Month: December 2012

VL Low Total Return Screen (12/21/2012)

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Why do we pay attention to the Value Line weekly updates? Because a number of highly successful long-term investors cite Value Line as one of their favorite trusted resources.

“I don’t know of any other system that’s as good… The snapshot it presents is an enormously efficient way for us to garner information about various businesses… I have yet to see a better way, including fooling around on the internet, that gives me the information as quickly.” — Warren Buffett, Berkshire Hathaway, 1998 Annual Meeting speaking about The Value Line Investment Survey.

“[Value Line is]…the next best thing to having your own private securities analyst.”
—Peter Lynch, One Up On Wall Street

In our case, we’ve found the low total return forecasts for all companies to be among the most compelling opinions/forecasts while we either (1) search for opportunities or (2) practice effective stewardship when it comes to staying vigilant about our current holdings.

Materially Stronger: None

Materially Weaker: Neutral Tandem (IQNT), NII Holdings (NIHD), Marvell Tech (MRVL), Adtran (ADTN), Rite Aid (RAD), Cisco Systems (CSCO), F5 Networks (FFIV), Regis (RGS)

Point-and-Figure (PnF) Trend Source: Stockcharts.com

Intelligent Investing

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Among the library of investment books promising no-fail strategies for riches, Benjamin Graham’s classic, The Intelligent Investor, offers no guarantees or gimmicks but overflows with the wisdom at the core of all good portfolio management.

“If you read just one book on investing during your lifetime, make it this one.” — Fortune magazine.

I’ve read it at least two, maybe three, times. Maybe it has something to do with falling leaves and spending a few quiet moments during autumn beside the pond in my back yard. As we embark on a series of case studies and research into what George Nicholson called, “Broadening Your Investment Management Program,” I found myself spending time with Benjamin Graham’s “The Intelligent Investor” again. Warren Buffett knew Graham well (Ben taught Warren how to invest as his professor at Columbia and as a professional colleague) and says, “I read this book as a 19-year-old. I thought then that it was by far the best book about investing ever written. I still think it is.” If you’re serious about learning to invest intelligently, how can you avoid it?

The Intelligent Investor is a book for true investors … inherently for the longer term and requires a commitment of effort. The true investor uses discipline, research, and his analytical ability to make unpopular but sound investments in bargains … Graham coaches the investor to develop a rational plan for buying stocks and bonds, and he argues that this plan must be a bulwark against emotional behavior that will always be tempting during abrupt bull and bear markets.

MANIFEST contributor Ken Kavula often speaks of discipline as the greatest gift bestowed by George Nicholson, Jr. upon the modern investment club movement. Graham and Buffett mention patience and discipline frequently and routinely. On the next few pages, we’ll share some of the highlights from the book. My copy is dog-eared, highlighted and yes, I’ve even written notes in it. Relax, Sister Rita Claire taught me that it was OK to write in books and bend pages so long as it didn’t say “Property of St. John’s” inside the front cover.

In the most recent edition, Jason Zweig makes a solid contribution with editorial remarks and commentary as a continuous “side bar” throughout the book. In his introduction, Zweig listed his interpretation of Graham’s common sense and core principles. Here is how I’d play them back:

1. A stock is not a ticker. Think ownership in an actual business.

2. The market is a pendulum. Momentum creates opportunity during both bear and bull markets.

3. The value of any investment is merely a function of its current price. That value is established by the projected return which is based on the current price and a reasonable expectation for a future price.

4. Insist on suitably high projected returns (but not too high) to build a margin of safety into the decisions you make.

5. Invest with patient confidence.

“If you have built castles in the air, your work need not be lost, that is where they should be. Now put the foundations under them.” — Henry David Thoreau, Walden

Hmmm. If memory serves, Thoreau used to spend quite a bit of time by the pond, also. Interesting that Zweig chose that for the first comment. We’ll now dig in to some of the highlights from my dog-eared pages …

The Myth of 15% Growth

Graham spends time defining investing vs. speculating and investing defensively vs. what he referred to as “enterprising investing.” Our community of investors would easily qualify for the enterprising label.

Many of our colleagues still believe that the magic 15% number cited by NAIC/Better Investing refers to growth characteristics. It doesn’t.

“… only 8-of-150 largest companies on the Fortune 500 managed to increase their EPS at least 15% for two decades during 1960-1999.”

