6 Stocks Set for Monster Growth in 2019

Although stocks have experienced a rough ride in 2018, some stocks still have a big chance to shine through year-end. The best stocks to buy now go above and beyond the normal growth prospects. While looking for these kinds of investments, I examined six of the best stocks to invest in, all with huge upside potential and support from the Street’s top analysts.

The best way to find these stocks is with TipRanks’ Top Analyst Stocks tool.

Why? Well, the tool reveals all stocks with strong buy ratings from Wall Street’s best-performing analysts. You can then sort the stocks by upside potential to pinpoint compelling investing opportunities.

At the same time, I was careful to avoid stocks that have big upside potential simply because share prices have crashed recently. Check the price movement over the last three months to be sure shares are moving in the right direction.

With that being said, let’s get straight down into taking a closer look at these six stocks to buy now — all of which I believe look undervalued.

Stocks to Buy Now: Cloudera (CLDR)

Stocks to Buy Now: Cloudera (CLDR)

Big-Data cruncher Cloudera (NYSE:CLDR) has upside potential of 100% say the Street’s top analysts! Currently, the stock is trading at $11.37 but analysts see it hitting $22.88 in the coming months. The stock has experienced some volatility this year, but it is now in a very promising setup. Indeed, since its downturn in April, Cloudera has surged 50%!

Michael Turits, a five-star analyst from Raymond James, reiterated his Cloudera “buy” rating yesterday at $24.

We can see from TipRanks that this ‘Strong Buy’ stock has a lot of Street support. Indeed, in the last three months, CLDR has received five buy ratings, including an upgrade from D.A. Davidson.

Stocks to Buy Now: Dave & Busters (PLAY)

The hybrid game arcade and restaurant chain Dave & Buster’s Entertainment (NASDAQ:PLAY) scored a rebound this year, but more upside is to come. Specifically, analysts expect 20.5% from the current share price — all the way from $59.18 to $71.29.

However, Maxim Group’s Stephen Anderson is more bullish than consensus — he believes the stock can soar to $71. Even though the stock has experienced some short-term sales volatility, he says that valuation remains very compelling.

Ealier, Anderson described PLAY stock as “deeply inexpensive relative to Casual Dining Peers” and ultimately: “Our core thesis on PLAY, which is comprised of; (1) high-margin entertainment revenue growth; (2) robust unit expansion; and (3) longer-term comp growth of at least 2%, remains intact.” PLAY should also benefit big-time from the upcoming tax reform.

In the last three months, PLAY has received an impressive seven consecutive buy ratings. As a result, the stock has a ‘Strong Buy’ analyst consensus. Out of these ratings, five come from best-performing analysts.

Stocks to Buy Now: CBS Corp (CBS)

Media stock CBS Corporation (NYSE:CBS) can climb nearly 20% in the next 12 months, say top analysts. This would see the stock trading at nearly $70 versus the current share price under $60.

Just a couple of days ago, Imperial Capital’s David Miller reiterated his “buy” rating. This was accompanied with a very bullish $71 price target. Miller expressed positivity in the outlook following strong fundamentals from “positive initiatives” put in place by the former CEO.

Previously, Benchmark’s Daniel Kurnos said, “that the demise of Network ad revenues is greatly exaggerated.” He even says that this bearish talk is overshadowing “the positive traction CBS is seeing in its ancillary revenue streams.” The underlying business model is very strong and “the pressure on the media sector has created a buying opportunity for the content leader.”

Meanwhile, out of nine recent ratings on CBS, six are buys. This means that in the last three months only three analysts have published hold ratings on the stock.

Stocks to Buy Now: Neurocrine (NBIX)

Source: Shutterstock

Stocks to Buy Now: Neurocrine (NBIX)

Neurocrine Biosciences’ (NASDAQ:NBIX) top analysts believe this biopharma still has serious growth potential left to run in 2019. Specifically, the Street sees NBIX rising from $87.17 to $137, or 57.16% upside.

The Street is buzzing about Neurocrine’s Ingrezza drug. This is the first FDA-approved treatment for adults with tardive dyskinesia (TD). A side effect of antipsychotic medication, TD is a disorder that leads to unintended muscle movements. Stifel analyst Paul Matteis is very optimistic, reiterating his recommendation with a price target at $140.

Encouragingly, the stock has received no less than 10 consecutive buy ratings from analysts in the last three months. Seven out of the 10 of these buy ratings are from top-performing analysts.

Stocks to Buy Now: Sinclair Broadcast (SBGI)

Source: Shutterstock

Stocks to Buy Now: Sinclair Broadcast (SBGI)

Sinclair Broadcast Group (NASDAQ:SBGI) is one of the U.S.’s largest and most diversified television station operators. SBGI stock has had a rough 2018, but top analysts see strong upside potential ahead.

Benchmark Capital previously named SBGI as one of its Best Ideas for 1H18. Five-star Benchmark analyst Daniel Kurnos says “We see SBGI as one of the best values in the entire media landscape.” He is now eyeing $38 as a potential price target, a double-digit gain from its current perch of $30.37.

According to Kurnos, Sinclair has multiple upcoming catalysts over the next six months. This includes the pending mega-deal between Sinclair and Tribune. Sinclair is currently waiting for regulatory approval for the $3.9 billion takeover that would give Sinclair control of 233 TV stations.

Top analysts are united in their bullish take on this strong buy stock. In the last three months, five analysts have published buy ratings on Sinclair.

