Year: 2013

The Learning Never Stops

expectingalpha Best Of, Watercooler

The Learning Never Stops

One of your all-time favorite cover stories dealt with the combination of well-placed skepticism and the conscious decision to “leave the couch” as a long-term investor. In a nutshell, we asked, “Can investing really be this simple?” The answer is wrapped in over seven decades of experience and deployed regularly with measured courage. At the same time, we recognize that the learning quest is a never-ending road. We believe in Occam’s Razor. You could say that our cornerstone is trend reversion centered on imagination and long-term time horizons. This month we visit some letters, questions and commentary … celebrating your curiosity and achievements. Can old dogs learn new tricks? What about young dogs?

We share the following blog post and some subscriber correspondence. Names are withheld, but you know who you are out there … and some have been paraphrased to combine multiple letters and comments into digest form.

As a kid, they were among the moments I dreaded most. The “choosing of sides” on the playground or the sandlot were gut-wrenching moments because I often didn’t merit selection as a draft choice. “What about him?” “Oh yeah … he can be on your team if you want.”

Things are not always what they seem.

I had pretty good hands and was pretty good at catching a football. When it came to basketball, there were times when I heard, “Wow, the ‘fat kid’ can really shoot.” Funny, but if I close my eyes and listen, I can still hear those words.

Fast forward a few decades. We were on a mission trip in West Virginia taking up residence in a Scout camp in the mountains. We decided to play a pickup game of basketball. My friend Don and I smiled at each other as the muscle-bound high school seniors and college freshman in the group loaded up their rosters with their colleagues. We were left standing on the sidelines. Make no mistake. It’s still pretty gut-wrenching to endure this rite of passage as an “old man” but we suspected that we had the unknowing youngsters in our crosshairs. Don and I ended up on the same team. Amusement transformed into amazement as the “old men” taught the punks a thing or two. I think Don made about ten closely guarded shots in a row. Me too.

Our message is simple. Whether you’re talking about old books or old dogs, be careful about the judgments you make based on the cover. In some cases, maturity is just what you need and it can prevail over youthful exuberance.

Performance Snapshot (4/30/2013)

expectingalpha Investing

A quick look at some stock selection vehicles, including newsletters, model and tracking portfolios.

Kudos to the Better Investing Stock to Study selection team for the performance delivered since July-2010. Over that same time frame, our Round Table and the Investor Advisory Service have been a little mired, but we consider that a temporary condition all around.

The returns for the MANIFEST 40 collection of our most widely-followed stocks continues to be strong … and we do seem to study and shop in the same tributaries.

Performance snapshot 20130507

Value Line Low Total Return Screen (5/10/2013)

expectingalpha Stocks , , ,

Companies of Interest

Energy companies like Schlumberger (SLB) and National Oilwell Varco (NOV) continue to offer attractive returns. No major shifts among the industries to report this week.

Materially Stronger: Host Hotels (HST), Rowan (RDC), Dril-Quip (DRQ), Cytec (CYT), Wyndham Worldwide (WYN), Vail Resorts (MTN), Sinclair Broadcast (SBGI), Lamar Advertising (LAMR)

Materially Weaker: International Game Technology (IGT), McClatchy (MNI), Monster Worldwide (MWW), American Greetings (AM)

Market Barometers

The Value Line low total return (VLLTR) forecast is 6.7% versus 6.8% last week.

Nothing to see here, go shop for some stocks, high-quality (solid financial strength)is still a pretty good idea with the median return forecast at 6.5%.

Another Year: 9-for-9

expectingalpha Watercooler ,

This year — thanks to a somewhat lazy lay up procedure a few months ago, I figured Dad’s streak was in total jeopardy.  But the mower started on the first pull for the ninth year in a row.

Lessons From Fathers & Simple Things, Solid Results

Originally published — April 9, 2012

On this day of days, when the stock market is doing its latest rendition of “you’re the grass and I’ll be the lawn mower.” The Great Humiliator is not happy about the latest jobs report coming in far under expectations on Good Friday and that combines with Chinese concerns, Euro sluggishness and Spanish indigestion to form a quagmire.

