Let Me Save You Some Time – Josh Brown

Photo: http://www.detroitmovestheworld.com

This Week at MANIFEST (11/17/2017)

“9. Don’t Rush. You don’t need to already know what you’re gonna do with the rest of your life. Don’t panic. You will soon be dead. Life will sometimes seem long and tough and, God, it’s tiring. You will sometimes be happy and sometimes sad, and then you’ll be old and then you’ll be dead. There is only one sensible thing to do with this empty existence, and that is fill it. Life is best filled by learning as much as you can about as much as you can, taking pride in whatever you’re doing, having compassion, sharing ideas, running, being enthusiastic, and then there’s love and travel and wine and sex and art and kids and giving and mountain-climbing. But you know all that stuff already. It’s an incredibly exciting thing, this one meaningless life of yours. Good luck and thank you for indulging me.” — Tim Minchin (Nine Life Lessons)

Let Me Save You Some Time

Those of you who catch some CNBC during the day probably recognize Josh Brown as one of the mainstays on the Halftime Report. From his books, Backstage Wall Street and the co-author stint via Clash of the Financial Pundits (with Jeff Macke) it’s clear that he and his colleagues see some of the same perspectives that we do. We’ve covered those complementary notions before here: Reformation: Center Stage.

It was refreshing spending a few moments in Detroit this past Thursday and Friday. That may seem strange to some of you but the city is truly engaged in a renaissance. The image above (and link provided) is part of Detroit’s compelling invitation to locate a second HQ here. I’m told that Detroit will likely make the “short list” as this continues to develop.

Detroit moves the world. We also know Detroit as the origins of the modern investment club movement — as championed by George Nicholson. As the first snow fell, it was refreshing to reflect on the dreams, aspirations and gifts bestowed by Nicholson and the community he nurtured. I took a moment to stop by the historic Rackham Building, the birthplace of the National Association of Investors (1951) and a movement that has favorably influenced the lives and investing experiences of so many of us. Nicholson was also a founding influence behind the Financial Analysts Society of Detroit and was a regular attendee … and routinely tendered the first question of the Q&A segment by asking the presenter to share their thoughts on “their greatest challenge.”

I assumed my seat at lunch on Friday next to a friend that I hadn’t met (yet). After brief introductions and observations about snow, I asked, “Did you know George Nicholson?” He smiled. “As a matter of fact, I spent last night with a couple of the Nicholson boys.” Wow. It turned out that his father had been influential in a few of Nicholson’s enterprises going back to the 1950s and 1960s and beyond. It’s a small world. It’s a Better World because of Nicholson’s contributions to the world of investing.

The theme of a better investing world resonates in Josh Brown’s perspective, too. Jason Raznick of Benzinga.com had arranged a town hall meeting format with Josh on Thursday night. If you’re not familiar with Benzinga, Jason has created a Bloomberg-like entity for investors and traders in Detroit that has become quite formidable. Thursday night turned out to actually be a better opportunity to compare notes and spend time with Josh as he shared observations about a number of things.

  • Caveat emptor. He shared that (1) He’d been dismissed (sent home) not once, but twice from summer camp as a child. (2) He knows the Wolf of Wall Street and spent some time in similar trenches. (3) He’s been part of a couple of crash-and-burn initiatives.
  • That last one is actually a virtuous attribute. He’s been there and done that. He considers his evolution from stockbroker to registered investment advisor to be among the best decisions of his life.
  • Incentives Matter. Incentives, good and bad. They both affect performance and behavior in the markets. Incentives matter. Often they dictate the probability of potential outcomes in very foreseeable ways.
  • Josh loves Taco Bell.

