This is my first weekly summary for Stocks Under $10! We're moving this item to Monday on a trial basis so we can include all of Friday's closing data.
Last week was the first week of the second quarter, and it wound up rather differently than the first week of the first quarter did in that the majority of key U.S. market indices finished in the red. Only the Dow Jones Industrial Average escaped relatively unscathed, but even that was essentially flat week over week. Given the preponderance of economic data out last week (including Friday's far-weaker-than-expected March U.S. employment report), we aren't surprised by the market's move last week -- essentially "no man's land" ahead of earnings season.
From the Stocks Under $10 portfolio's perspective, we recorded a mixed performance that included several trades. We closed out positions in Unilife (UNIS) and Huntington Bancshares (HBAN) , while our shares in GigPeak (GIG) shares were tendered, which led to them being removed from the portfolio. (We credited the proceeds to cash.)
We've also started putting several existing positions under the microscope to determine our next steps, and we'll be doing more of that this week. Lastly, we added shares of USA Technologies (USAT) as a play on the economy's broad move toward "cashless consumption."
This week will be short given the Good Friday holiday, which will see U.S. markets closed. Nevertheless, there will be more economic data and some earnings reports to chew through before we get to all that Easter weekend candy. Among the reports we'll be watching will be the February JOLTS report due on Tuesday at 10 a.m. ET, as well as March retail-sales numbers on Friday morning. This week also has the usual March inflation indicators, as well as the NFIB Small Business Optimism Index and the University of Michigan Consumer Sentiment survey.
The week is a little light on Federal Reserve speakers, but Minneapolis Federal Reserve Bank chief Neel Kashkari will speak on Tuesday. Given the data we've been getting recently (especially the March employment numbers), we would have liked to have heard from more than just one Fed head to decipher when the central bank might next boost interest rates. While one month doesn't make a trend, another month of weaker-than-expected economic data could push talk about the Fed's next interest rate hike into 2017's second half.
Given yet another negative revision in the Atlanta Fed’s GDPNow forecast to just 0.6% for the first quarter, we continue to think we'll see a volatile earnings season, with negative revisions to earnings expectations for at least the current quarter. Forecasts for when President Trump will launch fiscal stimulus keep getting pushed out, and we expect companies to reflect all this in their comments and expectations over the coming weeks.
Fortunately, we think this return of volatility will take some of the "froth" out of stocks and let us to buy shares in quality companies at better prices. We have ample cash in the portfolio, which we can use to our advantage should this happen in April's "back half."
While we have no portfolio companies reporting earnings this week, the SU10 team will be paying attention to quarterly results and guidance from Fastenal (FAST) , Citigroup (C) and JPMorgan Chase (JPM) to get a feel for loan activity and what it may mean for our stake in Synovus Financial (SNV) . We'll also keep an eye on Taiwan Semi (TSM) given our position in ON Semiconductor (ON) .
Below is a rundown of our current positions. Figures in parentheses are each stock's Friday closing price and percentage weighting in the model portfolio. (For the most up-to-date portfolio results, please click here.)
As a reminder:
-- A "Game Breaker" stock is one that we believe is going to change the landscape of an industry, as Microsoft (MSFT) and Walmart (WMT) did in their respective sectors. Investors can make big money in these stocks by getting in before the crowd does.
-- "Inflection Point" stocks have broken business models that are on the mend but that the market has yet to recognize. Investors who recognize these turnarounds early can pocket strong returns.
-- "Stealth" stocks are often unknown to the general public but can be hugely profitable investments, especially when they have catalysts to boost their share prices.
-- "One" stocks are those that we would buy at current prices. "Twos" are stocks that we would buy on pullbacks and "Threes" are names that we would sell into strength.
Ones
Abraxas Petroleum (AXAS:Nasdaq; $2.02; 2.48%). This company produces oil and natural gas in the Delaware Basin, Eagle Ford Shale and Williston Basin. The stock climbed nearly 9% last week, and we continue to believe Abraxas can post above-average production growth throughout 2017. AXAS is a Stealth Stock and has a $3.75 price target.
Antares Pharma (ATRS:Nasdaq; $2.84; 2.69%): This firm develops drug-delivery systems for both its own clinical products and for generic-drug partners. The shares gained more than 3% last week following release of findings that the company’s QuickShot testosterone (QST) achieved serum-testosterone levels within a clinically desirable and physiologically normal range when administered to hypogonadal men. QST was found to be safe, well-tolerated and virtually pain-free. We see this as another positive development in the drug's path to a regulatory approval. ATRS is a Stealth Stock and has a $5 price target.
CalAtlantic Group (CAA:NYSE; $37.45; 3.63%): This homebuilder is a combination of the former Ryland and Standard Pacific companies. The shares were largely unchanged week to week, but are clearly not a stock under $10. So, we'll look for upcoming U.S. consumer data (as well as a rash of March and April housing data due out next week) to determine our next move with the shares. CAA is an Inflection Point stock and has a $45 price target.
Jive Software (JIVE:Nasdaq; $4.30; 2.54%): This company provides software for community and social-networking solutions. We see Jive's business benefiting from the ongoing rise in collaborative software as companies continue to adopt telecommuting and distance-working. The shares ticked higher last week, but there's ample upside to be had to our current $6.50 price target for this Stealth Stock. As we head into earnings, we’d note that just two Wall Street analysts publish earnings and revenue forecasts for this company, which likely speaks to its ability to deliver better-than-expected results in the past several quarters.
