Fave Five (9/7/2018): Morningstar

Fave Five (9/7/2018)

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 median 1-year ACE total return forecast is 10.0%.

This week we limit the field to companies with excellent quality (>80) with the lowest price-to-fair value ratios (P/FV) according to Morningstar.

The Long and Short of This Week’s Fave Five

Long & Short Term Perspectives. (September 7, 2018) 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. 52-Week Position: Position on scale between 52-week low price and 52-week target price. 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.

McKesson (MCK) is on “wash sale probation” as it was sold on 8/31/2018 and is unavailable to the tracking portfolio until October.

Intel (INTC) is one of our favorite examples of stock prices that seem to move in “fits and starts.” The company is currently #26 among the most widely-followed stocks by Manifest Investing subscribers and has generally tracked the market (8% annualized total return) since charter membership in the MANIFEST 40 back on 9/30/2005. Intel (INTC) spent four years on the Round Table roster after selection by Hugh McManus and Mark Robertson back on 3/26/2013. The rate of return when sold on 12/19/2017 was 21.6% — beating the Wilshire 5000 by 9.5 percentage points.

Looking down the top (50) stocks that met this week’s criterion, we were struck by the number of Ken Kavula nominations for the Round Table in the field. Perhaps Morningstar gives extra credit for “up, straight and parallel,” too? A recent example is the laser purveyor, Coherent (COHR). The company was featured (by Ken) during the July 2018 Round Table.

Stericycle (SRCL) has been in the Fave Five tracking portfolio since 12/8/2017 and has stumbled to a relative return of -16.7%. Yes, Virginia, SRCL is on the Rule-of-5 hot seat but they may still stick the landing and commence recovery.

NutriSystem (NTRI) is #4 on our Best Small Companies list for 2018 and was added to the Fave Five tracking portfolio on 3/22/2018. NTRI has delivered a healthy return, 32.1% since then. Bring out your best small companies ideas as we build and share the Best Small Companies (2019 edition) around Halloween. Yes, we’re searching haystacks and counting down …

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +3.5% since inception.

The absolute annualized rate of return is 18.9%.

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

Hot Links & Fractured Fairy Tales

Hot Links & Fractured Fairy Tales

I’m often asked about the utility of Twitter and similar “newsfeed” type services. I have to admit that I was extremely skeptical about 140 character blasts and an endless stream back when I first started exploring but I rapidly discovered that Twitter can be a path to discovering and sharing information.

Favorite “Follows” by @ManifestInvest

At Twitter you “follow” people that you’d like to hear from. For me, this includes a number of friends, and it also includes investing-related thought leaders and information providers. I also subscribe to (follow) sources like the various Fed research departments (Minneapolis & St. Louis rock) and companies that I follow. Some of my favorites:

  • @ritholtz — http://www.ritholtz.com/blog/
  • @eddyelfenbein — http://www.crossingwallstreet.com
  • @StovallSPCAPIQ — Sam Stovall (Standard & Poor’s)
  • @BobBrinker
  • @SelenaMaranjian — writer for www.fool.com (also Brothers Gardner via @TomGardnerFool & @DavidGFool)
  • @lecreative — Amy Buttell, colleague and Better Investing alum, writes on “all things financial.”
  • @TMFHousel — not just another Fool
  • @NateSilver538
  • @ReformedBroker — Joshua Brown

As an example, let’s take a look at a recent reading list shared by Josh. I generally find 2-3 things to scan whether it’s Eddy, Barry or Josh laying out the smorgasbord.

