Author: expectingalpha

Resources Connection (RECN)

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File it under Christmas Miracle: French Connection.

The 10th stock in our annual Christmas Countdown is Resources Connection (RECN).

“Bon pour vous revoir, Monsieur Manifest!

“It’s good to see all of you again this year. Did you all have a nice flight across the Atlantic?”

“Oui. You know that Vaudeville comedy line … I just flew in from [fill in the blank] and are my arms ever tired? Well, in this case, our arms really are tired.”

“Perhaps you should check Air France on Expedia next time?”

“Enough with the idle bavardage, is Woodward around this year?

“I’m sorry. Bob sends his avoir du remords. I’m sure he’s either pecking away at a keyboard or getting ready to revel in some New Year’s balls to prepare for the inaugural balls.”

“(Giggle) You said pecking.”

“Calm down. What have you got for me this year?”

“Impatient American.”

“Get over it. Or we’ll talk American Fries.”

“Make our day, homey. That kind of battle would make Napoleon smile.”

“C’mon … your selection of Vistaprint two years ago hasn’t worked out so well — at least not yet.”

“(Cackle) Rude American!”

“Hey … the numbers speak for themselves.”

“They’re still rude numbers. This year we kinda like Resources Connection (RECN). It’s a former division of Deloitte & Touche and that sounds French enough to us.”

“Touche, indeed.”

Company Description

Resources Connection operates under the name Resources Global Professionals and provides finance, accounting, risk management, internal audit, information technology, human resources, supply chain management and legal professionals to clients on a project basis. It has 82 offices in 20 countries.

Outlook

Looking back over the last several years, it’s clear this company is attempting something of a “retool” and the global recession put quite a dent in 2009.

If RECN can achieve anything approaching 6-8% growth and deliver 7% bottom line margins while achieving a projected average of 19-20x, a long-term return forecast of 20% is feasible. The Value Line low total return forecast is 24%.

Value Line analyst Kenneth DeFranco Jr. referred to Resource Connection’s prospects over the next 3-5 years as “intriguing.”

“We like Monsieur DeFranco — no matter how tired our arms are. Fascinant! Bizarre! Curieux! Kenneth is welcome in Paris any time. Bring him with you next time. Don’t forget the wine.”

Christmas Countdown (Selections 1-10)

Chuck Allmon & MOCON (MOCO)

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The 9th stock in our annual Christmas Countdown is MOCON (MOCO) an all-time favorite of champion long-term investor Charles Allmon. MOCON is the type of company that can provide a solid contribution from smaller (and generally faster-growing) companies as we balance our selections.

And in this case, MOCON makes measurement, analytical and monitoring consulting products and services worldwide.

A little monitoring seems to be in order for one of our countdown favorites featuring the calling birds in the accompanying image. I could be wrong, but I think the solitaire-playing calling bird has a bluetooth. (Grin)

I think MOCON is suffering one of those occasional speed bumps that any and all companies experience during their life cycle. 2012 will be unkind. But it’s interesting to note that the “P” has not fully followed the “E” in the visual analysis. That’s an indication of faith in the long term and a return to the longer term trend for the core characteristics.

MOCON also gives us the chance to nod in the direction of Charles Allmon. Chuck, known by many of us as dancing bear — is clearly one of the most successful stock pickers that few know and/or talk about. I know that many of you are an exception to that and celebrate/cherish Chuck’s contributions to the pages of Better Investing magazine over the years.

A little while ago we looked at a portfolio published in Forbes near his the date of his retirement and we can still marvel at the results and track record.

How To Pick A Growth Stock

MOCON wasn’t in this Growth Stock Outlook feature, but ISNS (a fairly similar company) was. The portfolio has been captured and preserved at:

http://www.manifestinvesting.com/dashboards/public/dancing-bear

Since November 2008, $1200 has become $3604 … an annualized rate of return of 30.8% and a relative return of +10.3% versus the Wilshire 5000. Yes, Virginia, you’re permitted to applaud.

When it comes to stock selection and phoning-a-friend, the smartest calling birds that I know would dial up Charles “Dancing Bear” Allmon in a heartbeat.

Crossing Wall Street Stock Picks (2013)

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So Eddy Elfenbein has made his twenty favorite stock selections for 2013 a la his superb blog at Crossing Wall Street.

So what? Why should we care?

