These few companies found in today’s issue are newsworthy, and lots of people are pondering buying and selling these stocks, so let’s get a firm grasp on whether the stocks warrant your attention.
Cabot Undervalued Stocks Advisor 1218
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Another Dow 30 Shakeup is Coming
November brought some significant news about General Motors (GM) and United Technologies (UTX), while General Electric (GE) continues to invite investor inquiries. As our portfolio stocks experience share price recoveries alongside the broader market, in the aftermath of the October stock market correction, let’s hold tight and give them some rope. We can always shuffle the portfolios in January or February as stocks hit price resistance.
For now, I thought it would be helpful to discuss GE, GM and UTX, because no doubt many investors own these stocks and they’re wondering whether they should buy, hold or sell. The answer is “Yes!” I’ll discuss those later, but first, let’s take a look at the S&P 500 index.
U.S. stock markets are recovering from the October correction in an orderly fashion. The S&P 500 index bounced at roughly the same places in October and November as it did in April and May. That means there’s a “method to the madness”.
I expect December to deliver a nice stock market rebound, which will be somewhat restrained by tax-loss selling, especially among some of the very popular FANG stocks. Then in January, as long as something big and unexpected does not occur, I expect the S&P 500 to retrace its September highs. That could actually happen in December, but January seems more realistic to me.
You’ll also notice on the price chart that the February 2018 stock market correction brought the S&P 500 to the same bottom repeatedly in February and March. The drop is unnerving, but for me, the repetition in the bottom of the market is soothing. It tells me that we’re experiencing a very orderly price correction, and that we’re not having a crash. Crashes are rare, anyway, but they sure make exciting headlines, don’t they?
Speaking of exciting headlines, I saw a news headline this weekend that implied that lower iPhone sales could cause Apple (AAPL) to slash its dividend payout (shaking head). It’s hard for me to describe, in polite language, the animosity I feel toward the media when they purposely aim to scare investors. There is no chance that iPhone sales are a problem at Apple, and there is no chance that Apple plans to slash its dividend. Sigh. Companies slash dividends when their finances are a mess and they’re cash-strapped. Apple is wildly profitable, with so much cash on hand that they authorized a $100 billion share repurchase in May 2018. Carry on.
Buy and Sell within trading ranges. Now that many stocks are recovering from the market correction, keep in mind that they won’t go straight up. They will typically rise to price resistance and then pull back for a few days or weeks. Pay attention to the trading ranges that I outline for some of our stocks, below, and consider enhancing your portfolio returns by selling at price resistance and subsequently buying at price support.
Buy airline stocks. I have not historically been bullish on airline stocks, due to their spotty profitability and high debt levels, as echoed in Barron’s last week. In recent years, airlines’ balance sheets became much more attractive. There’s good fundamental quality with our portfolio stocks: Delta Air Lines (DAL) and Southwest Airlines (LUV). Airline stocks are advancing with more strength than most other industries right now. I also like Alaska Air Group (ALK). Watch for an opportunity to buy ALK on a pullback to 70.
Alternatively, I recommended US Global Jets ETF (JETS) in the November issue. JETS then rose 7.5% through November 30. Consider buying JETS on a pullback below 32.
Go shopping for big dividend yields on growth stocks. When stocks fall during market corrections, their dividend payouts offer higher yields. For example, the dividend yield on Blackstone Group LP (BX) at a share price of 39 in September was 6.2%. Five weeks later, the stock fell as low as 30.5, presenting new investors with a 7.9% yield. Granted, dividend payouts at Blackstone Group will vary, and not everybody wants to own limited partnership shares.
Looking at BB&T Corp. (BBT), as the stock recently fell from 52 to 46, the dividend yield on new purchases grew from 3.1% to 3.5%. When you buy low during market corrections, you lock in a higher yield! Then the stock recovers in a few short months, and you benefit with both capital gains and attractive dividend income.
If you’d like to lock in a higher-than-normal dividend yield on a stock with strong fundamentals, while awaiting its share price rebound, then consider Blackstone Group LP (BX – yield 7.0%), Comerica (CMA – yield 3.0%), Total S.A. (TOT – yield 5.3%) and WestRock (WRK – yield 3.8%).
