Stocks

VL Low Total Return Screen (12/21/2012)

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Why do we pay attention to the Value Line weekly updates? Because a number of highly successful long-term investors cite Value Line as one of their favorite trusted resources.

“I don’t know of any other system that’s as good… The snapshot it presents is an enormously efficient way for us to garner information about various businesses… I have yet to see a better way, including fooling around on the internet, that gives me the information as quickly.” — Warren Buffett, Berkshire Hathaway, 1998 Annual Meeting speaking about The Value Line Investment Survey.

“[Value Line is]…the next best thing to having your own private securities analyst.”
—Peter Lynch, One Up On Wall Street

In our case, we’ve found the low total return forecasts for all companies to be among the most compelling opinions/forecasts while we either (1) search for opportunities or (2) practice effective stewardship when it comes to staying vigilant about our current holdings.

Materially Stronger: None

Materially Weaker: Neutral Tandem (IQNT), NII Holdings (NIHD), Marvell Tech (MRVL), Adtran (ADTN), Rite Aid (RAD), Cisco Systems (CSCO), F5 Networks (FFIV), Regis (RGS)

Point-and-Figure (PnF) Trend Source: Stockcharts.com

rue21 (RUE)

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rue21 (RUE) is the 4th company in our annual stock selection countdown. 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 +3.3% relative return (vs. Wilshire 5000) since the time of selection.

With a sales growth forecast of 13%, net margin estimated at 4.7% and a projected average P/E of 18x, the return forecast is approximately 17%. RUE has a quality rating of 70.2 (Excellent).

We’d like you to invite us to come see you.

 

10. Mesa Labs (MLAB)

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The third company in our annual stock selection countdown is a relative newcomer to most of us — but a company that we’ve featured on multiple occasions.

Taxes on investments are (1) going up if Republicans and Democrats decide to agree on something or (2) if they continue to disagree across the board and over the cliff. In other words, taxes will increase on dividends and capital gains. One of the effects that we’ve been seeing for a while now is the traditional January Effect. The selection of Mesa Labs (MLAB) gives us a chance to reinforce a message that is always a good idea this time of year — and this year even more so.

We recently discovered MLAB through the annual publication of the Forbes Best Small Companies a couple of weeks before Halloween. It’s one of our favorite troves and you can read more about it here

It’s not unusual for the smaller companies to be more deeply impacted by tax-related selling during the final quarter of the year … leading to an event-driven opportunity to sell (when appropriate) all the while waiting to pounce on the ON SALE NOW opportunities created by the price swoons.

And quality matters. If we’ve learned nothing from watching the performance of these faster-growing companies over the last decade, it’s that we want to be vigilant for the leaders. We recognize them by steady, consistent growth and profitability patterns and balance sheets (financial strength) that are often a cut above their agile emerging peers. Last year’s favorite, SolarWinds (SWI) is up 130% over the last twelve months. We like that.

Mesa Labs (MLAB) was also featured as a recent monthly stock selection for December 2012

We also know that balancing the overall growth forecast FOR ANY PORTFOLIO is a really good idea … and after the selections of CVS and JW-A, MLAB provides a healthy boost in this regard.

Christmas Countdown Dashboard: http://www.manifestinvesting.com/dashboards/public/christmas-countdown-2013

John Wiley & Sons (JW-A)

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Christmas Countdown (2013)

The second selection in our annual countdown is something of a surprise, John Wiley & Sons (JW-A).

During times when we seem closer to Fahrenheit 451 than not … in days when some of our favorite bookstores (e.g. Border’s) are shuttering … and when the mainstream media decries the conversion from print media to all things tablet de digital — there may be some contrarian method to the madness of a bookish selection.

We were skeptical when JW-A turned up in our Top Tenth of The Top Percentile screens that power the Core Diem demonstration portfolio over the last couple of days — but after a close look and noting the recent price reduction, we’re thinking open arms … much like a good book and a fireplace.

 

Business Description

John Wiley & Sons, Inc. (JW-A) engages in the publishing of print and electronic products, providing content and digital solutions to customers worldwide.

The company operates through three segments: Scientific, Technical, Medical & Scholarly, Professional/Trade and Global Education. The Scientific, Technical, Medical & Scholarly segment provides content and content-enabled digital services for the scientific, technical, medical and scholarly communities worldwide, including academic, corporate, government and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. Its products include journals, books, major reference works, databases, clinical decision support tools and laboratory manuals and workflow tools. The Professional/Trade segment acquires, develops and publishes books, workflow solutions, certification and training services and other information services in the subject areas of business, technology, architecture, cooking, psychology, professional education, travel, health, consumer reference and general interest.

It products are developed for worldwide distribution through multiple channels, including major chains and online booksellers, independent bookstores, libraries, colleges and universities, warehouse clubs, corporations, direct marketing and websites. The Global Education segment publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. It delivers its content, tools and resources to students, faculty and institutions principally through college bookstores and online distributors, with customers having access to content in multi-media formats as well as the traditional textbook. John Wiley & Sons was founded in 1807 and is headquartered in Hoboken, NJ

Business Model Analysis

When you’ve been printing books for over 200 years, you probably know a thing or two about where, when and how to sell them.

