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.

Apple & Long Term Perspective

The business model changed …

Growth appears to be plateauing …

P/E ratios are moderating and settling into “mature company” characteristics for this industry …

Stock price follows earnings.

How many times have you scratched your head over questions like these during your studies of companies? Our most widely-followed company, Apple (AAPL) turns out to be a pretty good study of changing conditions for company over a span of a few decades. Here’s the business model visual analysis.

Apple (AAPL): Business Model Analysis (1984-2020). Did you know that the road to “today’s Apple” and the mother ship piloted by Tim Cook was this bumpy and turbulent? There’s a couple of things that stand out — from the long term double digit growth to the years with negative earnings (1996-1997,2001) to what clearly seems to be a new trajectory over the last decade.

Apple (AAPL): Profitability, Net Margin (1984-2020). The volatile profitability of the company is on full display for 1984-2005. When speaking of shifts in business models, it can often be discerned from the profitability profile and Apple is something of a poster child here. Note the ramp up as the iPhone emerged as a ubiquitous necessity and the elevated net margins delivered over the last several years. This is how a company ends up with $80 billion in the check book after paying dividends and buying back 20-25% of shares outstanding.

Apple (AAPL): P/E Ratios (1984-2020). One of the things many investors have wondered about Apple over the decades is “Why the P/E of 10x or so?” The answer lies in the preceding roller coaster of bottom line (profitability) — a condition that inhibits P/E ratios for most companies. The P/E ratio has actually been pretty stable over the years, considering, and a case for low to mid-teens can be made and substantiated. One could also argue that continuing to maintain the current profitability levels could promulgate some higher P/Es …

This Week at MANIFEST (12/30/2016)

This Week at MANIFEST (12/30/2016)

What I think a lot of great marathon runners do is envision crossing that finish line. Visualization is critical. But for me, I set a lot of little goals along the way to get my mind off that overwhelming goal of 26.2 miles. I know I’ve got to get to 5, and 12, and 16, and then I celebrate those little victories along the way.” — Bill Rancic

As most of you have guessed, our playful emphasis on Dow 20,000 is precisely that — playful.

We seem to pay way too much attention to essentially arbitrary piles of numbers and the rhinos life expectancy can be shortened by how they measure up quarter-to-quarter and year-to-year.

Brad Perry was right. A successful long-term investing experience is a marathon. And Bill Rancic is also correct, milestones matter. There’s plenty of noise, chaos and confusion that complicates life for average investors.

We’re thankful for a community of investors that is willing to focus on visions of the future and a willingness to imagine. We believe that our emphasis on return expectations and vigilance on fundamental threats and opportunity — is a path to better finish lines.

Value Line Arithmetic Average. Annual Returns. (1990-2016). The average annual total return for the equal-weight Value Line Arithmetic Average is 13.3% since 1990. The S&P 500 (VFINX) checks in at 9.3%. That Dow Jones Industrial Average that everyone is hyperventilating over has delivered 7.6% over the same time frame.

The November-December surge in the market pushed this year’s all-of-the-above index from 10-20% to 20-30%. This image will serve as the centerpiece for the January 2017 newsletter. Ask us again if we believe in a blend of small, medium and large companies as a crucial element of portfolio design and management.

MANIFEST 40 Updates

  • 1. Apple (AAPL)
  • 23. Intel (INTC)

Round Table Stocks

  • Apple (AAPL)
  • Intel (INTC)
  • IPG Photonics (IPGP)
  • Skyworks (SWKS)
  • Universal Display (OLED)

Best Small Companies

  • 6. Universal Display (OLED)
  • 18. Mellanox Technologies (MLNX)
  • 27. IPG Photonics (IPGP)

Results, Remarks & References

Companies of Interest: Value Line (12/30/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 2.1% vs. 3.4% for the Value Line 1700 ($VLE).

Materially Stronger: Logitech (LOGI), Seagate Tech (STX), Applied Materials (AMAT), Micron Technology (MU)

Materially Weaker: Fitbit (FIT), Cray (CRAY), Stratasys (SSYS), Nimble Storage (NMBL), 3D Systems (DDD), HP Enterprise (HPE)

Discontinued: Lexmark (LXK), Imgram Micro (IM), Skulcandy (SKUL), Fairchild Semiconductor (FCS)

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 3.4%, up 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.

Stocks to Study (12/30/2016)

There’s a wide variety of opinions in the manifest of stocks to study this weekend. But some community favorites, some widely-followed leaders and some of our recent Best Small Companies made the list.

The Long & Short. (December 30, 2016) 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” Outlook: 1-year total return forecast based on most recent price target issued by Goldman Sachs.

Apple (AAPL): NeXT!

On this day 20 years ago, Apple (AAPL) announced it was going to buy NeXT (and with it Steve Jobs) for $400M. Greatest deal ever made?

Aapl chart 20yr 20161219

For those who have asked (and the rest of you who have wondered) the adjusted closing price for Apple (AAPL) back on 12/20/1996 was $0.76.

That’s an annualized total return of 28.6% over the last 20 years.

MANIFEST 40 Update (9/30/2016)

Our MANIFEST 40 is a celebration of collective excellence in stock selection, strategy and disciplined patience.

“We have always believed that the collective decisions made by our community of long-term investors are worth huddling over … a place where ideas are born.”

The 40 stocks are something of a barometer because we know that these community favorites are not simply followed … most of them are also widely owned, with considerable diligence and vigilance.

