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The following stocks have been added to the Argus Focus List:
Yum! Brands (YUM)
Operating more than 48,000 restaurants worldwide, YUM! is a leader in multi-branding, offering combinations of its KFC, Taco Bell and Pizza Hut brands at single locations. Our optimism reflects the company’s cost-cutting, shift to a franchised business model, and new delivery options. Franchise royalties provide highly reliable cash flow and deliver better margins than company-owned restaurants. GrubHub has teamed up with Yum! to be the exclusive delivery service for KFC and Taco Bell.
ONEOK Inc. (OKE)
One of the largest energy midstream service providers in the U.S., this company connects supply basins with key market centers and is a leader in the gathering, processing, storage and transportation of natural gas. Amid broad Energy sector weakness, we recently boosted our price target on OKE to $82 from $76. The company continues to restructure legacy contracts and is working to generate new business under a fee-based system. As a result, its earnings have become less vulnerable to changes in volume and pricing. ONEOK also pays a solid 5% dividend, amply covered by cash flow, and management has projected annual increases of 9%-11% through 2021.
Western Digital Corp. (WDC)
Western Digital provides hard disk drives for the PC, server, consumer device, storage, video surveillance, networking and set-top box markets. The 2016 acquisition of SanDisk enabled WDC to expand into the NAND flash memory market. Western Digital appears cautiously positive on the outlook for memory pricing and demand. Formerly reliant on the client (PC) end market, WDC now serves a broader range of markets. We look for improving memory pricing and demand in calendar 2H19 as cloud service providers resume expansion and mobile device makers gear up for the holiday season.
Equity Residential (EQR)
Equity Residential is the largest apartment real estate investment trust in the U.S., with 309 properties and 80,000 apartment units. We expect earnings to benefit from above-average rental pricing, employment growth, the appeal of city amenities, the high cost of home ownership relative to income, and the flexibility of rentals. We also note that many young professionals — a key target market for EQR – have little immediate need for large single-family homes. We remain impressed with EQR’s higher margins, as revenue growth continues to outpace expense growth. Although we are monitoring new supply coming into EQR’s largest markets, oversupply has abated in key markets.
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