Nasdaq 100 Watch List: April 29, 2016

Performance Review

Below is the performance of the Nasdaq 100 stocks from our April 24, 2015 watch list:

symbol Name 2015 2016 % chg
KLAC KLA-Tencor Corp. 58.89 69.94 18.76%
GRMN Garmin Ltd. 46.19 42.63 -7.71%
FOSL Fossil Group, Inc. 83.75 40.5 -51.64%
FAST Fastenal Co. 41.63 46.79 12.39%
WYNN Wynn Resorts Ltd. 130.09 88.3 -32.12%
SNDK SanDisk Corp. 67.92 75.13 10.62%
NTAP NetApp, Inc. 36.12 23.64 -34.55%
NWSA News Corp. 15.53 12.42 -20.03%
QCOM QUALCOMM Inc. 68.24 50.52 -25.97%

The analyst estimates of one year ago are compared to the actual performance.  As can be seen, 3 of 4 stocks expected to decline did while 2 of 5 stocks rose in price that were anticipated to rise.

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We mentioned or discussed a few stocks of interest at the time. QCOM and FOSL bombed while SNDK and KLAC exceeded expectations. However, the one stock that stood out the most was regarding NetApp (NTAP).  At the time, we said:

“Investors should remember that with analyst estimates for a +44% gain in the coming year, there is the possibility that expectations are so high that any minor earnings or revenue miss could crater the stock.  In spite of the potential negatives, we think that NTAP could be a takeout target in the next year.”

While there was some talk of NTAP as an acquisition target, the reality was that it was just talk and not much else.  However, the most important issue at the time was proven to be correct, excessive expectations of gains by analysts were met by the most negative divergence in performance.

Nasdaq 100 Watch List

Short Sell Ends Well, Trader Lost Everything

Remember that trader who appealed to the public for assistance after his short sale turned into a -$106K loss overnight?  If you don’t then you could read the full story here

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The trader had bet that KaloBios (KBIO) would decline in price instead of rise.  Unfortunately, the opposite occurred, putting the trader in the unlikely position of going from a cash positive brokerage account to a deficit of more than -$100,000.

Irony of all ironies, KaloBios Pharmaceuticals ends up filing bankruptcy on December 30, 2015 after Chief Executive Martin Shkreli was arrested for securities fraud.  Below is the price history of KBIO from 2014 to the present.

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What’s the moral of the story?  Anything can happen and the chasm between entering and exiting a transaction can be wide and deep.  Always prepare for the worst.

Apple Addition to Dow: Unwise and Untimely

On September 24, 2015, we said the following:

“The outperformance of stocks dropped from an index is not as unusual as it would seem.  Typically, index managers tend to drop stocks that appear weak in price performance and going through a transition to resolve the internal issues contributing to their weakness.  At the same time, stocks that are added to an index just coming off a period of exceptional growth and are about to experience a readjustment period resulting in a decline in their stock price.  The result is stocks being added to the index will adjust lower in price while the timing of the companies dropped from the index coincides with a resurgence in earnings surprises and increased stock price.”

So far the conundrum continues as more than one year later the addition of Apple (AAPL) to the Dow Jones Industrial Average has resulted in a decline of –24%.  At the same time, the stock that Apple replaced, AT&T (T), has increased by +16%.

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Transaction Alert*

The NLO team executed the following transaction(s):

U.S. Dividend Watch List: April 22, 2016

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 24, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2013 Price 2014 Price % change
GRC Gorman-Rupp Company 27.99 28.95 3.4%
SAFM Sanderson Farms, Inc. 76.06 87.76 15.4%
TCO Taubman Centers 73.65 69.33 -5.9%
SJI South Jersey Industries 26.85 27.51 2.5%
DCI Donaldson 37.37 33.03 -11.6%
      Average 0.8%
         
DJI Dow Jones Industrial 18,080.14 18,003.75 -0.4%
SPX S&P 500 2,117.69 2,091.58 -1.2%

Watch List Review

The biggest gain came from a company unfamiliar to us, Sanderson Farms (SAFM). A year ago we said that this is a new company which we had no exposure to prior to the watch list. This small cap producer of poultry products had net earnings fall by -42% and yet the stock gained +15%! While one may view this as a disconnect in the fundamentals, another could argue that such expectations were baked into the price. When we published the list last year, shares were trading at $76 with projected net income of $7.05 which brings forward P/E to just 10x. Such low multiple imply that any miscalculation in the analysts' estimate (to the downside) would result in a strong recovery in share price. We believe this was the case with Sanderson Farms.

We wrote a quick note on Gorman-Rupp (GRC), which etched out a modest gain of +3%. However, that gain wasn't without some volatility. When we published the list, the stock was trading at $28. The shares traded below $20 in August (hit the low of $18.14 on August 22 but closed above $22). The reversal came the same day and shares traded as high as $32. We stated that shares were worth considering at such level but didn't have complete conviction over the name. However, if one was able to pick up shares on a two part trade, one would have done quite well within one year.

U.S Dividend Watch List: April 8, 2016

It was another strong week for the market as the S&P 500 rose +0.53% pushing the YTD gain at +2.3%. Because of that, there are only 9 companies on our watch list this week. We are not inclined to put new money to work at this point. However, the financial sector is appealing at the moment and any new money needs to be able to generate relatively safe income. Continue reading