VLLTR

This Week at MANIFEST (7/31/2015)

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A Wooden Anniversary!

It’s “one of those weeks” as we celebrate five years of monthly Round Table webcasts during our July session on Tuesday night, July 28th at 8:30 PM ET. Anyone and everyone is invited as we’ll take a look back at five years of selections and celebrate a tracking portfolio that is beating the overall stock market. Our intent is to share a few actionable ideas every month — and keep track while demonstrating a time-honored approach to stock analysis (discovery and selection) that has served our community of investors for more than 70 years.

Round Table Tracking Portfolio: https://www.manifestinvesting.com/dashboards/public/round-table

Event Registration: https://www.manifestinvesting.com/events/174-round-table-july-2015

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 5.3% — slightly higher than the 4.5% for the Value Line 1700.

Long term forecasts were relatively stable with very few material changes in outlook. Please be reminded that some “upgrades” move stocks from “consider selling” classifications to a “weak hold.” This is likely the case with Foot Locker, Ulta, American Eagle and Zoetis. Fundamentals strengthened but still remain potentially overvalued, just not as much.

Materially Stronger: Dollar Tree (DLTR), Sempra Energy (SRE), Foot Locker (FL), Ulta Salon (ULTA), American Eagle (AEO), Zoetis (ZTS)

Materially Weaker: Weight Watchers (WTW), Francesca’s (FRAN), Sears Holdings (SHLD)

Standard Coverage Initiated:

Discontinued: Mead Westvaco (MWV), Babcock & Wilcox (BWC), Family Dollar (FDO)

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 4.5%, up from 3.8% 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 (7/31/2015)

  • Fossil (FOSL) — Highest MANIFEST Rank
  • Weight Watchers (WTW) — Highest Low Return Forecast (VL)
  • Coach (COH) — Lowest P/FV (Morningstar)
  • Iconix Brands (ICON) — Lowest P/FV (S&P)
  • Kate Spade (KATE) — Best 1-Yr Outlook (ACE)
  • Kate Spade (KATE) — Best 1-Yr Outlook (S&P)
  • Sempra Energy (SRE) — Best 1-Yr Outlook (GS)

Note: The price targets from Goldman Sachs are from public releases and represent a partial sample. The price target is logged as of the most recent public analyst report. Although every effort is made to keep this information as current as possible, some of the ratings may not reflect more recent research and updates.

End of an Era

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This Week at MANIFEST (6/5/2015)

The End of an Era

For the last several years, I’ve shared the story about proper storage, layup and preparation and the joy it delivered as my annual tug-of-war with the grass cutting machine nearly killed me. And then some words of wisdom from my Dad, “Run it dry when you shut down in November” put an end to the agony.

2014 was the tenth year in a row.

Result? A first pull start for a decade or so. This is an amazing thing.

This year, that wonderful streak came to an end. The prep was sufficient and I even changed the oil, bought the best gas, etc. — but I may have primed one too many pumps of the bulb.

But it started on the second pull this year!!! We’ll take that as almost as good. There’s no comparison to the brutal wrestling matches of yore or trips to the repair shop of the past.

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 5.7% — higher than the 3.7% for the Value Line 1700.

Materially Stronger: Balchem (BCPC)

Materially Weaker: Peabody Energy (BTU), Chesapeake Energy (CHK), Gulfmark Offshore (GLF), Encana (ECA), Ruckus Wireless (RKUS), Itron (ITRI), EOG Resources (EOG)

Standard Coverage Initiated:

Discontinued: Arch Coal (ACI), Alpha Natural Resources (ANR), Penford (PNX), Aruba Networks (ARUN)

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 3.7%, unchanged from 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 (6/5/2015)

  • Alliance Resource Partners (ARLP) — Highest MANIFEST Rank
  • Southwestern Energy (SWN) — Highest Low Return Forecast (VL)
  • Peabody Energy (BTU) — Lowest P/FV (Morningstar)
  • Consol Energy (CNX) — Lowest P/FV (S&P)
  • Alliance Resource Partners (ARLP) — Best 1-Yr Outlook (ACE)
  • Chesapeake Energy (CHK) — Best 1-Yr Outlook (S&P)
  • Phillips 66 (PSX) — Best 1-Yr Outlook (GS)

Market Barometers (Continued)

Is “Winter” Coming?