The last several years (and a couple years of analyst consensus forecasts) build a steady trend in the 3-4% growth range. If Value Line is right about the 3-5 year forecast, the figure favors the 4% end of that range.

The narrowing of the gap between the top and bottom lines is our first hint of expanding profitability. Apparently after 200 years — they’re also figuring out ways to discover new means of optimization.

The Value Line low total return forecast (LTR) shown here is 15% but that was based on a stock price of $43.20 (11/9/2012). With the price now at $37.40, the adjusted LTR is closer to 20.6%.

Profitability Analysis

The overall profitability trend borders on astonishing considering the economic/competitive environment and market that Wiley wakes up to every day. In this closer look, we see the pressures on net margin results during the Great Recession (2008-2009) and the continued optimism of Value Line in their 3-5 year forecast.

All in all, the trend is pretty powerful and could drive higher P/E ratios going forward. Fahreinheit 451, indeed.

CVS Caremark (CVS)

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The first stock in our annual countdown is CVS Caremark (CVS).

The company is no stranger to long-term investors — currently ranked 37th in the most widely-followed MANIFEST 40.

CVS Caremark Corp. is a pharmacy health care provider in the U.S. with integrated offerings across the entire spectrum of pharmacy care. The company operates in the following segments: Pharmacy Services, Retail Pharmacy and Corporate. The Pharmacy Services segment provides a full range of pharmacy benefit management services to its clients consisting primarily of employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the U.S. The Retail Pharmacy segment includes retail drugstores, its online retail pharmacy website, CVS.com, onsite pharmacy stores and its retail health care clinics. Its retail drugstores are located in various states, including Puerto Rico and the District of Columbia operating primarily under the CVS/pharmacy name. The CVS/pharmacy stores sell prescription drugs and a wide assortment of nationally advertised brand name and private label merchandise. The Front store categories include over-the-counter drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods. The Corporate segment provides management and administrative services to support the overall operations of the company. CVS Caremark was founded in 1963 and is headquartered in Woonsocket, RI.

Business Model Analysis

Based on a sales growth forecast of approximately 8%, a net margin forecast of 3.8% and a projected average P/E ratio of 15.0x — the projected annual return is approximately 15%.

The quality rating is 80.6 (Excellent, top quintile) based on a financial strength rating of 86 (A+), earnings stability in 94th percentile and favorable growth and profitability forecasts versus the Pharmacy Services group.

As shown in the accompanying figure, the low total return forecast for CVS is 13%. [Source: Value Line Investment Survey, 9/21/2012]

Christmas Countdown (2013)

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It’s hard to believe that 2012 is winding down. And with the Wilshire 5000 (VTI) up approximately 15% YTD, it’s time to take a look back at the selections we made during the 2012 Christmas Countdown. Bottom line: The nine selections have a positive relative return of +4.2% and an out performance accuracy of 67%. Santa, we’ll take that.

With a positive relative return of +2.2% for the 2011 selections (and an out performance accuracy of 58.3%) we’ll knock on wood — celebrate the positive outcomes — and start the hunt for stocking stuffers for this year’s countdown.

Christmas Countdown (2013)

Dashboard: 2013 Countdown Stocks

VL Low Total Return Screen (12/14/2012)

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Why do we pay attention to the Value Line weekly updates? Because a number of highly successful long-term investors cite Value Line as one of their favorite trusted resources.

“I don’t know of any other system that’s as good… The snapshot it presents is an enormously efficient way for us to garner information about various businesses… I have yet to see a better way, including fooling around on the internet, that gives me the information as quickly.” — Warren Buffett, Berkshire Hathaway, 1998 Annual Meeting speaking about The Value Line Investment Survey.

“[Value Line is]…the next best thing to having your own private securities analyst.”
—Peter Lynch, One Up On Wall Street

In our case, we’ve found the low total return forecasts for all companies to be among the most compelling opinions/forecasts while we either (1) search for opportunities or (2) practice effective stewardship when it comes to staying vigilant about our current holdings.

Materially Stronger: Worthington Industries (WOR), Myriad Genetics (MYGN), Mueller Industries (MLI), Coventry Health (CVH)

Materially Weaker: AK Steel (AKS), U.S. Steel (X), Cliffs Natural Resources (CLF), Quality Systems (QSII), Steel Dynamics (STLD), WebMd (WBMD), Schnitzer Steel (SCHN), Humana (HUM), Lifepoint Hospitals (LPNT), Transdigm (TDG)

Bullish Sentiment (Positive Price Pressure): Health Management Associates (HMA), Nucor (NUE)

Mesa Labs (MLAB)

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Solomon Select: December 2012

Mesa Labs (MLAB)

We think BI is an area of promise. No, we’re not talking about Better Investing or the publication Business Insider (although we like both of them) … this has to do with Biological Indicators. A year ago we watched as Bio-Reference Labs (BRLI) took a massive stock price hit as the short sellers seemed intent on driving a viable business into oblivion. During our diligence on the situation, we learned about the power and potential of body fluid analysis for diagnosis and prevention. With two sisters who serve as nurses, I’m also acutely aware of the need to verify sterile treatment.