Stocks to Buy Now: Laureate Education (LAUR)

Source: Shutterstock

Stocks to Buy Now: Laureate Education (LAUR)

Laureate Education (NASDAQ:LAUR) is the largest network of for-profit higher education institutions. This Baltimore-based stock owns and operates over 200 programs (on campus and online) in over 29 countries. Analysts believe impressive upside is on the way. Currently, this is still a relatively cheap stock to buy at just $14.99.

Barrington analyst Alexander Paris, just today, reiterated his “buy” rating on LAUR stock at $20, meaning upside of 34%!

Previously, Stifel Nicolaus analyst Shlomo Rosenbaum notes that Chile’s election result is a “material positive” for Laureate. He says new President Sebastian Pinera is less likely to support legislation for free post-secondary education- the prospect of which has dampened prices to date. Rosenbaum currently has an $18 price target on the stock.

Overall, Laureate certainly has the Street’s seal of approval. The stock has scored four top analyst buy ratings recently. This includes a bullish call from one of TipRanks’ Top 20 analysts for 2017, BMO Capital’s Jeffrey Silber.

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Market Preview: Dow Sets Single-Day Point Gain Record as Volatility Ratchets Higher

Following another large drop on Monday, and after being closed for the Christmas holiday Tuesday, markets staged a massive rebound Wednesday. The DJIA put up its largest single-day point gain in history, gaining 1,086 points, or 4.98%. The Nasdaq, which is down the most of the major averages this quarter, posted a 5.84% gain. And, the S&P 500 stormed to a 4.96% one day advance. Volatility is often high in the final week of the year, but this week has mirrored the final quarter of the year only with amplified ups and downs. Investors are struggling with conflicting economic news, as housing numbers and the recent Richmond Fed manufacturing data looked horrific, but retail sales are setting records. At the same time, the Federal Reserve is trying to get back to a “normal” stance on interest rates, and political tensions, both domestic and international, seem to whipsaw markets daily with headlines of government shutdowns, slowing global economic growth and trade tariffs. Even attempts to reassure the markets, such as Treasury Secretary Mnuchin’s calls to major banks on Monday to ensure “ample liquidity is available,” raise new concerns around issues that haven’t been on analyst’s radar to this point.

Richmond Fed manufacturing data released Wednesday showed unexpectedly sharp decreases in several key areas. Analyst had predicted the index would come in at 14, unchanged from November, but the index fell 22 points to -8. Both shipments and new orders fell precipitously to levels not seen since 2009. Capacity utilization numbers also dropped 25 points to -16. Conversely, Redbook retail data showed some of the strongest retail growth in almost 13 years. The weekly growth jumped .7%, coming in at a red hot 7.8% year-over-year increase in same store sales. Amazon (AMZN) reported record sales as holiday shopping wound down.

Thursday, investors will pour through weekly jobless claims, the FHFA house price index, and new home sales. The consensus view has new home sales increasing in November to 560K from October’s 544K report. The house price index, which fell sharply in March, and then remained tepid for the rest of the year, is expected to increase just .2% month-over-month. Consumer confidence numbers will also be released Thursday. The number is expected to drop slightly to 134 from near all-time highs of 144.7. It would not be surprising, given the historic declines in the final quarter of the year, to see the number come in below consensus.

International trade in goods, retail and wholesale inventories, Chicago PMI and pending home sales data will all be released Friday. Analysts will be paying close attention to November export numbers, which dropped .6% in October. Advanced retail inventory numbers are expected to rise .9% for November. This early number is the precursor to final numbers which will be released in a few weeks. The EIA Petroleum Status Report will also be released Friday as well. Given the steep declines in oil prices the past few months, analysts are watching closely to determine where the bottom may be in oil. Crude inventories dipped slightly last week, but gasoline supply jumped upward by 1.8 million barrels.

There are no major earnings reports on tap this week. Earnings season will pick back up after the new year arrives early next week.    

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Will Aurora Cannabis Be Next to Secure a Big Partnership?

There’s a rush for companies to get exposure to the cannabis industry and it has left many wondering what company will be next. Will it be Aurora Cannabis (NYSE:ACB) and its $5.3 billion market cap?

At that valuation, that’s smaller than some of the more well-known players like Tilray(NASDAQ:TLRY) and Canopy Growth (NYSE:CGC), but larger than Cronos Group(NASDAQ:CRON) and New Age Beverages (NASDAQ:NBEV). Following a string of partnership and equity stakes, it’s unlikely that the deals are going to stop. With the cannabis space growing rapidly, there’s no reason for larger companies seeking growth to ignore the space.

In fact, it’s a match made in heaven. Many of these companies — ranging from pharmaceutical to alcohol and tobacco companies — already have experience navigating a sea of regulations. They also have the financial muscle to leverage these opportunities, as well as the distribution network in place to take advantage of it.

Is a Deal Next for Aurora?

Canopy Growth received a $4 billion investment from Constellation Brands (NYSE:STZ) and Altria (NYSE:MO) sunk $1.8 billion into Cronos. Tilray grabbed a deal with Sandoz, a unit of Novartis (NYSE:NVS), and also locked into a $100 million partnership with Anheuser-Busch(NYSE:BUD).

To think that the deals will stop there is crazy. Obviously we don’t know who will step in next, when they’ll do it or which cannabis partner they’ll select. But at some point, I wouldn’t be surprised to see ACB have its name called.

The tough part here becomes valuation and momentum. Think if alcohol were illegal, but the world (and more specifically the U.S.) were trending toward legalization. We would want a piece of the action, right? Names like Bud, Molson (NYSE:TAP), Diageo (NYSE:DEO), etc., would come to mind. But if everyone had the same thought and started buying ahead, would it still be worthwhile to get in, particularly as other big-name companies — say PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO) for instance — were doing it too?

