Round Table (January 2015)

The stocks featured during the January Round Table:

  • Caterpillar (CAT)
  • Google (GOOG)
  • MSC Industrial (MSM)

The audience selected QUALCOMM (QCOM) from the candidates.

Sell Transaction

MWI Veterinary Supply (MWIV) was “sold” from the tracking portfolio during the session. MWIV is being acquired by Amerisource (ABC) for $190. Ken Kavula selected MWIV back on 11/29/2011 for $64.79, so $1000 became $2969 — an annualized return of 40.5% and a relative return of +22.9% versus the Wilshire 5000.

Rt banner 20150131

Annual Super Bowl Poll (2015)

It’s time for our annual Super Bowl survey.

Once again, there’s not a clear “old NFL” team again this year. But Marshawn Lynch likes Skittles and all of those Super Bowl pigskins will be inflated with laser precision accuracy to the right pressure. A victory by the surging National Conference champions would be “most like” an OLD NFL victory … so investors across this nation probably ought to be in the Seattle camp. The Patriots are clearly on old AFL team and the stock market is vulnerable to a Super correction at some point.

The defending champion Seattle Seahawks are led by QB Russell Wilson. Wilson has a streak of 83 straight games — dating back to high school (I think) — where his team has led in the scoring column in each game. That’s quite a streak and it was seriously in jeopardy last week versus the Packers, but an improbable miracle kept Wilson’s run intact. Many people will expect the Seahawks to lead Tom Brady’s Patriots on Sunday — some even at the end of the game.

It’s time to get out there and BUY SOME STOCKS. 🙂

We’re 6-for-9 having mistakenly selected the Broncos (62%) over the Seahawks (38%) last year.

Our Selections

XLVIII: Denver Broncos (Super Bowl won by Seattle Seahawks)
XLVII: San Francisco 49ers (Super Bowl won by Baltimore Ravens)
XLVI: New York Giants (defeated the New England Patriots)
XLV: Green Bay Packers (defeated the Pittsburgh Steelers)
XLIV: New Orleans Saints (defeated the Indianapolis Colts)
XLIII: Pittsburgh Steelers (defeated the Arizona Cardinals)
XLII: New England Patriots (Super Bowl won by New York Giants)
XLI: Indianapolis Colts (defeated the Chicago Bears)
XL: Pittsburgh Steelers (defeated the Seattle Seahawks)

The Stocks We Follow (December 2014)

 MANIFEST 40 Update

“We have always believed that the collective decisions made by our community of like-minded, long-term investors are worth huddling over … a place where ideas are born.”

This managed “tracking portfolio” of your collective favorites has outperformed the Wilshire 5000 by +3.3%. The absolute rate of return for the trailing 9 1/4 years is 9.6%.

Our MANIFEST 40 is a celebration of collective excellence in stock selection, strategy and disciplined patience. We continuously monitor the 40 most-widely followed stocks by our community of subscribers at Manifest Investing. We think it’s more than a fair assumption that many of these are in your real money portfolios … and for that, we’re optimistic and grateful. This managed “tracking portfolio” of your collective favorites has outperformed the Wilshire 5000 by +3.3% (relative rate of return, percentage points). The aggregate absolute rate of return has been 9.6% during a period when the annualized rate of return for the general stock market has been 6.3%.

Capturing Attention: Chargers

Schlumberger (SLB) moved from #39 to #34 and continues to attract interest despite the current challenges in the energy sector. Buffalo Wild Wings (BWLD) returns to the MANIFEST 40 at #36 as chicken wings, beer and sporting events continue to deliver for investors.

The results of $100 positions investing in any of the Top 40 companies can be viewed at any time at:

Strongest Performers

The three top performers in the MANIFEST 40 since inception, based on annualized relative rate of return, are Cognizant Technology (+27.4%!), PRA Group (25.8%) and Apple (24.8%).