Years of investing and watching the masters has taught me to listen … listen well … and reach for patience and discipline. Sometimes it’s the little things and little reminders that make all the difference in the world.

The balmy March-April that we’ve enjoyed in southeastern Michigan means that the yard is well on its way to jungle status. This weekend it was time. Time to retrieve the mower from careful storage and slumber. A trip to the gas station and it was time to yank that cord for the first time this year. I have seven straight years of starting on the first pull. I wondered if merely wondering about eight-in-a-row would provide enough jinx for a sputter, stutter and stall this year?

It wasn’t always this way.

Years ago, I faced inevitable replacement of spark plugs and various other tinkering to restore a stubborn non-starter to working condition. This would often include a trip to Dr. Mower and a pricey restoration.

Then one day my Dad asked me if I ran the mower dry on its last usage in late October or early November every year. Really, Dad? That’ll make a difference?

It makes a difference.

Eight for eight. Thanks, Dad!

With the stock market in full lawn mower mode, we’ll simply remind that the median forecast is not near historical lows and unless earnings falter, the current palpitations will probably pass. Patience. Discipline. Seek high-quality and mow anything non-core that needs trimming. Do the little things that you know work and leave the pricey restorations to the panic-stricken herds.

Sweet 16 Screen (May 2013)

expectingalpha Stocks , , ,

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)

expectingalpha Stocks , , ,

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%.

Decisions

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

expectingalpha Stocks , , , ,

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.

Anne

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

April Round Table: Our Quest for Excellence

expectingalpha Investing ,
Photo Credit: One lucky guy via Compfight cc

Gather Round … Steeling Away (Continued)

“As iron sharpens iron, so one person sharpens another.” — Proverbs 27:17

Ken Kavula and I spent the weekend in Pittsburgh with a couple of groups of disciplined long-term investors. It seems natural to think of extending beyond iron … and instead, think about steel on steel — and the process of sharpening other like-minded investors.

Some of the earliest model clubs were formed in Pittsburgh a couple of decades ago. In fact, one of them received a 20-year certificate this past weekend. And we note the considerable learning and sharing promulgated by a group of people, including but FAR from limited to: Herb Barnett, Pat Donnelly, Theresa Greissinger, Terry Lyons, Larry Robinson, 2011 Groundhog Champion Nick Stratigos and a wide variety of other volunteers and contributors.

We’ve followed the Pittsburgh groups of investors for quite some time — and on this weekend did some quick benchmarking. One club had a +5.5% relative return over 20 years — absolutely exceptional and another checked in at +1.0%. Still another checked in at +0.8% … all in all, some 60-80% of the clubs involved this weekend have generated positive relative returns. Placed in the context of negative 1-2% relative returns for an institutional investing universe and the NEGATIVE 5.6%/year (over 20 years) for “average investors” documented by DALBAR — we’re talking about some exceptional people and some highly differentiated performance.

How do we do it?

1. Imagine. Build an expectation of what the companies you study and own will look like in five years.

2. Invest in the Best. Comprehend quality. Recognize that quality is an insurance policy during corrections, bear markets and recessions … and a bedrock of consistency for long-term results.

3. Be Prudent. Diversify. Be certain to design and maintain a portfolio with the right mix of small, medium and large companies with an overall growth forecast that is sufficient. What is sufficient? A weighted average of 10-12%.

We’ll gather for the April Round Table on Tuesday, April 30 at 8:30 ET. On wings of steel and a relentless quest to not only be a better investor … but to improve the experience of our friends and colleagues on this journey, we look forward to sharing some of our best ideas with all who gather.