I don’t know. But the combination of a declining $USHL — remember, the number of 52-week highs crests well before a bear market, much like the first signs of falling leaves in Autumn — with the historical low overall return forecasts is cause for vigilance. I’ve started exploring some of the work of Harry Dent, the demographics-centered economist. Dent’s forecasts back in the 1990s certainly merit a closer look because he’s concerned about the outlook for 2015 and 2016. Stay tuned.

In the meantime, quality is your friend. When buying, demand high quality and leadership financial strength.

It’s Quiet. Too Quiet?

During an investment club visit this morning, one of the experienced investors made an observation about the relative lack of volatility in the market right now. My answer was framed around the reality that lower volatility generally leads to lighter paychecks on Wall Street (traders can make more money with more amplitude and frequency in both directions) and that if anything — being “too quiet” is actually disquieting for long-term investors because the rhinos can get restless and go on a misbehaving rampage. It’s the type of condition that fostered the leverage insanity of a few years ago and let’s face it, very little has actually been remodeled or remedied since those tumultuous days a few years ago. $VIX is a measure of general volatility and we see the quiet-too quiet days of 2007 which led up to the Great Recession and the current conditions.

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.

When Irish Cows Are Smiling

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This Week at MANIFEST (3/20/2015)

“There is little value in the single cow.” — Irish Proverb

“Any man who owns a cow can always find a woman to milk her.” — Irish Saying

Happy St. Patrick’s Day, Daniella!

After spending last weekend in Chicago with some Badgers, Spartans, Buckeyes and various other varmints, I was reminded that Chicago starts St. Patrick’s Day early with a parade on Saturday. The streets were packed with throngs of green-clad celebrants and we watched as the Chicago River was dyed green in compliance. I’m not sure I understand the difference between an Irish proverb and an Irish saying … or what is the meaning behind the bovine suggestions here. But given a choice, I think every portfolio needs more than one cow to avoid the adverse effects of cow tipping.

Chicago also honors a famous cow with a play every March, “When Irish Cows Are Smiling.” Set in March 1872, five months since the Great Chicago Fire, the MOO-morial service, held at the Diggum, Deepe & Dye Funeral Parlour, pays tribute to Mrs. O’Leary’s cow, Daniella Joy, the infamous firebug.

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 3.9% — slightly higher than the 3.7% for the Value Line 1700.

Materially Stronger: Gentex (GNTX), Synaptics (SYNA), Drew Industries (DW)

Materially Weaker: Avon Products (AVP), Windstream (WIN), Titan International (TWI), Cincinnati Bell (CBB)

Standard Coverage Initiated: Balchem (BCPC)

Discontinued:

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 3.7%, up slightly 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.

Stocks to Study (3/20/2015)

  • LKQ Corp (LKQ) – Highest MANIFEST Rank (100)
  • Neustar (NSR) – Highest Low Return Forecast (VL)
  • Express Scripts (ESRX) – Lowest P/FV (Morningstar)
  • Neustar (NSR) – Lowest P/FV (S&P)
  • Bioscrip (BIOS) – Best 1-Yr Outlook (ACE)
  • Neustar (NSR) – Best 1-Yr Outlook (S&P)

Breaking News: Rite-Aid (RAD) actually has a financial strength rating (2%). While Value Line maintains its “C” (0%) rating on Rite-Aid, Morningstar checks in with a “C” … and the effective interest rate is still steep at 6.8% but it is better than it was!

This Week at MANIFEST (12/5/2014)

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Wild Rides, Cyber Monday!

That dull thud we all heard over the Thanksgiving holiday was the energy sector turkey. As shown above, the energy sector took it on the chin to the tune of an 11% swoon as OPEC maintained production levels providing some hefty turbulence. As the following two charts illustrate, few companies in the group were immune from the carnage. Exxon Mobil (XOM) is actually one of the tamer examples from the sessions as these 5-day charts show the disruption.

