Author Archives: NLObserver Team

January 2011 Ex-Dividend Dates

Posted on December 31, 2010 | Leave a comment
Below are the approximate ex-dividend dates for the month of January 2011 for companies that appear on our Dividend Achiever, Nasdaq 100, Dow Jones Transportation Index and International Dividend Achiever Watch Lists. All companies are ranked by ex-dividend dates.

Companies that show up on our Watch Lists could be considered the equivalent of the bargain bin of high quality blue chip stocks. Because these companies have increased their dividends every year for at least 10 years in a row or are part of the Nasdaq 100 and within 20% of their respective 52-week low, you know that you’re not overpaying for a company that has demonstrated profitability and the ability to rebound from challenging times.


Symbol Name Price % from Low Yield Div/Shr EPS Ex-Div
SSS Sovran Self Storage, Inc. $37.22 19.60% 4.90% $1.80 $1.11 1/4/2011
JPM JP Morgan Chase $42.21 20.05% 0.50% $0.20 $3.59 1/4/2011
SYY Sysco Corporation $29.35 8.74% 3.60% $1.04 $1.94 1/5/2011
AXP American Express $42.64 16.50% 1.70% $0.72 $3.07 1/5/2011
GBCI Glacier Bancorp, Inc. $15.39 19.88% 3.30% $0.52 $0.64 1/5/2011
MDT Medtronic Inc. $37.16 20.65% 2.40% $0.90 $2.89 1/5/2011
UVV Universal Corp $41.01 15.98% 4.60% $1.92 $5.09 1/6/2011
WGL WGL Holdings $36.24 16.90% 4.20% $1.51 $2.47 1/6/2011
PGN Progress Energy Inc $43.55 17.58% 5.70% $2.48 $3.08 1/6/2011
FUL H. B. Fuller $20.70 12.07% 1.30% $0.28 $1.48 1/10/2011
ABT Abbott Lab $47.77 7.12% 3.70% $1.76 $3.03 1/12/2011
CL Colgate-Palmolive $80.18 9.66% 2.60% $2.12 $4.28 1/19/2011
CLX Clorox $63.31 7.38% 3.50% $2.20 $4.65 1/25/2011
NWN Northwest Natural Gas $46.91 14.28% 3.70% $1.74 $2.80 1/25/2011
TCB TCF Financial $14.94 15.81% 1.40% $0.20 $1.00 1/25/2011
EV Eaton Vance Corp $30.23 18.09% 2.30% $0.72 $1.40 1/25/2011
LSTR Landstar System $40.89 17.30% 0.50% $0.20 $1.64 1/26/2011
CAG ConAgra Foods $22.57 7.37% 4.10% $0.92 $1.58 1/27/2011
WSC Wesco Financial $367.58 15.47% 0.40% $1.64 $10.20 1/31/2011

If you happen to be researching these companies for potential investment, it would be advisable to consider the ex-dividend date prior to possible purchases. Owning the shares of the company that you're interested in before the ex-dividend date entitles you to the upcoming dividend payment.

Owning the shares on or after the ex-dividend date means that you would have to wait at least three months before receipt of the next dividend payment. Please verify the ex-dividend date and payout ratio before committing funds to these stocks. Additionally, do not base your next long or short-term purchase on the dividend payment or yield. Instead, get as much research in as you possibly can before the ex-dividend date "just in case" you're actually interested in buying the stock. Payout ratios that exceed 100% should be considered speculative investments.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in ex-dividend date, January 2011

