FAST

Grinchy Dow 20,000

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This Week at MANIFEST (12/23/2016)

Grinchy Bill Griffeth and Rogue destroyer Janet Yellen squelched our Dow 20,000 rally and party hats last week. But we’re resilient and pressing on. This week’s update batch includes Procter & Gamble (PG), Tractor Supply (TSCO), Fastenal (FAST) and those homebuilders and building supply retailers.

Burnt Popcorn!

We refer to market fraught with turbulence and emotions as “popcorn days.” In most cases, it’s a spectator sport as panic or exuberance is met with explanations and rationale that are back-fitted for the day. And these memes are among the most recyclable phenomenon on the planet. The same logic often works in both directions. People are selling today because _____ aligns pretty nicely on other days with People are buying today because ______.

This week, I demonstrated (again) why I could never be a day trader. I really thought we’d reach Dow 20,000 although I would never have taken out a second mortgage on the theory.

Grinchy Bill Griffeth had some fun with the Dow 20,000 enthusiasts with the accompanying tweet made during Friday’s Closing Bell segment on CNBC.

Other antagonists sent messages that 4 days of prolonged Dow 20,000 watching should probably be treated with a trip to the doctor.

But, we got close … coming within 34 points before Janet Yellen and her Rogue storm troopers at the Fed rained on the parade at 2:30 PM ET on Wednesday. The rest of the week had some moments — but it was pretty much like watching salmon flipping up the ladder. We learned on our Alaska cruise that despite a brief fling when the salmon reach their birthplace, it doesn’t end well. And the week didn’t end well for our box of Dow 20K party hats.

MANIFEST 40 Updates

  • 3. Fastenal (FAST)
  • 15. Procter & Gamble (PG)
  • 30. Home Depot (HD)
  • 34. Lowe’s (LOW)

Round Table Stocks

  • Chicago Bridge & Iron (CBI)
  • Fastenal (FAST)
  • Tractor Supply (TSCO)

Best Small Companies

(None)

Results, Remarks & References

Companies of Interest: Value Line (12/23/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 2.9% vs. 3.3% for the Value Line 1700 ($VLE).

Materially Stronger: Pulte Homes (PHM)

Materially Weaker: Sunpower (SPWR). First Solar (FSLR)

Discontinued:

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 3.3%, unchanged 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 (12/23/2016)

Normally we “cut off” the list at a MANIFEST Rank of 95 or 90 … and you’ll note that we had to go a little deeper in order to have a list this week. Study and shop well.

The Long & Short. (December 23, 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.

Wall Street on Water … Ahead

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This Week at MANIFEST (9/23/2016)

If you’ve ever wondered what a cruise ship class room looks like, here’s Christi Powell (Oklahoma City) aboard the Holland Cruise Lines Westerdam doling out another one of her exceptional classes on common sense financial matters. This voyage had two side-by-side class rooms, attended pretty much as you see here. As you can see, it’s like any other class room — except for the glaciers, whales, salmon and Alaskan fjords out the window.

Relatively small blocks of time (1 hour each) were carved out during the cruise to present a number of investing-related classes over a span of seven days. It was the first time Manifest Investing had attended and participated in one of these efforts and we came away impressed with the potential. The pace was unhurried and attendees had plenty of opportunities over dinners and while navigating the waters to discuss just about anything. We’ll probably explore collaborating with Better Investing and reaching out to some other communities for a Boston-to-Montreal version of this cruise next year. Stay tuned for more details and please send us a note (manifest@manifestinvesting.com) if you’d be interested in exploring more details about a future cruise… and we’ll add you to the “Maybe” Manifest. (grin)

There were many highlights and we’ll continue the roll out of the handbook chapters we issued to our ship mates in days ahead.

MANIFEST 40 Updates

  • 4. Fastenal (FAST)
  • 15. Procter & Gamble (PG)
  • 31. Home Depot (HD)
  • 35. Lowe’s (LOW)

Round Table Stocks: Chicago Bridge & Iron (CBI), Fastenal (FAST), Tractor Supply (TSCO)

Best Small Companies (None this week)

Results, Remarks & References

Companies of Interest: Value Line (9/23/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 5.0% vs. 5.0% for the Value Line 1700 ($VLE).

Materially Stronger: Ethan Allen (ETH), Bemis (BMS)

Materially Weaker: Sunpower (SPWR), Tractor Supply (TSCO), Tile Shop Holdings (TTS)

Discontinued: Cablevision (CVC), Elizabeth Arden (RDEN)

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 5.0%, unchanged from 5.0% 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 (9/23/2016)

The Long & Short. (September 23, 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 viawww.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.

