MANIFEST – Best Small Company Preview

Screening Results (October 2015)

Best Small Company Preview

by Mark Robertson

One of the most powerful lessons we’ve learned from tracking the Forbes Best Small Company list every October is that QUALITY MATTERS. Over the long term, we want out-sized returns from our smaller, more speculative, and faster-growing companies and the best protection against the brutal downside of smaller companies is … quality.

Manifest Investing — Best Small Companies (2015)

Best Small Companies (10/8/2015). Screening results as we search for high-quality faster-growing small companies. The Forbes list will be out during October. Sorted by MANIFEST Rank (PAR & Quality) with minimum growth forecast of 12%. * – not covered in Value Line Investment Survey standard edition.

It will be interesting to see how many of the featured companies end up on the Forbes list. This is certainly a list of candidates that can bolster the overall average growth forecast of our portfolios with an average sales growth forecast of 16.3%. The average return forecast is 18.2%.

Value Line is quite a bit less exuberant with an average low total return forecast of 8.5%. Morningstar is a little more enthusiastic with an average price-to-fair value ratio (P/FV) of 85%. We take lower expectations for early stage companies with a grain of salt whenever Value Line or Morningstar are providing the analysis. S&P has an average P/FV of 82%.

The outlook for the year ahead from this group is optimistic with the ACE forecast at 24.2%, S&P at 25.3% and our Goldman Sachs benchmarking checking in at 17.6%. It’s all good.

Several of these companies have appeared on the Forbes and/or Fortune lists in the past — some actually discovered by us using those resources.

Which ones have you studied? Which ones do you own? Are any of the names new to you? Welcome to October and small company discovery. Oktoberfest is for good hunting.

December Round Table Review

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?

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

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:

Performance Results

Companies Likely To Be Discussed

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

Red October: Forbes Best Small Cos (2013)

It’s that time of year again. Red October. Some people refer to small company stocks as Red Chips and we take our annual look at one of our favorite shopping lists — a tradition that has bagged a number of extremely rewarding investments over the years.

Forbes is out with their annual list of spooky small companies, the Best Small Companies for 2013.

This year’s headliner is Questcor Pharmaceuticals (QCOR). Questcor is among eleven healthcare companies in this year’s list. Acthar is the company’s main drug, used in the treatment of multiple sclerosis, infantile spasms and rheumatic disorders. The drug accounted for the bulk of QCOR’s annual sales total.

The companies featured at the top of Forbes list are:

1. Questcor Pharma (QCOR)
2. Grand Canyon Education (LOPE)
3. Proto Labs (PRLB)
4. Invensense (INVN)
5. Sturm, Ruger (RGR)

We’ll audit, confirm, study and whittle the list down to identify our favorites and see how they compare.

But these potential future titans don’t have to be scary. As we’ve hunted down buying opportunities from this annual listing over the last several years, we’ve discovered that the best returns tend to come from the entrants with the highest quality ratings.

Dashboards Past

We obviously still like to talk about the companies featured in 2008. These are the selections we bring up at the hair salon or barber shop. There are lessons to be learned (and celebrated) in companies like Neogen (2006), DXP Enterprises (2007), Stratasys (2008), Middleby (2008), Dril-Quip (2008), Boston Beer (2008), Bio-Reference Labs (2008 & 2011), Buffalo Wild Wings (2007-2011), Carbo Ceramics (2012), FactSet Research (2008), Mesa Labs (2012), NIC (2012), Peet’s Coffee (2009), Portfolio Recovery (2007,2010-2011), SolarWinds (2011) and SS&C Technologies (2012).

We note that Bio-Reference Labs (BRLI) is now the second most widely-followed company by MANIFEST subscribers, having first appeared on this list back in 2008.

It’s interesting to see Grand Canyon Education (LOPE) near the top of the list because of the damage done by the likes of from the educational services stocks like Strayer and Capella in recent years … and Quality Systems (2006-2008,2010-2011) — a multiple selection that’s done considerable damage to the all-time results.

It’s been a good year for our Forbes Best Small Company tracking portfolios. All in all, the outperformance accuracy is 51.4% and the relative return since 2006 is +2.3% (17.4% vs. 15.1%).

Halloween: Our Cue To Haunt Some Studies

Ken Kavula noticed that Forbes had released the 2013 listing earlier this week. I hope you’re not surprised that Ken is all over this as one of our favorite small company advocates.

So we start whittling with all 100 thanks to Ken:

We’ll require a minimum growth forecast of at least 10%, a quality ranking of 80 or better, and a return forecast greater than 11%. The screening results will be maintained here:

Here’s the results of auditing the 100 candidates … a short list of companies with small company growth characteristics, exceptional quality … that appear to be attractively priced.

The difference between tricks and treats? Quality.

View From The Top Shelf

Sweet 16: Screening Results (March 2013)

This month features the top percentile of all stocks covered at MANIFEST on the basis of quality (our combination rating of financial strength, earnings stability and relative growth and profitability forecasts). It’s not the customary sixteen stocks or so … but these twelve quality champions are formidable and worthy of a closer look and automatic/perpetual pounce pile status.

Overall Market Expectations

The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 7.2% (2/28/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.

Companies of Interest

With the median return forecast hovering at 7.2%, less than the historical average and nearing historical lows, it makes sense to shop on the top shelf. If prices continue to surge absent any strengthening of fundamentals, the return forecast could get significantly lower. The subtle whittling of expectations (no slashing) continues as we begin the first quarter updates for 2013. Invest in the best (highest quality) but only when they’re suitably on sale.

The top shelf company with the highest fusion rating (combination of fundamental and technical analysis scoring) is Cognizant Technology (CTSH). Cognizant is well-positioned within its industry with a strong track record and stands to benefit as the global recession turns to recovery.

Mesa Labs (MLAB) continues to score well and is one of our favorite companies from this year’s batch of promising small companies from Forbes.

The recent price swoon in Coach (COH) leaves the company with the lowest price-to-fair value ratio (76%) from Morningstar and Standard & Poor’s (83%) among the companies on the top shelf. The price reduction also generates an annualized low total return forecast of 16.4% at Value Line. There’s a rumor floating that somebody thinks all of the purses are a bit pricey … but those crowds of trampling shoppers and a legacy of results suggests that the whole company might be worth buying. I don’t think the price tag hanging on the company is $40-something.

Those return forecasts across the board look pretty good on the top shelf … not a bad idea to start there.