Please ensure Javascript is enabled for purposes of website accessibility
Value Investor
Wealth Building Opportunites for the Active Value Investor

Cabot Undervalued Stocks Advisor 219

Today I’m highlighting three different types of trading opportunities: buying stocks in the days leading up to earnings reports, buying stocks when they fall a silly amount on neutral or good news, and putting great stocks on watch as we await pullbacks. There are many changes in Buy recommendations today, reflecting both dramatic changes in year-to-date price action and significant earnings revisions as Wall Street contemplates final 2018 numbers and solidifies their 2019 earnings projections. I’m not trying to be fickle! I’m just trying to stay on top of the facts so that you can have a clear idea of where tomorrow’s profitable opportunities can be found.

Cabot Undervalued Stocks Advisor 219

[premium_html_toc post_id="170170"]

Buying Low is the Best Revenge

We’ve successfully struck upon some successful trades recently in the days leading up to various companies’ earnings releases, including Apple (AAPL) and Knight-Swift Transportation (KNX). If you’re looking for another similar opportunity, scroll down to review Marathon Petroleum (MPC) in the Growth Portfolio.

Speaking of trading opportunities, I love having the opportunity to buy low when very short-term market disruptions take place, whether it’s the Brexit vote or some unusual corporate news. That’s why I’m featuring Guess? (GES) in the Growth & Income Portfolio today. Unless the market’s done performing well for the year, I foresee big 2019 upside to GES shares.

The major U.S. stock market indexes are rising toward the tops of ranges where they’d previously traded from early October through early December, just prior to that big correction that sideswiped us in December. It will be normal for the market averages to reverse course and travel to the bottoms of those trading ranges. As such, I would expect the S&P 500 index to trade between 2,625 and 2,825 for a few months. (We’re smack in the middle of that trading range right now.) Keep some money available to buy stocks on pullbacks.

One stock that I look forward to buying upon a market pullback is Alexion Pharmaceuticals (ALXN), which is today’s featured stock in the Buy Low Opportunities Portfolio. You can take your time with Alexion, because we need the price to come down a bit before a good buy-low opportunity presents itself.

Send questions and comments to crista@cabotwealth.com

Portfolio Notes

Be sure to review the Special Bulletins from January 29, 30, 31 and February 4 in which I mentioned news, rating changes and/or price action on Alexion Pharmaceuticals (ALXN), Apple (AAPL), Baker Hughes (BHGE), Blackstone Group LP (BX), CIT Group (CIT), Delek U.S. Holdings (DK), DowDuPont (DWDP), GameStop (GME), Knight-Swift Transportation (KNX) and WestRock (WRK).

Quarterly Earnings Release Calendar

February 5 pm: Voya Financial (VOYA) – 4Q
February 7 am: Marathon Petroleum (MPC) and Total SA (TOT) – 4Q
February 7 pm: Skechers (SKX) – 4Q
February 12 am: Martin Marietta Materials (MLM) – 4Q
February 19 pm: Delek U.S. Holdings (DK) – 4Q
Mid-February: CF Industries (CF) – 4Q

Earnings Season Scorecard

Big earnings beat: Alexion Pharmaceuticals (ALXN), CIT Group (CIT), Commercial Metals (CMC), Knight-Swift Transportation (KNX), Southwest Airlines (LUV), Synchrony Financial (SYF), SYNNEX (SNX) and WestRock (WRK).

Earnings within 5% of consensus estimate: Apple (AAPL), BB&T Corp. (BBT), Baker Hughes (BHGE), Blackstone Group (BX), Comerica (CMA), Delta Air Lines (DAL), DowDuPont (DWDP), D.R. Horton (DHI), Regions Financial (RF) and Schlumberger (SLB).

Big earnings miss: Apollo Global Management (APO)

Buy-Rated Stocks Most Likely* to Rise More than 5% Near-Term
Abercrombie & Fitch (ANF)
Baker Hughes, a GE Co. (BHGE)
Commercial Metals (CMC)
Delta Air Lines (DAL)
Guess? (GES)
*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.

