USHL

Wall Street on Water … Ahead

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This Week at MANIFEST (9/23/2016)

If you’ve ever wondered what a cruise ship class room looks like, here’s Christi Powell (Oklahoma City) aboard the Holland Cruise Lines Westerdam doling out another one of her exceptional classes on common sense financial matters. This voyage had two side-by-side class rooms, attended pretty much as you see here. As you can see, it’s like any other class room — except for the glaciers, whales, salmon and Alaskan fjords out the window.

Relatively small blocks of time (1 hour each) were carved out during the cruise to present a number of investing-related classes over a span of seven days. It was the first time Manifest Investing had attended and participated in one of these efforts and we came away impressed with the potential. The pace was unhurried and attendees had plenty of opportunities over dinners and while navigating the waters to discuss just about anything. We’ll probably explore collaborating with Better Investing and reaching out to some other communities for a Boston-to-Montreal version of this cruise next year. Stay tuned for more details and please send us a note (manifest@manifestinvesting.com) if you’d be interested in exploring more details about a future cruise… and we’ll add you to the “Maybe” Manifest. (grin)

There were many highlights and we’ll continue the roll out of the handbook chapters we issued to our ship mates in days ahead.

MANIFEST 40 Updates

  • 4. Fastenal (FAST)
  • 15. Procter & Gamble (PG)
  • 31. Home Depot (HD)
  • 35. Lowe’s (LOW)

Round Table Stocks: Chicago Bridge & Iron (CBI), Fastenal (FAST), Tractor Supply (TSCO)

Best Small Companies (None this week)

Results, Remarks & References

Companies of Interest: Value Line (9/23/2016)

The average Value Line low total return forecast for the companies in this week’s update batch is 5.0% vs. 5.0% for the Value Line 1700 ($VLE).

Materially Stronger: Ethan Allen (ETH), Bemis (BMS)

Materially Weaker: Sunpower (SPWR), Tractor Supply (TSCO), Tile Shop Holdings (TTS)

Discontinued: Cablevision (CVC), Elizabeth Arden (RDEN)

Market Barometers

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 5.0%, unchanged from 5.0% 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.

Stocks to Study (9/23/2016)

The Long & Short. (September 23, 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 viawww.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.

Stock Selection & Portfolio Management September 24, 2016 at 9:00 AM ET Indianapolis, Indiana

Ken Kavula & Mark Robertson will be the featured presenters at this all-day educational workshop for long-term investors. Overview of Analysis (We’ll actually do a case study — walking through the analysis with exposure to our favorite resources and research.) Common Ground – How investment clubs take care of a portfolio. We’ll review portfolio design and discuss management considerations. What is effective stock “watching?” How can we best be vigilant for opportunities and threats to our holdings? Discovery – A demonstration of various screening resources with a look at some of our favorite resources. An Industry Study – Taking a discovery and putting it through its paces to ensure that we’re considering (or accumulating and retaining the best of the best) Let’s Talk Stocks – An interactive, audience-driven discussion of specific study ideas and case studies.

For more information: Go here.

September Round Table September 27, 2016 at 8:30 PM 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 Kim Butcher, Ken Kavula, Hugh McManus and Mark Robertson as they share their current favorite stock study ideas.

We will be continuing the discussion of the relative return-based selling guideline for portfolio management.

Registration: https://www.manifestinvesting.com/events/199-round-table-september-2016

Discovery Club

“Dump your hedge funds and explore their small-cap stock picks.”

Small cap is not necessarily small (faster-growing) companies but in general, we like the idea of a nice blend. So yes, we’re interested in hunting down some actionable ideas among the most successful investors on our radar screen — seeking companies that aren’t on too many radar screens, yet.

The discovery of smaller, promising and faster-growing companies has always been one of our favorite (and rewarding) activities. In that spirit, we’re expanding our efforts in this realm. This week, we redouble our efforts to discover some smaller, less discovered companies and add them to our coverage. The EXTENDED EDITION of the Value Line Investment Survey will be the first resource scanned and we’ll also take a look at some new positions or significant accumulations among our Best Small Company Funds starting with Brown Small Company.

But it doesn’t end with only the smaller companies, we’ll also be vigilant for opportunities flagged by reviewing the quarterly filings of idea generation resources like the Renaissance Technologies hedge fund.

This Week’s Sources and Suggestions

  • ITC Holdings (ITC) — Thanks, Marty Eckerle (Temporary Reinstatement)
  • Value Line Investment Survey

Coverage Initiated/Restored: CalAtlantic (CAA), Fonar Corp (FONR), ITC Holdings (ITC), State National (SNC)

Market Barometers (Continued)

By popular demand, it’s probably time to check in on our of favorite, albeit obscure, market barometers.

