Wednesday, December 18, 2013

Very Cool Isn't It?

I was looking at the MFI Index results for the year thus far. They are remarkable. For the year, the index is up 48.9%. I challenge any reader, at the start of any year, to pick fifty stocks and have them go up by almost 50% in the next 12 months.

The most recent catalyst was VCI, which got a buyout offer for a 22% premium. This is a stock I had looked at several times, but could not pull the trigger as their business was so unsexy... Neighborhood circulars with coupons. Just like PBI (up 112%) was not sexy, in a dying industry. Just like SAVE, an airline stock, an industry many investors hate (up 145%). Just like CPLA, a for profit education stock, under scrutiny by the government (up 128%). Just like GTAT, in the down trodden solar industry (up 172%). I could go on.

The point being, when investing in MFI stocks, you may need to hold your nose a bit. You may need to check your pre-conceptions about what is a good stock or a good industry at the door. I would dare say that for every stock making the list, there is an argument that can be made for not owning it. But the real question should be whether that potential bad news is already largely priced into the stock?

Maybe when I pick my February tranche, I will just pick the most hated stocks on the list as of February 1st. It would certainly take some courage. And it is possible that one or two could disappoint you.  But you could also get some triple digit returns, which can make up for a few sins.

Just thumbing through the current list, here are five hated names:
CRUS - everyone's says too dependent on AAPL.
MYGN - lot of question about recent Supreme Court ruling and new competitors.
PDLI - a lot of questions about sustainability of earnings stream as royalties and patents expire.
WTW - under fire from less expensive approaches, such as smartphone apps.
EBIX - many people are questioning validity of financial statements.

Like I said, it would take some courage to buy this list.

1 comment:

Karl Nelson said...

Marshall,
Just an FYI. I have both MYGN and PDLI in my rolling MFI portfolio. They are both at 118 days old and PDLI is +31.3% while MYGN is -8.1%. Also I had VCI in the same portfolio and sold yesterday with an age of 84 days and a profit of +21.8%. As you said, I held my nose when I got VCI, but it was a pleasant surprise yesterday morning! Cheers, Karl