Just when the bears seemed to be getting the upper hand, the bulls managed to hold on.

Investors probably were encouraged on Friday when the bad employment report bent but did not break the market. Then, positive comments about Apple Inc. (AAPL) from an analyst and Nvidia’s (NVDA) $6.9 billion acquisition of Mellanox (MLNX) sent the technology sector and the rest of the market sharply higher on Monday.

Still, I think it would be unwise to anticipate more sharp gains from here, at least not until the market gets past first-quarter earnings season. Global economic data continue to be soft, with Japanese machine tool orders falling to their lowest level since 2009 on Monday. In the United States, auto delinquencies are at all-time highs, and lower credit availability will weigh on auto sales and the economy.

The S&P 500 is approaching resistance at 2,820, and I do not see this level being cracked until we get better visibility into 2019 earnings, with estimates currently falling steadily.

On the other hand, I do not expect a market disaster either. The Fed has ceased tightening, and will act to be more accommodative, if necessary. Low rates will support valuations, and make the dividend yields on many shares look attractive. While the U.S. economy has its weak patches, it appears to be sound overall. Patience will be required, and the occasional market setback will have to be endured. However, through discipline and timely recommendations of quality names while they are down and out, as in yesterday’s recommendation of Phibro Animal Health Corporations (PAHC), we should be able to generate gains through year’s end.

Feeding the World, Generating Growth.

Phibro Animal Health Corporation (PAHC) is a global diversified animal health and mineral nutrition company. PAHC develops, manufactures and markets products for a broad range of livestock, including poultry, swine, beef and dairy cattle and aquaculture. Phibro’s products, which include antibacterials, nutritional specialty products and vaccines, help prevent, control and treat diseases, enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition. Animal health and nutrition products account for approximately 94% of the company’s revenues. The remaining 6% of revenues come from ingredients used in the personal care, industrial chemical and chemical catalyst industries. In total, PAHC sells 1,500 products in over 70 countries to approximately 3,000 customers. Approximately 60% of sales come from outside the United States, with Israel the largest foreign market at 13% of total sales.

The company has industry tailwinds to help achieve future growth. According to Vetnosis, a research and consulting firm specializing in global animal health and veterinary medicine, the global livestock animal health sector realized $20.6 billion of sales in 2017. The market grew at a compound annual growth rate of 1.3% between 2012 and 2017. However, this growth is expected to accelerate to 5% per year from 2017 and 2022, as the global middle class continues to grow, and producers need to invest more to improve productivity as natural resources such as land and water become scarcer.

Phibro has achieved steady growth its past two fiscal years, with revenues increasing from $751.5 million to $820 million, and earnings per share (EPS) increasing from $1.43 to $1.74 from the June 30, 2016, to the June 30, 2018, fiscal years. This growth, along with hopes for revenue acceleration, makes the company a play on the growing middle class, and caused the stock to reach the lofty heights of $54.62 a share last August.

However, the shares fell quickly when the company gave guidance for the current June 2019 fiscal year and reported fourth-quarter 2018 results. While revenues were expected to grow another 7%, earnings were forecasted to be flat for the year due to spending on product development and organization enhancements. Expectations were lowered again for the 2019 fiscal year after first-quarter results were reported, as a weak U.S. dairy market, currency and a higher-than-expected tax rate weighed on EPS comparisons. Phibro now believes revenues will grow 4% for the year, and earnings will be approximately $1.68 a share.

While the stock has been abandoned by growth and momentum investors, it has reached a price where it makes sense for value investors. I look for some of the investments the company is making to slow, and revenue comparisons will be easier in the June 2020 fiscal year. I expect EPS to improve to $1.80 on the June 2020 fiscal year. The stock is attractive at 16X this estimate, considering the company’s growth potential. Buy PAHC under $30.50. My target is $36.

Position Reviews

Big Lots (BIG) has extended its gains since my alert last Friday discussing its fiscal fourth-quarter earnings. It is very impressive that Big Lots has grown comparable store sales over 3% for the second consecutive quarter, as the company continues to benefit from its Store of the Future concept, which continues to do well a year after they opened. Investments in Stores of the Future will hurt earnings again this year, with EPS expected to decline to $3.55 to $3.75 a share from $4.04 in the year just ended.

However, once BIG completes its 215 remodels this year, nearly twice the remodels of last year, the remodeling will be largely behind the company. In addition, BIG is seeking to implement $120 million in cost cuts over the next three years, as expenses will be scrutinized at the store, distribution and corporate levels. Given all of that, the earnings picture over the next few years at BIG appears bright, with stores refreshed, investments in new stores largely behind the company and costs likely to be well controlled. While BIG could be impacted by cyclical factors. Given Big Lots’ large presence in furniture, I look for the market to have renewed confidence in BIG, and for the stock to do well from its current price. Buy BIG under $34. My target is $42.

Children’s Place (PLCE), as I discussed last week, reported terrible fourth-quarter results and very disappointing guidance for 2019. This was due to expedited liquidation of inventory as a result of the need to match prices of competitor Gymboree, which is going out of business. Despite this, PLCE does not trade far from its price before it reported results. The market is, correctly in my opinion, taking a forward-looking view that PLCE will benefit from the absence of Gymboree, which overlapped 70% of PLCE’s stores, as well as some smaller competitors which are likely to go out of business. Although results in the first half of the year will not be pretty, including an expected loss in the first quarter, the company should be reporting positive EPS comparisons by the third quarter, and will return to a more normal level of earnings next year. PLCE remains a buy below $85. My target is $100.

