Stocks

Value Line Low Total Return Screen (3/22/2013)

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Companies of Interest

The average low total return forecast for Issue 5 is 7.0% — so there are some shopping opportunities in the group. (Reminder: The companies displayed in the screening results are limited to the top two quality ranking quintiles, or greater than 60)

Nu Skin (NUS) is a somewhat speculative study but displays some promising characteristics. I’m reminded of Laura Berkowitz’s timeless “Confessions of a SafeSkin Buyer” published years ago in Better Investing and wonder if the study shouldn’t include a threats and opportunities analysis of single-product companies, fads … and the like.

Gentex (GNTX) is a potential study in conflicted consensus. Morningstar thinks the price-to-fair value ratio for GNTX is 74% (attractive). S&P thinks the P/FV is 103% (fairly/fully valued). Go ahead. Rumble. What do you think?

Walgreen (WAG) and CVS Caremark (CVS) continue their leadership campaign and compete with each other. Both companies remain attractive from a return perspective and the fundamentals at CVS have strengthened of late — now topping WAG in the quality ranking. S&P sees opportunity with a P/FV of 74% for CVS.

Materially Stronger: Arris Group (ARRS), Cisco Systems (CSCO)

Materially Weaker: Acme Packet (APKT), Broadcom (BRCM), Tellabs (TLAB), Alaska Communications (ALSK)

Market Barometers

The Value Line median low total return forecast is 6.8%, down slightly from last week’s 6.9%.

Look Out Below: MANIFEST 40

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The relative strength index (Stockcharts.com RSI) is a significant momentum indicator that we’re using to identify overbought (RSI > 70) conditions as well as oversold (RSI < 70) potential buying opportunities.

As we’ve noted, we’re tracking a long-term version of this indicator, using a trailing 12-month RSI in conjunction with 10-year monthly charts. We think that RSI breaks — when RSI has been greater than 70 for a prolonged period and then breaks back below 70, that’s it is a moment worth noting and time for portfolio-centered consideration.

More (specific case studies) to follow …

 

Look Out Below: Carriage Services (CSV)

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With our median return forecast at 6.7% (nearing historical lows) and the relative strength index for the Value Line Arithmetic Average at 71.9 — we thought it might be worthwhile to check for some overbought/weakening stocks. We’ll do this on a continuing basis, inspired by Barry Ritholtz’s relatively infrequent “Look Out Below!” posts on his Big Picture blog. In this case, it’ll be Look Out Below: Individual Stocks edition. When Barry signals a macro-economic seismic event, it’s worth paying attention and at least checking or double-checking your capital preservation status if you’re in that mode.

We open with Carriage Services (CSV). Carriage Services currently has the highest relative strength index, RSI (94.8) — based on the long-term perspective shown here.

A few things …

  • There’s an element of poster child morbid poetry here. Carriage Services provides death care services and merchandise in the U.S. The company operates two segments: funeral home operations and cemetery operations.
  • The Value Line low total return forecast for CSV is 1% (based on a stock price of $13.00). Accounting for the change in stock price and long-term horizon, the low total return forecast is now -8.1%.
  • We know that an elevated RSI is just one component (puzzle piece) of a bigger picture. We also know that companies can remain in an “overbought condition” for weeks, months, quarters and in some cases — years.
  • That said, we’ll be monitoring all of our covered companies for a “retreat” from overbought — watching carefully for that long-term crossover from RSI > 70 to RSI < 70.
  • Note that the decline for Carriage Services (last RSI crossover) at the onset of the Great Recession (Halloween 2007) reached a monstrous 91% drop in stock price. We think it might be prudent to at least be aware of these conditions … and that a considered decision (selling, trailing stops, options, etc.) seem pretty worthy and potentially rewarding over the long term.
  • And lest you worry about the long-term investing selections made by your peers, Carriage Services only shows up on 0.02% of all subscriber dashboards at Manifest Investing.

We’ll be taking a look at our entire batch of companies … and flagging those (particularly our community favorites) for indications of potential Look Out Below! vulnerability.

Value Line Low Total Return Screen (3/15/2013)

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Companies of Interest

The companies with the strongest fusion ranking (combination of fundamental and technical analysis factors) this week are: Aerovironment (AVAV) and United Healthcare (UNH).

Aerovironment has been under fire in recent weeks and the stock price has sagged while growth, profitability and valuation characteristics have slightly deteriorated. After accounting for the reduced expectations, AVAV still ranks among the best opportunities among our covered companies. We have the projected annual return (PAR) at 15% with a quality ranking of 89 (11th highest percentile) after this week’s refresh. Morningstar has a fair value for AVAV at $34.

