S&P 500 Challenge. One month into this year’s edition of Eddy Elfenbein’s Crossing Wall Street Buy List (2013) and our participation with the Walking Main Street portfolio … and we’re both thumping the S&P 500 index.
Stocks
Value Line Low Total Return Screen (2/8/2013)
Market Barometers
The average Value Line Low Total Return (VLLTR) forecast is 7.3%, down from 7.7% last week.
Companies of Interest
The average low total return forecast for this issue of the Value Line Investment Survey is 6.1% — and the opportunities are a little sparse. The number of material price forecast reductions continues to outnumber the bolstered forecasts this week.
A couple of recent favorites, Schlumberger (SLB) and National Oilwell Varco (NOV) continue to be worthy of further study.
Materially Stronger: Host Hotels (HST), Helix Energy (HLX)
Materially Weaker: Harte-Hanks (HHS), DreamWorks (DWA), Scientific Games (SGMS), Hyatt Hotels (H), Monster Worldwide (MWW), Forest Oil (FST), RPC (RES)
Heavy Hogs (2012): Groundhog VI Results
The Heavy Hogs for 2012 (the most frequently selected stocks one year ago) struggled a bit during Groundhog VI — checking in at 6.3% while the Wilshire 5000 gained 16.4%.
This doesn’t bode well for the Groundhog field as our accountants continue to tally the final results. Chances are if you had Portfolio Recovery (PRAA), ResMed (RMD), Google (GOOG), Bio-Reference Labs (BRLI), Oracle (ORCL) or Walgreen (WAG) — you’re smiling. These were the only six out of the seventeen heavy hogs to outperform the market, or 35.3%. (Values shown in the accompanying table are $100 invested on 2/2/2012)
We’re accustomed to a higher number than 35.3%.
Qualcomm (QCOM)
In the realm of mobile communications, it’s clearly a jungle out there. The battle among the major providers is in full gear and profit margins (for most participants) show the impact. Enter Qualcomm (QCOM). QCOM has the #1 market share in application and graphics processing chips and 3G/4G/LTE modems used in smart phones. Let that sink in for a minute.
Qualcomm has revolutionized the mobile phone industry. Through a commitment to research and development and via a wide berth of partnerships with other firms, innovative solutions are built and distributed across the entire wireless industry.
Growth, Profitability, Valuation
The Manifest Investing sales growth forecast for QCOM is 11%. We’re using 33% for the projected net margin. The median P/E for the period 2006-2013 is 16.8×. We’re using 18x for the projected average P/E.
At the time of selection, the stock price is $62.53, the projected annual return is 18-19%. The quality rating is 91.8 (Excellent, Top Shelf) and the financial strength rating is 98 (A++). The company has no debt.
The company is now ranked #38 in the MANIFEST 40 and although a newcomer to our 40 most widely-followed stocks, investors in our community have studied, owned and profited from QCOM over the years.
And we close with an echo of last month’s closing remarks on Atwood Oceanics — only this time we’re talking QCOM: globally diversified and serving a host of wireless companies … feels like a pretty good hedge vs. geo-risk and a little like 1960s Corning, they sold the tubes to all the dueling TV makers. Placing a bet on red, black and green?
Qualcomm (QCOM): Christmas 1999
Whoa. The stock price (keep in mind it’s split 8-for-1 since then) soared $250/share between Christmas and New Year’s Eve. Wild ride.
Strong Fundamentals: Ready To Be Loved?
This month features the top percentile of all stocks covered at MANIFEST on the basis of a combination of strong fundamentals (return forecast and quality) and some key technical factors (relative strength index, sentiment and momentum).
Overall Market Expectations
The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 7.2% (1/31/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.
O Cupid, Doth Thy Arrow Sting?
Only when it misses.
With Valentine’s Day around the corner, Body Central (BODY) a specialty retailer for ladies from 18-35 might be worth a closer look. Be diligent. This one is down to $8 from $30 and has recently changed management while harvesting a weak quarter or two. It could be a value trap … or an oversold opportunity. From our vantage, we’re hoping it’s Chicos II.
