Sunday, August 07, 2016

Candidates For My August Tranche

Candidates For August Tranche

Ok, it is time to get serious about my five picks for August 2016.  Today I will run my own MFI screen to see if there are some names not being picked up  by the official screen.

I do like to think about themes when I pick my stocks.  I do believe there are several to consider.  First, I do think that M&A will  continue as growth is difficult to come by.  So I may want some firms that might be attractive candidates.  OUTR would have been a great pick in hindsight. It is going private  and is up 45% in 2016.

Stocks that pay dividends will still be desirable in my view.  I do believe the Fed will try and raise rates this year, this would make dividend stocks less desirable.  However, I think there is a limit to what they can do. My preference will be stocks that are more US centric.  Strong US dollar will hurt US firms that sell a lot overseas. Finally,  I  am worried that Zika virus may start to change people's behavior.  So I am not keen on travel-related stocks.

Here is a snapshot of my tranche coming up on end.

8/17/2015  Start   Current   Dividend   Pct Gain   R3K Gain 
 VDSI  $18.66 $17.07 $0.00 -8.5% 4.8%
 SALE  $9.34 $10.17 $0.00 8.9% 4.8%
 CSCO  $28.95 $31.04 $0.94 10.5% 4.8%
 TGNA  $25.30 $21.48 $0.56 -12.9% 4.8%
 HSII  $20.14 $19.02 $0.39 -3.6% 4.8%
 Totals  -1.1% 4.8%

I do still  like HSII & CSCO (both on the list). 

Here are some of the names in contention

  1. AVID
  2. MSGN
  3. GNC
  4. KBR
  5. CSCO
  6. HSII
  7. AMAG
  8. MPAA
  9. WNC
  10. KFY
  11. BLBD
  12. SVU
  13. RPXC
  14. PINC
  15. LEA
  16. TDC

Whoa, that is a daunting list.  Let me run my own screen and see if any other names pop up.  This may take a while, so feel free to  listen to  Jeopardy music.

Other Ideas

RCII, VLO, CBI, FLML and CALL are some names that made my list.  Looking through them, VLO is probably the most worthy of consideration.  I will carry them forward.


Ok, here goes.  Please recall I am just a guy with a spreadsheet.  In no way should you personally rely on my analysis.  Do you own work!

MSGN This is of course Madison Square Garden network. Now I know that TV networks are out of favor right now... but this one is interesting to  me as it is live sports.  That is not something you stream or binge watch or fast forward through commercials.  If you are a sports fan, you want to watch in real time.  ESPN has always been a jewel for DIS because of this fact. I think MSGN can be a jewel to someone. The stock is trading at $15.40. It has been as high as $24. Thinking about my guidelines, it is very US centric and is an acquisition target.

Man, as I am typing this I am ready to go buy right now.  They do have a lot of debt,  $1.4b (versus a $1.1b market cap). Analysts have them trading at 8x future earnings.  They may be a difficult acquisition target as controlled by Dolan family.  They report earnings on the 18th.  Their May earnings looked pretty good. 6% revenue growth and 59 cents per share.  This is definitely a stock to consider.

GNC if you like a company in turmoil, you'll love these guys.  This is the company that sells vitamins and nutrients.  Certainly a company that can have trouble with Amazon or CostCo should they focus on this space.  But this may be priced in.  They are a bit under $20.  They traded as high as $50.  Their CEO just was asked to leave in July. They have announced they are open to Strategic Alternatives (GNC Commences Strategic And Financial Review To Increase Shareholder Value).  I do not think they have much foreign exposure.  They do pay a nice 4% dividend. They do have quite a bit of debt (1.6b vs $1.3b market cap).  The analysts have the trading at 7.5x future earnings.

I think this is a very compelling story.  Definitely makes it to next round.

KBR - I have had so-so experience with construction-related firms.  I did ok with FLR, great with AGX but poorly with CBI. KBR has not come on the screen that often.  I suspect they will fail my test of US  centric... I know KBR has global operations.  They do pay a nice 2% dividend.  They are at $15 and change and have been pushing $20 in past year. They have basically no debt (sweet) and solid cash, although these construction firm the cash is often a refundable deposit.  Analysts have them shrinking revenues (I have to believe foreign exchange rates hurt) and trading at about 12x earnings.

While this seems like a decent story, I think I will put aside for now. Not making next round,  although borderline.

CSCO - I have always liked CSCO. I have also done very well with them in MFI (have owned four times with an average return of 16%).  I do think they have a great tailwind with the Internet of Things and with the adoption of 5G beginning.  While not the sexiest stock in the world, there is a lot to like. a 3.35% dividend - the stock has been bid up a bit in the search for yield at $31 (pretty much 52 week high). They have a deep cash pile (over $30 billion... if there is ever a tax holiday, that will come ashore).   They are a slow and steady grower, 13x forward earnings.  Think about PG as a comparison, they trade a 20x earnings with a 3% yield.  These old school tech companies are much more attractive in my view.  They do have a lot of foreign exposure.  That will be a drag.  

