We’re Not In Kansas, Anymore

This Week at MANIFEST (3/27/2020)

“Everybody who has ever invested during our darkest days has ultimately been rewarded. There’s no reason to think this time is different.” — Michael Batnick

“In the next two weeks we will witness a breathtaking degree of human ingenuity. It’s starting to bubble up now. The most capable among us are now fully engaged. That virus doesn’t know what’s coming for it.” — Scott Adams

“… for young investors, this is perhaps a once in a lifetime gift, and they should do their best to open and make maximum contributions… — Jim O’Shaughnessy, A Generational Opportunity

We’re Clearly NOT In Kansas, Anymore … Toto

The 1996 movie, Twister, features Helen Hunt, Bill Paxton, Jami Gertz and Cary Elwes, and depicts a group of storm chasers researching tornadoes during a severe outbreak in Oklahoma.

There’s a scene in the movie where the chasers dine at Aunt Meg’s house in a sort of scrambled eggs and pancakes royal feast. (And beef, it’s Oklahoma, after all…) They return to Aunt Meg’s a few hours later to find the house leveled by a tornado. Aunt Meg and her dog are rescued from the debris and the balance of the movie revolves around seeking refuge, dodging flying cows … and the ultimate final scenes where Helen Hunt and Bill Paxton strap themselves to a pipe in a barn as the entire enclosure is removed from around them. And then it’s gone … the sun comes out and clear skies manifest.

“Things go wrong. You can’t explain them, you can’t predict them. … You gotta move on. Stop living in the past, and look what you got right in front of you.” — Bill Harding (Bill Paxton)

The central theme of the movie is to chase down and “inject” a tub of monitoring devices into the center of a tornado so that scientists could study anatomy, vectors, etc. and improve predictive capabilities for the benefit of many. One of these modules of sensors is shown in the accompanying figure and is named “Dorothy” in obvious tribute to those who’ve navigated over the rainbow.

But the real life, the device called “Dorothy” was actually named TOTO by the National Oceanic and Atmospheric Administration (NOAA). TOTO — which stands for “TOtable Tornado Observatory” — was a 55-gallon barrel outfitted to record storm data.

Enter our own “Dorothy” …

Whether we’re dealing with black swans, or a herd of buffalo simply trying to decide how to vector, or the wreckage from Aunt Meg’s house — clarity is a good thing. And although this won’t be perfect, at least we can come to terms with moderating forecasts as we attempt to understand how deep and how wide the current chasm challenge might be.

All 1400 companies that comprise the Value Industrials have current forecasts for 2020, 2021 and 2022 in our database. These are continuously updated (via YCharts) and will be shared frequently (at least weekly) going forward.

We’ve already seen that actual results for 2019 swooned while many people continued to marvel at “the best economy in the history of our country.” The rhinos on CNBC speak of unprecedented and undamaged “fundamentals.” They’re probably very, very wrong. My take is that it’s far from cataclysmic but not nearly as strong as many believe … and spew.

As recently as 3Q2019, expectations were for a median net margin of 8.5-9% for calendar 2019. As shown here, that didn’t happen. (Despite all of the fiscal stimulus and churning of stock buybacks, etc.) Expectations were for 9.0-9.5% in 2020. We’ll monitor very closely to see how much of a shortfall to expect, displaying it as soon as possible. But the 2020 year end median net margin went from 8.4% to 8.0% in just the last week.

[The main characters are in the shed hiding from an F5 tornado and Bill sees water pipes coming out of the floor.]

Bill: Here! These pipes go down at least thirty feet, if we anchor to them we might have a chance!
Jo: Have you lost your nerve?
Bill: Tighten your seatbelt.

Whether we’re talking about empty planes or empty restaurants… this too shall pass. We persisted through challenging times in November 2008 … backing up the truck and stepping on the gas in March 2009. We don’t have 30 feet of submerged pipe but we have nearly eight decades of wisdom and lessons deployed. We’ll chase the storm, dodge the flying cows … and attempt to navigate prudently this time, too.

MANIFEST 40 Updates

  • 1. Apple (AAPL)
  • 21. Skyworks Solutions (SWKS)
  • 25. Intel (INTC)

Round Table Stocks

  • Acuity Brands (AYI)
  • Apple (AAPL)
  • IPG Photonics (IPGP)
  • Skyworks Solutions (SWKS)
  • Universal Display (OLED)

Best Small Companies (2020 Dashboard)

The status of the 2020 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-companies-2020

Investing Round Table Sessions (Video Archives)

Investing Topics (Video Archives)

Results, Remarks & References

Companies of Interest: Value Line (3/27/2020)

The median Value Line low total return forecast for the companies in this week’s update batch is 14.7% vs. 18.1% for the Value Line 1700 ($VLE).

