Growth & Income 842

These issues offer investors two-for-one—appreciation and income.

Cabot Corporation (CBT)| Daily Alert May 25
One of Cabot Corporation’s key growth end markets is material used to make lithium-ion batteries. It sells carbon nanostructures, fumed metal oxides and conductive carbon black to battery manufacturers. Its chemicals are key enablers of increased battery performance. They create electrically conductive connections between battery layers. This enables faster charging, greater energy density and extended ranges and all of these are vital qualities needed for EV batteries. That makes it a one-stop shopping deal for battery manufacturers.

The future prospects for Cabot look very promising. The market for conductive carbon additives alone is expected to grow by $1 billion by 2025. Cabot reported adjusted earnings per share for its second quarter that were up a record 79% year over year to $1.38, from $0.77 year over year. Pre-tax earnings in materials increased 46% year over year to a record high of $89 million.

For fiscal 2021, Cabot projects earnings per share of $4.95, meaning that the stock is trading at just over 12 times forward earnings. In addition to a healthy balance sheet, Cabot also has a dividend yield of more than 2%. The stock is an effective hedge against inflation, and a play on economic recovery with exposure to the lithium-ion battery sector.

BUY A HALF
Carl Delfeld, Cabot Explorer, cabotwealth.com, 978-745-5532, May 13, 2021

Nexstar Media Group, Inc. (NXST)| Daily Alert June 1
Nexstar Media Group is the largest owner of local television stations in the U.S. The company owns, operates, programs, or provides services to 198 television stations covering approximately 60% of U.S. television households. Most of the company’s station portfolio is comprised of network affiliates of the big four networks: ABC, CBS, Fox, and NBC.

Historically, the company’s primary source of revenue had been the sale of commercial airtime to local and national advertisers, providing more than two-thirds of the company’s revenue a decade ago. Since then, retransmission revenue collected from cable and satellite companies in return for the consent to retransmit the signals from Nexstar’s television stations has grown significantly, stabilizing results. Retransmission revenue accounted for nearly 50% of Nexstar’s revenue in the past year.

On the back of continued growth in retransmission revenue, strong political advertising tailwinds, and share repurchases, we anticipate Nexstar will be able to grow earnings 10% annually over the next five years. This implies EPS of $27.97 at the end of this period. Applying a high P/E of 15.0, we get a potential high price of 419. Using a low P/E of 8.0 combined with a downside scenario where the trends in retransmission revenue do not hold up and EPS reaches a low of $12.00 results in a price of 96. Therefore, we model an upside/downside ratio of 5.2 to 1 and a projected high return of nearly 25% annually.
Doug Gerlach, InvestorAdvisoryService.com, 1-877-33-ICLUB, May 25, 2021

Mondelez International, Inc. (MDLZ) | Daily Alert June 7
Mondelez International, Inc. (Rated “B”) is the global snack food company responsible for familiar brands like belVita Breakfast Biscuits, Philadelphia Cream Cheese, Oreo Cookies and Ritz Crackers. It also sells foreign market products you may have encountered on your travels, including Prince biscuits and Alpen Gold chocolate.

Late last month, shares of MDLZ broke out of a 15-month trading range to the upside. Specifically, sales rose 8% to $7.2 billion on the back of strong global snack food sales. Adjusted earnings per share (EPS) also rose 11%.

The firm continues to grow by acquisition. It bought the rest of the U.S. firm Hu Master Holdings in January, a majority stake in the U.K. company Lion/Gemstone Topco Ltd. in March, and the Australian company Gourmet Food Holdings Pty Ltd in April.

Nor did MDLZ lose the “Buy” grade our Weiss Ratings system has bestowed on it for more than two years. The company also continues to buy back its own shares, including more than $1 billion in the most recent quarter.

All of those factors helped vault MDLZ to the top of my Bedrock Income Portfolio screening system this month. Buy a 2.5% position in Mondelez International, Inc. (MDLZ, Rated “B”) at the market.
Mike Larson, Safe Money Report, 1-877-934-7778, weissratings.com, May 2021

AutoNation, Inc. (AN) | Daily Alert June 8
AutoNation’s operating profit margin expanded to 4.8% in 2020, its highest level since 1993.

In the March quarter, AutoNation pried operating profit margins wider to 5.7%, versus 3.5% in the year-ago quarter and higher than any quarter since 1997. Management attributes its higher profitability to cost discipline, improvements in its digital business, and higher vehicle prices.

With vehicle supplies limited in many parts of the country, AutoNation is not budging much on the sticker price of new cars. AutoNation has shown more willingness to negotiate on prices for used cars, which can be more easily replaced in its inventory.

Encouragingly, management says vehicle demand remains significant and sustainable, which should help protect operating profit margins in coming quarters. Analysts expect per-share profits to grow 42% in 2021 on 16% higher revenue.

AutoNation is a Best Buy.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, June 2021

*Smith & Wesson Brands, Inc. (SWBI)
Smith & Wesson Brands is the maker of some of the world’s most popular pistols, revolvers and rifles and has seen bullseye earnings growth, but it also is seeing a big run higher in its share price.

This recent breakout move is what we’ve been waiting for to add SWBI to our portfolio. Now, the stock is breaking out of a bullish cup-with-handle technical pattern.

Let’s buy Smith & Wesson Brands at market. Set a protective stop at $15.95.

For those willing to make a bigger bet, we recommend buying the SWBI Sept. $22.50 call options (SWBI210917C00022500) at market. The call options last traded for $1.40 and expire on Sept. 17.
Mark Skousen & Jim Woods, FMA Trader Alert, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, May 24, 2021

*The Coca-Cola Company (KO)
Coca-Cola, originally recommended by Bruce Kaser for the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, continues to work on breaking out above 55, the level that has acted as resistance three times since November. In his latest update, Bruce wrote, “The company is discontinuing its Coca-Cola Energy drink – once considered promising but now being cut as sales have been lackluster. We view this as a positive, as the company is more aggressively weeding out its weaker products.

“While the valuation is not statistically cheap, at 25.0x estimated 2021 earnings of $2.18 (unchanged in the past week) and 23.1x estimated 2022 earnings of $2.36 (unchanged), the shares remain undervalued given the company’s future earning power and valuable franchise.” BUY
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, May 24, 2021

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