morning after the company released its first-quarter report. Revenues were $914 million, up 58% from the year before, while total adjusted EBITDA was -$69.9 compared to -$32.0 a year ago. I’ll fill you in on Carl’s thoughts next week. 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) and the stock remains very healthy, wedging upward as production resumes at the company’s Fremont, California factory and leaks identify the location of the company’s next Gigafactory as Austin, Texas. HOLD.

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, was strong late last week in sympathy with its Canadia peer Aurora (ACB), which reported a good quarter, and today the stock gapped up even further. Short-term, the stock looks ripe for a pullback, but given the fact that the marijuana sector has recenty completed a bear market that took the average stock down 85%, I’ve got to say that there’s far more upside potential than down. In my update in Cabot Marijuana Investor last week, I wrote, “Trulieve is not only the market leader in Florida, with 45 medical dispensaries and over 50% market share, it’s also a contender for biggest seller of marijuana in the entire U.S., with revenues of $253 million last year. Going forward, analysts are expecting EPS of $0.53 in 2020 and $0.72 in 2021, which translates to a forward P/E ratio of 21, pretty good for a company growing this fast.” And I averaged up. BUY.

Tyson Foods (TSN), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Investor, remains in a basing pattern and is thus still attractive from a longer-term perspective. In last week’s update, Crista wrote, “TSN is an undervalued stock, attractive for growth investors and dividend investors. Profits are expected to fall 7% in 2020 due to pandemic business disruptions, then rise 22% in 2021.” BUY.

Verizon (VZ), originally recommended by Tom Hutchinson for the High Yield Tier of Cabot Dividend Investor, pulled back further last week and is thus a slightly better buy than when I originally recommended it. In his update last week, Tom wrote, “In this pandemic cell phones are becoming consumer staples almost on a par with food and housing. That said, Verizon’s first quarter earnings report showed some pain from reduced equipment sales and postpaid subscribers during the pandemic. But revenues fell just 1.6% for the quarter and sales were flat. The company also predicted flat earnings for the year. That’s pretty solid considering what many companies are facing. That’s probably why the stock is down less than 3% in the bear market. It’s a rock solid holding through this crisis. But the exciting part of the story lies ahead. This stock will add an element of strong earnings growth when 5G comes out. 5G will also be a big market driver in the post virus world.” BUY.

Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, hit another new high today! In his update last week, Mike wrote, “Vertex and partner Crispr Therapeutics announced they received a Regenerative Medicine Advanced Therapy designation (which expedites drug development and reviews) from the FDA for a new stem cell therapy they’re working on to treat severe sickle cell disease. That’s a small plus for Vertex’s pipeline (this treatment has also received Orphan Drug status as well), though its cystic fibrosis treatments remain the main attraction here. Shares remain in a solid uptrend.” We’ll stay on Buy. BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, has definitely cooled off, but I’m holding tight because I love the stock’s long-term potential. In his update last week, Carl wrote, “Shares pulled back in the last couple of days after Richard Branson’s Virgin Group announced plans to sell up to 12% of its ownership in Virgin Galactic to raise cash for some of his other ventures that are under pressure due to Covid-19. Anticipating something like this development is why I recommended selling half your shares a couple of weeks back for a 146% gain.” HOLD.

Zoom Video (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains one of the highest-profile stocks today, thanks to the coronavirus shut-in and the booming growth in video interactions. The stock had a record closing high last Friday and pulled back normally today. Long-term prospects remain great (if management pulls the right levers) but short-term, it looks like the stock is ripe for a pause and thus I’ll downgrade ZM to hold now. Take some partial profits if you like. HOLD.

Zscaler (ZS), originally recommended by Mike Cintolo in Cabot Growth Investor, is a fast-growing internet security stock with great growth prospects but to me the stock looks extended now, so I’ll downgrade it to hold. The stock could easily pull back to 65. HOLD.


The next Cabot Stock of the Week issue will be published on May 26, 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.