Question:
Our broker has recommended Clovis Oncology, Inc. I think it’s had its high for the year, but my wife thinks this stock still has a bit of steam left. We’d like to get your opinion.
Answer:
Clovis Oncology, Inc. (NASDAQ: CLVS) is an anti-cancer biopharmaceutical company. One way we determine the value of a company is to look at its price-to-earnings ratio. Clovis does not have any earnings. The company recently lost $2 per share. With no products on the market, and no earnings, we highly recommend avoiding this company. Clovis currently has no marketed products, and in a recent attempt to sell themselves, there were no interested buyers.
Question:
I’m interested in Signet Jewelers. What can you tell me about them? Is the company worthy of an investment?
Answer:
Signet Jewelers, Ltd. (NYSE: SIG) is the largest specialty jeweler in the United States. It operates mall stores under Kay Jewelers and destination stores under Jared The Galleria of Jewelry. The stock does not have a Value Line or S&P rating, but it still looks worth consideration. The company recently hired the former Zales CEO, who has nearly 30 years experience in the jewelry business. The stock has a 12% projected long-term growth rate and has a below-market price-to-earnings of 14.5. With zero debt, we say this stock is worth a look.
Question:
I’ve been looking at both ADP and Paychex. Do you have a preference?
Answer:
Overall, we like both companies. Both Automatic Data Processing (NASDAQ: ADP) and Paychex Inc. (NASDAQ: PAYX) are business outsourcing companies that offer benefits and payroll services to small businesses. When interest rates rise, these companies can make a significant profit on the float—the two to four day span between when companies provide the money for payroll and when they process the payroll taxes and cut the paychecks.
ADP has a lower yield, and is one of four companies left with a AAA debt rating. Their employment report is gaining credibility. However, Paychex has more room for growth and has higher margins. Both companies have lottle to no debt. Paychex is trading at 25.7 times earnings, while ADP is trading at 25.72 times earnings. Both have above market P/E ratios for good reason. As small businesses continue to grow, these companies stand to profit.
Question:
I’d like to get your opinion on Mohawk Industries. I’ve had family members work for the company through the years. I’m sure some of us have stock shares. Should this be something we should hold?
Answer:
From a financial planning standpoint, we recommend that no one company be more than 10% of your total portfolio—especially if you are employed by the company. Any prolonged period of poor earnings or worse, could jeopardize your savings and your employment security. If you need to own shares to show loyalty to the company and the community, we recommend keeping the percentage low compared to your overall portfolio.
Mohawk Industries, Inc. (NYSE: MHK) is the second largest commercial and residential carpet producer in the United States. We feel that this is a risky business—not because we believe Mohawk will go out of business—but because the industry can be cyclical. The stock has a beta of 1.4, which means the company is 40% more volatile than the market as a whole. If the market goes down, Mohawk could fall 40% more.
The company has acquired several smaller companies since 2008. Historically, it has done well. One sign that causes us to pause is that the company earns nearly $7 per share, but it does not pay a dividend. Even in 2008, the company never operated with a negative cash flow. This begs the question of what do they do with the money?
We prefer to own an exchange-traded fund like SPDR S&P Homebuilders (NYSEARCA: XHB) that owns 3% of Mohawk Industries. The ETF should allow you to gain exposure to many different aspects of the housing and homebuilder industry, without relying on one or two companies.
Question:
I bought WellPoint early in the year at $62.05. It’s between $83 and $85 now. Should I take my profits, or do you think I should hold to the end of the year to get long-term gains? Is there a better buy in health care?
Answer:
WellPoint, Inc. (NYSE: WLP) is a managed care company. It offers benefits under its independent licensee of the Blue Cross and Blue Shield Association (BCBSA) name. With The Patient Protection and Affordable Care Act, managed care companies should likely see an increase in the volume of business. Margins will probably fall, but volume should make up for it. With a price-to-earnings-to growth of 0.79, the company is cheap. However, there is a high chance that managed care companies are going to be squeezed.
At Henssler Financial we believe you should Live Ready, which includes understanding the stocks you invest in. If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
