In this column, Mr. Berko shares with us 9 best stock picks as shared to him by his “stock maven” friend.
Best Stock Picks
Dear Mr. Berko:
Please recommend about 10 stocks that are not well-known on Wall Street, are seldom touted by research departments and have, in your opinion, good appreciation potential over the next 18 to 24 months. I’m comfortable with low to moderate risk. — DB, Fort Walton Beach, Fla.
My friend Ossie Ollum, an old college classmate I’ve kept in touch with, thinks he’s a stock maven. He gave me a bunch of issues last week and told me to watch them for a year. He believes that this portfolio could provide a 33 percent total return in 18 months. I chose nine issues. I’ll profile the others next week.
Tailored Brands (TLRD-$23.47) is a specialty apparel retailer that owns Men’s Wearhouse, Jos. A. Bank, Joseph Abboud plus 40 retail dry cleaning, laundry and heirlooming facilities. TLRD also sells work uniforms to the airline postal, banking and health care industries under its Twin Hill, Alexandra and Yaffy brands. The 72-cent dividend yields 3.1 percent. Improving revenue growth and good earnings should enable a dividend increase to 80 cents and a stock price increase to the $29-$30 level this year.
Boise Cascade (BCC-$42.15) is an integrated wood products manufacturer and building materials distributor. BCC also makes engineered wood products and plywood used in new homes and residential repairs. This was a $4.4 billion-revenue company in 2017 and may be a $4.7 billion one this year after a projected 19 percent increase in earnings, to $2.22 a share. BCC shares don’t pay a dividend, but they could readily trade in the high $40s to low $50s this year.
Pilgrim’s Pride (PPC-$30) is the world’s largest chicken processor, with $9.1 billion in revenues from chicken feet, livers, gizzards, wings, beaks (used in powdered form as an aphrodisiac), necks, eyeballs and tongues. And the feathers, after being cleaned, are used in pillows and blankets. The eyes are used decoratively. There’s no dividend, but an anticipated 21 percent improvement in 2018 earnings might spur PPC to trade in the low $40s.
Covenant Transportation Group (CVTI-$29) is a provider of expedited long-haul freight transportation, using two-person travel teams in transcontinental lanes. CVTI’s $700 million worth of activities also include refrigerated cross-border regional brokerage. Though it doesn’t pay a dividend, improved metrics this year may give it a $36-$37 price tag.
Oshkosh (OSK-$92) makes and markets commercial fire and emergency apparatus and military trucks under the Oshkosh, Pierce and McNeilus trademarks. OSK is a $7 billion-revenue company with operations in Mexico, the United Kingdom, the Netherlands and Sweden. Future earnings look impressive, and the shares are making new highs. Many are looking for earnings and sales growth to accelerate in the next two years, perhaps pushing the price to $125. The 84-cent dividend yields 0.91 percent.
Posco (PKX-$83) is a $50 billion-revenue South Korean iron and steel company, the third-largest in the world. The $2 dividend yields 2.6 percent, and analysts say it could be $2.90 in three years if earnings reach $12 a share on $160 billion in revenues. PKX could trade at $220 by 2021.
Beacon Roofing Supply (BECN-$61) is a $4.5 billion distributor of residential and commercial roofing products in the U.S. and Canada. Various acquisitions have tripled revenues and actually improved net profit margins by 21 percent. This is a small, quiet growth company with a $28 target range in 18 months.
Greencore Group (GNCGY-$12) is home-ported in Dublin, which is the wealthiest capital in the world. GNCGY sells food products primarily from the U.K. Its food is a real gustatory experience. The 25-cent dividend paid from 83 cents in share earnings is expected to rise this year, and the stock could trade in the high teens.
Triton International (TRTN-$38) acquires, leases, re-leases and sells intermodal containers. The $1.80 dividend yields 5.9 percent, and revenues are rising. TRTN’s equipment consists primarily of dry freight containers, refrigerated containers, tank containers and chassis, and the stock has a first-year target of $47.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2018 CREATORS.COM
How the Coronavirus Crisis Affects Tanker Shipping And Stocks
The coronavirus outbreak centered in China continues to worsen. Over 7,800 cases have been reported — already exceeding the 2002-03 SARS outbreak — and over 170 people have died.
Fallout for crude-tanker shipping and public equities took center stage on the quarterly conference call of tanker major Euronav (NYSE: EURN). While the comments on the call were about crude tankers, almost all of them could apply to all modes of shipping.
“This is bad news,” said Euronav CEO Hugo De Stoop. “Let’s not pretend it’s anything but bad news. The impact is definitely uncertain, but in the short term, it’s negative. In the long term, everybody is convinced it will be contained, so you want measures to be as strong as possible now so the virus is contained as quickly as possible,” he said.
