Covid Cancellation Conference (5/14-16)

SCHEDULE PRESENTERS ABOUT

… and with a Nod To Places Like St. Louis, Philadelphia and Dallas …

As the accompanying image suggests (and “delivers”) we’re in the middle of storm clouds over places like St. Louis. Stock markets have been turbulent in the wake of a pandemic and the path ahead is foggy, at best. That said, we envision a break in the clouds, future rainbows and better days ahead. The pandemic includes an outbreak of event cancellations and there’s no more succinct way to express what we think about that. “We miss all of you.”

In that spirit, we’re building Successful Investing I — a compendium of investing discussions intended to characterize the current challenges and demonstrate the discovery of opportunity. We’ve been through similar challenges in the past and the key is remembering that no matter how deep and wide the chasm shall prove to be, there’s always opportunities for long term investors

FULL SCHEDULE

Thursday — May 14 — 8:30 PM ET Panel Discussion — Always Invest Better (Butcher, Donnelly, Kavula, Lynch, McManus, Robertson)

Friday — May 15 — 2 PM ET Small Company Discovery (Kavula, Robertson)

Friday — May 15 — 4 PM ET Bear Market Lessons (McManus, Robertson)

Saturday — May 16 — 1 PM ET Selling Guidelines (Kavula, Lynch, Robertson)

Saturday — May 16 — 3 PM ET These Are A Few Of Our Favorite Screens (2 Guys & “All”)

SESSION DESCRIPTIONS

Stock Selection Panel Discussion

We’ll kickoff the event with a traditional panel, spending a few moments honoring the past and providing a fully transparent review of historical performance … and we’ll share the analysis of a favorite idea … with a lightning round chaser. REGISTER

Small Company Discovery

Finding smaller companies to add to portfolios is always a challenge. What is the role of small companies in your portfolio? What’s the difference between small-cap and small company? Join Ken Kavula and Mark Robertson as they present a progress report on their Best Small Companies for 2020. They will show how the list was put together and look at some interesting ways to identify small companies for study and possible purchase. When’s the last time you added a great small company to your portfolio? REGISTER

Bear Market Lessons

In this session, Mark and Hugh will take a look at the challenges presented during bear markets and the reliable approach inspired by some of the Legends of Investing. Trust your studies. What can be done when earnings are a mess on your visual analysis? What opportunities should be emphasized during deeper recessions and bear markets? What stocks were favored ten years ago and how have they done? REGISTER

Selling Guidelines

For the last two or three years Mark Robertson and Ken Kavula have been looking at ways to refine the selling process. Cy Lynch brings the perspective of portolio-centered decisions and its impact on necessary management decisions. Starting with the traditional selling cues, Ken, Mark and Cy have been searching for triggers which might add a percentage or two to total portfolio returns. As the data mounts, the findings are worthy of further exploration. Listen to new ideas. Respect time-honored guidelines and traditions. Can we sell better? REGISTER

These Are A Few Of Our Favorite Screens

Join Mark Robertson and Ken Kavula in this no-holds barred discussion about investing. The Two Guys are known throughout our long term investing community for this lively discussion class and they are sure to not disappoint! You’ll never know exactly what the topics will be but you can be sure to walk away with thought-provoking stock ideas and useful ideas to put to work as you build your nest egg. This session will focus on our favorite sources of ideas and we’ll be joined by a suitable compliment of damsels and knights as we explore Ivory Soap, Irish Spring and a number of stock study idea generators. REGISTER

PRESENTERS & CONTRIBUTORS

Kim Butcher is a Lifetime member of BetterInvesting and a BetterInvesting National Convention Presenter as well as a Round Table Presenter for Manifest Investing . She is currently a member of 2 investment clubs and one being “Bionic”, an online club that has members from the East to the West coast. Her love of teaching began during her career as a nurse over 30 years ago. She is also a past member of the BetterInvesting Volunteer Advisory Board (BIVAB).

Pat Donnelly is president of the Pittsburgh Chapter having worked in several positions within the Chapter and previously served on the Better Investing Volunteer Advisory Board. Pat is proudly married to Sue Donnelly and together they have two great kids. Pat and Sue have recently added a grandchild. (Welcome to the Club!) During the day, Pat is a cloud infrastructure technology consultant. Besides finding great stocks, learning from the great volunteers, he likes to learn and share about the many no-cost computer based resources available to the individual investor. Tools that are available to everyone, some of them built right into your computer. When time permits after that Pat is revisiting his interest in sailing.

