The Stock Superstars Report illustrates how to build and ...

The Stock Superstars Report illustrates how to build and manage a well-diversified portfolio with controlled risk. Our goal is to create

a portfolio that provides investment information and reflects an approach consistent with current research findings.

April 2019

After performing the monthly

portfolio review, one SSR holding

violated the spirit of its group and

met the portfolio sell rules and is

therefore being removed: HollyFrontier Corp. (Group 2: HFC).

To keep the SSR tracking portfolio at its full complement of 36

stocks, Discover Financial Services

(Group 4: DFS) is being added.

As of the close on Tuesday,

March 26, 2019, the iShares DJ

U.S. ETF (IYY) was up 0.6% for

the month. Through March 26,

the SSR tracking portfolio is down

1.4% for the month.

Performance and basic fundamental information for each SSR

holding is provided in the table

on pages 6 and 7. Looking at the

performance of the individual SSR

groups¡ªeach following a unique

selection methodology¡ªthe stocks

Volume 17

Issue 4

in Group 1, on average, were the

strongest performers in March,

continuing their momentum from

the previous month. Once again,

Arista Networks Inc. (ANET) was

the strongest stock in the portfolio for the month, gaining 8.6%

through the close on March 26

after adding 32.8% in February.

Group 1 also held three of the

five top stocks for the month. The

Group 1 strategy looks for stocks

with a history of strong and consistent annual earnings growth,

quarterly earnings momentum and

strong relative price strength.

Group 2, the weakest SSR group

for the month of March on a relative basis, held only two of the SSR

holdings that ranked in the top

10 for the month. Seven of the 13

companies in Group 2 ranked in

the bottom half of the list in terms

of performance for

the month. Group

2 reflected the continued weakness

Portfolio Alerts This Month.. . . . . . . . . . . . . . . . . . . . 2

of value-oriented

Performance of SSR.. . . . . . . . . . . . . . . . . . . . . . . . . . . 3

stocks in March.

The Group 2 apSSR Stocks in the News. . . . . . . . . . . . . . . . . . . . . . . . 4

5

proach looks for

Recent Earnings Announcements.. . . . . . . . . . . . . .

dividend-paying

The Current SSR Portfolio.. . . . . . . . . . . . . . . . . . . . . 6

companies whose

In-Depth Stock Reports

stock is trading at

Adobe Systems Inc. . . . . . . . . . . . . . . . . 8

low price-earnings

Cisco Systems, Inc... . . . . . . . . . . . . . . . . 9

ratios and are

Lam Research Corp.. . . . . . . . . . . . . . . 10

exhibiting posiDiscover Financial Services.. . . . . . . . . 11

tive historical and

Portfolio Corner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

In This Issue

Next Publication Date: April 26, 2019

projected earnings growth and

have moderate levels of liabilities.

Portfolio Deletion Alert:

HollyFrontier Corp.

(Group 2: HFC)

HollyFrontier Corp. is an independent petroleum refiner that

produces light products such as

gasoline, diesel fuel, jet fuel and

specialty lubricant products, as

well as heavy products such as

asphalt.

On February 20, the company

reported a positive earnings surprise of 17.2%, but fourth-quarter

revenues fell short of analyst

expectations. In addition, over the

last month, the consensus estimate for the fiscal quarter ending

March 31 has fallen 28% on 10

downward revisions (with one

upward revision); the consensus

estimate for the current fiscal year

ending December 31 has fallen

7.6% on eight downward revisions and three upward revisions.

Analysts are now projecting a

nearly 18% drop in earnings this

year and, after a projected 21%

increase in earnings next year,

another 6% decline in earnings

the year after.

