AB Analytical Services

Looking for Alan's Posts?

For those looking for our current thoughts on the market, Alan is publishing almost exclusively to Seeking Alpha. You can access Alan's articles here.

Alan also publishes a blog to support www.InvestByModel - Read the blog

Finally, to learn more about Alan's private blog, please visit the brochure.

High Dividend Yields Screened for Safety

Many investors have been shifting out of bonds into income-oriented equities. I have favored this strategy, but it's very important to realize that dividends aren't the same as interest payments: They can be cut. In that case, not only will your income be less than you expect, but also your investment will most likely decline in value.

If you are employing an equity substitution strategy, it's essential to take steps to mitigate the risk of dividend reductions and consequent capital losses. Some of the factors that make a dividend-paying stock risky would include high levels of debt, high payout ratio (dividend relative to earnings), and a shrinking business (lower future earnings). You can minimize the risk of getting a dividend cut by investing in low-debt securities with lower payout ratios and underlying earnings growth. Another indicator of limited potential for dividend reduction is high insider ownership.

I set up a screen to identify stocks that meet the criteria. Here is what I did (using Baseline):

READ MORE

 

Buy Dips not Plunges

Over the last few weeks I have explored severely depressed stocks, taking a look first at potential bargain S&P 500 stocks trading 50% or more below their 52-week highs, and then following up with "Mid-Caps Sliced In Half." As I suggested, often these names are beaten up for a reason, making investment somewhat of a long shot. While I have encouraged readers to resist the temptation to bottom-feed, I can appreciate the idea of buying a stock that has fallen "too much." Intuitively, a lower price seems to imply less risk, but this isn't necessarily the case.

So, if you are the type of investor who likes to snap up stocks with negative price momentum, how can you raise the odds in your favor? While there are still no guarantees, I believe that the chances of successful entry can be improved by applying certain technical and fundamental criteria.

READ MORE

STJ: Potential Pressure Relief Ahead

STJ has called out "renal denervation" as a huge LT driver, and the company's device, EnligHTN, received a CE Mark this week, ahead of schedule.  They aren't the first to market, but the market for hypertension that can't be reduced with drug therapy is quite large.  It will take a while to develop sales, and it it will be a few years before they can sell in the U.S., but it's worth paying attention to this new technology.

Read More

 

Sliced and Diced: 7 Mid-Cap Stocks Cut in Half

Folllowing up on last week's look at all of the S&P 500 stocks trading at less than 50% of their 52-week highs, I screened the Mid-Cap Universe of 45 names to come up with 7 that might merit further attention.  The results were spread out among several sectors, including an Energy stock, a Consumer Discretionary stock, a Materials stock and four Technology stocks.

Read More

 

14 S&P 500 Stocks "Half-Off"

I took a look at the stocks in the S&P 500 that have lost more than half their value over the past year.  Why people like to hunt among the hemorrhaging befuddles me, but there probably are a few worth checking out.  

Read More

 

"Sell DECK and Buy TRLG"

I started My Own Analyst two years ago to help individual investors who invest on their own.  One of the features that has gained in popularity is what I call "Ask Alan" - there's a button to push on the website that launches an email to me.  I respond on the website.  Here is one that I received two months ago:

03/11/2012

Question on DECK

Tim asks:  

Are you familiar with Deckers (DECK) or do you have an opinion on the stock? I think the company is very well run with a strong balance sheet. The recent earnings haircut due to rising material costs looks to be factored into the current price.

I don't follow DECK closely at all.  I have always felt that it was too much a fad (Uggs), though that has proved incorrect.  The margins are quite high - so high they scare me a bit.  It's easy to get lulled into a feeling of "cheapness" when the PE is low (especially considering the $6 per share of cash) when the margins are inflated.  Over longer periods of times, those margins inherently come under pressure.  I have liked CHS because its margins were low and rising.  When I look at SKX, it too had historically high margins (though not nearly as high as DECK) and reliance on a single product's trendiness before it crashed when the trend changed.  CROX is a better example perhaps.  Outside of shoes, there are lots of examples.  This is a long way of saying that I would be careful with DECK.  With that said, from a trading perspective, it seems a bit overdone, but I don't see support anywhere near here.  When a stock goes from 12.40 to 119 in two years, there are lots of big LT gains embedded.  The stock could pull back 62% of that move and still be in a LT uptrend.  This would be 53 or so.  When I look at the 2-year weekly chart, I see 53-55 as support.  Fundamentally, it's easy to blame weather and to dismiss potential negative longer-term trends.  I hope that is not what is going on here.  If I had a bullet to shoot at a fallen angel in the retail sector, it would be TRLG.