US New Highs-New Lows ($USHL)

The long-term trailing average for $USHL actually dipped below zero within the past year — and trepidation was a little more rampant. But as shown here, the storm seems to have passed.

ushl 20160921

Diligence (Weekly)

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Diligence. This week’s update provides an up-close-and-personal look at our weekly process for seeking actionable investing opportunities to study.  Our subscribers benefit from this information starting every Monday morning with the roll call, the fundamental updates and the targeted opportunities for further study.  For more on Manifest Investing, go here.

“Diligence is the Mother of good luck.” — Benjamin Franklin

“The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools” — Confucius

This week we take a closer look at our weekly report — and specifically — how we think this information is best used by long-term investors.

In a nutshell, we’re checking in on a few key areas. If you’re a shareholder or stockwatcher, we provide a synopsis of the best opportunities in the current (this week’s) update batch from Value Line. We update 1/13th of all companies every week and the best return forecasts for the week are on display in the Companies of Interest: Value Line section.

In the case of Tidewater (TDW), the Value Line low total return forecast (annualized for the next 3-5 years) is 25%.

This was based on the stock price shown ($25.57) on the date of analysis (4/28/2015).

The price is now $29.25 — part of the explanation for the 19.5% on our weekly report. The other source of a difference is that we’re constantly (every day) adjusting the time horizon in addition to the price. That $60 long term low price forecast is a fixed date. In any event, every Monday morning brings a roll call of best opportunities according to Value Line.

Why the Value Line Low Total Return (VLLTR) forecast? Because our research has found this to be the most reliable (actual results vs. forecasts) for the collective of companies covered by Value Line.

And about that $60 entry. This is where we flag opportunities and threats. Any material change (~20-25%) in this long term low price forecast (up or down) is flagged as Materially Stronger (up) or Materially Weaker (down) as we do our Monday morning roll call. If you’re a shareholder or stock watcher for a company that shows up in either roll call, consider it a nudge to see why Value Line seems to have adjusted their expectations — UP or DOWN.

We’ve begun to include direct links to snapshots or thumbnails for some of the flagged companies during these weekly updates. This week, we’ve started with Transocean (RIG) and recent Round Table selection Dril-Quip (DRQ).

When You’re Sailing … Do You Really Care About The Wind?

I think the answer is yes, but it depends. It depends on WHO you are and things like risk tolerance, life expectancy time horizons, opportunistic return maximizing, etc.

For a capital preservationist, we’d like to avoid turbulence like we saw during the Great Recession. This is the reason we track primary market barometers like the overall average return forecast. This characteristic doesn’t tell us when corrections, recessions or bear markets will happen — but it does help to gauge “vulnerability.” Higher quality stocks with higher return forecasts are more recession resistant. Period. On the opposite end, following a recession and significant correction, we “dial up” our interest in more speculative opportunities and increase our dosage of emerging, faster-growing companies.

Our barometers on parade are intended to give a few perspectives on “vulnerability.” The $USHL indicator that we display occasionally is a very broad — and seemingly fairly reliable indicator of rhino behavior. This was inspired by The Big Picture and Barry Ritholtz. You can dig a little deeper on this one at An Attempt to Identify Market Tops ($USHL).

Most of us do very, very little asset allocation — and frankly, it ain’t easy and it’s what most of the investors and asset managers foul up, contributing to overall negative relative returns on average for the average rhino.

That said, Nicholson counseled that when it gets extremely challenging to find stocks to buy or accumulate, it is acceptable (and potentially incrementally rewarding) to build a war chest of cash equivalents to go shopping after the recession and stock price correction has blasted stocks back to elevated return forecasts.

Our Consensus Perspective

While the Monday morning roll call is limited to the Value Line update batch and our efforts to flag threats and opportunities, we reach out and check forecasts and judgments at places like Morningstar, Standard & Poor’s, Analyst Consensus Estimates (finance.yahoo.com) and Goldman Sachs. We audit and update these various resources to generate the Stocks to Study. This list is always sorted by MANIFEST Rank, our combination ranking of return forecast and quality … and we generally limit the field to the top decile or top 5 percentiles of the stocks in the 1/13th update batch.

Polaris Industries (PII) provides this week’s example of deeper digging in the snow … and beyond the snowmobiles for the company. Did you know that snowmobiles account for less than 10% of annual revenues?

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 5.6%.

