Penn Wealth Publishing

2018.11.04 Penn Wealth Report Vol 6 Issue 04

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14 PeNN Wealth RepoRt volume 6 issue 04 04 Nov 2018 Penn Wealth RePoRt Copyright 2018. All Rights Reserved. investment intelligence Trading Desk It was a brutal month, but we took advantage of the carnage to gauge how our various holdings responded to a new downturn. KeyBanc: Upgrade rH Earlier this month, shares of luxury home goods retailer Restoration Hardware (RH $68-$126-$164) plummeted from $162 to $122 after the company lowered its 2018 revenue guidance. KeyBanc Capital Markets analyst Bradley Thomas believes investors overreacted to the (actually pretty decent) report, and upgraded the company from Sector Weight to Overweight, with a price target of $166 per share—a 32% gain from here. Without doubt, the upper-end American consumer is spending robustly, and this should help a company like RH. What worries us, however, is the rich 90 multiple on the shares—and that is after the drop. We would steer clear. Wells Fargo: doWngrade cosT Arguing that the company is "priced for per- fection," Wells Fargo analyst Edward Kelly downgraded Costco Wholesale (COST $154- $236-$245) from "outperform" to "market perform," keeping the company's price target at $235—slightly less than where it is cur- rently trading. Admittedly, we haven't liked the company for a long time (yes, they had a great run over the past year), and—con- sidering they really have no effective online strategy—we certainly can't see a reason to buy on the pullback. MoFFeTTnaTHanson: sell TWTr "Smoke and mirrors" was the term Michael Nathanson at MoffettNathanson used to describe some aspects of Twitter's (TWTR $17-$29-$48) financial accounting for the first half of the year. Nathanson noted that inves- tors will soon take into account the growing demand for the vast amount of cash needed to run the business—cash the company doesn't have on hand. In the end, the analyst reduced his rating on the stock to a "sell," and reduced the price target from $23 to $21 per share—a 28% drop from the current price. penn: BUy MU Every now and again, a golden buying oppor- tunity comes along in which very strong and vastly undervalued companies are thrown out with the bathwater. The 23rd of Oct was one of those days. Micron (MU $37-$38-$65) has a p/e ratio of 3.45, just dropped over 5%, and hit a new 52-week low. We believe the com- pany has a fair value of over $50 per share. We added shares to the ITP @ $38.18. Easy decision. penn: raise gT sTop loss When we entered our Goodyear Tire (GT $19- $21-$36) position at $22.68 earlier this year, we were looking at crazy-low valuations on a company with a great history and a strong product/services line. The PE ratio is now better, as the stock continues to fall in price. While our expectations are still there (for a $30+ target price being met), our conviction is lower. We raised our stop loss to $21.50 and will raise further as the stock rises in price. penn: raise aMgn sTop loss We've made a nice profit on our Amgen (AMGN $163-$190-$210) position in the Penn Global Leaders Club, and we still believe in the long-term story of the biotech firm. Nonetheless, take a look at how Amgen fell in October right in line with the S&P 500. We like health care stocks going forward, as they are more defensive, but some are more defensive than others. To protect our profits, we raised our stop loss on AMGN to $185/share. penn: add UsMV To dgs We had one concern about the iShares Minimum Volatility ETF: it hadn't been bat- tle tested. This October it was, and it held up not only better than the overall market, it also handily beat the $72 billion Vanguard Value ETF. We added this fund, with its propri- etary risk management tools, to the Dynamic Growth Strategy at $54.12 per share. The content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscrib- ers. This is not a solicitation to buy. Always consult your investment professional before investing any money. Actions we have taken at the Penn Trading Desk, plus a look at what other Wall Street analysts have to say...

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