Archive for 2013

2014 U.S. Sectors Outlook

Wednesday, December 18th, 2013

The 2014 outlook for the 10 major U.S. stock sectors is mixed with industrials technology on top and utilities and telecomm on the bottom.

This video interview among QVM Group staff provides and discusses details about all the sectors from institutional and research sources, including Deutsche Bank, Yardeni Research, and Standard and Poor’s; and some charts from StockCharts.com.

Directly relevant ETFs are: SPY, XLB, XLE, XLF, XLI, XLP, XLU, XLV, XLY, VGT and VOX

The video is 6 minutes and 55 seconds, but you can control the play head to skip forward, move backward, pause and replay to make viewing as long or short as you wish.

Disclosure: Author is long SPY, XLI and XLV as of December 17, 2013

16 Stocks That Outperform Market Fundamentally With Lower Beta

Wednesday, November 20th, 2013

Investors are increasingly worried about lack of revenue growth in the US stock market, and investors are always seeking earnings growth.  In this time period, where questions of “topping” are more frequent, investors may be seeking lower volatility stocks, just in case things go badly — and retired investors who may be selling shares to generate household operating funds are well advised to keep portfolio volatility low.

With those thoughts in mind, we asked which companies had higher revenue growth rates (“RGR”) and higher earnings growth rates (“EGR”) than the market, but also lower Beta than the market, and also better GARP (growth at a reasonable price) attributes indicated by the PEG ratio.  We used the criteria in this table and found 30 stocks that passed the filter.

img_2939

However, wanting some comfort from the careful consideration of recognized independent analysts, we reduced the list further to include only those that were rated by S&P Capital IQ and Thomson Reuters StarMine, and did not receive a rating from either below the level of Neutral. We also required that S&P Capital IQ have opined on Fair Value and did not indicate the stock was overvalued.

That knocked the list down to 16 stocks, shown in this table along with the primary filter criteria from the table above (stocks listed in alpha order by symbol).

img_2937

Stocks with links to the fundamentals and valuation page at Yahoo Finance [with the EV/EBITDA in brackets]:

This table provides the yield and 5-year dividend growth rate, worst 3 months total return, and 3-year percent standard deviation (from Principia as of Oct 31).

(click image to enlarge)

2013-11-20_values

These charts plot the dividend adjusted price of each of the 16 stocks divided by the same for the S&P 500 index ETF (SPY).

2013-11-20_A

2013-11-20_C1

2013-11-20_C

2013-11-20_D

 

Some Financial Strength Comments:  

We looked at the companies in terms of financial strength through S&P Capital IQ, Value Line and Wright’s.  They were generally in agreement that all of the companies were above average strength to one degree or the other, but had conflicting views on AutoZone, Cooper and Lorillard.

  • For AutoZone Wright’s said the strength was “Limited”, Value Line said “B” which is below average, and S&P said “B+” which is average.  Moody’s credit rating is “Baa2”.
  • For Cooper Companies Wright’s and Value Line said financial strength is “A”, but S&P said below average at “B”.  Moody’s credit rating is “Ba2”.
  • For Lorillard Wright’s said the financial strength is “D” (Fair), while Value Line said “A” and S&P Capital said “A+”.  Moodys says “Baa2”.

Conflicting Year Ahead Ratings:

We cross checked the S&P Capital IQ and Thompson Reuters StarMine ratings with Timeliness ratings from Value Line.  All three were devoid of negative ratings, except for Taiwan SemiConductor, which Value Line rated 4 on their 5 point scale (where 1 is best).

Position Disclosure:

We have positions in CVS, QCOM and UNP from the list above.

Chart

Chart-2

Chart-3

 

Slim Pickin’s Screening For Growth and Value Among Dividend Growth Stocks

Tuesday, November 19th, 2013

Dividend and dividend growth are great, and for many investors obligatory, but lack of revenue and earnings growth is a problem. A dividend portfolio needs fundamental growth at the top and bottom line.  Without that dividends cannot be relied upon for long.

