Sunday, January 22, 2017

Still Thinking About February 1st

Shopping List Time

Just nine days left until I need to replace my February 1st 2016 tranche. I am reading what smart people say, I created my own top 200 list for ideas (how I picked ATHM last quarter) and of course perusing the official list.

As discussed, I do also plan to increase my $ by stock - possibly by 50%.  My recent writings/research need to be considered. Recall I have been harping on earnings sustainability of late. I have also pretty much sworn off retail names for discretionary picks.

I will likely also sell all five of the picks (I almost need to as increasing funds by 50% is not trivial). I kind of would like to keep DEPO as some smart people I follow think they will still get bought at a nice premium.

Here is the tranche (for the record):

2/1/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 VEC  $19.64 $23.50 $0.00 19.7% 21.0%
 QCOM  $45.18 $62.88 $2.07 43.8% 21.0%
 PERI  $2.45 $1.57 $0.00 -35.9% 21.0%
 DEPO  $15.34 $17.79 $0.00 16.0% 21.0%
 TDC  $24.02 $28.47 $0.00 18.5% 21.0%
 Totals  12.4% 21.0%

Stock Ideas

As of right now, here are stocks I am considering:


Here are some thoughts about each name.

AKRX - This is a generic pharmaceutical company.  The class is much hated as you can see in this article (Generic-Drug Firms Face Possible Collusion Charges - WSJ).   But everything I have read suggests that AKRX has been the proverbial baby thrown out with bath water. They are constantly bringing out new generic drugs and they are bringing out new drugs.  So I think they check my sustainability box. They are certainly cheap ($20.52 versus a high of $35 last year). I also think 2017 will be a year of M&A and AKRX is very acquirable. Then recall I looked at income taxes recently. I peg AKRX at 32%, so they would certainly benefit with lower US tax rate.

IDCC - perhaps I am late to the party here. This stock is up 84% since 1/1/16.  But amazingly, I still have them #10 in my MFI ranking.  When I think about sustainability of earnings, I like to look at quarterly income. $157, 23, 50 and 53m.  What is obvious here is that the income is lumpy by quarter. My first question would be why is most recent quarter so high and is it sustainable?  First, analysts think IDCC will earn $8.71 a share this year. That is up from $3.27 a year ago and $4.01 next year. So it seems there is a spike. Reading through their press releases, they definitely had a big patent signing last quarter. So I am not going to totally throw out IDCC, but I believe it is likely is they have gotten too much credit for recent earnings.

KLAC - I am interetsed in tech stocks.  I owned KLAC a couple years ago and they did very well for me.  So again, looking at income sustainability.  Past four quarters: 253, 356, 238 and 225. So there was a bit of a spike two quarters a ago. Analysts have earnings per share going from 5.39 this year to 5.80 next year, They do pay a 2.6% dividend  I would not call them as cheap as some of the other names here (they are #103 on my list with earnings yield of 8%).  Interestingly, they already seem pretty tax efficient (18%) - so might nit be a huge beneficiary of lower rates.  Call me lukewarm.

LNR-TO - until yesterday, I had never heard of this Canadian company. But it was profiled in Barron's yesterday so I thought I'd see if it is worth consideration. They are an Auto parts suppler, that is a class we have seen a lot of late (LEA for example).  Well, I ran them through my workbook.  They have a great earnings yield, 14%. But only a 23% ROIC which makes them about number 350. Certainly too high to consider as an MFI stock.

MCFT - This is a boat manufacturer.  A competitor, MBUU is also on the list but I like MCFT a bit more.  They are a bit smaller than I'd like ($250m market cap). But they are a classic company to benefit from Trump.  Their tax rate is 38%.  Income and revenues have been steadily growing and analysts expect to continue in 2017. They did pay a special dividend in 2016 - which I like. They have a 10% EY but strong ROIC.  I think they make the next gut for sure.

TDC - this is an expiring holding. Looking at table above, they are up 18.5% in past year.  Income by quarter has been quite steady.  But analysts have EPS dropping a lot for upcoming year (revenues down 6%). Tax rates have been lumpy, but going back in time, 25% seems the norm.  I do not like potential drop in income.  So next.

TGNA - I already own TGNA. They are a spinoff from GCI.  They own TV stations, but also websites like  I think they are very interesting and a catalyst may come from spinning off  They have a 2.6% dividend yield.  This really looks like a strong contender.  With a 31% tax rate, I think they'd benefit from lower tax rates.

VIAB - I know, I know. I have already lost quite a bit on VIAB, owner or Paramount and many TV channels like Comedy Central and MTV.  They changed leadership recently. They got rebuffed by CBS. They just signed a big $1b deal with China. I think they may be oversold. They tick a lot of boxes I like, Larger, dividend, not retail, income seems sustainable. They could still get bought. And surprisingly, Mario Gabelli likes them (4 Stock Picks From Mario Gabelli - Barron's).  Tax rate is 26%, so borderline gain in my view.  I think they are a contender.

WNC - I have considered WNC before.  They are up 24% since I rejected them in August (kicking myself).  While earnings have been stable, analysts have them dropping off next year. They are in truck manufacturing and seem like the type of firm that would benefit under Trump. They pay 35% tax rate.  I think they definitely have to move to next round.  I need to go back to August to see why I rejected.

YY - I know, a Chinese company?  But I have had some very big successes with Chinese firms (ATHM recently and GA in past).  I just want to make sure they are legit.  They seem like a Chinese Yahoo. They are #60 in my screen.  They are growing income and revenue nicely. Analysts have EPS going from $3.80 to $4.73. They have a ton of cash.  They are audited by PwC, so that is legit.  I think they make next round.

So AKRX, YY, WNC, VIAB, TGNA and MCFT seem like the front runners.

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