Don’t get me wrong, I have nothing against gray hair — the invasion has begun at my own follicles (much more cost-effective than my spouse’s highlighting) but as this image from the MoneyShow (and Louis Navellier) shows, it’d be nice to see some hair color diversification in this audience.
We have much to do to engage a nation of investors, including the young people who want to secure better futures with long-term successful investing.
Mohamed El-Erian is credited with coining the phrase and concept of a New Normal following the Great Recession of 2008-2009. In a nutshell, it’s the current form of “This Time It’s Different” and — at least for now — he’s right.
Here’s a look at the Value Line Arithmetic Average with a couple of recessions superimposed. The blue line is the long-term (5-year) trailing average. Looking at the slope of this trend line, we see three different periods (between recessions) with fairly conspicuous shifts in slope (basically rate of price appreciation.)
This month features the top percentile of all stocks covered at MANIFEST on the basis of a combination of strong fundamentals (return forecast and quality) and some key technical factors (relative strength index, sentiment and momentum).
Overall Market Expectations
The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 7.2% (1/31/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.
O Cupid, Doth Thy Arrow Sting?
Only when it misses.
With Valentine’s Day around the corner, Body Central (BODY) a specialty retailer for ladies from 18-35 might be worth a closer look. Be diligent. This one is down to $8 from $30 and has recently changed management while harvesting a weak quarter or two. It could be a value trap … or an oversold opportunity. From our vantage, we’re hoping it’s Chicos II.
Qualcomm (QCOM) is always a worthy study and a well-diversified supplier to a number of the combatants in the smart phone and tablet wars. I still remember Christmas break 1999 when our largest holding at the time, QCOM, soared at an incredible rate.
The January Round Table audience selected AeroVironment (AVAV) following a brief summary and nomination by Ken Kavula — one of our leading knights on a relative return basis since inception.
Super Bowl weekend. Do you know where the remote is? Study Universal Electronics (UEIC). You can order a new one if needed.
The Round Table knights decided to “sell” Synaptics (SYNA) from the Round Table tracking portfolio at the January session. As shown, Synaptics was added to the portfolio back in October 2010 — and has outperformed the Wilshire 5000 since then.
3 1/2 days until the checkered flag and Research in Motion (RIMM) is doing a pretty good imitation of Joe Frazier in the swimming pool.
See also: CNBC Stock Draft 2012: Photo Finish?
Josh Brown gurgled, “I told you five days is a long time in the stock market. This is painful. It’s like leaving too much time on the clock for Peyton Manning or Tom Brady. Ugh.”
And somewhere, Reggie Middleton flashed a googlish grin.
And Herb Greenberg was figuring out what to be testy about.
http://www.manifestinvesting.com/dashboards/public/cnbc-stockdraft-2012
The American consumer has endured a relatively lengthy time when disposable income has been, in a word, weak. What impact would the following situation have? As you’re heading for the parking lot at work, they stop you at the gate. Before you can pile into your car, you must fork over 4% of your paycheck. It gets worse. You grumble as you drive away and pull into the parking lot at your favorite retailer. Now you’re greeted at the door and you discover there’s now a “cover charge.” That’s right. If you’re going in to spend $100, your new friend at the door will take $2-4, depending on how good of a mood they’re in.
Huh?
Science fiction? What’s next? A retinal scan a la Tom Cruise and another surcharge depending on a quick database search and your estimated net worth?
The payroll tax holiday is over. (Subject for another day but I don’t think we should do “payroll tax holidays”, ever.) Effective, January 27, merchants in 40 out of 50 states can assess a 2-4% surcharge for the privilege of using a credit card.
You can’t make this stuff up. But Issue 11 at Value Line, chock full of retailers, is probably as good as any time to talk about big pictures like aggregate consumption — and by definition, the relative health of the U.S. economy. As we chug through the updates this week, we notice things like the 3-5 year low price forecast for Coach (COH) dropping to $70 from $85. That may seem like a molehill, but the change in annualized total return forecast is a drop from 15% to 10%. We’ll certainly be taking a closer look at the collective opinion on Coach, from the consensus, Morningstar and S&P.