First and foremost, (1) Because it’s likely that he thinks like you do. We know how rare it can seem to find truly committed and faithful long-term investors and Eddy is one of those. We’ve been following his work for a while and consider his tendencies and thoughtful approach to be very consistent with our investing community. (2) And because it’s a Christmas miracle version and a possible answer to what’s-in-it-for-me? His track record suggests that this is a probability-stacked trove of shopping and study ideas. (3) And three — if you’re a shareholder or investment club stock watcher for any of these, we think you should track Eddy’s regular commentaries and updates as he helps all of you (us) to keep track of what matters — threats and opportunities in the year ahead. As an added bonus: He’ll also point out what doesn’t really matter en route to ignoring the chaos and distractions.

As 2012 winds down, it’s appears headed to a finish of +0.9% relative return (vs. the S&P 500) the sixth consecutive year that Eddy’s “20” have outperformed the S&P 500. A batting average of 6-for-7 is worth drafting.

New For 2013

As he points out while unveiling the 2013 Picks, he’s turning over a mere 25% of the 2012 list — low turnover of ideas, a concept that we also embrace.

The five selections for 2013 all rank near the top of many of our screens and represent a number of community favorites:

  • Cognizant Technology (CTSH): One of the most successful MANIFEST 40 (most widely-followed) stocks and frequent addition to the Core Diem demonstration portfolio over the past couple of months.
  • FactSet Research (FDS): Long-term community favorite, responsible for many smiles in the community — and well-positioned for the future opportunities in its industry.
  • Ross Stores (ROST): Highly ranked on the screening results we shared a few days ago as Eddy pondered the new crop.
  • Microsoft (MSFT): Very widely-held. Some would cite patience as we wait for returns that are representative of the long-term opportunity (and with a nod that Bill and Melinda finished their saturation sell off a while ago.)
  • Wells Fargo (WFC): In combination with JPM, regarded as among the strongest institutions going forward. Also a long-term community favorite. Book values are steadily being repaired and it’s reasonable to expect return-on-equity expansion, even if the ROE levels of yore are a distant memory. ROE levels do not have to fully return to historical trends for WFC to be a solid selection here.

The growth forecast, quality rating and return forecast (PAR: Projected Annual Return) are on display for all twenty stocks here.

As always, what really matters is what it all adds up to. In this case, although we’d probably target a little more overall growth — I’m sure that Eddy is thinking that it just might be time for the S&P 500 (larger, slower-growing) stocks to find some No-Doze and ease up on the Rip Van Winkle mode they’ve been in for over ten years. Quality is fine 70.7 despite the inclusion of some non-core stocks (like Ford). The overall return forecast at 12.4% is also fine — and compares favorably to the current median of 8.2% for all 2400+ stocks that we follow.

When we add to Nicholas Financial (NICK) to coverage, it probably won’t hurt a bit.

Here’s the tracking portfolio.  We’ll reset all position balances to $50,000 on 12/31/2012 to align with Eddy and enter 2013 with equal-weighting of all 20 positions.

Crossing Wall Street Stock Picks for 2013

For now, CONGRATS on a sixth consecutive market-topping result and we’ll continue to hope for the best going forward, Eddy — because we really believe that we’re in this together. Based on the stocks on your favorite list, a lot of our community participants agree.

Advantage of Growth (Size) Diversification

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Go ahead. Try and convince me that “All-of-the-Above” investing isn’t a good idea.

During the 20-year period shown, investing in a blend of faster-growing (smaller), medium-sized and slower-growing (larger blue-chip stalwarts) typical of the Value Line 1700 (equally-weighted arithmetic index) has outperformed the S&P 500 by +4.8 percentage points over 20 years (1992-Present).

It’s a mission-critical part — and crucial contributor — to what we do.

Three French Hens (from December 2010)

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An oldie but goodie flashback. This countdown nostalgic moment comes from the selection of  Vistaprint (VPRT) during our 12-day Christmas Countdown during December 2010.

It was a dark, foggy … actually quite misty … night and I stood and shivered while waiting patiently in the shadow of the Eiffel tower.  I had called Bob Woodward to see if he wanted to come with me, but he had too many Washington D.C. holiday parties to frequent.  I thought to myself, “… even if impaired, he has more experience at this sort of thing than I do.”  It felt good to “hear” some English, even if it meant talking to myself.

My respite was shattered by some rustling.  I peered over my shoulder to see three french hens, decked out in trench coats, scratching their way to me.  I nodded.  It was clear that no password was necessary … but that another bottle of wine wouldn’t hurt.

“Bonjour, Monsieur Manifest.  Comment allez-vous?”

(Great.  More French.) “Greetings.  Do you speak any English?”

“Desole (sorry) … until tonight, we didn’t know that we could speak.”

“No problem.  You’re talking to someone who once wrote that he did stock studies with Elvis at a Denny’s in Kalamazoo.  Anything is possible.”

“Ah! Elvis! Tres bien!  Magnifico!”