Tough call here, I think with being at 52 week high and foreign drag I will not consider in this tranche. Obviously they will still be strong candidate for Formula tranches.

HSII - this is a recruiting firm. Their success if often tied to employment outlook.  With the strong jobs number on Friday, HSII jumped up nicely.   They pay a good dividend (2.7%). I do think they have global exposure.  They had really good earnings in July and spiked to $21.15, but have since slid back (recall our ADHD market) to $19.02. No debt and $85m in bank is nice. A little  pricier than some  other choices here...  17x future EPS. They are growing modestly.

I think they're worth keeping on list.  I will likely have to choose between them and KFY.

KFY - okay, here is the second recruiting firm.  They are the large one, 4x bigger. So more likely that KFY would buy HSII. They do have a 1.7% dividend and report earnings in early September. They are at $24 but were almost 39 within past 52 weeks.  HSII had strong earnings, decent chance KFY will as well.  Trading at just 9x F eps, so "cheaper" than HSII. Analysts have them growing 4% in 2017. You know, I think at these prices that they are the better buy between HSII and KFY.

So KFY moves forward.  HSII is off the island.

AMAG - this was a stock I had on my list in May.  I definitely have buyers remorse as they are up almost 40% in that quarter. But at $27.70 they are still WAY below 52 week high of $62.  They report earnings on Tuesday... certainly bears watching.  Most other firms  in this pharma space have done well post earnings (like DEPO for me).  They do have $500m of debt.  This space could be under attack if Clinton wins.  But their projected EPS are between $5 and $7.70 and they have double digit growth.  Man,  that is cheap.

They have to make the next round, trading at just 5x 1017 EPS.

AVID - this is an interesting name.  They just reported strong earnings. The stock was up 14% this past week.  But to me,  they still look like  a buy. They are a smaller company (300m) based in Burlington MA (that is where AWRE was too). They develop software for digital media.  They seem to be minting money right now... projected 2016 adjusted EBITDA is around $120m.  For a  company with a $440m EV, that is cheap.  They have moved to subscription based pricing with 40,000 pay customers monthly.  Of course, these software companies can dry up quickly if someone else comes out with something better, faster & cheaper. But there can be some stickiness.    They are trading at $7.5 and have been as high as $12.  

They deserve to remain under consideration.

MPAA - well,  after exciting software,  we move to motorparts.  There is nothing wrong with old  economy stuff... Smucker's would have been a great buy 15 years ago.  They are at $28 and have been as high as $41 in past year.  They also report on Tuesday. They are after-market, so they are not tied into new car sales (which seem to be at a plateau). They trade at 11x earnings (forward) and analysts have them growing 12% next year...  which seems strong.  They have no dividend.  I suspect they are mostly selling in USA and are smallish in size, they could certainly be bought.

They will remain under consideration... I am not dropping many names.

WNC - this is another automotive name. But their focus is on big trucks.  They are based in Indiana (probably reason enough for this Hoosier to buy them).  They do not pay a dividend and they trade at 10x f eps.  Sales are dropping 8% this year and projected 9% next year.  Say no more.

Perhaps not a bad company, but I like some other names more. Pass.

Take a breath. So far MSGN, GNC, AVID, KFY, AMAG and MPAA are moving forward.

BLBD - now another "automotive" firm... school buses.  Smaller company trading at 11x f eps.  No dividend.  Probably 100% US based sales.  Looking at 5% growth, school busses seem like they should be a mature market.  

They do not look bad, I suppose they could be an acquisition target. But I do not think they are top 5 material.   I did briefly consider in mid february. They are up 41% since then... I think the school bus has gone past the stop.

RPXC - I have owned these guys a couple of times,  so know them well. They just finsihed a nice quarter and popped 10% to $11.  But they are still very, very cheap. They are in the patent business, but more on the protection end than trolls. They have $100m of excess cash and trade at 13x f eps.  One issue I have had with them in the past is they are having to continuously buy patents and that seems to be getting more expensive.

I think I will take a pass here.

PINC - this is a healthcare related stock. I had great success with IPCM (a double). They are a 1.5b firm trading at 18x f eps (so a bit pricier than some other names). They have about $100m of excess cash,  so good balance sheet.  They provide Healthcare IS. They are growing nicely, 14% a year.  I need to take a hard look here. My own calculation does not have them qualifying due to minority income.

Hmm, I went to Fidelity and SEC.  I have to say it is strange.  Their operating income in the past quarter was $77m.   But then $56m goes to non-controlling interest.  Then there is some weird stuff I do not even understand, $284m gets added back.

If I cannot understand it and explain with a crayon (to paraphrase Peter Lynch), I will  pass.

So I still have TDC, LEA and VLO to review.  I am getting fatigued here. I will drop TDC, but bring LEA and VLO forward.

So my new list:


No comments: