Author: expectingalpha

Fusion Screen (4/9/2013)

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By Deglr6328 (Wikimedia Commons)

Infosys Tech (INFY) remains among the more interesting stocks in our Fusion Screen.

Recent Solomon Select feature Atwood Oceanics (ATW) continues to represent the Energy sector. Apple (AAPL) may have more short-term downside when it comes to price, but is a solid selection for committed long-term investors.

Screening Criteria:

1. Fusion Ranking = 100. (Combination of Fundamental and Technical Factors)
2. Quality Ranking greater than 60.
3. Bullish Point-and-Figure Sentiment. (Source: Stockcharts.com)
4. Price-to-Fair Value less than 100%. (Sources: Morningstar and S&P)

Fusion screen 20130409

Look Out Below: MYL, NVO & RHI

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Lookout Below

During the weekly update, the following stocks were flagged based on a decline from RSI greater than 70 (potentially overbought) to less than 70. Reminder: We use a long-term chart (monthly) for this analysis.

All of these companies should be subjected to an assertive portfolio-centered selling analysis.

  • Mylan Labs (MYL)
  • Novo Nordisk (NVO)
  • Robert Half (RHI)

Lob dash 20130412

Mylan Labs (MYL)

Myl 10yr 20130412

Novo Nordisk (NVO)

Love the company … would probably want to wait for a slightly higher PAR and a clear reversal in the RSI trend.

Nvo 10yr 20130412

Robert Half (RHI)

This community favorite has had a heckuva run over the last several months. With a PAR (5.9%) less than the market average (MIPAR = 7.0%) and relatively rare RSI breaks and excursions over the last ten years, if you’re holding this high-quality (Quality Rank = 88th percentile) career and employment leader, your recent gains may be worth capturing/protecting.

Check overall portfolio return forecasts and this RSI break condition could be a tiebreaker when pondering selling candidates.

Rhi 10yr 20130412

Value Line Low Total Return Screen (4/12/2013)

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Photo Credit: bayat via Compfight cc

Companies of Interest

This week’s short list is the type of list we start to see near market tops. Several of the companies fail to reach the top quality quintile (Quality Ranking > 80) and we included AFLAC (AFL) although it’s on the edge.

We’ll be spending more time this month with Teva Pharma (TEVA) and the generic pharma industry to examine the bigger picture and longer term expectations. It will be part of the agenda for the Round Table on April 30.

We’ll also take a look at Robert Half (RHI) as a study candidate — but from the perspective of “traps” as community favorite RHI ends up in the “Look Out Below” roster this week along with Mylan Labs (MYL) and Novo Nordisk (NVO).

Materially Stronger: Biogen Idec (BIIB), Bristol-Myers Squibb (BMY), Kelly Services (KELYA), Albany Molecular (AMRI), BRE Properties (BRE), Public Storage (PSA), Investors Banc (ISBC)

Materially Weaker: Alcoa (AA), Anglogold Ashanti (AU), People’s United Financial (PBCT)

Market Barometers

The median Value Line low total return forecast is 6.7%, compared to 6.7% last week.

MANIFEST 40 (March 2013)

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The Stocks You Follow: March 2013 Update

We’ve always believed that the collective decisions made by our community of long-term investors is worth huddling over … a place where ideas are born.

Apple (AAPL) continues at the top of the leader board, a position the company has held for several months. AAPL first appeared on this listing on 9/24/2009 and proceeded to ascend to the summit.

Performance Results

It’s here that your favorites shine. The average annualized RELATIVE return for the current tracking portfolio is +4.2%. (The absolute return for the tracking portfolio since inception is 6.4%.)

The accuracy rating (% of outperforming entries) of the current selections is 59.0%.

Including all selections since inception (7.5 years) the annualized relative return of the MANIFEST 40 is +3.0%.

The figures in parentheses are the position of the company during the December 2012 listing of the MANIFEST 40. For example, FactSet Research (FDS) advanced from #17 to #13 over the last three months.

Chargers

What companies are making the strongest gains among the consensus collection? This may be indicative of strong fundamentals (combined with attractive prices and return forecasts) and probably warrants further study.

The stocks making the largest advances (by % of dashboards) since 12/31/2012 are: QUALCOMM (QCOM), Coach (COH) and Bio-Reference Labs (BRLI).

The newcomer this quarter is Coca-Cola (KO).

Strongest Performers

The top performers in the MANIFEST 40 tracking portfolio are:

National Oilwell Varco (NOV)

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We selected National Oilwell Varco (NOV) from the following short list of Solomon Select candidates (screening results)  for the April feature:

Solomon short list 20130403

National Oilwell Varco (NOV): Business Model Analysis

Energy. Jeremy Grantham covered the subject well during his recent interview with Charlie Rose. Our selection of National Oilwell Varco (NOV) comes closely on the heels of Atwood Oceanics (ATW) a few months ago. The energy and energy-related stocks (i.e. Schlumberger) keep appearing at the top of our screens — and we’re wary to ignore this condition. EMC Corp (EMC) and Apple (AAPL) were honorable mention candidates and accounted for the other half of Grantham’s core message for long-term investors.

The company is the largest provider of equipment for oil and gas drilling.

