On Recessions (State of Investing)

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

If there’s one image that captures the State of the Investing “Union”, this is one of the more important flavors. Recessions massacre profitability and explode Stock Selection Guides (2008-2009). Companies with weak profitability dip below zero and EPS “disappear.”

Value Line Arithmetic Average Companies ($VLE) ex-Financials. This statistic covers the industrials and excludes the asset-based companies where we focus on ROE.

One of the biggest reasons that the 2016-2017 period for the bull market was so “empty” for most investors is because of the recessionary conditions that materialized in some segments, rolling corrections. With the tax law revisions for 2018 and beyond, we’ll be carefully monitoring the additions of 2020 and 2024 estimates to our studies as Value Line ratchets their data arrays one year during upcoming Issue updates.

All Of The Above Investing

This Morning’s Powerful Reminder About All-Of-The-Above Investing. We build and maintain portfolios with a sufficient number of small and medium-sized companies such that the overall growth forecast (weighted average) is approximately 11%. This assures that we’ll have a suitable balance of promising faster-growing smaller companies and large core/blue chip stalwarts.

$100 invested in the S&P 500 on 6/13/1997 would now be worth $314.85. (5.9%)

$100 invested in the Value Line 1700 Arithmetic Average ($VLE) would now be worth $820.50. (11.1%)

Huge Expectations (An Update)

Value Line 1700 (x-Financials)

We’ll monitor this as we roll along the data array updates over the next several weeks of update batches. But the early returns do show quite a bump in expectations for 2018 and 2021. Here’s an update through 4/28/2017.


  • This is a work-in-progress. Think of it like “exit polling” with 85% of “precincts” reporting as we’ve logged the forecasts for 2018 and 2021 for issues 1-11 so far.
  • The sales bump for 2018 seems a little less significant, but still material. It will be interesting to see if it persists and if the 2021 expectations remain elevated above the long-term trend.

Huge Expectations

We’ll monitor this as we roll along the data array updates over the next several weeks of update batches. But the early returns do show quite a bump in expectations for 2018 and 2021.


  • This is a work-in-progress. Think of it like “exit polling” with 30% of “precincts” reporting as we’ve logged the forecasts for 2018 and 2021 for issues 1-4 so far.
  • The sales bump for 2018 is significant and material. It will be interesting to see if it persists.
  • The long term growth trend has been “bent” back to 3.5-4.0% with the optimism. As shown, growth in the “New Normal” has been pretty close to zero.
  • The recessionary conditions for 2015-2016 become a little more obvious here. Although not an official recession, profitability lagged for many companies in recent years. We also see the traditional Value Line analyst optimism in the 3-5 year forecasts for net margin.
  • Average P/E forecasts for 2017 seem a little elevated but not as much as we read and hear from the pundits. If the exuberant forecasts from the rhinos materialize, the burst of EPS (E) will do a lot for the P/E equation. We also note that the 3-5 year P/E forecasts are not “outlandish” and suggest at least a semblance of moderation for the long term outlook, company by company.

March Madness

This Week at MANIFEST (3/13/2015)

March. “Madness … takes its toll.” — Riff Raff

The name “Hebron” traces back to a range of meanings from “colleague”, “unite” or “friend”. In the proper name Hebron, the original sense may have been alliance. Invest With Your Friends.

From 1908-1971, the Illinois boys high school basketball championship was a single tournament contested by nearly all high schools in Illinois. The Illinois High School Basketball Championship was the first tournament to be called ‘March Madness’. The term was first used about the Illinois tournament in 1939, decades before it was used about NCAA basketball tournament.

The movie Hoosiers was preceded by these real events from across the state line in Illinois. In 1952, the Hebron Green Giants (from a high school with a total enrollment of 98) defeated Quincy in a real David and Goliath story.

But that doesn’t stop us from fondly remembering the scene where Gene Hackman and his high school boys arrive at Butler Field House for the state championship game. Hackman has players measure the distance from the basket to the free throw line and the height of the basket, demonstrating to the players that everything is “the same as our gym back in Hickory.”

Our methodology is based on measuring and monitoring the sales growth forecast, profitability expectations and projections for a reasonable, considered average P/E ratio in the future for all companies that we analyze. This is how we do.

Equally important is to make sure that we’re prudent. This requires diversification across sectors and industries like everybody else out there building portfolios in the investing world. But we emphasize — on a higher level — the urgency of diversifying such that our blend of companies will produce an average sales growth forecast (plus or minus a percent or two) of 11-12%. So in our investing world, the “Hebrons” are as important as the Quincy entries.

And in the spirit of Gene Hackman’s Coach Norman Dale, measuring what matters is what really matters.

Our Periodic Reminder About “All-Of-The-Above” Investing

While the rest of the world hyperventilates over NASDAQ 5000, we’ll be watching for a different 5000 — that being the 5000 level for the Value Line Arithmetic Average. We think the overall performance of the Value Line 1700 stocks over time is a powerful reminder of the common sense wisdom to achieve and maintain diversification by average overall portfolio growth rate (company size).

The 10-year rate of return on the Value Line 1700 (Arithmetic Average) is (4806.57/1771.3) = 10.5%

The 10- year rate of return on the S&P 500 (VFINX) is (191.73/91.60)^(0.1)-1 = 7.7%

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 4.0% — slightly higher than the 3.6% for the Value Line 1700.

Materially Stronger: Seattle Genetics (SGEN), TCF Financial (TCB), U.S. Steel (X), Fifth Third Bancorp (FITB), ACE (ACE), Private Bancorp (PVTB), Biomarin Pharma (BMRN), Cerner (CERN)

Materially Weaker: Arcelor Mittal (MT), Schnitzer Steel (SCHN), Kennametal (KMT), Brookdale Senior (BKD)

Standard Coverage Initiated:

Discontinued: Alliant Techsystems (ATK), Orbital Sciences (ORB)

Market Barometer

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%, up slightly from 3.5% 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.

All-Of-The-Above Investing

Your Tuesday morning reminder as to why we practice All-Of-The-Above investing … investing in a diversified mix that includes small (rapidly growing), medium and large companies. We target and remain vigilant using the overall sales growth forecast (10-12% top line growth) of our portfolios.

You may ignore that anchor or talking head who used the Dow Jones Industrial Average to tell you how much your 401(k) “LOST” yesterday.

^vay price chart 20140204