Today’s Portfolio Changes:
Apple (AAPL) moves from Buy to Hold.
Apollo Global Management (APO)
moves from Buy to Hold.
Blackstone Group LP (BX)
moves from Strong Buy to Buy.
Comerica (CMA)
moves from Hold to Buy.
Commercial Metals (CMC)
moves from Buy to Strong Buy.
Delta Air Lines (DAL)
moves from Buy to Strong Buy.
D.R. Horton (DHI)
moves from Buy to Hold.
Knight-Swift Transportation (KNX)
moves from Buy to Hold.
Marathon Petroleum (MPC)
moves from Buy to Strong Buy.
Supernus Pharmaceuticals (SUPN)
moves from Buy to Strong Buy.

Last Week’s Portfolio Changes:
Delek U.S. Holdings (DK)
moved from Buy to Strong Buy.
DowDuPont (DWDP)
moved from Buy to Strong Buy.
GameStop (GME)
moved from Hold to Sell.
Marathon Petroleum (MPC)
moved from Hold to Buy.
Universal Electronics (UEIC)
moved from Hold to Strong Buy.

image-blank.png

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.

Featured Stock: Marathon Petroleum (MPC—yield 3.2%)

cusa219-mpc

Like so many thriving companies, shares of Marathon Petroleum got caught up in a very big stock market correction during the fourth quarter of 2018, falling about 36% from approximately 85 to 54. Stock market corrections are painful, but we know this much: The S&P 500 index has recovered from every previous correction, and subsequently reached new all-time highs. Our best revenge, then, is to buy low on stock market bargains and ride them back up to their former highs.

Marathon Petroleum 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.

The following downstream industry peers reported very large fourth-quarter earnings beats: Valero Energy (VLO), HollyFrontier (HFC), Phillips 66 (PSX). Therefore, the odds are strong that Marathon will also exceed market expectations when they report fourth-quarter results on the morning of February 7.

Marathon’s fourth-quarter consensus EPS and revenue estimates shot upward last week. The company is now expected to report fourth-quarter EPS of $1.96, within a range of $1.51-$2.27, and revenue of $34.2 billion, within a range of $30-$38.6 billion. Wall Street projects final 2018 EPS to rise 51.2%, followed by another 11.4% increase in 2019. The 2019 P/E is 10.1.

MPC is an undervalued stock with an attractive, growing dividend. As expected, Marathon announced a 15% dividend increase last week, from $0.46 to $0.53 per quarter.

I’m moving MPC from Buy to a Strong Buy recommendation, now that the price chart is firming up and the dividend increase came through.

At 65.5, MPC is up about 20% from its December lows. There’s some short-term price resistance at 70. Barring an unexpected stock market disruption, I would expect MPC to rise a maximum of 30% from the current price as it eventually reaches its previous high at 85. Strong Buy.

cusa219-growth-1024x392.png

Updates on Growth Portfolio Stocks

cusa219-cf-200x120.png

CF Industries Holdings (CF – yield 2.8%) is one of the world’s largest producers of nitrogen products, serving customers on six continents. The company operates nine nitrogen production complexes in Canada, the U.K. and the U.S. After taking a small loss in 2017 (December year end), the company is expected to deliver $1.47 EPS upon the full-year 2018 earnings release, and $2.60 per share in 2019. The projected 2019 earnings growth rate of 76.9% far exceeds the 2019 P/E of 16.7.

CF is a cyclical mid-cap stock, affected by both currencies and natural gas prices (lower prices being optimal). Natural gas is currently trading at its lowest year-to-date price of $2.73 mmbtu (millions of British thermal units). I expect the stock to trade anywhere between 42 and 53 in the coming months. Risk-tolerant traders and growth stock investors should buy CF now, while it’s near the bottom of its trading range. Strong Buy.

cusa219-cit-200x120.png

CIT Group (CIT – yield 3.0%) 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 Group will present at the Credit Suisse 20th Annual Financial Services Forum on February 13.

CIT is an undervalued growth stock with an attractive dividend yield. Profits are exhibiting a big multi-year growth trajectory. Earnings per share rose 50.5% and 31.6% in 2017 and 2018, and are expected to rise 19.6% and 13.3% in 2019 and 2020. The 2019 P/E is 9.7.