Tagged

Seth Klarman Review: Margin of Safety-Chapter 2

Posted on December 29, 2010 | Leave a comment
The following is a line for line analysis of chapter two of Seth Klarman's book Margin of Safety. we're providing the concept or idea that we think is being conveyed followed by the quote or concept and page where you can find the citation. Additionally, we follow-up with our thoughts on the concept. We hope to review the complete book one chapter at a time.
According to GuruFocus.com, "Seth Klarman is a value investor and Portfolio Manager of the investment partnership The Baupost Group. Founded in 1983, The Baupost Group now manages $7 billion, and has averaged returns of nearly 20% annually since their inception. Seth Klarman is the author of the book 'Margin of Safety' which sells for over $1000."
Chapter Two 
  • Wall Street is Plagued by Conflict of Interest
    • “As Wall Street pursues its various activities, however, it frequently is plagued by conflicts of interest and a short-term orientation. Investors need not condemn Wall Street for this as long as they remain aware of it and act with cautious skepticism in any interactions they may have.” (page 20)
        • It should be assumed that a conflict of interest is par for the course when crossing paths with Wall Street. Therefore, we needn’t be upset or worried when companies, acting in accordance with the goals of Wall Street, conduct business in a similar fashion. As investors we need to plan our strategies around the worst outcomes that have been the result of Wall Street “activities.”
  • Wall Street Compensation
    • “Wall Streeters get paid primarily for what they do, not how effectively they do it.” (page 20)
        • Again, this extends to corporations that play the Wall Street game. If “The Street” feels that stock buybacks are an effective way to increase shareholder value then the corporations will do it. Although we have sat in on VC meetings where the head of a company explicitly said that share buyback are worthless as a strategy for increasing shareholder value.
  • Create a New Product, Generate a Higher Fee
    • “Sometimes the lust for underwriting fees drives Wall Street to actually create underwriting clients for the sole purpose of having securities to sell.” (page 22)
        • The creation of ETFs, which were supposed to more effectively compete with Index Funds or supplant sector funds, seems to fit the bill in this regards since there is considerable question of whether the ETFs actually hold the asset they claim to be in possession of; either stock or commodities (article here). Now, with ETFs veering away from tracking indexes and sectors while allowing “fund managers,” we openly wonder what the difference between an ETF and the product it is supposed to replace. In our opinion, the primary difference, based on SEC filings on the matter, is collecting a fee without actual ownership of an asset. Thereby rendering the small “management fee” of an ETF into super profit in comparison to the traditional mutual fund and index fund.
  •  Buyer Gullibility is the Key
    • “The periodic boom in closed-end mutual-fund issuance is a useful barometer of market sentiment; new issues abound when investors are optimistic and markets are rising. Wall Street firms after all do not force investors to buy these funds. They simply stand ready to issue a virtually limitless supply since the only real constraint is the gullibility of the buyers.” (page 24)
        • Thankfully, none of the products that are consumed by the retail investor are done forcibly. However, this goes back to the idea that Klarman mentions about avoiding market fads in the introduction of his book…“The important point is not merely that junk bonds were flawed (although they certainly were) but that investors must learn from this very avoidable debacle to escape the next enticing market fad that will inevitably come along (page xvii). All too often, investors ignore history which often reveals how easily a fad can take off. In the following quote, Klarman implies that a good rule of thumb on determining what a market fad is based on how long the product has been in existence, “Although newly issued junk bonds were a 1980s invention and were thus untested over a full economic cycle, they became widely accepted as a financial innovation of great importance…” (page 14). We would add to that rule of thumb by including that the more removed from actual ownership the less incentive there is to invest.
  •  Up Front Fees lead to Short-Term Focus
    • “Brokers, traders, and investment bankers all find it hard to look beyond the next transaction when the current one is so lucrative regardless of merit.” (page 24)
        • The concept of market share often leads to the belief that the other firm is going to eat your lunch. This ignores the fact that the other firm isn’t using a qualitative standard for entering into such transactions. This leads to all firms chasing any opportunity for a fee at the expense of the company, the industry and the customers.
  •  A Bullish Bias Forgets Risk
    • “…with so much attention being paid to the upside, it is easy to lose sight of the risk.” (page 26)
        • In our approach to any investment that is made, the priority is always on the likelihood of loss. The focus on loss requires the expectation that an investment will decline in value and having a reasonable strategy in place to deal with such scenarios before the investment is made. This makes our Investment Observations seem less enthusiastic as compared to someone who might think that a particular stock is reasonably undervalued.
  •  Declines must be orderly, increases can run amuk
    • “Any downturn, according to the regulatory mentality [government regulators], should be free of panic. (Disorderly rising markets are of no evident concern)” (page 26).
        • This is best demonstrated when circuit breakers were introduced for the New York Stock Exchange after the crash of 1987. In an ironic twist, circuit breakers were never triggered based on downside movement of the NYSE in the period from 2007 to 2009. So much for the effort to protect investors with circuit breakers. Another example of regulator bias against the downside is the requirement and/or effort to reintroduce the uptick rule for short sellers without a commensurate downtick rule for investors going long a stock.
  •  Undervalued conditions get resolved, Overvalued conditions can persist
    • “Correcting a market overvaluation is more difficult than remedying an undervalued condition. With an undervalued stock, for example, a value investor can purchase more and more shares until control is achieved or, better still, until the entire company is owned at a bargain price. If the value assessment was accurate, this is an attractive outcome for the investor. By contrast, overvalued markets are not easily corrected; short selling, as mentioned earlier, is not an effective antidote. In addition, overvaluation is not always apparent to investors, analysts, or managements. Since security prices reflect investors’ perceptions of reality and not necessarily reality itself, overvaluation may persist for a long time”(page 28).
        • This paragraph is the singular reason not to utilize the momentum investor’s approach of buying stocks that have made new highs. This is the method CNBC’s Cramer or Investor Business Daily’s William O’Neil tend to espouse. Whenever we seek out stocks at or near a new low, we’re trying to verify if the fundamentals of the company coincide with the price action of the stock.
  •  Always opt for the conservative estimate
    • “The fad becomes dangerous, however, when share prices reach levels that are not supported by the conservatively appraised values of the underlying business” (page 34).
        • In our opinion, conservative estimates, as they relate to a stock at a new 52-week high is always lower. For a stock within 10% or 15% of the high, the high is the upside limit with expectations of a downside target. For a stock at a new low, our conservative expectation is 10% to 15% higher with a target at the next lowest technical level. If the stock is 10% or 15% above the low then we conservatively expect a possible 10% increase with the downside at least to the new low level. The same could be said for expectations for any of the fundamental attributes of a company. However, we tend to use the next lowest full year figures available or worst case figures that are not in the negative. This is the way to conservatively consider the prospects of any company at the same time always mindful of the risk of loss regardless of our confidence in our conservatism.
Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in Margin of Safety, Seth Klarman

Tagged

Applied Material Analysis on the Mark

Posted on December 25, 2010 | Leave a comment
On March 23rd of this year we went into detail with our individual analysis of Applied Material (AMAT) in an article titled “Research Request: Applied Material (AMAT).” At the time, Applied Material (AMAT) was trading at $13.24. In a section of the article titled “So What Would We Do?” we outlined our investment strategy on Applied Material.
Although we didn’t think that Applied Material (AMAT) was a “buy” at the time, we did give steps on how to go about buying the stock. The last paragraph of the article said the following:
“For anyone who believes that this is an opportunity that can't be missed, I recommend allocating 15% of your portfolio into this name. On top of that, do a two part purchase. First buy 7.5% now and if the shares fall another 20% buy the remaining 7.5% later. This way, the cost basis of the stock would require only a 10% rise to break even. Again, it is not likely that we'll buy AMAT since the alternatives provide exceptional opportunity with less downside risk.”
Based on the two-part purchase strategy that we mentioned, the average purchase price would have been $11.92. The gain for the stock would be 17.45% so far. Had only one purchase been made based on a decline of 20% from the $13.24 level, the total gain would be 32.20%.

We hope that our work on this topic has proven to be profitable for those who regularly read our site.  For those who have taken advantage of this investment opportunity, please re-read our March 22nd and March 23rd postings for indicated upside resistance levels and potential exit points.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in 2010 review, amat, applied materials

Tagged

Wrong Time to Recommend Stocks Proves to be Correct

Posted on December 24, 2010 | Leave a comment
In an article that we wrote in January of this year, titled “Wrong Time For Recommendations,” we commented that the stocks suggested by TheStreet.com for potential investments were reckless at best. The companies that were on the list of TheStreet.com’s “Five Small Cap Stocks to Own Now" and their performance are found below.