  • Regulation FD Killed Most of the Rhinos Returns. So there. He said it. “Besides the growth in the number of funds, something else changed in the hedge fund space. Regulation Fair Disclosure (Reg FD) came into effect in 2000. This SEC-mandated rule forced all publicly traded companies to disclose material information to all investors at the same time. Prior to this, hedge funds had a huge advantage in terms of the information they could obtain prior to other investors. Reg FD changed that. This, combined with the large number of funds chasing similar securities and using similar strategies, has resulted in much lower performance for investors.” — Ben Carlson

Speaking of Ben Carlson, he attended the session on Friday. Hopefully we’ll get a chance to spend more time with Ben, too. Regular readers will recognize that his articles are frequently cited in our Results, Remarks & References section. Here’s a couple of Josh’s slides from Friday, including the famous (infamous?) CNBC Decabox:

Of Dragons and Debate: Active vs. Passive

“I’m so sick of the active vs. passive debate.” “The real debate is likely high cost vs. low cost … or faith-based versus systematic.” The librarians of the investing world are always stuffing things into boxes and categories. Some fodder for the dragons:

  • “The S&P 500 Index Funds Are Not 100% Passive.” Ben Carlson has referred to the S&P 500 as the World’s Largest Momentum Strategy The S&P 500 is constantly re-balancing and the cap-weighting emphasizes Apple, Microsoft, FaceBook, Amazon and Johnson & Johnson. S&P 500 (VFINX) routinely has a 4-5% turnover as companies come and go. That’s not passive.
  • (Mark here) I’d take it a step further and remind investors a la Ralph Acampora from a Detroit stage in 2001 that lost decades happen. That’s right. He told the audience to pick stocks or different funds, because the S&P 500 was about to get “killed.” Ralph was right.
  • Sometimes a fund isn’t passive at all but is classified as a “passive ETF.” Josh cited a WisdomTree fund that is hedging European baskets vs. Japan and currencies in both directions for both geographies. “That may be 6-dimensional CandyLand, but it’s NOT passive.”

And finally, we know that some of our sleep-at-night active investing would be deemed quite “passive” but on closer examination, they’re NOT. Anything but. We buy. We hold … for as long as it makes sense to do so. In the case of our Bare Naked Million Portfolio there have been less than ten sell transactions since Christmas 2005. The turnover is less than these large “passive” index funds. And by the way, that bare naked $1,000,000 is now worth $3,177,277 (11/10/2017) — a “passive” annualized total return of 11.2% vs. 7.3% for the “actively” managed WIlshire 5000 (VTSMX) over the same time frame.

Thanks for the refreshing perspectives, Josh.

MANIFEST 40 Updates

Round Table Stocks

  • Illumina (ILMN)
  • ResMed (RMD)

Best Small Companies (2018)

Round Table Sessions (Video Archives)

Results, Remarks & References

Companies of Interest: Value Line (11/17/2017)

The average Value Line low total return forecast for the companies in this week’s update batch is 1.2% vs. 2.9% for the Value Line 1700 ($VLE).

Materially Stronger: Insulet (PODD), Deere (DE), KLA-Tencor (KLAC), Wabash National (WNC), Xcerra (XCRA), AGCO (AGCO), Thermo Fisher (TMO), Bard, C.R. (BCR), Teleflex (TFX), Intuitive Surgical (ISRG), Cutera (CUTR)

Materially Weaker: Geospace Technologies (GEOS), SCANA (SCG), Bio-Rad Labs (BIO)

Discontinued: Digital Globe (DGI), Select Comfort (SCSS), WebMD (WBMD), UCP (UCP), VCA (WOOF), Female Health (FHCO), Enpro Resources (ERS), Atwood Oceanics (ATW), MOCON (MOCO), Applied Microcircuits (AMCC), Allied World (AWH), Entercom (ETM), Alere (ALR), Landauer (LDR)

Market Barometers

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 2.9%, decreasing from 3.3% 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 (11/17/2017)

The average return forecast (PAR) for this week’s update batch is 5.7%.

Long & Short Term Perspectives. (November 17, 2017) 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.