There are slim pickn’s these days, which also lends some weight to those saying the market is more than fully valued, and due for a correction.  Only 3/10 of 1% of our stock universe made it through basic filters for historical revenue, earnings and dividend growth, and current yield and forward valuation filters.  That doesn’t seem like enough to us for a market that is only “fairly valued”.

Let’s see how filtering can give clues to overall market valuation, and what comes out in a prospect list for detailed consideration.

There are many other factors to consider in stock selection, but a general filter for growth is a good place to start. With that in mind, let’s look at growth sector-by-sector. Even if you do not buy individual stocks and prefer ETFs; and even if you do not seek dividends, comparing growth by sector, may be helpful to you in focusing your attention on particular sectors where growth is more prevalent.

THE RESEARCH UNIVERSE AND DATA SOURCE
Using the database available at Fidelity today, there are 4,558 stocks price of at least $5.00 per share and which are available on the New York Stock Exchange or NASDAQ.

There are only 1,351 companies (29.6%) with at least 3% revenue growth over 5, 3 and 1 years (1,948 with at least 3% growth over 5 and 3 years, but not 1 year; and 2,116 with at least 3% growth over 5 years, but not 3 or 1 years.

Of the 4,558 NYSE/NASDAQ stocks trading at $5.00 or more, 778 (17.1%) had EPS growth of 3% or more over 5, 3 and 1 years (1,368 with at least 3% growth over 5 and 3 years, but not 1 year; and 1,909 with at least 3% earnings growth over 5 years, but not 3 or 1 years).

[Note: as we go through the stats that the totals vary slightly, because the database we used is constantly being updated during the day – as a result the number of stocks passing filters vary somewhat between screens during a review session.]

Let’s look at growth by sector – first examining revenue, then earnings.

BY REVENUE
Sector-by-sector, the percentage and number of companies with at least 3% revenue growth rate over 5, 3 and 1 years are:

  • (48.5%) information technology 300 of 619
  • (44.7%) healthcare 182 of 407
  • (43.4%) consumer staples 69 of 159
  • (39.3%) energy 123 of 313
  • (37.4%) consumer discretionary 198 of 529
  • (33.4%) industrials 161 of 482
  • (29.4%) telecommunications 20 of 68
  • (24.1%) financials 225 of 937
  • (23.7%) materials 49 of 207
  • (18.1%) utilities 20 of 111

BY EARNINGS PER SHARE
Sector-by-sectors for EPS growth, the percentage and number of companies with at least 3% EPS growth over 5, 3 and 1 years are:

  • (29.6%) consumer staples 47 of 159
  • (29.1%) consumer discretionary 154 of 529
  • (24.3%) utilities 27 of 111
  • (21.8% information technology 135 of 619
  • (21.8%) industrials 105 of 482
  • (18.4%) healthcare 75 of 407
  • (17.0%) financials 159 of 937
  • (15.5%) materials 32 of 207
  • (11.5%) energy 36 of 313
  • (10.3%) telecommunications 7 of 68

BY REVENUE AND EARNINGS TOGETHER
Ideally, one would look for companies with both revenue and earnings growth meeting minimums. With both the revenue and earnings minimums combined, the population of companies for more individual review reduces to only 436 in total or 7.8% of the universe of 4,558:

  • (22.0%) consumer staples 35 of 159
  • (17.2%) consumer discretionary 91 of 529
  • (13.5%) healthcare 55 of 407
  • (13.2%) information technology 82 of 619
  • (13.1%) industrials 63 of 482
  • ( 8.3%) energy 26 of 313
  • ( 8.2%) materials 17 of 207
  • ( 6.3%) utilities 7 of 111
  • ( 6.2%) financials 58 of 937
  • ( 2.9%) telecommunications 2 of 68

ADD YIELD AND DIVIDEND GROWTH FACTOR
Of course, as conservative investors overseeing accounts in or near the retirement withdrawal stage, we would prefer some yield, to divide our total return opportunity and risk between cash in hand and capital appreciation.

By requiring our selections to have a yield of at least 2% (a tad more than the S&P 500), that population of 436 companies that had both revenue and earnings growth of at least 3% for 5, 3 and 1 year reduces to 71 companies (1.6% of the universe).