“… only 10% of large U.S. companies increased EPS by 20% for at least five consecutive years, only 3% achieved this for 10 years straight; and not a single one had done it for 15 years in a row.”

The 15% refers to long-term annualized returns for total portfolios.

Market Fluctuations

Common stocks, even of investment grade (relatively high-quality), are subject to recurrent and wide fluctuations in their prices. The intelligent investor should be interested in the possibilities of profiting from those pendulum swings. Every investor who owns common stocks must expect to see them fluctuate in value over the years. [195]

The investor with a portfolio of sound stocks should expect prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. Remember that market quotations are there for convenience, either to be taken advantage of or to be ignored. Never buy a stock because it has gone up or sell one because it has gone down. [206]

Patient Focus — Things That Matter

“… investors who receive frequent news updates on their stocks earned half the returns of investors who got no news at all. [223]

Consider this another important attribute of investment club practices, the notion of meeting monthly. In some cases, reactive decisions to events that were not made have turned out to be some of the best decisions overall.

Researchers Brad Barber and Terrance Odean divided thousands of traders into five tiers based on their turnover. Those with less frequent transactions (at the left) kept most of their gains. Impatient and hyperactive traders make yacht payments for somebody else. (Source: Barber and Odean, University of California at Davis, and Berkeley, respectively.)

The Math — Keep It Simple

… in 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal … of substituting theory for experience … or to give speculation the deceptive guise of investment. [282]

Occam was right about his razor.

This is the prevailing thinking behind our emphasis on (1) top-line growth, (2) profitability and (3) reasonable and considered forecasts for P/E ratios … and the math behind it all is relatively simple.

Aggregate Forecasts

…individual forecasts can be wide of the mark. Our general view is that composite or group estimates are likely to be a good deal more dependable than those for individual companies. [288] Think dashboard averages. Think MIPAR.

Smartly Own

When you buy a stock, you become an owner of the company. … there is just as much reason to exercise care and judgment in being an owner as in becoming a stockholder.” [499]

The prudent homework and diligence shouldn’t end when the purchase decision is made. Proportion your time and attention appropriately between candidates for purchase and your holdings.

Trapping Bulls & Quality

George Nicholson warned of swapping high-quality for lower quality stocks as bull markets rage as one of the most dangerous things that an inexperienced investor could do.

Here we find Graham’s own warning on the same behavior: The risk of paying too high a price for good-quality stocks — while a real one — is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that chief losses to investors come from the purchase of low-quality companies at times of favorable business conditions. [516]

Translation: Avoid lower quality companies when MIPAR is in single digits.

Investing is most intelligent when it is most businesslike … disciplined … and superior results are possible. Thanks, Ben (and Jason Z.)

rue21 (RUE)

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rue21 (RUE) is the 4th company in our annual stock selection countdown. RUE is a specialty retailer of private label apparel and accessories. The company offers an assortment of fashion merchandise at value prices, primarily catering to the teenage demographic. Products offered include graphic t-shirts, denim, dresses, belts, jewelry, handbags, footwear and intimate apparel.

The company was selected by Pittsburgh’s own Nick Stratigos during the February 2012 edition of our monthly Round Table. Nick is the reigning individual stock picking champion for our annual Groundhog Challenge and RUE has delivered a +3.3% relative return (vs. Wilshire 5000) since the time of selection.

With a sales growth forecast of 13%, net margin estimated at 4.7% and a projected average P/E of 18x, the return forecast is approximately 17%. RUE has a quality rating of 70.2 (Excellent).

We’d like you to invite us to come see you.

 

Beyond Football (by Mitch Albom)

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This was originally published on November 11, 2007 as we celebrated the success of our son’s high school football team.  As you’ll see, it’s about much more than football — and it still ranks as one of my all-time favorites.

I recently finished reading Mitch Albom’s latest, Have A Little Faith, and believe it ranks right up there with Tuesdays With Morrie … and thought it might be time to revisit this article from two years ago as Mitch covered Alex’s football team. To this day, Alex’s experience with Coach Patritto, Coach Mullins and his team mates ranks as one of our lifetime favorite moments of Thanksgiving. And for those of you who tire about the football game deluge at this time of year, this might help you to see beyond the GAME.