Materially Stronger: HP (HPQ), Skyworks Solutions (SWKS), Apple (AAPL)

Materially Weaker: Plantronics (PLT), Benchmark Electronics (BHE)

Discontinued: Pattern Energy (PEGI)

Market Barometers

“There’s a huge difference between an expectation and a forecast in investing. An expectation is an high-probability acknowledgment of how things might happen. A forecast is a specific prediction. In investing, forecasts are dangerous.” — Titan Research

Value Line Median Appreciation Projection (VLMAP) Forecast. The long-term median appreciation projection for the 1700 companies featured in the Value Line Investment Survey is 21.8%, INCREASING from 15.8% last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 25% when stocks are in the teeth of bear markets like 2008-2009.

“It is my opinion that these future appreciation forecasts are going to be revised downward (and with larger downward revisions than currently expected/anticipated) faster than someone can yell, “Fire” in a crowded movie theatre.  In a word: It’s a Trap !!!” — Nick DiVirgilio

Nick is right.

Some of the geekier among us will recognize Admiral Ackbar from Star Wars:

The phrase stems from a memorable quote said by Admiral Ackbar (voiced by Erik Bauersfeld), the leader of Mon Calamari rebels, during the Battle of Endor in the 1983 Star Wars film Episode VI: Return of the Jedi. In the movie, as the Alliance mobilize its forces in a concerted effort to destroy the Death Star, Admiral Ackbar encounters an unexpected ambush, which leads him to exclaim, “It’s a trap!”

And we’re getting perhaps a little geeky, but here’s a snippet of how we’re approaching this … and why I’m optimistic that we’re barking at the right tree.

  • After the stock market closed on Friday and locked in prices for the weekend, the median projected return (MIPAR) was 18.1%.
  • A current data refresh of our database now displays a MIPAR of 17.4%.
  • The prices didn’t change. But YCharts has been busily and dutifully updating analyst forecasts (most likely from work-from-home environments) all weekend long and this bolsters my instincts on this.

There’s no way to know the duration and amplitude of this disruption — but at least we’re not flying blind with “static analyses” on the positions that we follow.

But … chances are … we’ll have a much better perspective on the CHASM than “average investors”.


Or, as Mr. Spock would say, “it’s only logical, Captain”.  — Ted Brooks


Update Batch: Stocks to Study (3/27/2020)

Long & Short Term Perspectives. (March 27, 2020) Proj Ann Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. MANIFEST Ranking: Combination ranking that equally weights PAR and Quality. VL Low Tot Ret: Value Line forecast, expressed as low total return forecast. Owner’s PROC: Projected Return on Capital via 5-year EPS forecast versus current capital — equity and debt. Morningstar and ACE and P/FV: Price-to-Fair Value estimates from the (2) sources. 1-Yr ACE Tot Return: One year total return estimates via ACE.

Market Benchmarks (Continued)

Value Line Arithmetic Average. We’ve reached relative strength levels that suggest potentially oversold. But a reminder nudges away in that the bouncing ball bounced at a “bottom” for several months from November 2008-March 2009, a period that seemed like a very, very, long time.

Manifest Investing Median Return Forecast (MIPAR). Reaching those levels seen in 2008-2009.

Value Line Industrials. Net Margin Not much change as the last few “precincts” for 2019 report in with their actual 4Q and 2019 year-end actuals. But we dropped from 8.4% to 8.0% on the 2020 estimates with a little erosion on the 2021-2024 expectations.

This one’s for Ted Brooks. Because he’s right about the algos and the Rise of the Machines.

You can’t look at this without noticing the daily transaction volume in the last 30 minutes or so (actually 15 … or 5) minutes of trading every day.

 spx last 30 20200320

Surrender, Dorothy?


We didn’t expect our version of “Dorothy” (or TOTO) to capture the changing landscape quite this quickly.

Sure. Our beloved Wall Street rhinos are back at their desks — many of them probably working from home — and they’re clearly not in a good mood. A quick comparison of this weekend’s chart shows no improvement in 2019 … with continued declines in 2020E and 2021E … and the slope of the long term trend has already deflected enough that we can “feel” it in our return forecasts.


