Looking For a Sign

If you ever get to go hiking in Switzerland, you will discover that these yellow signposts are a regular feature and extremely helpful. They tell you the direction, the distance, even often the time (they obviously have not seen me hike).  They also tell you if there is a railway station, bus station or cable car at the listed destination. Finally, they also have a little symbol (almost like a martini glass) that I think tells you if there is food & drink.  Nice.

I suppose in our crazy world of investing, we'd like to have such good signposts as well.  Heck, we'd be happy with just direction... right?  I have said many many times here, that I am unable to predict market moves with any precision. In fact, I am wrong more than I am right.  Maybe I should just flip a coin.  But you know, even that really would not work.  Why?  Because the markets are biased to go upwards.  This simple fact (I believe) is missed by many traders. They forget that you are actually buying an ownership stake in a company, not just slips of paper. And as the overall economy (and the US economy) goes up more often than it goes down, it is reasonable to expect on average stocks will go up over time.

I wanted to use this blog this weekend to start vetting my ideas for my next five MFI stocks.  I was hoping to create a new top 200 list, but that is pretty bandwidth heavy.  It just isn't going to happen on this hotel's wifi.  But that is ok, I ran a list just a couple weeks ago and it does not change that fast (normally).

What I Am Thinking

I do think MFI stocks are beginning to rotate back into favor. That should make it a bit easier to find five stocks to out-perform.  I do think M&A activity will accelerate in the next 12 months.  Yes, a lot of stocks are probably over-bought. But many MFI stocks are still pretty reasonable.  And those with relatively low debt, decent amount of cash, predictable cash flow and not TOO big will be attractive targets.  DELL is kind of the example, except they are too big and that complicates everything.  But when the Fed starts signalling the end of easy money, I expect there will be a bit of a rush to the altar.

So here are some companies from the current list that I am thinking about that may fit that mold:

1. XLS - $2b defense spin-off from the old ITT. Not sure if anyone is looking at them, but they would be bite sized for the big guys.
2. EXPR - $1.5b clothing store.  Decent cash flow. 
3. ESI - $420m market cap, with cash and very low expectations for earnings.  
4. BPI -  this is a $595m market cap company with $390m in cash. Are you kidding me?  I know FP education is a dirty word, but for almost everything there has to be a bottom. They are priced as if they will never make another nickel.
5. LPS - a 2.4b mortgage servicing company.  I already own. They come under a lot of scrutiny during peak of foreclosures. But I think that wave has receded.  They do have a bit too much debt.
6. LFVN - another of the MLM type companies (think USNA, HLF or NUS). Only 260m, with $40m of cash.
7. NATR - whoa, kind of like LFVN's sibling. Also based in Utah. $228m market cap with $75 in cash.  Hmm, if these guys showed even a whiff of growth...
8. NVDA - a lot of these tech companies look interesting. $8.5b market cap, so a bit larger. They have $3.7 billion of cash!  That is stunning. nearing 50% of market cap in cash. I do not know much about this space, but they could be an interesting play. I see they report earnings May 9th.
9. SAI - you know I love these guys. Top 10 holding for me. With a $5b market cap, they are just the right size.
10. USNA - third Utah MLM.  They have a 780m market cap and over 70m in cash and they are growing.  Hmm, pretty interesting.
11. UTHR -  A 3.3b market cap with over 300m of excess cash. They are a growing/profitable biotech company.  Certainly interesting.

Then I am also considering stocks that do not make the official list. I do like GA and CYOU.  I know they are Chinese, but they both just keeping making money and are so cheap. Some of the larger tech, such as CSCO, STX and KLAC are also tempting.  Well,I guess I still have a week or two to make decision, unless I get trigger happy.