Depending on one’s time frame, then yes, it’s probably advantageous. But no one wants to hold onto a dead-money investment for years on end. So we have to try to balance these companies’ current valuation with their future opportunities.

Trading ACB and Valuing Its Growth

Aurora is experiencing strong growth. In the fourth quarter of 2018, sales came in at $19.1 million. In Q1 2019, sales ballooned 55% quarter-over-quarter to $29.7 million and grew 260% year-over-year. Put simply, the growth for ACB stock and many other cannabis companies is simply astronomical. It’s a gold rush, if you will.

That said, expenses are growing quickly too. Production jumped more than 100% year-over-year, while operating costs of $119.9 million last quarter were vastly higher than the $10.2 million in Q1 2018. While gross margins of 70% were down from the 74% in Q4, it’s up significantly from the 58% in Q1. That’s likely as larger volumes and more efficiencies drive stronger bottom-line results.

Still, I understand investors’ hesitancy to get long a name at a $5+ billion market cap when it has $30 million in quarterly sales. Certainly ACB and others are not for everyone and I would only consider it a speculative position. That said, cannabis acceptance is only gaining momentum over time and that’s likely to remain the case going forward.

chart of ACB stock price

What do the charts look like?

Unfortunately, unlike the cannabis movement, ACB stock is not gaining momentum. I would like to see ACB get back over $5.50, clearing level support (black line) downtrend resistance (purple line) and the 21-day moving average.

Investors who want a low-risk entry opportunity can buy on a test of uptrend support (blue line), but right now, I need the technicals to play ball. If not, getting bullish is too hard in this environment given the high valuation.

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Buy These 3 High-Yield Stocks to Survive the Bear Market

Last week the Federal Reserve Board announced the expected 0.25% increase in the Fed Funds interest rate. Despite doing the expected, the stock market swung from a 1.5% gain for the day to down as much as 2.5%. That’s an 800 point swing by the Dow Jones Industrial Average. Bloomberg noted “…no matter what the Federal Reserve and Chairman Jerome Powell did and said at the final monetary policy meeting of the year, they couldn’t make stock investors happy.

It appears we have a battle between the stock market traders and investment firm heavyweights against the Fed. The Federal Reserve Board based their decision on forecasts the economy will grow in 2019 at 2% to 3%, inflation will stay below 2%, and employment will continue to improve.

Those who work in the financial industry use the fact that the stock market has gone down as “proof” that what the Fed sees for 2019 is wrong. The financial market pundits believe (or at least publicly say so) that there will be a recession because they believe in one, even though the usual signs a recession is coming are nowhere to be seen.

It seems that the stock market is going down because investors are selling. I am sure that computer trading programs are pushing prices down with short-selling strategies. As of December 20, its safe to say the stock market has fallen into bear market territory. However, it’s a bear without a reason to be one. It is possible that the negativity of the financial markets will spill over to Main Street, leading to an economic slowdown. However, there is not anything in the financial world that will lead to a crisis such as we experienced in 2000-2002 or 2007-2008. This bear market may go for a few months, but it won’t go deep.

Bear markets are not to be feared. They are the times when you get to “buy low”.

It’s a time when disciplined investors take advantage of fear in the markets that always is later shown to be over blown. Income focused investors get to buy in at very attractive yields and benefit from capital gains as the overall market recovers into the next bull market.

In these days of falling stock prices you want to find dividend paying stocks that are built for tougher economic times. Here are three to consider.

Starwood Property Trust (NYSE: STWD) is a commercial finance REIT. This means it originates mortgage loans for commercial properties, such as office buildings, hotels, and industrial buildings. Starwood has two commercial lending businesses. One is to make large dollar loans to retain in its portfolio.

The company also operates a fee-based CMBS origination business. To further diversify the company as acquired a portfolio of stable returns real estate assets and has added an infrastructure lending arm.

The final piece of the pie is a special servicing division, which will turn very profitable if the commercial real estate sector experiences a downturn.

Investors can expect to earn the dividend, which currently gives the shares a 9.5% yield.

Self-storage REITs are the place to be when the economy gets rough for home ownership. Extra Space Storage (NYSE: EXR) is a large-cap, geographically diversified self-storage REIT.

The self-storage business is counter-cyclical to the economy. When the economy is booming, developers bring a lot of new inventory into the market. When the economy slows, the inventory growth stops and demand increases.

Extra Space Storage is possibly the best managed REIT in the sector. Investors can expect high single digit annual dividend growth.

Current yield is 3.7%.

Utilities are supposed to be the safe sector when the stock market goes into a correction. This time utilities are down right along with the rest of the market sectors. Now is a great time to pick up shares of the Reaves Utility Income Fund NYSE: UTG).

This is a closed-end fund that owns utility and other infrastructure stocks. UTG has paid a steady and growing monthly dividend since it launched in 2004.

The dividend has never been reduced and the fund has never paid return-of-capital dividends.

Current yield is 6.9%.

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Market Preview: With Negative News on All Fronts

Markets continued their downward spiral as a government shutdown is looming late Friday night. With no good news in the headlines, and markets still digesting the latest Fed move, the Nasdaq was the first to succumb to selling pressure. The DJIA and S&P 500 followed the tech index down in the afternoon. December, usually one of the better months for the market, has been brutal for all three major indices. The DJIA suffered its worst one week loss in 10 years, finishing down over 400 points and 1.81% on Friday. The S&P 500 was down 2.06. The Nasdaq, which has taken the brunt of the selling and is now in bear territory, down over 20% from its highs, closed down 2.99% and over 8% on the year, to mark the winter solstice.