Thinking of buying low on General Electric (GE)? Don’t get sentimental about GE’s former place in American business history. Be cautious and assess what GE has become: a troubled, cash-strapped company. Bloomberg reported that while the company has $20 billion in cash, it’s also true that GE blew through $17 billion in cash during the first three quarters of 2018. As cash is depleted, GE could access its $40 billion in credit lines. That sounds like a lot of money, but consider that the company has $18 billion in debt coming due in 2020. Boom! Half that credit line could be swallowed up a year from now.
Two of the costlier problems at GE include the underfunded pension plan and the long-term care insurance policies at GE Capital, the latter of which has no viable solution in sight, despite close attention from management teams at GE, Blackstone Group, Berkshire Hathaway and Athene Holding Ltd.
Businessman Glenn Rogers says “GE is the sixth most indebted non-financial company in the world.” John Bromels at The Motley Fool adds detail in General Electric: What the Bulls Are Missing as he lays out a strong case for GE’s debt load exceeding the value of GE’s various businesses.
I warned of GE’s falling share price repeatedly during the last 12 months. At this time, I’m going neutral on the share price, because my crystal ball is cloudy. If I were previously playing with put options and short-selling, I’d rein in my positions now.
What should you do with your General Motors (GM) stock? Shareholders are very aware that the company announced quite a few changes last week. The media tried its best to make the decision political, which really messed with public perceptions of what’s actually happening. GM didn’t announce changes in order to harm their workers and reward rich people. GM announced changes in order to move the company in a direction that allows it to thrive in the future, thereby continuing to be a large-scale U.S. employer. Which would you prefer, a layoff of 14,000 people at a company with stagnant profits today, or a layoff of many tens of thousands of people in the future, and possible bankruptcy, at a company that failed to plan for long-term changes in consumer demand?
I removed GM from our Growth & Income Portfolio in December 2016 as the company’s earnings growth outlook faded. At this point, earnings per share (EPS) are expected to fall 5.4% in 2018 and fall another 6.4% in 2019. That’s not a disaster, and the dividend is safe. But you can see that falling profits are not good, and a new game plan for the company is warranted. I commend CEO Mary Barra for her foresight.
If I owned GM as a growth investor, I’d ride it back up to 44, at which point I’d trade out in search of a stock with attractive earnings growth. If I owned GM as a dividend investor, I’d buy more now while the yield is 3.9%. Once the stock returns to 44, where it last traded in June, the yield for new investors will be 3.4%. So you can see that buying low on dividend stocks during market corrections can be a lucrative move.
Put this in your “market action tickler file.” You heard about United Technologies’ (UTX) plans to split into three companies, and you can read more about that in this week’s stock review of DowDuPont (DWDP), below. But there’s additional pertinent news to ponder.
In Big Changes are Coming to the Dow as United Technologies and DowDuPont Get Ready for Breakups, Barron’s speculates that both UTX and DWDP will likely leave the Dow Jones Industrial Average – which I’ll refer to as the Dow 30 – as their spin-offs occur. The largest remaining part of United Technologies will be its aerospace division, and the Dow 30 already contains Boeing (BA), so watch for UTX to be removed and replaced.
Barron’s offers some help in anticipating which stocks might be added to the Dow 30, to replace UTX and/or DWDP. Here are some key points:
• Dow 30 stocks must be members of the S&P 500 index.
• Dow 30 stocks must be domiciled in the U.S.
• Dow 30 stocks cannot be classified in the transportation or utilities sectors.
• The Dow 30 committee prefers that the price of new Dow 30 stocks not be more than 10 times higher than the lowest-priced Dow 30 stock. Currently, the highest-priced Dow 30 stock is Boeing (BA) at 359 and the lowest-priced stock is Pfizer (PFE) at 46. Therefore, if new stocks were added today, the potential share price range could be anywhere from 36 to 460.
• The Dow 30 committee prefers that new entrants pay a dividend.
The article mentions that technology stocks are currently underweighted within the Dow 30, and that Oracle (ORCL) might be a potential candidate for inclusion in the market index. Put on your thinking caps and let’s see if we can anticipate other worthy candidates for the Dow 30.
Send questions and comments to crista@cabotwealth.com.
Portfolio Notes
Be sure to review the Special Bulletin from November 30 in which I mentioned news, rating changes and/or price action on Delta Air Lines (DAL), GameStop (GME), Guess? (GES), Southwest Airlines (LUV) and WestRock (WRK).