As previously reported by FreightWaves, the sweeping shutdown of land and air transportation within China and to and from the country will weigh heavily on near-term oil demand given the outsize role China has in global consumption.
Another negative for tanker demand: OPEC is expected to extend production cuts in response to the coronavirus-induced plunge in oil prices.
According to De Stoop, “If we look at other terrible viruses that have spread in the past, what we know for sure is that once they are contained and things go back to normal, they don’t go back to normal. There’s huge stimulus, usually by China but also by other economies, to try to get back a bit of what has been lost during the [epidemic] period.
“So, if you predict that it may take a few months [before the virus is contained], what you will have is a fantastic first quarter — no matter what happens for the rest of the quarter, it will be a great first quarter — then you have summer, which is never the period we count on, and then the chances are we will be back in winter with a super-strong market, so it should be a great year,” he said.
When reporting fourth-quarter results on Thursday, Jan. 30, Euronav disclosed that it had booked 60% of available days for the first quarter for its very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude oil) at an extremely high rate of $89,200 per day, and 51% of available days for its Suezmaxes (tankers that carry 1 million barrels) at $57,500 per day.
In the crude-tanker business, almost all bookings for a particular quarter are done in the prior quarter or the early part of the current quarter. Tanker rates were extremely high in the fourth quarter and first few weeks of 2020.
What De Stoop is saying is that full-year 2020 results should be strong based on exceptional first and fourth quarters (the fourth assuming the virus is contained), even if the coronavirus and seasonality hit the second and third.
The coronavirus is hitting shipping stocks, including tanker stocks, even more severely than the broader market. Strong fundamentals, exceptional quarterly returns, incremental volumes driven by the new marine-fuel rules — all of those positives are now being erased in the stock market by coronavirus fears.
Euronav is a prime example. It reported net income $160.8 million for the fourth quarter of 2019, up from just $279,000 in the same period the year before. Earnings per share of $0.70 easily topped the consensus forecast for $0.63 per share. Its VLCCs averaged $61,700 per day in the spot market in the most recent quarter, and its Suezmaxes $35,700 per day. These rates, which De Stoop dubbed “remarkable,” were the highest since 2008, before the financial crisis.
And yet, Euronav’s share price was down 4% in the double the average trading volume on the day its results were announced (in mid-day trading, it was down 7%).
“In the first 10 days of January, we were finally getting our share price above NAV [net asset value], which is always our objective,” De Stoop said. “Obviously, we are not happy at all with our share price at the moment.” Investment bank Jefferies estimated that Euronav’s stock is now trading at a 24% discount to NAV.
De Stoop argued that the share decline creates “a fantastic entry point in tanker shipping companies. With Euronav, you have a guarantee to be paid with the dividends, and if that upside [following virus containment] doesn’t come as quickly as I just expressed, you are in a company with a super-strong balance sheet that can weather any storm. So yes, this [virus] is terrible news. It’s completely unexpected. But quite frankly, if I was an investor and I was attracted by this sector, I know where I would put my money.”
Asked whether the balance could shift toward more time charters as opposed to spot voyage contracts, De Stoop again brought up the coronavirus.
“The volume of time charters in the market is very thin. There have been even fewer opportunities in the last three to four months simply because the market has been extremely volatile. It was quickly going to $100,000 a day and then suddenly there was a massive drop [to around $45,000 a day]. So, everybody is looking each other in the eyes, and thinking on one side [a proposed time-charter rate] is too high and the other side saying it’s too low.
“We need to see a little bit more stability. And I think that because of the events affecting the market at this moment — and we spoke about the virus— it’s just too unpredictable for people to start signing long-term contracts,” he said.
Discussing potential “positives” of the outbreak, De Stoop pointed to the extremely high secondhand VLCC prices recorded in early January.
He noted that secondhand VLCCs have been sold for $107 million, versus a newbuilding contract price of $90 million. “I think those prices were probably exacerbated by the excitement around the rates and quite frankly we don’t think they were justified,” he said.
He noted that $90 million newbuilding price is unlikely to appreciate further because of the low orders at the yards. Owners are unusually reluctant to order newbuilds due to ongoing uncertainty over future emissions standards. De Stoop said the newbuild price should “anchor” the secondhand values, which are at premium to newbuilding pricing in a strong market (because second-hand purchases can earn immediately; a newbuild takes 14 months to deliver).
The implication is that the newbuilding price anchor combined with weaker sentiment due to lower spot rates and the coronavirus fears should serve to either maintain or reduce secondhand values.