Ken Kavula (kkavula1@comcast.net) has served the modern investment club movement in a wide variety of leadership volunteer positions. He is a Nicholson award winner, a retired educator and is regarded as a small company champion and respected speaker nationwide. You might have heard him teaching on the TickerTalk program for BetterInvesting. Before retirement, Ken served as Principal of Genesee HS for 21 years. He lives with his wife Natalie near their two children and five grandchildren and he also belongs to four investment clubs, including two Model clubs and a family club. Ken and Natalie are avid theater goers and travel as much as they can.

Cy Lynch (celynch@att.net) is a respected and experienced long-term investor and educator. He has served in a number of regional and national volunteer capacities and currently serves on the Better Investing Board of Directors. Among his many vocational roles include investment advisory and service as a lawyer. He recently was ordained as a Baptist Minister. He is a Lifetime member of Better Investing. Cy is a frequent contributor at MANIFEST, providing regular educational topics and a knight of the Round Table series. Cy and his wife, Barb, are enthusiastic advocates for animal rights.

Hugh McManus (hughmcmanus@gmail.com) is a pharmaceutical scientist, successful long-term investor and renowned advocate at investment education conferences. A frequent contributor to MANIFEST, Hugh is also a knight, participating in our Round Table series. Hugh is renowned for his “less traditional” stock selections at conferences and for the Round Table but we know that he also maintains a steadfast core of vetted, excellent companies — accumulated at great prices over a few decades, too. Hugh is known for his extensive travels and has only recently spent a record number of days at home with his Irish Wolfhounds.

Mark Robertson (markr@manifestinvesting.com) is founder and Managing Partner of Manifest Investing, served as senior contributing editor for Better Investing and has worked with successful investment clubs and individual investors since 1993. He has appeared on National Public Radio, CNBC and ABC to discuss long-term investing. He has also worked with Smart Money, Barron’s, Money magazine and the Motley Fool and been covered by the Chicago Tribune, Wall Street Journal and MarketWatch as well as a number of local publications.

Sponsors

The Mid-Michigan Chapter of Better Investing is an outstanding example of community investing. Known as a “chapter” that operates on behalf of the National Association of Investors, the goal is to share the potential of long-term investing with as many individuals as possible. A network of investment clubs and individual investors has been admirably served by a talented team of educators and counselors for decades. The excellence runs deep — centered on the time-honored lessons of the modern investment club movement for the past 80 years. The chapter runs a steady series of educational programs and supports the development of regional and nationwide opportunities for sharing. We’re better together.

Manifest Investing is a web-based investing system including research and features/tools for stock and fund screening as well as resources for portfolio design and management. The resources are completely based on our interpretation of the lessons learned, methodologies, techniques and disciplines promulgated by the modern investment club movement. The intent is to serve do-it-yourself investors, small groups of portfolio managers known as investment clubs and to support the efforts of those who want to work in a more informed manner with their professional investing advisors. The community and content stream generates a continuous flow of actionable ideas. We seek and deliver “elegant simplicity” by focusing on a small number of factors and characteristics that really matter. Features and regular webcasts (e.g. Investing Round Table) feature demonstrations of analysis and methods. Our focus is on demystifying investing — particularly when it comes to the design and management of a portfolio — enabling anyone to experience successful investing with their personal investing or retirement plans. We endorse and encourage investment clubs as vehicles for support and group learning.

If you’d like a FREE test drive of http://www.manifestinvesting.com to explore and experience the origins of community-driven actionable ideas, send your request to markr@manifestinvesting.com  The annual subscription is $40/year — a special offer that will expire at the end of the month.  The annual subscription will be $59 after that.

 

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)
  • NVIDIA (NVDA)
  • 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?

Whoa.

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.

Sources

Fave Five: What Works Best? (So Far)

This Week’s Fave Five is brought to you by Pittsburgh’s own Pat Donnelly. Pat stopped me in the hall at the National Association of Investors annual conference and said, “You know what — among many things — I wonder about? Which Fave Five selection mode has delivered the best performance?” That’s a really, really good question. Pat is the chair of the NAIC volunteer advisory board.

Fave Five (5/24/2019)

We started the Fave Five as something of a whim. It was sort of the answer to the question, “Is it possible to highlight 3-5 companies a month, let alone a week?” After a few years, the results are becoming compelling and provocative. If you’ve been around here for more than a little while … you know that we treasure skepticism and critical thinking about the challenges and potential of investing.

It’s time to refine our characterization of the “Fave Five.”

Our Fave Five essentially represents a listing of stocks with favorable long term total return forecasts and good/excellent quality rankings. We basically screen on Manifest Ranking (equally-weighted PAR and Quality). This is the primary screening criteria every single week. The only variation is how “deep” we go into the percentile rankings. Sometimes we stop at 99.44% … other times sticking to the top 2% … or 5% … and when in a bottom fishing mode as low as top 50% or even “deeper.”