Over the last 26 weeks, HollyFrontier shares have fallen by

more than 23%, underperforming

the S&P 500 index by more than

19%. Over the same time frame,



SSR Phone Hotline: 866-801-2576

¡°The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming

effective managers of their own assets through programs of education, information and research.¡±

Stock Superstars Report

payment services. The direct

banking segment

generates apApril Portfolio Additions

proximately 96%

Latest Price

Risk

Group Company (Ticker)

(3/26/2019)

Index Description

of revenue and

4

Discover Financial Services (DFS)

$70.58

2.23

direct banking and payment services company

95% of net inPortfolio Deletions Since Last Monthly Issue

iShares DJ U.S.

come, according

Portfolio Deletion Alert

G/L Since

(IYY) Change

Portfolio Addition Alert

to CFRA. Within

Date

Price*

Group Company (Ticker)

Purchase

Since Purchase

Date

direct banking,

2

HollyFrontier Corp. (HFC)

3/29/2019

$51.26

-31.2%

-3.5%

8/31/2018

*Closing price on 3/26/2019.

credit cards are

the largest prodthe stock has also underperformed

future earnings growth, a low diviuct category, with interest earned

69% of all U.S.-listed stocks. The

dend-adjusted PEG ratio (the ratio

on revolving credit card balances

stock is also down more than 30%

of trailing price-earnings ratio and

comprising approximately 82%

from its high price since being

the sum of the expected average

of total interest income. Student

added to the SSR portfolio, which

annual earnings growth rate and

loans are another product, contriggered a portfolio sell rule. This, the dividend yield), positive free

tributing 7% of interest income,

along with the uneven nature of

cash flow and favorable margins

and personal loans comprise 8%

the company¡¯s projected earnings

compared to industry norms.

of interest income. Other services

growth over the next few years, is

Discover is a consumer finance,

within direct banking include

why HollyFrontier is being reonline bank and electronic payhome equity loans and deposits.

moved from the SSR portfolio.

ment services company. Discover

The payment services segment

A portfolio addition alert was

offers credit and prepaid cards,

(4% of revenue) provides payissued for HollyFrontier on Auchecking accounts and other

ment transaction processing and

gust 31, 2018. The stock has fallen

financial products and services to

settlement through a number of

31.2% since purchase through

qualified customers in the U.S. and networks. The PULSE point-of-sale

March 26, 2019, while the iShares

provides payment processing and

and debit/ATM network has 4,300

DJ U.S. ETF (IYY) has fallen 3.5%

related services to merchants and

financial institutions and cash acover the same period.

financial institutions across the

cess at approximately two million

globe. The company went public

ATMs in 138 countries. The Diners

in

2007

as

part

of

a

spin-off

from

Club business has a network in 190

April Portfolio Addition:

Morgan

Stanley.

The

Discover

countries through its relationship

Discover Financial Services

Card

was

originally

introduced

by

with more than 110 licensees. Dis(Group 4: DFS)

Sears in 1985, and was a unit of

cover does not issue Diners Club

Discover Financial Services

Dean Witter, which merged with

cards but rather grants licensees

passed the Group 4 screen, which

Morgan Stanley in 1997.

the right to issue branded cards

looks for companies with strong

The company has two business

with Discover receiving a royalty.

but sustainable historical sales

segments: direct banking and

Credit card loan receivables are

growth, expectations of strong

Portfolio Alerts This Month

Published monthly by the American

Association of Individual Investors

625 N. Michigan Ave., Chicago, IL 60611

312-280-0170, .

Annual SSR subscription, $199.

AAII¡¯s Stock Superstars Report? (SSR) is not a

registered investment adviser or a broker/dealer. This

report is issued solely for informational purposes and

should not be construed as an offer to sell or the solicitation of an offer to buy

securities. The opinions and analyses included herein are based on sources

believed to be reliable and written in good faith, but no representation or

warranty, expressed or implied, is made as to their accuracy, completeness,

timeliness, or correctness. Neither we nor our information providers shall

be liable for any errors or inaccuracies, regardless of cause, or the lack of

2

3

timeliness of, or any delay or interruptions in, the transmission thereof to

the users. All information contained in this report should be independently

verified with the companies mentioned.

? American Association of Individual Investors, 2019. The Stock Superstars

Report is a registered trademark and service mark of the American Association

of Individual Investors. This publication may not be reproduced in whole or

in part by any means without prior written consent.

¡°The American Association of Individual Investors is an independent

nonprofit corporation formed in 1978 for the purpose of assisting individuals

in becoming effective managers of their own assets through programs of

education, information and research.¡±

Printed in the U.S.A.