 

November Round Table November 21, 2017 at 8:30 PM ET ONLINE

Stocks Likely To Be Featured: TBD

This Round Table will continue the discussion on traditional selling analysis and explore relative return-based selling triggers. We will probably also spend a few minutes with stock selections that we’re thankful for …

Consider joining Ken Kavula, Cy Lynch, Hugh McManus and Mark Robertson as they share their current favorite stock study ideas.

Registration: https://attendee.gotowebinar.com/register/4510335622157941250

Discovery Club

“Dump your hedge funds and explore their small-cap stock picks.”

Small cap is not necessarily small (faster-growing) companies but in general, we like the idea of a nice blend. So yes, we’re interested in hunting down some actionable ideas among the most successful investors on our radar screen — seeking companies that aren’t on too many radar screens, yet. The discovery of smaller, promising and faster-growing companies has always been one of our favorite (and rewarding) activities. In that spirit, we’re expanding our efforts in this realm, seeking smaller, less discovered companies and add them to our coverage. We will continue to scour our Best Small Company Funds with leaders like Brown Small Company.

This Week’s Sources and Suggestions

  • American Association of Individual Investors & James O’Shaughnessy

Coverage Initiated/Restored: Amtech Systems (ASYS), QuinStreet (QNST), Valhi (VHI)

Value Line Covering Neogen (NEOG)

Neogen (NEOG) and its subsidiaries develop, manufacture, and sell a variety of food and animal safety products. Its Food Safety division (47% of fiscal 2017 revenues) offers diagnostic test kits and related products that are sold to food manufacturers and processors to detect harmful substances in their products. Neogen’s Animal Safety segment (53%) manufactures a diverse line of products, including veterinary instruments, pharmaceuticals, vaccines, and disinfectants.

We are initiating coverage of Neogen this week in The Value Line Investment Survey. The Michigan-based corporation develops, manufactures, and markets a variety of products dedicated to food and animal safety. The company has more than 1,400 employees and a market capitalization that exceeds $3.0 billion.

The equity has richly rewarded shareholders of late. Over the past year, the stock price has advanced about 55%. For comparison, the S&P 500 Index is up 23% over the same time frame. The out performance, in our view, can be attributed to recent quarterly financial results, which have consistently met or exceeded Wall Street’s expectations. The bull market, as well as Neogen’s good outlook has also helped.

Neog analysis 20171117

What Have Clubs Bought & Sold?

The transactions displayed were recorded by investment clubs during the month of September 2017 as reported by bivio. bivio.com is a favorite record-keeping solution for investment club accounting and has an admirable record of exemplary customer service and cost-effectiveness for many years.

I’ve been an advocate of bivio as an invaluable club resource since I first met one of the co-founders Dr. Ion Yadigaroglu nearly twenty years ago. The leadership was subsequently assumed by Rob Nagler and a solid tradition of delivering a quality solution and outstanding service is currently led by Laurie Frederiksen. It’s been a while since we did a club Dashboard Diagnostics session and it’s probably time to remedy that. If you or your club would be interested in a live portfolio review using our dashboards, let me know.

As many of you know, I was responsible for the annual portfolio contest at Better Investing magazine several years ago. This afforded me the opportunity to witness success as I reviewed hundreds if not thousands of club portfolios. The best practices and outcomes observed became the genesis of Manifest Investing.

Trust Your Stock Study Results

The bull market has been on rampage for several years. In fact, the performance since 2009 now resembles and reminds many of us of the late-1990s, a period that we often regard as a golden age of investing. Do you remember? The analysis and methodology deployed by most investment clubs involves using the business models, trends and forecasts to build a long-term expectation for the companies that we study. Good stewardship mandates that we continually monitor all of the important influences and characteristics for the stocks that we own. This is the hallmark and foundation of the modern investment club movement.

