Buy Zee Entertainment; target of Rs 651: Centrum

Centrum's research report on Zee Entertainment

We maintain our BUY rating on Zee Entertainment Enterprises Ltd. (ZEEL) with a revised target price of Rs651. We believe there is upside risk to our ad growth expectation of 16% for FY19E on the back of strong market share gains across languages and increasing ad spends by FMCG companies. Further we believe the full impact of the TRAI tariff order would be in FY20 and the management is confident to deliver low teens growth on the back of ARPU increase. New channel launches would help the company complete its bouquet of languages and help in increasing ad inventory. Management strategy to do deals for ZEE5 with telecos only on favourable terms is healthy for long term while we believe the international launch by end of FY19 would be an added positive. We believe increase in ZEE5 originals and to premier movies on ZEE5 would help the company generate significant subscribers over medium term.

Outlook
We maintain our BUY rating and value the stock on Adj OCF/EV yield on 5 year avg cash flow and arrive at a TP of Rs651. Downside risk being uncertainty in implementation of Tariff Order and rollout of ZEE5.

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Read More First Published on Jul 20, 2018 05:19 pm

Hot Bank Stocks For 2019

tags:AMAG,EXK,HMSY,

Japan’s trade recovery powered into 2018, with exports and imports registering strong growth. The increase in imports resulted in the first monthly trade deficit since May 2017.

HighlightsThe value of exports rose 12.2 percent in January from a year earlier (forecast +9.4%).Imports grew 7.9 percent (forecast +7.7%).The January trade balance was a deficit of 943.4 billion yen (forecast -1 trillion yen).Export volumes rose 9.2 percent from a year earlier.Key Takeaways

Japan enjoyed a strong export recovery in 2017 that helped push the nation’s economy to the longest expansion in nearly 30 years. Rising imports, a sign of improving domestic demand, indicate the Bank of Japan is making progress in its efforts to generate a self-sustaining economic recovery. A surging yen, though, is a risk. It will make imports cheaper, weighing on inflation, while cutting into exporters’ profits.

Hot Bank Stocks For 2019: AMAG Pharmaceuticals, Inc.(AMAG)

Advisors' Opinion:

• [By Logan Wallace]

  Get a free copy of the Zacks research report on AMAG Pharmaceuticals (AMAG)

  For more information about research offerings from Zacks Investment Research, visit Zacks.com

• [By Logan Wallace]

  AMAG Pharmaceuticals (NASDAQ:AMAG) was downgraded by equities researchers at BidaskClub from a “strong-buy” rating to a “buy” rating in a research report issued on Monday.

• [By Stephan Byrd]

  AMAG Pharmaceuticals (NASDAQ:AMAG) was upgraded by equities researchers at ValuEngine from a “hold” rating to a “buy” rating in a research note issued on Monday.

• [By Chris Lange]

  AMAG Pharmaceuticals Inc. (NASDAQ: AMAG) has a PDUFA date set for its drug Feraheme for the treatment of iron deficiency anemia in patients who have an intolerance or unsatisfactory response to oral iron. The date is set for February 2. Shares of AMAG were trading at $14.45, in a 52-week range of $11.93 to $25.20 and with a consensus price target of $18.00.

Hot Bank Stocks For 2019: Endeavour Silver Corporation(EXK)

Advisors' Opinion:

• [By Joseph Griffin]

  Endeavour Silver (NYSE: EXK) and Yamana Gold (NYSE:AUY) are both basic materials companies, but which is the better investment? We will contrast the two companies based on the strength of their dividends, risk, earnings, valuation, analyst recommendations, institutional ownership and profitability.

• [By Joseph Griffin]

  Endeavour Silver Corp (TSE:EDR) (NYSE:EXK) insider Christine Deborah West sold 16,000 shares of the company’s stock in a transaction dated Monday, June 18th. The stock was sold at an average price of C$4.23, for a total value of C$67,680.00.