Company Symbol 21-Jan-10 23-Dec-10
Change
InterOil IOC $79.05 $72.95
-7.72%
Sharps Compliance SMED $9.48 $4.47
-52.85%
China Green Agriculture CGA $14.9
$9.44
-36.64%
Sourcefire FIRE $22.84 $24.85
8.80%
Hi-Tech Pharmacal HITK $23.94 $25.03
4.55%
Average Return
-16.77%
With less than a month to go before a full year has passed since our original article was published, there does exist the possibility these companies can still provide close to the market return (due to their highly volatile nature.) However, we still believe that any widely followed website like TheStreet.com should not recommend stocks that have risen a minimum of 300% as potential purchase candidates.  We felt, and still feel, that “it is irresponsible to tell investors that they should buy something that outperformed the market by 15 times.”
As the New Year approaches, be wary of stock recommendations of companies that have significantly outperformed the market in the previous year. Such recommendations will result in below market returns.
Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in 2010 review, CGA, FIRE, HITK, IOC, SMED, TheStreet.com

Tagged

ConAgra Counterpoint

Posted on December 23, 2010 | Leave a comment
We love corporate news that is bad. There are few times when anything can be learned through good news, at least not as much as what can be learned with “bad” news.
Recently there was an article titled “Nothing Appetizing About ConAgra” published on Investopedia.com that was unrelenting in the bad news regarding the future prospects of our recent Investment Observation on the same company. So thorough, and yet concise, was the article that we feel it is a must read.
Along with all the negative prospects for ConAgra, there was one morsel of information which happens to confirm our view of what ConAgra might be worth. In the sixth paragraph of the article, it says the following:
“Assuming that private equity buyers could wring some efficiencies and cost savings from this business, a deal worth $28 to $30 could be achievable.”
In our Investment Observation of ConAgra (CAG) dated December 1, 2010, we indicated that using several different approaches, we were able to arrive at a “fair value” of $30. All things cannot go our way with our investment recommendations, so if we were to assume the stock to rise at least to the midpoint between the current price of $22.40 and the expected fair value of $30, then we’d get a gain of 17%. Despite having opposite views on the prospects for the company, there is common ground as to the possible valuation of the company.
We’re reticent to believe that taking the company private, which will then lead to taking the company public at some point down the road, will truly cure what ails ConAgra (CAG). In fact, the history of private equity, from one man's perspective, has been abysmal for companies ensnared in such transactions. The recent book by Josh Kosman titled The Buyout of America details the history of such deals and the subsequent impact on the respective company and their employees.
As we’ve shown in the example of Wilmington Trust (WL), market analyst estimates, including our own, can be usurped by realities beyond our purview. Therefore, despite our take on the prospects for this company, we still recommend “Nothing Appetizing About ConAgra.” It provides the right antidote to our recommendation to consider ConAgra (CAG) as a possible investment candidate.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in CAG, Josh Kosman, WL

Tagged

Sell ExxonMobil (XOM) at the Market

Posted on December 23, 2010 | 2 comments
It is now time to recommend that ExxonMobil (XOM) be sold at the market. The stock has performed modestly since the Investment Observation was issued on January 25, 2010. It is highly recommended that anyone who bought the stock based on our insight should re-read the posting. Shortly after our recommendation, XOM fell 15% before heading higher.

In the pursuit of "seeking fair profits" the returns that this stock has provided within the last 333 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.

ExxonMobil (XOM) was recommended when it closed at $65.90 on January 25th. Based on yesterday's closing price of $72.80, XOM has gained 10.47%. If we include reinvested dividends then the gain was 14.84%.

In our observation of the stock on January 25th we were specific in how long the shares might decline and by what percentage we expected the stock to fall further. We said the following:

“…based on the prior Coppock Curve indications, XOM is expected to remain unchanged or fall for another three to six months by about 11% to 18%.”

Five months later, ExxonMobil reached the final bottom on July 2nd at a price of $55.94. As mentioned before, this was a decline of 15% from date of the Investment Observation.

In addition to giving a specific time frame for where the stock would go, we gave a strategy for if you wanted to buy the stock at the January 25th price. The strategy that we outline said the following:

“If we were to invest in stocks the way that Charles H. Dow would then we would buy half of the intended amount now and purchase the second half if the price declines. For example, let's say that you wanted to invest $13,180 in this company. What you would do is buy $6,590 worth of stock now (approximately 100 shares) and hold the stock if the price goes up. If the stock goes down then you would invest the remaining $6,590 at the next level that you felt was ideal. This approach works well regardless of the market that you're in as long as you set aside the amount that you intend to invest before making the first purchase. Also, after making the first investment never invest the second half somewhere else.”

Based on the quality of the observation and a strategy for the investment, readers of this site should have gains that exceed our worst case scenario gain of 14%.  The maximum possible gain on this position, including dividends, is 30.42%.  We hope that there are those who took advantage of this opportunity. 

The annualized return on this position would be close to 14.84% assuming that only purchase was made at the time of the initial Investment Observation. Selling this stock now generates a return of 5.56x greater than the amount of the dividend yield if held for a full year. Additionally, the 14.84% gain exceeds the return on a 30-year treasury purchased on January 25, 2010 by 3.25x.

Those not interested in following through with our sell recommendation can feel comfortable knowing that XOM is a great long-term holding with a 14.84% downside cushion since our investment observation. As the price of XOM rises, it should be noted that the stock faces significant upside resistance at $75, $80 and $95.

As we have indicated in the purposes and function of this site, our goal is to:
  • Maximize the annual yield of each trade.
  • Reduce the time between buying and selling of each stock.
  • Exceed the annual yield of government guaranteed alternatives in each trade.
Investment observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax-deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.

For a portfolio of $10,000 with a 20% position that gains 14.84%, the impact on the entire portfolio is a little over 2%. This is contrasted with the same portfolio with a 5% position that gains 14.84%, the impact on the entire portfolio is slightly over half a percent (0.50). By choosing conservative dividend increasing stocks at or near a new low, the odds of success are increased in your favor making the assumed increase in risk worthwhile.

Sell recommendations are intended to deal with the short-term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the Investment Observation was made (please avoid making this mistake.) We aim for modest but consistent returns, therefore we are happy with 9-12% annual gains.

