Fave Five (5/17/2019): Prohibition Edition

Fave Five (5/17/2019)

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 14.1%.

The City of Big Shoulders … and a Speak Easy, Or Two …

The National Association of Investors held their annual conference in Chicago this past weekend and I was honored/privileged/grateful to attend and to support the efforts of a gifted gypsy band of awesome volunteers. You know who you are. Thank you. Even better, the educational slate included our dear knights (and a damsel) as Kim Butcher, Ken Kavula and Cy Lynch provided several sessions and discussions. Hugh McManus would have joined us if his company hadn’t jobnapped him somewhere between Singapore and San Francisco and diverted him to Barcelona for the weekend.

  • You know you might be in Chicago when the banquet menu includes hot dogs smothered in onions, mustard, pickle spears with a side of deep dish pizza.
  • You know you might be in Chicago when the LIVE Round Table audience in true crowd rebellion decides that they can vote more than once for stock nominations. (And they’re right)
  • You know you might be in Chicago when all of the wait-until-next-year attire has morphed into World Series Champion paraphernalia.
  • You know you might be in Chicago when people are imitating the voices of Sean Connery and Kevin Costner in the hallways lined with pictures of beer being “distributed” from barrels on to the streets. (This sort of behavior is likely frowned upon by our resident Irishman Hugh AND his partner in crime, Pat Donnelly.)
  • You know you might be in Chicago when an audience of investors wants to talk about cannabis, prohibition and the companies that prospered when Elliott Ness stopped foaming up State Street back in the 1930s. When the audience assumes control of the discussion (which we encourage) and starts talking about specific investment characteristics of Anheuser-Busch, fields of opportunity, distribution infrastructure and doing stock studies on companies from 1933 … I’m pretty sure that, yes, you’re in Chicago.

Yes, you’re among friends who like to share ideas, devastate the mysteries of investing … and they’re BETTER when they do it together.

Three of this week’s Fave Five figured prominently in panel discussions and sessions. Cantel Medical (CMD) was selected by Ken Kavula during the opening session stock panel and Cy Lynch selected II-VI (IIVI) for the Round Table. Kim Butcher selected Air Lease (AL) for the Round Table and the audience seconded her motion while pondering just how many hands and appendages they could vote with for the various nominations. (Except for my pick, REGN, which received an insignificant number of appendages and at least one guffaw. I’m hurt but unswayed.)

Spirit Air Lines (SAVE) did not come up but probably should have. It was on my short list. (But it’s moot. You probably wouldn’t have voted for it anyway.)

The Long and Short of This Week’s Fave Five

Long & Short Term Perspectives. (May 17, 2019) 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. MANIFEST Ranking: Equally weighted ranking of Return Forecast (PAR) and Quality. 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 ACE P/FV: based on analyst consensus for fair value. Owner’s Return On Capital: Return (Profitability, long term estimate) vs. Total Capital (equity + debt). 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.

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +2.4% since inception.

The absolute annualized rate of return is 11.8%.

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

Press On: Six Stocks for 2016

Press on.  2016, so far, hasn’t been much to cheer about.  But the long-term perspective hasn’t cratered and your 401(k) isn’t locked in the Titanic safe while a bunch of icebergs make like rocket-powered grenade launchers — no matter what those news anchors say.  Based on the things that matter to long-term investors, press on.  Here are some shopping ideas to rake across the fireplace coals while remaining focused on what matters.

What Do We Do Now?

Answer: “Same thing we do every day, Pinky.” — The Brain.

Bottom Line: It’s still OK to be optimistic about the future. Invest. Invest well. Be selective and discover industry leaders when they’re on sale. Simply put, the same thing we do every day. Invest regularly. Although growth rates have moderated, Armageddon isn’t here yet and continue to design and maintain portfolios with overall average sales growth rates of 10-12% if you have a long time horizon and risk tolerance. Turbulent times shouldn’t be a surprise. To most of us, they’re not. Do not be surprised when P/E ratios moderate and retreat a bit as Quantitative Easing (QE) dwindles, interest rates swell a bit and the huffing and puffing that has bolstered the market over the last couple of years (while profitability was challenged) subsides.

Value Line 1700 ($VLE): Long Term Performance

On January 1, 2000 the even-weighted index value of the 1700 stocks featured in the Value Line Investment Survey was 1025.80. Sixteen years later, $VLE reached a value of 4358.69.

