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Investment Digest
Dick Davis
Investing Ideas and Advice from the Best Minds on Wall Street
Issue 749 32 years in publication
September 18, 2013
Feature
Inside
All Systems Go
Features
1 All Systems Go
Dan Sullivan
By Dan Sullivan
4 Sometimes High is Really
Low
Michael Cintolo
11 The Summer of the Microcap
Cindy Bowser
Investment Ideas
1 Spotlight Stock
Dover Corp (DOV)
4 Momentum Stocks
Still not too late to buy these
high flyers
6 Revenue Growth Stocks
7 Value Stocks
10 Tech Stocks
12 Small- and Micro-Cap Stocks
Take advantage of their
outperformance
13 Funds
In Every Issue
14 Updates
16 Investment Index
Investment Ideas in this issue that
were not featured in a Daily Alert are
marked with a H.
The market is enjoying a relief rally with stocks moving higher over seven out
of the last eight trading sessions. As we go to press, the benchmark S&P 500 is
only 1.6% below its all-time record high set on August 2nd while the Russell
2000 is 1.3% away from record high territory. With our models in a positive
mode, we continue to advise subscribers who are acting in sync with our real
money accounts to stay fully invested. All of the key averages with the exception
of the Utilities have moved back above their 50-day moving averages.
The majority of our key indicators are extremely positive. By definition, this
dictates a fully invested position. The present bull market has lasted 4.5 years,
which is well above average in duration. Since 1932 there have been 16 bull
markets. The current one is the sixth longest on record. We have found over the
years that the longer a bull market persists, the more it should be given every
benefit of the doubt.
The latest from Investors Intelligence now shows 37.1% in the bullish camp
versus 22.7% bears. This could be a strong indication that the current rally has
further to run because the percentage of bulls is at its lowest level in well over
a year and well off a reading of 51.6% as recently as August 6th. The data from
Investors Intelligence is as of September 10th. It came with the S&P 500 less
than 2% away from record high territory while at the same time the NASDAQ
had recorded fresh bull market highs.
One problem that concerns technicians is the fact that the daily Advance/
Decline Line reached its highs of the cycle in the middle of May and failed
to confirm the breakout of key averages in July. It will be recalled that the
Continued on page 2
Spotlight Stock
Change
H Dover Corp (DOV, 90)
Aggressive
Cautious
from Dow Theory Forecasts
Advisor Sentiment Barometer
Based on the average of the AAII,
Investors Intelligence and Timer
Digest sentiment surveys.
Dover generates steady, organic growth while grazing on smaller businesses,
completing more than 100 deals since the start of 2000. Those efforts have
built Dover a portfolio of industrial products and manufacturing equipment
that reaches a broad base of end markets, including medical devices, petroleum,
automotive, commercial refrigeration, agricultural and mobile devices.
Management sees revenue rising 7% to 9% this year, with 4% of that growth
coming from acquisitions. Dover expects per-share profits of $5.20 to $5.35
excluding special items, implying growth of 17% to 20%. Rising analyst
estimates project earnings of $5.30 per share. Dover, scoring above 60 in all six
Quadrix categories, is a Long-Term Buy.
Continued on page 3
All Systems Go
S&P 500, NASDAQ Composite, as well as the Dow,
Russell 2000 and S&P Midcap Index all recorded bull
market highs in July. The best the A/D Line could do
was come within a hair’s breadth of its May highs before
succumbing to selling pressure. As you know, the A/D
Line has a history of topping out ahead of the overall
market.
situation for me as my basic attitude is derived from the
market’s basic trend, which is higher over time. That is to
say, that in the absence of compelling evidence, I tend to
be bullish. However, I am nervous here and can’t seem to
shake it off. I haven’t put on any shorts yet, just reduced
exposure and bought a small position in an inverse ETF
to hedge.
It is our contention that with the A/D Line still within John Bollinger, Capital Growth Letter,
striking distance of its May highs that it is too early to www.bollingerbands.com, 310-798-8855, September 16, 2013
reach a bearish conclusion. A breakout on the part of the
A/D Line in the not too distant future would be highly
Global Markets Lead the Way Higher
bullish. However, its failure to do so does not always
By Bonnie Gortler
impede the progress of a bull market, especially one as August was a down month with increased market
powerful as this one. The boom of the dot com era is a volatility. However, the decline stopped on August 28,
perfect example. The A/D Line topped out on April 2, with the S&P 500 (SPY) holding key daily support at
1998, almost two years ahead of the
162.50 … with an intra-day low of
S&P 500, which reached its highs
The longer a bull market 163.05. Investors were talking about
of the cycle on March 24, 2000.
how September could also be down,
The S&P 500 gained an additional persists, the more it but instead, prices reversed higher
36% after the A/D Line topped out should be given every showing their muscles. International
while the NASDAQ Composite
markets also picked up steam with
gained an incredible 167%. There benefit of the doubt.
emerging markets breaking the
are several other examples in which
short-term downtrend. Market action now is favorable,
the A/D Line has peaked out more than a year ahead with improved market internals suggesting prices will
of the overall market. Investors who rely strictly on the work their way higher.
A/D Line on many occasions have missed out on the
final stages of bull markets, which are often the most The iShares MSCI Emerging Markets Index ETF
(EEM) daily chart has had some false breakouts to the
rewarding of all.
upside earlier this year that ultimately failed. With recent
Dan Sullivan, The Chartist, www.thechartist.com,
trading action, the EEM is showing a clear penetration
800-942-4278, September 12, 2013
through resistance, giving higher upside projections to
44.50, the upper channel objective.
Worrying Divergences
By John Bollinger
We are pulling back into the old highs with loud Huzzahs
from the bulls and a bull on the cover of Newsweek.
Maybe I am getting caught in a trap here, but when I
look at the broad-market indicators, those derived from
advances and declines, from new highs and lows, from
up and down volume, as well as the broader market
indices, the thing that strikes me are non-confirmations,
and every fiber of my inner analyst is saying, “Stand
close to the door!”
Maybe I am experiencing confirmation bias, in which
you ignore data that doesn’t support your beliefs while
seeking data that is supportive, but I don’t think so,
this market just seems risky to me. ... This is a very odd
Dick Davis Investment Digest
P.O. Box 2049
Salem, MA 01970
Chloe Lutts Jensen, Editor
Page 2
[In addition, a daily chart of the S&P] shows that the
uptrend in the SPY from January is intact. The shortterm downtrend has been broken. We once again are
trading near the highs from earlier in the year. With the
emerging markets moving higher, I am expecting the
S&P 500 to make a higher high.
What is a little disturbing, however, is that the S&P 500
has lost some of its luster recently. MACD has turned up,
but remains far from its July peak, setting up a potential
negative divergence down the road. I will be watching
to see if this loss of momentum continues as we move
further into the month.
Bonnie Gortler for Dr. Marvin Appel and Gerald Appel’s
Systems & Forecasts, www.systemsandforecasts.com,
800-829-6229, September 13, 2013
Contact us
[email protected] or 978-745-5532
Subscriptions: [email protected]
Feedback: [email protected]
or www.surveymonkey.com/dddsurvey
Dick Davis Investment Digest 749
Dick Davis Investment
Digest is published monthly.
Your next issue will be
published October 23.
September 2013
Spotlight Stock
Business Breakdown
Dover spent $2.6 billion on 22 acquisitions from 2010
to 2012 while selling four lower-margin units for a
total of $517 million.
Four acquisitions in the
first half of 2013 totaled
$69 million. In August,
Dover announced plans
to acquire an Italian
company with $80 million
in annual revenue but
provided no details about
the cost.
The printing and identification business (13%, 11%)
sells equipment for marking and coding products
made by the drug and
food industries. This unit
has accounted for most
of Dover’s profit-margin
gains.
Communications
technology (19%, 15%)
should help drive Dover’s
sales this year. With
organic growth projected
at 9% to 11%, the segment
makes components used in
hearing aids, smartphones,
and even aircraft.
We expect continued
acquisitions over the
next year, with a focus on
international deals.
Last
year,
Dover’s
operating profit margin reached its highest
level since 1981, with gross margin the best
since at least 1979. Both margins expanded
further in the first half of this year, and
management sees that trend continuing
through 2015.