“That sounded like a little Spanish?”

“We’re working on our diversity in the hen house.”

“Splendid.  Did you bring the information?”

“Oui.  But try as we might … and we did … we couldn’t find a French investment opportunity for you.  You did that session on Sanofi-Aventis a couple of years ago.  Our advice is to keep Sanofi on the radar screen.”

“What did you come up with?”

“It’s Dutch.  But it seems to fit with the festive season … you know wooden shoes and that Kris Kringle thing.  The company makes holiday cards, too.”

“I’m waiting … if you’re waiting for Woodward, he’ll not be joining us.”

“Americans.  So impatient.  (cackling audible)  The company is Vistaprint (VPRT).”

“Merci.  Have a wonderful holiday season!”

“Au revoir …”

Vistaprint (VPRT) offers small businesses everything they need to market their business. We offer high-quality printed marketing materials, promotional products and marketing services such as copywriting, design, websites and postcard mailing.

Sales Growth Forecast

The company is still relatively small, but growing, and transitioning from a small to medium-sized company.  Higher sales growth rates have been replaced by forecasts that are moderating.  The company is susceptible to recessions (impact on smaller and medium-sized customers) but has been flagged by some analysts — including a cheery consensus — to benefit from economic recovery and small business incentive programs.

The big slowdown in small-medium business spending really hurt Vistaprint, which provides printing and marketing services to companies that are too small to handle their printing needs on an in-house basis. Shares plunged in early August, which looked to me to be a severe over-reaction.

Analysts at Kaufman Bros. see shares rebounding back from a recent $37 to $50 as the company’s sales problems this summer prove to be short-lived. “Vistaprint is currently facing a perfect storm, with small business weakness, adverse (foreign exchange) impact and recent execution issues. We note that all these factors are temporary, and should reverse themselves in the future,” notes Kaufman’s analysts. They predict that shares, which currently trade for 13 times next year’s profits, will trade up to a price-to-earnings (P/E) multiple of 20x once these near-term concerns abate.

Spending at small businesses is likely to rebound only slowly into 2011 and perhaps more robustly into 2012. But investors need to look ahead, and these stocks could start to appreciate handsomely, simply on the expectation that small and medium-sized business spending will eventually rebound …

Profitability Trend and Analysis

Historical net margins are in the 10% range with analyst expectations for 2011-2012 in the 12% range.  This may be optimistic but the company appears to be capable of delivering.

Value: Projected Average P/E

This is a “classic” aging curve — displaying a decaying trend for P/E as the company matures and moves from a small to medium-sized company.  Growth rates in the 30-40% and above have been replaced by expectations less than 20%.  The P/E forecast must naturally follow.

Equity Analysis Guide

Based on a sales growth forecast of 17%, profitability in the 12% range for net margin, and a projected P/E ratio down from historical levels (but still ample) at 22x … the projected annual return (PAR) is 16-17%.

We’ll close with the Christmas Card that I built while visiting their web site (http://www.vistaprint.com) and doing some research on the company.

From partridges to doves to hens, I’m spending a fair amount of time with the winged animal kingdom and now I have to figure out what a “calling bird” is and see if I can locate four of them … (to be continued)

Reminder: This is an educational demonstration with companies used for illustrative purposes.  NO INVESTMENT RECOMMENDATION IS INTENDED.  Do your own homework and make your own decisions.

Coach (COH)

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Coach (COH) is the 8th selection in our annual Christmas stock selection countdown. We started the Core Diem portfolio in October — and Coach has been the most frequently-selected “best idea” over that span. In the spirit of the season, this selection is a tribute the to-be-admired males who are holding places in mall shopping lines for their spouses and partners … and to a company executing well on many levels.

And about those rings … pass the horseradish dip when you’re finished with it.

Coach (COH) is no stranger to our community of investors, currently ranked #18 in the MANIFEST 40. The projected annual return (PAR) is 18.6% with a top-shelf quality rating of 93.6.

For more: https://expectingalpha.com/2012/12/05/coach-coh/

Crossing Wall Street Stock Picks (2012)

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Eddy Elfenbein produces an excellent blog at Crossing Wall Street For the past six years, Eddy has selected a set of stocks with the objective of outperforming the S&P 500 over the course of the ensuing year.

For 5-of-the-last-6 years, he’s been successful — reaching an 83% outperformance accuracy that is rarely matched. As 2012 winds down, Eddy appears to be headed for another market-drubbing performance (vs. the S&P 500.)

6-out-of-7 (6-1 85.7% winning percentage) is exceptional — the kind of result that makes any investor drool. We’ll keep our fingers crossed, Eddy!

