March 18, 2020: 7 Undervalued Growth Stocks with Rising Dividends for This Market

The webinar was recorded March 18, 2020

You can find the slides here.

[00:00:04] Hello and welcome to today’s Cabot Wealth Webinar: 7 Undervalued Growth Stocks for Rising With Rising Dividends For This Market. I’m your host, Chris Preston, chief analyst of the Cabot Wealth Daily Advisory and managing editor here at Cabot Wealth Network. With me today is Crista Huff, chief analyst of our Cabot Undervalued Stocks Advisor. Today, Crista is here to talk about what to do in this suddenly and extremely volatile market environment and what stocks she thinks can help you navigate the current climate. This is an interactive webinar, which means we’ll be fielding your questions after Crista’s presentation wraps up. So if you have a question, feel free to ask it at any time. And we’ll try to get as many of them as time allows ones. Crista wraps up. Just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio. First, let me introduce Crista.

[00:00:55] Crista spent over 20 years working for large corporations, including 13 of Morgan Stanley where she was vice president and a financial advisor. In 2011, she launched a stock market website, Good Fellow, in which the vast majority of Crista’s model portfolios outperformed their comparable U.S. market indices by margins of 50 percent to 100 percent and more with less risk. In addition to our investment career, Crista has an extensive political and economic background. She taught thousands of Colorado voters how to get involved in politics and effectively make their voices heard and opening the door for them to become volunteers, delegates, candidates, elected officials and policy leaders. Prior to joining us here at Cabot, she worked as an international trade advocate in Washington, D.C., teaching congresspeople about the intracicies of trade agreements and how they could better formulate policy to benefit U.S. jobs and the economy. Very pertinent right now. Crista is also a frequent guest on political and financial radio shows across America. Long story short, Christine knows what she’s talking about when it comes to the market and when it comes to finding undervalued growth stocks.

[00:02:01] So let her do just that. Crista, take it away.

[00:02:05] Thank you, Chris. Well, thank you, everybody, for joining us today.

[00:02:08] And I realize that your lives are probably in somewhat of an upheaval mode right now, as is mine, and we’re all going to make the best of it. Now we have a lot of unknowns taking place and those can be pretty nerve wracking. We have the virus that’s crossing the globe. We’re worried about health. Our family members, especially the family members who may live an airplane ride away and can we get to them if they need us? We’re worried about the economy. How will small businesses survive? Will our friends lose jobs? Will big companies thrive and support our stock prices? So the unknowns, you know, they’re driving us a little nuts right now. So let’s let’s talk about what we know so that we can, you know, touch base with things that help make us calmer. We know that the U.S. has an excellent medical system and that medical people and politicians are working hard to deliver excellent medical care to everybody who needs it across the land.

[00:03:16] We have very high quality U.S. companies that are you know, they’re not suffering there. They’re in great shape. Since the last time we went through an economic downturn, they’ve gotten lean and mean. They’ve paid down debt, they’ve accumulated cash. Even if you look at a company like Apple, it’s got, you know, 80 or 100 billion dollars laying about in cash. So companies are in good shape to survive any kind of near-term economic downturn. And then we’ve got the stock market itself. So stocks have fallen, right? Well, I’ve been managing stocks and buying stocks for 32 years. And I saw a stock market correction in almost every single one of those years. And I remember some of those years there were three corrections in the same year. And guess what? The market came back every single time. Even in February, it was reaching brand new highs. So I have complete confidence that the U.S. stock markets will not only recover, but they will go on to thrive. So here we are today. And and we’re going to decide what do we do henceforth with our stock portfolios. Hopefully, everybody who’s listening has some cash with which to buy low at some point in the future. Or you’re thinking, OK, how can I raise cash and such? So let’s let’s start with the presentation.

[00:04:44] I just want to run through a couple of market calls that I had in the past so you can get a sense that not only do I say that perhaps I know what I’m doing, but you can see that I have actually successfully called market changes in the past. So some of you will remember the stock market ran up a huge amount in late 2016 and 2017 after the most recent presidential election. And as we were heading into the first quarter of 2018, I was warning people through Cabot Undervalued Stocks Advisor saying look, let’s start raising cash. The market is way, way frothy. It needs to have a pullback. And so for quite a few months, actually, I was guiding people on how to raise cash. And then on January 25th, MarketWatch called me for some color on the market. And they would typically just publish like one or two sentences out of the paragraphs that I would give them in that day. They quoted me as saying that the market is probably going to drop at least 10 percent in the very near future. And sure enough, the next day the S&P 500 index peaked and then it fell 10.2 percent in a very rapid timeframe similar to what we’ve seen right now. It took about two weeks and the market fell 10 percent. And that’s a big drop, even though the current drop is even bigger. And then seven months later, the market was reaching new highs again. So even though we can live through a breathtaking stock market drop, we can still have confidence that the market has always recovered and it won’t necessarily take five years to recover. Then in the fourth quarter of 2019, just recently, the market was was running up against price resistance repeatedly and in 2019. And then finally I wrote on October 21st, it’s time for another stock market run up. I said I’m not going too far out on a limb and saying that the stock market could begin a new run up into all high territory this month. And then sure enough the S&P index began reaching new all time highs within a week, and then it rose 12 percent again in a very short timeframe. And I know 12 percent doesn’t necessarily sound like a big deal. And for an individual stock, maybe like Apple, maybe it’s not a big deal, but for a broad market to go up. Twelve percent within just a few short months. That is a very big move. So on the heels of that, in late January, I wrote another article that said we’re due for a stock market correction and not only because the market had just run up 12 percent, but the warning signs were coming from China. By that point in January, it was very clear that there was a very big problem in China.