• [By Lisa Levin]

  Check out these big penny stock gainers and losers

  Losers Akorn, Inc. (NASDAQ: AKRX) fell 32.7 percent to $13.25 in pre-market trading after Fresenius terminated its merger deal with Akorn. Chicago Bridge & Iron Company N.V. (NYSE: CBI) fell 15.7 percent to $12.30 in pre-market trading. Subsea 7 confirmed a $7.00 per share proposal to acquire Mcdermott, pending termination of merger agreement with CB&I. Myomo, Inc. (NYSE: MYO) fell 9 percent to $3.65 in pre-market trading after rising 11.39 percent on Friday. Hasbro, Inc. (NASDAQ: HAS) fell 8 percent to $88.36 in pre-market trading after the company reported weaker-than-expected results for its first quarter on Monday. SunPower Corporation (NASDAQ: SPWR) fell 7.1 percent to $9.00 in pre-market trading. Endeavour Silver Corp. (NYSE: EXK) shares fell 5.9 percent to $2.88 in pre-market trading after declining 3.16 percent on Friday. Mattel, Inc. (NASDAQ: MAT) shares fell 5.5 percent to $12.25 in pre-market trading. Valeritas Holdings, Inc. (NASDAQ: VLRX) shares fell 5.1 percent to $2.96 in pre-market trading after rising 76.27 percent on Friday. GlobalSCAPE, Inc. (NYSE: GSB) fell 5.1 percent to $3.57 in pre-market trading. Fresenius Medical Care AG & Co. KGaA (NYSE: FMS) shares fell 4.1 percent to $49.93 in pre-market trading. Oasis Petroleum Inc. (NYSE: OAS) fell 4.1 percent to $9.75 in pre-market trading. SunTrust Robinson Humphrey downgraded Oasis Petroleum from Hold to Sell

Hot Bank Stocks For 2019: HMS Holdings Corp(HMSY)

Advisors' Opinion:

• [By Lisa Levin] Gainers Biostar Pharmaceuticals, Inc. (NASDAQ: BSPM) shares rose 35.8 percent to $3.00. Commercial Vehicle Group, Inc. (NASDAQ: CVGI) shares surged 32 percent to $8.94 after reporting upbeat Q1 earnings. Carbon Black, Inc. (NASDAQ: CBLK) gained 29.6 percent to $24.62. Carbon Black priced its IPO at $19 per share. California Resources Corporation (NYSE: CRC) shares rose 26.8 percent to $32.70 following upbeat Q1 earnings. Pandora Media, Inc. (NYSE: P) gained 25 percent to $7.185 after reporting strong quarterly results. Medifast, Inc. (NYSE: MED) shares climbed 23.7 percent to $122.87 after the company reported strong Q1 results and raised its FY18 guidance. Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) rose 23.2 percent to $8.4999 after reporting Q2 results. Portola Pharmaceuticals, Inc. (NASDAQ: PTLA) gained 22.2 percent to $41.27 after the FDA approved the company's Andexxa, the only antidote indicated for patients treated with rivaroxaban and apixaban. Shake Shack Inc (NYSE: SHAK) rose 22.2 percent to $57.955 after the company reported upbeat results for its first quarter and raised its FY18 guidance. Atomera Incorporated (NASDAQ: ATOM) jumped 19.7 percent to $6.12 after reporting Q1 results. Super Micro Computer, Inc. (NASDAQ: SMCI) rose 16.4 percent to $21.00 after reporting strong preliminary results for the third quarter. Titan International, Inc. (NYSE: TWI) shares rose 16.4 percent to $12.21 following Q1 earnings. Integer Holdings Corporation (NYSE: ITGR) shares gained 14.9 percent to $63.75 following Q1 results. Control4 Corporation (NASDAQ: CTRL) shares climbed 14.5 percent to $23.98 folloiwng strong Q1 results. B&G Foods, Inc. (NYSE: BGS) climbed 12.6 percent to $25.40 after reporting Q1 earnings. HMS Holdings Corp (NASDAQ: HMSY) shares gained 10 percent to $19.59 after reporting upbeat quarterly earnings. Viavi Solutions Inc. (NASDAQ: VIAV) rose 7 percent to $10.09 following Q3 r
• [By Lisa Levin] Gainers Biostar Pharmaceuticals, Inc. (NASDAQ: BSPM) shares jumped 29.86 percent to close at $2.87 on Friday. Commercial Vehicle Group, Inc. (NASDAQ: CVGI) shares gained 28.87 percent to close at $8.75 after reporting upbeat Q1 earnings. Mexco Energy Corporation (NYSE: MXC) gained 27.02 percent to close at $5.4744. Carbon Black, Inc. (NASDAQ: CBLK) climbed 26 percent to close at $23.94. Carbon Black priced its IPO at $19 per share. Portola Pharmaceuticals, Inc. (NASDAQ: PTLA) rose 25.64 percent to close at $42.44 after the FDA approved the company's Andexxa, the only antidote indicated for patients treated with rivaroxaban and apixaban. Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) rose 23.19 percent to close at $8.50 after reporting Q2 results. California Resources Corporation (NYSE: CRC) shares gained 22.45 percent to close at $31.58 following upbeat Q1 earnings. Atomera Incorporated (NASDAQ: ATOM) gained 22.31 percent to close at $6.25 after reporting Q1 results. Medifast, Inc. (NYSE: MED) shares jumped 22.27 percent to close at $121.46 after the company reported strong Q1 results and raised its FY18 guidance. Jerash Holdings (US), Inc. (NASDAQ: JRSH) gained 20.86 percent to close at $8.46. Pandora Media, Inc. (NYSE: P) rose 19.83 percent to close at $6.89 after reporting strong quarterly results. Shake Shack Inc (NYSE: SHAK) rose 18.01 percent to close at $55.95 on Friday after the company reported upbeat results for its first quarter and raised its FY18 guidance. Super Micro Computer, Inc. (NASDAQ: SMCI) rose 17.73 percent to close at $21.25 after reporting strong preliminary results for the third quarter. Schmitt Industries, Inc. (NASDAQ: SMIT) rose 17.41 percent to close at $2.36. Titan International, Inc. (NYSE: TWI) shares gained 16.78 percent to close at $12.25 following Q1 earnings. Integer Holdings Corporation (NYSE: ITGR) shares rose 14.23 percent to close at $63.40 following Q1 result
• [By Logan Wallace]