Buy-Rated Stocks Most Likely* to Rise More than 5% Near-Term
Apple (AAPL)
Blackstone Group LP (BX)
Delek U.S. Holdings (DK)
Guess? (GES)
Marathon Petroleum (MPC)
Skechers (SKX)
Universal Electronics (UEIC)
Westrock (WRK)
*I can review price charts and make an educated determination about what’s likely to occur, but I will sometimes be wrong. I cannot control the stock market; I can only guide you through it.
Growth Portfolio
Growth Portfolio stocks have bullish charts, strong projected earnings growth, little or no dividends, low-to-moderate P/Es (price/earnings ratios) and low-to-moderate debt levels.
Updates on Growth Portfolio Stocks
CIT Group (CIT – yield 2.1%) operates both a bank holding company and a financial holding company that provide financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CIT is an undervalued aggressive growth stock with an attractive dividend yield. Wall Street expects EPS to grow 27.7% and 21.9% in 2018 and 2019. The 2019 P/E is 9.7. I expect CIT to trade between 46 and 51 in the coming weeks. Traders can probably sell near 51 and then buy back below 48. Buy.
D.R. Horton (DHI – yield 1.6%) is America’s largest homebuilder by volume, operating in 27 states, and also providing mortgage and title services. Wall Street expects EPS to increase 13.9% and 7.1% in fiscal 2019 and 2020 (September year end). The 2019 P/E is 8.6. The price chart is improving, with upside resistance at 42. Hold.
KLX Energy Services Holdings (KLXE) recently spun off from KLX Inc. (KLXI). The company will report third quarter results on the morning of December 5 (January year end). As a reminder, KLX Energy pre-announced third-quarter results on October 22, reporting aggressive revenue and profit growth. The share price has not yet stabilized from the exaggerated market correction among energy-related stocks. Hold.
Knight-Swift Transportation Holdings (KNX – yield 0.7%) is the largest full truckload carrier in North America and an industry leader with an exemplary management team. KNX is an undervalued mid-cap growth stock. Analysts expect EPS growth of 71% and 14.4% in 2018 and 2019. The 2019 P/E is 12.8. I anticipate a near-term trading range between 31 and 37. Traders can probably sell at 37 and then buy back near 33. Buy.
Marathon Petroleum (MPC – yield 2.8%) is a leading, integrated, downstream energy company and the nation’s largest energy refiner, with 16 refineries, majority interests in two midstream companies, 10,000 miles of oil pipelines, and product sales in 11,700 retail stores. High inventory levels of gasoline are contributing to lower prices for consumers and depressing refiners’ stock prices.
Marathon will host an Investor Day on December 4 that should update data on expected cost synergies associated with the Andeavor acquisition, a potential combination of the Marathon and Andeavor MLPs, and guidance for the fourth quarter and 2019 financial outlook. As we recently experienced with Blackstone Group (BX) and Voya Financial (VOYA), Marathon’s Investor Day could easily ignite both excitement about the company’s future and a pop in the share price.
MPC is an undervalued aggressive growth stock with an attractive dividend yield. Wall Street expects full-year EPS to grow 33.9% and 45.3% in 2018 and 2019. The 2019 P/E is 8.6. The stock is stabilizing from its recent drop, and will likely trade between 63 and 70 for several weeks. Buy.
Martin Marietta Materials (MLM – yield 1.0%) is a supplier of stone, sand, gravel, cement, concrete and asphalt. The company foresees a continuing growth trajectory, fueled by strong demand combined with increased government spending. Wall Street expects EPS to grow 15.6% and 17.6% in 2018 and 2019. The 2019 P/E is 19.5. I expect MLM to trade between 180 and 210 in the coming weeks. Hold.
Quanta Services (PWR) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. Investors may listen to Quanta’s November 28 presentation at the Credit Suisse Industrials Conference. PWR is an undervalued growth stock. PWR is an undervalued growth stock. Wall Street expects full-year EPS to grow 40.1% and 16.3% in 2018 and 2019. The 2019 P/E is 10.9. PWR is actively rising to medium-term price resistance at 37. I then expect a pullback to 35. Buy.