The long-term outlook is bright for National Oilwell Varco.

From North Dakota to Pennsylvania to the Gulf waters off the coast of Brazil … the global need for energy is a compelling driver.

Growth, Profitability, Valuation

The Manifest Investing sales growth forecast for NOV is 10.5%. (Keep in mind that any historical data prior to 2009 is disrupted by the GrantPrideCo acquisition.) We’re using 12.8% for the projected net margin. The median P/E for the period 2006-2016 is 12.8×. We’re using 12x for the projected average P/E.

At the time of selection (4/3/2013), the stock price is $67.98, the projected annual return is 14%. The quality RANKING is 80 (Good) and the financial strength rating is 92 (A+).

The company has less long-term debt than cash assets and has an effective interest rate of 3.35%.

S&P views NOV as an attractive play on the need for new rig equipment, particularly for deepwater and unconventional natural gas projects.

Profitability Analysis (NOV)

Projected Average P/E Ratio

Equity Analysis Guide (NOV) (Spreadsheet version)

 

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

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As many of you know, the average low total return forecast made available by Value Line ranks among our favorite market barometers. We continuously compile and calculate this average based on the standard edition of the Value Line Investment Survey. Therefore, the results on display here (forecast vs. actual) get pretty compelling.

Another 91 days … another result to report. For the quarter ended 3/31/2013, we compare the 4-year low total return forecast from 3/31/2009 (20.0%) versus the 4-year actual annualized return for the Value Line Arithmetic Index (28.6%).

It’s the shape that matters — and the forecasts four years ago were of the “back up the truck” variety.

Anybody who was able to turn and run in the opposite direction of the herds running for the hills back in March 2009 is distinguishable by the footprints on their forehead and the smile on their face.

Value Line Low Total Return Screen (4/5/2013)

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Companies of Interest

We’re often asked for opinions on Apple (AAPL) and our approach/outlook is unchanged … at least not much. We do note that AAPL flipped to a bullish point-and-figure condition with a slight boost in price objective. But we still see the stock as vulnerable to a continued price drop or extended trading range. I still love the answer that Jeff Gundlach gave during the Q&A following a recent webcast. His response to “Should I buy Apple?”: “That depends. Are you really, really, really a long-term investor? How will you react if the price drops from $425 to the low $300s? If your time horizon is relatively long and you’re comfortable with a price that plummets from time to time, I’d say it’d be OK to buy/accumulate AAPL.” We still think that trailing stop protection on stocks like AAPL is a really good idea.

Expectations at Hugh’s Staples (SPLS) did relax a little bit — but the long-term outlook (for patient investors) is still strong.

Recent Round Table selection Intel (INTC) is among the best-positioned companies in the Issue 7 update.

Materially Stronger: Synaptics (SYNA), NCR Corp (NCR)

Materially Weaker: Logitech (LOGI), Garmin (GRMN), Skullcandy (SKUL), Standard Register (SR), Staples (SPLS), Cirrus Logic (CRUS)

Market Barometers

The median Value Line low total return forecast is 6.7% compared to 6.8% last week.

Sonic Restaurants (SONC): Did We Notice?

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Source: Tim Parker, Benzinga

Tim makes an interesting point and nudges us in the direction of an important question.

It’s not so important where Sonic Restaurants (SONC) are today in terms of expectations — although if you hold/follow SONC, you want to know that the return forecast is now 2.5% (thanks to the price surge brought to our attention by Tim) and that the company has a below-average quality ranking.

But we have to wonder whether we “noticed” Sonic before the price move?

We flagged SONC as “interesting” and it made our short list of study candidates back on 11/29/2011 — so we’d politely challenge the characterization that “nobody noticed.” Here’s the short list from that update:

Source: This Week Update, Manifest Investing, 11/29/2011

As shown on a current chronicle for SONC, the return forecast was elevated at stock price of $6.71 and the projected annual return was approximately 20-25%.

RSI Breaks, Death Crosses & Confirmations …

Observations:

1. The disruption period following the early 2005 relative strength break (RSI declining to less than 70 after a sustained period above 70) is not something that would surprise us.

2. The death cross (short-term trailing average breaks below long-term trailing average) circa Halloween 2007 basically “intervened” and disrupted (BIG) any potential recovery following an oversold break to the upside. As is often the case, carnage ensues — and carnage is exacerbated for poor and average quality stocks.

3. SONC was stuck in the carnage zone until a series of higher lows in the relative strength index (confirmation) materialized in late 2011.

4. SONC is still not potentially overbought (RSI = 68.6) but it’s getting there and with the projected annual return in low single digits, we’d be actively shopping for higher PAR replacements in any portfolios that contain SONC. (Those who deploy trailing stops should probably consider them — as a minimum — for SONC.)

We don’t operate under any pretense that we’re right all of the time. (Our target is to select outperforming stocks 60% of the time or more, that’s sufficient for differentiated superior performance — and can produce 3-5 percentage point relative returns over the long term.) But we do like to check historical “flags” and selections to see what we can learn. And that learning often includes huge doses of humility. We’ll be looking at some analyses that didn’t work out quite nearly as well … and seeing if dining on a little crow can bolster our long-term investing efforts too.

Thanks, Tim.