A Bet on a Small-Cap Utility

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The negative trend in markets continued this past week, with the Dow Jones down 1.16%, the S&P 500 falling 0.51% and the NASDAQ slipping 0.39%. The MCSI Emerging Markets Index also dropped 1.71%.

The one big gainer in your Bull Market Alert portfolio was Healthcare Services Group, Inc. (HCSG), which rose 1.20%.

As I have noted previously, between May and October, the U.S. stock market has a history of just treading water.

This week’s Bull Market Alert recommendation, Avista Corporation (AVA), is an example of the kind of rifle-shot approach you need to take in this stock pickers’ market.

Avista Corporation (AVA) is an energy company focused on the Pacific Northwest and beyond. Avista Utilities provides electric service to 375,000 customers and natural gas to 335,000 customers in eastern Washington, northern Idaho and parts of southern and eastern Oregon. Alaska Energy and Resources Company is an Avista subsidiary that provides retail electric service in the city and borough of Juneau, Alaska.

Here’s why I expect Avista to continue its strong recent run.

First, on May 4, Avista announced strong earnings for Q1, reporting net income of $56.1 million, or $0.89 per diluted share, for the first quarter of 2016, compared to $46.4 million, or $0.74 per diluted share, for the first quarter of 2015. This gain of 20.2% was better than expected. The company also confirmed its 2016 earnings guidance in a range of $1.96 to $2.16 per diluted share.

Second, the stock has exhibited terrific relative strength compared to the rest of the market. Even as the S&P 500 is trading at the same level it was last July, Avista has risen 16.17% in 2016. Avista certainly has momentum at its back.

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Finally, Avista is held by more than 12 small-cap investment strategies focused on factors as wide ranging as dividend growing, low volatility and value. A lot of smart money is betting on this stock.

So buy Avista Corporation (AVA) at market today, and place your stop at $37.00.

I am holding off on recommending options on this one until the stock pulls back from its recent run.

Portfolio Update

iShares MSCI Emerging Markets (EEM) fell 1.71% last week. Index firm FTSE Russell is forecasting an upward trend for emerging markets based on its analysis using five major market factors; momentum, size, quality, value and low volatility. FTSE Russell also noted that investor demand and market sentiment for emerging markets has increased significantly over the past few months. EEM is a HOLD.

iShares MSCI Ireland Capped (EIRL) dipped 1.04%. EIRL tracks the MSCI All Ireland Capped Index consisting of 25 stocks based in Ireland. The top holding is CRH plc and constitutes nearly 22% of the fund. The Bank of Ireland (IRLBF.IR), which is the strongest bank in Ireland, has been a Bull Market Alert recommendation in the past, and makes up nearly 5% of the fund as well. EIRL is a HOLD.

The TJX Companies, Inc. (TJX) fell 5.13%. TJX will report earnings tomorrow morning before markets open. Retailers Nordstrom and J.C. Penney released weak earnings results recently, and this affected TJX’s stock negatively. However, with TJX being one of the strongest retailers in the value clothing space, TJX could make a significant recovery from last week’s pullback on a good earnings report. TJX is a HOLD.

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Sociedad Química y Minera de Chile S.A. (SQM) dipped 0.85% last week. SQM is expected to report earnings on Wednesday after markets close. Analysts’ consensus earnings per share (EPS) estimate is $0.26 on revenue of $458.04 million. A report yesterday on short interest in SQM revealed a recent fall of 22.3%, or 1.40 million shares. This suggests that investors believe future SQM share prices will be higher. SQM is a BUY.

Healthcare Services Group, Inc. (HCSG) rose 1.20%. HCSG has a remarkable dividend history. This includes 52 consecutive quarterly dividend payments and 51 consecutive increases since its initiation of a quarterly dividend in 2003. HCSG’s next dividend payment will be in the amount of $0.1825. The declare date was April 12 and the ex-dividend date is this Wednesday. The record date will be May 20 and the dividend will pay out on June 24. HCSG is a BUY.

Nicholas Vardy

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