The company plans to increase the second-quarter dividend by 40% to $0.35 per share, subject to approval by their Board of Directors. Based on a current share price of $46.78, the new dividend yield will therefore be 3.0%.

After last week’s strong earnings report, three Wall Street firms raised their price targets on CIT to a range of 49-55. At a current share price of 47 – which happens to be the point of upside price resistance – the stock is up 32% from its December lows. Traders should exit. Expect a pullback, at which time I’ll give CIT a Buy recommendation. Hold.

cusa219-dhi-200x119.png

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. The company is expecting a better spring selling season than in recent years.

Last week, MarketWatch reported that the industry’s new home sales rose 17% in November, with a healthy six months of inventory. Construction spending and employment numbers also rose last week, putting in a nail in the coffin of recession worries. (I honestly can’t believe that the word “recession” appeared in news headlines last year. But by golly, the media’s got to say negative things, right?)

Full-year earnings estimates came down last week. Wall Street now expects EPS to increase 4.2% and 11.1% in fiscal 2019 and 2020 (September year end). The 2019 P/E is 9.5. I’m not pleased with the revised earnings outlook, and am therefore moving DHI from Buy to Hold, with the intention of retiring the stock soon. The stock is currently on a slow uptrend and could conceivably rise past short-term price resistance at 40 in the coming weeks. Hold.

cusa219-klxe-200x120.png

KLX Energy Services (KLXE) – Hold.* (see last comments on January 22)

cusa219-knx-200x120.png

Knight-Swift Transportation Holdings (KNX – yield 0.8%) is the largest full truckload carrier in North America and an industry leader with an exemplary management team. Company management will present at the Stifel 2019 Transportation & Logistics Conference on February 12.

During 2018, analysts constantly revised their earnings expectations upward for Knight-Swift, although in recent months the consensus earnings estimates still fell short of actual fourth-quarter and full-year performance results. At this point, Wall Street is projecting 7.0% and 6.2% EPS growth in 2019 and 2020. I’m not pleased with those numbers, but it’s not really my job to ignore them based on wishful thinking. I’m moving KNX from Buy to Hold and putting the stock on a short leash, pending share price action and earnings revisions. At this time, KNX continues to ratchet upward. The next increase should take KNX to 35. Hold.

cusa219-mlm-200x120.png

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. Here’s a long article from Morningstar that covers the economic and state government budget outlook for the building materials industry: U.S. Infrastructure Spending Outlook Brightens.

The company is expected to report fourth-quarter 2018 EPS of $1.77 within a range of $1.53-$2.12, and revenue of $952.7 million within a range of $890 million to $1.0 billion, on the morning of February 12. Expect volatility.

Wall Street expects EPS to grow 13.8% and 16.4% in 2018 and 2019. The 2019 P/E is 19.4. I will reevaluate the stock’s position in the portfolio after reviewing the fourth-quarter earnings press release and management statements concerning 2019 profitability. At this point, I consider MLM to be fairly valued, but that could change promptly upon earnings revisions. The stock is actively rising toward price resistance at 198, where traders should exit. Hold.

cusa219-pwr-200x120.png

Quanta Services (PWR – yield 0.5%) provides specialized infrastructure and network services to the electric power, oil and natural gas industries. PWR is an undervalued growth stock. Analysts expect EPS to increase 40.1% and 15.2% in 2018 and 2019. The 2019 P/E is 10.8.

The stock rose about 26% from its December low and peaked last week near price resistance near 36. The fundamentals remain great. I’ll move PWR back to a Buy recommendation after it rests from the recent run-up. Hold.

cusa219-luv-200x120.png

Southwest Airlines (LUV – yield 1.1%) 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. LUV is an undervalued growth stock. Earnings estimates jumped last week. Wall Street now expects EPS to increase 23.3% in 2019, and the P/E is 11.1.

At a share price of 58.29, LUV is up 31% from its December lows and still rising. Traders take note: there’s significant price resistance in the low 60s. I will ideally return LUV to a Buy recommendation on a pullback to about 53. Hold.

cusa219-supn-200x120.png

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. Supernus has five pipeline products, in various phases of clinical trials, which aim to treat ADHD, impulsive aggression, bipolar disorder, depression and severe epilepsy.