Stock Selection & Portfolio Management September 24, 2016 at 9:00 AM ET Indianapolis, Indiana

Ken Kavula & Mark Robertson will be the featured presenters at this all-day educational workshop for long-term investors. Overview of Analysis (We’ll actually do a case study — walking through the analysis with exposure to our favorite resources and research.) Common Ground – How investment clubs take care of a portfolio. We’ll review portfolio design and discuss management considerations. What is effective stock “watching?” How can we best be vigilant for opportunities and threats to our holdings? Discovery – A demonstration of various screening resources with a look at some of our favorite resources. An Industry Study – Taking a discovery and putting it through its paces to ensure that we’re considering (or accumulating and retaining the best of the best) Let’s Talk Stocks – An interactive, audience-driven discussion of specific study ideas and case studies.

For more information: Go here.

September Round Table September 27, 2016 at 8:30 PM ET ONLINE

Stocks Featured: TBD

The Round Table tracking portfolio has beaten the market by 3-4 percentage points over the last five years. Consider joining Kim Butcher, Ken Kavula, Hugh McManus and Mark Robertson as they share their current favorite stock study ideas.

We will be continuing the discussion of the relative return-based selling guideline for portfolio management.

Registration: https://www.manifestinvesting.com/events/199-round-table-september-2016

Discovery Club

“Dump your hedge funds and explore their small-cap stock picks.”

Small cap is not necessarily small (faster-growing) companies but in general, we like the idea of a nice blend. So yes, we’re interested in hunting down some actionable ideas among the most successful investors on our radar screen — seeking companies that aren’t on too many radar screens, yet.

The discovery of smaller, promising and faster-growing companies has always been one of our favorite (and rewarding) activities. In that spirit, we’re expanding our efforts in this realm. This week, we redouble our efforts to discover some smaller, less discovered companies and add them to our coverage. The EXTENDED EDITION of the Value Line Investment Survey will be the first resource scanned and we’ll also take a look at some new positions or significant accumulations among our Best Small Company Funds starting with Brown Small Company.

But it doesn’t end with only the smaller companies, we’ll also be vigilant for opportunities flagged by reviewing the quarterly filings of idea generation resources like the Renaissance Technologies hedge fund.

This Week’s Sources and Suggestions

  • ITC Holdings (ITC) — Thanks, Marty Eckerle (Temporary Reinstatement)
  • Value Line Investment Survey

Coverage Initiated/Restored: CalAtlantic (CAA), Fonar Corp (FONR), ITC Holdings (ITC), State National (SNC)

Market Barometers (Continued)

By popular demand, it’s probably time to check in on our of favorite, albeit obscure, market barometers.

US New Highs-New Lows ($USHL)

The long-term trailing average for $USHL actually dipped below zero within the past year — and trepidation was a little more rampant. But as shown here, the storm seems to have passed.

ushl 20160921

This Week at MANIFEST (6/24/2016)

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This Week at MANIFEST (6/24/2016)

“… it took me about 11 years to get a record deal, and I just had to work around and come to terms with the fact that what I was doing was going to be different, and I just had to wait until somebody was ready to jump on the bandwagon.” — Lee Ann Womack

What we do is different.

The modern investment club movement was a big tent … and a considerable bandwagon. Unfortunately, people’s capitalism and the stewardship of common stock OWNERSHIP has hit a bit of a speed bump, or worse. It’s pretty clear that some WD-40 is needed. The results achieved by the persistent are compelling. But too quiet.

What we do is different. We have no problem with things like discounted cash flow analysis — we believe that we’re chasing fewer variables and that SIMPLER is usually better when it comes to the realm of investing.

“Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom. In forty-four years of Wall Street experience and study I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.” — Benjamin Graham, The Intelligent Investor

Amidst the chaos, turbulence and avalanche of information, we find it rewarding and seemingly more reliable to focus on growth, profitability and valuation in a different kind of model. As is often the case, an event like last week’s Morningstar Investment Conference serves to remind about the value of being simple … and different.

The audience gasped when Keith Lee of Brown Capital Management confessed that in 25 years of successful investing that he’s never owned a financial sector stock. In his own words, Brown is “sector benchmark agnostic.” Brown Small Company (BCSIX) has a 10-year relative return of +5.7%.