Conclusion
Through 2015, Dover expects organic sales
growth of 4% to 6%, complemented by 3%
to 5% from acquisitions. Dover’s annual
free cash flow should equal about 10% of
sales.
The energy segment (26% of 12-month
Historically, Dover has returned a lot of
sales, 38% of profits) sells components
its cash to shareholders. The company has
and compressor products to drillers and
raised its dividend in each of the past 58
refiners, primarily in North America.
years, including a 7% hike last month.
The production end market, accounting
Stock buybacks have reduced Dover’s
for more than half of the segment’s
2012 Revenue by Segment
outstanding shares by 7% in the past
revenue, continues to post strong
year.
gains, while the drilling industry has
stabilized.
At 18.5 times trailing earnings, shares
19%
Comm.
trade 7% above their 10-year average
26%
Engineered systems (42%, 36%)
Tech.
Energy
but 10% below the industry median.
sells pumps, compressors, and
equipment for cooling and displaying
food. Refrigeration and foodservice
equipment drove the unit’s 10% sales
growth in the past 12 months.
Dover Corp
(NYSE: DOV)
www.dovercorporation.com
Printing
Richard J. Moroney, Dow Theory Forecasts,
www.dowtheory.com, 800-233-5920,
September 16, 2013
42%
Engineered
systems
Why Dover Corp:
DOV Chart
• Organic growth plus acquisitions
are fueling growth of this
diversified company.
52-Week Low/High: $54.90/$90.60
Shares Outstanding: 171 billion
Institutionally Owned: 93%
Market Capitalization: $15.3 billion
Page 3
13%
• Its operating and gross margins
are the best in decades.
• Rising dividends and stock
buybacks are attracting
investors.
Dick Davis Investment Digest 749
©stockcharts.com
September 2013
Feature
Sometimes High is Really Low
By Michael Cintolo
One of the most common questions we hear (especially from newer subscribers) is why we don’t get on board suchand-such stock earlier; often, by the time we recommend something, a stock has already had a decent run, making
it appear “high.” When answering, we usually say a few things.
First, of course, we always try to get on earlier; we don’t purposely wait to buy a stock until it’s risen 50% or 100%!
But in the market, the goal is to buy right, not buy early, and we like to buy when, after a long back-and-forth
consolidation, the stock rips to new highs. Ocwen Financial (OCN) is a good example—overall, shares have tripled
from April 2012, but the stock did nothing from last September through July, a nine-month basing period that
likely wore out many weak shareholders.
Second, though, we try to emphasize that sometimes high is really low in the market. All any of us can see is the
past—if a stock’s jumped from 20 to 45, it looks high (and in the intermediate-term, it often is). But if the stock
plows ahead to 90 during the next year or two, was 45 really high? Not to us! Again, the goal is to make money, not
buy at the lowest price. If you constantly look for stocks that haven’t been advancing (especially in a bull market),
you’ll likely be fishing in an ocean of lagging stocks with nothing-to-write-home-about growth. And that’s a recipe
for blah results.
That’s not to say some stocks aren’t too “late stage” to consider; if a stock’s had a huge run during the past year or
two, and hasn’t had a multi-month consolidation for six months, it’s probably living on borrowed time. But, instead
of just looking at how a stock has done in recent months, examining a long-term chart can clue you in on whether
the stock, despite a recent move, is near the beginning of its advance.
Consider Tesla Motors (TSLA) this year. The stock broke out of a humongous sideways consolidation and rocketed
from 40 to 115 in nine weeks! But because the stock was only a couple of months out of that big basing area, it was
unlikely that shares were near an ultimate top. Sure enough, the stock has surged since the late-June low.
Michael Cintolo, Cabot Market Letter, www.cabot.net, 978-745-5532, September 4, 2013
Momentum Stocks
H Tractor Supply Co. (TSCO, 131)
from 2 for 1 Stock Split Newsletter
Of the four August splits under consideration, Tractor
Supply Co. (TSCO) is the clear winner. Tractor Supply
was an amazing stock for the 2 for 1 portfolio between
August 2010 and April 2013, earning a 53.4% annualized
return.
Lest you think I’m just being nostalgic, I did run all the
splits through the 2 for 1 ranking program and TSCO
did come out on top. It has higher P/E and price-tobook ratios than I like but almost all the other important
metrics scored well. TSCO sells feed and supplies
through 1,223 retail farm and ranch stores in 46 states,
catering to recreational farmers and ranchers. This is a
growing and wealthy demographic not suffering from
the vagaries of the economy. Apparently TSCO’s board
thinks its booming business is going to continue for the
foreseeable future.
Neil Macneale, 2 for 1 Stock Split Newsletter,
www.2-for-1.com, 408-210-6881, September 13, 2013
Page 4
H ING Groep (ING, 12)
from Capitalist Times
Netherlands-based ING Groep was formed in 1991
by the merger of Nationale-Nederlanden and NMB
Postbank Group. The financial conglomerate continues
to deliver on a restructuring plan that aims to simplify
its operations and refocus on the company’s core
strengths. The effort began four years ago, when the
company announced plans to dispose of its sprawling
insurance operations. To that end, ING Groep on Aug.
26 announced the sale of its South Korean life insurance
business for US$1.6 billion; management has indicated
that the proceeds will be used to reduce debt.
ING Groep’s net interest margins have improved
steadily in recent quarters, a trend that should continue
to support earnings growth. Credit quality remains a
concern, with nonperformers ticking up to about 6%
of the company’s domestic commercial loan book and
increasing to about 1.6% in the mortgage segment.
As long as unemployment remains in check, ING
Dick Davis Investment Digest 749
September 2013
Momentum Stocks
Groep should be able to keep its nonperforming loans
to manageable levels. Buy ING Groep’s American
depositary receipt (ADR) up to US$15.00.
Elliott Gue & Roger Conrad, Capitalist Times,
www.capitalisttimes.com, 888-960-2759, September 13, 2013
Alliant Techsystems (ATK, 99)
from Ford Equity Research | September 16 Daily Alert
We project that Alliant will strongly outperform the
market over the next six to 12 months. This projection is
based on our analysis of three key factors that influence
common stock performance: earnings strength, relative
valuation, and recent price movement.
Alliant Techsystems is an aerospace, defense and
commercial products company. ... Strong Buy.
➧ Read more: www.dickdavis.com/2013/09/16/atk
Richard Segarra, CFA, Ford Equity Research,
www.fordequity.com, 800-842-0207, August 30, 2013
CNO Financial Group (CNO, 15)
from The Buyback Letter | September 4 Daily Alert
Insurance holding company CNO Financial Group
(CNO) and its insurance subsidiaries—principally
Bankers Life and Casualty Company, Washington
National Insurance Company and Colonial Penn Life
Insurance Company—serve pre-retiree and retired
Americans by helping them protect against financial
adversity and provide for a more secure retirement. They
do this by developing, marketing, and administering
health insurance, annuity, individual life insurance and
other insurance products for senior and middle-income
markets in the U.S.
Page 5
CNO reported second-quarter net income increased
about 17% versus a year earlier, aided by growth in
revenue and a decline in benefits payouts. Revenue
rose to $1.08 billion from $1.07 billion. Analysts were
expecting $1.07 billion. Management has reduced
shares outstanding by 7.1% in the last 12 months. New
subscribers: Buy.
David R. Fried, The Buyback Letter, www.buybackletter.com,
888-289-2225, Mid-August 2013
Energen Corp. (EGN, 73)
from Cabot Top Ten Trader | September 11 Daily Alert
Energen is a mid-sized ($1.7 billion of annual revenue)
energy explorer that’s re-focusing its efforts on its oil and
liquids producing properties, and that’s likely to make a
big difference. The firm does have some operations in the
San Juan Basin in New Mexico and Colorado, but drilling
there is being cut back due to lower natural gas prices.
