Wall Street on Water … Ahead

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

Value Line Low Total Return Screen (6/21/2013)

Companies of Interest

Both CVS (CVS) and Walgreen (WAG) have low total return forecasts of 8.5% during this week’s update. But this week’s nod/tribute is to those of you who have suggested that it was feasible that Rite-Aid (RAD) with its lowest-in-field quality ranking had a viable chance of recovering and cited a change in management that has steadily been working to improve conditions over the last few years. Although still a work in progress, profitability appears to have found thin black ink. Rite-Aid is now at $3.00 up from lows of $0.20 (+1400% since 2009) and some turnaround speculators have been rewarded.

The three companies with the highest fundamental and technical rankings are; Telefonica (TEF), Gentex (GNTX) and Qualcomm (QCOM).

Materially Stronger: Arris Group (ARRS), LKQ (LKQ), Rite Aid (RAD)

Materially Weaker: F5 Networks (FFIV), Nokia (NOK), Frontier (FTR), Cincinnati Bell (CBB), Telephone & Data Systems (TDS), U.S. Cellular (USM)

Market Barometers

The median Value Line low total return (VLLTR) forecast is now 6.2%, down from 6.3% last week.

In a normal distribution, the mean plus or minus one standard deviation covers 68.2% of the data. If you use two standard deviations, then you will cover approx. 95.5%, and three will earn you 99.7% coverage. The median low total return forecast since 1999 is 8.5% with a standard deviation of 3.5%. This means that approximately 70% of the time the low total return forecast will be between 5-12%. 96% of the time, the overall low total return forecast will be between a low of 1.5% and a high of 15.5%.

The excursions “north” of 20% (i.e. March 2009) lie outside the 99.5% probability range, because a three standard deviation swing to the upside would be 19%. This is one of the reasons that March 2009 was a back-up-the-truck, perhaps once in a lifetime buying opportunity.

Value Line Low Total Return Screen (6/7/2013)

Companies of Interest

All things considered (e.g. return forecast, quality, sentiment, momentum) Total (TOT) still ranks as a favorite among this group of study candidates. S&P agrees, checking in with a fair value of $51.40 and a “buy” rating. Stockcharts.com yields a “bullish” point-and-figure rating with +42.4% price pressure. There is modest potential for P/E expansion and neutral with respect to margin enhancement.

Materially Stronger: American Vanguard (AVD), Conoco Phillips (COP), Ferro (FOE)

Materially Weaker: Walter Energy (WLT), Suncor Energy (SU), Kronos Worldwide (KRO), SBA Communications (SBAC), Viasat (VSAT)

Market Barometers

The median Value Line low total return forecast (VLLTR) is now 6.4%, down from 6.5% last week.

Value Line Low Total Return Screen (5/24/2013)

Companies of Interest

Screening Criteria: (1) Included in the update universe for this week’s release by Value Line, (2) Return forecast at least 5% (percentage points) greater than the average return forecast and (3) MANIFEST quality rank (percentile) at least 60, i.e. all “Excellent” and “Good” companies in top two quintiles eligible.

Materially Stronger: Amerisource (ABC), Bruker (BRKR), Meridian Bioscience (VIVO), Navistar (NAV), Illumina (ILMN), Analogic (ALOG), Medical Action Industries (MDCI)

Materially Weaker: Cutera (CUTR)

Market Barometers

The Value Line low total return forecast is 6.5%, down from 6.7% last week.

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%.

That Long-Term Return Forecast (3/31/2013)

Just a refresher on the forecast vs. actual results for the Value Line Low Total Return Forecast (VLLTR) … a close cousin of Mark Hulbert’s VLMAP … and taking Mr. Hulbert up on his suggestion to benchmark versus the Wilshire 5000 (VTSMX).

As shown here, even the Value Line LOW total return forecast has been fairly consistently 3-4 percentage points higher than actual results.

And to reinforce, we consistently see alignment between VLLTR for individual companies and their projected annual return (PAR) at Manifest Investing. Why is this the case? We believe that the inclusion of analyst research from the likes of Morningstar and Standard & Poor’s moderately tempers the overall analysis. (We obviously include Value Line in the analysis of every company, too.) Time after time, we see slightly lower growth, profitability or projected P/E forecasts when we aggregate and combine — and find that collectively, this combined result aligns more closely with VLLTR and actual total return results over the last several years.

For the bigger picture, here’s the Wilshire 5000 actual results vs. the VLLTR forecasts (quarterly back to 1999):