It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours as detailed in our article "Automatic Orders Don't Provide Protection." This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.

Please revisit New Low Observer for edits and revisions to this post. Email us.

2 Comments

Posted in ExxonMobil, Sell Recommendations, XOM

Tagged

NLO Dividend Watch List

Posted on December 18, 2010 | Leave a comment

Watch List Summary

This week's list contains 10 companies that are concentrated in the drug, household goods and food sector of the economy.  In addition, eight of the 10 companies have market caps of over $8 billion. Topping this list is a popular household name, Clorox (CLX). ConAgra (CAG) is one of our favorite names right now and we're reiterating that anyone interested in the stock to revisit our write up on it. Our latest Investment Observation was on Eli Lilly (LLY), a major pharmaceutical company. LLY is the 7th company on our list this week.

December 17, 2010 Watch List

Symbol Name Price % Yr Low P/E EPS Dividend Yield Payout Ratio
CLX Clorox Co. 62.54 6.07% 13.42 4.66 2.20 3.52% 47%
TCB TCF Financial Corp. 13.77 6.74% 13.77 1.00 0.20 1.45% 20%
CAG ConAgra Foods, Inc. 22.49 6.99% 14.32 1.57 0.92 4.09% 59%
KMB Kimberly-Clark Corp. 62.74 7.71% 14.19 4.42 2.64 4.21% 60%
ABT Abbott Laboratories 48.40 8.54% 15.97 3.03 1.76 3.64% 58%
SYY Sysco Corp. 29.30 8.60% 15.10 1.94 1.04 3.55% 54%
LLY Eli Lilly & Co. 35.01 9.34% 8.03 4.36 1.96 5.60% 45%
JNJ Johnson & Johnson   62.54 9.99% 12.84 4.87 2.16 3.45% 44%
CL Colgate-Palmolive Co. 81.00 10.78% 18.93 4.28 2.12 2.62% 50%
WFSL Washington Federal, Inc.  15.50 10.95% 14.76 1.05 0.20 1.29% 19%
10 Companies






Top Five Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from December 18, 2009 and have checked their performance one year later. The top five companies on that list can be seen in the table below.

Name Symbol 2009 Price 2010 Price % change
SUPERVALU INC SVU 12.48 8.76 -29.81%
CALIFORNIA WATER CWT 36.66 38.38 4.69%
EXXON MOBIL CP XOM 68.21 72.17 5.81%
AQUA AMERICA INC WTR 17.29 22.21 28.46%
UMB Financial Corp. UMBF 37.94 41.43 9.20%


Average 3.67%





Dow Jones Industrial DJI 10,328.89 11,491.91 11.26%
S&P 500 SPX 1,102.47 1,243.91 12.83%

This week, our top five didn't come close to the Dow Jones Industrial Average and the S&P 500. While we can't defend the long-term viability of Supervalu (SVU) at this time, we can point to the fact that SVU rose almost 40% in just 3 months after being on the December 18, 2009 list. We also issued an Investment Observation on this stock on January 6, 2010 when SuperValu (SVU) was trading just below $13. After holding the shares for 9 days, we issued a Sell Recommendation on January 15, 2010 which provided us with a 10% gain for an annualized return of nearly 400%.

It should be noted that three of the five stocks achieved 10% gains within 7 months after being on the list December 18, 2009 watch list.  SuperValu (SVU) accomplished 10% on January 12th (125% annualized), UMB Financial (UMBF) accomplished 10% on January 20th (nearly 96% annualized) and AquaAmerica (WTR) achieved 10% on July 21st (nearly 15% annualized). 

As mentioned with every sell recommendation, our goal is to maximize the annual yield of each trade so if we can obtain a 10% gain in less than a year (the approximate historical annual market return) then we are satisfied. Those who wish to hold for the "long-term" may also benefit from our method of buying quality dividend paying stocks near a new low.

Disclaimer
On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in NLO Dividend Watch List

Tagged

Investment Observation: Eli Lilly (LLY) at $35.18

Posted on December 16, 2010 | 2 comments
Today's investment Observation is on Eli Lilly and Co. (LLY).  According to Morningstar.com, "Eli Lilly is a pharmaceutical company with a focus on neuroscience, endocrinology, oncology, and cardiovascular therapeutic areas. Lilly's key products include antipsychotic Zyprexa, Cymbalta for depression and fibromyalgia, Gemzar and Alimta for cancer, Evista and Forteo for osteoporosis, Humalog, Humulin, and Byetta for diabetes, and Cialis for erectile dysfunction."

Prior to 2010, Eli Lilly (LLY) had a 41 year history of dividend increases.  The normal dividend increase that takes place in February did not occur this year.  However, the prospect exists that LLY may actually increase the dividend in the 2nd weeks of February of next year.  The fact that there wasn't an increase does not diminish our expectations for LLY.  In fact, keeping the dividend the same or reducing it reflects management's acute awareness to preserve capital for future tough times ahead.  The current annual dividend of $1.96 provides for a substantial dividend yield of 5.60% at the current price.

In order to put the current stock price into perspective, we like to see how the dividend payments compare to the stock price on a relative basis.  Below is Edson Gould's Altimeter which reflects the stock price relative to the dividend that has been paid since 1982.

The altimeter at the high points reflects that the stock price is overvalued compared to the dividend payment while the low points reflect the opposite.  At the current level, Eli Lilly (LLY) is at historic low levels in terms of the stock price compared to the actual dividend paid.

When looking at Eli Lilly's price movement (adjusted for dividends), we intuitively see that there is a pattern that has been repeated and, more recently, overextended.  The chart below shows two different periods (January 4, 1982 to September 6, 1994) and (September 4, 1990 to December 16, 2010).


The chart above demonstrates how Eli Lilly (LLY) managed to replicate much of the rise in the respective periods.  Only the decline has been different.  Whereas the decline from January 1992 at $12.52 (adjusted price) ended relatively quickly before going higher, the decline from August 2000 at $78.75 (adjusted price) has managed to get dragged out much longer.  However, regardless of the amount of time that it has taken, both periods have settled at the altimeter levels of undervaluation of between 50 and 100 as was done in the periods of 1984 and 1994 before taking off to the races.