It’s difficult to see the light at the end of the tunnel as investors head into the final full week of 2018. With the U.S. Justice Department announcing actions against Chinese nationals earlier in the week, trade issues between the two countries appear no closer to resolution. Chairman Powell appeared to pay little attention to recent market action in his statement earlier in the week. And a showdown in Washington may have the government partially shuttered by the weekend. With the mountain of negativity weighing heavy on the markets overall, it appears clear this is a stock picker’s market as we head into 2019.    

Monday analysts will examine the Chicago Fed National Activity Index. The Index is comprised of 85 different national economic indicators and has been trending higher since late 2016. The Index is expected to come in at .24, below the three month average of .31. No economic numbers will be released, and financial markets are closed, on the Christmas holiday Tuesday.

No major earnings announcements are scheduled for next week, with most Wall Street traders taking the usual week off between the Christmas holiday and New Years day.

Wednesday Redbook retail data, as well as the Corelogic Case-Shiller Home Price Index numbers will be released. The single-family home index is expected to show a price increase of .3% month-over-month and 5.1% year-over-year. The index has been trending lower since May. Also released Wednesday is the Richmond Fed Manufacturing Index and the State Street Investor Confidence Index. The Investor Confidence Index began trending lower in April and broke through levels not seen since 2016 in September. The index is based on the amount of equities investors hold in their accounts, with more equity holdings equaling a higher index reading. The index is broad based and measures the level of equity holdings in 45 countries. Thursday we’ll examine jobless claims, FHFA home prices, new home sales, and consumer confidence. On the final Friday of December, international trade, retail inventories, wholesale inventories, Chicago PMI, and pending home sales numbers will all be released. Pending home sales dropped 2.6% month-over-month in the October release, and with the Fed continuing to hike little upside is expected for November.

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7 Safe Haven Stocks for a Treacherous Market

Source: Shutterstock

The market is a perilous place right now. Most stocks are firmly in the red. And the jury is out on what’s coming next. Some say we are heading for a full-blown bear market. Others believe the old bull market is lurking just around the corner.

“Our best analysis — as we look at markets and as we look at the economy — is that things are stable,” Federated Investors’ Steve Chiavarone has just told CNBC. “We’re confident where markets are going to go over the next 12 months.”

Even so, it’s best to be prepared. Whatever happens next you don’t want to get caught out. That’s why I put together this list of solid stock picks for whatever the market will throw at us in 2019. As you will see these stocks also get the thumbs up from the Street. That’s an encouraging start. Here I use data from TipRanks to get some idea of the upside potential analysts see coming our way.

Let’s take a closer look now:

United Health (UNH)

Can this healthcare giant do no wrong? “Not surprised, just impressed” cheered five-star Cantor Fitzgerald analyst Steve Halper (Track Record & Ratings). He’s out with a bullish rating on the stock following UnitedHealth Group’s (NYSE:UNH) annual investor conference.

At its event, UNH demonstrated the robust savings driven by Optum’s investments in technology. These investments should establish UNH as a leader in the shift to value-based care. Halper continues: “Given its nicely diversified health insurance business and Optum, which now accounts for more than 40% of operating profit, UNH should be a core holding in all large-cap growth portfolios.”

And he isn’t the only one. UNH has racked up 12 back-to-back analyst buy ratings in the last three months. That’s pretty impressive whichever way you look at it.

Meanwhile the $309 average analyst price target suggests 22% upside lies ahead. That’s just a shade under Halper’s own price target of $310.

“Although the shares are not inexpensive, we maintain our view that the current share price does not fully reflect the company’s long-term growth and free cash flow growth potential” concludes the Cantor analyst. Interested in UNH stock? Get a free UNH Stock Research Report.

T Mobile (TMUS)

T-Mobile (NYSE:TMUS) is the third-largest wireless carrier in the U.S., capturing virtually all of the industry growth since 2013.

According to Oppenheimer’s Tim Horan (Track Record & Ratings), these share gains are down to a greatly improved network and innovative marketing to under-served niches, in both urban and rural areas. He has a buy rating on the stock with a bullish $90 price target (37% upside potential).

“We believe the key to the stock’s performance lies in improved network (lower churn), innovative marketing, expansion into rural areas and cost controls, while at the same time trying to leverage its 4G advantage versus its prepaid competitors” Horan explains.

Most encouragingly, he is growing more confident (~90% likelihood) that the Sprint(NYSE:S)/TMUS merger will be approved by regulatory authorities. That’s with divestitures that could spawn a new, fourth competitor. That’s good news because the merger can generate an estimated $6 billion in synergies.

Net-net: “We expect TMUS to outperform as it continues to take share and see margin improvement.” Overall, this “strong buy” stock scores seven recent buy ratings vs just one hold rating. That’s with an $82 average price target for 24% upside. Get the TMUS Stock Research Report.

Altria Group (MO)

Altria Group (NYSE:MO) is one of the world’s largest producers and marketers of tobacco, cigarettes and related products. The company owns Philip Morris (NYSE:PM), maker of the famous Marlboro cigarettes.

And now it’s expanding into new territory. The company is buzzing on the news that it has acquired a major stake in pot stock Cronos Group (NASDAQ:CRON). Altria is now Cronos’ exclusive partner in the cannabis sector — and is poised to gain as new markets for medical and recreational weed open up around the world.

Specifically, Altria is investing C$2.4 billion ($1.8 billion) to acquire a 45% stake in Cronos and will also receive warrants that, if exercised, would increase that stake to 55% for a further C$1.4 billion.

So far the reaction from the Street is upbeat. Wells Fargo analyst Bonnie Herzog (Track Record & Ratings) called the deal “very positive” as it significantly expands Altria’s total addressable market. “Overall, we applaud MO’s decision to pivot fast and to move into a new adjacent category (cannabis) that is complimentary to its core tobacco business,” she said.