But it appears that Monday is already bringing some relief … or at least a frozen turkey bounce for some of the higher quality companies in the group …

This week’s update batch (Issue 3 in the Value Line Investment Survey for those keeping score) includes a number of the affected companies. We note several things. First of all, the forecast fundamentals for a number of these companies were already being trimmed by the Value Line analysts. It will be interesting to watch over the next quarter to see if expectations continue to be reduced. We’ve often noted a bifurcation between Morningstar and S&P when it comes to the cyclical stocks — particularly in the energy industry. In this case, Friday’s swoon delivers a price-to-fair value ratio of 91% at Morningstar, essentially screaming something on the order of a Black Friday rush. S&P says “not so fast.” The S&P price-to-fair value ratio is actually greater than 100% (101%) and S&P has been steadily and materially reducing their fair value estimates for the energy stocks over the last few weeks and months. We tend to favor the S&P cyclical expertise in a tiebreaker … so we’d urge caution and an insistence on high-quality during opportunity shopping.

As Hugh has pointed out, BP (BP) was among the tumblers and probably rates fairly well as a long-term opportunity. Exxon Mobil (XOM) is among the study candidates also along with some of the other integrated blue chippers. Keep in mind that Hugh normalizes versus the 52-week low, seeking opportunities when stock prices are near their trailing 52-week lows. Hugh’s spreadsheets compare current prices to their 52-week lows. The accompanying charts for S&P and Morningstar do the same thing — but the comparison is between the current price and the fair value. Less than 100% is potentially attractive, unless it gets “too low.” Stocks in the sweet spot would likely fall into a P/FV ratio of 80-90% representing a discount to fair value of 10-20%.

Coming Events and Attractions

We will catch up on the final November columns and we’ll be out with the December issue of Expected Returns this week.

We’ll continue our expanded coverage of the update stocks this month as part of our quarter long test drive of this feature and the studies and shared ideas it delivers. Please tell us what you think and feel free to join in the Forum discussions for the deeper dives on some of the stocks.

Save the Date: The December Round Table will be held on December 30 at 8:30 PM ET. Register via: https://www2.gotomeeting.com/register/256833802

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 2.8%.

Materially Stronger: Zebra Technologies (ZBRA)

Materially Weaker: Rhino Resource Partners (RNO), Clean Energy Fuels (CLNE), Gulfmark Offshore (GLF), UGI (UGI), Kronos World (KRO), Marathon Oil (MRO)

Coverage Initiated: Methanex (MEOH), Concho Resources (CXO)

Discontinued: Walter Energy (WLT)

Companies of Interest: Morningstar

The average price-to-fair value (P/FV) ratio at Morningstar for the companies in this week’s update batch is 91%!

It will be interesting to see if the Morningstar analysts make any downward adjustments in fair value for the energy stocks during this turbulent ride.

Southwestern Energy (SWN) checks in at 55% — a stock that Morningstar apparently believes is significantly undervalued.

Companies of Interest: S&P

The average price-to-fair value for the companies in this week’s update batch is 101% — according to S&P.

There are always a couple of things to check during a swoon. One is whether the perceived opportunity is too good to be true. Companies with P/FV ratios less than 70% … or PAR values greater than 16% come to mind. The other is when companies are guilty by association when they don’t deserve it. Is it possible that Imperial Oil (IMO) should be less affected?

Ecolab (ECL) makes the S&P short list at a P/FV of 89% and a quality ranking of 86 — suggesting that it may be worthy of further study.

Market Barometers

The median Value Line Low Total Return (VLLTR) Forecast is at 3.7% — unchanged from 3.7% last week.

Stocks to Study

The following update stocks are ranked in the top 10th percentile of all companies we follow (MANIFEST Rank > 90) and this display provides a wide berth of dueling opinions, as usual.

All Right. All Right. All Right. AMEN!

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All Right, All Right, All Right … AMEN!

It was vintage Matthew McConaughey on Sunday night as he thanked God first for his Best Performance by An Actor in a Leading Role in his acceptance speech. (You could have heard a pin drop in the Hollywood audience.)

We have noted here previously that McConaughey nearly stole the show at Wolf of Wall Street despite a sparse few minutes at the very beginning of the movie. I will also confess that I was relieved that Leonardo, Jonah Hill, Meryl Streep and Julia Roberts remained in their seats all Sunday night. Maybe there’s more to thespian excellence than a spewing epidemic of the F-word.

