Booyah 38 For 2016

Fun With Dashboards

Booyah 38 for 2016

We take a look at the consensus outlooks (both short term, or 1-year, and the long term forecasts) for the best stocks for 2016 featured by Jim “Booyah” Cramer. We follow Jim for the educational slant that he often provides … and point out that his track record is better than most of his critics believe. Our community of investors may well remember the group book report that we shared via Get Rich Carefully (March 2015). Our favorites from the field would be Celgene (CELG), Biogen IDEC (BIIB), Under Armour (UA), Google (GOOG or GOOGL) and Starbucks (SBUX).

TheStreet’s Jim Cramer has a theory on what’s ailing the stock market these days.

The theory goes that there is a “scarcity” of investable stocks, with the exception of a handful of winners across sectors.

“I think we are stuck in an era where we are beginning to recognize that we have too many stocks, too many public companies, too many companies that don’t warrant our attention or our investment in,” Cramer said in prepared remarks for his keynote speech at The Deal Economy: Predictions and Perspectives for 2016 and featured at 38 Annointed Stocks To Add To Your 2016 Portfolio.

Booyah 38 For 2016 Dashboard

Cramer’s (38) stock selections are presented here, alphabetically and will be tracked on the dashboard at: Booyah 38. One of the first things we notice is that the overall average long-term forecast is a mere 5.2% when the average stock has a median long-term return forecast (MIPAR) of approximately 7.5%. This is some of what Cramer is getting at when he talks scarcity. Many of these stocks during a protracted recovery with persistent recessionary characteristics have already attracted a lot of attention from investors. Many of them can be considered defensive or protective measures against corrections or bears.

They’re largely from the S&P 500. In fact, only two hail (Palo Alto Networks & Ulta) from “outside the S&P 1500” with only one, Treehouse Foods (THS) from the S&P 400 Mid-Caps. But Cramer’s selections do manage to average a growth forecast of 10.3% due largely to what might be considered a first cousin of our Smoothie Investing portfolio. Recall that the Smoothie 20 was built from equal parts established blue chip companies and NASDAQ promising stars last summer. The Booyah 38 certainly displays some essence of this.

Quality (75.7) is also a little thin. If scarcity and low return forecasts are an issue — seeking high-quality companies is prudent protection and can be an effective oasis.

Booyah 38 For 2016: Dashboard.

Booyah 38: The Long Of It

Our “forensic review” of Cramer’s stock selections once again underscores some of the challenges and differences in the analyst community. As shown here, there’s a lot of red ink dripping in the Value Line and Morningstar columns. In fact the average long-term return forecast for the Booyah 38 is 0.1%. Fair value is another long-term measure — derived from a discounted cash flow analysis — as performed by Morningstar, S&P and others … The comparison of current price to fair value (P/FV) displays stocks that are attractive (<100%) versus those considered overvalued (P/FV > 100%).

The average P/FV (Morningstar) is 110% and S&P checks in a little more favorably at 104%.

Here’s the Booyah 38 ranked by MANIFEST Rank.

Booyah 38: The Short Of It

But this is really all about the next year, 2016. We gauge expectations using a number of resources including S&P, the analyst consensus estimates (ACE via finance.yahoo.com) and the most influential rhinos (Goldman Sachs, Merrill Lynch and any investment firm with Morgan embedded in the title). We do this with full awareness of the elusiveness, evolution and ebbing nature of forecasts. See: Ritholtz on Forecasting

The median 1-year total return forecast for the Value Line Standard Edition population ($VLE) for the three sources displayed here is:

  • Analyst Consensus Estimates (ACE) = 16.7%
  • Standard & Poor’s (S&P) = 13.4%
  • Goldman Sachs & Other Rhinos (‘GS’) = 14.6%

The average from the Booyah 38 checks in at 11-13% for the companies displayed here.

Closing Thoughts

As we mentioned, 35-of-the-38 stocks are in the S&P 500, so it’s worth wondering if this many stocks aren’t “designed” pretty much to track the S&P 500 (VFINX) for 2016 … and leaving out companies like Apple (AAPL) seems a little precarious.

Just for kicks the average 1-year total return outlook (ACE) for the S&P 500 is 15.6%.

Contrast this with Eddy Elfenbein’s Buy List efforts and our recent Gone Shopping With Eddy analysis of his 2016 selections (due out in a few days — we will let you know). We don’t know precisely how Crossing Wall Street hues their shopping list down to size but the evidence suggests some attention to quality … and the selections seem to have a dual short-term and long-term favorability that seems to have served Eddy well.

We hope everybody does well, shops carefully and experiences the best returns. Booyah!

Get Rich Carefully

On Wednesday night, Ken Kavula, Nick Stratigos and I participated in a “book club” program delivered by NAIC/Better Investing featuring Jim Cramer’s Get Rich Carefully. We were joined by Eve Lewis and the panel unanimously felt the book is a worthy read for long-term investors.