Mesa Laboratories, Inc. develops, manufactures and markets, high-quality process validation and monitoring instruments as well as dialysis calibration and verification meters, standard solutions and accessories that are relied upon by businesses worldwide. From Fortune 500 companies, to high tech start-ups, Mesa Lab’s products are used to assure product quality, control manufacturing processes, and to solve problems in niche markets in industrial, pharmaceutical, medical and food processing applications. Mesa Lab’s products are characterized by technical excellence and superior industry reputations.

Growth, Profitability, Valuation

Our sales growth forecast for MLAB is 18.5%. We’re using 20% for the projected net margin. The median P/E for the period 2004-2011 is 15×. We’re using 16x for the projected average P/E.

Mesa Labs has delivered steady growth (allowing for a speed bump during the 2008-2009 recession) and a growth rate in the upper teens seems feasible.

Margins seem to be plateauing in the high teens — but a 17.5% forecast would be reasonable. Industry margins are 10% — so any study of MLAB has to gauge the sustainability of the higher profit margins.

The P/E ratio has been extremely consistent for a small company and could conceivably increase if growth rates and profitability levels are maintained as the company is “discovered.” A P/E ratio of 16-18x seems defensible.

At a stock price of $47.37, the projected annual return is approximately 16%. The quality rating is 88 (EXCELLENT) and the VL financial strength rating is B++.

Mesa Labs reminds me fondly of Neogen (NEOG). The business is similar and we discovered it using the Forbes Best Small Company listing for 2012. It’s a Royce (small company gurus) favorite and like Royce, we think Mesa Labs has the potential to continue to deliver.

Coach (COH)

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

Coach has grown from a family-run workshop in a Manhattan loft to a leading American marketer of fine accessories and gifts for women and men. Coach is one of the most recognized fine accessories brands in the U.S. and in targeted international markets. Premium lifestyle accessories are offered to a loyal and growing customer base and provide consumers with fresh, relevant and innovative products that are extremely well made, at an attractive price.

Coach’s modern, fashionable handbags and accessories use a broad range of high quality leathers, fabrics and materials. In response to customer demands for both fashion and function, Coach offers updated styles and multiple product categories which address an increasing share of customer accessory wardrobes. Coach has created a sophisticated, modern and inviting environment to showcase product assortment and reinforce a consistent brand position wherever the consumer may shop.

Coach utilizes a flexible, cost-effective global sourcing model, in which independent manufacturers supply products, allowing a broad range of products to market rapidly and efficiently.

Business Model Analysis

Starting with the top line (revenues or sales) the long-term trend is very steady for a specialty retailer. There’s a slight disruption during the 2008-2009 Great Recession but less than many retail companies. The regression shown here suggests a long-term sales growth forecast of 12-13%

The current Value Line low total return (LTR) forecast shown here is 12%.

Profitability Analysis

Historical net margins for Coach (COH) have ranged from 19-25% and the impact of the 2008-2009 Great Recession is clear. Based on the trend shown here, we’re using a projected net margin of 20.5% for the long-term forecast.

The EPS stability ranking of 83 is actually pretty high — considering the industry and competition faced by Coach.

Valuation & Return Forecast

The P/E ratio for Coach has ranged from 11-26.5x with the 11x experienced on the “tail” of the Great Recession. Value Line has a 3-5 year projected average P/E of 18x and the consensus P/E that we’re using is 18×. The return forecast (PAR) is 18-19% based on these growth, profitability and valuation assumptions.

Coach has been a frequent selection over the last several weeks for the Core Diem Demonstration Portfolio.

VL Low Total Return Screen (12/7/2012)

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Why do we pay attention to the Value Line weekly updates? Because a number of highly successful long-term investors cite Value Line as one of their favorite trusted resources.

“I don’t know of any other system that’s as good… The snapshot it presents is an enormously efficient way for us to garner information about various businesses… I have yet to see a better way, including fooling around on the internet, that gives me the information as quickly.” — Warren Buffett, Berkshire Hathaway, 1998 Annual Meeting speaking about The Value Line Investment Survey.

“[Value Line is]…the next best thing to having your own private securities analyst.”
—Peter Lynch, One Up On Wall Street

In our case, we’ve found the low total return forecasts for all companies to be among the most compelling opinions/forecasts while we either (1) search for opportunities or (2) practice effective stewardship when it comes to staying vigilant about our current holdings.

Materially Stronger: None.

Materially Weaker: Finisar (FNSR), Walter Energy (WLT), OM Group (OMG), Denbury Resources (DNR), Chesapeake Energy (CHK), Inergy (NRGY)

Bullish Sentiment (Positive Price Pressure): Murphy Oil (MUR) and Hess Corp (HES)