This is an annualized total return of 9.5%. (S&P 500 advanced 3.9% during the same 16-year period)

The world ended at least twice during that sixteen year period. During the most recent excursion during the Great Recession, Warren Buffett shared that he hoped that he lived long enough to experience the next market break. Once again, he may be right. And present.

Value Line 1700. The arithmetic average (equal weighting) means that the index didn’t get extra credit for Amazon, Apple, Facebook, Google or Netflix during 2015. As such, $VLE was down -6.9% during 2015 as shown by the 12-month rate of change (ROC) portion of the graphic.

Why The Value Line 1700?

9.5%. It bears repeating.

That’s 5.6 percentage points (560 bps) better than the S&P 500 during the 16-year period.

We like to do much of our shopping here. 39-of-the-40 most widely-followed stocks by Manifest Investing subscribers hail from the 1700. Only PRA Group (PRAA) is a current exception — and may actually warrant some accumulative speculation at this time. More on that later.

We believe in all-of-the-above shopping and we know that it makes strategic sense to discover and own large, medium and smaller companies in order to nail down that balance between the slower growing blue-chip stalwarts and the promising upstarts. The Value Line 1700 provides a pretty good vista of qualifying opportunities. We do look forward to the day when some of the Best Small Companies For 2016 join the VL 1700 and ultimately, the MANIFEST 40.

The other reason is that we like to be Schlossian in our investing efforts. For those unfamiliar, check out the works of Buffett colleague and friend, Walter Schloss, and his reinforcement that any and all of us can do this — and experience successful long-term investing. Walter rarely shopped outside the VL 1700.

Value Line 1700 Industrials: Sales History & Forecast Trend

The long-term growth rate of the aggregated sales for the Value Line industrials is now approximately 6% — a condition “eerily” suggested in our June-2009 cover story, Grated Expectations

If we squint, we can see 2015 take a “dip” that actually rivals 2008-2009 a bit. This probably accounts for much of the angst prevalent among most of the talking heads.

Yes, Europe continues to struggle. China slows. Demand for petroleum is stunningly low at a time when production is peaking despite the curtailment of higher-cost production alternatives that have terraformed the energy landscape over the last few years. The American consumer is better but still slogging through molasses when it comes to disposable income and consumption. Political candidates tell us just about anything they think we want to hear to get elected.

But it ain’t Armageddon. It’s not different this time.

And this is why we invest.

Value Line 1700 Industrials: Profitability Trends

This image is probably the keystone in our long term perspective.

First, it’s a tribute to the optimism of the Value Line analysts. Their 3-5 year forecast for most companies is perpetually unprecedented. Someday we’ll have the dream of commercialized nuclear fusion, a cure for cancer and the common cold and they’ll be right with the long term profitability forecast. But for now, it’s our reminder to shave a little off the top while performing our own studies and checking in with the Value Line net margin (and ROE) forecasts.

Second, although 2015 was nothing to write home about, it’s not Armageddon either. The relatively low net margin results (still taking shape, by the way, as the 4Q2015 company confessions roll in) go a long way to explain that Goldilocks aura that many of us feel. Things are better. But they’re not what they should be — at least not yet.

That said, even discounting the 2019 elephant on this graph, the long term trend is favorable and American innovation and optimism is still alive and kicking. Imagine if we’d ever start to tackle/eliminate the corporate income tax malignancy that continues to give the rest of the world a head start and tilted playing field when it comes to manufacturing and delivering goods to We, The People. It’s on the list with fusion, cancer cures and we can dare to dream.

Value Line Industrials ($VLE): Valuation Trends

It’s beginning to appear that 2014-2015 was something of a peak when it comes to P/E ratios.

The surge was likely fueled by low inflation/low interest rates, shadowy accumulation of stocks and continued respect for the best companies who seem to prevail and persist in the face of steep challenges.

That … and probably a little exuberance thrown in for good measure. We noted that the Value Line low total return forecast did hover at multi-decade lows during this period and the same has been true for MIPAR (median return forecast for all companies covered at Manifest Investing.)

The P/E that matters most to us is the projected average P/E in our forecasts and the average for the 3-5 year forecast at Value Line seems headed more for 18x than 22×. It’ll be interesting to see the Value Line expectations when the data array ratchets one column soon, displaying one year further out.

MANIFEST 40: The Long and Short

Price Targets and Veracity

In the preceding chart, some (including me) have wondered about the utility of gauging one-year expectations alongside our traditional long-term forecasts. Intuitively, I’d like to think that pursuing a company with a solid long-term perspective (relatively high return forecast) in combination with sentiment-fueled 1-year expectations could be an effective combination.