Herzog doesn’t have a price target on MO’s stock, but we can see that the average target of $68 indicates 35% upside potential. Plus the top analyst consensus is “strong buy” with five recent buy ratings. Get the MO Stock Research Report.

Stocks to Buy: HCA Healthcare (HCA)

Source: Shutterstock

HCA Healthcare (NYSE:HCA) is the largest hospital operator in the U.S. It provides services through a network of acute care hospitals, outpatient facilities and other settings.

Oppenheimer’s Michael Wiederhorn (Track Record & Ratings) is one of the top 50 analysts tracked by TipRanks, so he tends to get it right when it comes to stock picking. Right now Wiederhorn is betting on HCA as a solid long-term stock pick.

First, the hospital industry should continue to benefit from improved admissions growth and payer mix thanks to policy initiatives from the Affordable Care Act.

Plus, HCA has continued to boast stronger operations than peers over the long term, given robust same-store growth and strong cost management. For example, HCA generated impressive free cash flow of $900 million compared to $300 million in the year-ago period.

“Given that these trends show no signs of slowing … we believe HCA remains the premier hospital company and maintain an Outperform rating” sums up the analyst. His $142 price target suggests 12% upside lies ahead.

And the Street is even more bullish. This “strong buy” stock has a $156 average price target (25% upside potential). Get the HCA Stock Research Report.

Visa (V)

Stocks to Buy: Visa (V)

Source: Shutterstock

Strong growth continues over at credit card giant Visa (NYSE:V). And the company has multiple tailwinds ahead. Don’t just take my word from it. This is the advice of top-rated Cantor Fitzgerald analyst Joseph Foresi (Track Record & Ratings).

“We like Visa’s opportunity to capitalize on the global conversion of cash into credit, international opportunities, and digital payment tailwinds” writes the analyst. Most notably, Visa Direct, contactless payments and B2B are all potential price catalysts.

For example, Visa Direct is growing rapidly, with volumes continuing to increase by more than 100% year over year. This is fueled by increased activities by end users alongside expansion of reach and scale.

Following a 4QFY18 beat, Foresi sets out his bullish thesis as so: “Our Overweight rating is based on the company’s leading position in the card network industry and its significant opportunities for growth internationally and digitally.”

As for share price: “We value Visa at a premium to the group, due to its above-average industry growth rates, superior margins, and business profile.”

Indeed, this “strong buy” stock boasts a $168 average analyst price target. Given shares are currently trading at $135 this means 25% upside is on the cards right now. Get the V Stock Research Report.

Home Depot (HD)

Stocks to Buy: Home Depot (HD)

Source: Shutterstock

Home Depot (NYSE:HD) is the U.S.’s largest home improvement retailer, with over 2,200 retail stores.

Even if the housing market slows, Home Depot is nevertheless a strong stock to buy.

“HD believes it can post healthy comps today despite a softer housing market, owing to a strong consumer, healthy secular/housing dynamics (aging, formation, appreciation, etc.) and market share gain” explains Top-100 analyst, Scot Ciccarelli (Track Record & Ratings) of RBC Capital.

He notes that sales at Home Depot have remained strong and broad-based. According to Ciccarrelli, Home Depot should benefit from better customer service, improved merchandising, additional supply-chain enhancements, and strong returns to shareholders.

Indeed the company has just increased its FY18 share repurchase outlook to $10 billion from $8 billion. The upshot of this is: buy.

“We view HD as a long-term winner and near-term outperformer, with strong execution and ample growth drivers (Pro, Omnichannel, supply chain, etc.) for market share gains and higher share of the Pro wallet.” wrote Ciccarelli.

He has a $191 price target on the stock, just a shade lower than $201 average analyst price target for 18% upside. Bear in mind 10 out of 14 top analysts are bullish on the stock right now. Get the HD Stock Research Report.

Merck (MRK)

Stocks to Buy: Merck (MRK)

Source: Shutterstock

Merck (NYSE:MRK) is one of the world’s largest pharma companies, delivering revenue in 2017 of over $40 billion. The pharmaceutical giant is seeing big and steady sales of its cancer drug Keytruda.

Keytruda works by aiding the body’s own immune system to fight and kill cancer cells. “Merck has distinguished itself with excellent IO [immunotherapy] execution” cheered top BMO Capital analyst Alex Arfaei (Track Record & Ratings) on Nov. 16.

The analyst adds: “If Merck maintains ~40% long-term share of the U.S. IO market, this would imply sales potential of $9.4Bn by 2030. That is plausible given Merck’s strong execution in IO so far.” He is currently forecasting U.S. Keytruda sales of $7.4Bn by 2030, but says this seems conservative given recent trends, especially given the recent FDA approval for Keytruda + chemotherapy for non-small cell lung cancer (NSCLC).

At the 2018 American Society of Clinical Oncology  Conference, the “beautifully positive” KN407 was widely recognized as establishing Keytruda plus chemo as the new standard of care in 1L squamous NSCLC.

Arfaei currently has an $80 price target on “strong buy” rated Merck. Indeed, in the last three months, Merck has received seven consecutive buy ratings from analysts. This is with an average analyst price target of $83 (11% upside potential).

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Source: Investor Place

Canopy Growth Stock And Its Sister Company Are Both Attractive

marijuana stock

Source: Shutterstock

There’s no doubt that Canopy Growth (NYSE:CGC), stock is one of the best bets among Canadian cannabis companies, thanks in large part to the substantial financial support that the company is getting from Constellation Brands (NYSE:STZ).