  Massachusetts Financial Services Co. MA increased its position in shares of HMS Holdings (NASDAQ:HMSY) by 40.9% in the 1st quarter, according to the company in its most recent 13F filing with the Securities and Exchange Commission. The fund owned 1,007,174 shares of the business services provider’s stock after purchasing an additional 292,456 shares during the period. Massachusetts Financial Services Co. MA owned approximately 1.21% of HMS worth $16,961,000 as of its most recent filing with the Securities and Exchange Commission.

• [By Lisa Levin] Gainers Portola Pharmaceuticals, Inc. (NASDAQ: PTLA) rose 34.7 percent to $45.50 in pre-market trading following news that the FDA has approved Andexxa for the reversal of factor Xa inhibitors. Euro Tech Holdings Company Limited (NASDAQ: CLWT) rose 15.7 percent to $6.65 in pre-market trading after climbing 155.56 percent on Thursday. China Recycling Energy Corporation (NASDAQ: CREG) rose 14.7 percent to $2.75 in pre-market trading after climbing 57.89 percent on Thursday. Pandora Media, Inc. (NYSE: P) rose 11 percent to $6.40 in pre-market trading after reporting strong quarterly results. Fred's, Inc. (NASDAQ: FRED) rose 9.2 percent to $1.90 in pre-market trading following Q4 results. Shake Shack Inc (NYSE: SHAK) rose 9.1 percent to $51.70 in pre-market trading after the company reported upbeat results for its first quarter and raised its FY18 guidance. Allscripts Healthcare Solutions, Inc. (NASDAQ: MDRX) rose 9 percent to $12.55 in pre-market trading after the company posted Q1 results and agreed to acquire HealthGrid. Weight Watchers International, Inc. (NYSE: WTW) rose 7.6 percent to $75 in pre-market trading after the company reported stronger-than-expected results for its first quarter. The company also raised its FY18 earnings outlook from $2.40-$2.70 to $3-$3.20. Viavi Solutions Inc. (NASDAQ: VIAV) rose 7.5 percent to $10.15 in pre-market trading following Q3 results. Pearson plc (NYSE: PSO) rose 4.5 percent to $11.83 in pre-market trading after reporting strong quarterly earnings. Alibaba Group Holding Ltd (NYSE: BABA) shares rose 4.4 percent to $190.50 in the pre-market trading session as the company posted upbeat Q4 results. Aqua Metals, Inc. (NASDAQ: AQMS) shares rose 3.9 percent to $4.30 in pre-market trading after gaining 6.98 percent on Thursday. Newell Brands Inc (NYSE: NWL) shares rose 3.6 percent to $27.65 in pre-market trading after reporting upbeat quarterly earnings. HMS Holdings Corp (NASDAQ: H