Southwest Airlines (LUV – yield 1.2%) is the largest U.S. domestic air carrier, transporting over 120 million customers annually to over 100 locations in the U.S., Central America and the Caribbean. The recent drop in crude oil prices adds to Southwest’s profitability. Analysts expect EPS to grow 18.0% and 12.8% in 2018 and 2019. The 2019 P/E is 11.7. I’m monitoring the 2019 EPS growth projection, which is a bit low for the Growth Portfolio, and might therefore retire LUV from the portfolio when it rebounds near 64. LUV is rising, with price resistance at 59 and again at 64. Strong Buy.
Supernus Pharmaceuticals (SUPN) focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy and migraine. Three treatments for ADHD and bipolar disorder are currently in trial phases. Investors may listen to the webcast of Supernus’ November 27 presentation at the 30th Annual Piper Jaffray Healthcare Conference.
SUPN is an undervalued, small-cap aggressive growth stock. Wall Street expects EPS to grow 48.4% and 29.9% in 2018 and 2019. The 2019 P/E is 19.5. SUPN is racing toward 50. I would then expect a short-term pullback to 46. Strong Buy.
Voya Financial (VOYA – yield 0.1%) 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 full year EPS to grow 108% and 36.8% in 2018 and 2019. The 2019 P/E is 8.2. Management intends to increase the dividend yield to 1% in 2019. The stock could easily trade between 43 and 49 in the near term, with additional price resistance at 55. Buy VOYA now. Strong Buy.
Growth & Income Portfolio
Growth & Income Portfolio stocks have bullish charts, good projected earnings growth, dividends of 1.5% and higher, low-to-moderate P/Es (price/earnings ratios), and low-to-moderate debt levels.agencies, and the company is focused on continued debt reduction.
Featured Stock: DowDupont (DWDP—yield 2.6%)
Last week, United Technologies (UTX) announced their intention to break up into three companies by 2020, consisting of their aerospace (Rockwell Collins and Pratt & Whitney), Otis elevator and Carrier air-conditioning divisions. Right away I thought of DowDuPont (DWDP) in our Growth & Income Portfolio, which plans to break up into three companies by June 2019: Corteva Agriscience, Dow Chemical and DuPont. Investors are going to pause and consider whether they should own UTX in advance of the break-up, so this is a perfect time to compare UTX and DWDP, to see whether one of the companies presents a superior opportunity for stock investors.
Both companies recently completed large M&A transactions. United Technologies just closed on the $30 billion purchase of aerospace company Rockwell Collins in November 2018. United Technologies’ aerospace division will be the largest of its three companies after the break-up. DowDuPont was formed in September 2017 upon the merger of two chemical giants: Dow Chemical and DuPont de neMours.
In addition, both companies apparently planned their subsequent spin-offs while planning the original mergers. Sometimes corporate America creates value by breaking companies apart, and other times they create value by combining companies. There tend to be multi-year trends involving one M&A style or the other, but with United Technologies and DowDuPont, we’re seeing both types of activity in quick succession.
Spoiler alert: I’m about to show you that the pertinent numbers at DowDuPont are better than the numbers at United Technologies.
DowDuPont offers stronger earnings growth, a lower P/E, a lower debt ratio, and a higher dividend yield than United Technologies. If we ignore all of those numbers, and just look at UTX and DWDP in terms of their upside potential as they retrace their September highs, DWDP still comes out ahead, with 19% upside to 70 vs. UTX’s 14% upside to 141.
Don’t get me wrong; UTX is an attractive stock. But DWDP is more attractive. I won’t fault anybody for owning both stocks, but I will be disappointed if you choose UTX over DWDP—unless, of course, your portfolio is already overweighted in chemical stocks. In that case, I forgive you!
Investors may access Dow’s webcast and presentation from the November 27 Citi Basic Materials Conference.
Last week, CNBC’s Jim Cramer commented on DWDP, “I think you should buy more. I think the breakup pain is over and the game’s about to start. Please let’s not write off [CEO] Ed Breen. He’s done it before he’s gonna do it again. Three companies, maybe even you get five. I like this stock.” Kiplinger recommended DWDP in their recent 8 Stocks to Buy for 2019.
I’m moving DWDP from Buy to Strong Buy, now that the threat from the October market correction has dissipated and the stock is rebounding. The stock will likely trade between 56 and 65 through year end. Buy DWDP now. Strong Buy.