When viewed from the perspective of Value Line Investment Survey's fair value indicator, we arrive at an unbelievable figure of $58.85.  This price is 67% above the current level of $35.18.  Again, we only consider the fair value level as a marker for when long term investors, after having bought at the current price, should sell.  Although we favor the consistency and accuracy of the Value Line fair value estimate, we must defer to the more conservative estimates that we can find.  According to Morningstar.com, Eli Lilly (LLY) has a fair value of $42 while Dow Theory has a fair value of $46.  We'll settle for the Dow Theory figure since it is close to Morningstar's estimate but well below the Value Line estimate.  This leaves us with 30% upside potential for this stock.

We'd like to speak of the return on assets (ROA) and return on equity (ROE) for Eli Lilly (LLY) however they can't be used as a primary motivation for buying this company.  We'll just state that according to MergentOnline, Eli Lilly registered ROA of 15.28% and ROE of 53.25% in 2009.  For the year 2008, ROA and ROE was severely in the negative due, in part, by excessive financial leverage.  2008 and 1997 were the only years that negative ROA and ROE was indicated since 1983. 

In closing, we have saved the most important, and best, part for last.  This is has to do with what the downside risks are for the stock price.  According to Dow Theory, the following are the downside targets:

  • $29.22
  • $20.44
  • $11.66
Anyone considering investing in Eli Lilly (LLY) should be willing to accept the possibility of the stock price falling to any of the indicated level.  If the prospect of falling to $11.66, or 67%, seems far fetched then talk to the share holders who bought for the long term near $100 in 2000.  They are literally sitting on a price decline of 60% (excluding dividends) from the previous purchase. 

Our only other concern with this stock is if it somehow gets "Mercked."  Merck (MRK) was found to have passed off marketing material as clinical studies that indicated that their drug Vioxx was safe at the same time that people were dying from the very same treatment.  We can only hope that such a scenario does not darken the door of Eli Lilly in the coming years. 

Good luck on your follow-up research on Eli Lilly.  We believe the venture will be worth the effort.


Please revisit New Low Observer for edits and revisions to this post. Email us.

2 Comments

Posted in Eli Lilly, investment observation, LLY

Tagged

Nasdaq 100 Watch List

Posted on December 12, 2010 | Leave a comment
Below are the top Nasdaq 100 companies that are within 20% of the 52-week low. This list is strictly for the purpose of researching whether or not the companies have viable business models. These companies are deemed highly speculative unless otherwise noted.

Symbol Name Trade P/E EPS Yield P/B % from Low
CSCO Cisco Systems, Inc. $19.70 14.44 1.36 0 2.46 3.68%
ISRG Intuitive Surgical, Inc. $260.07 30.95 8.4 0 5.1 5.70%
AMGN Amgen Inc. $53.89 11.65 4.63 0 2.11 7.22%
DISH DISH Network Corp $18.80 9.24 2.04 0 N/A 8.55%
APOL Apollo Group, Inc. $37.95 10.49 3.62 0 4.02 12.44%
ADBE Adobe Systems Inc $28.71 32.04 0.9 0 2.89 12.81%
TEVA Teva Pharmaceutical $53.80 16.56 3.25 1.40% 2.18 14.49%
CEPH Cephalon, Inc. $63.23 11.82 5.35 0 1.89 14.96%
SHLD Sears Holdings Corp $68.18 40.66 1.68 0 0.9 15.15%
GRMN Garmin Ltd. $30.23 8.26 3.66 4.90% 2.04 15.78%
FLIR FLIR Systems, Inc. $27.97 18.84 1.49 0 3.05 16.54%
GILD Gilead Sciences, Inc. $37.61 11 3.42 0 5.29 18.53%
HSIC Henry Schein, Inc. $59.90 17.35 3.45 0 2.31 19.23%
XRAY DENTSPLY Intl $33.12 17.92 1.85 0.60% 2.58 19.31%
CELG Celgene Corp. $57.46 29.01 1.98 0 5.1 19.66%

Watch List Summary

In the Nasdaq 100 watch list of 17 companies from November 26, 2010 to the closing price of December 10, 2010, the average return from all of the companies listed was +3.21%. This is compared to the NDX (Nasdaq 100 Index) which had a gain of +2.85%.
Apollo Group (APOL) registered the largest gain of +10.13% in defiance of any suggestion by us that it was going to be dropped from the Nasdaq 100.  Apollo Group's ability to stay in the Nasdaq 100 (article link) is in stark contrast to rival for-profit education company Corinthian Colleges (COCO) which was dropped from the S&P MidCap 400 Index down to the S&P SmallCap 600 Index on Thursday December 9, 2010 (article link).  Microsoft (MSFT) and Teva Pharmceutical (TEVA) rounded off the top three performers with 7.77% and 6.81% gains, respectively.
Dish Network (DISH) and Gilead Sciences (GILD) were the only two stocks with declines of less than -1.20% each.

Top Five Performance Review

In our ongoing review of the Nasdaq 100 Watch List, we have taken the top five stocks on our list from the closing price of December 11, 2009 and have checked their performance one year later. The top five companies on that list are provided below with the closing price for December 11, 2009 and December 10, 2010.

Symbol 2009 2010
change
Genzyme Corp. 49.74 69.82
40.37%
Apollo Group 56.58 37.95
-32.93%
Cephalon 58.94 63.23
7.28%
Electronic Arts 16.11 15.82
-1.80%
Gilead Sciences 46.42 37.61
-18.98%
Average
-1.21%
Nasdaq 100 1792.06 2215.34
23.62%

As a group, the top five companies on our Nasdaq 100 list watch list averaged a loss of –1.21% in the last year. This compares with the Nasdaq 100 Index gain of 23.62% in the same one-year time frame. It should be noted that Genzyme (GENZ), Apollo Group (APOL), Cephalon (CEPH), and Electronic Arts (ERTS) gained 10% in the first 41 days of the watch list posting. This equals approximately 80% annualized returns if sold at the 10% mark. As we continually state, if you can beat historical market gains in less than a year then it may be worth seeking out any viable alternatives from the most recent watchlist.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in Nasdaq 100 Watch List