Materially Stronger: Transocean (RIG), Air Products (APD), Hilton Worldwide (HLT), Penn Gaming (PENN), Scientific Games (SGMS), Cambrex (CMB)

Materially Weaker: Wynn Resorts (WYNN), Input Output (IO), National Oilwell Varco (NOV), Melco Crown (MPEL), Oasis Petroleum (OAS), Dril-Quip (DRQ), Oceaneering International (OII), FMC Techologies (FTI), Interpublic Group (IPG), Carbo Ceramics (CRR)

Standard Coverage Initiated: [G-III Apparel (GIII)]

Discontinued: Konami (KNM)

Market Barometers

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 3.6%, unchanged from 3.6% 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.

$USHL: Watching Rhino Walk, Not Rhino Talk. If you believe supply-and-demand matters (and you should) then the collective actions of the herd have bearing. By monitoring the relationship of new highs vs. new lows, we get an early warning clarion that signaled as Halloween 2007 approached. Current $USHL is weakening as the Sell-In-May-And-Go-Away herd begins to hold sway. We’ll be vigilant for this broad sentiment indicator to break 100 on the long-term moving average and/or break into negative territory.

Stocks to Study (5/8/2015)

Seeing fairly significant increases in the 1-year analyst consensus estimate for companies like Baker Hughes (BHI) and Schlumberger (SLB).

  • Polaris (PII) — Highest MANIFEST Rank
  • Wynn Resorts (WYNN) — Highest Low Return Forecast (VL) with Quality Rank > 60
  • Wynn Resorts (WYNN) — Lowest P/FV (Morningstar)
  • SeaDrill (SDRL) — Lowest P/FV (S&P)
  • Harte Hanks (HHS) — Best 1-Yr Outlook (ACE)
  • FMC Technologies (FTI) — Best 1-Yr Outlook (S&P)
  • Wynn Resorts (WYNN) — Best 1-Yr Outlook (GS)

Stocks to study 20150508

Undervalued Stocks: Dirty Dozen

Many of you are familiar with the Stock to Study / Undervalued feature in every monthly issue of Better Investing.

During the years I served on the stock selection committee, there were times when we wondered about the basis for the undervalued selection — in some cases, it seemed like the runner up to the Stock to Study selection.

But the intent was to identify a stock with either (1) a near-term, 12-18 … perhaps even 24 month catalyst that could lead to outsized returns, or (2) a stock that had been beaten down so badly that the return forecast was elevated. In some cases, stocks that would struggle to qualify for the core constituents of our portfolio were included.

The Dirty Dozen will be a version of this. In this case, the field is limited to stocks with quality rankings above 50 (above average) and with the highest return potential based on the difference between current price and the analyst consensus target price. It should be obvious that the 1-year horizon is pretty squishy so we won’t be doing any calculations out to four decimal places. [Grin]

In this case, for this week, it’s fascinating and coincidental that a stock mentioned by the Manifest Investing door prize subscription at last weekend’s StockFest 2015 in Grand Blanc would be the featured stock, Rockwell Medical(RMTI). This promising and potentially emerging Wixom, Michigan company is possibly worthy of a spot on our speculative radars. Our prize winning investor holds a significant number of shares and is hoping the company emerges and makes like a roman candle — at least for a while.

The other important aspect of our Dirty Dozen is that it extends outside the update batch for the week. The universe is all companies (~2400) covered by Manifest Investing.

Great Pumpkin Realities

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Photo Credit: wash52121 via Compfight cc

One of the reasons that we do this is that sometimes we discover a really great pumpkin.

There are no guarantees … and the Great Pumpkin doesn’t seem to come every year. But our relentless emphasis on the quest for high-quality companies with promise that seem to offering superior long-term returns is never dull. And it can be rewarding. As a case in point, we’ve featured United Electronics (UEIC) a couple of times over the few years of quarterly updates. It’s a stock that Ken Kavula frequently mentioned with respect to his investment club, his Groundhog (stock picking contest portfolio), educational sessions … and he mentioned it often during 2008 and early 2009 at price levels of $12-15.

Earlier this year, with UEIC at $18.82 … we suggested that while locating the remote for the Super Bowl that we also study and consider the company. See: Seen The Remote?. UEIC is up 104.6% since January. We mentioned it again at $16.85 during the 4/23/2012 weekly update batch.

They don’t always work out that way. And we’re interested in the pumpkin patch versus isolated incidents, successful and not-so-successful. What does it all add up to? In future updates, we’ll start tracking some of the long-term results achieved by the companies in this weekly presentation of quarterly updates. Leaning on the positive relative returns of your most widely-followed MANIFEST 40, Solomon Select, Tin Cup and other demonstrations like the BareNaked Million, we think we’re going to like this pie.