By also wanting our dividend stocks to have some payment history and some growth in dividends as well as growth in revenue and earnings, we added a 3% five-year dividend growth requirement. That reduced the population to 41 stocks (0.9% of the universe).

Not wanting to invest in any stocks that recently cut its dividend, we also required that the current year-over-year dividend payment show no decrease. That did not eliminate any stocks.

ADD PEG RATIO FACTOR
Lastly, we think that general growth at a reasonable price argument makes good sense, so we add a PEG element to the screen limiting the PEG range 0x to 2x (where the zero eliminates negative forward looking earnings estimates). That reduced the list to 13 stocks (0.3% of the universe).

  • (GPC) Genuine Parts
  • (TUP) Tuperware
  • (LO) Lorillard
  • (ARLP) Alliance Resource Partners
  • (MMP) Magellan Midstream Partners
  • (BLK) Blackrock
  • (CPSI) Computer Programs and Systems
  • (CHRW) C.H. Robinson Worldwide
  • (CPA) Copa Holdings
  • (DE) Deere
  • (HCSG) Healthcare Services Group
  • (TAL) Tal International
  • (MSFT) Microsoft

The sector representation is:

  • (1.04%) industrials 5 of 482
  • (0.64%) energy 2 of 313
  • (0.63%) consumer staples 1 of 159
  • (0.38%) consumer discretionary 2 of 529
  • (0.25%) healthcare 1 of 407
  • (0.16%) information technology 1 of 619
  • (0.11%) financials 1 of 937
  • (0.00%) materials 0 of 207
  • (0.00%) utilities 0 of 111
  • (0.00%) telecommunications 0 of 68

These low percentages add weight to the argument that the market is more than fully valued. It would seem that a higher percentage of stocks in each sector should be available with revenue, earnings and dividend growth at least a market level of yield, and a PEG ratio of 2 or less – but that is not the case today. This along with other work we do in our monthly newsletter Rational Risk Equity Income Investor, suggests slim pickin’s these days, and that is a gray cloud over the market in our view.

FILTER  DATA FOR THE 13 SURVIVORS
With that lucky “13” number (3/10 of 1% of the 4,558 stock universe), we’ll leave the rest to you to see if any other of the filter survivors are attractive and suitable for you due to these and other factors.

(click image to enlarge)

img_2934-filter

BETA FOR THE SURVIVORS

For those in the withdrawal stage of their financial lives who are also selling shares in addition to collecting dividends (or for those who may be on margin and need more stable prices on those shares on which the margin is based), and perhaps for those fearing a correction in stock prices; paying attention to Beta makes sense.

Beta  the reactivity of the stock to price changes in the S&P 500 — a value above 1.00 shows that historically when the S&P 500 moved X%, the stock moved more; and a value below 1.00 means it moved less.

(click image to enlarge)
image_2934-beta

SOME INDEPENDENT ANALYST VIEWS
There are many factors not considered in this article that you should evaluate, from this reduced research list.

To the extent that you are interested in the view of independent analyst firms, we point out that neither S&P Capital IQ nor Value Line had any below neutral opinions as to year ahead performance for any of the 13 stocks; and the aggregate opinions of  two Thompson Reuters services “StarMine” and “I/B/E/S” also have no below neutral ratings for any of those stocks.

On Fair Value, S&P Capital IQ rated DE, ARLP, MSFT and CHRW as undervalued; and CPSI, HCSG, GPC and MMP as overvalued.

Value Line rated DE, MSFT and LO as 1 or 2 (favorably)  for Timeliness, and ARLP, MMP and GPC as 4 or 5 (unfavorably) for Technical Condition.

SOME TABULAR TECHNICAL CONDITION DATA
This tabular data based on Thompson Reuters data manipulated with in-house formulas via the Metastock tool shows some important technical condition aspects of the 13 stocks.