2012 Scorecard (YTD)

Harris Corp (HRS), Wright Express (WXS), Hudson City Bank (HCBK), JP Morgan (JPM) and Fiserv (FISV) all turned in superior results. Eddy recently expressed frustration with Joseph A. Banks (JOSB) — along with many of us — so we’d be surprised to see JOSB among Eddy’s 2013 selections.

We’ll stay tuned for Eddy’s 2013 picks and you can read his commentaries on the 2012 buy list here:

http://www.crossingwallstreet.com/buylist

2013 Shopping Suggestions

We’d recommend that the hunt include high-quality companies with high return forecasts and here are some companies that merit consideration. Eddy will retain some of the 2012 “20” but it’d be no surprise to see some of these candidates attract his interest because his selection emphasis is very similar to what we look for.

Microsoft (MSFT)

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The seventh selection in our annual Christmas stock selection countdown is Microsoft (MSFT).

We’ve arrived at six geese a-laying. And a question.

Microsoft, are you a good egg or a bad egg?

MSFT: “We’re not an egg at all!”

We eggs-tracted Microsoft (MSFT) from Sam Stovall’s favorites by concentrating on the highest-quality companies on his list that also had above-average return forecasts. That list is shown here:

In an Eggshell: These are all good eggs. (rimshot?)

But keeping things really really simple — we really really like the Value Line total return forecast and all of these are good. But Microsoft (MSFT) stands heads and shoulders above the field. Will there be speed bumps ahead? Absolutely. The stock price could languish and the Microsoft haters (low overall long-term sentiment) could persist for a long time. But the company continues to have a plethora of solid characteristics, decent fundamentals and a wide berth of opportunity.

Countdown Dashboard Update

S&P’s Sam Stovall: 19 High Yielders

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One of our favorite things to do at Manifest Investing and throughout the community is to pay attention to successful investors we respect. This can stem from sources like well-managed funds (think Buffalo Small Cap, BUFSX) to published lists of ideas. We’ll take a look at Eddy Elfenbein’s Crossing Wall Street later. This list of stocks is provided by Standard & Poor’s Sam Stovall. We’ve spent some quality time with Sam at national investing conferences and know that his foundation is good.

That said, we subject ANY AND EVERY idea to the gauntlet of our stock analysis process whether they come from your hair stylist, brother-in-law (especially if they come from your brother-in-law) and we make no exception for Sam.

Here’s the article conveying Sam’s favorites:

19 High-Quality High-Yield Buys

We create a dashboard with $100 aimed at all nineteen entries … and sort the dashboard by PAR (Descending):

It’s a good shopping list — the overall average return forecast is 8.7% with the median return forecast for all 2400 stocks that we follow hovering at 8.3%. Typical of a bunch of blue chip stalwarts, the overall growth rate is 5.5%. The 3.3% projected dividend yield essentially compensates for a lack of growth — a normal feature of companies that have reached mature stages of their life cycle. The overall quality rating is 72.6 (Excellent) stemming from a financial strength rating of 81% (A) and earnings stability percentile ranking of 90.

EPS stability is very important. It’s where the dividends come from.

Darden Restaurants (DRI) is fairly attractive, and one that we’d have no trouble raking over the coals to see how appetizing it really is. Microsoft (MSFT) is also pretty compelling — but might walk over a few coals too as Windows 8 rolls along with the mish-mosh of other adventures they’re pursuing. All of those companies in the 9-12.5% return forecast range are pretty compelling for conservative investors or those who might be in capital preservation mode.

Good shopping! Thanks, Sam.

Investors are invited to track the portfolio progress going forward by monitoring the condition of $100 invested in each one of Sam’s suggestions here:

http://www.manifestinvesting.com/dashboards/public/stovall-19-high-quality-high-yield

Things That Go Bump In The Night

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During a recent Round Table webcast, Hugh McManus (March 2011)  shares that humans aren’t necessarily “wired” to deal with the challenges of investing and that we have to seek means of dealing with it.

When you’re sitting around the campfire, noises from the darkness are generally BAD. Fear of darkness isn’t necessarily a bad thing. It just might save your life under the right circumstances. But that same core of human instincts is closely related to why investors in general make bad investing decisions when clouded by emotions and/or adrenaline. During our February Round Table, Hugh McManus shared stories of cavemen, mammoths on the bad end of a spear … our quest for fat (the perfect food) … all while weaving a tale that explained why Vulcans will choose Earth as a perfect retirement village. Turns out our stock market is pretty good hunting for them.

Webcast: Things That Go Bump In The Night (Approx. 24 minutes)

For more information and archived Round Table sessions: http://www.manifestinvesting.com/events