Keith Lee and Brown Capital Management are different.

MANIFEST 40 Updates

  • 4. Fastenal (FAST)
  • 15. Procter & Gamble (PG)
  • 29. Home Depot (HD)
  • 33. Lowe’s (LOW)

Round Table Stocks: Chicago Bridge & Iron (CBI), Fastenal (FAST)

Results, Remarks & References

Companies of Interest: Value Line (6/24/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 4.8% vs. 5.6% for the Value Line 1700 ($VLE).

Normally we exclude (filter out) those companies with quality rankings less than 60. We left them in to make a point. When a bull market has been running for a while — and is perceived to be in jeopardy — investors and traders will flock to defensive stocks. The companies with high EPS stability and high quality will see their return forecasts driven down as they’re overbought if seen as sanctuaries. This week’s list and update batch is evidence of that.

There are a number of companies in the update batch that would be most welcome as core holdings in many of our portfolios including the likes of Bemis (BMS), Kimberly Clark (KMB), Sonoco (SON) … but the average MANIFEST Ranking for the Issue 6 companies is 44. In other words, the average company in this update is outranked by 56% of the companies in our database. The reason behind this is related to the flight to quality in many cases.

In most cases, it makes sense to wait for a Better Bandwagon.

Materially Stronger: Lumber Liquidators (LL), Martin Marietta (MLM), Tempur Sealy (TPX), Tile Shop (TTS) [Reminder: These step change upgrades do not necessarily imply a “buy” condition … in some cases, it’s a switch from “sell” to “weak hold.”]

Materially Weaker: Beazer Homes (BZH), Restoration Hardware (RH), Aegion (AEGN)

Discontinued: Jarden (JAH), Sun Edison (SUNE)

Coverage Initiated/Restored:

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 5.6%, unchanged from 5.6% 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 (6/24/2016)

  • Tractor Supply (TSCO) — Highest MANIFEST Rank
  • Sunpower (SPWR) — Highest Low Return Forecast (VL)
  • Restoration Hardware (RH) — Lowest P/FV (Morningstar)
  • Beazer Homes (BZH) —Lowest P/FV (S&P)
  • Sunpower (SPWR) — Best 1-Yr Outlook (ACE)
  • First Solar (FLSR) — Best 1-Yr Outlook (S&P)
  • Sunpower (SPWR) — Best 1-Yr Outlook (GS)

The Long & Short of This Week’s Update Batch

The Long & Short. (June 24, 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.

Fastenal (FAST)

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This profile displays how we build return forecasts and aggregate “opinions” for Fastenal, our 4th most widely-followed company by Manifest Investing subscribers.  For most portfolios (because most buy/hold/sell decisions should be influenced by impact on total portfolio) would perceive Fastenal as a “solid hold” under the present conditions and set of assumptions.  Start your FREE TEST DRIVE at http://www.manifestinvesting.com today.

There’s a reason that Fastenal (FAST) is the 4th most widely-followed stock by our community of investors. And as the time series graphic that we refer to as a “Chronicle” suggests — we noted some accumulation back when the stock price approached $35 and the long-term return forecast neared 15%. In case you’re wondering, “Yes, we liked Fastenal a lot nine months ago.” See: This Week at MANIFEST (9/25/2015) [Test drive or subscription required]

The accompanying banner (above) provides a parade of long-term and short-term opinions on FAST, sort of like a panel of Olympic judges. No, Virginia, the judges do not always agree and there’s usually a Simon Cowell in the mix.