Updates on Growth & Income Portfolio Stocks
BB&T Corp. (BBT – yield 3.2%) is a 145-year-old financial holding company with $222.9 billion in assets and 1,900 financial centers that serve businesses and individuals. BBT is an undervalued growth & income stock. Analysts expect full-year EPS to grow 42.7% and 9.8% in 2018 and 2019. The 2019 P/E is 11.7. BBT is resting now after recovering from its drop during the October market correction. There’s upside price resistance at 52.5 and again at 54.5. Buy.
Blackstone Group LP (BX – yield 7.0%*) is the world’s largest and most diversified alternative asset manager with $456.7 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Presuming that Blackstone does not become a C-corp, analysts expect Blackstone’s full-year ENI to grow 5.3% and 9.5% in 2018 and 2019. The 2019 P/E is 10.4.
BX is an extremely attractive investment for yield investors and growth & income investors. The stock could easily trade anywhere between 33 and 36.5 in the coming weeks, with a maximum near-term upside of 39. Speculative investors have an opportunity for additional capital gains if BX converts from an L.P. to a C-corp. next year. Buy BX now. Strong Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.42 and yielding 7.0%.
Comerica (CMA – yield 3.0%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. Comerica’s CEO will present at the Goldman Sachs U.S. Financial Services Conference 2018 on December 5. Investors can expect Comerica to continue to make significant share repurchases and a dividend increase in 2019. Comerica is one of the most asset-sensitive banks in the U.S., with variable rate loans amounting to almost 90% of total loans, and non-interest bearing deposits totaling 52% of all deposits, thus benefiting from rising interest rates.
CMA is an undervalued growth & income stock. Wall Street expects EPS to increase by 50.6% and 11.9% in 2018 and 2019. The 2019 P/E is 9.9. CMA has stabilized from the October market correction, but has not begun its recovery. Investors who buy low have an opportunity to lock in a 3% dividend yield, with a potential 25% capital gain opportunity as the stock rises to its August high of 99. Patient investors should buy CMA now. Buy.
Commercial Metals Company (CMC – yield 2.4%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Analysts expect 40.9% EPS growth in fiscal 2019 (August year end), and the P/E is quite low at 9.2. CMC is appropriate for traders, growth & income investors, and risk-tolerant growth investors. There’s upside price resistance at 22.5. Buy.
Delta Air Lines (DAL – yield 2.3%) is a U.S. and international passenger and cargo airline with an extensive and efficient hub complex. DAL is an undervalued growth & income stock. The recent drop in crude oil prices has fueled increases in consensus earnings estimates. Analysts now expect EPS to grow 12.4% and 16.6% in 2018 and 2019. The 2019 P/E is 9.4.
DAL broke out of its 2018 trading range last week, now reaching its highest share price since the 2007 bankruptcy time period. Stocks that break out of trading ranges will often pull back one more time before commencing the new run-up in earnest. (I’m not necessarily expecting a pullback, though, due to market strength among airline stocks.) Odds are strong that nobody has missed their opportunity to capitalize on the run-up. Buy DAL today, and buy more on a pullback near 58. Strong Buy.
GameStop (GME – yield 11.1%) This month, GameStop agreed to sell its Spring Mobile division, which operates approximately 1,300 AT&T wireless stores, to Prime Communications L.P. for $700 million. Management intends to use the proceeds of the sale to pay down debt, repurchase stock and/or invest in ongoing business development. Management continues its strategic review for a potential sale of the company to deliver a higher return to shareholders than the stock market is currently offering. This stock is for risk-tolerant investors who are attracted by the prospect of a possible M&A deal.
As an aside, there’s no particular reason to believe that the dividend is in jeopardy. GameStop is a profitable company. It would be highly unusual for a company to buy back stock with excess cash while also considering reducing the dividend payout. However, an M&A deal will eventually disrupt the dividend flow to income investors. Hold.
Guess?, Inc. (GES – yield 3.8%) is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements. Revenue growth largely stems from expansion in Asia and Europe, while rising operating margins are contributing to multi-year EPS growth.