Qualcomm (QCOM) is always a worthy study and a well-diversified supplier to a number of the combatants in the smart phone and tablet wars. I still remember Christmas break 1999 when our largest holding at the time, QCOM, soared at an incredible rate.
The January Round Table audience selected AeroVironment (AVAV) following a brief summary and nomination by Ken Kavula — one of our leading knights on a relative return basis since inception.
Super Bowl weekend. Do you know where the remote is? Study Universal Electronics (UEIC). You can order a new one if needed.
Synaptics (SYNA)
The Round Table knights decided to “sell” Synaptics (SYNA) from the Round Table tracking portfolio at the January session. As shown, Synaptics was added to the portfolio back in October 2010 — and has outperformed the Wilshire 5000 since then.
The stock price has moved from $22 to $36 over the last few months and in the absence of any large fundamental upgrades (growth or profitability forecasts) the return forecast has dropped to low single digits. We also note substantial potential resistance near current price levels. Note the substantial price move over the last three months.
What’s Your Wallet? (COH)
Coach (COH) certainly qualifies as a community favorite. Ranked #10 in the MANIFEST 40 collection of our most widely-followed stocks, a number of us are owners of this high-quality company.
In this week’s update for Value Line, the 3-5 year low price forecast has been adjusted from $85 (11/2/2012 company report) to $70 (2/1/2013). At a stock price of $51.21, this change alone drops the low total return forecast from 15-16% all the way to 10%. Now … 10% is nothing to sneeze at when the overall average low total return forecast is 7.7% — but that five percentage point punch to the midsection is well, a little breathtaking.
Sales Growth Forecast
Profitability Trend and Analysis
Projected Average P/E Ratio
Equity Analysis
Using a current (trailing 12-month) revenues of approximately $5 billion, a growth rate of 11%, net margin of 20% and a projected average P/E of 18x (payout ratio = 33% and projected yield = 1.9%) generates a long-term return forecast of approximately 18%.
The expectations of the analyst consensus, Morningstar and Standard & Poor’s are considerably more optimistic than Value Line — raising the overall average return forecast to a much higher level than 10%. It’s entirely possible that Value Line is one of the early arrivals and that we could see some weakness in the other forecasts, and we’ll stay vigilant — tuned for any material changes.
Value Line Low Total Return Screen (2/1/2013)
Based on a combination of fundamental and technical analysis, Rue21 (RUE) appears to be among the more attractive candidates for further study this week.
We’ll be taking a closer look at Aeropostale (ARO), Coach (COH), Deckers Outdoor (DECK) and Kohl’s (KSS) as they’re all current tracking portfolio selections or ranked fairly highly among our most widely-followed stocks by our subscribers.
Materially Stronger: Iconix (ICON), Foot Locker (FL), Christopher & Banks (CBK)
Materially Weaker: Aeropostale (ARO), Coach (COH), Bebe Stores (BEBE), Kohl’s (KSS), J.C. Penney (JCP), Big Lots (BIG), Crox (CROX), Deckers Outdoor (DECK)
Rue21 (RUE)
rue21 (RUE) was the 4th company in our annual stock selection countdown during late December 2012. RUE is a specialty retailer of private label apparel and accessories. The company offers an assortment of fashion merchandise at value prices, primarily catering to the teenage demographic. Products offered include graphic t-shirts, denim, dresses, belts, jewelry, handbags, footwear and intimate apparel.
The company was selected by Pittsburgh’s own Nick Stratigos during the February 2012 edition of our monthly Round Table. Nick is the reigning individual stock picking champion for our annual Groundhog Challenge and RUE has delivered a +3.4% relative return (vs. Wilshire 5000) since the time of selection.
With a sales growth forecast of 13%, net margin estimated at 4.9% and a projected average P/E of 18x, the return forecast is approximately 16%. RUE has a quality rating of 70.6 (Excellent). As shown here, the Value Line low total return forecast is 14%.
Expecting Alpha 