Fave Five (2/24/2017)

Fave Five (2/24/2017)

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 6.9%.

We usually limit the search results to good or excellent quality stocks, but we occasionally remove the shackles. We do it less often when return forecasts are near historical lows … but nonetheless, this “bottom fishing” gives us some positions to monitor that we’d not normally explore. And we get to see how they do in the tracking portfolio. With the overall weighted-average quality high enough, we can tolerate some “adventure” in the overall jigsaw puzzle.

And lest you think we’ve lost our bearings, we still insist on a quality ranking in at least the 50th percentile. (We would probably go lower if return forecasts were higher.)

The Fave Five This Week

  • Cherokee (CHKE)
  • Medallion Financial (MFIN)
  • Opko Health (OPK)
  • SouFun (SFUN)
  • Synchronoss Technology (SNCR)

The Long and Short of This Week’s Fave Five

The Long & Short. (February 24, 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 +0.3% since inception. 53.1% of selections have outperformed the Wilshire 5000 since original selection.

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

Cherokee (CHKE)

The 11th stock in our Christmas Countdown is Cherokee (CHKE).

As the Motley Fool suggested a while back, you have to “look beyond the earnings” (translation: weak track record in recent years) when performing analysis on Cherokee. The company has clearly struggled while at the same time making considerable progress in recent quarters. The new acquisitions and relationships seem to be taking hold and if the company can regain some of its luster of a few years ago, significant price appreciation (along with above-average dividends) are possible here.

We know about turnarounds and our expectations are conditioned accordingly. That said, every one in a while it’s OK to reach for a Christmas miracle.

With a sales growth forecast of 6% (that could easily ramp to 6-12%), a net margin of 29.3% and a projected P/E ratio of 15x, the long-term return forecast is 19-20% (per annum).