Here’s the link: http://thereformedbroker.com/2015/11/17/hot-links-fairy-tales/

What I’m reading this morning:

  • US dollar screams to a 7 year high (Bloomberg)
  • Stocks: Top 10 High-Conviction and New-Money Purchases (Morningstar)
  • Soros lightens up his bet against the S&P 500 (MoneyBeat)
    …and he joins Icahn in a bet on PayPal (Business Insider) — [… one for Kim Butcher and Round Table followers]
  • Alphabet, Amazon Lead A.I. Charge as Machines Take Over, Says UBS (Barron’s)
  • CEO of Alerian Index admits that MLPs are sensitive to oil prices. So much for the “toll collector” fairy tale (ETF.com)
  • Investment banks’ revenue set to decline again in 2015 (Reuters) — probably explains down draft in stock prices of asset managers
  • Home Depot continues to crush it. Another flawless quarter. (Business Insider)
  • Cliff Asness: Good investing is not about genius, it’s about fortitude (Business Insider)
  • Retailers hate those new credit card chips (New York Times)
  • Children born today will most likely live on average to their late 80’s (Upshot) — … one of our favorite themes

Goldman Sachs: Buy and Avoid

This was a tangential subject of discussion during the March Round Table. We’ve added Goldman Sachs price targets and will be monitoring them versus ACE and S&P.

Nutshell: Might this be a way to gauge sentiment? In this case, these differentials could deliver influence or impact, providing a potentially meaningful sentiment indicator.


Gs buy avoid list 20150331

As a quick reminder to be careful out there, this is what this morning held for Garmin (GRMN).

That’s a reduction from $63 to $54.

Source: Benzinga.com

Grmn gs opinion 20150402

More Fun With Goldman Sachs

When they’re not doing “God’s work” or referring to retail investors as Muppets, Goldman Sachs (GS) makes some calls — long and short — that can be influential in the market. In some Wall Street circles, the legions of Goldman Sachs are playfully known as Masters of the Universe.

In addition to the two lists shared above, here’s a list of nineteen stocks that Goldman Sachs believes are headed for price swoons — a list of stocks to sell short.

Goldman Sachs offers three criteria on how to pick stocks to short:

  • Look for individual stocks with high valuations that have a tendency to underperform;
  • take hints from mutual funds as they do a good job of selecting shorts;
  • and look for stocks that are likely to move on company-specific factors and are less prone to moving with general market and sector trends.

Among the overvalued stocks Goldman thinks could drop are Celgene (CELG), OReilly Automotive (ORLY) and Red Hat (RHT). Stocks underweight by mutual funds that could fall are HST, CTL and EQR; and likely to deviate from the broad market and their sectors are KLAC, JEC and COH.

Rounding out Goldman’s 19 stock recommendations that could reward short sellers: ARG, DO, DISCA, FLS, KSS, MOS, NDAQ, NVDA, TDC, WU.

Tracking Dashboard: http://www.manifestinvesting.com/dashboards/public/goldman-shorts-20140414

Here are the tracking dashboards for the Goldman MOST UPSIDE and MOST DOWNSIDE stocks as of 3/31/2015:

Shopping By Sector: Technology En Fuego

Photo Credit: Tc Morgan via Compfight cc

Where to shop these days?

Start by recognizing where NOT to shop and that’s probably the utility sector. The utility stocks have been en fuego. Don’t shop among the ashes of a bonfire, shop where a flammable pile is smoldering — but distinguish ashes from ignition.

The accompanying table has been sorted from highest potential to lowest potential based on projected annual return (PAR) — the return forecast for the ten traditional sectors from S&P.

Technology stocks worth a closer look: Apple (AAPL), Cognizant Technology (CTSH), Google (GOOG), EMC (EMC), Oracle (ORCL), Qualcomm (QCOM) and Intel (INTC).

Keep in mind that the smoldering might take a while as the often unfriendly (to Tech stocks) days of summer swoop in — for investing for the long term …

Sector gps 20130411

Value Line Low Total Return Screen (4/5/2013)

Companies of Interest

We’re often asked for opinions on Apple (AAPL) and our approach/outlook is unchanged … at least not much. We do note that AAPL flipped to a bullish point-and-figure condition with a slight boost in price objective. But we still see the stock as vulnerable to a continued price drop or extended trading range. I still love the answer that Jeff Gundlach gave during the Q&A following a recent webcast. His response to “Should I buy Apple?”: “That depends. Are you really, really, really a long-term investor? How will you react if the price drops from $425 to the low $300s? If your time horizon is relatively long and you’re comfortable with a price that plummets from time to time, I’d say it’d be OK to buy/accumulate AAPL.” We still think that trailing stop protection on stocks like AAPL is a really good idea.