As many of you know, our son Alex is a senior defensive tackle for the Rochester Adams Highlanders. We featured a look at Alex during a growth study on the subject of forecasting when performing investment analysis. Update: He’s now closer to 6-2 and 230 lb and still eating entire pizzas and multiple bowls of cereal, so he’s not done growing yet. Why the obsession with football? I think the following column by Mitch Albom, nationally-syndicated columnist and author of the best-seller “Tuesdays with Morrie”, gives you a pretty good idea that although we’re talking about football … we’re talking about much more than football.

LOOK OVER JORDAN, WHAT DO YOU SEE?
Rochester teen defies stereotypes as school makes run for football glory

November 11, 2007

BY MITCH ALBOM, FREE PRESS COLUMNIST

Friday night, at a high school football playoff game, it was damp and cold, and the players bounced on their toes to keep warm. Near the Rochester Adams bench, amidst all these bigger teenagers, stood Jordan Kidder, barely five feet tall, with glasses and braces, a school cap, a jersey, a varsity jacket and a job to do.

“Watch this for me, Jordan, OK?” a player said, running over.

“OK,” he said.

“Some water, Jordan,” another said.

“Here,” he said, handing over a bottle.

“How’s it going, Jordan?” another said, slapping his hand.

“Going good,” he said, slapping back.

As the game went on, he didn’t throw a pass or make a tackle, he never pulled on a helmet, but when the Highlanders scored, he clapped his gloves hard, and when the kicker needed a tee, he made sure it was there, and when the team went to halftime, he went with them, getting the guys whatever they needed, encouraging them to keep fighting.

As student manager, Jordan Kidder, 18, has a unique job. As a young man with Down syndrome, he has a unique life. He doesn’t quite look like the guys on the team, isn’t quite as big, doesn’t speak the same way, maybe moves a little differently. And in high school, where being “different” can be a curse, you might think the other players have been teaching him something.

Truth is, he has been teaching them.

“I didn’t really know what to make of Jordan when we met,” admits Josh Renel, Adams’ star running back, who now picks up his buddy every Tuesday en route to team dinners at Buffalo Wild Wings, “but Jordan has shown me you can’t really judge a person by what he looks like. He’s just like any one of us.”

The story behind his name

Just like any one of us. That sentence would have been laughable 18 years ago, when Cynthia Kidder was pregnant. Tests showed the likelihood of serious problems, and it was politely suggested she terminate the pregnancy. In fact, today, when a prenatal diagnosis is given of Down syndrome, studies suggest up to 90% of women choose to do just that.

Cynthia refused.

“If I have a child with problems,” she said, “it’s still my child.”

At the time, she was confident. She had a big job in New York, she had two other sons. She could handle it. But when the child arrived, she recalls, “People didn’t say, ‘Congratulations.’ They said, ‘So … I hear you had the baby.’ ”

A dire life was predicted for her son: heart defects, smaller limbs, almond-shaped eyes, low muscle tone, learning disabilities. All the typical stuff with Down syndrome, a chromosomal abnormality that usually affects cognitive ability, physical growth and facial appearance — in other words, how you think, how you grow and how you look. He’ll never read, Cynthia was told. He’ll never do math. He’ll never do anything that’s not repetitive behavior. A doctor told her the “good” news: There were two Down syndrome kids he knew “who worked at a McDonald’s, wiping tables.”

Cynthia was drowning. She called a religious aunt and asked for support. Somehow the spiritual “Swing Low, Sweet Chariot” came up in the conversation, and the line, “I looked over Jordan and what did I see … a band of angels coming after me …”

The next day, she woke up feeling better.

She named her baby Jordan.

And from that day forward, the kid has been defying predictions. He learned to read — slowly, but he did. He learned to do math and science. He went to classes with other “normal” kids — at Cynthia’s insistence, and with help from the Rochester school system — and he made his own friends with an amazingly open and happy heart. One time, when Jordan was playing tag with some fellow grade-schoolers, Cynthia noticed they kept telling her son he was “it.” Worried, she quickly intervened, lecturing the boys on the rules. But later Jordan told her, “The first part of recess was more fun. I got to be ‘it’ the whole time.”