Euronav bought back $30 million of its own stock last year. It has targeted a return of 80% of quarterly net income to shareholders through dividends and/or buybacks. But the buyback aspect of the equation faces new uncertainty due to the coronavirus.
“The philosophy of this company has always been the same,” said the CEO. “We don’t rush to buy back our shares. If there is weakness in the share price, we want to see if it’s a temporary weakness or whether it’s more permanent. If it’s more permanent, then obviously we’d think very seriously about it [share buybacks].
“We’re disappointed about what’s going on at the moment, but we understand there are exceptional circumstances around that. Before deploying capital for share repurchases, we need to see how long and how deep it will go. Because if you buy back today, maybe tomorrow it will be weaker. If [share-price weakness] is deeper tomorrow, you’d better wait before deploying your capital.”
He continued, “Let’s see how capital markets react to this virus and the continuous flow of news we’re going to receive. Let’s see what happens to tanker markets and tanker values and where we are [in the share price] compared to NAV.”
Takeaways For Tanker Stocks
The comments on the Euronav call were negative in general for tanker stocks, which are falling across the board.
Shipping stocks are valued in relation to NAV, and the most important variable of NAV is the market value of the ships in the fleet. If the coronavirus and other factors either cap or decrease tanker asset values, it’s bad for stock prices.
Secured revenue streams via time charters at attractive rates are a positive for tanker companies. If coronavirus uncertainty reduces the ability to sign such contracts, it’s another negative.
There are also conflicts between De Stoop’s statement that the crisis creates “a fantastic entry point” and some of his other comments on the call. First, if tanker rates aren’t likely to recover until next winter, assuming virus containment, why buy shares now?
Second, if Euronav itself is openly hesitant to buy its own shares specifically because states on the record that “you’d better wait” to see how the coronavirus situation develops, why shouldn’t individual investors wait as well?
Dow Jones Industrial Average Breaks 29,000 For The First Time in History
Slight gains send Dow Jones Industrial Average above 29,000!
The Dow Jones Industrial Average closed above 29,000 points for the first time and the S&P 500 index hit its second record high in three days Wednesday.
The milestones came on a day when the market traded in a narrow range as investors weighed the latest batch of corporate earnings reports and the widely anticipated signing of an initial trade deal between the U.S. and China.
President Donald Trump and China’s chief negotiator, Liu He, signed the “Phase 1″ deal before a group of corporate executives and reporters at the White House. The pact eases some sanctions on China. In return, Beijing has agreed to step up its purchases of U.S. farm products and other goods.
“This was telegraphed well enough that the market is kind of looking through it and toward the next phase and what that means,” said Keith Buchanan, portfolio manager at Globalt Investments.
Health care stocks accounted for much of the market’s gains. Utilities and makers of household goods also rose. Those gains outweighed losses in financial stocks, companies that rely on consumer spending and the energy sector.
The S&P 500 index rose 6.14 points, or 0.2%, to 3,289.29. The index also climbed to an all-time high on Monday.
The Dow gained 90.55 points, or 0.3%, to 29,030.22. The Nasdaq composite added 7.37 points, or 0.1%, to 9,258.70.
Smaller-company stocks fared better than the rest of the market. The Russell 2000 picked up 6.66 points, or 0-4%, to 1,682.40.
The benchmark S&P 500 index is on track for its second straight weekly gain.
Bond prices rose. The yield on the 10-year Treasury note fell to 1.78% from 1.81% late Tuesday.
While limited in its scope, investors have welcomed the U.S.-China deal in hopes that it will prevent further escalation in the 18-month long trade conflict that has slowed global growth, hurt American manufacturers and weighed on the Chinese economy. The world’s two largest economies will now have to deal with more contentious trade issues as they move ahead with negotiations. And punitive tariffs will remain on about $360 billion in Chinese goods as talks continue.
With the “Phase 1” agreement now a done deal, investors have more reason to focus on the rollout of corporate earnings reports over the next few weeks. Earnings have been flat to down for the last three quarters, and if the fourth quarter meets expectations, it should be around the same.
However, analysts are projecting 2020 corporate earnings growth to jump around 9.5%, which is why traders will be listening this earnings reporting season for any clues management teams give about their business prospects in coming months.
“We’re expecting a reacceleration in the back end of the year, so any (company) guidance that brings any type of skepticism to that could threaten the recent rally we’ve had and the gains that we’ve accrued in the past few months,” Buchanan said.
Health care stocks powered much of the market’s gains Wednesday. Several health insurers climbed as investors cheered a solid fourth-quarter earnings report from UnitedHealth Group.