Description of Column Headings: The first column to the right of the company name is the ratio of the market price to the 200-day moving average (greater than 1.00 is preferred). The next column is the ratio of the 200-day average divided by the average 10 days ago (to give a view of the direction of the “leading tip” of the average — greater than 1.00 means “up”).  The next column indicates whether the slope of the 252-day linear regression trend line is up or down (1 = up and 0 = down). The next column is the ratio of the 50-day average to the 200-day average (greater than 1.00 is preferred). The next column is the Relative Strength Index (more than 70 is overbought, and under 30 is oversold). The next column titled “Z-score 200” is the number of standard deviations the price is from the 200-day average (0.00 means the price is at the 200-day average — the larger the absolute value of the Z-score, the higher the probability the price will move back toward the moving average). The last column, labeled “Price Channel Position 63” shows where the price is located in the 63-day price range from its high to its low (because the range is defined on the prior day, it is possible for the current price to be above 100 or below 0 — a larger number is closer to the high and a lower number is closer to the low).

Capture

PRICE RATE OF CHANGE DATA
This table shows the price rate of change (not total return – just price) over several time periods (5, 21, 63 and 252 days, which is 1 week, 1 month, 1 quarter and 1 year).

Capture2

POSITION DISCLOSURE:
We own BLK, TUP, GPC as of this writing.

Select S&P Sector Stocks

Monday, November 11th, 2013

Here is a simple screen based on S&P analysis.  It consists of the top 3 stocks (if any) in each of 10 sectors that pass these criteria:

  1. year ahead expected relative market performance above average (4 or 5 of 5)
  2. price versus current fair value undervalued (4 or 5 of 5)
  3. PEG ratio <= 2 and >= 0.5
  4. yield > 0
  5. ThompsonReuters StarMine year ahead expectations not negative
  6. stocks ranked by PEG from lowest to highest
  7. if there is a tie in the PEG ratio, the higher yielding stock is selected
  8. if less than 3 stocks meet criteria for a sectors only those meeting criteria are selected.

As of November 7, there are 21 stocks that meet the criteria:

Celanese Corporation CE
Comcast Corp Class A CMCSA
PetSmart Inc. PETM
Whirlpool Corporation WHR
CVS Caremark Corp CVS
Wal-Mart Stores Inc WMT
Chevron Corp CVX
National Oilwell Varco, Inc. NOV
Bank of Montreal BMO
Bank of Nova Scotia BNS
Franklin Resources Inc. BEN
Aetna Inc AET
Humana HUM
WellPoint Inc WLP
Norfolk Southern Corporation NSC
PACCAR Inc PCAR
Trinity Industries, Inc. TRN
Apple Inc AAPL
International Business Machines IBM
International Paper Co. IP
Qualcomm, Inc. QCOM

This table contains the current yield, 1-year earnings growth rate and price-to-cash flow for the screen selected companies.

(click image to enlarge)

img_2905

Sector, Dividend and International Stocks Performance vs S&P 500

Sunday, September 29th, 2013

These charts plot the percentage performance of 10 sector ETFs (and 4 industry ETFs) versus the S&P 500 (represented by SPY).  They also show the relative performance of key dividend ETFs, international ETFs versus SPY.

The black line is the subject ETF.  The green line is SPY .  The red line is the ratio of the performance of the subject ETF to SPY.

US industrials, healthcare and cyclicals appear to be the strongest relative sector performers. Biotech is particularly strong as an industry.  Insurance is holding its own versus the S&P 500, and is stronger relative to the S&P 500 than the financial sector overall.

Utilities are the weakest relative performers, and pipelines and equity REITs are weak relative performance industries.

Dividend ETFs have been favorable relative performers until just recently when QE taper was suggested; and they are now flat to slightly down in relative performance.

High quality stocks gain an advantage in the past which they have held steady in the past few years, neither gaining nor losing relative performance.  Low volatility has underperformed and recently has lost relative performance as more volatile stocks gains favor.

Europe and the U.S. were moving up together until later in 2011. Europe had its big credit scare and declined.  It found footing and traded sideways until mid-2012 and since then has been trading parallel with the U.S.

Japan had a spurt of favorable relative performance in the first part of 2013 due to enthusiasm for “Abenomics”, but has since traded sideways, losing relative ground to the U.S.