Expectations at Hugh’s Staples (SPLS) did relax a little bit — but the long-term outlook (for patient investors) is still strong.

Recent Round Table selection Intel (INTC) is among the best-positioned companies in the Issue 7 update.

Materially Stronger: Synaptics (SYNA), NCR Corp (NCR)

Materially Weaker: Logitech (LOGI), Garmin (GRMN), Skullcandy (SKUL), Standard Register (SR), Staples (SPLS), Cirrus Logic (CRUS)

Market Barometers

The median Value Line low total return forecast is 6.7% compared to 6.8% last week.

Fusion Screen (3/26/2013)

Fusion screen 20130326
Some stock study candidates based on a combination of fundamental characteristics (growth, profitability, valuation and return forecast in combination with the quality ranking) and timely technical characteristics (e.g. relative strength index momentum and price pressure, etc.)
Note the frequency of oil & gas field services along with a integrated petroleum company among the results.
The information technology companies (INFY, AAPL and INTC) continue to be prominent as well.

March Round Table: March Madness

Rt banner 20130326-512

During the March 2013 session of the Round Table, our noble knights (and fair damsel Anne Manning) elected to close out (“sell”) the positions in Adobe Systems (ADBE).

The annualized relative return achieved on the selections of ADBE by Anne Manning and Ken Kavula was +16.5% and +14.5% respectively. Huzzah and thanks, Anne.

Bank of America (BAC) was also batted about. The fundamentals have been a wreck and they’re still impacted by the Great Recession. Book value was hammered and is still recovering — a condition quite widespread amongst all banks. Return-on-equity (ROE) has been staggered and perhaps somewhat permanently altered. In the case of BAC, a quick sensitivity analysis on two different thresholds for projected ROE illustrates how muddy and choppy the waters still are for BAC. Hugh also noted the cobbled-together nature of many of these banks since 2008 during the crisis and that spinoffs and restructurings probably hold fairly promising — and quite confusing — potential.

What levels of profitability (ROE) will banks like BAC achieve going forward. We know that 15-20% was commonplace back in 2000-2005 … and that ROE levels have been restored to a fraction of their historical levels. As shown here, the analyst consensus for BAC is currently approximately 5%, but likely increasing. If it were to rebound to 10% (still far below 15-20% levels) … the return forecast (PAR) is 18% versus the paltry level shown on the dashboard. This is part of what Hugh has been thinking for a few years since his famous, “I want to own a bank.”

Where do you think ROE levels for banks in general are headed?

In celebration of William Shatner’s 82nd birthday, Ken and Cy added Priceline (PCLN) to the Round Table tracking portfolio. Continuing with the theme of mayhem and madness, Hugh and Mark also agreed on a selection (a condition that we’ve rarely seen amongst all the knights over the last three years) and presented Intel (INTC). Hugh shared some thoughts on diving beneath the surface of customary analysis to take a look at inventory trends.

If you’d like to hear Hugh expound on this theme, let us know and we’ll schedule a webcast to share legendary tales of companies like Lucent, SafeSkin and Cisco Systems.

The road ahead for Intel is not without a speed bump or two as the transition from PCs to other devices and hardware continues. The company always has been and likely will be, a growth-cyclical, and it will likely remain that way with a long-term growth trend in the 6-8% range for the foreseeable.

But it’s a clear leader in its industry with solid margins. As shown here, Value Line has the long-term low total return forecast at 17% — not too shabby.

The audience closed the session by voting for Priceline (PCLN) over Intel in a clear birthday cake tribute to Captain Kirk — and price negotiators everywhere.