The charter members of the MANIFEST 40: Microsoft (3), Stryker (4), AFLAC (5), Johnson & Johnson (6), General Electric (7), Cisco Systems (8), Walgreen (11), FactSet Research (14), Oracle Corp (18), PepsiCo (17), Teva Pharmaceutical (16), Intel Corp (21), Medtronic (22), Danaher (26) and Wal-Mart (31).

We’ll continue to pay the most attention to these community favorites. Keep up the good hunting!

March of Some Favorite Mentors

Expecting Alpha

A favorite from March 2012, celebrating the usefulness of Value Line and honoring a couple of legends — Chuck Allmon and Walter Schloss.

My responsibilities at Better Investing included the opportunity and privilege to correspond and spend time with some of the most exceptional investors in stock market history. From Peter Lynch to John Bogle and the likes of John Neff, the moments were treasured and the mission was a continuous focus/emphasis on deriving lessons that could be applied to our long-term perspective. The objective is simple. Discover wisdom and lean on experience in an effort to maximize the relative returns of everybody all around us.

Current day favorites include many of you, Jeremy Grantham, Brad Perry and until a few days ago … one of the denizens of Graham-and-Doddsville, Walter Schloss. More on Mr. Schloss in a minute. Another long-time is a favorite for many of you, Charles Allmon…

View original post 466 more words

MSC Industrial Direct (MSM)

This month’s stock feature is a company that is never too far from our radar screens. Frankly, I’m a little surprised that MSC Industrial (MSM) has not been selected over the past ten years. Sometimes the best long-term investments aren’t the sexiest. Nuts and bolts matter.

MSC Industrial Direct (MSM) markets industrial products to small- and mid-sized customers throughout the United States. It distributes a full line of industrial products, such as cutting tools, abrasives, measuring instruments, safety equipment, fasteners, welding supplies and electrical supplies. It’s about building and/or fixing things and hence, the health of the general economy matters. Many investors have been rewarded by investments in companies like Danaher, Fastenal, W.W. Grainger and Snap-On and this company is no exception. MSM is worthy of inclusion among these reliable favorites.

The low total return forecast is 12% at Value Line. The stock price could languish a little if the global recession persists.

MSC Industrial (MSM): Business Model Analysis. Continuing with our testing and work-in-progress, we take a look at the judgment milestones for MSC Industrial. The long-term top line and bottom line trends speak for themselves. Based on a growth forecast of 9-10%, projected profitability in the 10% net margin range and a reasonable P/E ratio of 19-20x in the future, the return forecast is 15-16%.

Growth, Profitability, Valuation

Value Line projects long-term sales growth at 9.5%. We’ll use 9.7% for the sales growth forecast based on the regression from 2010-18.

Based on the historical trends, it’s feasible to envision a 10% net margin. The trailing 6-year average is 9.7%. Value Line has a projected net margin of 10.4% in their long-term forecast.

The historical P/E (trailing 6-year average) has been 19.3×. Value Line has a projected average P/E of 22×. At the time of selection (1/12/2015), the average projected annual return for MSM is approximately 15-16%.

The quality RANKING for MSM is 88 (Excellent) with a financial strength composite (percentile ranking) of 97. Earnings stability is 83.

Morningstar has a fair price estimate of $95 (price-to-fair value of 78%) and S&P checks in with a fair value estimate of $83.60 (P/FV of 88%.)

A Main Street Walker

The company has a history of sound decisions. Value Line analyst Simon Shouclair (1/16/2015) points out that “Cash deployment pays off for shareholders. Indeed, MSM has not only raised its dividend, the company has been doling out some substantial special distributions in recent years, including a sizable $3.00 per sh outflow in October 2014. Share repurchases have also helped to boost shareholder value.”

A company that invests in itself when its return forecast is superior is more music to our ears. “Although the untimely stock has been battered of late, patient investors should note the wide total return potential out to late decade.”

Ahhh. Untimely. Battered. Patience. And that’s our time horizon mentioned. Music to our ears, again. There should be little mystery as to why we included the company among of selections for the 2015 Crossing Wall Street Challenge.

Building and fixing Main Street is a great idea.