Tagged

Sell West Pharmaceutical Services (WST) at the Market

Posted on December 11, 2010 | Comments Off on Sell West Pharmaceutical Services (WST) at the Market
It is now time to recommend that West Pharmaceutical Services (WST) be sold at the market. The stock has performed moderately since the Investment Observation was issued on October 17, 2010. It is highly recommended that anyone who bought the stock based on our insight should re-read the posting. For the most part, West Pharmaceutical (WST) retained the recommended market price and moved higher from there.
In the pursuit of "seeking fair profits" the returns that this stock has provided within the last 55 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.
West Pharmaceutical (WST) was recommended when it closed at $35.97 on October 18, 2010. Based on the most recent closing price, WST has gained 10.06% (from the $36 price.)
The annualized return on this position would be close to 60%. Selling this stock now generates a return of 5.29x greater than the amount of the dividend yield if held for a full year. Additionally, the 10.06% gain exceeds the return on a 30-year treasury purchased on October 18, 2010 by 2.56x.
Those not interested in following through with our sell recommendation can feel comfortable knowing that West Pharmaceutical (WST) is a great long-term holding with a 10.06% downside cushion since our investment observation. As the price of WST rises, it should be noted that the stock faces significant upside resistance at $44 and $52. The current strong interest in Beckman Coulter (BEC) (article link) will provide significant support of West Pharmaceutical (WST) for the next couple of weeks.
As we have indicated in the purposes and function of this site, our goal is to:
  • Maximize the annual yield of each trade.
  • Reduce the time between buying and selling of each stock.
  • Exceed the annual yield of government guaranteed alternatives in each trade.
Investment Observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax-deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.
For a portfolio of $10,000 with a 20% position that gains 10.06%, the impact on the entire portfolio is 2.01%. This is contrasted with the same portfolio with a 5% position that gains 10.06%, the impact on the entire portfolio is 0.50%. By choosing generally conservative dividend increasing stocks at or near a new low, the odds of success are increased in your favor making the assumed increase in risk worthwhile.
Sell Recommendations are intended to deal with the short-term reality of the market. The tracking of the Sell Recommendations are the worst case scenario if you happen to have bought a stock at the time the Investment Observation was made. We aim for modest returns, therefore we are happy with 9-12% annualized gains.
It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours as detailed in our article "Automatic Orders Don't Provide Protection." This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Comments Off on Sell West Pharmaceutical Services (WST) at the Market

Posted in BEC, Beckman Coulter, Sell Recommendations, West Pharmceutical Services, WST

Tagged

We Were Disastrously Wrong about Beckman Coulter (BEC)

Posted on December 10, 2010 | Leave a comment
On September 12, 2010, commenter Boulay365 asked, “Will BEC stock bounce back to 70 in a few months?” The following day, in an article titled “Beckman Coulter (BEC):Pondering the Imponderable”, we attempted to hazard a guess, based on cycle analysis and Dow Theory, where the stock would be by December 13, 2010. Our analysis was disastrously incorrect as we shall demonstrate.

First, we attempted to rationalize the usefulness of probability in determining the ability of Beckman Coulter (BEC) to rise to $70 level. We used the last period that Beckman Coulter rose from $45 to $70 as a benchmark for what could be expected in the off chance that the stock price could catapult from such a low level in a short period of time. Next, we reasoned that the period in which the stock rose so quickly, March 17, 2009 to September 11, 2009, was in the midst of a bear market rally which tends to be a violent correction of prior declines. We then attempted to quantify the potential for the stock price to rise based on Dow Theory and cyclical patterns that had been exhibited in the past.

Suffice to say, our summary at the end of the article says it all, we said the following:
  • $70 by March 11, 2011 based on previous $45-$70 cycle(rosy scenario)
  • $57 by December 13, 2010 using $45-$70 trajectory (rosy scenario)
  • Price accomplishes $70 by September 13, 2011 (plausible scenario)
  • Price falls further (likely scenario)
We are (apparently) the masters of trying to project the most cautious view possible. Even as new shareholders of the stock, we said that our expectation was for the price of Beckman Coulter (BEC) to fall further from the date of September 13, 2010. In addition, we felt that it was plausible that Beckman Coulter (BEC) could accomplish $70 by September 13, 2011. However, under a rosy scenario, a perspective we routinely attempt to shun, we expected the stock to accomplish $57 by December 13, 2010.

We were catastrophically wrong in our analysis. As recently as December 9, 2010, Beckman Coulter (BEC) closed at $57.09. Had we made it to next Monday, we would have been able to claim that to our surprise the rosy scenario or reaching $57 did play itself out. We were wrong by a country mile on that matter. Today, December 10, 2010, Beckman Coulter (BEC) rose as high as $74 in anticipation of the sale of the company.

At this point, we can only thank Boulay365 for asking the question which we found fascinating to research. There were definite lessons learned in this exercise which we hope to carry forward in future analysis.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in BEC, Beckman Coulter

Tagged

Real Estate: The Verdict Is In

Posted on December 9, 2010 | 2 comments

On January 6, 2010, we wrote an article titled "Real Estate Bottom is Calling". At that time we indicated that, based on the cycles as presented by Roy Wenzlick along with supporting data from the Federal Reserve Bank of St. Louis, the real estate bottom was in or that it would be registered within 2010.

As we come to the close of 2010, it appears that based on the narrow scope of sources that we’ve selected, the bottom in real estate has come and gone. Below we show a chart of housing starts which appears to have registered a bottom in the month of July 2010.

In the next chart, we have the real estate loans of all commercial banks. This chart also shows that the bottom did occur in the month of April 2010.

Again, the premise of our assertion that real estate would hit bottom is primarily based on the fine research of Roy Wenzlick, author of the Real Estate Analyst. Wenzlick proposed that real estate goes through 18.3 year cycles. Such cycles can be used to estimate the approximate bottoms or tops in the market for relatively accurate timing on when to buy or sell real estate.

