This Week at MANIFEST (8/21/2015)

It’s a matter of perspective.

It is true that from a behavioral economics perspective [that average investors] are fallible, easily confused, not that smart, and often irrational. [They] are more like Homer Simpson than Superman. So from this perspective it [could be] rather depressing. But at the same time there is also a silver lining. There are free lunches! — Dan Ariely

The recipe for said free lunch depends on our willingness to be better investors — capturing all that patience and discipline will offer. Because the misbehavior of the herd ranks up there with death, taxes and gravity.

This week, we’ll spend a few moments taking a look at the weekly perspectives that we share from sources like Value Line, Morningstar, Standard & Poor’s, analyst consensus estimates and Goldman Sachs. What are their opinions and expectations? Forecasts? Time horizons? Do they always see things the same?

Of course not. And time horizon matters — a lot. But the profile of their opinions yields the stocks that capture our attention during every weekly update.

We also believe that taken collectively, much like our usage of MIPAR, the average “rating/score” can tell us something about the pessimism or optimism of the various research entities.

Value Line Investment Survey … A Most-Trusted Resource

We start with the Value Line Investment Survey — mostly because it provides the foundation of our weekly updates. 1/13th of the 1700 Value Line companies are updated each week.

As shown in the accompanying figure, the bell curve distribution of low total return forecasts features an average forecast (for the companies in the Issue 1 population) of 3.8%. Some of the higher return forecasts belong to GeoSpace (GEOS) and Navistar (NAV). We’re generally most interested in any high-quality companies that land in the blue circle as candidates for further study. Some of these can be found in our weekly summary table (see Value Line: Companies of Interest below).

Companies that are not “on sale” from the Value Line perspective would be Tesla Motors (TSLA) and Dexcom (DXCM).

Keep in mind that the only inputs to these results are (1) current price, (2) projected low price and (3) projected yield over an approximate 4 year period. (We continuously adjust the calculation for the actual number of years)

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 3.8% — slightly lower than the 4.5% for the Value Line 1700.

Materially Stronger: Douglas Dynamics (PLOW), NextEra Energy (NEE), Natus Medical (BABY)

Materially Weaker: Navistar (NAV), ResMed (RMD), Gorman-Rupp (GRC), UltraTech (UTEK), Manitowoc (MTW)

Standard Coverage Initiated: Zimmer Biomet (ZBH)

Discontinued: Zimmer Holdings (ZMH)

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%, 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.

Companies of Interest: Morningstar

Morningstar computes a discounted cash flow-based current fair value (FV) for stocks. As shown here, the population is slightly lower as only 57-of-125 of the Value Line issue 1 population is covered.

The price-to-fair value (P/FV) is simply a comparison of the current price to the current fair value. A value of 100% would be a “fair” price at this time. A value greater than 100% suggests that a stock is potentially overvalued — or priced at a “premium” — and a value less than 100% suggests a potential discount. The graphic has been “flipped” to align with the return forecast charts — basically mapping the less attractive stocks on the left and the more attractive stocks on the right.

This week’s P/FV leader is Tata Motors (TTM) with honorable mention to General Motors (GM), Ford (F) and Fiat Chrysler (FCA).

Companies of Interest: Standard & Poor’s (S&P)

Standard & Poor’s gives us two flavors of perspective:

• A current fair value based on long-term discounted cash flow analysis that basically suggests what a “good” price for a given stock is today. The calculation is similar to the Morningstar analysis. The current price is compared to the “fair value” to form a P/FV ratio. 100% would be fair value. Less than 100% suggests a discounted price and a potential undervalued opportunity. Greater than 100% suggests that a stock is potentially overpriced.

• The second perspective is based on a shorter time horizon (1 year or next 52 weeks) and gives another outlook for the covered stocks. For us, S&P provides a bridge between the long term analyses (Value Line, Morningstar and S&P) and the short term 1-year outlook generated by S&P, analyst consensus (ACE) and Goldman Sachs.

This week’s update batch delivers an interesting perspective on the potential of Toyota Motors ( TM ), Honda (HMC) and Nissan (NSANY) from the point of view of the S&P analysts. It’s an interesting bunching of these global automakers to the right hand side (consider buying) of the graphic.

The Outlook For The Coming Year

I’m not sure how useful this piece of information is to an investor versus a trader. It might prove useful in deploying conservative option strategies. But my instinct is that it could serve as one of the tiebreaking factors when comparing a few candidates for purchase. Given two stocks with equal return forecasts over the 5-year time horizon, I might be compelled to select the stock with the better 1-year outlook.

It’s interesting that the stocks on the far right are General Motors (GM) and Cummins (CMI) because both have been regarded as potentially “sluggish” for the coming year based on economic influences. Many of the capital-intensive equipment companies have been punished of late — and the global recession continues to hinder the near-term outlook for many of them.

Companies of Interest: Analyst Consensus Estimates (ACE)

According to the analyst consensus, the stocks with the best outlook for the coming year from this week’s update batch are: Tata Motors (TTM), Checkpoint Software (CKP), Geospace Tech (GEOS) and Navistar (NAV).

The average 1-year total return forecast is 15.1% — but we know the analyst consensus to be (1) volatile and (2) optimistic.

The ACE outlook consistently ranks as the highest among the research entities that we follow.

Our favorite source for analyst estimates is probably finance.yahoo.com with their 1-year price target and current yield — but we frequently audit the sample using benzinga.com and/or marketbeat.com and/or flashratings.com.

Companies of Interest: Goldman Sachs

Why Goldman Sachs? There are number of high visibility research firms from Bank of America (Merrill Lynch) to Morgan Stanley and other firms like Raymond James. But Goldman Sachs is the most influential based on empirical observations over a number of decades.

It’s best to own one of their “new favorites” before they add it to their conviction buy list or substantially raise their price target because you’re virtually guaranteed a boost in return. In fact, one of my colleagues used to use the Goldman Sachs buy and sell list to do just the opposite. He’d watch for exit opportunities after watching the price move up after a buy upgrade and look for shopping opportunities a few days after a sell recommendation.

Sometimes we get a broad update courtesy of articles like this one: Goldman Sachs: Buy and Avoid List (March 2015)

Stocks to Study (8/21/2015)

• Illumina (ILMN) — Highest MANIFEST Rank
• Geospace Tech (GEOS) — Highest Low Return Forecast (VL)
• Tata Motors (TTM) — Lowest P/FV (Morningstar)
• Nissan Motors (NSANY) — Lowest P/FV (S&P)
• Tata Motors (TTM) — Best 1-Yr Outlook (ACE)
• Cummins (CMI) — Best 1-Yr Outlook (S&P)
• Ford (F) — 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.