[00:07:35] We knew that they were quarantining people, that they were shutting down businesses. People were not spending money. People were not going to work in manufacturing things.

[00:07:45] And all of that was going to affect either people who sell things in China, let’s say Starbucks or Abercrombie and Fitch, any company that sells products in China. They were going to be getting less revenue. And then all the companies that make products in China to bring to the US, the workers weren’t going to work. So the products weren’t getting made. So it was sort of a no brainer to tell people, look, the economy is going to suffer this year. And that was before we knew how much the virus was going to spread all over the world. In the midst of all that, knowing that a correction was coming. Yeah, I’m trying to be upbeat, OK. How can we? How can we do something better with our portfolio the next time a correction comes? So using Apple as an example, I told people, look, here’s how you can manage a stock that might have run up in an exorbitant amount. In the recent history, an Apple was one of those stocks that had run up a lot in recent months. And you could use the example from that article with any stock that runs up a tremendous amount, especially if you follow Mike’s growth stock recommendations. His stocks typically when they run up, you know, they might double in a month or so.

[00:09:02] So anyone who wants to refer to that article in the near future, it gives you sort of a template on how to handle stocks that ran up a lot so that you can maximize the gains.

[00:09:14] And here’s a picture of Apple.

[00:09:18] I eventually took it out of the portfolio after the run up and just last week I think it was last Monday. I put it back into the portfolio now that it had fallen a lot.

[00:09:31] I gave it a strong buy recommendation again. In the meantime, when the market started falling in February, I thought to myself, OK, people are going to want to find a way to make money while the market’s falling. And it’s not so much that that’s a common thing that I recommend. But I did give recommendations on to exchange traded funds from the direction brand of funds. And one of them would would rise as the S&P fell. And one of them would rise as the technology sector fell. And sure enough, we made some good money on those. And those are things that people can look in to in the coming months, because even as the market occasionally starts to rebound several days in a row, we’re going to get a lot of bouncing around activity in the coming months. So if you see the market go up, let’s say three or four days in a row, I can almost guarantee you that the next move is going to be back down because we’re just going to have volatility for a while. So put these on your radar if you’re a more experienced investor.

[00:10:36] And you might find ways to profit with more of the market swings in the near future.

[00:10:44] OK, so today I offered seven stocks in the title of this webinar, but I actually researched eight just in case I had to pull one out at the last minute so that I would still have seven excellent stocks, but I didn’t have to pull any out. So we’ve got eight today and I just want to chat about how I selected them before I tell you what they are.

[00:11:05] First of all, I promised you stocks that have rising dividend payouts. And so that was the first screen that I did. I was as I was going through, you know, pretty much hundreds of stocks looking for the best ones today. So every stock that I show you today has a history of increasing dividends, either quarterly or annually or in another method. And every stock I show you today has a history or actually projections of rising profits both this year and next year. And when I say projections, I’m always talking about consensus earnings estimates. Those are numbers where if there were twenty two analysts on Wall Street covering a stock like Procter and Gamble, their earnings estimates are averaged together. So that’s what consensus refers to. And all the companies that I talked to about today have projections of earnings growth anywhere from 8 percent to 30-40 percent, either this year or next year or both. And then I looked for stocks that haven’t absolutely plummeted, let’s say, past their one year mark. So if you pull up charts on, the stocks today will not be below where they were a year ago. Whereas any of you who’ve been paying close attention know that many, many stocks are breaking our hearts, falling way below measures from a year ago. So there aren’t any energy stocks that we’ll be talking about today. There won’t be any retail stocks. There won’t be any airline stocks. It is not time to buy stocks that have plummeted that far. There will be time to to buy them in the future. But I know that perhaps Delta or Exxon seems like, ooh, that’s a great company. It’s going to come back. And you know what? Yes, it will. But we are here to make money. And so we want to buy stocks that are more likely to go up sooner rather than later. And that’s why I’m not recommending the ones that have plummeted quite as much. And let’s move on. Today we have eight stocks and here is the sector diversification. So I tried to pick stocks that would make a lovely little mini portfolio or actually like a full portfolio. I mean, there’s a few areas that are missing. I don’t have any consumer stocks in here today, although there are some good selections in my Cabot Undervalued Stocks Advisor stock letter.

[00:13:34] And these are the stocks that we’ll be talking about today. Anthem, Applied Materials, Assurant, Blackstone Group, Boise Cascade, Bristol-Myers Squibb, Kansas City Southern and L-3Harris Technologies.