Cynthia and Jordan’s father held Jordan to the same standards as their other children. They found teachers who would do the same. As a result, Jordan has grown into a pretty typical teenager: He listens to Zebrahead on his iPod, watches pro wrestling (his favorite is A.J. Styles), scarfs down hamburgers and pasta, sings in the choir, and is even on the swim team. OK, so he almost always finishes dead last. What’s important to him is that he’s part of things.

Besides, at one swim meet, he finished next-to-last. You never saw anyone as happy with that result as Jordan was.

The story behind his role

But what Jordan really loves is the football team. He has been a student manager for four years, starting with the freshman squad and working his way up. He handles the equipment, distributes the water and consistently raises team spirit. The first day, he admits, “I was nervous. But I got over it.”

Why were you nervous?

“I’d never been on a football field.”

Were you worried they’d tackle you?

He explodes in an infectious laugh that could melt the hardest heart. “No. But one time, against Troy, I ran on the field for a tee, and they all came flying by me — whoosh, whoosh.”

Did you go down?

“No,” he laughs again. “I went in between them.”

Kids with Down syndrome are often described as having an almost supernatural effect on those who know them, a certain sweetness, innocence and nonjudgmental persona that, for want of a better phrase, chokes you up.

Tony Patritto, the Adams football coach, has that look often when he speaks about Jordan. Like so many others, he had never dealt with a Down syndrome kid, and his instinct, at first, was to pity and make concessions. Except Jordan kept coming late to science class. “I called him out,” Patritto says. “I took a chance.”

Jordan responded. And he has been part of Patritto’s world ever since. There’s a team gesture his Highlanders players use, a shark-like hand-to-the-forehead that signals “fins up” for defense. Whenever Patritto sees Jordan, in the hallway, in the locker room, “he gives me this huge grin and makes the ‘fins up,’ and it just makes my day.”

When you ask Patritto what Jordan’s duties are as team manager, he answers “to be with us.” When you ask Renel, the star running back, about Jordan’s popularity, he laughs and says, “You cannot not like him.” When you ask Jordan — who shaved his head with his teammates when the playoffs began — what he will miss most when football ends, he says, “My friends.”

And when you ask Cynthia Kidder, who now runs a national Down syndrome organization called Band Of Angels, dedicated to celebrating and supporting those with the disability, what she thinks about her son graduating next spring — and planning to go to college — she recalls how teachers once told her that by the fourth grade, Jordan might be able to make macaroni and cheese.

“I told them, ‘He lives in my house, I can cook for him. But I’m not a teacher. Can you teach him?’ ”

They have. And he has taught them. About stereotypes. About patience. About dealing with real problems and still maintaining an explosive laugh and a sly sense of humor. When Jordan was told a Free Press photographer was going to take his picture, he asked, “Can they take one of me and the cheerleaders?”

Adams won big Friday night, capturing a Division 2 regional championship, 49-10, over Farmington Hills Harrison. If the Highlanders (12-0) win two more games, they will be state champs, the Promised Land for a high school football team.

Then again, they may already be there. You look over Jordan and what do you see? A big-hearted teen flanked by a band of angels — teammates, teachers, family, friends — all loving someone “different” no differently than they love themselves.

If that’s not the Promised Land, what is?

10. Mesa Labs (MLAB)

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The third company in our annual stock selection countdown is a relative newcomer to most of us — but a company that we’ve featured on multiple occasions.

Taxes on investments are (1) going up if Republicans and Democrats decide to agree on something or (2) if they continue to disagree across the board and over the cliff. In other words, taxes will increase on dividends and capital gains. One of the effects that we’ve been seeing for a while now is the traditional January Effect. The selection of Mesa Labs (MLAB) gives us a chance to reinforce a message that is always a good idea this time of year — and this year even more so.

We recently discovered MLAB through the annual publication of the Forbes Best Small Companies a couple of weeks before Halloween. It’s one of our favorite troves and you can read more about it here

It’s not unusual for the smaller companies to be more deeply impacted by tax-related selling during the final quarter of the year … leading to an event-driven opportunity to sell (when appropriate) all the while waiting to pounce on the ON SALE NOW opportunities created by the price swoons.

And quality matters. If we’ve learned nothing from watching the performance of these faster-growing companies over the last decade, it’s that we want to be vigilant for the leaders. We recognize them by steady, consistent growth and profitability patterns and balance sheets (financial strength) that are often a cut above their agile emerging peers. Last year’s favorite, SolarWinds (SWI) is up 130% over the last twelve months. We like that.