Sometimes after a persistent bull market, investors can hoist the patience and discipline anchor. “This form of stock analysis does not work any more?” “P/E ratios no longer matter.” (That’s true, but only for special situations and circumstances.) Do you remember? “P/E ratios don’t matter for Cisco Systems (CSCO) … it’s by far the most strongly recommended stock on the stock market.” “Ignore that sell zone. This bandwagon is leaving the station.” We know with 20/20 hindsight and the soon-to-follow 92% drop over 1-2 years that some bandwagons are more cruel than others. We also know that CSCO was squarely in the sell zone of most of our stock studies at the time with a long-term return forecast in the negative double digits.

Do you remember?

We’re human. That’s why anchors matter.

bivio Clubs Activity Report: The Long & Short Term Perspective. (October 7, 2017) 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. bivio Clubs Net Buys vs. Sells: Number of reported purchases minus reported sales. The data is ranked (descending order) based on this criterion. 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.

Home Depot (HD): Business Model Analysis. The assumptions for Home Depot for a sales growth forecast of 5-7%, net profitability of 8-9% and a projected average P/E of 18x generate a return forecast in the mid-single digits.

The Bottom Line of any Stock Study is the Return Forecast

Home Depot (HD) is not Cisco Systems (CSCO). Home Depot is an exceptional company that dramatically weathered an industry DEPRESSION and not only survived but thrived. It ranks among the most widely-followed companies by subscribers at Manifest Investing and trust me, we’re grateful. But most of us would consider it a “Strong Hold” — not a “Buy” — under current conditions and based on the accompanying business model analysis.

Following a long bull market, some club participants begin to question the return forecasts of some of their favorite holdings. Some live in fear of the next bear market and urge colleagues to stick to blue chips and it doesn’t matter what the price or return forecast looks like. Many, many average investors flee to defensive blue chips and this has been going on for a long time as talking heads and pundits have been telling us to run for the hills for YEARS. The result of this is that many of our foundational favorite stocks are no longer attractive purchase candidates. Yes, quality matters. Quality is what keeps us safe when the next correction or bear market finally does arrive. Because it will. Nobody can tell you when. But, PRICE MATTERS TOO. Because return forecasts matter. Buying stocks with relatively low return forecasts will compromise your long-term returns and results.

For some context, we track approximately 2400 stocks at Manifest Investing. The average return forecast for those stocks (based on the collective results of a pile of stock studies) is now 6-7%.

Many of the companies at the top of the activity list have fairly weak long-term forecasts. We publish versions of this long-term and short-term perspective profile so that we can compare some trusted second opinions. In this case, note the general level of the low total return forecasts according to Value Line. We also check the price-to-fair value (P/FV) from Morningstar and S&P. A value less than 100% is regarded as potentially “on sale.” A value greater than 100% suggests that a stock is at least, temporarily, overvalued. Or expensive. Scan the list from top to bottom.

The lower return forecasts and expectations are generally at the top of the chart while the opposite is true at the bottom.

Home Depot (HD) is an example of a company that typically will reach a stock price plateau. Some of those plateaus have historically extended for many years. In many cases over the years, the stock price stagnates during an extended run where the business fundamentals steadily improve. This was the case for Home Depot a few years ago. I have no idea what lies ahead for Home Depot, it’s just that I wouldn’t be the least bit surprised by a plateau.

Which brings us to General Electric (GE) … the most heavily sold stock during September 2017.

In a game of word association — group therapy for GE shareholders — one of the most common words might be “fatigue.” GE shareholders are exhausted. How long can doldrums last? For this reason, and perhaps some tax-related selling at this time of year, we understand why an investor might feel compelled to sell GE.

But … as you complete your business model analysis, be sure to account for the dramatic changes in the structure of the company over the last few years. The General Electric of 2017 no where near resembles the General Electric of 2014. The financial component has been divested, a number of less profitable business units have been shed and the company on our screens is a different animal. Much of what they have retained and intend to strategically exploit are world class leaders in their enterprises. Take power generation and jet engines. World class. GE has added the remnants of Combustion Engineering and a number of water technology innovators to the mix. Their emphasis on deploying technology in the realm of healthcare continues to expand. GE has new executive leadership. Long story short — you can’t use much of the data array older than a year or two as you build a representative understanding of what the future may hold for GE.