  • MANIFEST PAR: PAR stands for Projected Annual Return, our 5-year time horizon total return (annualized price appreciation and average dividend yield) forecast. At 9.6%, it’s fairly solid, should be considered by most to be a “strong hold” and provides context. The average stock checks in at about 6.4% right now — so Fastenal is slightly better than average.
  • Quality Ranking: Scored index based on financial strength, earnings stability/consistency, relative growth and relative profitability versus competitors/peers. All companies are scored and ranked. Fastenal ranks in the top quintile (>80) and we consider the top quintile to be EXCELLENT.
  • MANIFEST Ranking: We believe that return forecast and quality are the two most important characteristics of any investment. This “score” or index is an equally rated percentile ranking of both factors. At 92, we believe that 8% of the companies in our coverage universe (approximately 190 companies) are more compelling right now than Fastenal.
  • Value Line (VL) Low Total Return Forecast (VLLTR): Based on the 3-5 year forecast published by the Value Line Investment Survey (9% at the time of publication for Fastenal), the figure shown here (7.4%) is adjusted for change in stock price and time horizon. The median VLLTR for the Value Line 1700 Standard Edition is currently 5.6%.
  • Morningstar P/FV: The price-to-fair value, based on analysis by Morningstar. A fairly valued stock = 100%. A P/FV less than 100% is potentially “on sale.” The average Morningstar P/FV right now is 99%.
  • S&P P/FV: The P/FV, based on analysis by Standard & Poor’s. The average S&P P/FV is 100%. S&P is the “least impressed” of our “Olympic judges” when it comes to Fastenal, at the present.
  • 1-Yr ACE Outlook: The first of our one year horizon forecasts — used for an indication of “real sentiment.” ACE stands for Analyst Consensus Estimate. This 1-year total return forecast is based on an aggregate of covering analysts for the various companies. The average 1-Yr ACE forecast is currently 14.3%.
  • 1-Yr S&P Outlook: The one year total return forecast from S&P. The average S&P 1-year forecast is currently 7.0%.
  • 1-Yr GS Outlook: GS = Goldman Sachs, singled out as one of the most influential opinions (and sentiment drivers) in the world of investing. The average Goldman Sachs 1-year total return forecast is currently 7.3%. I’m surprised that Goldman does not cover Fastenal, hence the blank entry.

Business Model Analysis: 9-12% Return Forecast

MANIFEST 40 (3/31/2016)

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Your Most Widely-Followed Stocks: An Update

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

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.

MANIFEST 40 (March 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 +20.3% (annualized) since then. Figures in parentheses are the ranking back in December 2015.

The rate of return is 9.0% since inception (9/30/2005). Bottom line? On an annualized basis, your community favorites have beaten the Wilshire 5000 by +3.6 percentage points — a relative, or excess, return that probably portends outsized success with our actual portfolios.

Quality (90) is solid and the overall return forecast (8.9%) is positioned to outperform the Wilshire 5000. At an average sales growth forecast of 6.8%, we’d to see some faster-growing companies adopted by our community.

Capturing Attention: Chargers

Gilead Sciences (GILD) moved from #25 to #22 as most of the list remained rather steady. Visa (V) is a new addition at #40. The results of $100 positions investing in any of the Top 40 companies can be viewed at any time via the public dashboard on the home page.

“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 Stocks We Follow (MANIFEST 40)

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We launched the MANIFEST 40 in October 2005, built from the stocks that most frequently appear on subscriber dashboards, and this active and continuously maintained tracking dashboard has delivered a rate of return of 9.2% since inception.

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. Bottom line? On an annualized basis, your community favorites have beaten the Wilshire 5000 by +3.4 percentage points — a relative return that nurtures smiles and bolsters the returns of our actual portfolios.

The average sales growth forecast of the portfolio (6.7%) suggests that it is dominated by the “Up, Straight and Parallel” core contributors. Quality (90) is solid and the overall return forecast (9.7%) is positioned to outperform the Wilshire 5000. We’d like to see the community discover and follow some smaller, faster-growing companies.

Performance Results

The absolute rate of return for the trailing 10 years is 9.2%.

Capturing Attention: Chargers

Gilead Sciences (GILD) moved from #29 to #25 as most of the list remained rather steady. Fastenal (FAST) shuffled up to #4 and Johnson & Johnson (JNJ) dropped a couple of positions. The results of $100 positions investing in any of the Top 40 companies can be viewed at any time at:

http://www.manifestinvesting.com/dashboards/public/manifest-40

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.”

December Round Table Review

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The Round Table has convened on monthly basis (generally near the end of every month with allowances for schedule adjustments) since July 2010.  The intent is for the participants to identify their single favorite investment opportunity.

Non-core selections are limited to a maximum of 25% of the total positions.

The goal is to build and maintain a tracking portfolio that achieves a long-term relative return of +5% (500 basis points higher) versus the Wilshire 5000.

As of 12/31/2013, 175 selections had been made and an annualized relative return of +3.6% achieved.

Our accuracy goal (% of selections outperforming the total stock market index) is 60-70%.

As of 12/31/2013, the outperformance accuracy is 57%.

The strong performance in 2013 (+10.8% average relative return for calendar year 2013) stemmed from powerful gains in companies like 3D Systems (DDD), Polaris (PII), Priceline (PCLN), McGraw-Hill (MHFI) and Southwest Airlines (LUV). Note the number of 2013 entries on this all-time performance leader board (based on relative return) since July 2010.