I have not seen Dallas Buyer’s Club, recipient of several awards including Matthew’s but I probably will. Our own buyer’s club, this community of long-term investors, celebrated its own annual achievement awards this past weekend too. Manifest Investing and the Mid-Michigan chapter of NAIC teamed up to present this year’s red carpet, black tie, and latte-toting pajama party on Saturday morning. The Guest Knights (Herb Lemcool, Matt Spielman and Nick Stratigos) stole the show and the Audience toted home their first Golden Knight. It won’t be their last. The Wisdom of Crowds, Communities and Clubs is formidable, indeed. The awards for 2013:

  • Best Stock Selection (2013): Audience Choice, Ken Kavula, Cy Lynch for Priceline (PCLN)
  • Best Stock Selection (All-Time): Hugh McManus for Southwest Airlines (LUV)
  • Best Picture: Mark Robertson for Crossing Wall Street, highlighting the exploits of one Eddy Elfenbein
  • Best Accuracy (2013): Guest Knights Herb Lemcool and Matt Spielman
  • Best Accuracy (All-Time): Guest Knights Herb Lemcool, Matt Spielman & Nick Stratigos
  • Best Relative Return (2013): Ken Kavula
  • Best Relative Return (All-Time): Guest Knights Herb Lemcool, Matt Spielman & Nick Stratigos

A wonderful community steeped in collective (and shared) wisdom. Join us for the next Round Table on March 25.

All right. All right. All right. AMEN.

Companies of Interest

I have troubling drumming up much excitement for Issue 3 of the Value Line Investment Survey.

Maybe it’s the average Quality Rank of 57. Or the average EPS Stability of 55.

This week’s update batch is chock full of companies that get whipsawed by economic tides … and that makes them non-core in our investing universe. There are a few exceptions — like some of the specialty chemical companies, some of David L. Babson’s places to remain vigilant for price swoons. But for the most part, these companies can be treacherously volatile on the operating performance side. And that obviously translates to the stock prices. It’s generally a pretty good idea to double check against S&P fair values for the companies in this batch.

Materially Stronger: Interdigital (IDCC), Chesapeake Energy (CHK), Avery Dennison (AVY), Magellan Midstream (MMP), Zebra Technologies (ZBRA), Minerals Technology (MTX)

Materially Weaker: Encana (ECA), American Vanguard (AVD), Arch Coal (ACI), Boardwalk Pipeline (BWP), Alpha Natural Resources (ANR), Walter Energy (WLT)

Morningstar P/FV Nudges

The average price-to-fair value (P/FV) for the companies in this week’s update batch — according to Morningstar — is 99%.

S&P P/FV Nudges

The average price-to-fair value (P/FV) for the companies in this week’s update batch — according to S&P — is 115%. (!) The two research giants clearly have a difference of opinion this week.

Market Barometers

The average Value Line low total return forecast held steady at 3.4%, unchanged from last week.

Coming Attractions

This coming Saturday (March 8), we’ll spend some time with the retirement savings plan for government employees in a FREE webcast. We’ll take a look at the items on the menu — as we do for any qualified plan — take a look at how these components have performed, and some perspective on the outlook.

Time: 10:30 ET

Please feel free to share this opportunity with friends and family who have access to the Thrift Savings Plan. “Seating” is limited.

Registration: http://www.manifestinvesting.com/events/146-a-few-moments-with-thrift-savings-plan-march-8-2014

Happy Valentine’s Day, MANIFEST Nation!

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Rolling Over … Watching 2015 Roll In

Happy Valentine’s Day, MANIFEST Nation!

With Issue 13 of the Value Line Investment Survey landing this week, we’ll soon be getting our first look at some of those 2015 sales and earnings forecast — likely starting next week.

We’d like to be able to say that the carnage has abated, but we can’t. The stealthy reductions in expectations continue and the 2014 forecasts are considerably weaker to start the year than we generally see. Keep in mind that these forecasts have historically eroded from optimistic starting gate positions that steadily get smaller as the calendar pages turn. It’s a pretty unusual year where this is not the case.

We also note the population of Materially Weaker companies continues to exceed the Materially Stronger based on quarter-over-quarter changes in the Value Line long-term forecasts. We would not have been surprised to see this slow down a bit, but as displayed below, the number of weakening situations continues to outpace opportunity.

Here’s a look at the Net Profitability profile and trend for the Value Line industrials as 2013 locks in (actual results) and readies for the 2015 roll call. It’s not horrific, but it is one of the reasons I still say that people who spoke and respected recessionary pressures during 2013 were at least partially right. The current economic recovery, although steady, is still quite lackluster.