Selections

Keep in mind that a repeat appearance among the Fave Five for a given DOES NOT result in “accumulation.” Once a stock is “in”, it’s in until it’s “out.” So the accompanying image of results is measuring the performance of the tracking portfolio.

And speaking of “out”, we’ve been using this demonstration portfolio to deploy (1) Rule-of-5 “time outs” for companies that lag the market by more than 20 percentage points, (2) celebrate success as measured by a stock price soaring to the extent that the return forecast (PAR) approaches low single digits. These are fun. (3) We’ll be adding a quality degradation algorithm. Stay tuned.

Second Screens

So the real difference is the secondary screening criteria each week. The default setting is the highest 1-year total return forecast by analyst consensus. Hence the 112 selections. We’re elated to see a premise hold as the relative return for this most frequent criterion is beating the market.

But the most compelling results come from three secondary screening criteria: (1) High Growth, (2) Irish Spring and (3) Triple Play. High Growth is just what you think it is. It’s compliant with our search for excellent smaller and faster-growing companies. The elevator speech is GREAT companies growing in double digits — with top line growth of 10% or 12% or more.

Irish Spring resonates with real “risk” reduction as our resident Irishman, Hugh McManus, has guided us to find GREAT companies available near their 52-week lows.

And Triple Play is a powerful nod to the legacy of the modern investment club movement and George Nicholson’s nudge to seek companies with (1) depressed stock prices, that (2) have the potential for margin enhancement and (3) P/E ratio expansion.

“Most Oversold” is simply the qualifiers with the lowest Relative Strength Index (RSI) courtesy of StockCharts.com. Yes, Virginia, it’s a technical indicator. But it could prove to be something that heeds Ralph Acampora’s advice in Chicago last weekend to “Go ahead and do all the wonderful things you do to study companies but before you press the BUY button, do Ralphie a favor and check the price trends. Is your discovery gaining or falling in stock price?” There’s only two selections in this category so far. That will change. Soon.

We’re also optimistic about Owner ROC. (More to follow on this) Anecdotally, we think it will remain faithful to virtually all of the foundational concepts while raising the awareness and emphasis on debt capital. Stay tuned here, too.

The Long and Short of This Week’s Fave Five

Long & Short Term Perspectives. (May 24, 2019) 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. MANIFEST Ranking: Equally weighted ranking of Return Forecast (PAR) and Quality. 52-Week Position: Position on scale between 52-week low price and 52-week target price. 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 ACE P/FV: based on analyst consensus for fair value. Owner’s Return On Capital: Return (Profitability, long term estimate) vs. Total Capital (equity + debt). 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.

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +2.4% since inception.

The absolute annualized rate of return is 11.8%.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/fave-five

Fave Five (5/17/2019): Prohibition Edition

Fave Five (5/17/2019)

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 median 1-year ACE total return forecast is 14.1%.

The City of Big Shoulders … and a Speak Easy, Or Two …

The National Association of Investors held their annual conference in Chicago this past weekend and I was honored/privileged/grateful to attend and to support the efforts of a gifted gypsy band of awesome volunteers. You know who you are. Thank you. Even better, the educational slate included our dear knights (and a damsel) as Kim Butcher, Ken Kavula and Cy Lynch provided several sessions and discussions. Hugh McManus would have joined us if his company hadn’t jobnapped him somewhere between Singapore and San Francisco and diverted him to Barcelona for the weekend.

  • You know you might be in Chicago when the banquet menu includes hot dogs smothered in onions, mustard, pickle spears with a side of deep dish pizza.
  • You know you might be in Chicago when the LIVE Round Table audience in true crowd rebellion decides that they can vote more than once for stock nominations. (And they’re right)
  • You know you might be in Chicago when all of the wait-until-next-year attire has morphed into World Series Champion paraphernalia.
  • You know you might be in Chicago when people are imitating the voices of Sean Connery and Kevin Costner in the hallways lined with pictures of beer being “distributed” from barrels on to the streets. (This sort of behavior is likely frowned upon by our resident Irishman Hugh AND his partner in crime, Pat Donnelly.)
  • You know you might be in Chicago when an audience of investors wants to talk about cannabis, prohibition and the companies that prospered when Elliott Ness stopped foaming up State Street back in the 1930s. When the audience assumes control of the discussion (which we encourage) and starts talking about specific investment characteristics of Anheuser-Busch, fields of opportunity, distribution infrastructure and doing stock studies on companies from 1933 … I’m pretty sure that, yes, you’re in Chicago.