[00:13:51] I’ll just tell you a brief amount about each of them and especially focus on the dividends because in case you’re looking for yield, income and such. I’ll have that information here. OK. Anthem Health Care Plans operates Blue Cross and Blue Shield plans in 14 states with an average of 35 percent membership in those states. So they go very narrow and deep and they really command the market share. In the states where they operate, management has a very specific goal of double digit revenue and earnings growth. A company that’s weak would not have that kind of goal. A company that was weak would just try to like keep their head above water and make a basic profit. So, you know that anthem with this goal, they’re already doing quite well and they’re planning to continue growing. They were also, last year, I read there were included in a list of 12 large companies that were identified as potential Warren Buffett takeovers by Credit Suisse. That’s interesting, because many of you know that Warren Buffett, who is the CEO of Berkshire Hathaway, has, I don’t know, a hundred billion dollars laying about. He has made it very clear that he wants to buy a company.

[00:15:05] He could certainly afford to buy a company as big as Delta Airlines relatively easily. That’s how much money he has. Warren Buffett tends to favor life insurance.

[00:15:18] He tends to avoid technology because he’s not as familiar with the basic functioning of things like semiconductors.

[00:15:28] So Anthem, you know, if you bought it, maybe you would be lucky and that would be the one that Warren Buffett buys. And we’ll talk a little more about that as we go. Right now, the dividend yield is about 1.6 percent. They raise the dividend every year. They Anthem reiterated last week that their earnings guidance for the coming year is intact. That means they do not expect their earnings prognosis to erode based on the Corona virus that’s traveling around the country and harming commerce and many other companies.

[00:16:04] They have good earnings growth projections and they are repurchasing stock.

[00:16:10] I want to do an aside here. The reason why it’s important to know if a company is repurchasing stock. Is because a lot of people say, is the dividend safe? Now, we can only guess based on the balance sheet, whether the dividend is safe.

[00:16:28] So generally speaking, we want to see that a company maybe doesn’t have too much debt. And has a bunch of cash. So how would you know if they have a bunch of cash? Well, if they have so much money lying around that they have nothing better to do with it than repurchase their own stock? Then you can be somewhat confident that they have a lot of cash and that the dividend is probably safe if their cash flow gets tight, even just based on this virus and they want to cut back on their expenses. I think most companies would would cut back on share repurchases way before they would cut a dividend payout, because cutting a dividend is is a bit alarming when people hear that they immediately assume the companies in big trouble. The folks who are living on the dividend income get pretty upset and they don’t really want to alarm investors. So it’s very easy to just cut back on the amount of stock that you’re repurchasing and nobody really sees that happening and yet announced in the quarterly earnings release. But most investors don’t read those. So there’s not going to be any alarm if they cut back on the repurchases. So you as the investor, if you own stocks that pay dividends and you want to monitor that, I would just say once a quarter as the company reports earnings go read the earnings report. And it will tell you right there on the front page in the paragraphs whether they repurchase stock during that quarter. And if they did, you can just check the box and say, OK, Anthem still doing well. I’ll just check them again in three months and put it in your tickler file. So that’s why most of the stocks that I’m showing you today, I made a notation about whether they are repurchasing stock so that you can feel comfortable with the idea that you can depend on their dividend payout.

[00:18:23] All right. Applied Materials and Applied Materials, I believe, is an industry that’s suffering today. Somebody went public with negative projections on the semiconductor equipment area. Applied Materials as a real leader in that field. They have really great earnings growth projections for 2020 and 2021. So, yes, perhaps their growth projections will come down a little bit, but it will still be growth and it’ll still be good growth, for example, if they were expected to have their profits grow. Twenty five percent this year. And if based on today’s projections, they only grow 18 percent this year. That’s still 18 percent and is a huge number for profit growth, especially when we’re talking big companies. And it really isn’t any different from, let’s say if you have a marketing job at Nabisco and and your boss comes to you and says, we’re going to raise your salary by 18 percent, your eyes would sort of pop open and be like, gee, thanks. OK.

[00:19:30] So Applied Materials has fantastic earnings growth. I understand that perhaps earnings projections are coming down in the semiconductor industry as they are coming down in most industries. But that does not mean that the stock is suddenly not attractive at this price.

[00:19:46] And again, they’re repurchasing stock and they just repurchased two hundred million dollars worth of stock during the quarter that ended in January. All right.

[00:19:58] Assurant, this is a risk management insurance company and their biggest area of insurance coverage is a mobile device protection and they are growing that area of their company very well.

[00:20:11] They also provide homeowners insurance, annuities and funeral insurance. They acquired the warranty group two years ago. The transaction was profitable. They met their cost synergy goals. And they are continuing to expect multi-year revenue and profit growth. The reason that that statement is important is a lot of times two companies will merge and it will not work out well. It will not be profitable right away or possibly even ever cost synergy goals might have been overstated. So it’s important to note that they did meet all their goals in this area, because not only does that profit help shore up the share price and future share price growth, but it gives you confidence that management in the company has a firm grasp on what they’re doing and how to achieve their goals.

[00:21:09] We have a dividend yield of 2.7 percent at Assurant. They increased their dividend in November.

[00:21:17] They have good earnings growth projections. Those numbers would probably be 10 to 15 percent per year in each of the next two years. And let’s see, they repurchased two hundred and seventy five million dollars worth of stock last year. And they have four hundred and sixty six million dollars remaining in the repurchase authorization, which means the money is laying about ready to go in there. They’re very willing to buy stock. Frankly, most companies who have repurchase authorizations are probably buying stock right now because just like you and I, they want to get shares cheaply.