SUPN is an undervalued, small-cap aggressive growth stock. Wall Street expects EPS to grow 46.8% and 25.9% in 2018 and 2019. The 2019 P/E is 16.2. SUPN is recently trading between 36 and 38. I’m moving SUPN from Buy to Strong Buy. The next run-up will likely take SUPN to 42. There’s additional price resistance at 50. Buy SUPN now. Strong Buy.

cusa219-voya-200x118.png

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 Financial is expected to report $1.22 fourth-quarter EPS on the afternoon of February 5, with a range of $1.15-$1.28.

VOYA is an undervalued aggressive growth stock. Final full-year 2018 results are expected to deliver 106% EPS growth, followed by another 34.2% EPS growth in 2019. The 2019 P/E is 8.9. Management intends to increase the dividend yield to 1% in 2019. At a price of 46.96, VOYA is up about 27% from its December lows. A pullback is overdue, after which I will likely return VOYA to a Strong Buy recommendation. Hold.

* In order to focus attention on newsworthy changes in our portfolio stocks, I’m eliminating descriptions of Hold-rated stocks during weeks when there are no significant news announcements or changes in consensus earnings estimates. As a reminder, Hold does not mean Sell. Hold means that I am not recommending additional purchases of the stock today, either due to price chart action, earnings outlook, or stock valuation. I expect Hold-rated stocks to perform well in the coming months.

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: Guess?, Inc. (GES—yield 4.6%)

cusa219-Ges

Guess?, Inc. is a global apparel manufacturer, selling its products through wholesale, retail, ecommerce and licensing agreements.

I want to reiterate last week’s news, because the stock market reaction was absurd, thus creating today’s buying opportunity. Guess announced that Carlos Alberini will rejoin Guess as CEO. The company’s previous CEO, Paul Marciano, stepped down from the position in 2018 due to sexual misconduct allegations. While the company did immediately appoint a new CEO, Victor Herrero, it makes sense that the Board of Directors then conducted a CEO search for an optimal and experienced CEO to lead the company. Guess hired Carlos Alberini, a former Guess executive who subsequently served in CEO positions at Restoration Hardware and Lucky Brand, a Guess competitor.

That sounds like good news, right? The market tends to love hearing that companies complete CEO searches and hire new executive leaders. However, GES shares promptly fell upon this news.

Let’s take advantage of the drop in the share price, and ride GES back up to the top of its trading range!
GES is an undervalued aggressive growth stock with a big dividend yield. Guess operates on a January fiscal year, so we won’t see fourth-quarter 2019 results until the latter half of March. Analysts currently expect EPS to grow 47.1% and 33.0% in fiscal 2019 and 2020. The 2020 P/E is 13.9.

The stock traded consistently between 19 and 25 since March 2018. Buy GES now while there’s about 27% capital appreciation potential as the stock eventually travels back toward 25, and receive the added bonus of a large dividend payout. Barring unexpected changes in the earnings outlook, once GES completes the rebound, it will still be a very undervalued growth stock. Therefore, GES shares could appeal to traders, growth investors, dividend investors, value investors, and longer-term investors. Strong Buy.

cusa219-growthincome-1024x449.png

Updates on Growth & Income Portfolio Stocks

cusa219-apo-200x121.png

Apollo Global Management, LLC (APO – yield 6.0%*) is an alternative asset manager with assets under management (AUM) totaling $280 billion, dispersed among credit, private equity and real estate investments. Last week, Apollo authorized a quarterly distribution of $0.56 per share to be paid on February 28, and also authorized a repurchase of $250 million of stock.

APO is an undervalued mid-cap growth & income stock. At a price of 30.36, the stock is up 24% since joining the Growth & Income Portfolio in January. I’m moving APO from Buy to Hold as it approaches price resistance at 31. I expect a subsequent pullback. Hold.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.83 and yielding 6.2%.

cusa219-bx-200x120.png

Blackstone Group LP (BX – yield 6.2%*) is the world’s largest and most diversified alternative asset manager with $472 billion in client assets. The company deploys capital into private equity, lower-rated credit instruments, hedge funds and real estate. Blackstone management will present at the Credit Suisse 20th Annual Financial Services Forum on February 12.