AsiaPacific ex Japan fell away in the second quarter of 2013, and is recovering recently, resulting in short-term stronger relative performance.

Emerging markets have been trading flat within a range for the past approximate two years, creating substantial relative under-performance.

China’s volatile under-performance shows a slight tilt toward improvement.  Brazil’s under-performance is severe and continuing.

TEN S&P 500 SECTORS

XLB

xle

XLF

XLI

XLP

XLU

XLV

XLY

VGT

VOX

TWO REAL ASSET CATEGORIES

VNQ

AMJ

SOME CURRENTLY INTERESTING INDUSTRIES

IBB

KIE

DIVIDEND ETFs

SDY

VIG

VYM

FDL

FVD

S&P 500 HIGH QUALITY AND LOW VOLATILITY

SPHQ

SPLV

INTERNATIONAL ETFs

VGK

EWJ

EPP

VWO

GXC

EWZ

 

 

 

Growth, Growth Growth

Sunday, August 4th, 2013

There is a good deal of concern these days about stalled revenue growth and implications for earnings, and possibly some dividends.

Consequently, it seems reasonable to pay special attention to stocks that have historical revenue growth equal to or greater than that of the S&P 500; and earnings and dividend growth equal to or greater than the S&P 500 or the market median; and that have a current yield greater than or equal to the S&P 500; and that have a PEG ratio less than or equal to that of the market median.

There are only 9 stocks that met the filter criteria we used. They are:

QUALCOMM ORD (QCOM)
BLACKROCK ORD (BLK)
TAL INTL ORD (TAL)
COMPUTER PROGRAMS AND SYSTEMS ORD (CPSI)
WADDELL REED FINANCIAL CL A ORD (WDR)
AMERIPRISE FINANCE ORD (AMP)
TUPPERWARE BRANDS ORD (TUP)
CH ROBINSON WORLDWIDE ORD (CHRW)
FOOT LOCKER ORD (FL)

Here are the specific filter criteria and the hurdle values we used. For projected earnings growth rates we required a minimum of 5%:

click any of the following images to enlarge

img_2403

The values for each stock for the filter criteria are:

img_2404

Here are the ratings issued for these stocks by Standard and Poor’s and by Wright Investor’s Service (click here for explanation of ratings scales):

ratings

These key valuation metrics are from Yahoo Finance:

Valuation

Here are 10 year charts for those stocks, showing the percent change of the price, revenue, earnings and dividends (source: YCharts.com):

QCOM

BLK

TAL

img_2408CPSI

WDR

img_2410AMP

Untitled

CHRW

FL

Here are the percentage price rate of change data for 5-days (1 week), 21-days (1 month), 63-days (1 quarter) and 252-days (1 year):

TechCheck2

This table shows several technical data points, as follows:

  • Z-score (# of standard deviations  of price from the 200-day moving average)
  • Price ratio to the 200-day moving average
  • 50-day average ratio to the 200-day average
  • % by which price trails 1-year high price
  • Position of the price within the 63-day price range
  • 14-day RSI indicator

We have shaded those Z-scores greater than +/-  2 standard deviations to indicate that those stocks are at a distance from their moving average that is unusual (justified strong trend, or overextended above or below the average with strong reversion risk).

TechCheck1

Here are the short term technical ratings from BarChart.com.  “Short-Term” relates to an evaluation time frame in the vicinity of 20-days.  “Medium-Term” relates to an evaluation time frame in the vicinity of 50 days.  “Long-Term” relates to an evaluation time frame in the vicinity of 100-days.

Barchart

The distance of the current prices from the “Street” estimates of 12-month price targets; and the number of analysts providing each rating from Strong Buy to Strong Sell are provided in this table:

Street

Yahoo Finance provides summary business descriptions, company web address, as well as physical address and phone number for each company at this URL (just substitute the symbol [displayed in red] in this URL for the company of interest to you):

http://finance.yahoo.com/q/pr?s=FL+Profile

Not all companies are likely to be of interest to you, but you may find this list an interesting point of departure for a more thorough examination of the stocks.

We currently own TUP.  For our own specific purposes and situation, we find BLK most interesting among the other stocks in this list.