In July, I suggested that interested investors hedge their bets on Canopy Growth stock by buying equivalent amounts of CGC stock and Constellation stock.

The Bigger Picture

If you feel strongly about the marijuana industry’s future growth, the smart move would be to take the amount you are prepared to lose on Canopy Growth and cut it (in) half, putting 50% into CGC stock and the other 50% into Constellation Brands,” I wrote on Jul. 5.

“Long-term, I think you’ll be pleased with your decision to hedge your bet.”

A $10,000 bet on CGC stock made on Jul. 5 earned $221 through December 14. A 50/50 split between CGC stock and Constellation lost $688 due to a 16% decline in STZ stock over the last five months; analysts have become wary of Constellation’s $4 billion investment in Canopy.

“Branding will be key to unlocking value in cannabis business, but the winners are far from clear,” said Macquarie analyst Caroline Levy in November. “It thus seems difficult to see any near-term profits for Canopy and possibly sub-par returns for many years, if it continues to prioritize sales growth and market share.”

That is precisely why I recommended that investors hedge their bet in the first place. If Canopy Growth stock doesn’t fly, Constellation will take a hit in the short-term, but over the long-term, STZ will be fine.

If you put all your eggs in one basket, you could end up with a big goose egg.

Another option, which I’ve suggested before, is to buy a cannabis ETF like ETFMG Alternative Harvest ETF (NYSEARCA:MJ). ETFs spread the risk beyond CGC stock.

An Option for Risk-Tolerant Investors

Unless you follow Canopy Growth stock closely, you’ve likely never heard of Canopy Rivers (OTCMKTS:CNPOF), a Toronto-based venture capital investment firm. Canopy Rivers makes investments in best-in-class private and publicly-traded companies across the cannabis value chain, from producers to marketers and everything in between.

CGC owns approximately 25% of Canopy Rivers’ stock. Bruce Linton, the co-founder and CEO of Canopy Growth, is acting CEO of Canopy Rivers. 

Canopy Growth’s consulting firm, XIB Consulting Inc, provides deal flow to Canopy Rivers. The two principals of XIB, Sean McNulty and Peter Hatziioannou, own shares in Canopy Rivers

“We decided to create a separate vehicle where we would could take minority interests, create alternative transaction structures and provide both growth capital and strategic support,” McNulty said about Canopy Rivers in November.“The deal flow is sometimes overwhelming. We’ve evaluated hundreds and hundreds of opportunities, but we’re very picky because we’re trying to get it right for every investment.”

So far, XIB has found 11 investment opportunities for Canopy Rivers. If the U.S. federal government legalizes pot, which most expect will happen sooner rather than later, McNulty and Hatziioannou will have to hire more professionals to carry out due diligence.

That would be a great problem to have.

The Bottom Line on CGC Stock

I believe the CGC-Constellation tie-up is a good one for both companies’ shareholders.

As for Canopy Rivers, if you’re more risk-tolerant, the shares provide a compelling investment opportunity after losing 57% of their value since their public debut on Sept. 20.

However, I wouldn’t use a retirement investment vehicle to buy CGC stock because you won’t be able to deduct any capital losses from your taxes.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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Buy This Tech Fund Before Dec. 31 (and get a 9.3% dividend)

On January 1, 2018, I made my boldest prediction of the year: bitcoin was going to crash. Here’s what happened since:

Crytocurrencies Are Dying

There are lots of reasons why bitcoin has cost investors a lot of money: it’s inefficient; it’s not private; and glitches and hacking cause people to lose bitcoins. But the main reason is this: the dumb money followed the smart money—and ended up holding the bag.

I’ve seen this story play out many times, which is why I urge you to be contrarian and avoid the traps market manipulators set up, whether it was dot-com stocks in the late ’90s, housing in the mid-2000s or fantasy Internet money in the 2010s.

The other side of this coin is why I’m urging you to do one simple thing in 2019: jump into tech stocks. And if you want dividends, don’t worry. I’ve got 2 funds offering 6.3% and 9.3% payouts for you to choose from.

I’ll show you both (and reveal the one I see as the best buy now) a little further on.

My No. 1 Prediction for 2019

If there is anything you can rely on, it’s the ability of tech companies to print money, because the entire world is embracing technology to communicate, interact, trade, learn and buy new products.

The proof is in the numbers: while tech has one of the highest net profit margins of any S&P 500 sector, at 22.1%, its profits are actually growing: 100% of IT companies have reported earnings above estimates in the third quarter of 2018.

That’s right: not a single one missed!

If you looked at FAANG stocks over the last month, however, you’d get a very different impression. On average, these companies are down massively, due in no small part to the 14.5% drop from Apple (AAPL)—with only Facebook (FB) slightly above water (but it’s still down sharply for the year):

An Awful Month for Tech

Zoom out a bit, however, and the picture is much rosier. FAANG stocks are still up double digits, on average, in a year when the S&P 500 is down:

FAANG Still Outperforming

I wouldn’t be surprised if this news comes as a surprise to you. The financial press has been beating up on tech companies for a bunch of reasons—privacy scandals at Facebook and Alphabet (GOOGL), weakening subscription growth at Netflix (NFLX), the trade war for Apple—but the reality is that tech is still performing well.

But the market isn’t rewarding these stocks.

If we look at net fund flows for the Invesco QQQ Trust (QQQ), we see that $1.44 billion has left this tech-focused ETF in just the last three months. Since this is a popular ETF for tracking the Nasdaq 100, a tech-heavy index, those net outflows show the dumb money is panicking and selling off—the opposite of the setup that caused bitcoin to crash.