April 2019

Stock Superstars Report

$425,000

$400,000

$375,000

$350,000

$325,000

$300,000

$275,000

$250,000

$225,000

$200,000

$175,000

$150,000

$125,000

$100,000

$75,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$50,000

Return

Growth of $100,000

Risk

Performance of SSR

Performance

Stock

Superstars iShares DJ

Portfolio

U.S. (IYY)

March

-1.4%

0.6%

2019 YTD

10.5%

12.8%

2018

-10.8%

-5.1%

2017

18.1%

21.2%

2016

13.8%

12.0%

2015

-3.1%

0.5%

2014

4.4%

12.7%

2013

44.0%

32.6%

2012

16.2%

16.1%

2011

4.3%

1.1%

2010

19.5%

16.4%

2009

34.3%

28.5%

2008

-43.5%

-37.2%

2007

5.5%

5.8%

2006

3.0%

15.3%

2005

-0.3%

6.1%

2004

14.3%

11.8%

2003

40.2%

30.4%

2002

0.5%

-22.1%

From Inception

269.9%

254.2%

Risk Index (3 Yr)

1.10

1.00

Std. Dev. (3 Yr)

12.6%

11.4%

Performance as of 3/26/2019.

The Stock Superstars portfolio started at the beginning of 2002. The SSR portfolio is run as if managed by a subscriber and includes delays in reaction

time to SSR alerts, actual commissions and bid-ask spreads. Since inception performance data is available at .

approximately 80% of total receivables, personal loans comprise

nearly 9% and private student

loans 8%.

Discover has a current priceearnings ratio of 9.1 times trailing

12-month earnings of $7.80 per

share (see page 11). This ranks in

the bottom 14% of all domestically

traded companies. Based on the pro

forma consensus earnings estimate

of $8.63 per share for the fiscal

year ending December 2019, Discover¡¯s forward price-earnings ratio

is 8.2. This forward price-earnings

ratio compares very favorably to the

expected annual earnings growth

rate over the next three to five years

of 20.8% from two analysts. This

projected growth rate is higher than

82% of U.S.-listed stocks where

analysts are providing an estimated

earnings growth rate. The trailing

price-earnings ratio of 9.1 is below

the company¡¯s three-year average

price-earnings ratio of 10.1 and is in

line with the industry median priceearnings ratio of 9.1 for Discover¡¯s

industry, designated as consumer

lending by Thomson Reuters Business Classification (TRBC).

On January 24, 2019, Discover

reported quarterly earnings per

share of $2.03, which fell short of

its consensus estimate by 1.4%.

There are 21 analysts providing

estimates for the fiscal year ending

December 2019. The mean estimate is $8.63 per share ($8.45 to

$8.82 per share range) and $9.45

for the fiscal year ending December

2020. This translates into projected year-over-year earnings growth

of 9.5%.

Sales at Discover have expanded

at an average annual rate of 9.0%

over the last five years and are up

12.9% for the trailing 12 months.

Earnings per share, fully diluted

from continuing operations, have

grown an average of 9.5% over the

last five years and are up 31.1% for

the trailing 12 months.

The company¡¯s net profit margin is currently 24.7%, which is

up from 21.1% for fiscal 2017. The

typical stock in the consumer lending industry has a net margin of

11.5% for the trailing 12 months.

Discover has an annual indicated

dividend of $1.60, which translates

into a dividend yield of 2.3%. The

typical company in the consumer

lending industry does not pay a

dividend.

The company¡¯s market capitalization is $22.9 billion, placing it

in the large-cap range of domestic

stocks. Discover is a constituent of

the S&P 500.

The ratio of total liabilities to

total assets for the company stands

at 89.8%. This is above the median

value of 75.3% for the consumer

lending industry.

Over the last 12 months, Discover has generated free cash flow per

share of $12.67.

Over the last 52 weeks, Discover

shares have risen less than 1%,

underperforming the S&P 500 by

8% and outperforming 61% of all

domestically traded stocks. Over

the last 26 weeks, the stock price

April 2019

3

Stock Superstars Report

has fallen 12%, underperforming

the S&P 500 by 8% and outperforming 49% of all domestically

listed stocks.