The rate of return remains at 8.8% since inception (9/30/2005) vs. 5.8% for matching investments in the Wilshire 5000 for an excess/relative return of +3.0%. We believe that this portends success for many of our subscribers and investors.

MANIFEST 40: September 2016. Performance Results. These are the most widely followed stocks by Manifest Investing subscribers. Current leader Apple (AAPL) was added on 9/24/2009 and steadily climbed the ranks while generating a relative return of +19.1% (annualized). Figures in parentheses are the June 2016 rankings. Tracking dashboard: https://www.manifestinvesting.com/dashboards/public/manifest-40

Quality is still solid at 90 and the overall return forecast is 9.0%, pegged to slightly outperform the Wilshire 5000 or S&P 500. The average sales growth forecast is 6.6%. Again, we’d like to see an emphasis on discovering smaller, faster-growing companies — the focus of our Discovery Club efforts. We miss smaller, less discovered, companies poised to make difference, like Bio-Reference Labs (BRLI) did.

The top performers continue to be Apple (AAPL), Cognizant Technology (CTSH), Starbucks (SBUX), and Home Depot (HD). 57.5% of the decisions have outperformed the market.

Capturing Attention: Charger

CVS Health (CVS) advanced from #34 to #29. We’ve noted that CVS has been ubiquitous on screening results for a while and collectively, you’ve noticed. Fastenal and Microsoft swapped positions in the top 5 but there are no new entries to the 40 this quarter.

The results of $100 invested into any of these positions at the time of addition can be viewed at any time at: https://www.manifestinvesting.com/dashboards/public/manifest-40

We’ll continue to hope that a few promising faster growers will penetrate a future roll call.

Fave Five (8/26/2016)

Fave Five (8/26/2016)

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.

Among the stocks covered by Goldman Sachs, the average stock has a one year total return of approximately 10%. We centered our attention this week on the top two percent (return forecast & quality) of our coverage combined with the near term expectations of Goldman. The Muppets are fairly well in consensus with Morningstar and S&P for this batch.

The Fave Five This Week

  • Apple (AAPL)
  • CVS Health (CVS)
  • Jones Lang LaSalle (JLL)
  • Starbucks (SBUX)
  • Stericycle (SRCL)

Context: The average 1-year total return forecast (via Goldman Sachs) for the Value Line 1700 is 9.2%. The average 5-year return forecast for $VLE is 5.7% (annualized).

The Long and Short of This Week’s Fave Five

The Long & Short. (August 26, 2016) 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.

Weekend Warriors

The return for the Weekend Warrior tracking portfolio is 12.1% since inception. 48.2% of selections have outperformed the Wilshire 5000 since original selection.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/weekend-warriors

Gone RuleBreaker Shopping!


This month’s tracking portfolio, David Gardner’s Stock Advisors Rule Breakers, monitors the progress made over the last 14 years.

It’s a dashboard that the Plungers Investment Club would love. (At least for the non-core and adventure component of their holdings.) This month’s tracking portfolio, David Gardner’s Stock Advisors Rule Breakers, monitors the progress made over the last 14 years. We place $100 into each selection/decision and track the progress of that $100 investment over time.

Paths to Super Investor Returns?

The active positions in the RuleBreaker with the highest return forecasts are featured in the accompanying dashboard excerpt. Rule Breakers focuses primarily on underappreciated growth stocks with solid management and a sustainable business strategy. This time-tested approach works. In fact, the Motley Fool Rule Breakers have consistently been among the leaders of Hulbert Financial’s rankings of 5-year performance. The media has taken notice as well with the Wall Street Journal previously calling Rule Breakers manager David Gardner one of the best stock pickers on Earth.

Our cover story review this month documented a 15.1% absolute return over the trailing 14 years — excess relative return of +7.2% over the Wilshire 5000. These results were achieved with a few roller coaster stocks like Amazon, Apple, Priceline.com, Activision Blizzard and Netflix. All of these stocks will have their speed bump moments.

The consensus forecasts in the dashboards may or may not resemble the expectations built by David and the Rulebreaker team of analysts. Tracking portfolio companies that David would deem worthy of study right now include: Illumina (ILMN), Texas Roadhouse (TXRH), Activision Blizzard (ATVI), McCormick & Co. (MKC), Amazon.com (AMZN), Apple (AAPL), Gilead Sciences (GILD) and Disney (Walt) (DIS).

Restoration Hardware (RH) is down 59.4% since selection back on 3/20/15. Do the fundamentals support a closer look? A strengthening economy could provide some bolstering as home repairs mend. The generic pharmaceuticals have been solid and Mylan Labs (MYL) has been on the radar for years. We featured Boston Beer (SAM) recently in the Fave Five and long-time Rulebreaker favorites like Apple, Gilead Sciences, Priceline.com and Amazon have returned to the sweet spot with return forecasts likely to place them in the buy zone. PayPal (PYPL) was recently featured by Kim Butcher during a Round Table session and Starbucks (SBUX) can be a jolt. There’s much to study here. Break at will.

Stock Advisor Rule Breakers. Based on the flagship Motley Fool newsletter, $100 is invested into mentioned companies. The top 16 (by PAR) is shown here. The 14-year annualized rate of return is 15.1%. Source: http://www.fool.com, Stock Advisor

 

Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management for long term investors. Fool on!