Long story even shorter — our colleague Hugh McManus has been accumulating General Electric (GE) for the last few months as a participant in our monthly webcast series known as the Round Table. If you’re “selling” your shares, Hugh and his fellow knights and damsels are “buying” them. Hugh has a track record as a very successful stock picker and is notorious (and respected) for his long-term perspective. GE will be our featured stock this month.

Prudent Shopping & Good Things, “Small” Packages

We use consensus-driven individual stock analyses and dashboards to manage portfolios. Dashboards can also be used as a home for industry studies and pounce piles. In this case, we created a public dashboard for the stocks listed in this bivio activity report. You can access that dashboard here: bivio Clubs Activity: September 2017

Clicking on the PAR (Projected Annual Return) column header will sort the return forecasts from highest to lowest.

But this also comes with a caveat. Lists like these are almost always large company biased. This is because it’s a national/global compilation and the larger, more liquid, companies are just generally more likely to appear when they’re all “rolled up.”

One of the most critical aspects of building a successful long-term performance is to discover and prudently own some high-quality faster-growing companies. During September and October every year, we turn over leaves and hunt down promising needles in haystacks — the types of companies (think Bio-Reference Labs, Neogen, Masimo, Mesa Labs, Simulations Plus, Universal Display and a number of others) that bolster long-term returns. The search for promising smaller companies should never end and we intensify our efforts during the fourth quarter each year to — in some cases — take advantage of tax-related selling and the January Effect.

1. Check the rigging on your anchor.

2. Build and maintain expectations (do your homework) and use the results to guide your efforts. It’s what sets us apart from a herd of confused, weaker-performing participants known as “average investors.”

Don’t let your friends be average investors. Invest With Your Friends. Thanks, bivio!

Fave Five (9/29/2017)

Fave Five (9/29/2017)

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 11.1%.

This week we return to the triple play screening method for our five favorites. The triple play possibility occurs when you find a stock that is very depressed in price and also appears to be on the verge of substantially boosting its profit margins. The triple play effect is possible in that:

(1) The depressed price of the stock can return to normal levels;

(2) increased profit margins can produce increased EPS and a higher price;

(3) may also cause higher P/E ratios, or P/E expansion.

The Fave Five This Week

  • Alliance Data Systems (ADS)
  • Coach (COH)
  • CVS Health (CVS)
  • General Electric (GE)
  • Ulta Beauty (ULTA)

The Long and Short of This Week’s Fave Five

The Long & Short. (September 29, 2017) 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. 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 rate of return for the tracking portfolio is 21.6% since inception.

The relative/excess return for the Fave Five tracking portfolio is +6.1% since inception.

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

Stericycle (SRCL)

Is Stericycle a Sell?

Stericycle (SRCL) was added to the Round Table tracking portfolio back in February 2014 at a stock price of $114.00. It has since lagged the market by some -21.5% (annualized) leaving some to wonder if it isn’t a sell candidate despite trading near 52-week lows.

Srcl analysis 20170920

The Value Line perspective — in a nutshell:

Our near-term investment outlook has grown more pessimistic over the past three months. Specifically, Stericycle is now ranked to under perform the broader market averages over the coming six to 12 months. The issue does hold wide recovery potential, assuming our long-term projections aren’t far off the mark. (Matthew E. Spencer, CFA August 25, 2017)

Perhaps, but trading near the 52-week low delivers a 1-year zoning position of 3.7% with a 1-year target price of $107. The “average stock” has a 1-year zoning position of approximately 80%.

As shown in the accompanying chart, SRCL is now “oversold” (RSI<30).

Srcl chart 20170920

Goldman Sachs has not changed their outlook from March — at least not in a public release or not yet.

This overview does display a spectrum of expectations for the 1-year target range.

Srcl analysts 20170920

Morningstar continues to maintain a fair value of $110.