Instead, the real action is in the Permian Basin, which
is far more liquids-rich; Energen boosted production
in that area by 26% in the second quarter alone, and
expects oil and liquids output to grow 24% this year as a
whole. And this company is only scratching the surface
of its potential—if all goes well, it could have north of
5,000 more wells to tap, which represents years’ worth of
activity. And that doesn’t include the still-huge San Juan
Basin! Moreover, management operates the company
very conservatively; 70% of its 2013 production is already
hedged, and a good portion of 2014, too, guaranteeing
great cash flow. ... If its exploration activities come in
better than expected, the stock could do very well. As it
stands now, analysts see earnings up 24% next year, but
we’d guess growth will come in even faster.
Technical Analysis
Like many energy stocks, EGN peaked in the spring
of 2011 and is just now back to that high. The stock
was 65 at that peak, and as of April of this year, was
still stuck in the mud at 45. But since then, the buyers
have been in control…the stock spiked into mid-May,
then built a calm base through most of July. But after
its quarterly report (and its update on its exploratory
drilling activities), the stock catapulted from 57 to 66 in
just two days on enormous volume! It’s since chopped
slightly higher; we think the stock wants to head higher
if the market gets going. You can buy some in this range
with a stop near 62.
Suggested Buy Range: 67-70 (Cabot’s buy range is valid
for two weeks.) Suggested Stop-Loss: 62-63
➧ Read more: www.dickdavis.com/2013/09/11/egn
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net,
978-745-5532, September 9, 2013
Dick Davis Investment Digest 749
September 2013
Revenue Growth Stocks
One easy way to find stocks of thriving companies is to looks for firms with strong revenue growth, which shows
that the business’ sales are growing. The stocks below all show several years of strong revenue growth.
Jacobs Engineering Group ( JEC, 59)
from Energy & Income Advisor | September 18 Daily Alert
Jacobs Engineering Group posted solid results for its
fiscal third quarter ended June 28, 2013. The engineering,
procurement and construction outfit generated net
income of $108.9 million over this three-month period,
up 9% from year-ago levels. Meanwhile, the company’s
backlog increased by 10.2%, to $17.2 million.
Highlights from the fiscal third quarter include the
resilience of Jacob Engineering’s public and institutional
business, which continues to take market share in the
U.S. and inked four major contracts with the federal
government for a total consideration of $12 billion.
Management also noted that the company hasn’t been as
hard hit by project delays and cancellations in the mining
sector because the firm’s expertise resides primarily in plant
optimization—one of the few in-demand engineering
services in an industry focused on cost reduction.
But robust order flow from customers in the chemicals
and oil and gas industries drove much of the backlog
growth over this three-month period. In a conference
call to discuss second-quarter results, management
highlighted what Jacob Engineering’s sales team
described as a “tsunami of new orders” from the U.S.
chemical industry over the next three to four years. ...
These tailwinds make Jacobs Engineering our top play
on the U.S. industrial revolution; the stock rates a buy
up to $60.00 per share.
➧ Read more: www.dickdavis.com/2013/09/18/jec
Elliott Gue and Roger Conrad, Energy & Income Advisor,
www.energyandincomeadvisor.com, 888-960-2759,
September 14, 2013
Oxford Industries (OXM, 67)
from Investors Intelligence | September 17 Daily Alert
Oxford Industries (OXM) is resuming the uptrends off
the February lows. Momentum is rising through neutral,
with a long way to go before encountering overbought.
John Gray, Investors Intelligence,
www.investorsintelligence.com, 914-632-0422,
September 16, 2013
Braskem (BAK, 17)
from Global Investment Strategist | August 26 Daily Alert
Braskem SA (BAK) is a Brazilian petrochemical
company which uses traditional feedstock to produce
a wide array of products, including ethylene, benzene,
gasoline, liquefied natural gas and vinyls. Those
Page 6
traditional operations account for about half of the
company’s revenues. Most of the remainder of revenues
comes from the production of “green” chemicals.
The company’s top product is green polyethylene
(PE). ... As an ever growing number of consumers
are becoming concerned about the state of the global
environment, bioplastics such as Braskem’s green PE are
becoming increasingly popular. ... Given the growing
use of bioplastics, Braskem’s revenues have shot up from
BRL17.9 billion in 2008 to BRL35.5 billion last year.
While the company isn’t consistently profitable—it
has lost money in three of the last ten years, including
2011 and 2012—its net income has been consistently
improving as its production of green plastics has ramped
up and processes have become more efficient. [BAK]
rates a buy up to 20.
➧ Read more: www.dickdavis.com/2013/08/26/bak
Benjamin Shepherd, Global Investment Strategist,
www.globalinvestmentstrategist.com, 800-832-2330,
August 21, 2013
American Axle & Manufacturing (AXL, 20)
Call
from Option Advisor | August 27 Daily Alert
AXL is up more than 79% year-to-date, and has
outperformed the broader S&P 500 Index (SPX) by
close to 12 percentage points over the course of the
last three months. Since hitting a multi-year high of
$21.41 earlier this month, the shares have pulled back
to hover around the $19.50 level, which happens to be
50% above a level of resistance they faced throughout
2012, and also roughly coincides with the automotive
parts manufacturer’s 50-day moving average. In other
words, AXL’s current spot could serve as a potential level
of support going forward.
On top of that, with over 10 million shares sold short,
short interest currently makes up about 16% of the
stock’s total outstanding float. At AXL’s average daily
trading volume, it would take in excess of two weeks for
the bearish speculators to cover those shorted shares.
That being said, should the stock’s current upward
momentum continue, there’s plenty of sideline cash
available to trigger a short-squeeze situation, which
could propel AXL to new highs.
RECOMMENDATION: Buy the January 18, 2014,
18-strike call. Max Entry Price: 3.60. Closeout Date:
11/19.
Bernard G. Schaeffer, Option Advisor,
www.schaeffersresearch.com, 800-448-2080, September 2013
Dick Davis Investment Digest 749
September 2013
Value Stocks
There are several ways to determine when a stock is undervalued: you can use ratios like price to earnings and
price to book, you can compare the stock’s current price to its historical range, or you can calculate a fair value
for the stock based on factors like sales and industry valuations. The stocks below are all undervalued one way or
the other.
H Monster Worldwide (MWW, 4.52)
from The Cheap Investor
We were looking for a profitable, well-known company
that was selling for a good low price, and we think
Monster Worldwide fits the bill.
The stock was a Wall Street favorite, selling at $26 per
share in January 2011. It was selling over $9 per share 12
months ago. Now that the price has fallen 83% from its
2011 high, we think it’s time to recommend this stock.
Insiders own just 3.5% of the 111 million total shares
outstanding, and 207 institutions own 93% of the float
(shares in public hands). Institutions purchased about
500,000 more shares than they sold for the quarter ended
June 30, 2013. The company has a fair balance sheet with
$80 million ($0.70 per share) in cash, a book value of
$7.64 per share and $139 million in debt. During the
quarter, Monster repurchased 4.4 million shares of its
common stock at an average cost of $5.35 per share for
a total of $23 million.
The negative factor is the stock price is in a downward
trend, and second quarter revenues and earnings were
lower than last year. The company’s second quarter and
six month results for the period ended June 30 are shown
below.
InterOil Corp. (IOC, 73)
from Shortex Market Letter | August 30 Daily Alert
The Papua, New Guinea oil and gas company [is]
skidding on the failure of Exxon Mobil to close the deal
on Papua discoveries. Plunging through 50- and 200day moving averages with heavy volume. Reversal could
see primary resistance at 71-73 and secondary resistance
at 75-77. Short-covering a boost. Volatile.
Buying Range: 67-72. Near-Term Objective: 88.
Intermediate-Term Objective: 96. Stop Loss: 63.
Joseph Parnes, Shortex Market Letter, www.shortex.com,
800-877-6555, August 28, 2013
H Alexander & Baldwin (ALEX, 38)
from Positive Patterns
I believe I see signs that land prices are going up in a
smart manner over the next five years in Hawaii. In
Hawaii, where land has always been scarce because of
its size, what is left is to be fought over and valued at
the upper reaches of U.S. real estate. By 2015-2016,
things in Hawaii should be “cooking” again and by then
I expect ALEX will be much higher in price. After a
recent strong run-up, ALEX has had a nice pullback and
in the $34-$37 area it’s very buyable.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO
65765, 417-887-4486, September 3, 2013
DSW Inc. (DSW, 83)
from Stock Trader’s Almanac | August 23 Daily Alert
Monster is a major player in the employment website
industry. Its stock is selling significantly below its
book value, and its market cap is only $501 million.