General Electric (GE)

It has been a while since we took a closer look at General Electric (GE), the 7th most widely-followed stock by Manifest Investing subscribers. The company is anything but a stranger to this community of investors.

It’s also safe to say that it’s been a source of considerable angst and frustration for many of us.

Company Description

General Electric Company is one of the largest & most diversified technology and financial services companies in the world. With products ranging from aircraft engines, power generation, oil and gas production equip., and household appliances to medical imaging, business and consumer financing, and industrial products, it serves customers in more than 100 countries.

Business Model Analysis

Even successful giants are vulnerable to the impact of a deep recession and GE turned out to be no exception. During the 2007-2009 financial crises, GE Capital served as a catalyst that deepened the damage. Because GE Capital was essentially a venture banking enterprise nested within the industrial giant — and accounted for over 50% of revenues — when the financial markets imploded, the impact was fairly severe and maybe even life threatening. That’s the only way to account for a price drop from $42.20 to $5.70 (-86.5%) for this blue chip leader.


The Value Line low total return forecast for General Electric is now 13% — as the long-term low price forecast was bumped from $30 to $35 in the current update.

Analysts appear to be optimistic about the Alstom acquisition and fairly certain that the global condition will ultimately improve. Infrastructure matters. This urgently includes the United States as the electrical system condition is well on its way to resembling those bumpy pothole-ridden atrocities we used to call roads. The only difference is that when the electricity system fails — it takes a lot of critical stuff with it. General Electric is crucial to restoring the necessary reliability of our electrical supply.

We like this blue chip from a number of perspectives. The year ahead will probably only bring returns in line with the overall market; however, out to 2017-2019 we think this equity has room to run. Too, with the dividend north of 3%, income investors have a strong play here.” — Value Line (1/16/2015)

The growth forecast is based on emphasizing the last 2-3 years of actual data in combination with the Value Line forecasts. This industrial giant is retooling, exiting a few businesses while bolstering others. The Alstom addition is an example. For this reason, we focus on the right hand side of the business model trends — and find 4-5% top line growth feasible.

Value Line has a 3-5 year projected net margin of 15.3% and this is a big part of the 14.7% total return forecast for the analyst section of the study. While achievable, we’d be more comfortable with a profitability forecast in the 12-13% range based on the historical profile.

A projected average P/E ratio of 15.0x for a blue chip leader is solid.

General Electric’s exposure to capital-intensive industries makes for a rough road during corrections and recessions. Bringing home an EPS stability of 76 is quite an achievement. The “dent” made in the company the 2008-2009 recession manifests in the Financial Strength rating. (It used to be higher) Overall, General Electric still ranks in the top 10th percentile of all companies when it comes to quality — and we’d be unsurprised to see the overall quality rating increase in years ahead.

It’s been a bumpy road. (Understatement alert) But business results have been steadily improving. 2015 may be yet another flat spot in the stock price trend if oil prices continue to fall — and global recessionary conditions persist.

Ge chart 20150115

Dipped In Magic Waters of Technology

Dipped In The Magic Waters of Technology

With certain apologies to Field of Dreams and Terence Mann (James Earl Jones)

Terence Mann: People will come. They’ll come to Las Vegas for reasons they can’t even dream (yet). They’ll land at McCarran not knowing for sure why they’re doing it. They’ll arrive at the Convention Center as innocent as children, in a childish (but pure) quest. It is money they have and solutions they seek. They’ll wander and discover. They’ll find geeks and gizmos and remember days before the Star Trek stuff started taking shape and forming reality. They’ll cheer their heroes. It’ll be as if they dipped themselves in magic waters. The memories and dreams will be so thick they’ll have to brush them away from their faces. People will come. The one constant through all the years has been technology. America has rolled by like an army of steamrollers fueled by the next generation of locomotive engine. Technology has transformed time. It’s a part of our past — and a glimpse of our future. It reminds of us of all that once was good and things yet to come. People will come. People will most definitely come.

