Round Table (June 2016)

Our monthly webcast featuring some actionable stock ideas and exploration of some portfolio design & management concepts is tonight, June 28, at 8:30 PM ET.  The following are some of the likely stocks for discussion and some screening results to generate some ideas …

Stocks Likely To Be Discussed

  • Mesa Labs (MLAB)
  • Robert Half (RHI)
  • Biogen (BIIB)

Registration

The session starts at 8:30 PM ET. We commonly “open the doors” to the Green Room at approximately 8:15 PM ET for open discussion and socializing. All are welcome. Register via: https://www.manifestinvesting.com/events/196-round-table-june-2016

Some Screening Results

This daily update lists the tickers of the stocks that became 5-star investments, according to Morningstar, as of the last market close. A stock is awarded 5 stars when its price hits what Morningstar deems is a “Consider Buying” level.

As is often the case, 2-3 horrific days in the stock market leads to a more extensive list. (A typical day has 1-3 entries)

Tracking Dashboard

We’ll follow $100 into each one of these ideas via: https://www.manifestinvesting.com/dashboards/public/morningstar-5-star-20160628

Ivory Screen Stock Search (6/28/2016)

Based on MANIFEST Ranking greater than 99.44 … the MANIFEST Rank is an equally-weighted index based on (1) total return forecast and (2) quality ranking. It represents the top half of the top percentile of current study opportunities.

Ivory screen 20160628

Fave Five (6/24/2016)

  British flag

We’re going Brexit shopping.  In the wake of the polling results, some European disruptions are inevitable but a 500-point drop in U.S. stock market indices is likely unwarranted.  Our weekly shopping list was restricted to the best long-term prospects this weekend — hoping for some outsized opportunities thanks to Mr. Market and pundit/media hand wringing.

Fave Five (6/24/2016)

Our Fave Five essentially represents a listing of stocks with favorable short term total return forecasts (1 year, according to Analyst Consensus Estimates, or ACE) combined with strong long-term return forecasts and good/excellent quality rankings.

The Fave Five This Week

  • Aaron’s (AAN)
  • Celgene (CELG)
  • Polaris (PII)
  • Proto Labs (PRLB)
  • Synaptics (SYNA)

Context: The median 1-year total return forecast (via ACE) for the Value Line 1700 is 10.8%. The median 5-year return forecast for $VLE is 5.6% (annualized).

The Long and Short of This Week’s Fave Five

The Long & Short.(June 24, 2016)Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey.Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.comS&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target. 1-Yr GS: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Weekend Warriors

The relative return for the Weekend Warrior tracking portfolio is +2.7% since inception. 55.6% of selections have outperformed the Wilshire 5000 since original selection.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/weekend-warriors

This Week at MANIFEST (6/24/2016)

This Week at MANIFEST (6/24/2016)

“… it took me about 11 years to get a record deal, and I just had to work around and come to terms with the fact that what I was doing was going to be different, and I just had to wait until somebody was ready to jump on the bandwagon.” — Lee Ann Womack

What we do is different.

The modern investment club movement was a big tent … and a considerable bandwagon. Unfortunately, people’s capitalism and the stewardship of common stock OWNERSHIP has hit a bit of a speed bump, or worse. It’s pretty clear that some WD-40 is needed. The results achieved by the persistent are compelling. But too quiet.

What we do is different. We have no problem with things like discounted cash flow analysis — we believe that we’re chasing fewer variables and that SIMPLER is usually better when it comes to the realm of investing.

“Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom. In forty-four years of Wall Street experience and study I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.” — Benjamin Graham, The Intelligent Investor

Amidst the chaos, turbulence and avalanche of information, we find it rewarding and seemingly more reliable to focus on growth, profitability and valuation in a different kind of model. As is often the case, an event like last week’s Morningstar Investment Conference serves to remind about the value of being simple … and different.

The audience gasped when Keith Lee of Brown Capital Management confessed that in 25 years of successful investing that he’s never owned a financial sector stock. In his own words, Brown is “sector benchmark agnostic.” Brown Small Company (BCSIX) has a 10-year relative return of +5.7%.

Keith Lee and Brown Capital Management are different.

MANIFEST 40 Updates

  • 4. Fastenal (FAST)
  • 15. Procter & Gamble (PG)
  • 29. Home Depot (HD)
  • 33. Lowe’s (LOW)

Round Table Stocks: Chicago Bridge & Iron (CBI), Fastenal (FAST)

Results, Remarks & References

Companies of Interest: Value Line (6/24/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 4.8% vs. 5.6% for the Value Line 1700 ($VLE).

