Round Table

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)

Hallowed Round Table (October 2013)

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Join us tonight (8:30 ET) for the October 2013 Round Table as we explore, discover and CELEBRATE the performance results of the tracking portfolio. Yes, it appears that the armored hound can hunt!

FREE webcast! Register at: http://www.manifestinvesting.com/events/131-round-table-october-29-2013

There’s no truth to the rumor that Ken, Cy, Hugh and Mark have joined the legions of “Walkers” even if they look a little pale this month. We’ll take a look back at Halloween selections of Yore — unless it’s too spooky. Speaking of spooky, we’re certain to spend some time with the Forbes Best Small Companies for 2013 during the session. Ken will spend some time “off the radar” with some compelling smaller companies.

Companies Likely To Be Studied/Presented:

  • Mesa Labs (MLAB)
  • Qualcomm (QCOM)
  • Schlumberger (SLB)

References:

Round Table Tracking Dashboard

Red October: Forbes Best Small Companies for 2013

April Round Table Highlights

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As Ann mentions here, the April Round Table was challenged by barking dogs and thick thunder/lightning in Houston — but we persisted. In a subtle shift, we’re going to move Round Table highlights to the Stocks folder. Why? Although the portfolio design & management, and Round Table tracking portfolio are important, we do want to emphasize that the program core is centered on identifying stock study opportunities. We can do that and still stay focused on achieving those long-term superior relative returns.

Sorry to everyone I had to end my Round Table presentation so quickly. I am not sure any of what I said made sense. It’s hard to concentrate when you are being bombarded by lightning. The worst of the thunderstorm lasted about 45 minutes and we did lose power for a little while. Hope the rest of the Round Table went well.

Qualcomm (QCOM)

As for Qualcomm, I believe it is definitely a stock you should research. For a company of its size (24.12B estimated revenue for 2013), it continues to show signs of growth. I estimated the future growth sales at 13% and the future earnings per share at 11.5%. This results in a future eps of $6.12 which is a little higher than Value Line and a little lower than MI.

Qualcomm leads the list of companies that produce mobile chip sets for phones. It has a large amount of patents and they receive royalties from millions of mobile devices each year that should continue over the next 5-10 years.

Their chip sets are found in the current popular mobile devices from Apple, Samsung, Blackberry and Nokia.

The only concern that I could find was that some investors and analysts did not like that management has increased their spending (21% this past year). To me Qualcomm’s management appears to be doing a good job. They have no debt, their pre-tax profit is high and their return on equity is good. Sometimes you have to spend money to make money.

The recent drop in price offers a good opportunity to pick up the stock.

Anne

Polaris Industries (PII)

Ken Kavula’s presentation can be summed up pretty quickly.

“Polaris? You mean that snow mobile company???”

“Not exactly.” “Study it and see that there’s more, a lot more, to this story.”

Pii products 20130430

Caterpillar (CAT)

Hugh McManus described one of his favorite shopping methods, the quest for stocks that are trading near their 52-week low. In fact, we’ll probably spend more time with this notion because as he said, “One of the things we’ve witnessed over the years is that long-term investors, particularly those getting started, tend to purchase at stock prices which prove to be too high. We know that the typical stock will often trade at a low during a given year that is on the order of 50% of its 52-week high … so it makes sense (with patience and discipline) to watch for good companies trading at low prices.”

He also shared an intriguing tidbit about different treatment of large, higher-quality stocks versus vs. promising, emerging companies in that he’ll settle for 1-year lows for the larger companies … while demanding multi-year lows for the others. Fascinating and worthy of further exploration, in my opinion.

Buy low

C.H. Robinson (CHRW)

Mark doubled down on Cy Lynch’s fairly recent selection of C.H. Robinson (CHRW) — the transportation and logistics company. CHRW is the Solomon Select stock feature for May — so we’ll cover it “there.”

The audience seconded (thirded?) CHRW by choosing it from the alternatives.

There was some concern expressed during the polling about the potential for continued price “sag” in Caterpillar (CAT). Hugh’s response? “I hope so. I prefer a little sag while I’m accumulating.” (Grin)

Rt poll 20130430

April Round Table: Our Quest for Excellence

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Photo Credit: One lucky guy via Compfight cc

Gather Round … Steeling Away (Continued)

“As iron sharpens iron, so one person sharpens another.” — Proverbs 27:17

Ken Kavula and I spent the weekend in Pittsburgh with a couple of groups of disciplined long-term investors. It seems natural to think of extending beyond iron … and instead, think about steel on steel — and the process of sharpening other like-minded investors.