This delivers a price-to-fair value of 70/110 = 63.6%

Growth: “These assumptions allow Stericycle to approach $4.5 billion in revenues by 2021, reflecting a five-year organic revenue CAGR of 3.7%.”

We expect the near term may yet be volatile as Stericycle continues to manage headwinds in its core business, integrate Shred-It, design and implement an enterprise wide information technology system, and ultimately restore confidence in a business that we continue to believe has the building blocks in place to produce reliable recurring revenue streams over the long run. (Barbara Noverini, August 10, 2017)

This Round Table perspective on Stericycle makes me question whether we should extend the -20% relative return selling criteria beyond one year.

Srcl rt relative return 20170920

Did we miss a “trough” in PAR — a potential selling opportunity when the stock price hit $151.6 during 2015?

How about quality degradation?

As the accompanying chronicle shows, the PAR did not reach “auto-sell” levels during 2015 — but this image does rekindle those questions about the notion of “support and resistance levels” on PAR charts also. For some stocks, should we be setting low-PAR and high-PAR triggers much like Bollinger bands in technical analysis? I don’t know. But it’s worth some considerations and a pile of case studies, I’d think.

Srcl chronicle 20170920

Bottom Line?
For current stakeholders, with the recent nudge upward in quality and the potential that the blending is going a little better, we think it prudent to hold through another earnings cycle and see if the “new company” can stabilize and move forward as suggested by the Value Line long-term outlook.

Be Careful Out There

This Week at MANIFEST (9/15/2017)

Tell me and I forget. Teach me and I remember. Involve me and I learn. — Ben Franklin

Be careful out there. — Phil Esterhaus, Hill Street Blues

“Historically, September is the worst month for U.S. stock market performance,” wrote Minerd. “Since 1929, the S&P Composite Index has averaged -1.1 percent for September, making it one of only three months with negative average returns over that time. The worst performing single month over this time period was September 1931, when the S&P composite fell 30 percent.” — Scott Minerd, Guggenheim Partners

Call it the Pre-January Effect if you’d like. It’s particularly relevant and pertinent for the smaller, faster-growing companies this time of year. With the January Effect, we benefit from reallocation and tax-related selling by investing in smaller companies that have been unduly punished during the fourth quarter with the hopes that repurchase and first quarter purchasing will restore many of the damaged prices.

The key word is “unduly.” And in the words of George Nicholson (via the 1984 NAIC Investors Manual) and Hill Street Blues Sergeant of the morning watch, Phil Esterhaus, “Be careful out there.”

Nicholson’s stark warning appears on page 98 of the 1984 Manual.

The guidance is offered in the context of his “Challenge”, a switching consideration that is intended to improve the overall portfolio by selling a holding and replacing it with a suitable, bolstering, substitute.

“When you begin this Challenge, the most important rule is requiring that the challenger (or replacement stock) is of equal or higher quality.” [His emphasis added, NOT mine.]

The accompany chart of screening results is from the Value Line Investment Analyzer. As shown, the listing is sorted by Projected 3-5 Year Total Return (Descending.) Needless to say, these return forecasts are red hot.

We draw your attention to the Financial Strength column where many of the companies are C, C+, etc. Remember, a “C” rating from Value Line is equivalent to an “F” from your school days. The ratings don’t get any lower than “C”. You have to reach for at least a “B++” to get above average.

We also note that many of these companies have stock prices less than $10. It’s one piece of the puzzle, but worthy of a yellow flag and caution.

And finally, check out the growth column. There’s not a whole lot of growth here. In the words of David L. Babson, growth conveys “grace” to long-term investors often healing wounds and compensating for buying a good stock at a price where you should have waited. So there’s not a lot of grace in this group … either.

Turnout Terraforming

As a reminder, the monthly Round Table webcasts will continue and not be disrupted by these new Tuesday sessions.

That said, we’ve heard from a number of you that you’d be interested in seeing us tackle some subjects, topics and methods independent of the Round Table sessions. So we will.