Normally we exclude (filter out) those companies with quality rankings less than 60. We left them in to make a point. When a bull market has been running for a while — and is perceived to be in jeopardy — investors and traders will flock to defensive stocks. The companies with high EPS stability and high quality will see their return forecasts driven down as they’re overbought if seen as sanctuaries. This week’s list and update batch is evidence of that.

There are a number of companies in the update batch that would be most welcome as core holdings in many of our portfolios including the likes of Bemis (BMS), Kimberly Clark (KMB), Sonoco (SON) … but the average MANIFEST Ranking for the Issue 6 companies is 44. In other words, the average company in this update is outranked by 56% of the companies in our database. The reason behind this is related to the flight to quality in many cases.

In most cases, it makes sense to wait for a Better Bandwagon.

Materially Stronger: Lumber Liquidators (LL), Martin Marietta (MLM), Tempur Sealy (TPX), Tile Shop (TTS) [Reminder: These step change upgrades do not necessarily imply a “buy” condition … in some cases, it’s a switch from “sell” to “weak hold.”]

Materially Weaker: Beazer Homes (BZH), Restoration Hardware (RH), Aegion (AEGN)

Discontinued: Jarden (JAH), Sun Edison (SUNE)

Coverage Initiated/Restored:

Market Barometers

Value Line Low Total Return (VLLTR) Forecast. The long-term low total return forecast for the 1700 companies featured in the Value Line Investment Survey is 5.6%, unchanged from 5.6% last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 20% when stocks are in the teeth of bear markets like 2008-2009.

Stocks to Study (6/24/2016)

  • Tractor Supply (TSCO) — Highest MANIFEST Rank
  • Sunpower (SPWR) — Highest Low Return Forecast (VL)
  • Restoration Hardware (RH) — Lowest P/FV (Morningstar)
  • Beazer Homes (BZH) —Lowest P/FV (S&P)
  • Sunpower (SPWR) — Best 1-Yr Outlook (ACE)
  • First Solar (FLSR) — Best 1-Yr Outlook (S&P)
  • Sunpower (SPWR) — Best 1-Yr Outlook (GS)

The Long & Short of This Week’s Update Batch

The Long & Short. (June 24, 2016) Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey. Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.com S&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target. 1-Yr “GS” Outlook: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Fastenal (FAST)

This profile displays how we build return forecasts and aggregate “opinions” for Fastenal, our 4th most widely-followed company by Manifest Investing subscribers.  For most portfolios (because most buy/hold/sell decisions should be influenced by impact on total portfolio) would perceive Fastenal as a “solid hold” under the present conditions and set of assumptions.  Start your FREE TEST DRIVE at http://www.manifestinvesting.com today.

There’s a reason that Fastenal (FAST) is the 4th most widely-followed stock by our community of investors. And as the time series graphic that we refer to as a “Chronicle” suggests — we noted some accumulation back when the stock price approached $35 and the long-term return forecast neared 15%. In case you’re wondering, “Yes, we liked Fastenal a lot nine months ago.” See: This Week at MANIFEST (9/25/2015) [Test drive or subscription required]

The accompanying banner (above) provides a parade of long-term and short-term opinions on FAST, sort of like a panel of Olympic judges. No, Virginia, the judges do not always agree and there’s usually a Simon Cowell in the mix.

  • MANIFEST PAR: PAR stands for Projected Annual Return, our 5-year time horizon total return (annualized price appreciation and average dividend yield) forecast. At 9.6%, it’s fairly solid, should be considered by most to be a “strong hold” and provides context. The average stock checks in at about 6.4% right now — so Fastenal is slightly better than average.
  • Quality Ranking: Scored index based on financial strength, earnings stability/consistency, relative growth and relative profitability versus competitors/peers. All companies are scored and ranked. Fastenal ranks in the top quintile (>80) and we consider the top quintile to be EXCELLENT.
  • MANIFEST Ranking: We believe that return forecast and quality are the two most important characteristics of any investment. This “score” or index is an equally rated percentile ranking of both factors. At 92, we believe that 8% of the companies in our coverage universe (approximately 190 companies) are more compelling right now than Fastenal.
  • Value Line (VL) Low Total Return Forecast (VLLTR): Based on the 3-5 year forecast published by the Value Line Investment Survey (9% at the time of publication for Fastenal), the figure shown here (7.4%) is adjusted for change in stock price and time horizon. The median VLLTR for the Value Line 1700 Standard Edition is currently 5.6%.
  • Morningstar P/FV: The price-to-fair value, based on analysis by Morningstar. A fairly valued stock = 100%. A P/FV less than 100% is potentially “on sale.” The average Morningstar P/FV right now is 99%.
  • S&P P/FV: The P/FV, based on analysis by Standard & Poor’s. The average S&P P/FV is 100%. S&P is the “least impressed” of our “Olympic judges” when it comes to Fastenal, at the present.
  • 1-Yr ACE Outlook: The first of our one year horizon forecasts — used for an indication of “real sentiment.” ACE stands for Analyst Consensus Estimate. This 1-year total return forecast is based on an aggregate of covering analysts for the various companies. The average 1-Yr ACE forecast is currently 14.3%.
  • 1-Yr S&P Outlook: The one year total return forecast from S&P. The average S&P 1-year forecast is currently 7.0%.
  • 1-Yr GS Outlook: GS = Goldman Sachs, singled out as one of the most influential opinions (and sentiment drivers) in the world of investing. The average Goldman Sachs 1-year total return forecast is currently 7.3%. I’m surprised that Goldman does not cover Fastenal, hence the blank entry.