Some of the earliest model clubs were formed in Pittsburgh a couple of decades ago. In fact, one of them received a 20-year certificate this past weekend. And we note the considerable learning and sharing promulgated by a group of people, including but FAR from limited to: Herb Barnett, Pat Donnelly, Theresa Greissinger, Terry Lyons, Larry Robinson, 2011 Groundhog Champion Nick Stratigos and a wide variety of other volunteers and contributors.

We’ve followed the Pittsburgh groups of investors for quite some time — and on this weekend did some quick benchmarking. One club had a +5.5% relative return over 20 years — absolutely exceptional and another checked in at +1.0%. Still another checked in at +0.8% … all in all, some 60-80% of the clubs involved this weekend have generated positive relative returns. Placed in the context of negative 1-2% relative returns for an institutional investing universe and the NEGATIVE 5.6%/year (over 20 years) for “average investors” documented by DALBAR — we’re talking about some exceptional people and some highly differentiated performance.

How do we do it?

1. Imagine. Build an expectation of what the companies you study and own will look like in five years.

2. Invest in the Best. Comprehend quality. Recognize that quality is an insurance policy during corrections, bear markets and recessions … and a bedrock of consistency for long-term results.

3. Be Prudent. Diversify. Be certain to design and maintain a portfolio with the right mix of small, medium and large companies with an overall growth forecast that is sufficient. What is sufficient? A weighted average of 10-12%.

We’ll gather for the April Round Table on Tuesday, April 30 at 8:30 ET. On wings of steel and a relentless quest to not only be a better investor … but to improve the experience of our friends and colleagues on this journey, we look forward to sharing some of our best ideas with all who gather.

It’s FREE and it’s literally come one, come all. Register at: http://www.manifestinvesting.com/events/117-round-table-april-30-2013

Cognizant Technology (CTSH)

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Cognizant Technology (CTSH) is the top-ranked stock based on a combination of fundamental and technical analysis (our Fusion ranking) for the stocks in this week’s update.

As we shared in the stock selection feature for August 2011, Cognizant Technology (CTSH) is anything but a stranger to the subscribers of Manifest Investing and our long-term investing community.

“Knowledge is power.” — Francis Bacon

Apparently, knowing what to do with information is a path to returns based on the leadership returns achieved by all of the information-based companies in our MANIFEST 40 (Oracle, Cognizant, Quality Systems, FactSet etc.)

Cognizant Technology has been selected five times for the Round Table and $100 invested in CTSH as a top-performing member of the MANIFEST 40 tracking portfolio is now worth $440 — absolute total return of 340% and an annualized relative return of +35.4% since December 2008, one of the top-performing entries in this long-term demonstration.

Business Model Analysis

Using the last couple of actual results for years, in combination with analyst consensus estimates for 2013-2014, the sales growth trend/forecast is 17%. If Value Line’s 3-5 year revenue forecast is feasible, the growth forecast could climb to 19%.

Equity Analysis Audit

We’ll use the lower sales growth forecast of 17%, the consensus on projected net margin at 14% and a projected average P/E of 20×.

The result is a return forecast (PAR) of approximately 15%.

Tracking Momentum & Sentiment

To me, S&P is a little tangled in a knot. They have a “Hold” on CTSH despite a fair value of $99.80 that would suggest CTSH is undervalued by 23.5%. I blame the traders and short-term time horizon herd. The same is true for Morningstar. CTSH has been in a trading range for over a year. But I think the reason for the swoons (speed bumps, breathers, etc. — call it anything you want) is pretty clear. The 2008-2009 Great Recession hammered business at CTSH. And the same is true now with Europe lagging and the impact/influence on CTSH is material.

But if you’re in this for the long term — and we are — you believe that recessionary conditions will abate. In fact, you believe that they’ll be back again some day and you’re not stunned or aggravated by this reality.

And when the next round of meaningful recessionary abatement gets underway, this information technology juggernaut will probably reassume the flight trajectory shown the 5-year trailing average (blue line) on the chart.

CTSH is good at what they do. CTSH has a robust field of opportunity and no debt. I think we’re happy it’s a contributor to our Solomon Select, MANIFEST 40 and Round Table tracking portfolios and we’re not ready to send it packing, yet.