Refuse to Be Gaslighted by Market Pundits

Gaslighting is the attempt to make people doubt what they know is true, based on their own observations. There is ample evidence of this happening in the stock market. Many times, shares of companies posting all-time record results see their shares battered anyway. Those who think for themselves should be backing up the truck and buying like crazy. Instead, they are often convinced by media talking heads that there must be a hidden reason to ignore your own, fact-based, conclusion. Those who think for themselves should be backing up the truck and buying like crazy. Here are some recent examples of stocks I've written about previously which illustrated that principle. Crown Holdings is a global leader in packaging for a wide array of consumer goods. Its shares peaked north of $62 during the second half of 2017 on EPS of $4.04. 2018 went on to be an even more stellar year. EPS grew by 28.7%, to $5.20. Revenues, cash flow and book value established all-time highs as well. Despite those fine across the board results CCK's shares fell to as low as $39.10 on Christmas Eve of 2018. At the exact nadir, CCK had shed over 37% in about 15-months. Market experts were not recommending CCK, though. It had poor momentum and a nasty chart pattern. Who would be brave enough to go on CNBC to tout a stock which had been so horrible? Traders and investors who saw the stock at its lowest valuation in decades should have believed their own eyes and ignored the naysayers. By November of 2019, CCK gave them the chance to lock in more than 105% gains. Ironically, 2019's EPS came in just shy of the prior year's tally. The Covid-related panic of March 2020 provided another outstanding entry point with CCK then selling for about 8.3-times earnings vs. its typical multiple of 13.4-times. Less than six-months later, CCK had established a new high of $82.57. Specialty retailer Williams-Sonoma experienced a similar mispricing back in 2017. WSM peaked at $89.40 in 2015 on EPS of $3.37. Its growth rate slowed during 2016 and 2017 but EPS continued to rise. By mid-2017 the shares had fallen by 52.2%, to $42.70. Those who believed their own observations, that WSM's price-to-earnings was too low and its yield was the highest ever, were well rewarded. By October of 2018 WSM had climbed back to $74, a cool 73.3% gain plus dividends. As with CCK, December of 2018 gave investors a second chance to buy cheaply. At the Christmas Eve low of $45 the shares fetched just 11.1-times trailing earnings while yielding 3.82%. Those compared with long-term averages of 16.8x-times and 2.42%. Unsurprisingly, WSM rebounded to $74.20 in about a year. It plunged to $26.01 in the virus-panic, allowing rational investors to pick it up for under 5x forward earnings with a 7.38% yield. From that crazy bottom WSM proceeded to rally by 291%, to a recent $101.73. I wrote positively about Tractor Supply in June of 2017. It was then down from $97.30 to $53.12 despite posting record EPS and an increased dividend in the year of the decline. A month later the shares made their final bottom at $49.90. Was Wall Street recommending it then, at its most favorable valuation in six years? Nope. All you heard was that Amazon was going to put all other retailers out of business. That was especially nonsensical when applied to TSCO, which sells plenty of animal feed, peat moss, fertilizer and hard goods, which are heavy and expensive to ship. Those who believed their own eyes got a quick rebound to $83.40 just a few months later. Another inexplicable decline then followed, taking TSCO back to south of $59 by March of 2018. At its yearly low of $58.30 the shares were available for just 13.5-times forward EPS while yielding almost double TSCO's average payout. Ignoring media noise, which sought to justify the pull-back, paid off. By the summer of 2019 TSCO was above $110. The Covid-panic last March provided yet another great buying opportunity. TSCO dipped monetarily to under $64, at 13.3-times expected EPS, which turned out to be way too conservative, along with a 2.16% yield. In less than six months, and some estimate upgrades, TSCO had established a new all-time peak of $155.56. That represented a greater than 143% move, plus dividends. Cabinet maker American Woodmark peaked above $148 in January of 2018. EPS surged that year from $3.77 to $6.91. Despite stellar growth AMWD plunged to just $53.30 in 2018's crazy Christmas Eve Capitulation. Traders who ignored media pessimism were able to ride AMWD back up to $117.70 by January of this year. As with almost everything else, American Woodmark got slammed last March, bottoming at $35.30. Instead of listening to Bill Ackman tell you the economy was entering hell you could have purchased AMWD and watched it rebound to over $95 on Aug. 24. Most of the stocks mentioned so no longer are bargains. Some appear overpriced. Here are two, though, that look great right now. Both appear set to report best-ever EPS in 2020. Yet, like the previously highlighted names, each trades at a bargain valuation. On Sep. 11, 2020 CVS Health closed at just $57.40, down nearly 50% from its all-time high of $113.60. There's no reason it can't be north of $100 again in the reasonable future. Industry rival Walgreens Boots Alliance did not have record EPS in fiscal 2020 (ended Aug. 31, 2020), but is absurdly cheap based on its historical metrics. Its future stock price performance might outdo CVS's as fundamentals improve over time. Since writing about WBA, at $36.99, the stock hit a new multi-year low of $34.51. It closed last week just pennies higher, at $34.67. Healthcare provider Centene expects record EPS this year and well into the future. It closed on Sep. 11, 2020 at just $56.44, down from $74.70 earlier this year. This proven growth stock now sells for just 9.8x next year's EPS estimate versus its own typical multiple of 16.0-times. I see at least a 52.8% upside on CNC by Dec. 31, 2021. That target price is likely to prove too conservative as previous peaks during 2015 and 2018 saw traders pay 21-times to 28-times earnings to own CNC when the investment community's mood on the stock was more upbeat. Follow fundamentals, ignore attempts to gaslight you into not believing your own projections. Buy CVS, WBA and CNC while their valuations are insanely cheap. (AMZN and CVS are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Refuse to Be Gaslighted by Market Pundits

Follow fundamentals and ignore the attempts to gaslight you into not believing your own projections.

Columnist Conversation

Another Nice Win for the Stocks Under $10 Portfolio

This Weekend on Real Money

Did the CCMP Index Form a Head and Shoulders Pattern?

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.