The company is in the process of restructuring, and we
hope Monster will return to growing its revenues and
earnings. When the job market eventually recovers,
Monster should greatly benefit. We think the stock has
the potential to move at least 25% to 50% over the next
year or so. With such a low market cap, Monster could
be an acquisition candidate.
Buy Recommendation.
Bill Mathews, The Cheap Investor,
www.thecheapinvestor.com, 847-697-5666, September 2013
Page 7
[There is a seasonal trend of ] historical consumer
strength running from approximately the end of
September to the beginning of June in the following year.
... Based upon the Morgan Stanley Consumer Index, the
sector has produced gains averaging 10.8% over the last
15 years during this timeframe. ... The time is right to
consider adding individual consumer-orientated stocks
to the Stock Portfolios. Our first candidate is DSW Inc (DSW). It recently hit
a new 52-week when it raised guidance and announced
that it was planning to split its shares two-for-one.
DSW is a footwear and accessory retailer in the U.S.
with a broad and diverse product lineup selling online
and at traditional brick and mortar stores. DSW is
reasonably valued with a trailing P/E in the low 20s and
Dick Davis Investment Digest 749
September 2013
Value Stocks continued
has an attractive Price/Sales ratio of 1.55. Revenues are
rising, it has no debt and plenty of cash. DSW could be
purchased on pullbacks below $78.75 (current pre-split
price). Jeffrey A. Hirsch, Stock Trader’s Almanac,
www.stocktradersalmanac.com, 800-762-2974,
August 20, 2013
Avis Budget Group (CAR, 31)
from DividendLab | September 12 Daily Alert
Avis Budget Group (CAR) does not pay dividends but
offers excellent capital appreciation upside with shares
projected to deliver about a 5x return over the next five
years from $28 currently to $135 by 2018 based on
consensus earnings growth estimates of 21.6% annually.
Cut that in half to a $67 price target by 2018, just to be
safe, and you’ll still more than double your investment
off current levels.
Shares currently bear a trailing P/E of 22 with a market
capitalization of $3 billion and a forward P/E of 10.5.
As the graphs below show, both trailing and forward
P/E are well below recent historical levels but at nearterm highs.
A smaller forward PEG ratio suggests undervaluation
relative to growth and a good time to buy.
➧ Read more: www.dickdavis.com/2013/09/12/car
Todd Johnson, Dividend Lab, www.dividendlab.com,
505-514-0036, September 9, 2013
H Amtrust Financial Services (AFSI, 37)
from Validea Hot List
Strategy: P/E/Growth Investor based on Peter Lynch.
Amtrust Financial Services is a multinational specialty
property and casualty insurer.
AFSI is considered a “True Stalwart,” according to this
methodology, as its earnings growth of 14.38% lies
within a moderate 10%-19% range and its annual sales
of $2,305 million are greater than the multi-billiondollar level. This methodology looks for the “Stalwart”
securities to gain 30%-50% in value over a two-year
period if they can be purchased at an attractive price
based on the P/E to Growth ratio. AFSI is attractive if
AFSI can hold its own during a recession.
The Yield-adjusted P/E/G ratio for AFSI (0.66), based
on the average of the three-, four- and five-year historical
eps growth rates, is O.K. The EPS for a stalwart company
must be positive. AFSI’s EPS ($3.45) would satisfy this
criterion. ... This methodology uses the Equity/Assets
Ratio as a way to determine a financial intermediary’s
health, as it is a better measure than the Debt/Equity
Ratio. AFSI’s Equity/Assets ratio (15.00%) is extremely
healthy and above the minimum 5% this methodology
looks for, thus passing the criterion.
This methodology uses Return on Assets as a way to
measure a financial intermediary’s profitability. AFSI’s
ROA (3.33%) is above the minimum 1% that this
methodology looks for, thus passing the criterion. Guru
Score: 91%.
John Reese, Validea Hot List Newsletter, www.validea.com,
877-439-0506, September 13, 2013
H Weyco Group (WEYS, 25)
from Forbes Dividend Investor
In addition, the company’s Forward PEG ratio (forward
P/E divided by projected five-year earnings growth—a
good indicator of valuation relative to growth prospects)
severely lags historical levels and is now near all-time lows.
Page 8
This recommendation is about a shoe company that’s
hitting its stride and kicking out a steady flow of dividends
that regularly rise. Milwaukee-based Weyco Group
(WEYS) is the business behind Florsheim and Nunn
Bush shoes, which it designs and markets throughout
North America. It sells mostly to retailers through its
wholesale business, but it also runs 23 company-owned
stores and sells on the Internet. Additional brands
Dick Davis Investment Digest 749
September 2013
Value Stocks continued
owned by Weyco include Stacy Adams, BOGS, Rafters
and Umi.
Over the past 12 months, Weyco earned $18.3 million on
$296.5 million in sales. There are no Wall Street analysts
with forecasts for Weyco, but sales have been running
higher from $229.2 million in 2010, $271 million in
2011 and $293 million in 2012. Operating cash flow of
$27.3 million exceeded earnings by 50%. Free cash flow,
after paying dividends, was postitive by $11.4 million. Valuations compared to five-year averages sport discounts
across the board. Weyco trades at a 24% discount to its
average price-sales ratio since 2008, and 20% cheaper on
its price-earnings multiple. On book value, it’s trading
12% more cheaply than it has in the past five years. If
it fetched its average P/E of 18.6 since 2008, the stock
would be trading at $31.43, based on $1.69 in trailing
earnings. John Dobosz, Forbes Dividend Investor,
www.newsletters.forbes.com, 212-367-3388,
September 16, 2013
H BNP Paribas (BNPQY, 34)
from $100k Portfolio
Even compared to U.S.
banks, European banks
are cheap. In fact, this
is the least expensive
valuation for European
banks in 30 years, based
on price-to-book ratios.
Since 1987, the average
price-to-book ratio of European banks has been 1.9.
That means that right now, these banks trade at a 50%
discount to their “normal” valuation. ...
Headquartered in Paris—with a second headquarters in
London—BNP Paribas (BNPQY) was one of the few
European banks to emerge from the continent’s credit
crisis relatively unscathed. In 2008 and 2009, as global
debt was spreading like wildfire, BNP Paribas posted a
net profit of 8.8 billion euros. Last year the company
turned a profit of 6.6 billion euros ($8.7 billion)—more
than four of the six largest U.S. banks. ... You would
think being one of the few European banks to grow
during such economic turmoil would have given BNP
Paribas’ stock a nice boost. Not exactly.
The average European bank stock has fallen 36% over
My desire to buy European banks today is based on the last five years. With a 31% decline, BNP Paribas
the view that the economy is recovering. But that isn’t hasn’t fared much better. ... The stock currently trades
enough to encourage me to invest in the sector. Instead, at just 9.5 times estimated earnings for 2013. Looking
forward to 2014, the P/E ratio
it’s the value offered by these
falls to just 7.8. Meanwhile, the
European bank stocks that has
Reasonable P/E Ratios
average European bank trades
me bullish on the sector.
The P/E ratio, which compares at 9.2 times next year’s earnings
Let me explain. The average
a stock’s current price to its estimates. And the company’s
large-cap U.S. stock is trading
at more than 15 times forward earnings, is one of the most price-to-book ratio is equally
earnings. The Euro Stoxx 50 popular measures of a stock’s impressive at 0.7. index, Europe’s version of the
S&P 500, is trading at 12.5 times
forward earnings. European
banks trade at a big discount
to both, at less than 10 times
estimated earnings. The sector
has taken a serious beating since
the debt crisis began, falling 36%
in the last five years.
Meanwhile, most global stock markets are on the rise.
The S&P 500 has risen 16% in 2013. The MSCI World
Index, which measures the performance of stocks
in developed markets around the globe, is up 19%.
