Canadian Dividend Watch List: May 2016

Performance Review

Below is the performance of the stocks found on our watch list from last year compared to what analysts projected the stocks would do.

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analyst estimate in red, actual performance in blue

The first five stocks found on the watch list lost an average of –4.38% compared to the entire list which averaged a decline of –2.44%.  The performance of the list is contrasted with the –7.73% change with Toronto Stock Exchange.

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Herb Greenberg Review: Gems in Frothy Market

On this date in 1996, Herb Greenberg, financial writer for the San Francisco Chronicle, talked about how to find potentially undervalued small-cap stocks in an overvalued stock market.  Greenberg advised investors to review 13-D filings of small-cap stocks where an investor has recently accumulated a position greater than 5%.  This increase in ownership implies that the shares are undervalued.  Naturally, a review of the company fundamentals is necessary before any action can be taken.

The one and only company mentioned by Greenberg in regards to a 13-D filing of 5% or more was Merit Medical Systems (MMSI).  Merit, a maker of disposable products for heart catheterization procedures, has not disappointed since mid-May 1996.  As seen in the chart below, MMSI has outpaced the S&P 500 by 3 times.  It is no small feat to beat the S&P 500 when you consider that MMSI also exceeded Berkshire Hathaway, Intel and IBM in the same period of time.

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Of course, this is an example that only confirms survivor bias & single sample data, not the most robust assessment.  However, the point remains, in a market that appears overvalued there are still ways to sort small-cap stocks for those who must be in the game.

U.S. Dividend Watch List: May 13, 2016

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 15, 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
NSC Norfolk Southern Corporation 97.56 85.97 -11.9%
OTTR Otter Tail Corp. 26.97 29.73 10.2%
CTBI Community Trust BanCorp. 32.18 34.82 8.2%
BKH Black Hills Corp. 47.69 60.44 26.7%
GRC Gorman-Rupp Company 27.04 26.93 -0.4%
      Average 6.6%
         
DJI Dow Jones Industrial 18,272.56 17,535.32 -4.0%
SPX S&P 500 2,122.73 2,046.61 -3.6%

Watch List Review

The average gain from the top five companies was satisfactory. The average gain of 6.6% far exceed the decline in the Dow Jones Industrial and S&P 500. Black Hills (BKH) was the biggest contributor to the success. The South Dakota utility company earning was virtually flat for the year. We are not quite sure what driver pushed the stock higher by more than 25%. The only thing we can think of is the search for yield. Similarly, Otter Tail (OTTR), experienced similar rise in share price. As negative yield spread and the search for income continue, utility sector will be the sector which institutions turn to. This is only our thesis but one can look at Dow Jones Utility Average for confirmation. The index rose 14% while the Industrial fell 3.6%.

The biggest drag to the top five came from Norfolk Southern (NSC) which lost nearly 12% for the year. When shares were trading at $97 last year, we pointed that Value Line estimated fair value of $90 which turned out to be a wise call. Operating in rail industry can be profitable because of the oligopoly nature in the industry. However, it is capital intensive and can be very cyclical. The slow down in the energy sector has a large affect on the rail business.

Tiffany Co. (TIF) was one name we highlighted and took position. The purchase didn't pan out as well as we'd hope for. Originally when we purchased the stock in late April of 2015, shares were trading in the mid 80s. It quickly rose to $95 at the end of July before plunging to the current level. The thesis for this purchase is the brand value and double digit return on equity. Those factors remain in tact and we are evaluating whether additional position should be taken at this level.

U.S. Dividend Watch List: May 13, 2016

It was another volatile week with the S&P rose above 2,080 but closed the week below 2,050. The index lost 0.5% for the week and is virtually flat for the year. Weakness in the market is providing long term investor with more companies to comb through. Below are 24 companies on our dividend watch list for the week. Continue reading

Apple: Fallen and Almost There

On January 8, 2016, we posted the following chart:

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That red line that says 150 was our projected downside target based on the historical average from as far back as 2004.  The update to this chart is below (Altimeter levels adjusted for dividends):

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Apple is on the cusp of hitting that downside target.  What happens if the stock breaks through on the downside, then you’d want to consider the investment merit of the stock based on conservative fundamental data.  Keep in mind that the current P/E ratio of 10 should jump before the stock marches higher.

Do you remember that article we posted on September 23, 2012, about how adding Apple (AAPL) to the Dow Industrials would be “not so great”? Yeah, well, since being included into the index on March 19, 2015, Apple has declined –28% and the company that it replaced, AT&T (T), has increased +19%.  True to form, the inclusion of Apple into the Dow Jones Industrial Average coincides with decline in the stock price.  The adjustment period should be coming to an end.  Let’s see how this plays out.

Gold Stock Indicator: May 2016

You want higher gold prices? You got higher gold prices.  However, we have to add, be careful what you ask for.  The anxiety associated with what's gonna happen next in gold and gold stocks will have investors and speculators looking over their shoulders.  This will mean many sharp declines and dramatic recoveries.

In the month since our last posting, gold has increased only +6.21% while the price of the Philadelphia Gold & Silver Stock Index (XAU) has increased +26.97% in the same period of time.

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In our October 3, 2014 posting,  regarding the XAU Index, pointed out the following:

“In the chart above we have labeled the three potential downside targets of 75.99, 67.55 and 59.11 from the current level with the additional downside target of 41.85 as the ‘last stop’ in our downside analysis.  Anything below the ascending 76.32 level is considered undervalued and underappreciated.”

Little could we have known that the index would actually decline to 38.84, a level below the end of the last bear market that ran from 1996 to 2000.  The chart below points to where the current run up could meet significant resistance.