Image: Best Ideas Newsletter portfolio holding Facebook’s (FB) stock has advanced 56% since it bottomed in December. This is yet another textbook execution of the Valuentum Buying Index, a strong breakout of the downtrend on a significantly undervalued stock. See also the example with Apple (AAPL) on page 241 in Value Trap: Theory of Universal Valuation.
—
In alphabetical order by ticker symbol: ABBV, AMZN, AAL, BMY, CHDN, CL, DHR, DLR, F, HON, INTC, SBUX
—
AbbVie (ABBV): The branded pharmaceutical business that was spun off from Abbott (ABT) continues to tread water, with shares in a steady downtrend since peaking at the beginning of 2018. We’re not interested in this company given the concentration risk of blockbuster drug Humira, and we generally prefer diversified plays in healthcare so as to avoid any major disappointments in any one company’s pipeline. In its first-quarter report, released April 25, AbbVie raised its diluted earnings per share outlook, to the range of $8.73-$8.83 from $8.65-$8.75, but while the near term may be okay for AbbVie, we’re concerned about the long haul, given risks related to its bread-and-butter Humira. View AbbVie’s stock page >>
—
Amazon (AMZN): We like Amazon. The problem with owning its stock, however, is that the company has tremendous earnings leverage, and that cuts both ways. Even minor changes in its mid-cycle operating-margin assumption can have a vast impact on its fair value estimate. The company remains a huge disruptor of other industries, and its free cash flow is astounding, coming in at $23 billion during the trailing 12 months ending March 2019, up from $7.3 billion for the same 12 months a year ago. Our fair value estimate stands north of $2,000, but we just can’t get comfortable adding shares to the Best Ideas Newsletter portfolio. We’re already quite consumer, tech heavy. View Amazon’s stock page >>
—
American Airlines (AAL): American Airlines’ equity has roughly been halved since the beginning of 2018, and frankly, I don’t think that we’d ever include an airline in any simulated newsletter portfolio (we did have one as a short idea consideration in the Exclusive at one time). As with Amazon, the operating leverage within an airline’s business model is tremendous. A dollar or two in the average ticket price or one more passenger in a seat per plane trip could impact earnings and our fair value estimates considerably. Read more about this in Value Trap. The company lowered its fiscal 2019 earnings per share guidance in its first-quarter report, released April 26, due in part to the 737 MAX grounding, but also on higher expected fuel costs. We’re just not interested. View American Airlines’ stock page >>
—
Bristol-Myers (BMY): Bristol-Myers’ shares have fallen considerably since the height in the fall season of last year. The company’s first-quarter results, released April 25, beat on the top and bottom lines, and the company plans to tie the knot with Celgene (CELG) soon in a massive transaction. Although many are concerned with overpayment risk and generic competition in coming years (e.g. Revlimid), we’re taking a more neutral stance on the merger. Still, we won’t be jumping into shares of Bristol-Myers’ anytime soon. Execution risk is far too great, and political pressure against drug prices seems to be only intensifying. View Bristol-Myers’ stock page >>
—
Churchill Downs (CHDN): As we approach the first Saturday in May (the Kentucky Derby), we couldn’t help but notice that Churchill Downs put up solid first-quarter results when it reported April 24. The company beat on the top and bottom lines, and we continue to be impressed with its success given some of the challenges of the thoroughbred horseracing industry. We give the company high marks for TwinSpires.com, especially as it relates to the legalizing of sports betting, and its transition to becoming a solid regional casino operator. We value shares at $80 each. View Churchill Downs’ stock page >>
—
Colgate-Palmolive (CL): It’s hard to go wrong with a consumer-staples equity, but they are not all fool proof. The Kraft-Heinz (KHC) story is one in which investors should always remember. Even Warren Buffett had to face the music with that one. We think Colgate-Palmolive is a fantastic company, but while its dividend is healthy, its valuation is stretched by our estimates. Product pricing strength was the star in its first-quarter results, released April 26. Shares are bumping up against 52-week highs. View Colgate-Palmolive’s stock page >>
—
Danaher (DHR): Danaher has become an indirect beneficiary of General Electric’s (GE) fall from grace, now having agreed to purchase the latter’s BioPharma business. Though it comes with some legacy liabilities, the deal has some strategic merit, even though we note the transaction won’t come cheap. Danaher may end up spinning out its dental business in an initial public offering soon, too, and frankly, the company has been doing too many things right for us to disagree. It beat on the top and bottom line when it reported earnings April 18. View Danaher’s stock page >>
—
Digital Realty (DLR): Digital Realty’s first-quarter 2019 results came in better-than-expected when it reported April 25. First-quarter core funds from operations (FFO) per share handily beat consensus forecasts, and the data center REIT reiterated its core FFO outlook in the range of $6.60-$6.70. Shares have sold off following the report, as of this writing, but we think it may have more to do with expectations regarding broader interest rates than anything fundamental. We still like shares of this REIT. View Digital Realty’s stock page >>
—
Honeywell (HON): Honeywell has become a tremendous stock in recent years, and its shares have rallied considerably since the December 2018 near-term bottom. The company’s first-quarter results, released April 18, came in better than expected on both the top and bottom lines led by strength pretty much across its sales segments, especially aerospace. Honeywell raised its full-year earnings per share guidance to the range of $7.90-$8.15, up from $7.80-$8.10. We’re huge fans of Honeywell, but it just doesn’t quite fit in the newsletter portfolios. It may in the future, however. View Honeywell’s stock page >>
—
Intel (INTC): As is often the case around key developments, Intel’s shares have been mighty volatile recently, leaping on its decision to halt initiatives in building out 5G modems in the wake of the Qualcomm-Apple truce and then of course its quarterly report April 25. The first-quarter numbers were largely in line, but the company’s second-quarter and full-year outlook was much worse than what the market was expecting. This could be little more than conservatism by new CEO Bob Swan, in our view, but it has us on high alert. We’re not overacting and still view shares of Intel about fair valued, even after the decline April 26. View Intel’s stock page >>
—
Starbucks (SBUX): Call it a comeback. What many believed would be a much more difficult path for Starbucks’ shares as a result of weakness in the summer of 2018 has now morphed into new all-time highs for shares following its fiscal second-quarter earnings report, released April 25. Global comparable sales growth for fiscal 2019 is targeted in the range of 3%-4% for the high-end coffee retailer, and fiscal 2019 earnings targeted in the range of $2.75-$2.79 looks all but achievable (slightly better than consensus). Shares aren’t cheap after its run higher, however. View Starbucks’ stock page >>
—
—–
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.