Share prices shares of companies like Macy’s, Target, J.C. Penney, and Best Buy performed horribly toward the end of 2012. As we slog through the updates, we’ll be watching for continued fundamental deterioration on a company-by-company and industry basis.
We’d call that five percentage point sag in the Value Line opinion material.
Some economists expect a few percentage point hit on GDP between tax increases, transaction cost offsets and the continued influence of deleveraging.
“Despite a deal to avert the fiscal cliff, consumer sentiment fell once again in early January, the University of Michigan’s index revealed on Friday. The decline, which follows a hard drop in December, was mainly caused by households with annual income below $75,000, as U.S. consumers face an estimated 4% contraction in disposable income because of tax increases in the first quarter. And it wasn’t just sentiment that dropped, as both the current conditions and the expectations indexes took a tumble in what can only be defined as a disappointing report.” — Forbes
Do you know what’s in your wallet? Come to think of it — do I even know where my wallet is?
Coach (COH) certainly qualifies as a community favorite. Ranked #10 in the MANIFEST 40 collection of our most widely-followed stocks, a number of us are owners of this high-quality company.
In this week’s update for Value Line, the 3-5 year low price forecast has been adjusted from $85 (11/2/2012 company report) to $70 (2/1/2013). At a stock price of $51.21, this change alone drops the low total return forecast from 15-16% all the way to 10%. Now … 10% is nothing to sneeze at when the overall average low total return forecast is 7.7% — but that five percentage point punch to the midsection is well, a little breathtaking.
Sales Growth Forecast
Profitability Trend and Analysis
Projected Average P/E Ratio
Equity Analysis
Using a current (trailing 12-month) revenues of approximately $5 billion, a growth rate of 11%, net margin of 20% and a projected average P/E of 18x (payout ratio = 33% and projected yield = 1.9%) generates a long-term return forecast of approximately 18%.
The expectations of the analyst consensus, Morningstar and Standard & Poor’s are considerably more optimistic than Value Line — raising the overall average return forecast to a much higher level than 10%. It’s entirely possible that Value Line is one of the early arrivals and that we could see some weakness in the other forecasts, and we’ll stay vigilant — tuned for any material changes.
Based on a combination of fundamental and technical analysis, Rue21 (RUE) appears to be among the more attractive candidates for further study this week.
We’ll be taking a closer look at Aeropostale (ARO), Coach (COH), Deckers Outdoor (DECK) and Kohl’s (KSS) as they’re all current tracking portfolio selections or ranked fairly highly among our most widely-followed stocks by our subscribers.
Materially Stronger: Iconix (ICON), Foot Locker (FL), Christopher & Banks (CBK)
Materially Weaker: Aeropostale (ARO), Coach (COH), Bebe Stores (BEBE), Kohl’s (KSS), J.C. Penney (JCP), Big Lots (BIG), Crox (CROX), Deckers Outdoor (DECK)
rue21 (RUE) was the 4th company in our annual stock selection countdown during late December 2012. 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 +3.4% relative return (vs. Wilshire 5000) since the time of selection.
With a sales growth forecast of 13%, net margin estimated at 4.9% and a projected average P/E of 18x, the return forecast is approximately 16%. RUE has a quality rating of 70.6 (Excellent). As shown here, the Value Line low total return forecast is 14%.
Pepsi (PEP) showed up during this week’s Value Line update as one of the potential companies of interest — even if the return forecast was at the lower end of the featured stock spectrum.
At a Value Line low total return forecast of 13%, that actually compares quite favorably to the median Value Line low total return forecast of 7.9%. And now we trust, but verify.
Pepsi (PEP) is ranked #13 in the MANIFEST 40 (December 2012) with an excellent quality rating.
With a sales growth forecast of 5%, net margin of 11% and a projected average P/E of 18x, the projected annual return is 10% … a little less robust after conditioning the expectations by factoring in the opinions of S&P and Morningstar.
But 10% is still pretty good for this high-quality industry leader.
Expecting Alpha 