For those less familiar, this week is the Consumer Electronics Show in Las Vegas. It is the world’s largest trade show of its kind. The International CES (Consumer Electronics Show®) is the world’s gathering place for all who thrive on the business of consumer technologies. It’s where business gets done: on the show floor, in and around our conference program, in impromptu connections and in planned meetings and special events. Follow on Twitter via #CES2015.

We’ll be covering the show and providing investment-related feedback on a number of companies, including but not limited to: QUALCOMM (QCOM), Masimo (MASI), 3D Systems (DDD) and many more …

Coming Events and Attractions

Our expanded coverage of the update stocks this month continues as part of our quarter long test drive of this feature and the studies and shared ideas it delivers. Please tell us what you think and feel free to join in the Forum discussions for the deeper dives on some of the stocks.

We’re working to schedule the January Round Table. It will likely be on Saturday morning, January 31 at 10:30 AM ET. The January Round Table will be part of a series of webcasts during Groundhog Weekend — more information to follow.

Speaking of our 10-year anniversary and ALL THINGS GROUNDHOG, we’ll be firing up another year of superior stock selection as we launch Groundhog Challenge 2015 on February 2, 2015. It’s not too early to start thinking about your winners for 2015. Remember we welcome both individual investors and groups (investment clubs) … the ground rules are simple pick a minimum of FIVE and a maximum of TWENTY investments and we lock them in from 2/2/2015 through 2/2/2016.

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 5.0% — a little higher than we’ve seen in the last few weeks.

Fundamentals continue to erode slightly. This update did have a slight exception, with modest boosts to expectations for companies like Bristol-Myers (BMY), Lilly (LLY), Merck (MRK) and Teva Pharma (TEVA) along with various other drug-related stocks. Pfizer (PFE) was a notable exception — with a slightly reduced long-term forecast.

Materially Stronger: Abbvie (ABBV), Lilly Eli (LLY)

Materially Weaker: Cameco (CCJ), Genworth Financial (GNW), Pan American Silver (PAAS), Barrick Gold (ABX)

Pfizer (PFE) dropped from $35 to $30 for the 3-5 year low price forecast.

Teva Pharma (TEVA) went from $55 to $60 for the 3-5 year low price forecast.

Standard Coverage Initiated:


Stocks to Study

The following update stocks are ranked in the top 10th percentile of all companies we follow (MANIFEST Rank > 90)

Season For Shareholder Loyalty

It’s absolutely a beautiful thing when we engage friends and family and lead them to the discovery of long-term investing. The opportunity to make a substantial difference, enabling better futures, is massive. We know that long-term investors also often become loyal (even rabid) consumers for the companies that they own. Regular vigilance combines with routine consumption. I wish I could change the names in the following story to protect the guilty … but it serves as a reminder of how powerful these forces of discovery can be.

I’d made the sojourn again from southeastern Michigan back to the shores of the Mississippi River in northwestern Illinois. As a fairly frequent traveler, my bags are generally packed carefully to make sure that I have all of the necessities for effective travel. I’d arrived back at my parent’s residence well after midnight and settled in for a good night’s sleep knowing that I’d see them at the breakfast table in the morning.

Sunrise came … but something was wrong. It was one of those gnawing feelings. I could have sworn that I stuck that tube of toothpaste in my overnight bag. No matter how deep I dug, it was clear that I was on the road without this necessary item? But my toothbrush was there? If it was there, how in the world did I forget the tube of toothpaste?

Sure enough, Mom and Dad were already seated at the kitchen table. We exchanged hugs and greetings and my instincts began to kick in.

“Dad, you wouldn’t have any idea why I can’t find my toothpaste, would you?”

Grinning, as he often does, like a Cheshire Cat but with his face aimed at his cereal, he responded, “Hmmm. That’s too bad, sorry to hear that. I probably have some real toothpaste you can use.” He was now snickering and giggling while continuing to munch on his cereal. He was also clearly avoiding eye contact.

“What’s with the Annual Report standing next to the bathroom mirror?”

Mom mumbled something along the lines of, “… Oh no. Here we go again.” The cereal crunching continued, but he offered up, “You’ve been warned.” There was still no eye contact.