Critical Analysis: Echo Therapeutics (ECTE) vs. Soleno Therapeutics (SLNO)

Echo Therapeutics (OTCMKTS: ECTE) and Soleno Therapeutics (NASDAQ:SLNO) are both small-cap medical companies, but which is the superior business? We will compare the two businesses based on the strength of their earnings, profitability, analyst recommendations, dividends, risk, valuation and institutional ownership.

Profitability

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This table compares Echo Therapeutics and Soleno Therapeutics’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Echo Therapeutics	N/A	N/A	N/A
Soleno Therapeutics	N/A	-54.36%	-40.91%

Earnings and Valuation

This table compares Echo Therapeutics and Soleno Therapeutics’ top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Echo Therapeutics	N/A	N/A	-$22.19 million	N/A	N/A
Soleno Therapeutics	$1.45 million	38.04	-$15.66 million	($1.35)	-2.07

Soleno Therapeutics has higher revenue and earnings than Echo Therapeutics.

Risk and Volatility

Echo Therapeutics has a beta of 1.38, meaning that its stock price is 38% more volatile than the S&P 500. Comparatively, Soleno Therapeutics has a beta of 5.11, meaning that its stock price is 411% more volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and target prices for Echo Therapeutics and Soleno Therapeutics, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Echo Therapeutics	0	0	0	0	N/A
Soleno Therapeutics	0	0	3	0	3.00

Soleno Therapeutics has a consensus price target of $7.33, indicating a potential upside of 162.84%. Given Soleno Therapeutics’ higher probable upside, analysts plainly believe Soleno Therapeutics is more favorable than Echo Therapeutics.

Insider & Institutional Ownership

45.8% of Soleno Therapeutics shares are owned by institutional investors. 7.0% of Echo Therapeutics shares are owned by company insiders. Comparatively, 43.3% of Soleno Therapeutics shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Summary

Soleno Therapeutics beats Echo Therapeutics on 7 of the 9 factors compared between the two stocks.

About Echo Therapeutics

Echo Therapeutics, Inc. engages in the development of transdermal skin permeation and diagnostic medical devices for wearable-health consumer and diabetes outpatient markets. It is developing continuous glucose monitoring (CGM) system, a needle-free wireless continuous glucose monitoring system in a hospital setting in the European Union. The company has a licensing agreement with Ferndale Pharma Group, Inc. to develop, manufacture, distribute, and market devices for skin preparation prior to the application of topical anesthetics or analgesics prior to a range of needle-based medical procedures in North America, the United Kingdom, South America, Australia, New Zealand, Switzerland, and other portions of the European Community. In addition, it has a license agreement with Handok Pharmaceuticals Co., Ltd. to develop, use, market, import, and sell CGM to medical facilities and individual consumers in South Korea; and a license, development, and commercialization agreement with Medical Technologies Innovation Asia, Ltd to research, develop, manufacture, and use CGM in the People's Republic of China, Hong Kong, Macau, and Taiwan. The company was founded in 1989 and is headquartered in Iselin, New Jersey.

About Soleno Therapeutics

Soleno Therapeutics, Inc. focuses on the development and commercialization of novel therapeutics for the treatment of rare diseases. Its lead candidate, diazoxide choline controlled-release (DCCR), a tablet for the treatment of Prader-Willi Syndrome (PWS), is entering into late-stage clinical development. The company was formerly known as Capnia, Inc. and changed its name to Soleno Therapeutics, Inc. in May 2017. Soleno Therapeutics, Inc. was founded in 1999 and is based in Redwood City, California.