Mesa Labs (MLAB) was also featured as a recent monthly stock selection for December 2012

We also know that balancing the overall growth forecast FOR ANY PORTFOLIO is a really good idea … and after the selections of CVS and JW-A, MLAB provides a healthy boost in this regard.

Christmas Countdown Dashboard: http://www.manifestinvesting.com/dashboards/public/christmas-countdown-2013

John Wiley & Sons (JW-A)

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Christmas Countdown (2013)

The second selection in our annual countdown is something of a surprise, John Wiley & Sons (JW-A).

During times when we seem closer to Fahrenheit 451 than not … in days when some of our favorite bookstores (e.g. Border’s) are shuttering … and when the mainstream media decries the conversion from print media to all things tablet de digital — there may be some contrarian method to the madness of a bookish selection.

We were skeptical when JW-A turned up in our Top Tenth of The Top Percentile screens that power the Core Diem demonstration portfolio over the last couple of days — but after a close look and noting the recent price reduction, we’re thinking open arms … much like a good book and a fireplace.

 

Business Description

John Wiley & Sons, Inc. (JW-A) engages in the publishing of print and electronic products, providing content and digital solutions to customers worldwide.

The company operates through three segments: Scientific, Technical, Medical & Scholarly, Professional/Trade and Global Education. The Scientific, Technical, Medical & Scholarly segment provides content and content-enabled digital services for the scientific, technical, medical and scholarly communities worldwide, including academic, corporate, government and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. Its products include journals, books, major reference works, databases, clinical decision support tools and laboratory manuals and workflow tools. The Professional/Trade segment acquires, develops and publishes books, workflow solutions, certification and training services and other information services in the subject areas of business, technology, architecture, cooking, psychology, professional education, travel, health, consumer reference and general interest.

It products are developed for worldwide distribution through multiple channels, including major chains and online booksellers, independent bookstores, libraries, colleges and universities, warehouse clubs, corporations, direct marketing and websites. The Global Education segment publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. It delivers its content, tools and resources to students, faculty and institutions principally through college bookstores and online distributors, with customers having access to content in multi-media formats as well as the traditional textbook. John Wiley & Sons was founded in 1807 and is headquartered in Hoboken, NJ

Business Model Analysis

When you’ve been printing books for over 200 years, you probably know a thing or two about where, when and how to sell them.

The last several years (and a couple years of analyst consensus forecasts) build a steady trend in the 3-4% growth range. If Value Line is right about the 3-5 year forecast, the figure favors the 4% end of that range.

The narrowing of the gap between the top and bottom lines is our first hint of expanding profitability. Apparently after 200 years — they’re also figuring out ways to discover new means of optimization.

The Value Line low total return forecast (LTR) shown here is 15% but that was based on a stock price of $43.20 (11/9/2012). With the price now at $37.40, the adjusted LTR is closer to 20.6%.

Profitability Analysis

The overall profitability trend borders on astonishing considering the economic/competitive environment and market that Wiley wakes up to every day. In this closer look, we see the pressures on net margin results during the Great Recession (2008-2009) and the continued optimism of Value Line in their 3-5 year forecast.

All in all, the trend is pretty powerful and could drive higher P/E ratios going forward. Fahreinheit 451, indeed.

Dave Ramsey: American Funds (AIVSX)

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Via Twitter [on 5/17/2012], Dave Ramsey posed the following:

“I own a mutual fund with a 11.98% average return since 1934, 13.4% average over the last three years. Is your investment adviser too STUPID to find this?”

It’s not about STUPID. And this is a really good fund. The specific fund is American Funds ICA (AIVSX) and has — as Dave cited — been in operation since 1934, delivering solid results.

Be careful with averages. It’s better to measure performance of the fund using annualized returns — and going back over the last three years (thru 5/17/2012) — the annualized return for AIVSX is 12.8%. That sounds pretty good and it is — but the return on the S&P 500 (VFINX) over the same three years is 16.6%. So, AIVSX has lagged the S&P 500 by -3.8%/year for the trailing three year period.