Company Presentations

While Hugh McManus shopped around and decided to “Pass” once again … not finding a deep value opportunity to his liking, there was no shortage of companies kicked around. In fact, “honorable mention” included the likes of Apple (AAPL), Bio-Reference Labs (BRLI), Cisco Systems (CSCO), Cognizant Technology (CTSH), Lilly (LLY), MSC Industrial (MSM), Novo Nordisk (NVO) and Target (TGT).

Cy Lynch presented long-time community favorite EMC Corp (EMC) citing strong growth characteristics and a strong “storage story” going forward. He also cited the 80% stake in VMware (VMW).

Most significant is the (1) return forecast at or near a multi-year high and the same is true with (2) the projected relative return. A company between 5-10% for projected relative return is in what we regard as the sweet spot.

The audience selected Fastenal (FAST) and SolarWinds (SWI) for inclusion in the Round Table tracking portfolio

On behalf of the Knights of the Round Table, our Guest Damsels and Guest Knights, we’d like to wish everybody a Healthy, Wealthy and Generous 2014. HAPPY NEW YEAR EVERYBODY!

The Otters of Wall Street?

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Sea otters hold hands when they sleep so they don’t drift away from each other. Photo Credit: @FactHive pic.twitter.com/V3jOjksQso

With all the talk revolving around Wall Street wolves and Leonardo DiCaprio, we can’t help but wonder if modern investment clubs — in the role of otters — represent the best of long-term investing. We’ll spend a few moments discussing the year in the rear-view mirror, the YEARS in the windshield and how we come together to prevent drifting and safe swimming, even when the tides roll and waters get choppy.

Our Knights of the Round Table (including our guest Damsels, Knights and audience selections) have outperformed the Wilshire by 3.6% since July-2010 as our 175 selections since inception have beat the market 57% of the time.

Join us Monday evening (12/30 8:30 PM ET) for the December 2013 Round Table as we explore, discover and CELEBRATE the performance results of the tracking portfolio. 2013 has been very good to us and we’ll spend a few moments acknowledging that while ringing in 2014. Party hats optional, but recommended!

Reserve your Webinar seat now at:

https://www2.gotomeeting.com/register/666657130

Performance Results

Companies Likely To Be Discussed

  • EMC Corp. (EMC)
  • Fastenal (FAST)
  • SolarWinds (SWI)

Fastenal (FAST): Look Out Below?

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Fastenal (FAST) has broken below a relative strength index of 70 recently — and bears watching.

A little weakness in today’s earnings report could  go a long ways (price swoon) as the conditions are a little more vulnerable than usual to a price correction.  As Dan Hess pointed out, other companies (e.g. MSC Industrial) are displaying similar fundamental weakness in their operating results.

As always, this long-term community favorite should have plenty of leash when it comes to portfolio-centered decisions.  Treat it as core and hold unless Fastenal (FAST) is your best challenge candidate for your portfolio.

Fast 10yr 20130410

Point of View: Update

Fast pov 20130410

Look Out Below: RSI Breaks

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Hypnotized
Photo Credit: anguila40 via Compfight cc

Hypnotized?

Momentum is powerful and addictive.  It can be hard to perform a selling analysis on a company that has been so good to you and your portfolio that you’re considering naming your next child or grandchild after the company.  We’ve often wondered if we could build a monitoring method that could use relative strength indices and overbought breakdowns as another component of our portfolio-centered approach that is based on return forecasts and quality rankings.

We continue our exploration and vigilance using these long-term charts, starting with the company with the highest RSI at this time, Pfizer (PFE). The case studies will also include McDonald’s (MCD), Stryker (SYK) and Apple (AAPL).

We’ll close with an answer to the question: “It’s down 36% from its highs, would you buy Apple right now?”

Pfizer (PFE) has delivered a fairly massive advance — during a period when it went “non-core” with low and uncertain growth expectations over the last several years. The stock price has basically tripled in four years.

We’re reminded that a company can maintain an overbought condition (RSI>70) for months and even years … but we’ll be monitoring PFE going forward for the day when an excursion takes it to a value less than 70.

Just for kicks, a side-by-side comparison of the chronicle for Pfizer (PFE) displaying the elevated return forecasts at the price bottom, the convergence point (mid-2010) shown in the preceding image … and a steadily improving quality ranking.