Why Fitbit Stock Isn’t Worth More Than $6

Shares of wearables maker Fitbit (NYSE:FIT) were red-hot in May and early June. FIT stock rallied from $4 to $8 on renewed optimism regarding the company’s pivot into smartwatches. Investors were also getting excited about the company’s long-term growth prospects through enterprise data partnerships.

But then FIT stock hit a wall called reality in mid-June.

Fitbit’s latest and greatest smartwatch, Versa, is awesome, but not awesome enough to change the landscape of the smartwatch market that is over-crowded with competitors and dominated by Apple (NASDAQ:AAPL). Meanwhile, data is the future of the wearables market, but Fitbit’s data is no more valuable than any other wearable maker’s data. Thus, the data side of the wearables industry is commoditized, and Fitbit could inevitably be squeezed out of that, too.

Consequently, FIT stock peaked in early June around $8. Since, it has steadily dropped to the mid-$6 range.

Unfortunately, I think this weakness in FIT stock persists. Above $6, FIT stock is just overvalued, even under aggressive long-term growth assumptions. Consequently, FIT stock could easily drop below $6 as investor sentiment normalizes from euphoria to realism.

Here’s a deeper look.

Fitbit’s Growth Prospects Are Improving, But Still Aren’t Great

Fitbit’s growth prospects are improving.

The Versa smartwatch is Fitbit’s best product ever. It took Versa only seven weeks to hit a million device shipments, which is a Fitbit product record. Versa is also the right product (a smartwatch) at the right time (when smartwatches are eating basic activity trackers’ lunch). In a big picture sense, Versa illustrates that Fitbit can survive in the wearables market by pivoting into smartwatches.

Meanwhile, Fitbit’s data business is progressing with an impressive pace. Fitbit has roughly 1,500 enterprise clients, and is aggressively pushing data partnerships with big tech companies and healthcare and insurance providers. Again, this is the right move (data sharing) in the right space (smart healthcare and insurance). In the big picture, this data business could very well be the big growth driver of Fitbit in the future.

In total, the Fitbit growth narrative is improving. But, not by that much.

Versa is a winning product. But the wearables market is really crowded, and Versa is just another good product in that crowded market. Plus, other players like traditional watch giant Fossil (NASDAQ:FOSL) are making a push into the smartwatch market. This only creates more competition for Fitbit.

Thus, in total, Versa is a positive for Fitbit, but it doesn’t mean big growth is ahead. Instead, it just means that big declines are likely over.

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Meanwhile, all those smartwatch companies are also collecting the same data Fitbit is collecting, so Fitbit’s data is largely commoditized. Moreover, because Fitbit is smaller than Apple, Apple’s consumer healthcare data-set is presumably much bigger and more valuable. After all, in other industries where data matters (digital advertising), the bigger players, like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), dominate the smaller players, like Snap (NYSE:SNAP).

Fitbit Stock Isn’t Worth More Than $6

In the big picture, Fitbit’s growth prospects are improving. But not by all that much. More importantly, they aren’t improving by enough to warrant the recent run-up in FIT stock.

Let’s say that revenues do bottom out at $1.5 billion this year and that smartwatches and data partnerships power 10% revenue growth over the next five years. Let’s also assume that gross margins stabilize around 40%, and that operating expenses stay around $800 million even amid increasing revenues.

Under those aggressive assumptions, I still think Fitbit can do only about $0.50 in earnings-per-share in five years. A market-average 16-times forward multiple on $0.50 implies a four-year forward price target of $8. Discounted back by 10%-per-year, that equates to a present-day value below $5.50.

FIT stock currently trades north of $6. As such, it looks like FIT stock is presently supported by euphoria more than anything else. Eventually, this euphoria will be replaced by realism, and FIT stock will drop below $6.

Bottom Line on FIT Stock

FIT stock had a strong rally from $4 to $8 on renewed smartwatch and data optimism. But then FIT stock hit a wall called reality, and now, FIT stock is still suffering from that collision.

When all is said and done, this stock should settle below $6.