It’s FREE and it’s literally come one, come all. Register at: http://www.manifestinvesting.com/events/117-round-table-april-30-2013

Value Line Low Total Return Screen (5/3/2013)

expectingalpha Stocks , , ,

Companies of Interest

Pittsburgh-based Rue 21 (RUE) is among some of the more interesting shopping opportunities this week. It’s joined by legacy community favorite Bed Bath & Beyond (BBBY) as this retailer seems to have returned to broader appeal after something of a shakeout hiatus. We’ll be taking a closer look at BBBY this week.

There weren’t a lot of shoes (or purses) dropping in this weekly update. Most of the adjustments to the long-term low price forecast amounted to nudges. Several of the companies with the highest return forecasts were trimmed — but not enough (less than 20% change) to be mentioned in the Materially Stronger/Weaker roll call.

The “Big Boxes” like Wal-Mart (WMT), Costco Wholesale (COST) and Target (TGT) all got modest boosts for their long-term low price forecast. No one is quite sure what to expect from the management change at J.C. Penney (JCP) … a flood of traditional discount coupons notwithstanding … but the low price forecast was dropped from $20 to $15.

We’re not sure what to think of the massive forecast adjustment (from $20 to $35) in Best Buy (BBY) but it’s probably in line with recent price action … and we’ll adopt a show-me position, perhaps a little skeptical as to whether the fundamentals will really improve all that much, or that suddenly. Value Line also took their foot off the brakes at GNC Holdings (GNC).

Coldwater Creek (CWTR) went from $2 to $3 (+50%) for the 3-5 year price forecast. Caveat emptor.

Materially Stronger: Williams-Sonoma (WSM), Hot Topic (HOTT), American Eagle (AEO), TJX Companies (TJX), Hertz Global (HTZ), Gap (GPS), OReilly Automotive (ORLY), Best Buy (BBY), Haverty Furniture (HVT), GNC Holdings (GNC), Cabela’s (CAB), Black Hills Corp (BKH), Coldwater Creek (CWTR)

Materially Weaker: Hibbett Sporting Goods (HIBB), RadioShack (RSH), Citi Trends (CTRN)

Market Barometers

The Value Line low total return (VLLTR) forecast is 6.8% this week, compared to 6.8% last week.

  • The long-term range for the VLLTR varies from low single digits to approximately 20%. The current value of 6.8% is at the low end of the range — suggesting that an emphasis on highest-quality stocks is in order.
  • The relative strength index for the Wilshire 5000 is overbought, but this can remain this way (for markets, sectors and individual stocks) for an extended period. We’re more vigilant and concerned about RSI “breaks” like the one on display here back at Halloween 2007. The caution flag is up — but no sign of an RSI break for the Wilshire 5000 right now.
  • We’re exploring the momentum indicator suggested by Ned Davis, specifically Rate-of-Change … or ROC in this analysis. It’s “pure price momentum” and in our deployment — applied across the months and years, perhaps more appropriately tagged “investing momentum.” Any positive value (shaded in green on the graphic) is indicative of price momentum. Note the extended period of RSI greater than 70 (overbought) back in 2006-2007. Like we said, markets, sectors and stocks can stay overbought for quite some time and in this case, price momentum is still intact. Shop carefully. Emphasize high quality and financial strength.

Weekender Screen: FOSL COH RUE

expectingalpha Stocks , ,

Tomorrow’s Value Line edition update is basically the “Shopping Edition.” It includes a bunch of retailers, apparel and specialty retail companies with a few others. But it’s clearly deluged with those consumer discretionary companies that torment us.

To kick things off, for those in rainy day refuge or looking for some stocks to study in advance of the update, here’s some of the stocks we’ll most likely be chewing on over the next few days.

All of these stocks have relatively high return forecasts, either good or excellent quality rankings, relative price strength and momentum and in most cases, symptoms of positive (upward) price pressure.

Fossil (FOSL) and Nick Stratigos’ Round Table Selection of Rue 21 (RUE) head this list and qualify on all counts. Our 8th most widely-followed stock, Coach (COH) qualifies with the exception that COH still seems to languishing in bearish sentiment — although last week’s positive news probably places that weaker characteristic in jeopardy.

Weekender screen 20130428