At a share price of 34.36, BX is up 25% from its December lows, and will likely come to a halt around 35. I’m moving BX from Strong Buy to Buy. The fundamentals remain very strong. BX is an excellent stock for dividend investors. In addition, speculative investors have an opportunity for outsized capital gains if BX converts from an L.P. to a C-corp., which management is currently contemplating. Buy.
*The payout varies each quarter with the total of the last four announced payouts equaling $2.14 and yielding 6.3%.

cusa219-cma-200x120.png

Comerica (CMA – yield 3.4%) is a financial services company engaged in domestic and international business banking & lending, wealth management and consumer services. In late January, Comerica announced a 12.5% dividend increase, from $0.60 per quarter to $0.67. This was the third dividend increase of the last four dividend announcements.

CMA is an undervalued growth & income stock. Analysts expect 14.3% EPS growth in 2019, and the P/E is 9.7. It appears that the recent run-up is over, and that CMA will now trade between 77 and 85 before advancing further. I’m moving CMA from Hold to Buy. Try to buy below 80. Buy.

cusa219-cmc-200x120.png

Commercial Metals Company (CMC – yield 2.7%) is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Analysts expect EPS to rise 38.3% and 19.4% in fiscal 2019 and 2020 (August year end). The 2019 P/E is quite low at 8.5. I’m moving CMC from Buy to Strong Buy. The fundamentals are attractive and the price chart indicates that CMC is rising, with price resistance at 20.5. Buy CMC now. Strong Buy.

cusa219-dal-200x120.png

Delta Air Lines (DAL – yield 2.8%) is a U.S. and international passenger and cargo airline with an extensive and efficient hub complex. DAL is an undervalued growth & income stock. Analysts expect EPS to grow 16.5% in 2019. The 2019 P/E is 7.6. I’m moving DAL from Buy to Strong Buy. The fundamentals look great and the stock appears ready to surpass 51 and begin a new run-up. Buy DAL now. Strong Buy.

cusa219-dwdp-200x121.png

DowDuPont (DWDP – yield 2.8%) plans to break up into three companies by June 2019: Corteva Agriscience, Dow Chemical and DuPont. Updated info: The materials science division of DowDuPont will be called Dow Chemical, also referred to as “the New Dow”, and will separate from DowDuPont by April 1. The remaining two companies will separate by June 1.

DWDP is an undervalued growth & income stock. Full-year 2018 EPS rose 22.3%. Wall Street expects EPS to rise 11.9% and 11.7% in 2019 and 2020. The 2019 P/E is 11.6.

It’s widely expected that the sum of the parts of the spin-off companies will exceed the current share price. DWDP pulled back to the bottom of its trading range last week. There’s 11% upside to short-term price resistance at 60, and additional opportunity for capital gains with the spin-off companies. Strong Buy.

cusa219-slb-200x121.png

Schlumberger (SLB – yield 4.5%) is the world’s largest oilfield service company. I’m not pleased with the 2019 growth & value situation, although the 2020 growth outlook appears significantly attractive. The stock ran up about 26% in the four weeks following its December lows, then maintained a narrow trading range without wavering. That bodes well for additional near-term upside. Hold.

cusa219-tot-200x119.png

Total S.A. (TOT – yield 5.4%) is a French multinational oil and gas company operating in over 130 countries. Total is expected to report fourth-quarter EPS of $1.25 on the morning of February 7, within a range of $1.225 and $1.27.

Total announced a new discovery of natural gas and condensate (light crude oil) in the North Sea last week, measuring close to 250 million barrels of oil equivalent. Total owns 25% of the reservoir, along with CNOOC Petroleum Europe and Euroil. Total also announced plans to drill 23 wells in 2019, in emerging and mature basins (as opposed to exploring new frontiers), while keeping its exploration budget flat to 2018 levels.