Below is a chart that appears to show real estate hitting bottom in 1973. If we were to added 18 years to 1973 then we’d get a bottom in the real estate market in 1991. In fact, 1991 was the last major bottom in real estate. Adding 18 years to 1991 gives us an expected bottom in 2009. As stated in our article of January 6, 2010, we play it safe by including 2008 and 2010 to our expected bottom in the real estate cycle.

saupload_wenzlick

If we add another 18 years to the 2010 bottom that we expect that we’ve passed, we arrive at the year 2028 as the next bottom. This coincides with our inflation cycle peak that is expected from 2028 to 2030 (see right hand column). We arrived at our inflation cycle from the work of Dewey and Dakin’s book Cycles, The Science of Prediction. In their book, written in 1947, Dewey and Dakin proposed that the next peak in wholesale prices would occur in 1979 and the next trough would occur in 2006. The 1979 target was off by one year while the 2006 target is off by 2 or 3 years.

Source: Edward Dewey and Edwin Dakin. Cycles, Science of Prediction. 1947.

Despite the discrepencies in the 2006 estimate for wholesale prices, the stage has been set for some interesting times in the coming years. Based on the indicated sources above, we feel that real estate has a six to nine year stretch of rising prices or "trading" in a range and decreased foreclosures.

2 Comments

Posted in Dakin, Dewey, real estate, Wenzlick

Seth Klarman Review: Margin of Safety-Chapter 1

Posted on December 6, 2010 | Leave a comment
The following is a line for line analysis of chapter one of Seth Klarman's book Margin of Safety. we're providing the concept or idea that we think is being conveyed followed by the quote or concept and page where you can find the citation. Additionally, we follow-up with our thoughts on the concept. We hope to review the complete book one chapter at a time.
According to GuruFocus.com, "Seth Klarman is a value investor and Portfolio Manager of the investment partnership The Baupost Group. Founded in 1983, The Baupost Group now manages $7 billion, and has averaged returns of nearly 20% annually since their inception. Seth Klarman is the author of the book 'Margin of Safety' which sells for over $1000."
Chapter One
  • Know the Difference
    • Knowing the difference between saving & investing and investing & speculating is very important. Also important, the difference between assets and liabilities. p.3.
        • From personal experience there is much confusion about what savings actually is. Money that is consistently put into a bank account and not touched unless there is an emergency is savings. Money that is put into a 401k and invested in a stock mutual fund is not savings. Too often the reflexive remark about contributions to a 401k is that the money is savings for retirement. The only way this is possible is if the money is put into a money market account. Anything else is investing which incurs the attribute of risk of loss.
  • 3 Things Investors want
    • Investors expect 3 things when they invest: free cash flow which is translated into a higher stock price or dividend payouts; higher multiple that others are willing to pay for; narrowing of the gap between share price and business value. p. 4.
        • The latter to of three things that investors should want are solely dependent on the realization of the markets that the company in question is worth either paying more for which in turn narrows the gap between share price and business value. Free cash flow reflected in the form of the dividends does not rely on the hopes and expectation of other investors. Either the dividend is paid or it isn’t.
  • Speculators have Faith
    • “Speculators, by contrast, buy and sell securities based on whether they believe those securities will next rise or fall in price. Their judgment regarding future price movements is based, not in fundamentals, but on a prediction of the behavior of others.” p. 4.
        • Strong beliefs are what allow investors and speculators to hope that what they’re doing is right without proper consideration of the risks. This seems to be why many investors would rather rely on “conventional” market wisdom like diversification and holding stocks for the long term. Somehow the faith in a financially stable promise land in some far distant future is more appealing than the evidences of the past and the “here and now.” It goes without saying that financial markets have the tendency to spite long held superstitions bandied about as market truisms.
  • Untested Over an Economic Cycle
    • “Although newly issued junk bonds were a 1980s invention and were thus untested over a full economic cycle, they became widely accepted as a financial innovation of great importance…” p.14
        • Anyone investing, or saving for that matter, that isn’t aware of economic cycles is likely to pay for investing instead of get paid by investing. Likewise, for anyone who is actually trying to save, those who understand interest earn it, those who don’t pay it.
  • Yield Pigs
    • “Double-digit interest rate on U.S. government securities early in the decade [1980] whetted investors’ appetites for high nominal returns. When interest rates declined to single digits, many investors remained infatuated with the attainment of higher yields and sacrificed credit quality to achieve them either in the bond market or in equities.” P.14
        • This reflects investors fighting the last war rather than the current or future battles. The key to future confrontations lies in an intimate knowledge of the distant past. The key to the current environment is in the ability to avoid the popular strategies that have proven not to work in the recent past.
  • Get to know the difference between yield on capital and return of capital.
    • Yield Pigs are easily confused about return of capital masquerading as yield on capital. Fancy “widow-and-orphan” products or otherwise “safe” investments with high returns are often created with the stated return leaving out the important fact that investors may in fact be receiving their initial investment as part of the “income.” p. 15.
        • The challenge of investing of requires a basic understanding of the difference between getting a return on your capital versus a return of capital. Many investors strive to obtain high yield at the risk of either getting a return of their capital if their lucky or a return that is inferior in the long run simply because exceptionally high yields are guaranteed to last for only so long.
  • Bond yields low? Maybe stocks are too high.
    • “When bond yields are low, share prices are likely to be high.” p. 16.
        • This is a matter that constantly lurks in the back of my mind when I hear someone comparing stocks with high dividend yields to government bonds. I worry that there may be something in the stock yield we don’t know about. On the spectrum of risk, we know that the government bond has a greater chance of being repaid whereas the stock’s dividend can be cut at any point.
  • Backward looking investment formulas consistently misguide investors.
    • “Other formulas incorporate investment fundamentals such as price-to-earnings (P/E) ratios, price-to-book-value ratios, sales or profit growth rates, dividend yields, and the prevailing level of interest rates. Despite the enormous effort that has been put into devising such formulas, none has been proven to work.” p. 17.
    • “Investors would be much better off to redirect the time and effort committed to devising formulas into fundamental analysis of specific investment opportunities.” p. 18.
        • The most blatant deceptions are often the most widely disseminated or misconstrued. Based on Mr. Klarman’s example, it could easily be said that the New Low Observer is among the active participants in such a farce. We don’t argue this point. We readily admit that we don’t know as much as a Buffett, Soros, Lynch or Rosenburg. What we do know is that we attempt to accept our failures and try to learn from them rather than move on to the next investment fad that we have absolutely no clue about.

