Sweet 16 Screen (May 2013)

In Search of High-Quality Stocks On Sale

The screening results shown here represent the survivors of a screen based on a projected annual return in the Sweet Spot, an excellent Quality Ranking, leadership financial strength and EPS stability and a dash of Motley Fool CAPS positive sentiment.

Overall Market Expectations

Mipar 20130430

The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 6.6% (4/30/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.

Companies of Interest

With the median return forecast hovering at 6.6%, less than the historical average and nearing historical lows, it still makes sense to shop amongst the highest quality companies.

This month’s Sweet 16 provides a smorgasbord of companies that keep making appearance on a variety of our screening efforts, model portfolios and/or educational webcasts.

Techne (TECH) may be among the fundamental analysis leaders but the technical indicators (including sluggish momentum) are weak. The stock was recently dumped (sold) by the Motley Fool’s flagship newsletter, Stock Advisor. Study carefully.

The French integrated energy company Total (TOT) has hovered near the top of our screens for a few months. The price-to-fair value ratio at Morningstar is 89% and the PnF sentiment is “bullish” with price pressure of +71%. The PAR is 15-16% and the Value Line low total return forecast checks in at 16% also. With a top decile quality ranking and an overall fusion rank of 100, the stock is worth a closer look.

I think Varian Medical (VAR) and Masimo (MASI) are probably impacted by the medical device tax debate. They’re both leaders in key areas, targeted radiation therapy (Varian) and non-invasive monitoring (Masimo). The debate is a little like watching a dog chase it’s tail. Call it a tax or surcharge or whatever, it incrementally elevates the cost of health care (bizarre since it’s embedded in an affordable care law) — and patients either pay more or these companies atrophy margins.

Coach (COH) continues to fire on all cylinders and the cash register queues refuse to abate.

Screen 20130501

Tin Cup (May 2013)

Tin Cup Model Portfolio: May 2013

Sell STRA, Buy CHRW. Accumulate QCOM

This demonstration portfolio invests the maximum allowable 401(k) in stocks. In the absence of choices within the portfolio, we shop outside the portfolio using the combination of return forecast and quality rating to identify candidates to be added to the portfolio. Total assets reached $1,000,000 in 17 years.

Tin cup vs vtsmx 20130430

Total assets are $1,092,174 (4/30/13) and the net asset value is $244.09. The model portfolio gained +3.01% during April 2013. The S&P 500 checked in at +1.70% for the month. Tin Cup has generated a 6.1% annualized total return over the trailing five years vs. 5.8% for the S&P 500 for a trailing 5-year relative return of +0.3%.

Tin Cup has outperformed the S&P 500 over the trailing ten years by +0.7% and the annualized total return since 1995 is now 19.0%.

Portfolio Characteristics

With MIPAR at 6.6%, our target for the minimum overall portfolio PAR is at least 11.6%. The overall portfolio PAR is 11.3% on 4/30/2013. Quality and financial strength are sufficient at the current levels of 92.4 (Excellent) and 92%. EPS Stability is 85 for the portfolio. Sales growth is a little “light” at 9.1%.


We challenge the lowest MANIFEST rank (return forecast + quality) holding, Strayer (STRA) and replace it with C.H. Robinson, the Solomon Select featured stock for May — taking advantage of the higher quality and return forecast. Our $1917 and dividends for May are destined for Qualcomm (QCOM) based on the higher MANIFEST rank for the company. Looking at the companies at the top of the sweet spot, there’s a group concentrated at a return forecast of approximately 15%. The nod goes to QCOM on the strength of its quality ranking.

Tin cup digest 201304030

April Round Table Highlights

As Ann mentions here, the April Round Table was challenged by barking dogs and thick thunder/lightning in Houston — but we persisted. In a subtle shift, we’re going to move Round Table highlights to the Stocks folder. Why? Although the portfolio design & management, and Round Table tracking portfolio are important, we do want to emphasize that the program core is centered on identifying stock study opportunities. We can do that and still stay focused on achieving those long-term superior relative returns.

Sorry to everyone I had to end my Round Table presentation so quickly. I am not sure any of what I said made sense. It’s hard to concentrate when you are being bombarded by lightning. The worst of the thunderstorm lasted about 45 minutes and we did lose power for a little while. Hope the rest of the Round Table went well.

Qualcomm (QCOM)

As for Qualcomm, I believe it is definitely a stock you should research. For a company of its size (24.12B estimated revenue for 2013), it continues to show signs of growth. I estimated the future growth sales at 13% and the future earnings per share at 11.5%. This results in a future eps of $6.12 which is a little higher than Value Line and a little lower than MI.

Qualcomm leads the list of companies that produce mobile chip sets for phones. It has a large amount of patents and they receive royalties from millions of mobile devices each year that should continue over the next 5-10 years.

Their chip sets are found in the current popular mobile devices from Apple, Samsung, Blackberry and Nokia.

The only concern that I could find was that some investors and analysts did not like that management has increased their spending (21% this past year). To me Qualcomm’s management appears to be doing a good job. They have no debt, their pre-tax profit is high and their return on equity is good. Sometimes you have to spend money to make money.

The recent drop in price offers a good opportunity to pick up the stock.


Polaris Industries (PII)

Ken Kavula’s presentation can be summed up pretty quickly.

“Polaris? You mean that snow mobile company???”

“Not exactly.” “Study it and see that there’s more, a lot more, to this story.”

Pii products 20130430

Caterpillar (CAT)

Hugh McManus described one of his favorite shopping methods, the quest for stocks that are trading near their 52-week low. In fact, we’ll probably spend more time with this notion because as he said, “One of the things we’ve witnessed over the years is that long-term investors, particularly those getting started, tend to purchase at stock prices which prove to be too high. We know that the typical stock will often trade at a low during a given year that is on the order of 50% of its 52-week high … so it makes sense (with patience and discipline) to watch for good companies trading at low prices.”

He also shared an intriguing tidbit about different treatment of large, higher-quality stocks versus vs. promising, emerging companies in that he’ll settle for 1-year lows for the larger companies … while demanding multi-year lows for the others. Fascinating and worthy of further exploration, in my opinion.

Buy low

C.H. Robinson (CHRW)

Mark doubled down on Cy Lynch’s fairly recent selection of C.H. Robinson (CHRW) — the transportation and logistics company. CHRW is the Solomon Select stock feature for May — so we’ll cover it “there.”

The audience seconded (thirded?) CHRW by choosing it from the alternatives.

There was some concern expressed during the polling about the potential for continued price “sag” in Caterpillar (CAT). Hugh’s response? “I hope so. I prefer a little sag while I’m accumulating.” (Grin)

Rt poll 20130430