The nation’s largest health insurer, which covers more than 49 million people, said its revenue rose 4% on a mix of insurance premiums and growth from urgent care and surgery centers. Its stock rose 2.8%. Other health insurers also moved higher. Anthem gained 1.6%, Cigna added 1.5% and Humana climbed 1.9%.
Technology companies also rose. The sector is reliant on China for sales and supply chains and benefits from better trade relations. Microsoft gained 0.7% and Advanced Micro Devices gained 0.8%.
Utilities and consumer staples sector stocks also notched gains. Edison International climbed 2.5% and PepsiCo rose 1.7%.
Financial stocks fell the most. Bank of America slid 1.8% after reporting weaker profits due to the rapid decline of interest rates in late 2019.
Energy stocks also fell along with the price of crude oil. Valero Energy dropped 3.3%.
Homebuilders marched broadly higher on news that U.S. home loan applications surged 30.2% last week from a week earlier. The pickup in mortgage applications reflects heightened demand for homes and suggests many buyers are eager to purchase a home now, rather than waiting for the traditional late-February start of the spring homebuying season. Hovnanian Enterprises jumped 6.4%.
Target slumped 6.6% after a disappointing holiday shopping season prompted the retailer to cut its forecast for a key sales measure in the fourth quarter. The company said weak sales of electronics, toys and home goods crimped sales growth to just 1.4% in November and December.
Benchmark crude oil fell 42 cents to settle at $57.81 a barrel. Brent crude oil, the international standard, dropped 49 cents to close at $64 a barrel.
Wholesale gasoline fell 1 cent to $1.64 per gallon. Heating oil declined 3 cents to $1.88 per gallon. Natural gas fell 7 cents to $2.12 per 1,000 cubic feet.
Gold rose $9.70 to $1,552.10 per ounce, silver rose 25 cents to $17.92 per ounce and copper fell 1 cent to $2.87 per pound.
The dollar fell to 109.91 Japanese yen from 110.00 yen on Tuesday. The euro strengthened to $1.1150 from $1.1128.
Markets in Europe closed mostly lower.
20 Stocks Every Investor Should Add to Their Watch List in 2020
Interested in what stocks to look out for this year? Then you’ll love this list of the best stocks to watch in 2020.
These funds purchase multiple stocks and spread risk appropriately across the top companies. This is the advice of Warren Buffett, who once said,
“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”
If you’re looking for a stock index fund, check out Vanguard’s 500 Index Fund.
With that aside, here are the most promising stocks going in to 2020:
1. Chipotle Mexican Grill
Chipotle is an international chain of restaurants specializing in tacos, burritos, and other Mexican style cuisines. They have establishments all over the world from the United States to Germany and France.
This beloved food joint performed very well in the first two quarters of 2020 and are expected to continue to grow.
P/E ratio as of August 2019: 87.81
2. Constellation Brands, Inc.
Constellation is an international beer and wine producer. They are the largest importer of beer in the United States and command 7.4% of the market share.
P/E ratio as of August 2019: 17.00
3. Lululemon Athletica
Lululemon Athletica creates athletic apparel such as performance shirts, shorts, and pants, as well as yoga accessories. They’ve built a brand over the years that millions recognize and love.
P/E ratio as of August 2019: 47.51
4. Coty Inc.
Coty Incorporated is a multinational company that specializes in beauty products and services such as cosmetics, fragrances, skincare, and nail care.
Coty owns over 70 brands, such as CoverGirl, Clairol, and Bourjois. In 2018, the company’s revenue was over $9.4 billion.
As of August 2019, Coty Inc. stock is valued at 10.42 USD. Their P/E ratio is not yet available.
5. Anadarko Petroleum Corporation
Anadarko is in the natural gas and petroleum industry. This entails everything from gathering resources to treating and transporting gas. The company is also in the hard mineral business.
In early 2019, Anadarko had an estimated 1.47 billion barrels of oil in reserve, making it one of the biggest players in the industry.
As of August 2019, Anadarko’s stock is valued at 73.48 USD. Their P/E ratio is not available yet.
6. Brookfield Infrastructure Partners L.P.
Brookfield Infrastructure Partners acquires and manages infrastructure assets all over the world. They specialize in utilities, energy, and transportation infrastructure.
The company invests in ports, toll roads, pipelines, and telecommunication lines. In other words, things that people will always need and use.
P/E ratio as of August 2019: 75.27
7. ONEOK Inc.
ONEOK (pronounced “one – oak”) Incorporated is in the natural gas industry and is a key leader in the gathering, storing, processing, and transporting natural gas in the United States.
P/E ratio as of August 2019: 22.62
TerraForm Power Inc.