There’s no place like home.  There’s no place like home.  There’s no place like home.

Hoping For A Pandemic of Perspective

Hoping For A Pandemic Of Perspective

The Covid-19 challenge is serious. Very serious. Nothing about these remarks is intended to be light-hearted or flippant. It’s a fact that I lost my father recently and the cause listed on his death certificate is “Coronavirus.” The country and globe are actively attempting to suppress the potential exponential growth of the Wuhan virus — and every effort could be instrumental in saving many, many people.

No one knows what the economic impact of this mission will be. No one knows with any certainty how long the measures will be necessary. We did have a positive indicator in that schools in South Korea are considering resuming their schedules. That brings the notion of “finite period” into better focus. There are also encouraging signals on confirmed case growth and mortality rates in many geographies. And we pray for significantly better results from places like Italy, etc.

With an element of “This, Too, Shall Pass …” we look to the investing world with disrupted confidence and dented expectations. That said, with the passage of time, we expect to look back on this time as also a period of opportunity. For anybody still signing the back of a paycheck with any level of reasoned risk tolerance, the Generational Opportunity words of Jim O’Shaughnessy are compelling.

We — this Community — are by nature, optimistic and willing to carefully consider opportunity. In that spirit, I have this feeling that we’re in days that resemble November 2008. We began accumulating assets that continued to decline and had to wait until March 2009 for the recovery to get into full swing. I’ve been accumulating shares of Nasdaq-100 (QQQ) every time the relative strength index breaks below 30 while I shop for the types of stocks that we’ll cover here.

Be well. Stay healthy. Good hunting!

All-Of-The-Above Investing ($VLE) takes a considerable “hit.” If there’s a refuge or safe oasis among the 1700 stocks in the Value Line Arithmetic Average, I’m having trouble seeing it. The index has been under pressure — lagging the S&P 500 and Wilshire 5000 for some time — as the smaller companies have struggled fairly mightily over the last couple of years. But what I’m also having trouble seeing is the widely spewed opinion that this swoon is “unprecedented.” On closer analysis of this 20-year view of this collection of stocks, does this look unprecedented to you?

Yes … the “velocity” of the price drop from all-time highs in February to current levels has been brutal. I doubt that we’ve seen any major index go from overbought (RSI>70) to oversold *RSI<30) in less than a month.

Manifest Investing Median Projected Return (MIPAR). As shown here, the sudden sea change in stock prices have delivered return forecast expectations that we haven’t seen since that financial markets fiasco of 2008-2009.

Recession Watch

A number of respected economists have suggested that a recession is already here. They could be right. Why do we care? Because, as we’ve documented here for a long time — when a recession hits, what really materializes is a tidal wave of companies deflecting to negative earnings, a condition that makes analysis very challenging. In fact, we discussed the nature of the 2008-2009 CHASM fairly extensively as we navigated those choppy waters back then.

So are we looking at a chasm? How deep? How wide?

In the pursuit of some perspective on this, we’ve gone ahead and moved up our fundamental updates on all of the Value Line industrials — a group of approximately 1400 companies. The analyst consensus estimates for revenues and earnings for 2020E, 2021E and 2022E provide a closer look at the onset of a developing chasm. Those results (and current condition) are shown here:

Value Line Industrials (ex-Financials) — Profitability Trend & Forecasts. The longer term trend (blue line regression) is STRONG. The impact of the 2008-2009 recession is displayed as the median net margin dropped to 6%. We note that expectations a few months ago for 2019 net margin were in the range of 8.4%. Much of that evaporated as 2019 came to a close and those hoped-for levels were not attained. There are still several companies wrapping up final numbers for 2019 but it should be clear that some disappointment was inevitable. I may have missed it, but during January and February, I don’t recall too many Wall Street rhinos talking about this erosion of expectations. We note that there’s been moderate slippage in 2020E expectations and we’ll be watching this aggregate closely (read daily, published weekly) as analysts work to envision how detrimental the current economic isolation will be for many companies. We also note that any “degradation” over the next 12-18 months could lead to a downward adjustment to the longer term growth and profitability forecasts.

The Wall Street rhinos have circled the crash (as shown above) and we’ll be watching them closely.

Storm In Progress … Time To Be A Buffalo?

There’s a great lesson that can be learned from watching the behavior of cows and buffaloes when it comes to the onset of a serious storm.