Teligent (TLGT:Nasdaq; $7.81; 2.96%): TLGT is a Stealth Stock and has a $10.50 price target. Last week was a quiet one for this maker of generic pharmaceuticals. The shares rose just over 2%, which leaves ample upside to our price target. With the stock trading unchanged to higher as we write this, we are reviewing our price target. Should we determine that there's little incremental upside past that level, we will be closely watching the $9.50 level with respect to our "One" rating possibly becoming a "Two."
TherapeuticsMD (TXMD:NYSE; $7.20; 5.71%): This company develops hormone-replacement medicines for women, so it's poised to benefit from the aging U.S. population. TXMD shares rose just under 7% last week, but were hit hard Monday following some negative Food and Drug Administration news. Stepping back a bit, there has been little innovation in these types of estrogen-related products in more than a decade, which in our view helps explain the FDA's cautious approach. However, TXMD is Stocks Under $10's largest equity position (more than 6% of the portfolio). So, we'll be patient as we look to see how management responds to the FDA letter. We would suggest that subscribers who are underweight TXMD shares hold tight until the shares settle and there's more clarity. The company is a Game-Breaker stock and has a $12.50 price target.
USA Technologies (USAT:Nasdaq; $4.60; about 1.5%): We added USAT to the portfolio last Thursday at $4.23, and the stocks closed last week at $4.60, up 8.7%. We added the shares given the company's position in mobile payments (particularly self-service retail) and the growing adoption of mobile payments both here and abroad. We also note that the company recently appointed a new chief financial officer -- and when that happens, there tends to be "clearing of the decks" when it comes to guidance. That potential risk is one reason why we're beginning the position in USAT shares at modest levels. Our intention is to build the position out on weakness, scaling into the shares between $3.50 and $3.85 or on signs mobile-payment adoption is accelerating faster than expected. We intend to be patient investors and hold the shares as mobile-payment adoption grows. Our price target is $6.
Twos
Builders FirstSource (BLDR:Nasdaq; $14.90; 2.82%): Builders FirstSource is a supplier/manufacturer of building materials, components and construction services to professional contractors, subcontractors, remodelers and consumers. We like that business because it fits with our "buy the bullets, not the guns" investing strategy that focuses on key suppliers that touch a number of customers. The stock gained 3% this week and remain inexpensive at 14x expected 2017 earnings. BLDR is an Inflection Point stock and has a price target of $17.
Sonus Networks (SONS:Nasdaq; $6.59; 3.59%): This company makes communications equipment, including session-border controllers and diameter-signal controllers. With key customers like AT&T (T) , Verizon (VZ) , and CenturyLink (CTL) deploying incremental network capacity and testing next-generation networks, we see Sonus' business as well-positioned to benefit from this cap-ex spending. This earnings season, we will be monitoring customer capital-spending levels to determine if those are tracking as expected. Last week, SONS shares rose just under 2%. SONS is an Inflection Point stock, and we are reviewing its $12 price target ahead of the company's April 26 earnings-report date.
Synovus Financial (SNV:NYSE; $41.02; 2.52%): This Georgia-based bank operates branches throughout the Southeast. The stock fell almost 1% last week, and we are reviewing its place in the Stocks Under $10 portfolio given not only its current share price but also concerns over slowing loan growth throughout the industry. We're worried about a possible push-out in the timing of Federal Reserve interest-rate hikes, while household-debt and credit-card-debt levels have swelled to those last seen ahead of the Great Recession. We'll be paying attention to several banks' earnings reports this week to determine our next move with these shares. SNV is an Inflection Point stock and has a $45 price target.
Yamana Gold (AUY:NYSE; $2.76; 1.96%): This gold-and-copper exploration-and-production company operates seven mines and develops projects in Argentina, Brazil and Chile. AUY shares rose just under 3% last week, but we added to the position given our concerns over the return of volatility during earnings season. We believe Yamana remains an attractive portfolio hedge. AUY is an Inflection-Point stock and has a $6 price target.
Zix (ZIXI:Nasdaq; $4.81; 3.07%): Zix is a leading producer of email-encryption software that enables doctors to securely send information to pharmacies. A study just published in JAMA Internal Medicine found 1,798 incidences of large data breaches in patient information over roughly a seven-year period. These findings (along with others to be had as hospitals and doctors' offices move into our increasingly connected society) bode well for the adoption of Zix's products and services. The shares moved more than 2.5% higher last week, but even so, we have around 25% upside to our current $6.25 price target.
Threes
ON Semiconductor (ON:Nasdaq; $15.49; 1.65%): This company makes analog, standard-logic and discrete semiconductors for data use and power management. The stock fell more than 2% last week, but this week we'll be peering into comments from Taiwan Semiconductor (TSM) regarding demand for smartphones, PCs and other devices that drive demand for ON's products. On a company-specific note, ON last week disclosed that it will be amending its revenue-recognition practice to recognize revenue at the time the firm ships products to distributors. As such, we expect there to be some one-time adjustments and other items to be had when the company reports its quarterly earnings. Our price target remains $16.50 for this Stealth stock. That's below the stock's current $18 consensus price target
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