European banks have lagged most markets, advancing
less than 11% in 2013. When you evaluate European
banks on a price-to-book basis, they look even cheaper
(see table above).
Page 9
Investors have pummeled BNP
Paribas shares the last five years,
along with most other European
banks. Now that the recession
clouds are starting to part,
investors may soon soften their
stance against the Euro banks.
... BNP Paribas is already ahead
of the curve in the recovery of
Europe’s banks. Let’s make sure we’re ahead of the curve
too.
value. Analysts often compare
a stock’s P/E ratio to the stock’s
historical P/E range, or to
other stocks in the industry,
to determine when a P/E
indicates value.
Recommended Action: Buy Shares of BNP Paribas S.A.
(BNPQY)
Ian Wyatt, $100k Portfolio, www.100kportfolio.com,
866-447-8625, September 12, 2013
Dick Davis Investment Digest 749
September 2013
Tech Stocks
Fast-growing tech stocks have been some of this year’s best performers, propelling the Nasdaq higher than the
market as a whole. After you read these stock recommendations, turn to page 13 for a one-stop fund with broad
tech sector exposure.
Ambarella (AMBA, 18)
from Benjamin Shepherd’s Wall Street | August 29 Daily
Alert
High-quality video is one of the fastest-growing niche
markets within technology. And a key player in this
niche is little-known Ambarella (AMBA), which went
public last October at $6 a share and has since zoomed
up to about $17 a share. We see more gains ahead as this
little company continues to power ahead.
Ambarella develops leading-edge semiconductors for
high-definition video and image processing that use
very little power and fit on a single chip, known as a
system on a chip (SOC). Its products are also used in
TV broadcasting infrastructure.
Earnings per share (EPS) are growing at a 33% annual
pace and revenue at a 24% clip. Operating profit margins
are relatively high at close to 18%. … It has no net debt
and $104 million in cash on the balance sheet. For fiscal
2013, ended in January, revenue came in at $121 million
and EPS at 64 cents. First-quarter 2014 EPS were 17
cents on revenue of $34 million. The current consensus
estimate looks for EPS of 84 cents in the current fiscal
year and $1.06 in fiscal 2015.
Despite its strong growth, Ambarella is not expensive.
It currently trades for around 20 times forward earnings
vs. 28 times for the semiconductor sector. What’s more,
Ambarella’s Return on Assets is 18% and its Return on
Equity is 31%, both way ahead of its industry’s averages.
➧ Read more: www.dickdavis.com/2013/08/29/mba
Benjamin Shepherd, Benjamin Shepherd’s Wall Street,
www.shepherdswallstreet.com, 800-892-9702,
September 2013
Equinix (EQIX, 175)
from US Investment Report
We like Equinix (EQIX) of Redwood City, CA, the data
center pioneer we discovered at 50 four years ago and
rode to 220 last spring. Strong in all key revenue-driving
niches, including cloud and interconnect, we foresee
25% a year earnings growth and possibly advance from
175 to 235, with 13 of 16 analysts calling EQIX a strong
buy. Strong Buy. Target Price 235. Suggested Loss Limit
159.8.
Stephen Quickel, US Investment Report,
www.usinvestmentreport.com, 215 862-0399,
September 6, 2013
Page 10
Methode Electronics (MEI, 26)
from The Oberweis Report | September 5 Daily Alert
Methode Electronics designs, manufactures and markets
devices employing electrical, radio remote control,
electronic, wireless and sensing technologies. ... Growth
is being driven by design wins with major OEMs like
GM and Ford for “center stack” solutions that allow
motorists to access car functionality like heating/air
conditioning, radio and other settings through a flatpanel screen instead of via traditional switches. ... In the
company’s latest reported first quarter, sales increased
approximately 41% to $167.3 million from $118.7
million in the first quarter of last year. Methode reported
earnings per share of $0.36 in the latest reported first
quarter versus $0.10 in the same quarter of last year.
Strong Buy [around] 23.89.
Jim Oberweis, CFA, The Oberweis Report,
www.oberweisreport.com, 800-323-6166, September 2013
LeapFrog Enterprises (LF, 9.41)
from FXC Newsletter | September 10 Daily Alert
LeapFrog Enterprises designs, develops, and markets
technology-based learning products and related
proprietary content for children worldwide. Leapfrog
develops reading and writing applications for learning,
designed to be used with the iPad and iPhone. Their
products are innovative and great fun for kids. They offer
the LeapPad, the LeapPad2, the Leapster, LeapReader,
and many other handheld devices. ... Leapfrog has
surpassed Hasbro and Mattel in sales and their products
are a top seller in Toys R Us and on Amazon.
The future is technology. If you can’t beat it, join it,
and we feel Leapfrog will reap the rewards this holiday
season. Parents spend uncontrollably on their kids and
they will be running full speed to buy these products.
With the upcoming holidays, buy yourself this gift as we
see this stock going as high as $20 next year. BUY.
➧ Read more: www.dickdavis.com/2013/09/10/lf
Frank Curzio, FXC Newsletter, www.FXCnewsletter.com,
September 2013
Dick Davis Investment Digest 749
September 2013
Feature
The Summer of the Microcap
By Cindy Bowser
These teeny, tiny companies have historically maintained a general trend: outperforming up markets and
underperforming down markets. This simply means that when the general market is up, microcaps are up higher.
Conversely, when the general market is down, microcaps are down lower. ... This trend has held true for a number of
reasons, with one standing out. Microcaps make up the majority of publicly traded companies. From a capitalization
standpoint, they make up a slight fraction of the market. As Buckaroo and Founder of Microcapclub.com Ian Cassel
puts it: “the total market capitalization of the entire microcap space is around $300 billion, about the size of Google
(GOOG).”
That said, it doesn’t take much capital to move the microcap market either way. When capital flows in, stocks rise
rapidly. When capital flows out, stocks decline rapidly; hence the inherent volatility of smaller companies. For larger
companies, it takes more to move. As a result, microcaps as a group generally rise faster and fall harder.
This summer, a deviation from this trend has developed. For a visual of this change, see the chart below, which shows
the S&P 500, the Russell 2000 and the Russell Microcap indexes from May 1, 2013 to August 30, 2013.
The beginning of this chart looks typical of microcap markets: outperforming the larger S&P 500 during a rise in
the general market. Where the divergence becomes evident is in late June. All three indexes plummeted, but the
smaller Russell 2000 and Russell Microcap slid about the same as the S&P 500, instead of underperforming. Then,
outperformance continued into the market’s summer highs. Recently, the markets slid to the levels where they would
end the summer. During this downtrend, each index above slid about 5%. Again, the smaller indexes showed little
to no underperformance, as they typically would have in the very recent past.
This divergence from the norm has left many wondering why. Barron’s and The Wall Street Journal, amongst other
publications, have published articles in favor of smaller stocks, touting their leverage and recent outperformance as
buy indicators. Rather ironically, this is what we have been saying since the dawn of The Bowser Report.
With the economy’s increased attention to the little guys, microcaps have become benefactors of an improving
market. More money is flowing to smaller companies as investor confidence grows. Government action, such as
the JOBS Act, which makes it easier for small companies to find funding, has stimulated capital growth in smaller
companies. All of this has led to outperformance in up markets, and comparable or smaller pullbacks during down
times, signaling that much more capital is remaining in small stocks.
This could be the turning of the tide as investors become more acquainted with the lesser-known and less efficient
microcap marketplace. Or, it could simply be a small blip on the radar screen of stock market history, only to correct
itself. Whatever the case, the evidence is clear, marking an ongoing phenomenon too big to ignore. Whether we are
witnessing the investment community finally taking small stocks seriously or a short-term run will only become
clear with time.
Cindy Bowser, The Bowser Report, www.thebowserreport.com, 757-877-5979, September 2013
Page 11
Dick Davis Investment Digest 749
September 2013
Small and Micro-Cap Stocks
H Creative Learning Corporation (CLCN,
1.87)
from The Bowser Report
Creative Learning Corporation is an educational
company, focusing on teaching children science,
technology, engineering and mathematics (or STEM)
[through its Bricks 4 Kids franchises.] Franchises
operate through in-school field trips, after-school
classes, pre-school classes, homeschool classes, camps,
birthday parties and special events. The franchises are
independently operated. ...