[00:21:53] If they can. All right.

[00:21:56] Here’s Blackstone Group, I just removed this from the Cabot Undervalued Stocks Advisor portfolios. I think it was in February, might have been late January after we had made one 111percent total return on the stock. And I was just watching it rise and rise and rise. I’m thinking this is ridiculous. It can’t go up forever. And I finally removed it from the portfolio. And now it’s fallen enough that it’s time to buy it back. This is the premier alternative asset management company. And they invest in everything from businesses to real estate to hedge funds. Just everything that’s different from your typical stocks and bonds that they manage. Five hundred and seventy one billion dollars worth of assets. The real trigger on why Blackstone and many of its peers rose so tremendously last year was that the company converted from a limited partnership to a C corporation. And that trend started happening about a year and a half ago. So I got in on that trend early and I figured out, OK, once they convert, these stocks are going to go up because there was a large audience that was not able to buy these types of stocks. A lot of mutual funds and pension funds and such couldn’t buy Blackstone, Apollo, Carlyle Group, KKR. They couldn’t buy them when they were in limited partnership forum. But when they switched to C corporations, it was open season. Not only was everybody allowed to buy them, all of a sudden, they were also eligible for inclusion in various stock market indices. And once they get included, then there’s all kinds of portfolio managers and mutual funds that specifically buy the stocks that are in various indices. And so it created a tremendous demand for the stocks and the stocks rose a huge amount. So many of my folks who subscribed to my stock letter benefited last year with Apollo, Carlyle Group, and Blackstone Group. So at this point, I’m recommending Blackstone because they are the cream of the crop stock in that industry. And I’m fine with Carlyle Group and I don’t really pay close attention to KKR. And there are other reasons that I’m not thrilled with Apollo. So feel free to to either go with Blackstone or look into Carlyle if you’re interested.

[00:24:30] They tend to pay dividends that change in value every quarter. So the trailing 12 months, this TTM symbol here trailing 12 months, dividend payout at Blackstone Group is a dollar 95 per share. And if you go look up the history of the payout, you’ll see that it tends to rise over time. So you can lock in a dividend of about 4.7 percent if you buy that stock. And then, of course, you will probably achieve capital gains as the market rebounds. So it’s a really good total return stock. The earnings growth is incredible. And they all are also repurchasing shares. They paid $3 billion to buy back their stock last year. And and they are continuing to do so.

[00:25:19] Next, we have Boise Cascade. It’s a tiny little company. I mean, it’s it’s not like it’s unknown if you’re in the business world. You may easily have heard of it. But the market cap is somewhere around like 1 billion or 1.5 billion, which is really tiny. So. So these tiny microcap and small cap stocks tend to have a lot more volatility than a huge company like Netflix. So. Just be aware of the volatility to lumber and wood production company. They feed the housing and construction industry and they sell their products in the US and Canada.

[00:25:59] They just started paying out a dividend recently. And so right now the yield is about 1.5 percent. The annual dividend increase is in November. They have very attractive earnings growth projections. Both this year and next year. And they also pay a special dividend at the end of the year. In addition to the 40 cents per share that’s listed there. So last year, the special dividend was a dollar per share, which really bumps your yield up.

[00:26:29] So I can’t guarantee, of course, that they’ll pay that special dividend against this year. But it does tend to be a trend with that company and it’s a nice income increase if you’re living on the income.

[00:26:42] Bristol Myers. All right. This was another stop that I had in my stock letter last year, and it ran up a bunch to a price resistance level from the past. So when it ran up and retained that price, a resistance level, I removed it from the portfolio. But now it’s come down. So it’s time to buy it again. So a lot of times these really big companies grow a very small amount per year. And when I say grow, I’m always talking about profits. You only want to really invest in companies that are growing their profits because stock price growth tends to correlate with the company’s profit growth. And of course, that’s over time, over like three to 10 years. Over the short term, anything can happen. So so normally Bristol-Myers would not be the kind of stock that shows up on my list. But they were purchasing Celgene. And that changes everything. It changes their product mix. It changes their income and their revenue. Also, a lot of times when a big company goes to buy another company, the big company’s stock stagnates while the transaction is taking place. And so Bristol-Myers stock was stagnating and yet its future was looking brighter and brighter. I think the earnings growth projections are something like 30 something percent for 2020 and 20 something percent in 2021. Huge projected earnings growth. And it has to do with the synergies of of the merger so the company won’t grow like that forever. But I have found that if you buy the stock during this during this transition, as the companies are combining and thriving, you can get a real nice capital gain. Whereas if you bought one of their competitors that companies probably still just growing 5 percent a year and their stock might do almost nothing interesting. Let’s say they have specifically stated that their financial priorities include share repurchases, debt repayment and annual dividend increases in that light. I think they probably have plenty of money around to support their dividend. So despite the ugly stock market, I don’t think you have to worry that the dividend will be cut.