As of this writing, Luke Lango was long AAPL, FOSL, FB, GOOG and SNAP. 

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Bank of America raises 2018 S&P 500 earnings forecast by 4%

Getty Images/iStockphoto Things are looking up for earnings.

Strategists at Bank of America Merrill Lynch on Monday raised their 2018 and 2019 S&P 500 earnings forecasts, joining market observers who remain optimistic even as the drumbeat of a trade war echoes in the distance.

Equity and quant strategist Jill Carey Hall and her colleagues now expect S&P 500 earnings per share at $159 this year, a 4% rise from their previous forecast of $153. The projection stands 20% higher than 2017 EPS for the index and comes on the back of stronger oil prices and robust economic growth, including upbeat jobs data. The team lifted its 2019 EPS view by 6% to $170 from $161.

��Higher oil prices are a benefit to S&P 500 EPS, where much of the index either produces commodities or supplies commodity producers,�� said Hall in a report.

Bank of America��s commodity strategists project WTI crude oil CLQ8, +0.28% the U.S. benchmark, and Brent oil LCOU8, +1.47% the international marker, to average $65 to $70 a barrel in 2018, roughly 25% higher than initially forecast earlier this year.

��Nearly 40% of the boost to our earnings forecasts both this year and next year comes from energy,�� said Hall.

The U.S. economy is also expanding at a faster pace than expected, with Bank of America economists projecting 2018 gross domestic product gaining at a clip of 3%, 0.1 percentage point higher than the previous forecast. A one percentage point increase in GDP boosts EPS growth by around 3 percentage points, according to the strategists.

For now, Bank of America economists believe the impact of Trump administration tariffs implemented so far is likely to be limited. But if tensions escalate and the situation worsens, earnings are likely to be adversely affected, they said.

Read: Washington��s ��political climate�� seen as the biggest risk to stocks, survey says

��We��ve estimated that a 10% rise in import costs��assuming a small drop in foreign sales��would reduce S&P 500 EPS by 3-4%. But a larger risk is if global growth suffers,�� Hall wrote.

In late June, Bank of America projected second-quarter EPS to rise more than 20% year on year to $39.75, while sales were expected to increase 8% year on year.

Higher earnings will be a boon for the stock market, which has comparatively underperformed this year compared to 2017. Still, strategists on Wall Street have largely remained upbeat with both JPMorgan Chase & Co. and Citigroup recently issuing commentaries that support further buying of equities.

Read: Stock market gets Wall Street vote of confidence even as jitters over trade loom

The S&P 500 SPX, +0.88% � closed up 0.9% and the Dow Jones Industrial Average DJIA, +1.31% �gained by triple digits, adding 1.3% and turning positive for the year.

Sue Chang

Sue Chang is a MarketWatch reporter in San Francisco. You can follow her on Twitter at @SueChangMW.

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All 30 Dow Stocks Ranked by Tenure in the Index

For 122 years, the storied Dow Jones Industrial Average (DJINDICES:^DJI) has stood above practically all other stock indexes. A big reason is that it's the second-oldest stock index, behind only the Dow Transportation Index, which preceded it by two years. Nevertheless, when Wall Street and investors attempt to get a feel for the breadth of the market and the overall state of the U.S. economy, the Dow is often the index they turn to.

The Dow's last original member gets the boot

Yet throughout the years, the Dow has gone through some big changes. When originally launched on May 26, 1896, the index had just 12 members. It was expanded to 20 components on Oct. 4, 1916, and got its 30-component limit it has today on Oct. 1, 1928.

Image source: Getty Images.

Since its inception, the Dow has undergone more than 50 changes -- i.e., companies being added and/or removed from the index -- to keep up with a dynamic U.S. economy. Sometimes these changes were very simple, with a single company being added and a corresponding company being removed. Then, there were moments like on April 1, 1901, when five companies from the 12-component index were dropped in favor of five new companies.

Throughout the Dow's history, the closest thing to a constant has been�General Electric (NYSE:GE). General Electric was an original member of the Dow and, following two brief stints outside the index, had been a regular member for more than 110 years. However, GE's tenure in the Dow came to an unsurprising close on June 26, 2018. After losing more than 60% of its value over the trailing-two-year period, and with the Dow being a price-weighted index (General Electric's share price of $13 hardly registered), GE's days were numbered.