Booyah. Jim Cramer surprised me.

I didn’t expect the book to be this good. The end result is a profile of a matured/maturing investor. Jim started with Goldman Sachs, learned a great deal from one of the most successful investors of all time, Michael Steinhardt … went on to manage his own hedge fund and ultimately become the influence that he is today.

The preface alone is worth the price of admission. Cramer covers the turbulent and challenging landscape facing should-be long-term investors today. The breach of trust, shenanigans and continuing nuisances of high frequency trading, dark pools and opportunists with too many brain cells and too much time on their hands persists today.

As George Nicholson, grandfather of the modern investment club movement, would most probably remind us: “It’s incumbent on us — all of us — to rise above this to champion better futures for the people we care about.” Buying excellent companies when they’re on sale — and holding them for as long as it makes sense to do so — is still relevant. Perhaps even urgent based on the accompanying illustration of recent trends.

In the July 2014 preface, Cramers “calls” the current level of the NASDAQ and its 16-year highs. He stipulates that the denizens of the NASDAQ are less likely to explode this time around. He puts HFT and the other nonsense into context. And …

Cramer closes the preface with … “I, on the other hand, prefer for you to get rich using stocks as your wealth builders, as long as you invest wisely and carefully when doing so.”

Closet Better Investor

Ken Kavula speculated that Cramer is absolutely a closet investment clubber. He largely focuses on core stocks, seeking and owning leadership companies and remaining vigilant for opportunities in several general themes. He also suggests that it’s OK for investors with experience and risk tolerance to stretch and reach for opportunity. This is absolutely consistent with Nicholson’s admonition about seeking high-quality core holdings as the strategic foundation of our portfolios while allowing for speculation and “playfulness” with a suitable portion of our portfolios, for example 10% of total assets.

In that context, the Cramer on CNBC and in current publications often takes the persona of the higher flying risk taker. (Some of this is assuredly related to audience and appetite.) His entries in the current Groundhog Challenge, were compiled from his 20 stocks for 2015. Cramer is currently high on the leader board.

Cramer’s Groundhog Selections can be monitored here: Cramer’s Celebrity Groundhog 2015 Entry

Contrast that list with the stocks in the ActionAlertsPlus charitable trust portfolio. I’m not sure exactly how current the portfolio is, but turnover is relatively low (certainly lower than the TV show lightning) but definitely a different breed of companies — virtually all of them leaders in their industries:

A New Market Barometer For Us

Cramer cites the non-farm payroll data as the report that he finds most influential. He keeps a close eye on this.

Again, I was skeptical.

Again, I was surprised.

Here’s a look at the 20-year track record of U.S. Non-Farm Payrolls ($$EMPLOY) courtesy of www.stockcharts.com:

All the usual caveats apply. We don’t think of these charts as predictive. We never use them in isolation. But as “another arrow in the quiver” it simply makes sense that hiring trends and recessions go together. The disruptions in 2001-2002 and 2008-2009 are quite obvious … and we’d be concerned if the payroll trends flattened or declined at the same time as return forecasts bottomed and the $USHL deteriorated. Recessions and depressions can inflict significant damage. And harboring in high-quality, decreasing speculation and raising cash equivalents is logical for those seeking capital preservation or in the words of Nicholson, “to enable better shopping after the recovery is rolling.”

Community Investing

The power and potential of community investing is nothing new to us.

Cramer surprised me. I was reminded that his concern and hope is genuine. He really does want a nation of investors to do better. He’s meandered down several paths from Goldman to Steinhardt to Cramer Berkowitz to CNBC/MadMoney. …

Results matter too. I’d really like to see better long-term performance from the Action Alerts Plus portfolio — perhaps a little more of that Steinhardt magic/advantage or some of that portfolio design and management magic experienced over seven decades by many of us.

Cramer shares valuable lessons well and the maturation continues. Learn the lessons well. Share them. “We are now ready to triumph over the daily trauma of markets that we no longer fear. We have each other’s backs. We know there is no such thing as overnight wealth [for most.] That’s for fools who will never attain it. We’re busy taking our time, avoiding the pitfalls, trying to see around the curves and tiptoe past the endless land mines as we attempt, carefully, to get very rich and not to give it back when we get there.”

Booyah.

Am I Diversified? Rest of the Story

This discussion provides a demonstration of Manifest Investing dashboards, takes a look at “Am I Diversified?” suggesting that a few more stocks and an emphasis on growth/size diversification is in order.

It’s a concept that Jim Cramer might want to consider sharing with his audience.

http://youtu.be/Sdl3UXM0qis

If you would like to explore the portfolio design & management and stock screening tools at subscription-based Manifest Investing, send your name/email/zip code to manifest@manifestinvesting.com for a FREE 90-day test drive.