[00:29:02] The dividend yield right now is 3.3 percent and they have historically increased the dividend in December. And just recently, they increased their share repurchase authorization from $5 billion to $7 billion. So they’re probably buying stock as we speak. As you and I should be doing as well. I think this is an excellent investment.

[00:29:27] Next, we have Kansas City Southern Railroad. This is a brand new stop that I have never invested in before. I did a lot of research heading into this webinar and everything I found on Kansas City Southern looked attractive. All systems are go. They are a more localized railroad, not so much spread across the U.S., but they operate north/south in the US down into Mexico. And then in Mexico, it’s more of a coast to coast operation.

[00:29:53] They are moving a lot of automobiles from being manufactured in Mexico into the US. And they specifically stated just two months ago that they plan to deploy 50 to 60 percent of available cash into share repurchases and dividends. So they’re thriving. They have money they want to give it back to with repurchases and dividends. The yield right now is 1.3 percent since. Let’s say this is the one that has been increasing dividends sort of randomly more often than once a year. And you can look up the history on that. I’m looking forward to additional increases on the dividends with this one. Very good earnings growth projections and a new $2 billion share repurchase was authorized just two months ago in December.

[00:30:52] The last of the eight stocks that I’m presenting today is L-3 Harris Technologies. This company is a recent merged company between Harris Corporation and L-3 Technologies in the aerospace and defense industry. The company is very specifically purposely reshaping their business portfolio right now. As you can imagine, a lot of times a big company has several different kinds of businesses. So we have two companies here with even more businesses. So they are planning to divest themselves of about eight to 10 percent of their businesses.

[00:31:28] And one of them has is already in a sale transaction. Right now, they’re selling their airport securities business for a billion dollars. Some of that money will be used to repurchase shares, as they have stated, and they have another about eight hundred million dollars worth of businesses that they are planning to sell in the near future.

[00:31:49] So if you see any news like that, that they’re selling a piece of the business, it’s not a worry. It is somewhat of a normal thing. They’re basically selling the lower margin businesses and keeping the higher margin and higher growth businesses so that the company can thrive even more in the future.

[00:32:07] Right now, the dividend yield at L-3 Harris is 2 percent and they have frequent increases in recent years and they have good earnings growth projections not as strong, let’s say, as Applied Materials or Bristol-Myers, but certainly not anything like in the low single digits.

[00:32:28] All right, I’m just checking my notes here to make sure I don’t skip over anything. Important. All right.

[00:32:34] Market cap, here’s just a quick synopsis of the market cap. Most of the stocks I talked to about today are large cap stocks. Boise I already mentioned the small cap stocks are the only two that are more the more mid-cap or Assurant. And Kansas City Southern. One interesting thing about small and mid-cap stocks in this in this space of fundamental analysis. If we have really strong fundamental analysis and value good earnings growth, low price earnings ratios and such, it isn’t just you and I that notice, hey, the stock is sort of a bargain. It’s bigger companies in their industries who are looking for a profitable merger opportunities. So, for instance, when we look at Assurant, it’s a risk management insurance company. Well, who do we know who has a whole lot of money, who’s very familiar with risk management, insurance, and might like to buy a Assurant?

[00:33:33] Well, Warren Buffett, we know he wants to buy a company. We know he can afford it. And we know he’s wildly familiar with insurance.

[00:33:41] So. So whenever you find a company that has really strong fundamentals, it could be a potential takeover target. The smaller it is, the easier it is for bigger companies to buy it. OK, if you want the companies today with the best dividend yields and the best projected earnings growth, those would be Bristol Myers and Blackstone, followed by Applied Materials. And if you want the company today with the best price chart and therefore the best price chart means the best chance of rebounding sooner than all the other stocks. I would say that would be Anthem.

[00:34:26] OK. Here’s some reference materials. If any of you were much newer investors, please go read this article that I wrote. Getting started with a ten thousand dollar stock portfolio. It talks about just a lot of important things that are going to need to be on your radar and give you like a real building block for starting off on the right foot. Like just today I got an email from somebody who was very enthusiastic of buying about buying for stocks that were all in the same industry. And, you know, I can’t cover this in an email response.

[00:35:01] But no, if you’re going to start a stock portfolio, don’t start with four stocks in the same industry. Because if that industry goes down, then your entire portfolio goes down and you’re your stock experience is very poor and you’re not likely to to want to buy stocks again in the future. Right? But if you buy one stock in pharmaceuticals and one in housing and one in technology, et cetera, you’re spreading out your risk. So basically, the article talks about building a portfolio and spreading out risk so that you have a good experience as opposed to shooting yourself in the foot by by by not reading the article and just doing it wrong up front.

[00:35:52] Also, how to find dividend history. If you go to you you can easily find the history of the dividend payments of any stock that you are interested in looking into. See what else we’ve got here.

[00:36:10] Now I can take over here. OK, Crista, thanks. Next, I’m going to give Crista in just a minute. Catch your breath before she starts with questions.

[00:36:20] Thanks for that, Crista. Yeah, just a bit of housekeeping. If you like what you heard from Crista so far today and are interested in signing up for her Cabot Undervalued Stocks Advisor newsletter, which is our value investing advisor here at Cabot. We have a special offer reserved exclusively for today’s listeners: you get the first 30 days for just $1. In essence, a free trial to see if Cabot Undervalued Stocks Advisors is right for you. When you subscribe, you get access to Crista’s full portfolio of growth and value stocks, regular updates, trading alerts, special bulletins and monthly issues on all her stocks, access to the Cabot Undervalued Stocks Advisor Web site and direct access to Crista.