(By the way, the BareNaked Million — $1,000,000 invested in a relatively passive portfolio back in December 2006 — topped $2,000,000 last week.) Huzzah!

Companies of Interest

The pumpkin pickins are actually a little slim. The average Value Line low total return forecast for the Issue 10 group is 3.9% — matching the Value Line universe of approximately 1700 stocks. But there are some worthy growth and return studies in the patch.

Calavo Growers (CVGW) was among the Forbes Best Small Companies for 2013. The quality ranking and return forecast merit a closer look. Synchronoss Technology is back (again) and we’ll take a closer look at this company this week. Strayer Education (STRA) just might be an opportunity to explore painful lessons learned by long-term investors (specifically, me) if I can muster the courage to talk about it.

Materially Stronger: Activision Blizzard (ATVI), Treehouse Foods (THS), Bridgepoint Education (BPI)

Materially Weaker: RealD (RLD), Corinthian Colleges (COCO), The Pantry (PTRY)

Market Barometers

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

This is a multi-year low for this indicator … at least the lowest level on the accompanying chart, so we’ll take a look at a more extensive parade of market barometers this week.

We start Market Barometer roll call with our median return projection (MIPAR). This parameter is a “first cousin” of VLLTR, but includes a wider berth of stocks — some 2400 in total and will generally include a few more smaller companies. The long-term return forecast is now 5.6%, still slightly above the historical lows reached back around Halloween 2007.

Checking in on the overall trends of the Wilshire 5000 (VTSMX), we find it relatively overbought (RSI = 77.9) with the caveat that markets (and individual stocks) can remain relatively overbought for a long, long time. We also note that the 12-month change for VTSMX is now 28.2%! The pins-and-needles are a whole lot easier to take when momentum is solid. Again we suggest that the momentum indicator (ROC) back in the 2004-2007 time frame provided “cover” during a period when the market was frothy for an extended period. There’s a substantial dose of “covering momentum” under current conditions. If that breeches 0% — as it did circa Halloween 2007, we’ll sound the alarm for DefCon 2 (at least.)

We use the overall New Highs vs. New Lows ($USHL) long-term trend as another confirming indicator. Again, check out the sub-zero trend back at Halloween 2007 and compare versus current healthy levels.

Morningstar provides a price-to-fair value (P/FV) ratio on their universe of covered stocks. For more, see: http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx This is even more reinforcement. Note the 114% P/FV ratio back in the middle of that long period of overbought stocks. Stocks (and markets) can get significantly overbought during periods when they’re generally overbought for extended periods.

Sam Stovall of Standard & Poors recently suggested that a case could be made for an overall market price-to-fair value of 1742.92/1820 or 96%.

Investors in capital preservation mode should take note that the Value Line recommended asset allocation to cash/cash equivalents is relatively high at 40% — holding at levels suggested since July 2013, a sign that Value Line analysts believe the market is vulnerable to a significant correction.

If there’s a chance that the Transports (yes, channeling some Dow Theory) could be an early warning system … there’s no sign of a current alarm:

Taking a look at some specific Transports, the overall average is still pretty close to the median market return with relatively few signs of weakness. The return forecast on FedEx (FDX) is a little weak (PAR = 1.7%, RSI = 75.7% and 12-month ROC = 39%) consistent with an overheated trailing 12-months. We’ll be watching for incremental strengthening in fundamentals for FDX with the next update.

There’s been no shortage of articles shoveling dirt on the consumer in recent days and weeks. With an RSI of 84 (overbought) it’s easy to see why. Many of these stocks are probably vulnerable (temporarily overbought) and it’s a self-esteem opportunity for some pundit, talking head or financial journalist when one of them — or a couple of them — take a 20% smackdown. But it’s the long-term that matters, and there’s considerable momentum here in the face of some widespread de-leveraging by American consumers.

Bottom Line

The market and many individual stocks are overbought, in some cases temporarily overbought … and the fundamentals continue to weaken slightly while stock prices trudge ahead. Based on the momentum trends shown in some of our favorite indicators, we’ll be unsurprised by corrections. The stocks and market are vulnerable to some speed bumps. And we’ll be watching for any breakdown in the $USHL indicator. For now, seek the highest-quality stocks in the pumpkin patch and avoid settling for lackluster return forecasts. Those in capital preservation mode might consider selling lower-quality stocks with return forecasts less than MIPAR for sources of funds and elevate your cash equivalent component. For the young and adventuresome, or those well beyond “critical mass”, shop in earnest and let us know if you discover any Great Pumpkin opportunities!