Yes, you’re among friends who like to share ideas, devastate the mysteries of investing … and they’re BETTER when they do it together.

Three of this week’s Fave Five figured prominently in panel discussions and sessions. Cantel Medical (CMD) was selected by Ken Kavula during the opening session stock panel and Cy Lynch selected II-VI (IIVI) for the Round Table. Kim Butcher selected Air Lease (AL) for the Round Table and the audience seconded her motion while pondering just how many hands and appendages they could vote with for the various nominations. (Except for my pick, REGN, which received an insignificant number of appendages and at least one guffaw. I’m hurt but unswayed.)

Spirit Air Lines (SAVE) did not come up but probably should have. It was on my short list. (But it’s moot. You probably wouldn’t have voted for it anyway.)

The Long and Short of This Week’s Fave Five

Long & Short Term Perspectives. (May 17, 2019) 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. MANIFEST Ranking: Equally weighted ranking of Return Forecast (PAR) and Quality. 52-Week Position: Position on scale between 52-week low price and 52-week target price. 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 ACE P/FV: based on analyst consensus for fair value. Owner’s Return On Capital: Return (Profitability, long term estimate) vs. Total Capital (equity + debt). 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.

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +2.4% since inception.

The absolute annualized rate of return is 11.8%.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/fave-five

Ten Years … Gone “Hog Wild”

This started with the top trailing 10-year performers from the S&P 500, which is cool — and at least they got that going for them. But we know the virtues of All-of-the-Above investing, which means the Value Line 1700 list is even cooler. Look what Groundhog Nation did with them.

Carl Quintanilla (CNBC) provided this list of the best performing stocks in the S&P 500 since the market low ten years ago.

It’s been fun and rewarding for many. Take note how many of these have been covered and/or resident in our model portfolios, etc. since then.

Who did we miss? Why?

Spy top 50 performers since 2009 20190308

So what were you doing when the “Great” Recession bottomed on March 9, 2009? CNBC got this whole this started with the S&P 500 but we know that even better opportunity manifests in the Value Line 1700 — and we weren’t disappointed.

There are 1200 stocks with stock price data for 3/9/2009 and 3/8/2019, ten years later. Investing $100 into each of these 1200 ($120,000) would worth $1,012,892 this past weekend — an annualized total return of 23.8%. Sorry, Carl Quintanilla, but the S&P 500 checks in at 17.3%.

  • The annualized total return (10 years) on the Wilshire 5000 (VTSMX) is 17.5%. 655 of the 1200 stocks (54.6%) beat the market. This collective of gainers have an average quality ranking of 69.
  • 1138-of-1200 (94.8%) gained and a have a current value greater than $100. The stocks that lost ground have an average quality ranking of 27.
  • The top performing decile has a sales growth forecast of 9.2%. The bottom decile stands with a 5.3% growth forecast.
  • If the Value Line Arithmetic Average were “investable,” the annualized total return was 19.7% as 999.30 advanced to 6046.07 during the time period. All-of-the-Above Investing works.

Gone Hog Wild (March 2009)

Every year we run a stock picking contest that starts on Groundhog Day and continues until the next Groundhog Day. Back in March 2009, we featured the most-frequently selected stocks as something of a screening exercise. As the accompanying image shows, yes, Virginia, the average return forecast was “north” of 20% at the time.

The Sweet 16 stocks featured back in March 2009 generated a return of 21.2%.

The top performer was the swing-for-the-fences selection of Sigma Designs (SIGM) and every once in a while, Casey does not always strike out. 36.6% can be a wonderful thing. But the rest of the field was also formidable and include a number of community favorites (Manifest Investing 40 residents).

Sweet 16 (3/1/2009) Results — Ten Years Later. As shown the collective performance of the (16) selections known as “Heavy Hogs” delivered a 21.2% annualized total return. Dividends are included. We can’t help but note the strong performance from the companies at the top of the 10-year-old screening results vs. the achievements of some nearer the bottom. Quality Systems (QSII) morphed into NextGen Healthcare (NXGN). [Editor’s Note: If we’d only listened to Cy Lynch and WellCare Health Plans (WCG) at the time, +44.1%.] Buffalo Wild Wings (BWLD) was acquired by Arby’s after a considerable gain. Navellier Fundamental (NFMAX) evolved into a private wrap offering, results shown are from Navellier fact sheet (https://navellier.com/files/3815/4964/8534/fundamental-a-factsheet.pdf).

 

Invest With Your Friends.  The journey can be a most informative, rewarding and entertaining adventure.