For the most recent quarter, ended June 30, 2013,
Creative Learning reported revenues of $1.6 million, a
99% increase compared to the same period last year. A
92.5% increase in new franchise fees combined with a
183.4% increase in royalties fueled the revenue growth.
... The company’s most recent net income figure shows a
profit margin of 35.6%, compared to a profit margin of
16.7% for the same period last year. ...
At the end of fiscal year 2012, the company had 240
franchises and two corporate centers. In its most recent
quarterly report, the company announced 346 franchises
and two corporate centers. Additionally, CLCN
announced eight Challenge Island franchises and
another franchise opportunity that the company will
roll out (Sew Fun). As the number of franchises grows,
Creative Learning not only will receive fees, but also
royalties will continue to grow exponentially—as we saw
with the most recent quarter’s 183% increase in royalty
revenue. Bowser Rating: 9.
Cindy Bowser, The Bowser Report,
www.thebowserreport.com, 757-877-5979, September 2013
H AxoGen (AXGN, 4.49)
from The Quiet Investor
AxoGen provides substrate material for repairing
peripheral nerves, which are all the nerves other than
those of the spinal and cerebral nerve system. ... Given
the right conditions, peripheral nerves have the ability
to regenerate themselves. Regenerating axons requires
the proper environmental conditions, including
structure, guidance, and a tension- and compression-free
atmosphere.
[AxoGen’s products] constitute a breakthrough in the
effectiveness and cost of regenerating nerves. ... Axogen
has three main products: Avance Nerve Graft, AxoGen
Nerve Connector and AxoGen Nerve Protector.
AxoGen Nerve Graft is a bit of nerve tissue harvested
from cadavers, cleansed of all cellular material and
debris and sterilized and packaged. ... An article in the
December 27, 2012, Wall Street Journal highlights the
Page 12
recovery of a wounded Navy man who was able to have
a severed sciatic nerve in a crushed leg restored using
AxoGen’s Avance Nerve Graft. The head of microsurgery
at Walter Reed National Military Medical Center, who
operated on the man, said, “It (AxoGen’s Nerve Graft)
has become the standard of care for our group.”
[Thus far] losses have been mammoth and probably
will continue, though much abated, for a couple more
quarters. Revenues are growing well, margins on the
business are very good, and once sales have begun to bring
in referrals, marketing expense may taper off a bit. The
board of directors is very impressive, and the CEO has a
long history with Johnson and Johnson in the marketing
of one of their divisions, and others have experience in
tissue regeneration and venture capital investment. The
market for their products is huge, and should continue
to grow. ... Once they break into the black there should
be plenty of open field to add to positions as there could
be substantial gains in the future.
John Gay, The Quiet Investor, 32 Kyle Ct., Willowbrook, IL
60527, 630-654-1254, September, 2013
Endocyte (ECYT, 16)
from The 100% Letter | August 22 Daily Alert
Endocyte (ECYT) is a $560 million market cap
biopharmaceutical company that is developing targeted
therapies to treat cancer and inflammatory diseases.
The most promising treatments Endocyte is working
on serve large markets, including patients with ovarian
cancer, lung cancer and prostate cancer. The company fits the mold of a biotech company that
has “double” potential. It has cash, a world-class partner
and a solid drug development pipeline. It also has near
and mid-term catalysts that should move the stock
steadily higher from today’s price of $15.57.
But perhaps the best sign of Endocyte’s legitimacy and
potential—especially to those not well versed in the
language of biotech stocks—is its $1 billion partnership
with Merck (MRK) to develop a super-targeted cancer
treatment. ... Based on my research, the positive progress
in trials to date, and the financial and marketing support
of Merck, I think this is an opportunity we want to jump
on. As always, I’ll be initiating a first tranche at today’s
price and holding off for a second tranche at a later date.
Action to Take: Buy Endocyte (NASDAQ: ECYT)
around $15.57 a share.
➧ Read more: www.dickdavis.com/2013/08/22/ecyt
Tyler Laundon, The 100% Letter,
www.100percentletter.wyattresearch.com, 866-447-8625,
August 21, 2013
Dick Davis Investment Digest 749
September 2013
Funds
This month’s ETFs offer one-stop exposure to technology stocks, the least-volatile large
caps and global—especially Chinese-gambling profits.
Market Vectors Global Gaming (BJK, 47)
from Systems & Forecasts | September 3 Daily Alert
This sector ETF has been more volatile than the S&P
500 during its history. However, it has actually been more
stable in August, holding its ground even as the S&P 500
has slipped. The selection is based first and foremost on
relative strength, but secondarily on the non-correlation
between moves in BJK and in the S&P 500.
There is significant exposure to Chinese gamblers in this
ETF: Two of its top ten holdings are listed in Hong
Kong, and the U.S.-listed companies (Las Vegas Sands,
MGM Resorts International) have a big presence there.
Johnson & Johnson, PepsiCo, Bristol-Myers, Lockheed
Martin, Chubb and Eli Lilly. The five largest sectors are:
HealthCare, Financials, Consumer Staples, Information
Technology and Consumer Discretionary.
A recent report by Morningstar concluded: “in nearly
every market studied, low-volatility stocks have
outperformed high-volatility stocks.” USMV is a great
addition to everyone’s portfolio. I expect USMV shares
to reach my Min Sell Price of 47.00 within two years.
Max Buy Price 34.00. Very Low Risk.
J. Royden Ward, Cabot Benjamin Graham Value Investor,
www.cabot.net, 978-745-5532, September 2013
Fidelity Nasdaq Composite Index Tracking
ETF (ONEQ, 148)
from Moneyletter | September 13 Daily Alert
We are buying the Fidelity Nasdaq Composite Index
Tracking ETF (ONEQ) in the Fidelity-only model
portfolios. The fund offers broad representation to the
technology-heavy Nasdaq market. ...
Dr. Marvin Appel and Gerald Appel, Systems and
Forecasts, www.systemsandforecasts.com, 800-829-6229,
August 29, 2013
The Nasdaq Composite index is comprised of more than
3,000 stocks, but ONEQ uses a representative sampling
technique to replicate the index with just under 1,900
stocks. As with the index, ONEQ is technology heavy,
with nearly half of assets in the sector. The fund’s health
care holdings are dominated by biotechnology firms.
iShares MSCI USA Minimum Volatility
ETF (USMV, 34)
from Cabot Benjamin Graham Value Investor | September 9
Daily Alert
The iShares MSCI USA Minimum Volatility Index
ETF (USMV) seeks investment results that correspond
to the price and yield performance of the MSCI USA
Minimum Volatility Index. The ETF invests at least 90%
of its assets in securities of the Index or in depositary
receipts representing securities in the Index.
USMV is currently selling at a very small 0.14% discount
to its net asset value. The price to earnings ratio (P/E) of
the stocks contained in the ETF is 25.0, and the price to
book value ratio (P/BV) is 5.41. Both ratios are a little
high, but beta, which is a measure of volatility, is a low
0.78. Management fees total 0.15%.
USMV is very well diversified with risk spread out
over 134 holdings. The largest position consumes only
1.65% of the total portfolio. The 10 largest holdings in
order of size are TJX, Paychex, ADP, General Mills,
Page 13
Performance
ONEQ closely tracks its benchmark index in
performance. The fund falls into Morningstar’s large
growth category. In markets where growth-y stocks are
in favor, it outperforms, and the opposite is also true.
Most recently, it has advanced just shy of 20% in 2013
through the end of August. That bests the 16.2% return
of the S&P 500 and puts it in the top third of its peer
group.
➧ Read more: www.dickdavis.com/2013/09/13/oneq
Walter Frank, Moneyletter, www.moneyletter.com,
800-890-9670, September 2013
Dick Davis Investment Digest 749
September 2013
Updates
Sell Half
2013 Top Pick Sell
Trulia (TRLA, 48)
Invivo Therapeutics Holding (NVIV, 1.40)
from Top Stock Insights, recommended at $30 in the
February 14, 2013, Daily Alert and Investment Digest
issue 737. | September 18 Daily Alert
It’s only been seven months, but we’ve doubled our
money with Internet real estate company Trulia.com
(NASDAQ:TRLA). This is a great little growth story
that is being propelled along by the real estate recovery.