Roll Call

So … are any of the stocks in neighborhood of 70 displaying “breaks” below 70 — making them sell consideration candidates?

We’ll start with the companies with return forecasts (PAR) less than the market median (MIPAR) at this time. We see that five companies cry out for a closer look. And since these would be more “challengeable” in portfolios (more likely to reside among the lower PARs in portfolios), it’s probably prudent and timely to do this on a continuing basis going forward.

The long-term RSI for 3M Company (MMM) is still increasing. We’ll be watching.

McDonald’s (MCD) is interesting. I hope none of you mind while I “think out loud” while trying to learn and decide with respect to the long-term potential value of monitoring from this perspective.

Observations:

1. I’ve shown three of the RSI breaks since 2008, denoted with the red arrows.

2. The concept is that we’re not surprised to see either a stock price decline or a disruption accompanied by an “extended trading range” following one of these turbulent disruptions.

3. The magnitude of the stock price correction and/or duration of the trading range seems to be somewhat proportional to the amount of geometric area (shaded green) preceding the price break. Note the subdued disruption in late 2010/early 2011.

4. We also know that we can be less concerned with high-quality core stocks and that RSI dips are less destructive so long as the long-term (60-month) trend, denoted in blue here is strong and increasing from left-to-right. (This is very consistent with our core holding and quality emphasis “theology.”)

5. I need to do more research regarding the RSI=50 level/threshold. Are the “reflections” or bounces at RSI=50 typical? Is there a chance that these reflections are signals (see mid-2009 and 4Q2012 & subsequent price advance) that the extended trading range could be waning or ending?

I hope the Danaher (DHR) 10-year chart will help illustrate why we’re scratching our heads over this. The magnitude and duration of the price corrections following the RSI breaks on this chart seem to be quite “proportional” to the overbought areas.

Community favorite Fastenal (FAST). It’d probably be fascinating to take a look at community sentiment (particularly the hand-wringing variety) during the relatively few disruptions over the last ten years. Note that FAST navigated/mitigated the bear market period exceptionally well during 2008-2009.

More research nudged on the RSI=50 breach moment shown here …

Leave it to community favorite Stryker (SYK) to be among the most colorful of this stroll.

1. The RSI, although near 70, is still an increasing trend.

2. Stryker (SYK) spent an extended period at the top of the MANIFEST 40, fueled by accumulation trends following that price correction in the middle of this display.

Shine Off The Apple?

And we’ll wrap up for now with the $64,000 question and one that many of you are waiting for: What does Apple (AAPL) look like?

Observations:

1. Apple is the most widely-followed stock in the MANIFEST 40.

2. The strength of that long-term (5-year trailing average) is massive.

3. That leads to a situation where AAPL was “potentially overbought” for a significantly extended period. See the RSI area from early 2010 to late 2012 — a period of over two years. This serves as a powerful reminder that under the right conditions, a stock can be overbought for a long time.

4. The area of the disruptions (stock price decline in combination with the duration of the trading range) does seem to correlate with the RSI areas and sharpness (rate of decline) of the overbought RSI condition.

During the most recent Round Table I was asked if I would sell (or buy) Apple as a long-term investor.

My short answer was that I didn’t think it was time to buy (yet).

We also want to point out that we strongly urged a trailing-stop mentality (if not programmed stops) for Apple in a series of articles a little over a year ago. Those of you who heeded that suggestion, you’re welcome.

This series of charts provides my longer answer to the question posed by the webcast attendee.

Take a look at the current area of disruption on display here for AAPL. Compare the preceding overbought RSI area, rate of RSI decline, etc. for the previous corrections. The extended period where RSI>70 leads to a pretty good size green-shaded area with an amplitude similar to previous episodes.

I think the yellow-shaded area is going to get materially larger for AAPL as this chart rolls forward. The only way for that to happen is for either (1) a continued price drop or (2) an extended trading range … or (gulp) a combination of both.

We’ll certainly be watching for a gain back above RSI=50 that is sustained. But I think it’s far more likely that the stock price for AAPL could continue to decline to the point where RSI is less than 30. I’d be vigilant for price surges to the upside to reduce my position over time — all the while waiting for the reversals that will put an end to the disruption area shown here.

We’ll continue with more long-term RSI snapshots in the Manifest Investing forum and will certainly flag any that deserve to be “flagged” and hope that any ensuing hypnosis will lead to focused vigilance … and an incremental benefit to our long-term returns.