TerraForm Power specializes in renewable energy, particularly solar and wind power. There is an ever-growing trend that demands less damage to the environment.
As the world values green innovations, companies like TerraForm are expected to be favored in the coming years.
P/E ratio as of August 2020: 227.44
Netflix is a service provider and production company with their main product being a subscription-based streaming service.
Streaming TV and movies have largely replaced traditional television. With no commercials and instant access to thousands of products, Netflix is suspected to continue to grow.
P/E ratio as of August 2019: 120.23
iRobot is an advanced technology company that specializes in military and domestic robots. They designed the Roomba, which is an autonomous vacuum cleaner.
The U.S. military has purchased and uses thousands of robots from iRobot and are contracted to make more.
P/E ratio as of August 2019: 22.24
Amazon is a multinational company that specializes in e-commerce and cloud computing. It’s considered one of the big four technology companies along with Apple, Google (Alphabet, Inc.), and Facebook.
Amazon is well known for distributing goods through technological innovation and on a massive scale. Some estimate that Amazon commands 50% of all goods sold online.
P/E ratio as of August 2019: 73.65
11. Apple Inc.
Apple is a multinational tech company that develops and sells computer software, electronics, and online services. They designed some of the world’s greatest tech products including the iPhone and Apple Watch.
Being a leader in tech devices, many analysts believe Apple is one of the most promising stocks to invest in.
P/E ratio as of August 2019: 16.61
12. Alphabet Inc.
Alphabet Inc. is a multinational conglomerate founded in 2015. It’s the parent company of Google, which is the dominating search engine on the internet.
Google performs 90% of all searches on the internet. Alphabet has additional subsidiaries such as Calico, Capital G, and Deep Mind.
These subsidiaries have their hands in industries such as autonomous cars, biotechnology, video game software, and internet tech.
P/E ratio as of August 2019: 23.87
13. Facebook Inc.
Facebook is the popular American social media site founded by Mark Zuckerberg. In 2018, Facebook had a net income of $22.11 billion and its total assets were $97.33 billion.
Facebook has subsidiaries such as Instagram and WhatsApp, which are also very popular social media outlets.
P/E ratio as of August 2019: 31.00
14. MarketAxess Holdings Inc.
MarketAxess is an international company that specializes in financial technology, also known as fintech.
They operate an electronic trading platform for various credit markets such as corporate bonds and income products.
P/E ratio as of August 2019: 70.82
15. AT&T Inc.
AT&T is a multinational conglomerate holding company and is the world’s largest company in telecommunications.
AT&T is the parent company of Warren Media, which makes it the largest entertainment company in the world in terms of revenue.
P/E ratio as of August 2019: 14.17
16. Verizon Communications Inc.
Verizon is a multinational telecommunications conglomerate. They are well known for their subsidiary Verizon Wireless, which is its mobile network.
Together with AT&T, these two companies dominate the mobile and landline market. Since our needs for communications will develop, these two stocks are poised to grow.
P/E ratio as of August 2019: 14.49
17. Axon Enterprise Inc.
Axon Enterprise Inc. is a U.S.-based company that develops weapon products and technology for civilians and law enforcement. This company developed the Taser, a line of electric shock weapons.
Since then, Axon developed other technologies including body cameras and a cloud-based management system that empowers police departments to manage and review evidence.
P/E ratio as of August 2019: 129.55
18. Intuitive Surgical Inc.
Intuitive Surgical Inc. develops and manufactures surgical equipment to make surgeries less invasive. As of 2017, they had 4,271 bases worldwide.
P/E ratio as of August 2019: 48.51
19. Ford Motor Company
Despite the localized recession in Detroit, the automotive giant is doing very well.
The market continues to demand their SUVs and commercial vehicles, not to mention their luxury vehicles, which are usually created under their Lincoln brand.
P/E ratio as of August 2019: 16.90
20. General Motors Company
General Motors is a multinational manufacturer of vehicles and own automotive brands like Buick, GMC, Cadillac, and Chevrolet. They have nearly 400 facilities on six different continents.
P/E ratio as of August 2019: 6.19
Let’s point out two trends from this list:
- Tech and software companies are dominating
- Utility-related companies are tried and true
About half of the world still doesn’t have internet access. And a large portion still doesn’t have access to common devices like cell phones and laptops. That means these industries are set up to grow significantly for years to come.
Of course, that doesn’t mean other industries will simply disappear. As you’ve seen in the list, there are still key industries that our society relies on, such as energy and infrastructure companies.
Some of the most promising stocks are in tech and software, such as Apple, Facebook, Google, and Amazon.
Nevertheless, the wisest investment is still a stock index fund, which bets on the collective market rather than individual companies.
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