Ranking the Dow 30 by tenure

With stalwart GE stepping aside, a new class of tenured Dow components have risen the ranks.

Image source: Getty Images.

Below is a list of all 30 current Dow components ranked, according to the date they were added, or most recently added (assuming they've bounced in and out of the index like GE), to the index.

ExxonMobil (NYSE:XOM): Added Oct. 1, 1928 Procter & Gamble (NYSE:PG): Added May 26, 1932 DowDuPont (NYSE:DWDP): Added Nov. 20, 1935 United Technologies (NYSE:UTX): Added March 4, 1939 3M: Added Aug. 9, 1976 IBM: Added June 29, 1979 Merck: Added Jun. 29, 1979 American Express: Added Aug. 30, 1982 McDonald's: Added Oct. 30, 1985 Boeing: Added March 12, 1987 Coca-Cola: Added March 12, 1987 Caterpillar: Added May 6, 1991 JPMorgan Chase: Added May 6, 1991 Walt Disney: Added May 6, 1991 Johnson & Johnson: Added March 17, 1997 Walmart: Added March 17, 1997 Home Depot: Added Nov. 1, 1999 Intel: Added Nov. 1, 1999 Microsoft: Added Nov. 1, 1999 Pfizer: Added April 8, 2004 Verizon: Added April 8, 2004 Chevron: Added Feb. 19, 2008 Cisco Systems: Added June 8, 2009 Travelers Cos.: Added June 8, 2009 UnitedHealth Group: Added Sept. 24, 2012 Goldman Sachs: Added Sept. 23, 2013 Nike: Added Sept. 23, 2013 Visa: Added Sept. 23, 2013 Apple: Added March 19, 2015 Walgreens Boots Alliance: Added Jun. 26, 2018

As you'll note, a third of the components have only been part of the Dow for the past 14 years. Just four components -- ExxonMobil, Procter & Gamble, DowDuPont, and United Technologies -- have been included for more than 42 consecutive years.

Image source: Getty Images.

The Dow's most-tenured stocks are mostly here to stay

With GE's departure, oil and gas giant ExxonMobil now stands at the front of the pack. When October rolls around, it'll hit its 90th anniversary in the Dow, albeit it was known as the Standard Oil Co. of New Jersey when it was first added in 1928. According to David Blitzer,�managing director and chairman of the committee that makes decisions to move companies in and out of the Dow, consumer, finance, healthcare, and technology companies are playing a more prominent role in today's economy. Nevertheless, ExxonMobil's status within the Dow appears solid given its importance in global energy production.�

Stalwarts Procter & Gamble and United Technologies probably aren't going anywhere, either, thanks to their diversification. Since consumption accounts for around 70% of U.S. GDP, and Procter & Gamble owns a small army of brand-name households products, such as Tide detergent and Crest toothpaste, it's a company that has staying power.

Then there's United Technologies, with its four main operating segments -- Pratt & Whitney aircraft engines, Otis Elevator, UTC Aerospace Systems, and UTC Climate, Controls & Security -- each contributing in the neighborhood of 20% to 30% to its annual sales. This allows United Technologies to get its fingers in numerous sectors and industries.�

DowDuPont, on the other hand, may soon give up its spot near the head of the table. Dow Chemical and DuPont completed their merger last year in order to save more than $3 billion in cost synergies, and to create three global powerhouses in agriculture, specialty products, and material sciences. By sometime in early to mid-2019, DowDuPont plans to break up into three separate companies. This breakup could mean expulsion from the Dow and yet another change, although that'll be up to the index committee to decide.�

But for the time being, it appears as though ExxonMobil, P&G, and United Technologies will be sticking around for years or decades to come.

Sherwin-Williams Could Be Attractive

We��ve been bullish on the residential construction sector for several years now. We still are, even though interest rates and mortgage rates are rising. However, Trump��s escalating trade war (skirmishes?) and a tightening labor market are introducing new risks to our homebuilder stock thesis. We still think the residential construction market will remain strong but it could be prudent for investors to diversify. We��ve already reduced our position in builder D.R. Horton (NYSE:DHI) and added a position in an HVAC company Lennox International (NYSE:LII). We think Sherwin-Williams (NYSE:SHW) also could make a great candidate for further inclusion into our residential construction bucket of stocks.

