This Week’s Study Stocks (2/7/2014)

Groundhogs, Start Your Engines!

All evidence to the contrary, there was apparently a football game yesterday? (Seriously … Congratulations to the Seattle Seahawks, Super Bowl XLVIII Champions.)

Speaking of Roman numbers… today we launch Groundhog Challenge VIII, our annual stock picking contest for individual investors and investment clubs. It’s not for the faint of heart. The Broad Assets club of St. Louis rang up a 110% total return for Groundhog VII, taking home group honors … and Andy Pagorek of Chicago picked five stocks that all beat the market, 5-for-5, with an overall total return of 77%.

We raise a glass — or a groundhog — and we press on.

This year’s selections can be found at:

Participants select a minimum of five (5) stocks/funds with a maximum of (20). $1,000,000 is invested as of 2/2/2014 and the sage selections are allowed to simmer, undisturbed until 2/2/2015 when next year’s champions are crowned.

It can be interesting to scroll through the selections seeking study candidates … and we’ll do some of that in the forum this week. It’s part of launching a new approach to airing out more studies, etc. We’ll highlight items of interest and we hope that our like-minded investors will share observations, opportunities and threats about the stocks in the weekly updates as 2014 unfolds. You are all invited and welcome to share, inquire and inspire as we all try to make each other better long-term investors. The long-term results for the Groundhog Challenge don’t lie.

Dan Hess and I both were skeptical about the markets being vulnerable to a correction, even a fairly deep correction, a year ago. We both selected some hedges and cash equivalents. The result is that neither of us landed on the leader board. (Yes, that’s some serious sugar coating.) What I think we did learn was to condition and pay less attention to single/isolated momentum indicators like relative strength index. We may been more early than wrong … and Jim Stack shared reluctant expectations (higher vulnerability than even one year ago) with recent audiences.

It’s interesting to note that Dan has selected a number of energy stocks for his 2014 entry and selections.

Issue 12 is chock full of some of these companies like Schlumberger (SLB), National Oilwell Varco (NOV) and Transocean (RIG). And Dan is likely hoping that Value Line is right — most of these are near the top of a listing ranked by low total return forecast. And Morningstar is pretty energized about these stocks, too. But as we’ve pointed out in the past, S&P is less exuberant about these energy stocks — a little more selective, but the fair values at S&P are generally lower than Morningstar.

Dan also added a couple of emerging market exchange-traded funds … another area that we’ve featured in the fund column over the last few months. See the ETF Manifest we’ll be publishing with the February newsletter. I’ll probably go Groundhog shopping around the world also.

Companies of Interest

The companies in the Issue 12 update for the Value Line Investment Survey are as stratified as anything I’ve ever seen. The overall average low total return forecast is a paltry 3.0%. But there’s a John Wayne-sized blaze of opportunity at the top of the return forecast sort. These are on full display in the accompanying graphic.

At the same time, nearly half of the companies in this week’s batch have sub-zero long-term low total return forecasts.

Materially Stronger: Monsanto (MON), Scientific Games (SGMS), Gannett (GCI), World Wrestling Entertainment (WWE)

Materially Weaker: Forest Oil (FST), Harte-Hanks (HHS), Konami (KNM)

Morningstar Price-to-Fair Value Nudges

The average price-to-fair value for the companies in this week’s update according to Morningstar is 99%.

S&P Price-to-Fair Value Nudges

S&P is less optimistic about many of these companies … the overall (average) P/FV for the companies in this week’s update is 110%.

Market Barometers

The Value Line low total return forecast for the standard edition coverage is 3.0%, up from 2.7% last week.

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