Value Line Low Total Return Screen (9/20/2013)

Hey There … Canadians & Communication

This week continues the trend with more companies featured with weakening long-term return forecasts compared to those that can be deemed “Materially Stronger.” In general, we continue to see across-the-board modest erosion of fundamentals all the while the market “froths” its way to new all-time highs. Keep shopping (momentum is obviously intact) but be careful out there — focus on seeking high-quality candidates.

We’re not as high on BCE (BCE) (think Bell Canada) as Value Line but this provider of communication services to residential and business customers in Canada is compelling with a 4% yield. Value Line may have the low total return forecast in the range of 12%, but factoring in expectations from S&P, Morningstar and the analyst consensus leads us closer to high single digits. As shown in the accompanying chronicle (time series of return forecasts, quality rankings & stock price) BCE trades in a fairly tight range … has seen a downward draft in stock price (with a corresponding boost in return forecast) … and has generally improving quality characteristics.

Inteliquent (IQNT) makes an appearance here as “materially stronger” and has been something of a community favorite for a while. Investors will recognize the company as the company formerly known as Neutral Tandem. Long story short, the company has been under investigation for accounting practices (recently cleared) was expected to need to restate results for multiple years (as it turns out, it doesn’t) and recent analyst estimates have been surging in positive directions as shown here.

Some of you will remember our deep value story on Select Comfort a while back. Nutshell: Sometimes companies crater. Sometimes those companies have decent financial strength (B+ or better) with NO long-term debt.

Last we checked, Select Comfort had rebounded several thousand percent from its lows.

In the case of Inteliquent, we may be looking at a rebound-in-progress. Decent financial strength (B+) and NO LONGTERM DEBT. In the words of Value Line, “… the result of the investigation was favorable and asserted that no financials would need to be restated. These unranked shares may appeal to patient investors. Based on the earnings growth we are envisioning in the years ahead, the stock should continue to rebound over the pull to 2016-2018.”

Companies of Interest

Materially Stronger: Rite Aid (RAD), Inteliquent (IQNT)

Materially Weaker: Titan (TWI), Windstream (WIN), Pharmerica (PMC), Arris (ARRS), Polycom (PLCM), Superior Industries (SUP), Bioscrip (BIOS), TRW Automotive (TRW), Sprint (S), Regis (RGS)

Market Barometers

The median Value Line low total return forecast (VLLTR) remained at 4.4% this week.

Next Week’s Event

The September Round Table featuring selection and analysis of the knight’s favorite stocks right now will be held next Monday night, September 23 at 8:30 PM ET. For more information and to register, go to: http://www.manifestinvesting.com/events/129-round-table-september-23-2013

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