Companies of Interest

We’ll do a quick profile of KKR (KKR) based on the Value Line low total return forecast and solid overall condition of the company. We also note that Cognizant Technology (CTSH) and Infosys Tech (INFY) continue to portend better days ahead.

Western Union (WU) is favored at both Morningstar and S&P in this week’s batch and it has served Kim Butcher quite well as a long-time Round Table selection.

Materially Stronger: LinkedIn (LNKD)

Materially Weaker: EZCorp (EZPW), Mantech International (MANT), Federated Investors (FII), Amazon (AMZN), Fusion-io (FIO)

Morningstar Price-to-Fair Value Nudges

The average P/FV for the companies in this week’s update according to Morningstar is 108%.

Standard & Poor’s P/FV Nudges

The average P/FV for the companies in this week’s update according to S&P is 100%.

Market Barometers

The Value Line low total return forecast is 3.2%, up from 3.0% last week.

This Week’s Study Stocks (2/7/2014)

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Groundhogs, Start Your Engines!

All evidence to the contrary, there was apparently a football game yesterday? (Seriously … Congratulations to the Seattle Seahawks, Super Bowl XLVIII Champions.)

Speaking of Roman numbers… today we launch Groundhog Challenge VIII, our annual stock picking contest for individual investors and investment clubs. It’s not for the faint of heart. The Broad Assets club of St. Louis rang up a 110% total return for Groundhog VII, taking home group honors … and Andy Pagorek of Chicago picked five stocks that all beat the market, 5-for-5, with an overall total return of 77%.

We raise a glass — or a groundhog — and we press on.

This year’s selections can be found at: http://www.manifestinvesting.com/groundhog_scoreboard/2014

Participants select a minimum of five (5) stocks/funds with a maximum of (20). $1,000,000 is invested as of 2/2/2014 and the sage selections are allowed to simmer, undisturbed until 2/2/2015 when next year’s champions are crowned.

It can be interesting to scroll through the selections seeking study candidates … and we’ll do some of that in the forum this week. It’s part of launching a new approach to airing out more studies, etc. We’ll highlight items of interest and we hope that our like-minded investors will share observations, opportunities and threats about the stocks in the weekly updates as 2014 unfolds. You are all invited and welcome to share, inquire and inspire as we all try to make each other better long-term investors. The long-term results for the Groundhog Challenge don’t lie.

Dan Hess and I both were skeptical about the markets being vulnerable to a correction, even a fairly deep correction, a year ago. We both selected some hedges and cash equivalents. The result is that neither of us landed on the leader board. (Yes, that’s some serious sugar coating.) What I think we did learn was to condition and pay less attention to single/isolated momentum indicators like relative strength index. We may been more early than wrong … and Jim Stack shared reluctant expectations (higher vulnerability than even one year ago) with recent audiences.

It’s interesting to note that Dan has selected a number of energy stocks for his 2014 entry and selections.

Issue 12 is chock full of some of these companies like Schlumberger (SLB), National Oilwell Varco (NOV) and Transocean (RIG). And Dan is likely hoping that Value Line is right — most of these are near the top of a listing ranked by low total return forecast. And Morningstar is pretty energized about these stocks, too. But as we’ve pointed out in the past, S&P is less exuberant about these energy stocks — a little more selective, but the fair values at S&P are generally lower than Morningstar.

Dan also added a couple of emerging market exchange-traded funds … another area that we’ve featured in the fund column over the last few months. See the ETF Manifest we’ll be publishing with the February newsletter. I’ll probably go Groundhog shopping around the world also.

Companies of Interest

The companies in the Issue 12 update for the Value Line Investment Survey are as stratified as anything I’ve ever seen. The overall average low total return forecast is a paltry 3.0%. But there’s a John Wayne-sized blaze of opportunity at the top of the return forecast sort. These are on full display in the accompanying graphic.

At the same time, nearly half of the companies in this week’s batch have sub-zero long-term low total return forecasts.

Materially Stronger: Monsanto (MON), Scientific Games (SGMS), Gannett (GCI), World Wrestling Entertainment (WWE)

Materially Weaker: Forest Oil (FST), Harte-Hanks (HHS), Konami (KNM)

Morningstar Price-to-Fair Value Nudges

The average price-to-fair value for the companies in this week’s update according to Morningstar is 99%.