Materially Stronger: United Therapeutics (UTHR), Quality Systems (QSII), Davita (DVA), Biomarin Pharma (BMRN), AllState (ALL)

Materially Weaker: Select Medical (SEM), Posco (PKX), Amedisys (AMED), AK Steel (AKS)

Market Barometers

The average Value Line low total return forecast is 6.9%, down from 7.2% last week.

The Value Line Arithmetic Average reached an all-time high last week, joining the Dow Jones Industrial Average at the party — but much more quietly. All-time highs are nothing new for this all-of-the-above average of the types of stocks that we routinely pursue, study and own. In fact, this composite made it “back to even” 2-3 years ago and we celebrated and noted that our Tin Cup model portfolio recovered equally quickly at the time.

On this 20-year chart, we’re reminded of the swoons that followed (1) 1998 and Long-Term Capital Management, (2) the 2001-2003 correction and (3) the 2007-2009 Great Recession. We’re also reminded that peaks in relative strength index (RSI) are not the sole piece of the puzzle … as there are periods when successive peaks accompany a continuously advancing bull market. That said, any time the RSI has been “north” of 70 and retreats to 70, we’d urge high-alert status because the vulnerability of significant price corrections is elevated. (A big picture version of “Look Out Below”)

View From The Top Shelf

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Sweet 16: Screening Results (March 2013)

This month features the top percentile of all stocks covered at MANIFEST on the basis of quality (our combination rating of financial strength, earnings stability and relative growth and profitability forecasts). It’s not the customary sixteen stocks or so … but these twelve quality champions are formidable and worthy of a closer look and automatic/perpetual pounce pile status.

Overall Market Expectations

The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 7.2% (2/28/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.

Companies of Interest

With the median return forecast hovering at 7.2%, less than the historical average and nearing historical lows, it makes sense to shop on the top shelf. If prices continue to surge absent any strengthening of fundamentals, the return forecast could get significantly lower. The subtle whittling of expectations (no slashing) continues as we begin the first quarter updates for 2013. Invest in the best (highest quality) but only when they’re suitably on sale.

The top shelf company with the highest fusion rating (combination of fundamental and technical analysis scoring) is Cognizant Technology (CTSH). Cognizant is well-positioned within its industry with a strong track record and stands to benefit as the global recession turns to recovery.

Mesa Labs (MLAB) continues to score well and is one of our favorite companies from this year’s batch of promising small companies from Forbes.

The recent price swoon in Coach (COH) leaves the company with the lowest price-to-fair value ratio (76%) from Morningstar and Standard & Poor’s (83%) among the companies on the top shelf. The price reduction also generates an annualized low total return forecast of 16.4% at Value Line. There’s a rumor floating that somebody thinks all of the purses are a bit pricey … but those crowds of trampling shoppers and a legacy of results suggests that the whole company might be worth buying. I don’t think the price tag hanging on the company is $40-something.

Those return forecasts across the board look pretty good on the top shelf … not a bad idea to start there.

Buffett: Gone Shopping?

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A screen searching for stocks Warren Buffett (BRK.B) may be interested in turned up 28 names, but only one – ADM – is a current Berkshire holding.

Most likely to catch the Oracle’s eye from the rest of the list, writes Jack Hough in Barron’s — Screening For Stocks Buffett Might Buy , is Sysco (SYY), Cummins (CMI), and Illinois Tool Works (ITW). [Seeking Alpha]

On closer examination, we’d concur on Sysco (SYY) but I’m not so sure about most of the others.

A few years ago I wrote an article that took a look at Coca-Cola through the eyes of Warren Buffett and our stock analysis methodology … as he might have seen it back in 1988-89.

The bottom line is that he appears to embrace quality and projected returns as we’d expect any disciple of Graham to do.

And in that regard, I don’t think there are 28 companies on his list. At least not these 28 companies:

http://www.manifestinvesting.com/dashboards/public/MX4GDT

Value Line Low Total Return Screen (3/1/2013)

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Companies of Interest

Normally we limit the list of companies to the highest annualized total return candidates that also have a first or second quintile quality ranking. I made an exception in this case for Southwest Airlines (LUV) because of the forecast boosts in this week’s updates — earning LUV a spot on the Materially Stronger part of the update.

Materially Stronger: Clean Harbors (CLH), CoStar Group (CSGP), Gartner (IT), Genessee & Wyoming (GWR), Jack in the Box (JACK), Southwest Airlines (LUV)

Materially Weaker: Arkansas Best (ABFS), Frontline (FRO), United Parcel Service (UPS)

Market Barometers

The Value Line low total return forecast is 7.2%, down slightly from 7.3% last week.

Although we could face a correction near-term, no alarms are sounding on the New Highs vs. New Lows trend … suggesting that protective measures are not yet necessary. The S&P 500 relative strength index has relaxed back to 55.9 after recently being in the overbought (>70) range. Be selective and with MIPAR at 7%, select high-quality and bias overall portfolio quality and financial strength to the higher end of long-term target ranges.