Discover is being added to Group

4 because of its strong forecasted

earnings growth over the next

three to five years, reasonable historical sales growth, free cash flow

generation and margins that are

well above its industry norms.

SSR Portfolio Performance

Year to date, the SSR tracking

portfolio is up 10.5% through the

close on March 26. By comparison,

the iShares DJ U.S. ETF (IYY) has

gained 12.8% year to date. Since

inception, the iShares DJ U.S. fund

is up 254.2%, while the SSR portfolio has gained 269.9%. ?

SSR Stocks in the News

AbbVie Inc. (ABBV)

(3/4/2019) AbbVie announced that the European

Medicines Agency¡¯s (EMA) Committee for Medical Products for Humane Use (CHMP) has given a

positive opinion, recommending marketing approval

for risankizumab, its investigational interleukin-23

(IL-23) inhibitor, which has been developed for the

treatment of moderate-to-severe plaque psoriasis.

Risankizumab will be marketed by the trade name of

Skyrizi.

(3/7/2019) AbbVie announced that the U.S. Food

and Drug Administration (FDA) granted a fifth breakthrough therapy designation (BTD) to venetoclax,

for use in combination with obinutuzumab as a fixed

duration investigational combination, for untreated

adult patients with chronic lymphocytic leukemia

(CLL). The FDA will review the venetoclax and obinutuzumab combination under its Real-Time Oncology

Review (RTOR) pilot program, which aims to explore

a more efficient review process to ensure that safe and

effective cancer medicines are available to patients as

early as possible.

(3/19/2019) AbbVie announced that the FDA placed

a partial clinical hold on all trials of its cancer drug

Venclexta for multiple myeloma, after a review of data

found a higher proportion of deaths in the Venclexta

arm of the late-stage study. However, the clinical hold

does not impact any of the approved indications for

Venclexta and is limited to investigational clinical trials in multiple myeloma.

(3/26/2019) AbbVie announced that the Japanese

Ministry of Health, Labour and Welfare (MHLW) has

approved Skyrizi (risankizumab) for the treatment

of plaque psoriasis, generalized pustular psoriasis,

erythrodermic psoriasis and psoriatic arthritis in adult

patients who have an inadequate response to conventional therapies. This approval marks the first country

approval in the world for Skyrizi.

4

5

Bank of America Corp. (BAC)

(3/5/2019) Bank of America and Royal Bank of

Scotland Group PLC (RBS) have been sued by investors in the U.S. over their alleged roles in a conspiracy

about eight banks trying to rig prices in the $9.4 trillion European government bond market.

Celgene Corp. (CELG)

(3/14/2019) The U.S Patent and Trademark Office rejected a filing by Alvogen Pine Brook LLC for a review

challenging patents on Celgene¡¯s blockbuster myeloma

drug Revlimid. Revlimid brought in $2.55 billion of

revenue in the fourth quarter of 2018, but could face

loss of exclusivity from 2022 onward in the U.S.

(3/27/2019) Celgene announced that it has submitted a new drug application to the FDA for ozanimod

for the treatment of adults with relapsing forms of

multiple sclerosis (RMS).

Comcast Corp. (CMCSA)

(3/22/2019) Comcast officially announced a new

internet streaming video service called Xfinity Flex,

targeting Comcast¡¯s internet-only customers who have

moved away from cable TV packages. Xfinity Flex is

not a new streaming network but a platform to access

a customers¡¯ various streaming subscriptions, features

already in Comcast¡¯s Xfinity cable boxes. The Xfinity

Flex service is packaged with a 4K HDR streaming TV

device and voice remote. Customers will also be able

to integrate Comcast home Wi-Fi, mobile, security

and automation services, in addition to their video

and music streaming.

Gentex Corp. (GNTX)

(3/8/2019) Gentex announced that its board of

directors authorized a 5% increase in its quarterly

cash dividend to $0.115 per share. The board of directors also authorized the purchase of an additional 25

million shares of its common stock. The new repurchase program is in addition to those shares that were

previously authorized for repurchase.