Looking back at the MANIFEST 40 from one year ago — the average 1-year total return forecast was 6.6%. The actual return from our favorite 40 stocks turned out to be 4.7%. (Keep in mind that the “average stock” was down -7%.)

But — for any given stock — as shown in the accompanying chart, it’s really pretty much of a “crap shoot” for one year results. This is not a surprise. We know this as the perpetual dance of the rhinos as short term forecasting is almost always Dremaned.

There is, however, a glimmer of hope. And it comes in the same type of condition that we witness with overall performance of portfolios vs. individual stocks. When gauging performance in groups, accuracy gets better.

In this case, the top six stocks with the best 1-year return expectations back in January 2015 actually delivered a combined performance of 16.7%. See FAST, GE, GOOG, JNJ, MSFT, and TEVA in the chart below.

The stocks with the six weakest 1-year expectations were CSCO, COH, CTSH, PAYX, QSII and WMT. These six combined for a collective result of 0.9%.

How To Read This Chart. This chart displays the actual 1-year total returns for most of the MANIFEST 40 most widely-followed stocks versus their 1-year total return forecast from January 2015. For example, General Electric (GE) had a total return forecast of 20.8%. This is plotted on the x-axis. The point (20.8%, 27.5%) provides the comparison of the 1-year result (27.5%) plotted on the y-axis.

Results, Conclusions and the 2016 Outlook

First and foremost, we’re reminded that these (40) stocks collectively represent a top shelf collection of high-quality companies that rank among the most closely-followed stocks by our subscribers. To me, that means it’s a fertile ground for promising opportunities under the right conditions.

The average 1-year total return forecast for these (40) stocks is 23.5% (1/18/2016). It will be interesting to see if this persists or drifts as the rhinos attempt to focus on the challenges ahead for 2016.

If we’re looking for shopping opportunities, it’s OK to focus on the best long-term return forecasts, for example Apple (AAPL), Buffalo Wild Wings (BWLD), Cognizant Technology (CTSH) and Gilead Sciences (GILD).

Based on the cursory observations made here, I think I’d be inclined to take a closer look at the six companies with the highest 1-year total return forecasts. Yes, I admit that I don’t expect correlation between forecast and actual for any of these flying on their own — but collectively, it’s as compelling as our dashboard-centered foundations. Those six stocks would be:

  • PRA Group (PRAA) — granted, something of a speculation and wrought with “turbulence”
  • Apple (AAPL) — well, just because.
  • Schlumberger (SLB) — because fossil fuels aren’t going away any time soon, sorry …
  • Qualcomm (QCOM) — because the juggernaut may still have some cards up its sleeve
  • LKQ Corp (LKQ) — because new car sales could peak and there’s still a lot of marginally skilled drivers out there.
  • Gilead Sciences (GILD) — because they persist in building solutions and chemistry that improves lives.

The average 1-year total return forecast for these six selections is 48.4%

The six stocks I’d avoid, or subject to a Spanish Inquisition if suggested any time soon, would be: Coca-Cola (KO), Exxon Mobil (XOM), FactSet Research (FDS), Fastenal (FAST), Quality Systems (QSII) and Wal-Mart (WMT). — because among many other factors, the rhinos haven’t forgiven some of these yet. (But it’s probably a temporary condition for most of them.)

With the maturity that embraces simplicity, Press On!

The Stocks We Follow (December 2014)

 MANIFEST 40 Update

“We have always believed that the collective decisions made by our community of like-minded, long-term investors are worth huddling over … a place where ideas are born.”

This managed “tracking portfolio” of your collective favorites has outperformed the Wilshire 5000 by +3.3%. The absolute rate of return for the trailing 9 1/4 years is 9.6%.

Our MANIFEST 40 is a celebration of collective excellence in stock selection, strategy and disciplined patience. We continuously monitor the 40 most-widely followed stocks by our community of subscribers at Manifest Investing. We think it’s more than a fair assumption that many of these are in your real money portfolios … and for that, we’re optimistic and grateful. This managed “tracking portfolio” of your collective favorites has outperformed the Wilshire 5000 by +3.3% (relative rate of return, percentage points). The aggregate absolute rate of return has been 9.6% during a period when the annualized rate of return for the general stock market has been 6.3%.