 

Start a test drive (trial subscription) at http://www.manifestinvesting.com ($79/year, group discounts for club partners and educators) and participate in the next ten years of going “Hog Wild.”

Questions?

Contact Mark Robertson via markr@manifestinvesting.com or via Twitter by reaching out to @manifestinvest.  Manifest Investing also maintains a “slipstream blog” at Facebook: https://www.facebook.com/manifestinvesting/  Comments and inquiries welcome.

 

The NEW CVS Health (CVS)

This article is a current example of the type of company analysis Manifest Investing (and our friends) performs on stocks following the time-honored (since 1941) methods of the modern investment club movement.  CVS is the 10th most widely-followed stock by our community of investors and is the 2nd most frequently-selected stock during our monthly FREE webcasts known as our Investing Round Table.  Note: The 9-year annualized rate of return for the stocks featured is 15.5%.  Start a test drive (trial subscription) at http://www.manifestinvesting.com ($79/year, group discounts for club partners and educators) and see the answers to some natural “next” questions including: (1) What about store growth? and (2) How much did Warren Buffett overpay for Heinz and did CVS pay too much for Aetna?

At CVS Health, we share a clear purpose: helping people on their path to better health. Through our health services, plans and community pharmacists, we’re pioneering a bold new approach to total health. Making quality care more affordable, accessible, simple and seamless, to not only help people get well, but help them stay well in body, mind and spirit.

Cy Lynch warned all of us as he selected CVS Health (CVS) again for the February Round Table. CVS now ranks as the 2nd most frequently selected company for the tracking portfolio. Cy’s warnings? (1) You can’t lean on the rear view mirror for this one. The historical data doesn’t include Aetna. (2) The fear and herd-following among the Rhinos has delivered some painful price action. [Note: The Rhinos just could be right.] (3) CVS is undergoing a high risk (general perception) transformation from the current business model to one that seeks to optimize wellness, decrease dependency on pharmaceutical band-aids (!!!) and fight to establish an effective go-to solution that serves customers with a cost effective path to health.

The Wind Is Blowing

Reference: Looking Ahead: 2019 Health Care Trends

Business Model Analysis (Sales)

CVS Health. Pro Forma Sales Projections. As Cy suggested, the company has shifted. The step change in sales due to the addition of Aetna can be seen in 2018. The growth rate (slope of the trend line) from 2010-2017 is visually different from the slope seen for 2018-2023. The former trend (10-12%) no longer applies to a stock study of the new CVS. It’s supporting information for what may be possible — but the growth rate suggested in the SEC filings is 6-7%. (Value Line has a much more pessimistic outlook for the 3-5 year forecast — resulting in a growth forecast of 4.5%)

The profitability forecast (according to CVS and the legions of Rhinos who chimed and rhymed with opinions about the Aetna deal) is available here also. Dividing the net income in 2022 into the the sales forecast, we see (11.6/333.4) = 0.035 = 3.5%

… And Now, The Rest Of The Story

My personal opinion is that it boils down to remembering and realizing that CVS is the company that discontinued the sale of cigarettes a few years ago to a chorus of whining and Armageddon commentary from the Rhinos.

This is massively challenging but a mission with merit. This core holding — at least temporarily — has shifted from blue chip stalwart to execution-based speculation. But it’s a good speculation based on the promises delivered by excellent management over the past several years. The investing jungle is full of doubting Rhinos and the stock price has been mightily challenged, accordingly. That said, the expectations (4% growth, 3.5% profitability, 11.5x average P/E) are the types of low bars that investors like Graham and Buffett have vision cast as stepping over them while others assail the assortment of 7-foot high jump bars with other opportunities.

Imagine them ripping out the chips and candy and recapturing the space with cost-effective access to doctors, physician’s assistants, nurse practitioners and various flavors of therapists and nutritional campaigns. Imagine America taking a few less pills and feeling comprehensively better. CVS ripped out the smoking products. How challenging is it to believe that they just might be serious about the rest of this?

References

Questions?

Contact Mark Robertson via markr@manifestinvesting.com or via Twitter by reaching out to @manifestinvest.  Manifest Investing also maintains a “slipstream blog” at Facebook: https://www.facebook.com/manifestinvesting/  Comments and inquiries welcome.

Happy President’s Day!

This Week at MANIFEST (2/22/2019)

“Investment in knowledge pays the best interest.” — Abraham Lincoln

“I am a firm believer in the people. If given the truth, they can be depended on to meet any national crisis. The great point is to bring them the real facts — and some beer.” — Abraham Lincoln

Raise A Glass

Lincoln was a voracious reader. And legend has it — a pretty good listener, too. Reading the Lincoln-Douglas debate transcripts, he was self-effacing, quick on his feet and the exchanges were actually pretty enjoyable (most of the time.)

