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.
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.
“Science and technology revolutionize our lives, but memory, tradition and myth frame our response.” – Arthur Schlesinger
“The real danger is not that computers will begin to think like men, but that men will begin to think like computers.” – Sydney Harris
This week’s update batch has a number of community favorites in the mix. The following companies are all members of the MANIFEST 40 — the most widely-followed companies by our subscribers:
Amazon (AMZN) has been an important contributor to Hugh McManus and his superior returns as a participant in the Round Table. AMZN ranks as the all-time leading selection despite that lonely selection in Chicago a few years ago. Other companies that have been featured in Round Table sessions include: Alphabet/Google (GOOG), Bank of America (BAC), Bank of New York Mellon (BK), Cognizant Technology (CTSH), eBay (EBAY), Global Payments (GPN), Infosys Tech (INFY), Microsoft (MSFT), Oracle (ORCL), PayPal (PYPL), Priceline (PCLN), SEI Investments (SEIC), T. Rowe Price (TROW) and Western Union (WU).
Results, Remarks & References
The average Value Line low total return forecast for the companies in this week’s update batch is 6.9% vs. 5.4% for the Value Line 1700 ($VLE).
Materially Stronger: SLM (SLM), Priceline.com (PCLN), Western Union (WU), BlackRock (BLK), Earthlink (ELNK), Adobe Systems (ADBE), Facebook (FB), Overstock.com (OSTK), Amazon (AMZN)
Materially Weaker: Invesco (IVZ), EZCorp (EZPW)
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 5.4%, unchanged from 5.4% 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.
The Long & Short. (May 13, 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.
May Round Table May 22, 2016 at 11 AM 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 Ken Kavula, Cy Lynch and Mark Robertson as they share their current favorite stock study ideas.
The May session will be simulcast from the NAIC Better Investing national convention near Washington D.C.
Here are the consensus selections from the participants in our annual stock picking contest — Groundhog X (2016) … twenty pretty good stock studies that could be worthy of a closer look.
The tracking dashboard can be accessed here: https://www.manifestinvesting.com/dashboards/public/heavy-hogs-2016
Our first Fave Five for 2016 — in the face of staggering downside pressure — are five stocks with solid long-term perspectives … relatively stable profitability trends and expectations … and top shelf financial strength. They essentially represent 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. This week’s Top One Percenters are Scripps Networks (SNI), Stericycle (SRCL), Cognizant Technology (CTSH), Priceline (PCLN) and Apple (AAPL).
Context: The median 1-year total return forecast (via ACE) is 18.0%. The median 5-year return forecast (MIPAR) is 9.4% (annualized).
The relative return for the Weekend Warrior tracking portfolio is +0.9% since inception. 53.3% of selections have outperformed the Wilshire 5000 since original selection.
Here are some links to fairly recent monthly stock features, Round Table discussions and/or analysis updates for companies in the tracking portfolio:
Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/weekend-warriors
Screening Results (April 2015)
If you’ve been to Devil’s Tower, watched enough Animal Planet and/or visited your local zoo, you’ve seen vigilance. Think about the images or scenes of prairie dogs where a “town” or “clan” hears an unusual noise. Immediately, several of the critters will stand on their hind legs and they’ll generally look East, West, North and South as they collaborate to detect potential danger.
Same thing here. Although we’re reluctant to refer to our community of investors as animals, we know that we’re well served when we remain vigilant.
In this case, we’re continually mindful of the parade of opinions from the rhinos that cover and exude/spew opinions on our companies. For this month’s screening results, we hit the ejector button on any qualifying companies that failed to exceed the averages of a number of forecasts.
“Ignore the words issued by analysts (buy/sell/hold) but heed their numbers and homework.” — Walter Kirchberger
The companies in the accompanying list are sorted by MANIFEST Rank Descending and therefore have strong return forecasts and quality rankings. Every week we check our update batch for drifts (downward and upward) in expectations — heeding their numbers. This is little different as we value consensus and elevated financial strength under these market conditions. For perspective, the average Value Line low total return forecast is 3.7%. The average P/FV at Morningstar is 104% and S&P checks in at 99%. The average 1-year total return expectation from ACE is 13.5%. S&P sees the year ahead at 9.5% and Goldman Sachs (GS) is a little more grumpy and pessimistic at 7.0%.
Movember? Going Grubby?
I’m not sure whether it’s a hunting season thing … or merely an excuse that many men use to take a break from shaving, but Movember is in full swing in many places. Beard Mania was celebrated BIG in Boston during their recent World Series conquest with many of the Red Sox players sporting facial hair that would have made bearded Civil War combatants proud. The appearance, including some modest twerking with Carrie Underwood, by Duck Dynasty with Willie Robertson and his fam on the Country Music Awards further popularized canning the razor blades and donning the bandana …
But the shaving continues when it comes to the fundamental analysis of our update batch. We continue (with a few notable exceptions cited below) to see that stealthy reduction of long-term forecasts combining with erosion of 2013 and 2014 consensus estimates on both the top and bottom lines.
And to the U.S. veterans who have served, and their incredible contributions to freedom, whether you decide to sport a moustache, beard or both — we say a simple THANK YOU! from the bottom of our hearts. Simply put, YOU ROCK.
Companies of Interest
There’s a smidge more companies on the “Stronger” line this week, but still nothing to write home about. Microsoft (MSFT) finally received a fundamental upgrade and Priceline’s price surge over the last several months (+61.8% over the trailing 12 months) also merited a closer look and a modest boost. But the trimming continues to far outweigh any boosting as the rhinos seem to refuse to Movember with the rest of a stubbly and grubby nation.
Materially Weaker: Fusion-IO (FIO), Teradata (TDC) 1, Nuance Communications (NUAN), LinkedIn (LNKD)
1 Teradata (TDC) reduced to $65, from $75, on long-term low price forecast. Annualized return drops from 14% to 10.2%.
2 Microsoft (MSFT) raised from $40 to $45 for long-term low price forecast.
3 Priceline (PCLN) raised from $1265 to $1380 for long-term low price forecast.
The median Value Line low total return forecast (VLLTR) remains unchanged at 3.9% during this week’s update.
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.