Capturing Attention: Chargers

Schlumberger (SLB) moved from #39 to #34 and continues to attract interest despite the current challenges in the energy sector. Buffalo Wild Wings (BWLD) returns to the MANIFEST 40 at #36 as chicken wings, beer and sporting events continue to deliver for investors.

The results of $100 positions investing in any of the Top 40 companies can be viewed at any time at:


Strongest Performers

The three top performers in the MANIFEST 40 since inception, based on annualized relative rate of return, are Cognizant Technology (+27.4%!), PRA Group (25.8%) and Apple (24.8%).

The charter members of the MANIFEST 40: Microsoft (3), Stryker (4), AFLAC (5), Johnson & Johnson (6), General Electric (7), Cisco Systems (8), Walgreen (11), FactSet Research (14), Oracle Corp (18), PepsiCo (17), Teva Pharmaceutical (16), Intel Corp (21), Medtronic (22), Danaher (26) and Wal-Mart (31).

We’ll continue to pay the most attention to these community favorites. Keep up the good hunting!

This Week at Manifest Investing (11/8/2013)


A Whole Lotta Genius Going Around …

… and with returns on the average stock up +28.7% over the trailing 12-months, a lot of people are pretty effective investors again. The stocks in this week’s update batch are up +44.7% (!) themselves so it’s been a pretty good year in some corners of energy and entertainment. Schlumberger (SLB) ranks among the worthy study candidates on a fairly short list after some turbo-charged performance. The stocks check in with a nearly overbought (RSI = 68) condition and that momentum can’t last forever. Current price pressure matches the overall average at +21.9% so if there was any “catching up” to be done (for this week’s update batch), it’s probably been done.

Companies of Interest

We’re not kidding about that year-over-year surge in this week’s stocks — and it’s a reminder of WHY WE DO THIS. Take a look at highlighted stocks from a year ago … all of these have delivered a smile or two since then.

I wish I could say that the stealth deterioration of fundamentals has stopped or is slowing — but I can’t.

Because it hasn’t.

We continue to see degradation of 2013 and 2014 forecasts while the rhinos teeter about doing Twitter cart wheels.

Materially Stronger: Air Products (APD), Helix Energy Solutions (HLX)

Materially Weaker: Konami (KNM), ValueClick (VCLK), Gannett (GCI)

Market Barometers

The median Value Line low total return forecast is 3.9%, down from 4.0% last week.

Events & Coming Attractions

For those of you in Chicagoland, Ken Kavula and I will be in town for a full day session on Saturday exploring sources of ideas, disruptive stuff and more:

There’s still room at the inn and we’ll do “standing room” if we have to … for more information:


Best wishes and Better Investing everybody.

Hallowed Round Table (October 2013)

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)


Round Table Tracking Dashboard

Red October: Forbes Best Small Companies for 2013

Value Line Low Total Return Screen (5/10/2013)

Companies of Interest

Energy companies like Schlumberger (SLB) and National Oilwell Varco (NOV) continue to offer attractive returns. No major shifts among the industries to report this week.

Materially Stronger: Host Hotels (HST), Rowan (RDC), Dril-Quip (DRQ), Cytec (CYT), Wyndham Worldwide (WYN), Vail Resorts (MTN), Sinclair Broadcast (SBGI), Lamar Advertising (LAMR)

Materially Weaker: International Game Technology (IGT), McClatchy (MNI), Monster Worldwide (MWW), American Greetings (AM)

Market Barometers

The Value Line low total return (VLLTR) forecast is 6.7% versus 6.8% last week.

Nothing to see here, go shop for some stocks, high-quality (solid financial strength)is still a pretty good idea with the median return forecast at 6.5%.

Value Line Low Total Return Screen (2/8/2013)

Market Barometers

The average Value Line Low Total Return (VLLTR) forecast is 7.3%, down from 7.7% last week.

Companies of Interest

The average low total return forecast for this issue of the Value Line Investment Survey is 6.1% — and the opportunities are a little sparse. The number of material price forecast reductions continues to outnumber the bolstered forecasts this week.

A couple of recent favorites, Schlumberger (SLB) and National Oilwell Varco (NOV) continue to be worthy of further study.

Materially Stronger: Host Hotels (HST), Helix Energy (HLX)

Materially Weaker: Harte-Hanks (HHS), DreamWorks (DWA), Scientific Games (SGMS), Hyatt Hotels (H), Monster Worldwide (MWW), Forest Oil (FST), RPC (RES)