After last week’s third-quarter earnings report, consensus estimates for fourth-quarter EPS and revenue increased (January year end). The EPS estimate rose from $0.75 to $0.77, while the revenue estimate rose from $812.5 to $829.6. In addition, the full-year fiscal 2020 EPS estimate rose from $1.33 to $1.35, reflecting year-over-year EPS growth of 22.0%. The 2020 P/E is 17.6.
GES is an undervalued aggressive growth stock with a big dividend yield. GES has been in a trading range since late March, between 19 and 25. We could finally see the stock surpass 25 in the coming months as the broader stock market continues to recover from the October correction. Strong Buy.
Regions Financial Corp. (RF – yield 3.4%) is an Alabama-based superregional bank serving the South, Texas and the Midwest via 1,500 banking offices. The bank offers commercial and consumer loans, wealth management, and insurance products and services. Regions’ management will present at the Goldman Sachs U.S. Financial Services Conference 2018 on December 5. Analysts expect EPS to increase 40.7% and 4.6% in 2018 and 2019. The 2019 P/E is 10.3. RF is likely to trade between 15.75 and 17.75 in the near term. Hold.
Schlumberger (SLB – yiel
d 4.4%) is the world’s largest oilfield service company. A dominant current theme in Middle East energy markets is one of energy producers operating near full capacity, and their willingness to spend money to increase capacity. The number of U.S. rigs drilling for crude oil and natural gas fell by three last week to a total of 1,076, up 147 vs. a year ago. SLB is expected to see EPS grow aggressively in 2019, at a rate of 29.1%. The 2019 P/E is 20.3. Cabot options analyst Jacob Mintz reports that last week, an investor spent $1.78 million on June 2019 call options on SLB. The share price has been weak and has not yet stabilized. Patient investors can accumulate shares while locking in the attractive yield. Buy.
Total S.A. (TOT – yield 5.3%) is a French multinational oil and gas company operating in over 130 countries. TOT is an undervalued growth & income stock with a large dividend yield. Analysts expect EPS to grow 32.5% and 8.8% in 2018 and 2019. The 2019 P/E is 9.4. TOT is trading at its March 2018 lows (but not as low as during the February 2018 market correction). Rising oil prices and dividend increases are potential catalysts for the share price in 2019. Buy TOT in order to lock in the high dividend yield while awaiting the rebound in the share price. Strong Buy.
WestRock Company (WRK – yield 3.8%) is a global packaging and container company. WRK is an undervalued growth & income stock with a big dividend yield. The company finished fiscal 2018 (September year end) with EPS rising 56.1% and is expected to see 2019 EPS rise 12.5%. The 2019 P/E is 10.2. WRK is rising, and could reach upside resistance at 54 before year end. The stock is appropriate for traders, and for investors seeking growth, value and/or dividends. Buy WRK now. Strong Buy.
Buy Low Opportunities Portfolio
Buy Low Opportunities Portfolio stocks have neutral charts, strong projected earnings growth, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels. (Dividends are not a portfolio requirement, but some of the stocks will have dividends.) Investors should be willing to wait patiently for these stocks to climb.
Sometimes a stock in the Buy Low Opportunities Portfolio produces good capital gains and the share price is no longer low, yet the stock remains an attractive investment. Those stocks will then be moved into the Growth Portfolio or the Growth & Income Portfolio.
Updates on Buy Low Opportunities Portfolio Stocks
Alexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments for severe and rare health disorders. Investors may listen to the November 27 webcast of Alexion’s presentation at the Evercore ISI Healthcare Conference. An updated report on ALXN1210 studies is expected in the first quarter of 2019. Analysts expect EPS to grow 30.0% and 14.2% in 2018 and 2019. The 2019 P/E is 14.2. ALXN has traded between 115 and the upper 130’s since May. Traders and risk-tolerant growth stock investors should buy ALXN now. Strong Buy.
Apple Inc. (AAPL – yield 1.6%) is a manufacturer and provider of many popular technology devices and services, include the iPhone, iPad, App Store, Apple Care, iCloud and more. Analysts expect fiscal 2019 EPS to rise 12.7% (September year end), with a current P/E of 13.3. AAPL is trading at first-half 2018 levels. The stock has tentatively begun to stabilize from its recent drop. There’s 29% upside as AAPL retraces 230, where it last traded in October. Strong Buy.