Moreover, the proliferation of hand-held devices such
as smartphones and tablets has helped web-based
businesses like Trulia.com grab market share.
from BI Research, recommended at 2.45 in Investment
Digest issue 711 and again at 2.05 as a Top Pick for
2013. | August 28 Daily Alert
The new CEO has already taken a look at the timeline
for the biopolymer scaffold device and in a press release
this morning unfortunately pushed it way out beyond
what the prior CEO was indicating—way beyond. ...
Now I don’t know what to believe, if the prior CEO
could be so far off on this one. ... Also I fear class
action suits, given there are some shorts out there, and
Despite the growth, I recommend selling half of your of course they are the ones who usually file them. ...
position in TRLA today. This will ensure you make a Accordingly, while I do think the company is in very
100% return (if you bought at our recommendation price). capable hands now to take it to the next level, it’s the
I’m not calling a “top” in shares of TRLA. But I do think timeline that appears to have been pushed out by
that when we can get all of our initial capital back, and let several years including, especially, for this pivotal study
the pure winnings ride, we’re striking the right balance and then FDA reviews, so I am going to issue a Sell
between our desire to preserve capital and pursue growth. the rest.
Tom Bishop, BI Research, www.biresearch.com,
Action to take: Sell half of your position in TRLA to August 27, 2013
lock in a 100% gain, and let the other half ride.
Tyler Laundon and Ian Wyatt, Top Stock Insights,
www.topstockinsights.com, 866-447-8625,
September 13, 2013
Sell
Aruba Networks (ARUN, 18)
from The Investment Letter, recommended around $15 in
the May 30 Daily Alert and issue 744. | August 29 Daily
Alert
Update: New Highs
Melco Crown Entertainment (MPEL, 31)
from Cabot Stock of the Month, recommended at $23
in the April 10, 2013, Investment Digest. | August 23
Daily Alert
Melco Crown Entertainment (MPEL) hit a new high
yesterday, propelled by growing support of Chinese
gambling stocks. The stock remains extended, but the
I bought to take advantage of earlier panicked selling trend is strong, so I believe further upside lies ahead.
[and ARUN has] done very well since. [As it was] As always, try to buy on pullbacks. BUY.
intended to be a short-term investment, I think now Timothy Lutts, Cabot Stock of the Month, www.cabot.net,
is a good time to book the profits and pocket the cash. 978-745-5532, August 20, 2013
David C. Jennett, The Investment Letter, P.O. Box 6170,
Holliston, MA 01746, 800-542-5018, August 26, 2013
Sell One-Third
Celgene (CELG, 147)
from Cabot Market Letter, recommended around $100
in the February 22, 2013, Daily Alert and issue 738. |
August 29 Daily Alert
We’re going to sell ... one-third of our shares in
Celgene. Our long-term outlook for Celgene remains
great, but after a big run this year, the stock looks like
it may need to rest. We’ll hold most of our shares but
take some off the table.
Michael Cintolo, Cabot Market Letter, www.cabot.net,
978-745-5532, August 27, 2013
Page 14
2012 Top Pick Update
Tesla Motors (TSLA, 166)
from Cabot Stock of the Month, recommended as a
Top Pick for 2012 at $27 in the January 18, 2012,
Investment Digest. | August 23 Daily Alert
Tesla continues to thrill shareholders and confound
experts who claim the stock is too high. Certainly,
TSLA is overvalued by all traditional measures, but
the same has been true for most big winning stocks
throughout history. And today, one more piece of good
news arrived; in crash tests by the National Highway
Traffic Safety Administration, Tesla’s Model S scored
99 out of 100, the highest score ever achieved by any
car. I continue to rate TSLA a long-term buy, but
Dick Davis Investment Digest 749
September 2013
Updates
caution once again that the potential for a serious
correction—30% to 40%—remains. BUY.
Timothy Lutts, Cabot Stock of the Month, www.cabot.net,
978-745-5532, August 20, 2013
Spotlight Stock Update
Lions Gate Entertainment (LGF, 37)
from BI Research, recommended at $27 in Investment
Digest issue 743, dated May 22, 2013. | September 6
Daily Alert
Lionsgate (LGF) made a bit of a splash at the box office
this weekend with yet another under-the-radar film
that it is distributing in the U.S. with Televisa (i.e., it
doesn’t own it). ... The film came in number five for the
weekend on just 347 screens and did a mind-boggling
$10 million for the four-day holiday weekend—with
minimal advertising. ... The well-reviewed You’re Next,
by the way, averaged just $1,668 per screen for the three
days, but is up to about $14 million at the domestic
box office, and Lions Gate acquired (owns) it for $2
million. So Lions Gate has a couple of moneymakers
here, with all the ancillary revenue streams to follow.
Of course, it is the big guns that will have the biggest
impact, but those singles and doubles can help run up
the score too. Meanwhile the anticipation of the “big
guns,” like The Hunger Games: Catching Fire, along
with these smaller successes, are causing the share price
to creep up there. So, as noted earlier, if the shares
touch $39 I’d take 25% off the table, because there are
no guarantees in this business.
Tom Bishop, BI Research, www.biresearch.com,
September 3, 2013
Sell
Roadrunner Transportation
Systems (RRTS, 27)
from Upside, recommended at $23 in Investment Digest
issue 740 and the April 4, 2013 Daily Alert | August 28
Daily Alert
Roadrunner Transportation Systems (RRTS) is being
downgraded to Sell because of deteriorating Quadrix
scores and an unfavorable valuation. Moreover, our
interest in trucking stocks has diminished, partly
reflecting the group’s mixed June-quarter results.
The stock’s Quadrix Overall score is now 67, down
from 84 a month ago. The Value score is a middling 44,
hurt by weak ranks for price/cash flow (26) and P/E
ratio (37) — two highly effective factors in Quadrix.
Roadrunner, recommended as a Buy at $23.00 in
March, should be sold.
Sell
AutoNation (AN, 53)
from Cabot Benjamin Graham Value Investor,
recommended at $45 in Investment Digest issue 745,
dated June 19, 2013. | September 12 Daily Alert
AutoNation (AN) exceeded its Minimum Sell Price
of 50.74 today. AutoNation was first recommended in
the Low PEG Special Feature in December 2012 at
38.60 and has advanced 31.5% during the past nine
months compared to a gain of 17.8% for the Standard
& Poor’s 500 Index.
AutoNation reported strong second-quarter results,
but the stock’s current 18.5 price-to-earnings ratio
is substantially higher than its 10-year average P/E
of 11.5. I have learned that selling stocks when they
reach their Min Sell Prices delivers the best results. I
advise selling your AN shares now.
J. Royden Ward, Cabot Benjamin Graham Value Investor,
www.cabot.net, 978-745-5532, September 9, 2013
Drop
LightInTheBox (LITB, 12)
from Cabot China and Emerging Markets Report,
recommended as a WATCH in the August 2013
Investment Digest. | August 26 Daily Alert
LITB did NOT react well to the company’s earnings
report as the company missed analysts’ projections on
broth revenues and forecasts. The stock dropped like
a stone immediately after and it’s falling still. That’s a
clear signal that it’s time to take LITB off our watch
list. DROP.
Paul Goodwin, Cabot China & Emerging Markets Report,
www.cabot.net, 978-745-5532, August 22, 2013
More Sell Alerts
• Cabot Market Letter Editor Mike Cintolo
recommended selling Pandora (P) in the
September 3 Daily Alert.
• I n the September 3 Daily Alert, Validea Hot List
Editor John Reese recommended selling Inter
Parfums (IPAR), recommended at $33 in the
August 8, 2013, Daily Alert and issue 748, and
Williams-Sonoma (WSM), recommended at $57
in the May 13, 2013, Daily Alert and issue 743.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com,
800-233-5922, August 23, 2013
Page 15
Dick Davis Investment Digest 749
September 2013
Investment Index
Company
Name (Symbol)
Alexander & Baldwin (ALEX)
Page
7
Product/
Service
Financial
Alliant Techsystems Inc (ATK)
5
Ambarella Inc (AMBA)
10
Technology
52-week
Recent
Low-High
Price
25.88 - 46.23 38.32
Capital Equipment 48.67 - 103.77 98.94
5.55 - 19.44
17.99
Fwd.