If we look at the Technology Select Sector SPDR ETF (XLK), things look even better for a contrarian. While hedge funds and institutional investors sometimes buy QQQ, these groups don’t use XLK quite as much. And this fund has seen billions of net outflows for 2018: a total of $2.44 billion has exited XLK in the last three months.

The conclusion is clear: the dumb money is exiting tech, which means there’s an opportunity to buy in before the pendulum swings back the other way and we see inflows.

The Tech Play

Long-time readers know one of my favorite ways to play tech is through closed-end funds CEFs), because these funds hand you generous dividends while you wait for upside—and some tech CEFs have shown serious upside over the years.

But let’s look a bit closer at four options: the two ETFs I just mentioned (XLK and QQQ) and two CEF contenders.

First, let’s look at XLK’s top 10 holdings:


Source: ALPS Portfolio Solutions Distributor

There are a lot of large cap companies in this ETF’s portfolio—household names that have been beaten up recently, but nowhere near as much as some tech stocks with smaller market caps.

Similarly, the other ETF, QQQ, sports holdings that are concentrated on many tech heavyweights, with some important differences:


Source: Invesco

PepsiCo (PEP) and Comcast Corp (CMCSA) aren’t tech companies by any stretch of the imagination (and CMCSA is arguably one of the firms being disrupted by tech upstarts), meaning this portfolio doesn’t give as much tech exposure as XLK. If we want to just invest in tech, then, we should choose XLK over QQQ—but only if we’re going to limit ourselves to ETFs.

But I wouldn’t do that, because there are two better alternatives: the CEFs I mentioned earlier.

2 Tech CEFs Paying Up to 9.3% Dividends

I’m talking about the Columbia Seligman Premium Tech Growth Fund (STK), which pays a 9.3% dividend, and the BlackRock Science and Technology Trust (BST), with a regular dividend of 6.3%. I’ve written of my appreciation for BST many times in the past; it’s up double-digits year to date, while STK is down 9%:

BST Wins Out in 2018

That doesn’t mean BST is the best choice now, though. To decide which is the better pick, we need to dig deep into each fund’s holdings.

Let’s start with BST, which recently made an aggressive bet on payments companies. That’s part of the reason why it’s been strong lately, as bitcoin failed to replace the payments solutions of BST’s major holdings, such as Square (SQ) and Visa (V). But this fund also has a lot of exposure to China:

BST Looks to China …

Source: BlackRock

In total, nearly 10% of the fund is based in China and focused on China-oriented companies. This is fundamentally different from STK, which is much more US focused, while also investing in hardware and payments:

… While STK Focuses on the US 

Source: Columbia Management

STK’s portfolio is why I’ve favored BST throughout 2018: the cryptocurrency mania resulted in intense demand for hardware, but the crash in crypto also means that demand has evaporated in 2018.

As a result, chipmakers and similar firms have struggled, causing the semiconductor sector (seen below through the VanEck Vectors ETF [SMH]) to buckle in 2018:

Semiconductors Fall

But now cryptocurrencies are no longer a factor in semiconductor companies’ performance—and that’s a benefit, not a liability. It’s also why now is the time to favor STK and put some money into this fund if you’re on the hunt for tech exposure.

The kicker? Its 9.3% dividend yield is an enticing income stream while you wait for the market to come to its senses and lift the semiconductor sector back to the valuations it deserves.

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Source: Contrarian Outlook

Market Preview: Chairman Powell Delivers Coal to Trader’s Stockings

Market participants expecting a kinder, gentler Fed were sorely disappointed Wednesday. After the Fed hiked rates .25%, Chairman Powell indicated the Fed sees a strong economy, strong hiring, and still sees two interest rate hikes in 2019. Though expected, many analysts and market pundits had encouraged the Fed not to raise rates this week. And, to signal there would be no more rate hikes in 2019, at least until it became clearer how the economy was performing. Investors assumed the Fed had received the message Wednesday as the DJIA was up close to 400 points when the 2pm announcement was made. With the S&P 500 and Nasdaq both showing similar percentage gains, markets quickly sold off to flat before a brief pause, and then went into another nosedive. The DJIA finished off 1.49%, sending it into negative territory for the year. The Nasdaq closed off 2.17%, now down 3.67% in 2018. The S&P 500 clocked in down 1.54%, and is now off just over 6% on the year. The combination of tax loss selling, and most traders wrapping up their books this week, will likely lead to a continued volatile close to 2018.

Nike (NKE), Walgreens Boots Alliance (WBA) and Carnival Corp. (CCL) report earnings on Thursday. Nike fell with the rest of the market Wednesday, but is still up slightly on the year. The company is expected to post good numbers Thursday, as analysts expect positive momentum in sales and margins in the quarter. But, one question mark that may tarnish expectations is what impact Chinese tariffs had on the sports apparel company. The stock of Walgreens has been hit especially hard in the past few weeks. Investors are concerned Amazon’s (AMZN) entry into the pharmacy business could negatively impact earnings in the sector. The company would be well served to introduce some contingency plans to analysts on the earnings call as to how it would compete with the largest online retailer in the U.S.

Thursday’s economic calendar includes jobless claims, the Philadelphia Fed business outlook, and leading indicators. Jobless claims are expected to nudge higher this week after falling unexpectedly to an historic low of 206k last week. Analysts are also expecting a bounce back in the Philly Fed numbers to 16.9 from an unexpected decline to 12.9 in November. The Fed balance sheet, which Chairman Powell indicated will continue to be used for quantitative tightening, will be released after the close Thursday. Friday, the winter solstice, is a quadruple witching expiration. Index futures, index options, stock options, and single stock futures all expire, usually resulting in increased volatility in the market. Durable goods, GDP, and corporate profits will all be released before the market opens Friday. Personal income and outlays, consumer sentiment, and the Kansas City Fed Manufacturing numbers will also be released Friday morning. Both GDP and consumer spending are expected to maintain their current momentum, and come in at 3.5% and 3.6% respectively. After tax corporate profits are projected to average 5.9% on a year-over-year basis.