S&P Price-to-Fair Value Nudges

S&P is less optimistic about many of these companies … the overall (average) P/FV for the companies in this week’s update is 110%.

Market Barometers

The Value Line low total return forecast for the standard edition coverage is 3.0%, up from 2.7% last week.

Saturday Sunrise … Tribute To A Ritual

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I’ve written in the past about Saturday mornings and a ritual that included a reflective walk to Starbucks to consume some caffeine and the newest issue of Barron’s for the week. It was early in my discovery of long-term investing … an exploration that led to the formation of a family and friends investment club back in Wheaton, Illinois in the early 1990s.

The destinations experienced since those days are nothing short of remarkable. Our children were fortunate that they were born before they could be named Cisco or Oracle. (We haven’t ruled out Chipotle for our first grandchild, yet.)

It was those early morning jaunts where I began to discover the nuts and bolts of investing. And frankly, like many who take the leap of faith, it became clear that there was a whole lot of available information. There was a whole lot of “experts” who seemed to spew advice and tips with little or no effort to gauge the effectiveness of their talking head sessions.

Into this cloud of confusion and chaos, enter one George Nicholson, Jr. CFA and this campaign we’ve come to regard as the modern investment club movement. Mr. Nicholson is thought of by many as the grandfather of the investment club “grand experiment” … evolving from Detroit in 1941 to a national/global learning experience. We learn that long-term investing is possible and that the odds of success can be dramatically increased by patiently focusing on a few key pieces of information. Add the discipline of developing and sticking to a routine — the core attribute of investment clubs — and it can be like going to battle versus Rommel with Patton in your pocket.

“You magnificent bastard. I read your book!”

And the book demands an emphasis and understanding of:

  • Growth (Long-term trend)
  • Profitability (Net Margins & Return-On-Equity)
  • Valuation (P/E Ratios and where necessary, things like Price-to-Cash Flow)

So every week we update 1/13th of all the stocks we cover at Manifest Investing. That update includes a vigilant check on three basic components … growth characteristics, profitability trends and P/E considerations including life cycle and company quality.

Every week is a snapshot … and you’re invited to take this walk with us. Every week, we’ll take a look at some specific companies. We’re more likely to pay more attention to the most widely-followed companies that command the attention and intention of our community of like-minded long-term investors. Because it makes sense to do so. At the same time, we’re vigilant for promising opportunity and future leaders.

I was updating some macro market barometers recently and was reminded — fairly powerfully — of one of the major tenets of the philosophy we embrace and implement. I am referring to the urgency of all-of-the-above investing … maintaining a sufficient balance of small, medium and larger companies with an overall growth forecast that is suitably high enough. We seek a blend with an overall average growth forecast of 10-12%. As an investor, you CAN’T do this without blending in some promising smaller companies along the way.

Here’s the barometer. I’ll start with the bottom line. This is barometer that tracks the long-term trends of New Highs vs. New Lows is part of our aggregate barometer that can be used to guide asset allocation. Current status? Many stocks are overvalued or overbought … a condition that can persist for years. But this indicator suggests, “Keep doing what you’re doing. Accumulate high-quality stocks when their return forecasts are sufficient. Based on some of the other barometers, it makes sense to ratchet overall quality higher and for those practicing asset allocation, it could make sense to shop diligently and patiently and it’s OK for proceeds-of-any-sales to reside in cash equivalents until your shopping bears fruit and opportunity.”

Can You Spot The Difference? And another look … same chart. What’s different?

The top chart provides a comparison in the background with the S&P 500 (SPX) … a collection of large companies. The bottom chart provides a similar comparison using the Value Line Arithmetic Average ($VLE) index … an equally weighted construction of small, medium and large companies.

This all-of-the-above blend delivers more growth — a characteristic that Nicholson and David L. Babson regarded as a self-correcting mechanism, and opportunity for long-term investors.

The 20-year annualized return for the S&P 500 (VFINX) is 9.1%.

The 20-year annualized return for the Value Line 1700 ($VLE) is 12.0%.

The difference, from a long-term perspective, is MASSIVE.

Companies of Interest

Materially Stronger: TBD

Materially Weaker: TBD

Morningstar Price-to-Fair Value Screen.

S&P Price-to-Fair Value Screen.