The cows will align and walk/run in an attempt to out run the advancing storm. They don’t run very fast — and the outcome is certain.

So the storm catches up with the cows rather quickly. And without knowing any better the cows continue to try to outrun the storm. But instead of outrunning the storm they actually run right along with the storm. Maximizing the amount of pain and time and frustration they experience from that storm!

The cows end up huddled and drenched or neck deep in a snow drift.

Isn’t that stupid?

Humans do the same thing all of the time. We spend so much of our lives constantly trying to avoid the inevitable challenges that come along with the difficult circumstances that our very own choices have led us to be in.

The reaction of a buffalo is just the opposite. They will turn in the direction and head towards the oncoming storm, courageously charging ahead.

What buffalo do on the other hand is very unique for the animal kingdom. Buffalo wait for the storm to cross right over the crest of the peak of the mountaintop and as the storm rolls over the ridge the buffalo turn and charge directly into the storm.

Instead of running east away from the storm they run west directly at the storm. By running at the storm they run straight through it. Minimizing the amount of pain and time and frustration they experience from that storm.

Notice how it’s the exact same storm. It’s such a great metaphor for all of us because all of us are dealing with the same types of storms.

  • The average return forecast (MIPAR) is now 17.0%.
  • The average relative strength index is now 25.6 (Oversold)
  • The vast majority of stocks are trading at or near their 52-week lows.

What To Buy? Consider ‘Toilet Paper’

The legends about the hoarding of toilet paper and kitchen towels are true. The shelves are empty at all of the local grocery stores. Any incoming inventory is stripped from the pallet and never makes it to the shelves.

I have a secret. The demand for toilet paper is relatively constant. (See accompanying chart)

This is another case of “This, too, shall pass.”

I will share that I made observations about this on social media and one of our Florida colleagues suggested that perhaps Bounce, the laundry sheets, might provide an acceptable stop gap measure. In her words, “my bottom is now pleasantly scented and static free.” Our son Alex and I dutifully checked the next aisle over and sure enough … there were several containers of Bounce. We placed a limit order.

There are few things steadier than this toilet paper consumption trend:

… and that leads to price stability for providers like Procter & Gamble (PG)

So part of our mission is to identify opportunity among companies with leadership earnings stability. Here’s a short list of high-quality companies that are less economically impacted due to their ability to “bounce back” and persist during supply and demand-side challenges and disruptions.

Screening Results (3/17/2020). The primary screen is EPS Stability in top decile (>90%). The secondary screen is Manifest Rank greater than 95.

  • Yes, all the concerns about dine-in, carry out and delivery apply to Texas Roadhouse.
  • Note that many of the candidates are related to food delivery and preparation.
  • With the exception of Google, all companies are oversold with RSI<30.
  • The negative numbers in the 52-week position mean that the stock is trading below its 52-week low and this will be “reset” by YCharts to reflect the new range. (This lags by a few hours)
  • Note the P/FV ratios and virtually unanimous consent from Morningstar and ACE — and levels we’ve not seen in some time.
  • The 52-week total return forecasts are probably lagging also (will likely adjust and moderate downward) but they’re certainly causing nosebleeds for now.


Dilbert: A Stock Market Perspective

The Stock Market Is Doing It’s “Stock Market Thing”

You know him as the originator of the Dilbert series. Scott Adams shared some thoughts on investing during his podcast yesterday. Scott will be the first to tell you that we should not take investment advice from him. That said, we can certainly contemplate perspective … particularly when that results in a grounding of emotions…

The following is an unofficial transcript of the podcast. It may be slightly paraphrased but it definitely captures the essence and general attitude. Adams focuses on “systems rather than goals.”

In Scott’s words …

Simply put, ” My goal is to stay alive … not be a burden on the healthcare system.”

I take a nice long walk every day … I’ve taken sugar completely out of diet … with [prudent/periodic brief] time outs from social media.

Keep your stress down. Relax.

The stock market is doing it’s stock market thing of trying to scare us.

I’m not worried whatsoever about a generally falling stock market. Do you know what really bothers me? A generally rising stock market when I’m not in it. When the stock market goes down, my share of the world goes down proportionally. And when it goes up, my share goes up proportionally. My success generally depends on the world doing well. And it has.

So, no, I’m not worried about the stock market.

If you think you’ll be alive for two years or more, then you shouldn’t be afraid.

Don’t worry about the stock market Invest widely in successful companies. When the success continues … The stock market will do it’s thing … and then it’ll be back.