Holders of the nation’s highest office have often had a close relationship with booze, as George Washington established the nation’s largest whiskey distillery in 1797 and Thomas Jefferson brewed his own beer. Andrew Jackson’s inaugural party in 1829 was so legendary that we still drink the orange punch party goers consumed. But Lincoln was the only president who was also a licensed bartender.

While they sold booze, it was far from a watering hole. The Chicagoist states that “Stores could sell alcohol in quantities greater than a pint for off-premises consumption, but it was illegal to sell single drinks to consume at the store without a license.

In March 1833, Berry and Lincoln were issued a tavern, or liquor, license, which cost them $7 and was taken out in Berry’s name. Stores that sold liquor to consume on the premises were called groceries.

So … it’s more appropriate to think of Lincoln as a grocer than a bartender.

I still think the Spielberg movie, Lincoln is a must see in these interesting times in which we live.

Why In The World Would A Long Term Investor Live In Fear Of Recessions?

MANIFEST 40 Updates

Round Table Stocks

  • Alliance Data Systems (ADS)
  • CBRE Group (CBRE)
  • C.H. Robinson (CHRW)
  • Forward Air (FWRD)
  • Health Care Services (HCSG)
  • Illumina (ILMN)
  • Maximus (MMS)
  • S&P Global (SPGI)
  • Starbucks (SBUX)

Best Small Companies (2019 Dashboard)

The status of the 2019 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-2019

Investing Round Table Sessions (Video Archives)

Investing Topics with Ken, Mark & Friends

Results, Remarks & References

Companies of Interest: Value Line (2/22/2019)

 

The median Value Line low total return forecast for the companies in this week’s update batch is 7.3% vs. 6.5% for the Value Line 1700 ($VLE).

Materially Stronger: Golar LNG (GLNG), Allegiant Travel (ALGT), United Continental (UAL), Spirit Airlines (SAVE)

Materially Weaker: Bristow Group (BRS), Papa John’s Pizza (PZZA)

Discontinued: Dun & Bradstreet (DNB), American Railcar (ARII)

Market Barometers

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

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 6.5%, decreasing from 7.7% 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.

Update Batch: Stocks to Study (2/22/2019)

Long & Short Term Perspectives. (February 22, 2019) 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. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target.

The average return forecast (PAR) for this week’s update batch is 8.7%. (MIPAR = 8.2%)

The 52-week total return forecast for the group is 18.7% versus 14.9% for stocks overall. S&P has a 1-year outlook for this week’s batch at 10.4%.

Morningstar sees them as fairly valued (P/FV = 101%) and S&P “dissents” at a P/FV of 107%.

Discovery Club

““I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” — Warren Buffett, 1999 BusinessWeek Interview

This is a reference to portfolio design and balance — specifically achieving a blend of blue chip stalwarts combined with a suitable mix of faster growing promising smaller companies. We generally aim for an overall sales growth forecast of 10-12% with suitable adjustments for time horizon and/or risk tolerance. Based on some recent soul searching, we’re now pondering how much “relatively undiscovered company content” is enough. Or too much? In any event, we’ll be dedicating a larger slice of our weekly updates to DISCOVERY.

This Week’s Sources and Suggestions

  • Value Line Investment Survey Updates
  • Groundhog Challenge XIII (2019) Entries
  • Barron’s 100 Sustainable Companies
  • Kim Butcher’s S&P 600 Initiations

Coverage Initiated/Restored: Northstar Realty Europe (NRE), RingCentral (RNG), Roku (ROKU), Invitae (NVTA), Baozun ADR (BZUN), DXC Technology (DXC)

Crowning Groundhogs (2018)

This Week at MANIFEST (2/8/2019)

“A group of investors heeding the lessons of Graham, Babson and Nicholson has at least one leg up on the crowd and a better than average opportunity to generate exceptional returns.” — Our Groundhog Creed.

Super Performances

The Super Bowl is on Sunday.

Sorry Patriots fans, but if you care about the 2019 stock market, the only thing standing between you and the oblivion of an “old AFL team” winning the Super Bowl and poking the restless bear, the accompanying image of a focused Ram is it. Go Rams!

And that’s the second most important thing going down this weekend.

Our courageous band of Groundhogs have finished another revolution around the sun, the twelfth such rendition — and we’ll be crowning another repeat champion, Anna Gombar of Holly, Michigan.

Inviting Anna Gombar (and her husband Rod) to a stock selection contest is like inviting Tom Brady to a football tournament.