April 2019

Stock Superstars Report

JetBlue Airways Corp.

(JBLU)

(3/12/2019) JetBlue reported

its preliminary traffic results for

Date

Reported Expected Surprise

Stock (Ticker)

Reported Earnings Earnings

%

February 2019. Traffic increased

Group 1

6.0% from February 2018, on a

Adobe Systems Inc. (ADBE)

Mar 14

$1.65

$1.616

2.1%

capacity increase of 7.5%. The

Burlington Stores Inc. (BURL)

Mar 7

$2.83

$2.767

2.3%

load factor was 81.5%, a slight

Group 2

decrease from February 2018.

Carnival Corp. (CCL)

Mar 26

$0.49

$0.437

12.1%

Group 3

The company¡¯s completion facZumiez Inc. (ZUMZ)

Mar 14

$1.18

$1.111

6.2%

tor was 98.5% and its on-time

Group 4

performance was 70.0%.

No Group 4 companies reported earnings this month.

(3/14/2019) JetBlue initially

Announcements through the close on 3/26/2019.

expected first-quarter revenue

per available seat mile (RASM)

to either fall 2.0% or rise 1.0%, and now predicts

the company, dependent on the progress of Vivet¡¯s

RASM to fall between 1.5% to 3.5%. The company

experimental therapies.

cut its 2019 capacity growth estimates. JetBlue now

Pfizer and Vivet will collaborate on the development

expects current-year capacity to expand between 4.5% of VTX-801, Vivet¡¯s proprietary treatment for Wilson¡¯s

to 6.5%; whereas, the previous projection estimated

disease, a rare and inherited liver disorder requiring

5.0% to 7.0% capacity growth. The company cited

life-long treatment or a liver transplant to avoid seriweak pricing for last-minute bookings on transcontious complications.

nental flights for the guidance revisions.

UnitedHealth Group (UNH)

MetLife Inc. (MET)

(3/12/2019) UnitedHealth Group announced an

(3/21/2019) MetLife¡¯s institutional asset manageexpansion to a change in how the company handles

ment business, MetLife Investment Management

rebates from drugmakers, requiring new employer cli(MIM) reported that it originated $14.7 billion in

ents to pass them on to people who take the medicaprivate debt in 2018, a record amount. This included

tions. According to The Wall Street Journal, the move

$4.7 billion of investments on behalf of MIM¡¯s unafparallels a proposal from the Trump administration

filiated/third-party institutional investors. At the end

that would affect Medicare and Medicaid plans in the

of 2018, MIM¡¯s total private debt portfolio stood at

same way¡ªwhich pharmacy benefit managers (PBMs)

$70.6 billion, including $24.0 billion of non-proprihave been opposed to.

etary assets managed on behalf of unaffiliated/thirdUnitedHealth will grandfather in existing clients

party clients.

who chose a different setup before January 1, 2020.

Pfizer Inc. (PFE)

The new shift will involve employers that begin using

(3/11/2019) Pfizer¡¯s biosimilar to Roche AG¡¯s

UnitedHealth¡¯s PBM, OptumRx, including those that

(RHHBY) blockbuster breast cancer treatment,

are self-insured.

Herceptin, was granted approval from the FDA.

Visa Inc. (V)

Reuters reported that the move comes nearly a year

(3/1/2019) Visa credit cards will no longer be acafter the FDA declined an initial approval application, cepted at a second unit of Kroger Co. (KR), representseeking more technical information.

ing a ban in 142 supermarkets and 108 gas stations

(3/20/2019) Pfizer said that it agreed to acquire the

across seven western states. Kroger said that its

rights to gene therapies under development at French

Smith¡¯s Food & Drug would not accept Visa because

company Vivet Therapeutics for $636 million, as it

of the excessive interchange and network fees charged

seeks to build its pipeline in the cutting-edge treatto retailers and passed on to consumers through inment. Pfizer also acquired a 15% stake in Vivet, with

creased product prices. Kroger¡¯s Foods supermarkets

possible further payments, and a full acquisition of

stopped accepting Visa credit cards in August 2018. ?

Recent Earnings Announcements

April 2019

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download