Chubb Limited (CB) held relatively steady through last week’s selling, and this type of stability should serve us well if markets remain choppy. I look for the stock to grind higher as 2019 goes on, as premium growth remains good, and a return to more normal levels of catastrophic losses should allow the company to grow book value by approximately 8% this year. Chubb is a buy below $130. My target is $145.

Cognizant Technology Solutions (CTSH) disappointed me a bit when the stock could not follow up on its rally following the release of better-than-expected results in fourth-quarter 2018. However, I think further gains will come over time. Incoming CEO Brian Humphries has a track record of growing revenues while at Vodafone, and the stock remains very attractively valued at 16X this year’s earnings per share (EPS) estimates. Buy CTSH under $77.50. My target is $90.

F5 Networks (FFIV) announced an acquisition after the close yesterday, purchasing NGINX, an open source cloud-based leader in application delivery, for $670 million, with the deal financed by cash on the company’s balance sheet. The deal appears to be a good enhancement to FFIV’s application delivery offerings, and FFIV also expects to benefit from idea sharing through NGINX’s open source community. NGINX is small, rapidly growing company, as revenues of $26 million were up 65% in 2018. However, the deal caused the company to lower its EPS growth outlook to low single-digit percentages from previous guidance of mid-to-high single-digit percentages this year and next year as it absorbs NGINX’s losses and makes additional investments in NGNIX. FFIV then anticipates returning to double-digit-percentage EPS growth. However, the market is concerned more about the near-term dilution than any potential long-term benefits of the deal, and the stock is down 6.5% today.

It will take a while to determine the ultimate success of the deal, but expectations for FFIV’s future growth prospects are now quite low with the company selling at a 5X revised September 2019 EPS estimate of $10.00 per share. I will look to limit our losses, if necessary, but with the stock cheap, continue to buy FFIV. My new buy under price is $155 and my target is $170.

First Hawaiian (FHB) stock sold off last week, as fears of a weakening economy took its toll on the banking sector. However, I do not think we will have a recession this year. Given the company’s current valuation of 12X 2019 EPS estimates with a dividend yield of 3.96%, FHB should do well. Loan growth should enjoy a nice uptick this year, while credit costs will remain low with a strong employment in Hawaii. Buy FHB under $26. My target is $30.

J.M. Smucker (SJM), despite reporting a very solid fiscal third quarter, gave back most of its post-earnings gains. The market remains concerned about the new competitive environment of the food industry, along with the belief that Smucker’s second-quarter strength largely came from inventory building by retailers such as Walmart that will reverse over time. While I will acknowlede that SJM’s earnings may have gotten a little bump from inventory build, and brand names may not be as powerful as they once were, I also will point out that the company’s growth brands in the coffee and pet categories continue to do well and that EPS estimates of $8.12 this year and $8.31 next year are realistic. The stock is very inexpensive at less than 13X forward estimates, and a 3.3% dividend yield should add to total returns. SJM remains a buy below $108. My target is $120.

J.P. Morgan (JPM) has remained on a steady course, despite comments at an investor conference that trading revenues in the first quarter will slip below the strong levels of a year ago, due to market volatility. EPS estimates for the quarter are now at $2.38 versus $2.58 previously, and roughly flat compared to last year’s $2.37. However, as long as the economy remains on a steady course, I expect the stock to grind higher to my $110 target, which is just over 11X EPS estimates for the year of $9.75. The company’s past performance in tough times, along with its “fortress balance sheet,” will make a favorite of conservative investors seeking exposure to financials. Buy JPM when it trades below $100.

Morgan Stanley (MS) is having trouble sustaining any rally, as it seems to be getting support close to current prices, with the stock trading near book value. As long as we have a reasonable economy and markets, MS should be able to earn close to its current 2019 EPS estimates of $4.90. As confidence in this estimate grows, the stock should do well. Buy Morgan Stanley below $46. My target is $53. Keep in mind the stock sold as high as $58.67 over the past 12 months.

Party City (PRTY) surprised me due to continued negative reaction to its shares as the company lowered EPS guidance for 2019, as I discussed earlier. However, an analyst’s downgrade to hold, and concerns about the company’s debt and inventory levels did not go over well in an environment that still shoots first and asks questions later for small-cap names that disappoint. Still, I believe the stock is incredibly cheap, and these issues are manageable. Keep in mind the company secured long-term financing for half of its debt last year, and management is now eschewing share buybacks and growth initiatives to make debt reduction its number one priority. As for the inventory, management will look to reduce this as well, even with significant markdowns on the prices of its goods. The company still should earn $1.50 this year versus its guidance of $1.61 to $1.72.

While not inspiriting, operating results for the company have been stable. Once the current issues surrounding helium shortages become less severe in the second half of the year, they should be better. If earnings stay stable and the company keeps its promise for capital disciple to reduce debt, the shares should soar from here. Buy PRTY under $9.50. My target is $14.50.

Valley National Bancorp (VLY) has not moved much following its bounce from December’s depressed levels early in the year. However, I do believe the market is starting to gain confidence that the company’s efforts to improve efficiency will work out, enabling it to achieve current EPS estimates of $0.95 this year. The company’s 4.26% dividend yield is secure in my opinion, and I believe the company’s $0.11 quarterly dividend could be raised if earnings estimates are met. VLY is a buy under $10.50. My price target is $13.