Why Sherwin-Williams?

Sherwin-Williams has two attributes that make it attractive for diversification purposes.

First, it��s cost inputs are very different then homebuilders and HVAC manufacturers. Labor and lumber costs are two of the biggest input costs (excluding land) for the price of new homes. For HVAC companies steel, aluminum, copper, motors and compressors, and electrical control components are some of the biggest cost inputs. Lumber, steel, and aluminum have been recently affected by tariffs.

In contrast, the biggest input costs for Sherwin-Williams are chemicals such as titanium dioxide and various hydrocarbons and acrylic polymers that make up the components of paint.

(Source: Investor presentation)

As a company that sells paint vs. doing the actual painting, the company also is insulated from labor costs to some degree. Yes, the company does operate retail stores, so there would be some potential for increased costs for retail associates. But producing paint is not as labor intensive as building a house.

The second thing Sherwin-Williams has going for it is that while the coatings industry is highly fragmented, the various sub industries are not. When it comes to traditional architectural coatings (or ��house paint��) there are four to five major players �� Benjamin Moore (NYSE:BRK.B), PPG Industries (NYSE:PPG), Masco (NYSE:MAS), Sherwin-Williams, and perhaps RPM International (NYSE:RPM). Not only that but the retail market is even more consolidated. The typical big box hardware store carries just one or two major brands of paint. We looked at the paint carried by the three major hardware store chains �� Lowe's (NYSE:LOW), Home Depot (NYSE:HD), and Ace Hardware. The graphics below are screen shots of the interior and exterior home paint brands each chain offers. We added paint company next to each brand.

Below is Ace Hardware. For exterior paint they offer mainly Sherwin-Williams owned or produced products with some RPM. For interior, it��s mainly Masco along with some Sherwin-Williams and RPM.

Home Depot is mainly a PPG and Masco store.

Lowe��s signed an exclusivity agreement with Sherwin-Williams so all PPG paint will eventually be phased out (which is why we crossed it out in the graphic below).

There is some RPM paint sold but all of those are quart-sized products designed for metal and other surfaces. Additionally, some of the other brands you see such as James Hardie or NextStone are specialty paint products designed for very specific applications.

We can see that although the coatings industry in aggregate is fragmented, individual submarkets have consolidated significantly and companies have carved up the third-party retail space between themselves. This makes it likely that the paint companies have the ability to raise prices should input costs start to rise.

Also, when it comes to painting the actual cost of the product makes up a very small portion of the total overall cost of painting something. A majority of the cost is labor. Thus, increases in paint prices will not have a significant impact on the cost of painting in most cases.

Sherwin-Williams checks all the boxes for diversification. Its cost exposure is significantly different than other building products companies or homebuilders. It��s also not de-worsification as the architectural coatings industry is fairly consolidated and margins and returns on capital should be good. The only caveat is the stock��s valuation.

Valuation

Sherwin-Williams has been range bound for about the last eight months or so but is still trading at almost 22 times forward earnings.

Using a reverse DCF model with a 10% discount rate, short-term, high-growth period of five years, and a terminal growth rate of 3% the current stock price is implying 16.3% growth over the next five years. Right now analysis consensus growth estimates are 15.33%.

However, the company is currently in the midst of integrating the Valspar acquisition and is projecting some additional margin and synergy benefits. If we project an additional 1% increase in gross margins the five-year implied growth rate drops to about 11%. If we add in the additional synergies and better FCF conversion for a total of $150M in additional FCF the implied five year growth rate drops further to about 9.2%.

Sherwin-Williams certainly is cheap but we think a case could be made that the stock is close to fairly priced, especially considering it��s reasonable to pay a premium for a company that derives a majority of its net income (81%) from a highly consolidated industry.

Disclosure: I am/we are long DHI, LII.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We may initiate a long position in SHW in the next 72 hours or more. We are also long UTX which has an HVAC business.