“Enlighten me, Dad. I don’t seem to recall any warnings?” (It was a white lie. Hairs were now standing on the back of my neck and I was clearly in the danger zone.)

“You should know better than to bring that contraband into this house.”

Mischievous giggling continued. Mom was now grinning, siding with the suspect.

“Why don’t you join the rest of the world and use Colgate ($CL) toothpaste instead of that ‘stuff’ ($PG) from Cincinnati? Would you like to see a Fact Sheet?”

It was crystal clear now. My toothpaste had been hijacked and replaced with a Colgate-Palmolive annual report. Dad became a Colgate stakeholder after seeing a company presentation at an investment conference a few years ago. It seems he also became an ardent evangelist and enforcer for their products.

Crossing Wall Street Challenge (2015)

Eddy didn’t get quite enough “Christmas Miracle” to extend his 7-year winning streak of beating the S&P 500 with his Buy List. But it was close. The 2014 Buy List landed at 11.8% for the year versus 13.7% for the S&P 500. Not exactly a disaster. And more importantly, his 9-year (since inception) absolute return is 10.8% vs. 8.0% — a relative return of +2.8%.

Nothing wrong with that.

You can find commentary (and continuous updates) on Eddy’s selections for 2015 here and here.

Start Your (2015) Engines!

We’ll track the 2015 Challenge on the customary dashboards:

Shopping In The Best Places With Our Friends

Walking Main Street is our entrant in this Challenge. Walking Main Street 2014 closed out the year on 12/31/2014 at a portfolio value of $1,175,729.94 — for an annual total return of 17.6% — outpacing the S&P 500 by +3.9%.

Where did we go hunting for our (20) stocks for 2015? Like we said, we like to shop in the same places as our like-minded long term investors. Therefore, we start with the MANIFEST 40, the forty most widely-followed stocks by Manifest Investing subscribers. We sort that by MANIFEST Rank, our combination ranking that includes a dash of return forecast and a dash of quality for a recipe that recognizes the top two characteristics for any investment. We also want to stick to stocks in the top quintile (MANIFEST Rank > 80) as we build for 2015. This yields about (24) stocks.

We then turn to lessons we learn from friends. In this case the inspiration comes from our two-time defending Group Champions in our annual Groundhog stock picking challenge — the Broad Assets investment club of St. Louis.

Why? Because they (and we) believe that stock prices follow earnings. We’ve added the year-over-year change to our shopping list, shown on the accompanying chart as “2015 EPS Delta”. This is nothing more complicated than comparing the analyst estimates for 2015 versus the year-end results for 2014.

Doing this disqualifies companies like Qualcomm (QCOM), Microsoft (MSFT), Coach (COH) and Exxon Mobil (XOM). These are all excellent companies that may have a turbulent year ahead of them. For a typical/traditional long term portfolio we’d look the other way, but this is a one year contest. We believe that stock prices ultimately follow earnings and we also believe/know that the rhinos often overreact to short-term turbulence, in many cases punishing stock prices over the coming year if they believe earnings are cloudy or in jeopardy.

The average 2015 EPS Delta is 12.9% for our universe of stocks.

In that spirit, we went looking “outside” the MANIFEST 40 for a few stocks to substitute for the disqualified ones. We found a group of stocks with solid return forecasts and quality that have good or above-average 2015 EPS Delta expectations: Fossil (FOSL), Mesa Labs (MLAB), Priceline (PCLN) and MSC Industrial (MSM).

After adding these, the overall 2015 EPS Delta for our (20) stocks is 14.3%.

A few stocks were disqualified with return forecasts too close to (or less than) the median return forecast (MIPAR) of 6%. The companies included in this batch were: FactSet Research (FDS), Johnson & Johnson (JNJ), CVS Health (CVS) and Costco Wholesale (COST). Again … nothing wrong with any of these … but we’re looking for outsized return forecasts.

Copa Holdings (CPA) merits a look with the news about Cuba … and T. Rowe Price (TROW) checked in with a very honorable mention.