[00:37:09] Again, just go to the Web site on your screen. You see there . Again, it’s just $1 for the first 30 days. Now let’s get to your questions.

[00:37:23] You’ve been waiting patiently. Seems like we have quite a few questions. Not surprisingly. Yes. Let’s see. See you start with this one from sort of a general, one from a Manuel.

[00:37:39] You think there will be a serious risk of hyperinflation? I read in today’s news that Donald Trump will give money to the ordinary people because of the credit crisis.

[00:37:51] I haven’t really explored any hyperinflation topic. I think we’re definitely in for a significant recession. The biggest problem being a lot of folks who can’t go to work right now and are being laid off, such as my brother, who is a waiter. Right? And and my sister has a side job as a musician and that’s been, you know, canceled for the time being. And my daughter is an actress and that’s canceled for the time being because all of these involve public venues. Right? So a lot of these businesses will not bounce back or won’t bounce back anytime soon. And so we’re gonna have a lot of people unemployed in the US, and it’s going to take quite a while to get them back into jobs. And so that’s the biggest concern that I have right now about the economy. It’s not so much that companies like Apple and Procter and Gamble won’t be thriving. It’s that people who lost retail and entertainment jobs and such. Are they going to have to go on welfare? Will they need relatives to support them? And therefore, that’s money that’s not available to go into the economy buying televisions and clothing. So I can’t really answer on hyperinflation right now, but I do want you to just all gear up for an extended recession based on people who are unemployed.

[00:39:18] The question about the airlines have been taking up time of the day, as they have been and as everything else has been today, it’s just a good time to buy them. It signals Delta Airlines in particular.

[00:39:37] Right now, if there is an industry, a company and the airlines where their earnings projections are and their revenue projections are going to be falling. Right. We know for sure that airlines are getting less business. So whatever the projections are, they’re going to get ugly.

[00:39:56] So they’re going to earn less money than this year. Then maybe they’ll earn less money than I mean, last year in less money than the year before. Some of them will not earn any profit at all. Have a loss. Then the question becomes, well, how much debt did they have on their balance sheet?

[00:40:11] Will the lack of profit this year really send their balance sheet into a tailspin?

[00:40:18] So if it’s a company that’s very, very much being harmed on their bottom line. No, you can’t assume that the company is going to thrive hereafter and that the stock is good to buy today. You want to stick right now, stick with companies where their revenue and profits are largely unaffected by this lack of public gatherings. So, for example, if you have companies that provide computer parts or they sell their service through the computer, like Netflix. Right? Or Amazon, people go online at Amazon and they order their products and the products get delivered to them. And people are home. They’re actually ordering more products than usual. These are companies where they’re not going to take a big profit hit. But someone like Delta and unfortunately, a lot of a lot of retailers, they’re going to have a big hit to their profits. So please don’t assume that their stock is a bargain just because it’s cheap. We really have to let the chips fall and see which of these companies end up making any profit at all this year and put on your portfolio manager hat. Pretend you’re pretend you’re managing a huge mutual fund and say to yourself, I want to buy companies that are thriving. Do I want to buy this company where profits are going way down or do I want to buy this company over here, such as Netflix, where everybody’s watching movies, especially when they’re stuck at home. So the profits are really strong and Netflix and they’re actually still growing. Which do I really want to buy, which can really deliver capital gains? You really want to go with the companies that have rising profits. So and then the other way to look at stocks that have fallen and like. Is it a bargain right now? Wait till it stops falling. OK. If if it’s fallen below anything from the last year, it probably hasn’t stopped falling yet. And then when it stops, it’s going to bounce at the bottom for quite a few months, not just a couple days or weeks. It’s going to be down there for months before it starts to come back up.

[00:42:25] So nobody’s going to miss the boat on buying bargains. So I want you to really take your time, gather a group of stocks that you think you would love to own, like maybe would love to own Disney or Microsoft and then say to yourself, it is their business going to survive this in the short term or will it take six months like Disney? That’s going to be a little sketchy because they had to shut down their theme parks. Right? But did Microsoft have to shut anything down? No, not really. They sent some workers to work from home. So you have all the time in the world to consider what is the health of this company? What is the profitability? Are people still buying their products and services? And then and then go ahead and buy the stock. There’s nothing wrong with buying low right now. It’s actually wise to buy low when when stocks plummet. Right. But you can still pick and choose and make wiser decisions.

[00:43:30] OK. And here’s the multi-billion dollar question from Lumiere. When do you look for to be the bottom of this market?

[00:43:43] You know, I think we’re all just sort of watching and waiting. I mean, for me, I follow price charts and eventually stocks are going to stop falling. And I’ll I’ll measure that by the S&P 500 and I will watch it bounce and then bounce again and bounce again. And it’s going to bounce several times at the same level. And that’ll let me know that we are possibly at the bottom. And and I thought I was seeing that last week, but then it fell farther. So we are not at the bottom yet on the S&P 500. And then looking out over the economy and the reaction to the virus. You know, they all say that the peak on the sick people in the US is a few weeks out. And that’s going to get sort of ugly because sick people are going to overrun the hospitals and then they’re going to play it up on the news to make you as scared as possible.

