Author: expectingalpha

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

That Long-Term Return Forecast (3/31/2013)

expectingalpha Investing , ,

Just a refresher on the forecast vs. actual results for the Value Line Low Total Return Forecast (VLLTR) … a close cousin of Mark Hulbert’s VLMAP … and taking Mr. Hulbert up on his suggestion to benchmark versus the Wilshire 5000 (VTSMX).

As shown here, even the Value Line LOW total return forecast has been fairly consistently 3-4 percentage points higher than actual results.

And to reinforce, we consistently see alignment between VLLTR for individual companies and their projected annual return (PAR) at Manifest Investing. Why is this the case? We believe that the inclusion of analyst research from the likes of Morningstar and Standard & Poor’s moderately tempers the overall analysis. (We obviously include Value Line in the analysis of every company, too.) Time after time, we see slightly lower growth, profitability or projected P/E forecasts when we aggregate and combine — and find that collectively, this combined result aligns more closely with VLLTR and actual total return results over the last several years.

For the bigger picture, here’s the Wilshire 5000 actual results vs. the VLLTR forecasts (quarterly back to 1999):

Eddy Elfenbein on Apple (AAPL)

expectingalpha Stocks

Eddy Elfenbein on Apple (AAPL) from his weekly Crossing Wall Street note … and a reminder that if you’re owning or watching any of the stocks on his Buy List for 2013, he will help you.

Apple Gives $100 Billion to Shareholders

One of the big catalysts for the stock market this week was the dividend hike from Apple (AAPL). Although the legendary iStock isn’t on my Buy List this year, the company is so large, it can move the market all by itself.

Apple said that it’s raising its dividend by 15% to $3.05 per share. The company is also increasing its share-repurchase program by $10 billion to $60 billion. The combined total of the dividend and share repurchase comes to $100 billion that Apple is paying out to shareholders. To put that in context, the new dividend works out to $12.20 per share for the year. Ten years ago this week, the whole stock was going for $6.60 per share. Apple is now sitting on a bank account of $145 billion. That’s enough to buy every single team in the NFL, NHL, NBA and major-league baseball.

Interestingly, Apple is borrowing money for its dividend and buybacks. That may sound odd, but rates are so low — hey, why not? I think the Apple news clearly gave investors a big confidence boost. This was especially true after the AP’s Twitter account was hacked. The hackers sent out some bogus tweets, and within a few seconds, $160 billion in market value was erased. So yeah, that kind of stuff tends to put people on edge.

Another sign of a calmer market is that the yield spread between junk bonds and Treasury bonds has fallen to a two-year low. This is exactly what we want to see. Investors are willing to take on more risk with their money. That’s why these higher dividends are so important. They can lure money away from rock-bottom yields in the Treasury market.

Value Line Low Total Return Screen (4/26/2013)

expectingalpha Stocks , ,

Companies of Interest

Again we see what a difference a week makes … some of the food-related companies hold down the Materially Stronger fort — but keep in mind that Zhongpin (HOGS) is likely on its way to going private at $13.50.

Educational Services once again provides us with the usual list of suspects as the industry continues to get shellacked. Notable by their absence from the Materially Weaker list are DeVry (DV) and Strayer Education (STRA). Perhaps the triage is starting to take hold?

Materially Stronger: Zhongpin (HOGS), ConAgra (CAG), Core-Mark (CORE), Flowers Foods (FLO)

Materially Weaker: Career Education (CECO), ITT Educational Services (ESI), Apollo Group (APOL), Corinthian Colleges (COCO), Hitachi (HTHIY), Dole Foods (DOLE)

Market Barometers

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

Finding The Best 4-Year Forecast Method

expectingalpha Investing , ,

Mark Hulbert and I compare notes again on using Value Line for long-term forecasting for individual stocks and markets.  As Hulbert points out, the Value Line Median Appreciation Projection (VLMAP) has a pretty solid track record.

We agree — and side with the likes of Walter Schloss and pure discipline itself — when we use our own version of VLMAP, specifically an emphasis on the median Value Line low total return forecast (VLLTR) … a parameter that includes dividends, extending beyond long-term price appreciation and aligns even more favorably when we compare Forecast vs. Actual with the past couple of decades in the rear-view mirror.

http://www.marketwatch.com/story/finding-the-best-four-year-market-forecaster-2013-04-19

HMS Holdings (HMSY)

expectingalpha Stocks

 

Company Description

HMS Holdings (HMSY) provides cost containment and payment accuracy services for government-sponsored health and human services programs in the United States. Their coordination of benefits services route claims already paid by a government program to a liable third party, which then reimburses the government payor. Its cost avoidance services provide validated insurance coverage information that is used by government payors to reject claims that are the responsibility of a third party, typically a group health plan sponsored by the beneficiary’s employer. HMS also offers independent external medical review on issues of quality of care.

Business Model

Profitability Analysis

Technical Analysis: Long Term Perspective

Here is where it gets a little bit dicey for HMSY — because we can’t be sure that the company is “out of the woods” yet.

In its favor, that long-term price trend is strong … and there’s a fair amount of technical support in the realm of $22-23, perhaps even $25.

Equity Analysis Guide: Worksheet

Points of View

Morningstar discontinued coverage back in November 2012 and has reduced their Financial Health rating on HMSY.