The 2019 consensus EPS estimate for Total has become weak. I’m waiting for management’s 2019 outlook that will accompany this week’s quarterly earnings report, so that I can assess how to proceed with the stock. In the meantime, the stock is rising, with price resistance at 59. Hold.

cusa219-wrk-200x118.png

WestRock Company (WRK – yield 4.8%) is a global packaging and container company. WestRock completed the acquisition of KapStone Paper & Packaging in November. Analysts will be typically cautious as they project balance sheet numbers that reflect the combined companies. Once WestRock reports several quarters of combined results, analysts will have a better grasp on projected vs. actual benefits of the merger.

WRK is an undervalued growth & income stock. Earnings per share are expected to grow 5.4% and 5.1% in 2019 and 2020. While I would not normally consider those numbers to be attractive, the 4.7% dividend yield makes all the difference. There’s upside price resistance at 47. 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.

Featured Stock: Alexion Pharmaceuticals (ALXN)

cusa219-alxn

Alexion Pharmaceuticals is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. The company’s aim is to build four sustainable blockbuster drug franchises.

Alexion announced last week that their Phase 3 study of ULTOMIRIS, which treats atypical hemolytic uremic syndrome (aHUS), met its primary objective. The company will proceed with regulatory filings in the U.S., the EU and Japan. Alexion also announced a new partnership with Caelum Biosciences for the treatment of AL amyloidosis – a rare disorder -- for which there are no currently-approved therapies.

Management will host an Investor Day on March 20, in which they will highlight advances in their expanding pipeline of therapies for rare diseases, and discuss current business and their long-term growth strategy.
ALXN is an undervalued mid-cap growth stock. Read about Alexion’s strong fourth-quarter results in the February 4 Special Bulletin. Management is expecting full-year 2019 EPS within a range of $9.10-$9.30, reflecting EPS growth of 16%. The 2019 P/E is about 13.5.

Experienced investors will recognize that a P/E of 13.5 on a successful and profitable biopharmaceutical stock is ridiculously low, leaving lots of room for share price appreciation. The market is recognizing the value in ALXN, honoring the stock with an outsized rebound from its December lows. However, you can see from the price chart that ALXN is volatile. It would be perfectly normal for the price to pull back $10-$15, at which point I’m recommending that you jump in. Don’t wait for me to issue a Special Bulletin on the topic, although I’ll do my best to stay on top of this potential opportunity.

In a February 1 Barron’s article, a Piper Jaffray analyst is cited as estimating Alexion’s buyout value near $200 per share. I love this potential buying opportunity. Plan this purchase in advance so that you’re ready to pounce on the next pullback. Hold.

cusa219-buylow-1024x368.png

Updates on Buy Low Opportunities Portfolio Stocks

cusa219-anf-200x120.png

Abercrombie & Fitch (ANF – yield 3.6%) is a leading, global specialty retailer of apparel and accessories for men, women and kids, operating under the Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands.

ANF is a small-cap growth stock with a big dividend yield. The stock surpassed price resistance at 21 in recent days, commencing a new run-up. There’s 30% upside as ANF eventually retraces its 2018 high near 29. Risk-tolerant growth stock investors and traders should buy ANF now. Strong Buy.

cusa219-aapl-200x119.png

Apple Inc. (AAPL – yield 1.7%) is a manufacturer and provider of many popular technology devices and services, include the iPhone, iPad, Mac, App Store, Apple Care, iCloud and more. There are over 1.4 billion active Apple devices globally, which provide a strong and growing revenue base for Apple Services.

The full-year 2019 consensus EPS estimate came down last week, now reflecting an annual decrease of 4.1%. Therefore, I’m moving AAPL from Buy to Hold. The stock is actively rising as a greatly-relieved investment audience realizes that the company is not going out of business. (Yes, I’m being sarcastic.) AAPL could reach 180-185 in the very short term. I’ll continue to monitor Apple’s position in the portfolio. Hold.

cusa219-bhge-200x122.png

Baker Hughes, a GE co. (BHGE – yield 2.9%) 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 14 last week to a total of 1,045, up 99 vs. a year ago. Upon the fourth-quarter earnings release last week, the company delivered good news in the areas of cash flow; new orders; and offshore, international and LNG markets.