P/E
Ratio
59
EPS Est.* Indicated
EPS (current Annual
Web Address
(TTM)
yr.) Dividend Yield**
0.75
0.63
n/a
n/a
www.alexanderbaldwin.com
11
8.16
8.83
1.04
1.10%
www.atk.com
19
0.95
0.95
n/a
n/a
www.ambarella.com
American Axle & Mfg Hldg (AXL)
6
Consumer Cyclical
9.27 - 21.41
20.21
11
0.62
1.79
n/a
n/a
www.aam.com
Amtrust Financial Svcs (AFSI)
8
Financial
21.73 - 41.72
37.37
12
2.90
3.08
0.56
1.50%
www.amtrustgroup.com
Aruba Networks Inc (ARUN)
14
Technology
12.38 - 26.78
17.51
26
0.63
0.53
n/a
n/a
www.arubanetworks.com
AutoNation Inc (AN)
15
Retail
38.28 - 53.70
52.64
18
2.74
2.96
n/a
n/a
www.autonation.com
Avis Budget Group (CAR)
8
Consumer Cyclical 15.10 - 34.21
30.63
14
1.97
2.22
n/a
n/a
www.avisbudgetgroup.com
AxoGen Inc (AXGN)
12
Health Care
2.85 - 4.59
4.49
n/a
(0.72)
(0.51)
n/a
n/a
www.axogeninc.com
BNP Paribas SA (BNPQY)
9
Financial
23.52 - 34.13
33.80
11
2.49
3.21
0.68
2.00% www.bnpparibas.com/en/home
Braskem (BAK)
6
Basic Material
12.25 - 17.85
16.52
28
(0.24)
0.58
0.58
3.50%
www.braskem.com.br
Celgene Corp (CELG)
14
Health Care
71.23 - 151.20 147.04
25
5.50
5.97
n/a
n/a
www.celgene.com
CNO Financial Group (CNO)
5
Financial
8.26 - 14.97
14
1.06
1.07
0.12
0.80%
www.cnoinc.com
Creative Learning Corp (CLCN)
12
Services
0.49 - 1.97
Dover Corp (DOV)
1
DSW Inc (DSW)
7
Retail
Endocyte Inc (ECYT)
12
Health Care
14.55
1.87
n/a
0.08
n/a
n/a
n/a
www.creativelearningcorp.com
89.67
17
4.80
5.30
1.50
1.70%
www.dovercorporation.com
57.27 - 88.73
83.27
22
3.68
3.80
1.00
1.20%
www.dswinc.com
7.50 - 19.00
15.51
n/a
(0.35)
(0.63)
n/a
n/a
www.endocyte.com
41.38 - 72.89
72.80
21
2.89
3.36
0.58
0.80%
www.energen.com
163.73 - 231.56 174.94
44
1.36
1.51
n/a
n/a
www.equinix.com
Capital Equipment 54.90 - 90.60
Energen Corp (EGN)
5
Energy
Equinix Inc (EQIX)
10
Technology
ING Group (ING)
4
Financial
7.00 - 12.08
11.91
10
1.24
1.23
n/a
n/a
www.ing.com/group/index.jsp
Inter Parfums Inc (IPAR)
15
Consumer Staple
16.38 - 34.96
29.31
23
1.69
1.23
0.48
1.60%
www.interparfumsinc.com
50.90 - 106.44 73.24
InterOil Corp (IOC)
7
Energy
InVivoTher Holdings (NVIV )
14
Healthcare
0.94 - 6.20
n/a
0.30
(0.34)
n/a
n/a
www.interoil.com
1.40
n/a
(0.42)
n/a
n/a
n/a
www.invivotherapeutics.com
Jacobs Engineering Grp (JEC)
6
Capital Equipment 38.28 - 62.33
58.86
16
3.19
3.37
n/a
n/a
www.jacobs.com
LeapFrog Enterprises (LF)
10
Consumer Cyclical
7.00 - 11.95
9.41
15
1.02
0.63
n/a
n/a
www.leapfroginvestor.com
LightInTheBox Hldg (LITB)
15
Retail
9.51 - 23.38
11.87
35
0.02
0.33
n/a
n/a
www.lightinthebox.com
Lions Gate Entertainment (LGF)
15
Consumer Cyclical 14.56 - 37.81
37.00
29
2.18
1.22
n/a
n/a
www.lionsgate.com
Melco Crown Entertmt (MPEL)
14
Consumer Cyclical 12.50 - 31.95
30.85
27
0.98
1.14
n/a
n/a
www.melco-crown.com
Methode Electronics (MEI)
10
Technology
8.38 - 26.66
26.25
17
1.34
1.28
0.28
1.10%
www.methode.com
Monster Worldwide Inc (MWW)
7
Technology
4.02 - 8.99
4.52
13
0.35
0.34
n/a
n/a
www.monsterworldwide.com
Oxford Industries Inc (OXM)
6
66.83
22
2.67
2.99
0.72
1.10%
www.oxfordinc.com
Pandora Media Inc (P)
15
Consumer Cyclical 42.19 - 69.28
Technology
7.08 - 25.28
25.19
93
(0.05)
0.04
n/a
n/a
www.pandora.com
Roadrunner Trans Systm (RRTS)
15
Transportation
15.00 - 30.98
27.35
20
1.28
1.41
n/a
n/a
www.rrts.com
Tesla Motors Inc (TSLA)
14
Consumer Cyclical 26.86 - 173.70 166.23
91
(1.40)
0.61
n/a
n/a
www.teslamotors.com
Tractor Supply Co (TSCO)
4
Trulia Inc (TRLA)
14
Retail
Weyco Group Inc (WEYS)
Williams-Sonoma (WSM)
8
15
ETF & CEF
Name (Symbol)
Fidelity Nasdaq Comp (ONEQ)
iShares MSCI USA Min (USMV)
Market Vectors Global (BJK)
52-week
Page
Low-High
13 111.08 - 151.70
13
28.23 - 34.48
13
33.15 - 47.45
82.39 - 132.69 130.75
Technology
14.69 - 50.65
Consumer Cyclical 22.62 - 29.83
Retail
41.99 - 61.56
29
4.17
4.48
0.52
0.40%
www.mytscstore.com
47.95
25.40
51
n/a
(0.09)
1.59
0.22
n/a
n/a
0.72
n/a
2.80%
www.trulia.com
www.weycogroup.com
57.84
20
2.73
2.81
1.24
2.10% www.williams-sonomainc.com
Recent Price
147.83
33.72
47.01
Indicated
Annual Dividend
0.91
0.69
1.38
Yield**
1.12%
2.12%
2.96%
Web Address
www.fidelity.com
www.ishares.com
www.vaneck.com
Prices are as of September 17, 2013. Estimates for Canadian stocks are in Canadian dollars.
*Using forward estimates. When available, the average estimate across all Wall Street analysts. Failing that, we’ve quoted the excerpted editor’s own estimate,
if it is available.
**Yield will vary as a result of price changes.
Dick Davis Investment Digest presents news, information, opinions and recommendations of individuals or organizations whose views are deemed of interest. It should not be assumed that such recommendations, past or future, will be profitable or will equal
past performance. The Dick Davis Investment Digest does not itself give investment advice, act as investment advisor or advocate the purchase or sale of any security or investment. All contents are derived from data believed reliable, but accuracy cannot be
guaranteed. Excerpted material represents only part of the total information or viewpoint found in the original source and should not necessarily be relied on as a sole source of information and opinion for making investment decisions. The Dick Davis Investment Digest is published by Cabot Heritage Corp. Officers, directors and employees of Cabot Heritage Corp. may own securities of the companies reported on in Dick Davis Investment Digest. All rights reserved. ©Cabot Heritage Corp. 2013. Reproduction of
this publication in whole or in part is strictly forbidden.
Page 16
Dick Davis Investment Digest 749
September 2013