The results are in and the accounting team is crunching numbers, munching pizza and chugging adult beverages in the conference to compile the final results. Spoiler alert: They’re outstanding. Again. (I hope) No, we expect.

Back To The Super Bowl And All Things Commercial

What have been your favorites over the years? The Coca-Cola ad ranks as one of the best of all time. The Apple commercial is epic. And Budweiser consistently hits it out of the park with the gorgeous Clydesdales. But the E*Trade babies and the CareerBuilder Monkeys are legendary.

But — to us (particularly in Michigan) — the Eminem commercial by Chrysler stands out among the best. Ever.

The S&P’s 7.9% Advance Marked Its Best Start To The Year Since 1987

Sharp Rebound. The S&P 500 had it’s best month in three years following December’s slump. Hard to think of the market gyrations over the last four months as anything but a YoYo “Walk-The-Dog” market.

MANIFEST 40 Updates

  • 2. Cognizant Technology (CTSH)
  • 4. Microsoft (MSFT)
  • 12. Alphabet/Google (GOOG)
  • 19. Visa (V)
  • 27. Oracle (ORCL)
  • 28. Wells Fargo (WFC)
  • 36. T. Rowe Price (TROW)

Round Table Stocks

  • Amazon (AMZN)
  • Baidu (BIDU)
  • Booking.com (BKNG)
  • Cognizant Technology (CTSH)
  • eBay (EBAY)
  • EPAM Systems (EPAM)
  • FleetCor (FLT)
  • Global Payments (GPN)
  • Infosys Tech (INFY)
  • Microsoft (MSFT)
  • PayPal (PYPL)
  • SEI Investments (SEIC)
  • T. Rowe Price (TROW)
  • Western Union (WU)

Best Small Companies (2019 Dashboard)

The status of the 2019 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-2019

Investing Round Table Sessions (Video Archives)

Turnout Tuesday Educational Sessions

Results, Remarks & References

Companies of Interest: Value Line (2/8/2019)

The median Value Line low total return forecast for the companies in this week’s update batch is 5.7% vs. 7.7% for the Value Line 1700 ($VLE).

Materially Stronger: Fiserv (FISV)

Materially Weaker: Sohu.com (SOHU), Ameriprise (AMP), SEI Investments (SEIC), BlackRock (BLK), Ctrip.com (CTRP), GroupOn (GRPN), Capital One (COF), Ansys (ANSS)

Discontinued:

Market Barometers

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

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 7.7%, decreasing from 7.7% 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.

Groundhog Challenge 2019

Gh invite 20190130

Get Me Through December … & Beyond

This Week at MANIFEST (12/28/2018)

“Patience is genius in disguise.” — Various, including Hugh McManus

“A 10% decline in the market is fairly common—it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefiting from the wealth building power of stocks.” — Christopher Davis

“You make most of your money in a bear market, you just don’t realize it at the time.” — Shelby Cullom Davis

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

““Is value investing dead? I don’t know. I don’t care. I don’t know when we will know. What I do know is that Warren Buffett says that growth investing and value investing are actually joined at the hip. (Tom O’Hara said this, too.) Valuation Investing is the blend of growth and value investing.” — Joel Greenblatt

Get Me Through December?

Eddy Elfenbein shared the unpleasantness update in this week’s Market Review at crossingwallstreet.com:

The numbers are remarkable. On Thursday, the S&P 500 closed at its lowest level in 15 months. In the last 12 trading sessions, the S&P 500 has lost 11.6%. The details are even uglier. Within the index, 423 stocks are now trading below their 200-day moving average. On Thursday, new lows beat new highs 175-0.

20 Years With The Value Line Arithmetic Average ($VLE). Some context. We’ve seen similar moments like this before. But there’s no denying that the December “candlestick” is in a league of its own … rare company. We’re approaching long-term “Oversold” conditions as suggested by the relative strength index (RSI) nearing 30 and relative long-term lows. We’re reminded that the trailing 52-week returns have dipped sub-zero a few times in the last few years — so this should not be regarded as something new or unusual.

Manifest Investing Median Return Forecast (MIPAR). It’s clear that the median (basically average) return forecast for the 2300-2400 companies in our coverage universe have SUDDENLY shifted to new levels due to the price drop. This could also happen from a breach of fundamentals — but that is NOT the case, here … at least not yet. Return forecasts are now at levels we haven’t seen since 2008-2009.

Source: https://www.morningstar.com/tools/market-fair-value-graph.html

Beyond December — A Hope For Fewer Potholes …

My take on all of this carnage? It’s different this time.

Yes, I said the words.