Business Model Analysis: 9-12% Return Forecast

Morningstar Conference (2016)

Morningstar Investment Conference (2016)

“I see investing as the responsible act of the broad middle class, yet there’s still so many people we don’t touch today.” — Don Phillips, Morningstar

The annual shareholder meeting of Berkshire Hathaway has been called the Woodstock of capitalism, drawing tens of thousands of investors from all over the world.

I think the Morningstar Investment Conference might be “bigger” than the annual pilgrimage to Omaha.

Really? Yes, really. On a per capita basis, comparing the number of investors in Omaha versus the over 2000 advisors and practitioners in Chicago, the Morningstar Investment Conference, or #MICUS, might be a bigger “show.” Before you scoff, consider the population of registered advisors and representatives vs. how many attend. Morningstar puts on an effective event and while you’re scratching your head over the per capita comparison, don’t forget there’s an admission price for the Chicago program.

Make no mistake. Don Phillips and the Morningstar gang throw one heckuva party. We’re reminded about rampant fallacies with respect to passive vs. active investing, a growing discovery and emphasis on sustainability, the mistaken generalizations about advisors vs. registered reps, the new DOL fiduciary regulations and a litany of topics worthy of consideration and discussion.

  • “Supporting responsible investing is actually more closely related to behavior modification.” — Don Phillips
  • We’ve been fans of the Morningstar MOAT Fund for some time. Microsoft’s acquisition of LinkedIn (LNKD) provides quite a boost to the fund’s value in recent days. The merits of LinkedIn — and investment thesis — were covered by Morningstar’s Elizabeth Collins during an early panel session.
  • Best Ideas: Biogen (BIIB) and Williams-Sonoma (WSM). (Elizabeth Collins)
  • “Global growth over last four years has been slower … but it’s actually closer to long-term norms.” Prevalent themes: persistent strong U.S. dollar, U.S. treasury yields not justified and some scattered opportunities in emerging markets. (Michael Hasenstab, Franklin Templeton)
  • “Investors should not use a shot gun approach with respect to emerging markets. Use a rifle instead.” (Hasenstab)
  • Reminiscent of a couple of previous Morningstar conferences, Bill Bernstein served as this year’s “Grumpy Old Man” but he seems to agree with many of us on many issues. But he’s a delightful curmudgeon.
  • “The case for index and passive investing has been dramatically overstated.” (Phillips)
  • “Alternative funds are not an investment. They are a compensation scheme.” (Bernstein) [Told you …]
  • What hasn’t been overstated? The cleavage between high-cost and low-cost. (Phillips, Bernstein)
  • “I pride myself on not knowing what stocks are in my portfolios. I’m a Quant.” (Cliff Asness, AQR)
  • I respect and enjoy the work of Rob Arnott (Research Affiliates) and Cliff Asness (AQR). But watching them debate like sumo wrestlers trying to give each other a wedgie in a cage match on the head of a pin is not my favorite post-breakfast activity. I’m glad they believe in “Tin Cup”, grant permission for us to “sin a little” with asset allocation and speculation and I now have a greater appreciation for Smart/Strategic Beta and I’m thankful that at it’s core — we have been doing a lot of the factor-based opportunity stuff for a long time. But most of all, I’m grateful for the elegant simplicity of our methods. It’s a powerful reminder about Occam’s Razor.