We know better than to pass judgment on the basis of 1-year or 3-year periods and so does Dave. In fact, AIVSX outperformed the general stock market benchmark during 30 of its first 50 years of operation. An “outperformance accuracy of 60%” is exemplary. The won-loss record now stands at 43-35 (55.1%) over 78 years and performance has lagged for the last 28 years, denting the long-term record with a performance accuracy of 13-15 (46.4%) over more recent history.

We can look back at 78 years but many of us have a hard time wrapping our brains around that span. So we’ll take a closer look at three decades. Over the trailing 30-years, AIVSX has delivered an annualized return of 10.8% during a period when the S&P 500 advanced 9.9%. A relative return of +0.9%/year may not seem like much but the difference is significant. As the following graphics show, this relative return has been slipping in recent years but was bolstered by strong performance at the turn of the century.

Aivsx yr rets 20120517

Here’s a look at relative return (since 12/31/1982):

Aivsx rr 20120517

Small Differences in Returns/Expenses … Huge Leaps for the Long Term

As Dave often points out, constraining expenses and small differences in annualized returns can make a huge difference in long term results. As a case in point, 10.8% may not seem like that big of a difference vs. 9.9% over thirty years.

But $1000 grown at 10.8% over 30 years reaches a value of $21,687. That same $1000 invested in the S&P 500 (VFINX) and growing at 9.9% attains a value of $16,980. Most of us here like $21,687 better than $16,980.

Small incremental advantages can make massive differences from the long-term perspective. As another case in point, the investment club known as the Mutual Club of Detroit delivered 13.4% from 1941-2001. If 13.4% were achieved over the 30-year period cited, the $1000 grows to $42,354.

Make no mistake. AIVSX is a solid fund offering. Funds with a relative return of 0.9% are actually pretty rare.

An expense ratio of 0.61% and portfolio turnover of 28% place AIVSX in rare company among the alternatives. Our analysis of the holdings suggests a portfolio capable of generating 11.8% projected returns with an overall excellent quality rating. But that 5.75% front-end load is confiscatory and knocks 0.2%/year off the performance over those three decades — and we’ve shown that small differences matter. Perhaps Dave could use his considerable influence to persuade the industry to reduce those transaction costs … after all, this isn’t the 1980s and these types of loads have not tracked reductions seen in almost all areas of investment services.

No-load would be good too. There are a number of attractive alternatives to AIVSX these days as the team works on improving overall results. Funds like Fidelity Blue Chip Growth (FBGRX) with a return forecast of 14.5%, even better quality (vs. AIVSX) and Vanguard U.S. Growth (VWUSX) with its return forecast of 13.6% … and you’ll find that the holdings in these portfolios are not dramatically different than AIVSX.

AIVSX is in good standing at +0.9% over 30 years — but they’re not alone.

Aivsx perf map 20120517

CVS Caremark (CVS)

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The first stock in our annual countdown is CVS Caremark (CVS).

The company is no stranger to long-term investors — currently ranked 37th in the most widely-followed MANIFEST 40.

CVS Caremark Corp. is a pharmacy health care provider in the U.S. with integrated offerings across the entire spectrum of pharmacy care. The company operates in the following segments: Pharmacy Services, Retail Pharmacy and Corporate. The Pharmacy Services segment provides a full range of pharmacy benefit management services to its clients consisting primarily of employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the U.S. The Retail Pharmacy segment includes retail drugstores, its online retail pharmacy website, CVS.com, onsite pharmacy stores and its retail health care clinics. Its retail drugstores are located in various states, including Puerto Rico and the District of Columbia operating primarily under the CVS/pharmacy name. The CVS/pharmacy stores sell prescription drugs and a wide assortment of nationally advertised brand name and private label merchandise. The Front store categories include over-the-counter drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods. The Corporate segment provides management and administrative services to support the overall operations of the company. CVS Caremark was founded in 1963 and is headquartered in Woonsocket, RI.

Business Model Analysis

Based on a sales growth forecast of approximately 8%, a net margin forecast of 3.8% and a projected average P/E ratio of 15.0x — the projected annual return is approximately 15%.

The quality rating is 80.6 (Excellent, top quintile) based on a financial strength rating of 86 (A+), earnings stability in 94th percentile and favorable growth and profitability forecasts versus the Pharmacy Services group.

As shown in the accompanying figure, the low total return forecast for CVS is 13%. [Source: Value Line Investment Survey, 9/21/2012]