 

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in Margin of Safety, Seth Klarman

Tagged

AquaAmerica Has Prevailed…So Far

Posted on December 5, 2010 | Leave a comment
On November 29, 2009, in an article titled "What About Utilities?", we submitted our thoughts about the merits of buying the electric utility Consolidated Edison (ED). Our response was that, in terms of a company in the exact same industry group, Southern Company (SO) was probably the best peer to choose from. In addition, we indicated that, although not in the exact same industry group, AquaAmerica, Inc. (WTR) was a far superior alternative to Consolidated Edison (ED).
Below is a chart of the performance of all three stocks from November 30, 2009 to December 3, 2010. It should be noted that the chart only reflects the change in price and not the dividends paid.
As you can see, AquaAmerica, Inc. (WTR) came out on top by generating a return of 32.23% in the last year. Second in the ranking was Southern Company (SO) which returned 18.79%. Finally, Consolidated Edison (ED) returned 14.24%. If viewed strictly on a price appreciation basis, AquaAmerica exceeded the return of Consolidated Edison by more than double.
When analyzed from the more relevant basis of total return (dividend plus price appreciation), the performance was as follows:
  • WTR-36.50%
  • SO-25%
  • ED-20.32%
We invite the curious to re-read the piece we wrote (located here) at the time to gain the “insight” that we were trying to convey. That “insight” is to always seek the best alternative. To the New Low team, the best alternative is the stock nearest the low that has the most viable upside prospects. Those that wish to suggest that “…no long-term holder of stocks would care about the one-year performance of a utility...” are correct. However, what we are trying to demonstrate is the value of assessing the proper time to buy.
Although we outlined our rationale for selecting AquaAmerica over Consolidated Edison, we’re more than willing to submit to the idea that we’re just lucky. As my economics professor used to say, “It is better to be lucky than smart.”

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in Aqua America, Consolidated Edison, ED, SO, Southern Company, WTR

Tagged

NLO Dividend Watch List

Posted on December 3, 2010 | Leave a comment

Watch List Summary

This week's list contains 18 companies that are among some of the biggest blue-chip institutions out there. Topping this list again is the giant food supplier, ConAgra (CAG). The New Low team has issued an Investment Observation on ConAgra that is worth reading.

December 3, 2010 Watch List

Symbol Name Price % Yr Low P/E EPS (ttm) Dividend Yield Payout Ratio
CAG ConAgra Foods, Inc. 22.08 5.04% 14.06 1.57 0.92 4.17% 59%
TFX Teleflex Inc. 50.53 5.45% 12.48 4.05 1.36 2.69% 34%
CLX Clorox Co. 62.49 5.99% 13.41 4.66 2.20 3.52% 47%
ABT Abbott Laboratories 47.37 6.23% 15.63 3.03 1.76 3.72% 58%
KMB Kimberly-Clark Corp. 62.01 6.45% 14.03 4.42 2.64 4.26% 60%
CL Colgate-Palmolive Co. 77.95 6.61% 18.21 4.28 2.12 2.72% 50%
LLY Eli Lilly & Co. 34.14 6.62% 7.83 4.36 1.96 5.74% 45%
GBCI Glacier BanCorp., Inc.  13.60 7.26% 21.59 0.63 0.52 3.82% 83%
UVV Universal Corp. 38.13 7.83% 7.49 5.09 1.92 5.04% 38%
BOH Bank of Hawaii Corp. 44.98 8.13% 11.84 3.80 1.80 4.00% 47%
SYY Sysco Corp. 29.30 8.60% 15.10 1.94 1.04 3.55% 54%
VLY Valley National BanCorp.  13.39 9.16% 17.62 0.76 0.72 5.38% 95%
WFSL Washington Federal, Inc.  15.26 9.23% 14.53 1.05 0.20 1.31% 19%
JNJ Johnson & Johnson   62.56 10.02% 12.85 4.87 2.16 3.45% 44%
WABC Westamerica BanCorp.  53.74 10.35% 16.85 3.19 1.44 2.68% 45%
OMI Owens & Minor, Inc. 28.18 10.42% 14.68 1.92 0.71 2.52% 37%
CWT California Water 37.39 10.59% 19.78 1.89 1.19 3.18% 63%
PEP PepsiCo Inc. 65.17 10.93% 16.42 3.97 1.92 2.95% 48%
18 Companies






Top Five Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from December 4, 2009 and have check their performance one year later. The top five companies on that list can be seen in the table below.

Name Symbol 2009 Price 2010 Price % change
Aqua America WTR 16.81 21.58 28.38%
WGL Holdings, Inc. WGL 31.86 35.98 12.93%
UGI Corp. UGI 23.59 31.98 35.57%
Northern Trust Corp. NTRS 48.69 52.82 8.48%
California Water CWT 37.67 37.39 -0.74%



Average 16.92%





Dow Jones Industrial DJI 10,388.90 11,382.09 9.56%
S&P 500 SPX 1,105.98 1,224.71 10.74%

Once again, our top five have beaten both the Dow Jones Industrial Average and the S&P 500.  Of particular interest to us is the performance of Northern Trust (NTRS).  If after a year of holding stock, the shares of NTRS have risen 8.5%.  In our recent investment observation (Sept 1, 2010) and sell recommendation (Dec 3, 2010) of Northern Trust, we managed a gain of 10.9% in a much shorter time frame.

As mentioned with every sell recommendation, our goal is to maximize the annual yield of each trade so if we can obtain a 10% gain in less than a year (the approximate historical annual market return) then we are satisfied. Those who wish to hold for the "long-term" may also benefit from our method of buying quality dividend paying stocks near a new low, Aqua America (WTR), WGL Holding (WGL), and UGI (UGI) are perfect examples.

  • See the 36% 1-year performance of our utility recommendation here.

Disclaimer 

On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.

Please revisit New Low Observer for edits and revisions to this post. Email us.

Leave a comment

Posted in NLO Dividend Watch List

Tagged