(Continuing with our regularly scheduled programming and weekly update …)

MANIFEST 40 Updates

  • 9. Cisco Systems (CSCO)
  • 10. Qualcomm (QCOM)
  • 12. Walgreen Boots (WBA)
  • 37. CVS Health (CVS)
  • 40. LKQ Corp (LKQ)

Round Table Stocks: Cisco Systems (CSCO), CVS Health (CVS), Gentex (GNTX), Inteliquent (IQNT), ITC Holdings (ITC), LKQ Corp (LKQ), Neustar (NSR), Qualcomm (QCOM), Synaptics (SYNA)

Results, Remarks & References

Companies of Interest: Value Line (6/17/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 5.6% vs. 5.5% for the Value Line 1700 ($VLE).

Materially Stronger: Infinera (INFN), Drew Industries (DW)

Materially Weaker: American Movil (AMX), Synaptics (SYNA), Titan (TWI), Dish Network (DISH)

Discontinued: Time Warner Cable (TWC), Cleco (CNL), Fuel Systems Solutions (FSYS)

Coverage Initiated/Restored:

Market Barometers

Value Line Low Total Return (VLLTR) Forecast. The long-term low total return forecast for the 1700 companies featured in the Value Line Investment Survey is 5.6%, unchanged from 5.6% last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 20% when stocks are in the teeth of bear markets like 2008-2009.

Breaking.

Guggenheim has reinstated the S&P Small- and Mid-Cap equally-weighted funds: EWSC and EWMC

For a complete list of Guggenheim ETFs, see:

http://gi.guggenheiminvestments.com/products

Market Barometers (Continued)

In honor of this week’s Morningstar Investment Conference in Chicago, their weekly determination of stock prices in general vs. the “fair value” for the overall stock market.

Mstar market fair value 20160615

Stocks to Study (6/17/2016)

  • LKQ Corp (LKQ) — Highest MANIFEST Rank
  • Neustar (NSR) — Highest Low Return Forecast (VL)
  • Borg Warner (BWA) — Lowest P/FV (Morningstar)
  • Arris Group (ARRS) —Lowest P/FV (S&P)
  • China Auto Systems (CAAS) — Best 1-Yr Outlook (ACE)
  • Juniper Networks (JNPR) — Best 1-Yr Outlook (S&P)
  • Verifone Systems (PAY) — Best 1-Yr Outlook (GS)

The Long & Short of This Week’s Update Batch

The Long & Short. (June 17, 2016) Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey. Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.com S&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target. 1-Yr “GS” Outlook: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Fave Five (6/17/2016)

Fave Five (6/17/2016)

Our Fave Five essentially represents a listing of stocks with favorable short term total return forecasts (1 year, according to Analyst Consensus Estimates, or ACE) combined with strong long-term return forecasts and good/excellent quality rankings.

The Fave Five This Week

  • Aaron’s (AAN)
  • Shire plc (SHPG)
  • Simulations Plus (SLP)
  • Synaptics (SYNA)
  • Under Armour (UA)

Context: The median 1-year total return forecast (via ACE) for the Value Line 1700 is 10.5%. The median 5-year return forecast for $VLE is 5.5% (annualized).

The Long and Short of This Week’s Fave Five

The Long & Short. (June 17, 2016) Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey. Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.com S&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target. 1-Yr GS: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Weekend Warriors

The relative return for the Weekend Warrior tracking portfolio is -0.3% since inception. 48.9% of selections have outperformed the Wilshire 5000 since original selection.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/weekend-warriors

The position in Comtech Telecommunications (CMTL) was closed on a drop to -20% relative return this week.

Cmtl warriors transaction 20160613

We do have a few companies nearing the “hot seat” for the right reasons — prices up, return forecast approaching the average forecast (MIPAR).

Warrior dash 20160617

Fave Five (6/10/2016)

Fave Five (6/10/2016)

Our Fave Five essentially represents a listing of stocks with favorable short term total return forecasts (1 year, according to Analyst Consensus Estimates, or ACE) combined with strong long-term return forecasts and good/excellent quality rankings.

The Fave Five This Week

  • Aaron’s (AAN)
  • Biogen (BIIB)
  • Inteliquent (IQNT)
  • Simulations Plus (SLP)
  • Under Armour (UA)

Context: The median 1-year total return forecast (via ACE) for the Value Line 1700 is 10.4%. The median 5-year return forecast for $VLE is 6.4% (annualized).

The Long and Short of This Week’s Fave Five

The Long & Short. (June 10, 2016) Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey. Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.com S&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target. 1-Yr GS: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Weekend Warriors

The relative return for the Weekend Warrior tracking portfolio is +6.7% since inception. 66.0% of selections have outperformed the Wilshire 5000 since original selection.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/weekend-warriors