[00:44:44] But we’ve seen the bell curve on the sickness from other countries and we know that these sicknesses in other countries are waning right now. So I think we need to get past the peak of the sickness in the US and then I think we’ll have a much more clearer idea on what will happen next in the stock market. So I’m sorry, that’s vague, but we’re just not at the bottom yet.

[00:45:15] Question from Susan. Do you have a price targets or timeframes for your recommendations?

[00:45:22] Oh, OK. This depends a lot. Like when I write my stock letter and when, for example, when I bought Bristol-Myers, I think it was last summer and I think we cashed it in like three or four months late or something like that, maybe six months later. So sometimes I will have a very specific price target based on previous trading ranges. So if the stock had been going up to 30 and coming down repeatedly, I might buy it at 20 and tell people, OK, we’re buying this for the next rebound up to 30. And then at that time I will remove it from my portfolios because it fulfilled my exact goal. But I won’t necessarily tell people to sell it. I will. I will. Give it the notation of retired. OK? And so for me, retired means, hey, this is still a great company like Bristol-Myers. I would never tell anyone to sell Bristol-Myers, but I retired it from the portfolio because it was time for me to bring people other stock ideas. So that’s just one example. If the stock is low and going back up, I will have a price target based on previous trading ranges. Now, obviously, every single stock we’re going to buy in the near future is a stock that’s heading that is in theory heading back up to a previous trading range. So I’m going to have a lot of price targets in the coming year. And each time a stock makes a good move to a previous price resistance level, I’m going to say, all right, I’m retiring the stock.

[00:46:52] Now, let’s go into this other one and let’s catch the upturn on this one. And so let’s say it was a normal market like a year ago and some stocks were hitting like new all time highs and such.

[00:47:04] I do not have price targets when stocks are hitting new all time highs. In theory, you just want to let them run like Apple did last year, like Blackstone Group did last year. I was very uncomfortable with Blackstone Group doubling in price. You know, because I didn’t want it to suddenly fall, you know, 30 percent and me not tell people in advance. So there’s sort of an art to it when they’re reaching all time highs. I hope that helps answer the question. Good question. Crista do you mind advancing to the next slide?

[00:47:39] Next question from Steve. With regards to KSU BCC, do you think a long recession will affect transportation and new homes?

[00:47:53] Well. Hmm. A long recession is going to affect everything, right? So. I think that the companies I chose today are far less likely going to be hurt by the recession and the current economy than many of the kinds of stocks that I did not include today. Right? I can’t include things like Disney, Exxon, Macy’s. I can’t include any of those. So so, yes, they’ll be affected, but. As long as the companies are still growing. And suffering less than other stocks. You have to find companies to build a portfolio with. Right? So I think Kansas City, Southern and Boise, Cascade and Applied Materials are offering a much, much better opportunity for for capital gains in the next few months than anything like Disney or Exxon.

[00:48:58] Question from Elizabeth. When should we buy the stocks listed today?

[00:49:08] I would say you want to. So this is going to depend on how much money you have. Some people make one purchase of each of these stocks. Other people buy them a little at a time. Like when I buy stocks for a large portfolio that I manage, I buy the stock three or four times up to a certain dollar level. And then I stop. So if you have, I don’t know, if you have a very large amount of cash, I would say dollar cost average into these, meaning buy a little bit each week for quite a while. Maybe not every stock every week. But I think during the next three months, if you can buy something every week, you’re going to end up with a lot of bargains and you’re going to have a lot of capital gains when the market finally rebounds. Now, let’s say you have a smaller amount of money. Let’s say you have ten thousand dollars and you want to buy five stocks like in that article that I wrote. Should you buy one at a time? IThis is this is a little tough. I’m going to say don’t buy one at a time. Perhaps by at least three and maybe all five. If you’re just going to buy like two thousand dollars each up to ten thousand dollars. Because if I tell you to just buy one at a time and you buy one and the market falls a bunch and you’re somewhat inexperienced with stocks, that’s going to scare you enough that you’re not going to read. Not going to buy the next four stocks. Right. So this is going to depends how how strong your gut is. I do want to see you have a diversified portfolio and divide up your money into even dollar amounts. And that means if it’s one share of Google versus a hundred shares or something else, but they equal the same dollar amount, you want to aim for the same dollar amount in each stock or in the in in each sector. The more you can diversify your risk, the more you’re going to have a pleasant overall stock experience.

[00:51:12] You pretty much just answered this one by Michael’s, he asks when and how would would one carefully reenter the market? You say you said buying one’s stock that’s been knocked back one per week or something over the next three months.