BHGE is an undervalued aggressive growth stock with an attractive dividend yield and a low debt-to-capital ratio. I’m not pleased that consensus earnings estimates for Baker Hughes experience frequent downward revisions. However, the actual and projected numbers reflect very strong earnings growth, so I’m going to put up with inaccuracies in earnings projections and share price volatility. The company finished 2018 with 51% EPS growth. Analysts expect another 78% and 56% EPS growth in 2019 and 2020, while the corresponding P/Es are much lower at 21.0 and 13.5.

BHGE is actively rising. Once the stock reaches upside price resistance at 27, I expect a short-term pullback. Buy.

cusa219-dk-200x121.png

Delek U.S. Holdings (DK – yield 3.3%) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek is the largest licensee of 7-Eleven stores in the U.S. Delek owns 63.4% of Delek Logistics Partners, LP (DKL), which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminaling. Delek U.S. Holdings was featured in the January 29 issue of Tim Lutts’ Stock of the Week.

DK is an extremely undervalued small-cap growth stock. The company will announce fourth-quarter results after the market close on February 19. Wall Street expects full-year EPS to grow 296% and 16.3% in 2018 and 2019. The 2019 P/E is 6.2. There’s plenty of room between the current share price and upside price resistance at 40 for new investors to achieve attractive capital gains in the near term. I expect DK to surpass 40 later this year. Buy DK now. Strong Buy.

cusa219-skx-200x121.png

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.

The company is expected to report fourth-quarter EPS of $0.23 on the afternoon of February 7, within a range of $0.20-$0.26. With 2019 earnings estimates less robust than previously projected, the stock is no longer undervalued on current earnings. I will make a further assessment after the fourth-quarter earnings release.

At a share price of 27.20, the stock is up about 24% from its December lows. There’s short-term price resistance at 28 and more solid resistance at 30. The earnings release could easily push the stock anywhere between 25 and 30. Hold.

cusa219-syf-200x120.png

Synchrony Financial (SYF – yield 2.8%) is a consumer finance company with 80.3 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. Wall Street expects 2019 EPS growth of 19.3%, and the P/E is extremely low at 6.7.

SYF shot upward to 29-30 upon the recent earnings release, then remarkably held its ground, up 35% from its December lows. The stock could very easily fall a couple of points and then rebound quickly, so let it bounce around a bit as you wait for the next move upward. SYF is appropriate for growth investors, and for those seeking rising dividends. Investors who buy at 30 have 30% upside if SYF retraces its 2018 high of 39. Strong Buy.

cusa219-tivo-200x121.png

TiVo (TIVO – yield 6.5%) creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences.

TiVo is a profitable company. 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,” which will likely take place in late February. In January 2019, there were rumors that TiVo could split its business into two companies, but that was already part of the strategic review. If such an announcement were to be made, keep in mind that either division of the company could subsequently be acquired by a bigger investor, and that an acquisition would not be announced simultaneously with a division spin-off.

Risk-tolerant investors could buy TIVO now with an expectation of an M&A announcement. Strong Buy.

cusa219-ueic-200x119.png

Universal Electronics (UEIC) is a manufacturer and world leader of wireless and voice remote control products, software and audio-video accessories for the smart home; with over 400 patents and a strong pipeline of new products in the areas of safety and security, climate control and lighting. Dozens of famous business partners include Comcast, Sky, Microsoft, DirecTV, Panasonic, Sony, Yamaha, Bose, Toshiba, JVC, Ingersoll-Rand and Daikin.

UEIC is an undervalued micro-cap stock, appropriate for risk-tolerant investors and traders. The three analysts who are contributing to the consensus estimate are currently expecting 14.8% EPS growth and 7.1% revenue growth in 2019, while the P/E is 10.2. Trading volume is increasing and the price chart appears constructive. Buy UEIC now. Strong Buy.

[premium_html_footer]

Send questions or comments to crista@cabotwealth.com.
Cabot Undervalued Stocks Advisor • 176 North Street, Salem, MA 01970 • https://cabotwealth.com

YOUR NEXT CABOT UNDERVALUED STOCKS ADVISOR ISSUE IS SCHEDULED FOR March 5, 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 © 2019 - 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.

[/premium_html_footer]