Tuesday seems to be a fairly optimum time to schedule additional sessions although we’ll likely have a few “Turnouts” on other days of the week.

We’d like to hear from you. (markr@manifestinvesting.com) What’s on your mind? What topics would you like to see covered? Here are some that have been suggested or considered so far:

  • Getting Risk Right (Cy Lynch)
  • Lessons From The Legends (Hugh McManus)
  • How Can We Calculate Relative Return?
  • Are Quality and Moats Related?
  • What Should Our Investment Club Meetings Look Like?

MANIFEST 40 Updates

  • 9. Cisco Systems (CSCO)
  • 11. Walgreen (WBA)
  • 12. Qualcomm (QCOM)
  • 26. CVS Health (CVS)
  • 28. LKQ (LKQ)

Round Table Stocks

  • Cisco Systems (CSCO)
  • CVS Health (CVS)
  • Gentex (GNTX)
  • LCI Industries (LCII)
  • LKQ (LKQ)
  • Qualcomm (QCOM)

Round Table Sessions (Video Archives)

Best Small Companies

  • 14. Gentherm (THRM)

Results, Remarks & References

Companies of Interest: Value Line (9/15/2017)

The average Value Line low total return forecast for the companies in this week’s update batch is 5.6% vs. 3.7% for the Value Line 1700 ($VLE).

Materially Stronger: Estee Lauder (EL), Modine Manufacturing (MOD)

Materially Weaker: Acacia Communications (ACIA), Synaptics (SYNA), Qualcomm (QCOM), Rite Aid (RAD), Harmonic (HLIT), BT Group (BT), Genuine Parts (GPC), Walgreen (WBA), CenturyLink (CTL), Commscope (COMM), Avon Products (AVP), Pharmerica (PMC), Infinera (INFN), ATN International (ATNI), Dish Network (DISH)

Discontinued: NeuStar (NSR), Reynolds American (RAI)

Market Barometers

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 3.7%, an increase from 3.5% 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.

Update Batch: Stocks to Study (9/15/2017)

The average return forecast (PAR) for this week’s update batch is 9.0%.

The Long & Short. (September 15, 2017) 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.

Fave Five (9/8/2017)

Fave Five (9/8/2017)

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 average 1-year ACE total return forecast is 10.6%.

Our Favorite Bubbles …

… just might be the kind of bubbles that evolve when we blend Ivory Soap with Irish Spring. Hugh McManus likes to shop for opportunities among stocks that are trading near their 52-week lows and for non-core case studies, he’ll sometimes demand that the stock prices be near multi-year lows. Part of the driver behind this is the recognition that there’s often a large difference between 52-week highs and 52-week lows, even for some of the bluer chip established stocks. Isolating opportunities to invest when stocks are in the lower part of those annual ranges would seem to provide a margin of safety and reduce some of the downside … and “all things created equal” why should we shop anywhere else. (Read that in an Irish brogue for full effect.)

The five stocks flagged this week are repeat selections for the Fave Five tracking portfolio and as the parade of second opinions shows — there’s largely some consensus about expectations. FleetCor (FLT), Starbucks (SBUX) and Ulta Beauty (ULTA) also popped up as high-quality stocks with relatively outsized return potential in Ken Kavula’s review of the Forbes Most Innovative Companies. Gentex (GNTX) has also been a Round Table favorite with stellar performance over the years and Akamai Technologies (AKAM) has been featured as a worthy exploration consistent with the growing need for cyber security.

StockSearch Results using the stock screener at www.manifestinvesting.com with the following criteria: Manifest Rank (percentile ranking based on combination of quality and long term return forecast) greater than 99.44% — or top 1/2 of top percentile of all stocks covered, Financial Strength > B++ (70%) and stocks within 20% of their 52-week low.

The Long and Short of This Week’s Fave Five

The Long & Short. (September 8, 2017) 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. 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. 1-Yr GS: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +2.3% since inception.

The absolute annualized rate of return is 15.3%.

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