[00:51:29] Yeah. Just buy a little at a time as opposed to try not to buy all at once. Right. Because we don’t know which to which week is gonna be the bottom. Was it last week. Is it next week. Is it a month from now. I don’t know. We do know that everything you buy right now is a bargain. Presuming that the company has strong fundamentals, all their stocks are bargains right now. So just buy a little at a time. And if in buying a little at a time, you remain very calm and excited, then maybe double that up instead of buying one stock per week, buy two stocks per week. Right? Because each person who’s listening right now has a different tolerance for the current market volatility. Now, me, since I’ve been doing this for 32 years, you have to hold me back from buying more stocks. I am so excited to buy stocks. I have literally been buying stock every single day for the last two weeks. And every day I look forward to waking up would be like hooray what do I get to buy today? Because I know that in a few months I’m going to have excellent capital gains. So depending on how strong your spirit is, I’m going to encourage you to go for it. Buy something every week or buy a bunch every week, whichever you can handle.

[00:52:49] Thank you. Time for one or two more questions. Question from David. Do you use stop loss orders? And if so, when?

[00:52:59] I occasionally do, and that Apple article is a good place to start. If a stock goes up a ridiculous amount, and we’ll use Blackstone again as an example. I did own that and I did have stop loss orders because it because it’s not reasonable to expect a stock like Blackstone Group to double in less than a year.

[00:53:20] And that’s what it did. And so I was constantly thinking, OK, at some point it’s going to turn around and really go down. So I use a stop loss order and I probably used a stop loss on a portion of it, like, let’s say one third of my shares. And then I used to stop loss on half of the remaining shares and eventually it all sold. And then recently I bought it back. So I pretty much just use stop loss orders on stocks that have gone up an obscene amount because it’s a very lucky when that happens. But you can’t count on that happening forever.

[00:54:03] Quick question from Richard, who wants to know what your thoughts are about the financial sector.

[00:54:10] The financial sector seems healthy. I was also privy to some information from my Goldman Sachs conference call recently where they were talking about the current stock market and economic problem versus, let’s say, those from 10 and 20 years ago. And they felt very confident that financial companies are in good shape. That this isn’t anything like the housing crisis that led to the financial crisis. What was that, 2008, I think. It isn’t like that. This is more event driven. So I have a sense that financial companies are in very good shape. As I look at the earnings projections for the stocks that I talk about in my Cabbot Stock Letter, I look up those earnings projections for every single one of the stocks every single week. And I do not see any kind of erosion happening amongst the earnings outlook. So I think financial stocks are are pretty healthy. We have probably Goldman and Citibank, probably several others look really attractive in the big bank area.

[00:55:20] There are lots and lots of bargains in the investment, insurance and annuity areas. And I hadn’t mentioned this earlier, but this is actually an important theme that I’ve been writing about recently. There were two big takeovers in the financial area earlier this year. Let’s see, Franklin Resources, but Legg Mason and Morgan Stanley bought E-Trade. And one of the reasons this is happening is over the last few decades, as America has moved to to this like do it ourself model of people handling everything, whether it’s their home construction or their investments. Fees have come way down on what the financial services industry can charge to their customers. And because the fee structure has shrunk, they they’re scrambling to find better ways to make money. And that’s what’s really motivating these recent mergers. So presuming that other big financial companies have the same concern and they’re thinking, oh, which companies can I buy to to find a way to remain very profitable? So right away, I went to the investment and insurance industry stocks and they happen to be very cheap right now.

[00:56:39] Even, you know, a month and a half ago before stocks fell.

[00:56:43] So if I were you in that light, either because you want to own an excellent company that rebounds or because you want to own a potential takeover stock, I would look at a Thien brighthouse financial ROI of financial. Let’s see, what were some of the others? You can send me an email.

[00:57:08] I know there were six of them and they’re not coming to you off the top of my head, but basically I found six excellent choices. I have been buying them for myself and some of them are in my stock newsletter as well. One of them was Equitable Holdings. Oh, my gosh. That when the price earnings ratio was down to two, two on a wildly healthy company like a shocking I have never seen a healthy company have a price earnings ratio this low, which tells you how drastically cheap stocks are right now.

[00:57:36] So anyone can send me emails. You can find me on Facebook, you can find me on Twitter, you can find me on LinkedIn. Probably best to send me a friend to me on Twitter and then send me a message through Twitter and send me your email address. And that way I can correspond with you and help answer more questions if you have general questions for us.

[00:58:01] I think on the next slide, Crista, its

[00:58:06] We’re here to help through these times, Crista. And all of our analysts. But thank you. Thanks, Crista. First of all, for today. And thank you all for joining us and all the good questions. You know, these are crazy times, though, I suppose many of you were desperate for activities to help pass the time in this weird social distancing. But we will be back next month with another free webinar on Wednesday, April 22nd at 2:00 p.m. Eastern.

[00:58:37] Same as today. This time featuring our CEO and chief investing strategist, Tim Lutz. We’ll be giving you his favorite growth stocks from the eventual or antivirus recovery whenever it arrives. Hopefully it’ll arrive by then, but we’ll see.

[00:58:52] All right. Also, if you missed any part of today’s webinar, a recording will arrive in your e-mail inbox, I believe, later today. If not today, then tomorrow. So look for that. For that does it for us, for Crista Hough and the entire Cabot Wealth Network team, I’m Chris Preston. Thanks again for joining us. See you next time.

[00:59:15] Thank you, Chris. Thank you.

Timothy Lutts

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