Bear markets and corrections are pretty unique despite all of our attempts to slap historical price chart overlays and compare factors, etc. The simple truth is that (1) the sample size will never be statistically sufficient for any material conclusions to be reached. [Yet the Rhinos will continue to try. Smile and nod at them.] (2) Markets are not rational.

Current conditions definitely qualify for a sedative or something stronger.

Look no further than the accompanying weekly chart of the Value Line Low Total Return Forecast to see how sudden the current price correction has been. We’ve not seen a change with this velocity or ferocity since 2008. You remember, right? With Christmas carols humming in the background, recall the names Bear Stearns, Lehman, Merrill Lynch and things like credit default swaps and neighbor’s houses in foreclosure.

Yes, there’s a mountain of uncertainty and an abyss of incivility inside the Beltway and a President who’s certainly disruptive. But the core problem with the status is virtually unchanged — ALL of the political posers persist in patching or ignoring potholes (healthcare, immigration, infrastructure, federal capital structure, failed nation building, sloped international trade playing fields, the ostriches and lobbyists related to real capital markets reform, etc.). The hypocrisy is gut wrenchingly prevalent.

I think the stock market is legitimately tired of the perpetual motion of Congressional Kick The Can Down The Road — and corporations are suddenly much more guarded about faith in consistency and less optimistic that the moving targets have abated. As the foot comes off the accelerator and taps the brakes (again) we might return to the recessionary conditions of 2015-2016. Much of the globe is already headed there.

Unattended potholes become sinkholes.

Like snowflakes, it’s different this time. It’s always different. Trying to allocate assets or imagine outcomes based on historical models (even when powered by artificial intelligence) is a neural niblick.

So we turn to a constant. A constant that survived and thrived through the 1970s, 1987, 1994, Y2K and the gasping throes of 2008-2009. That constant is to eschew the chaos. Focus on what matters. Simply put, INVEST BETTER.

We accept that markets are not rational. We refuse to be surprised when they convulse.

We take the words of Warren Buffett quite seriously when he longs for corrective opportunities “a few more times during his investing lifetime” and speaks unflinchingly of tracking excellent companies and waiting for them to be available at attractive prices.

I believe one of those moments may have arrived. We don’t often make “market calls” but we did write about back-up-the-truck moments back in November 2008 (a wee bit early) and March 2009 (squarely in the bullseye). This could be another Buffett Bonanza.

So … we think it’s prudent to do what we’ve done for DECADES. Discover excellent companies, BETTER COMPANIES. Buy those that are priced well. BETTER PRICES FOR BETTER RETURNS.

Hugh McManus likes patience and its genius-making potential. He also likes excellent companies trading near their 52-week or multi-year lows. We’re thinking Hugh must be beside his Irish self these days and hope to hear from him during next weekend’s Round Table. Ken Kavula is sure to be swimming in the pool of sudden small company opportunity. Cy Lynch is likely to admire the latest bear market which will become a future blip. Rest assured that we’ll be more focused on the long term perspective than any pusillanimous politicians and their potholes, meandering Rhinos or any of those annoying talking heads who focus on “how much your 401(k) LOST since breakfast today.”

We promise to remain focused on the discovery and sharing of the best ideas — the opportunities we’ve known for decades as BETTER COMPANIES at BETTER PRICES.

Merry Christmas to our favorite nation of focused and compassionate investors!

Best Small Companies (2019 Dashboard)

The status of the 2019 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-2019

MANIFEST 40 Updates

  • 1. Apple (AAPL)
  • 23. Skyworks Solutions (SWKS)
  • 26. Intel (INTC)

Round Table Stocks

  • Apple (AAPL)
  • IPG Photonics (IPGP)
  • MKS Instruments (MKSI)
  • Skyworks Solutions (SWKS)
  • Universal Display (OLED)

Round Table Sessions (Video Archives)

Turnout Tuesday Educational Sessions

Results, Remarks & References

Companies of Interest: Value Line (12/28/2018)

The median Value Line low total return forecast for the companies in this week’s update batch is 12.3% vs. 10.8% for the Value Line 1700 ($VLE).

Materially Stronger: Vishay Intertechnology (VSH), Office Depot (ODP), Kemet (KEM)

Materially Weaker: TTM Technologies (TTMI), Diebold Nixdorf (DBD), Western Digital (WDC), Plantronics (PLT), STMicroelectronics (STM), Micron Technology (MU), Cirrus Logic (CRUS), Lattice Semiconductor (LSCC), Celestica (CLS), 3D Systems (DDD)

Discontinued: Spectra Energy Partners (SEP)

Market Barometers

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

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 10.8%, increasing from 8.5% 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.