Carmax (KMX) wraps up the final week before the Christmas holiday when it reports earnings on Friday. Although the stock traded above $80 in 2018, it is now almost back to its lows for the year set in April, trading just over $57. Earnings for the quarter are expected to come in at $1.01 per share.  

 

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Sell These 3 High-Yield Stocks That Will Collapse From Fed Rate Increases

Later this week the Federal Reserve Board is expected to announce another interest rate hike. The Fed will likely its target short term interest rate by 0.25% to a range of 2.25% to 2.5%. The new Fed Funds rate is up from 0.50% two years ago. While many investor fears concerning higher interest rates and dividend stock values are unfounded, there are certain high yield stocks that will be negatively affected by rising interest rates. To determine whether one of your high-yield stocks is at risk of a big dividend cut, you need to determine if the company is “pitching” or “catching” when interest rates change.

A company is “pitching” in the interest rate game if when interest rates go up, the business generates higher revenues or profits. For example, over the last few years the commercial mortgage REITs and several business development companies (BDCs) have only originated adjustable rate loans. If these loans are held in the company’s portfolio—as is typical—rising interest rates will result in the growth of interest income. If the company has done a good job with its own debt by locking in interest rates, rising rates will lead to growing profits.

If a company is “catching” an interest rate increase, it pays interest on variable rate debt which will require higher interest payments due to the Fed Funds rate increase. For the period from 2009 through 2015, short term rates were very low, near zero percent for a high-quality borrower. If a company took on variable rate debt, it was like getting free capital to invest to generate revenue. However, those short-term interest rates are now increasing, which means interest expense will be increasing and profit margins could be squeezed. The type of company that is most at risk is one which has a fixed rate revenue stream and variable rate debt. The residential mortgage backed securities (MBS) owning REITs are a good example of this type of company.

These REITs are the opposite of the commercial mortgage REITs. The residential MBS REITs own pools of fixed-rate, government agency backed, mortgage backed securities. These AAA quality bonds pay fixed interest rates with current yields at 3.5%. To turn those low yields into double digit dividend yields, an MBS REIT borrows large amounts of short term debt to leverage up the interest rate.

When short term interest rates are low this strategy produces a large amount of free cash flow. However, as short-term rates start to rise, the rate margin gets squeezed between the owned MBS bonds rates and the cost of the money borrowed to buy those bonds.

The Fed Funds rate stood at 0.50% near the close of 2016. The rate has been increased seven times since last year and is now at 2.25%. With this next Fed rate increase, short term rates will effectively be 2.5%. Long term rates have not increased, and the 10-year Treasury yield is about 2.5%. The 10-year minus the 2-year Treasury rate is a common way to view the spread between short term and long-term rates. Here is the 10 minus 2-year yield chart since last December 1.

You can see the rate spread has shrunk from over 0.80% in February to just above 0.10%. For a business model based on capturing the long minus short interest rate spread, that does not leave a lot of room for profits. Especially after spending money to hedge against rising interest rates and paying business expenses.

Do not believe management comments that they have hedged to protect from rising rates. Hedging only works for a short time against a portion of the interest rate change. It will not protect from a serious profit squeeze.

Here are three high yield stocks with significant variable rate debt leading to a high probability of a dividend reduction:

Annaly Capital Management, Inc. (NYSE: NLY) is a high-yield, agency MBS owning REIT. In its 2018 third quarter earnings report the company owned $91 billion worth of agency MBS.

The company owns $9 billion of other assets, including $2.7 billion of commercial property mortgages. This large pile of assets is held aloft by a total of $77 billion of debt.

In the quarter, Annaly reported an average asset yield of 3.21% and an interest cost of 2.08% leaving a net spread of 1.13%. This spread was almost half of the 2.28% spread reported in the first quarter of 2016 when the Fed got serious about rate increases.

The most recent 0.25% rate increase could reduce NLY’s profit margins by up to 25%.

AGNC Investment Corp (Nasdaq: AGNC) is another agency MBS REIT. NLY and AGNC are the two largest companies in this REIT sector. As of the third quarter AGNC owned $70.9 billion of agency MBS.

The company had $65.7 billion of debt. This works out to 8.2 times leverage of the company’s equity. Reported net interest spread was 1.30%.

The company reported net interest income of $0.61 per share and paid dividends of $0.54 per share. AGNC has some cushion against higher short-term rates, but that is because the company has reduced the dividend by 18% over the last three years to stay ahead of fallen net interest income.

You can expect another dividend cut after this or the next Fed rate increase.

Two Harbors Investment Corp (NYSE: TWO) is a smaller agency MBS REIT that is trying to stay relevant with its recent merger with CYS Investments Inc (CYS).

The $3.5 billion market value makes it a mid-cap residential MBS REIT. As of the 2018 third quarter, the company own $27.7 billion of mortgage backed securities. The portfolio was leveraged to five times the company’s equity. Reported interest margin was 1.93%.

The company has diversified with a significant investment in mortgage servicing rights, also called MSRs. These will offset some of the effect of higher interest rates, but there is still a lot of interest rate risk in the core MBS portfolio.

With the 0.25% Fed Funds rate TWO could be pushed into a dividend cut just six quarters after its last payout reduction.

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Source: Investors Alley 

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