Baker Hughes, a GE co. (BHGE – yield 3.2%) offers products, services and digital solutions to the international oil and gas community. The number of U.S. rigs drilling for crude oil and natural gas fell by three last week to a total of 1,076, up 147 vs. a year ago.
BHGE is an undervalued aggressive growth stock with an attractive dividend yield. Analysts expect full-year EPS to increase by 51.2% and 109% in 2018 and 2019. The 2019 P/E is 16.8. BHGE has tentatively begun to stabilize from its recent drop, and will likely remain low until tax-loss selling season is past. Hold.
Delek U.S. Holdings (DK – yield 2.5%) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek expects to achieve much higher midstream EBITDA by the year 2022—profits that contribute directly to cash flow. Delek owns 63.4% of Delek Logistics Partners, LP (DKL), which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminalling. Read more about Delek Logistics in this November 2018 Investor Presentation.
DK is an extremely undervalued aggressive growth stock. Wall Street expects EPS to grow 304% and 34.4% in 2018 and 2019. The 2019 P/E is 6.5. DK is slowly improving from its October price correction; most likely to trade between 36 and 46 in the coming weeks. DK could appeal to traders, growth investors and dividend investors. Buy.
Skechers USA Inc. (SKX) is an apparel company that designs and manufactures stylish, affordable footwear for people of all ages. Skechers is the third largest footwear brand globally, behind Nike and Adidas. International revenue is growing dramatically, including an expectation of achieving $1 billion in revenue in China in a few short years. Full-year EPS are expected to rise 3.9% and 8.1% in 2018 and 2019. The stock continues to trade between 26 and 30. Traders should buy now. Buy.
Synchrony Financial (SYF – yield 3.2%) is a consumer finance company with $56.5 billion in deposits and 74.5 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. SYF is a very undervalued aggressive growth stock with an attractive dividend yield. The company is currently enmeshed in a contract dispute with Wal-Mart (WMT), their former business partner. Analysts expect full-year EPS to increase by 35.9% and 24.7% in 2018 and 2019 (December year end). The 2019 P/E is 5.9. The share price remains weak, and due to tax-loss selling, will not likely begin to recover until January. At that time, I will likely give the stock a Strong Buy recommendation. Hold.
TiVo (TIVO – yield 7.3%) creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences. Due to the chronically underperforming share price, management is in strategic discussions with entities that are considering buying either or both of TiVo’s two divisions—product and IP licensing—in order to obtain a higher value for stockholders. Management stated, “It is our intention to complete the strategic review process by no later than our fourth quarter and year-end 2018 earnings call.” The share price remains weak. Risk-tolerant investors could buy now with an expectation of an M&A announcement. Strong Buy.
Universal Electronics (UEIC) is a manufacturer and cutting-edge world leader of wireless and voice remote control products, software and audio-video accessories for the smart home; with a strong pipeline of new products in the areas of safety and security, climate control and lighting.
CEO Paul Arling stated on the quarterly conference call, “Building on our growing cloud-enabled systems, at the International CES 2019, we plan to introduce a new voice-enabled AI product platform that promises to unify entertainment control and home automation experience.” The new product, named Nevo Butler, will configure all AV products in the home within seconds, and can work with any AV or home control or voice-enabled protocol.
UEIC is an undervalued micro-cap stock, appropriate for risk-tolerant investors and traders. The two analysts who are contributing to the consensus estimate are currently expecting 16.1% EPS growth in 2019. The stock will likely trade between 33 and 39 in the coming weeks. Buy UEIC now. Strong Buy.
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Send questions or comments to crista@cabotwealth.com.
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YOUR NEXT CABOT UNDERVALUED STOCKS ADVISOR ISSUE IS SCHEDULED FOR January 2, 2019
Cabot Undervalued Stocks Advisor is published by Cabot Wealth Network, an independent publisher of investment advice. Neither Cabot Wealth Network nor its employees are compensated in any way by the companies whose stocks we recommend. Sources of information are believed to be reliable, but they are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Copyright © 2018 - COPYING AND/OR ELECTRONIC TRANSMISSION OF THIS NEWSLETTER IS A VIOLATION OF THE U.S. COPYRIGHT LAW. For the protection of our subscribers, if copyright laws are violated by any subscriber, the subscription will be terminated.
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