Market Barometers

The median Value Line low total return forecast is 2.7%, down from 2.8% last week. This indicator has ranged from low single digits to approximately 20%. The relatively low levels suggest/urge more caution and selectivity — particularly with respect to quality. Lower quality stocks are generally punished the most during corrections and recessions.

We repeat that stocks, sectors and markets can remain overbought (RSI > 70) for extended periods. But price momentum (ROC) still persists.

Morningstar: Market Fair Value. What does it mean? Is the market cheap or expensive? The chart above tells the story based on Morningstar’s fair value estimates for individual stock. The graph shows the ratio price to fair value for the median stock in the selected coverage universe over time.

Same chart as the Introduction. Bottom line: the important aspect is the 12-month trailing trend near long-term highs. Low interest rates, QE, sideline cash, and retirement plan injections are probably supporting demand for stocks.

A Time For Howling?

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The explosive finish to 2013 continues as a work in progress and the surge makes Santa Claus rallies of the past look like flurries. With relatively few trading days left in 2013, the Value Line Arithmetic Average is now up 37.8%, the S&P has surged 31.8%, the Wilshire 5000 some 32.9% and the NASDAQ, a mere 38.1%. The flaky stocks are still in 4-wheel drive with after burners engaged. Yes, if you were anywhere near “fully invested,” a time to howl.

Speaking of howling, I did go to see The Wolf of Wall Street starring Leonardo DiCaprio this week. It’s vintage Martin Scorsese and tells the tale (through the eyes of the perpetrator) of boiler room brokerage firm Stratton Oakmont. If you’ve seen Boiler Room, it’s the same story but from the snarky angle of those responsible for the carnage. I’m not sure how the film managed to maintain an “R” rating while delivering a steady stream of naked bodies, drugs (quaaludes, specifically) more drugs and as someone suggested, the only purpose of the freely-flowing alcohol was to wash down the drugs. If the “F” word makes your skin crawl, imagine the expletive frequency of Boiler Room combined with GlenGarry Glen Ross. Now double it. You’ve been warned.

Taken in whole, it’s quite a statement on segments of humanity. Think Gordon Gecko. Greed. Now double it and triple the sleaze factor. I am pretty sure that I was contacted by Stratton Oakmont some twenty years ago. I’ve heard the “SCRIPT” personally. I was able to resist because of a grounding in fundamental analysis and an understanding of long-term expectations and stock market performance.

They call it dark humor. It’s been a long time since I’ve heard a motion picture audience laugh that much … even if much of the laughter was painfully muted and dipped in disgust. It’s telling that when reliving the auto crash sequence at the end of the movie, the hero/author/villain neglects to share that a head-on collision placed a young woman in intensive care where she nearly lost her life. And at least the Boiler Room version exposed the damage done to cold-call victims, innocent would-be investors turned penny stock speculators with pockets emptied before they figured out they were being financially molested. And maybe that’s the real car wreck.

Leonardo’s character, after committing hundreds of millions of dollars of fraud, was offered a securities industry ban and a fine of something like $100,000 at the time. Really? And he declined the offer, ultimately ending up with a 4-year prison sentence (served 22 months) and a larger fine — that is still largely uncollected. Really?

But what really tugs at my heart and soul are the massive legions, the raunchy queue of opportunists who lined up at Stratton Oakmont’s front door following an expose in Forbes that detailed the scumbaggery. I can only hope that we can blame embellishment and cinematography for the chest-beating zombie predators, a large room full of agents of doom, that is documented near the end of the movie as they cheer Leonardo’s decision to renege on his SEC deal and hastily get back on the phone to maul a few more people.

That’s a whole lotta wreckage.

Companies of Interest

The opportunities in Issue 6 are still very slim, with a Morningstar P/FV of 111% and S&P checking in at 109%. The post-Christmas sales are more likely to be found at Target versus Issue 6. Jacobs Engineering (JEC) checks in with one of the better return forecasts (10%) but the Value Line low total return forecast for JEC is 1-2%.

Materially Stronger: Kimball (KBALB), Packaging Corp (PKG), La-Z-Boy (LZB)

Materially Weaker: Central Garden & Pet (CENT), KB Home (KBH), Texas Industries (TXI)

Market Barometers

The Value Line low total return (VLLTR) forecast is 3.1%, down from 3.4%. We’re not sure whether these are uncharted waters, but at 3.1% — we’re certainly in waters that have not been navigated “recently.”