At the time, DECK was 68.31, while TRLG was at 26.22.  Subsequently, DECK reported earnings and plunged, closing this evening at 52.50 after trading as low as 50.18 on 4/30.  Meanwhile TRLG suprised the market with a big initial dividend along with a small share repurchase authorization and closed in the after-hours at 30.50 (and traded as high as 32).

Subscribers to My Own Analyst get this type of advice every single day.  It doesn't always play out this well, but often it does.  For example, another feature is what I call "Short-term Trades", where I set a target and stop price with a two-week limit.  This morning, I went out with a buy on CRK just after the open, with a buy price of 15.84, a stop of 15.25 and a target of 18.  The trade was closed out within a couple of hours - that's almost 14%.  Of course, many of these trades, which are set up typically as 3.5 to 1 up/down, don't work out - they become small losses, but the wins really add up and have produced large gains overall.

If you could use a professional input into your own investment process, why don't you check out this service?  If you can avoid one or two mistakes a year, the service more than pays for itself.  Click here for the brochure.  If you like what you see, email me and I will let you take a look for the next week.

SHHH! (Quiet Breakouts)

In case you didn't notice, the bull is back. After a Q1 that left the stocks ahead of the pace I was expecting, the market, not surprisingly, consolidated. In my view, the market is no longer overextended or overbought, and hopefully it is on track to resume its rally towards 1600 on the S&P 500 that I described last October.

Recently, I shared one of my strategies that can work well in a bull market - buying good companies that sell off on earnings misses that don't materially reduce the longer-term outlook. Perhaps psychologically, buying stocks that dip is appealing, but as I said in the article, it doesn't always work. An even better strategy in my view is to buy breakouts.

Again, this can be tricky, and one wants to be very careful about timing a breakout, as sometimes they prove to be "false breakouts" and, even when not, chasing an extended stock can prove to be poor timing. Instead, I like to focus on stocks that aren't overly extended. Let's call them quiet breakouts, where the train hasn't fully left the station. These quiet breakouts should have big bases, good earnings growth and reasonable valuations.

In order to identify some potential quiet breakouts, I ran the following screen using Baseline:

• Russell 3000 member

• Within 5% of 52-week high

• One-year Price Return < 20%

• YTD Price Return < 12%

• Price > 2007/2008 High

• One-year EPS Growth > 20%

• 3-month Earnings Estimate Revisions >0%

• Forward PE < 20

 

READ MORE

 

Buying Post-Earnings Dips

I love earnings season. Don't you? Sure, it can feel like trying to stand in front of an open fire hydrant, but so many opportunities can arise for both short-term traders as well as long-term investors due to the volatility among individual stocks. Time is scarce - institutional investors react swiftly, often buying or selling before they have time to fully digest the news.

Earnings season is particularly busy for me, as I try to keep up with the 100 stocks on my watchlist as well as pay attention to important ones that aren't. This past week, for instance, 30 of the 100 reported, many hosting conference calls at the same time. One morning, I caught four straight live calls, but I tend to end up reading the transcripts for many of them. For those not aware, Seeking Alpha provides free transcripts, which are available on many companies.

When a company reports, there are many possible reactions. The report can can be viewed as "Good", "Neutral" or "Bad", but it's not that easy. To me, it's almost always about the future rather than the recent past. Ultimately, my key question that I want to answer is this: How does the news impact the future earnings? Presumably, if the future is brighter, the stock goes up. If it is dimmer, it goes down. If only it were that easy!

So, when I am judging the quarter, I am looking ahead, but I certainly recognize that many others focus on the short-term. For example, one of the stocks I will address below, Mattel (MAT), missed earnings by 50%. OH MY GOD! The reality is that this was their smallest quarter in terms of earnings typically, and the "huge miss" was rather inconsequential relative to the full year.

READ MORE

 

Looking for Yield? Here are 7 Under-the-Radar Dividend Plays

Investors have been transforming their portfolios over the past couple of years in response to historically low bond yields, substituting conservative dividend-paying stocks for bonds or cash in order to produce more income. Here at Seeking Alpha, there is tremendous discussion about this topic, but I have found that it tends to be focused on very large, well-known names, particularly in the Consumer Staples, Healthcare or other more "stable" sectors.

Last fall, I suggested that Dividend Growth Investors expand their horizons a bit and consider "High Quality Financials", a recommendation that was met with a lot of skepticism based on the comments I received. My point isn't to go back and say "I told you so", but there were some tremendous moves from the majority of the names discussed, with many outpacing the market and certainly outperforming the Consumer Staples and Utility sectors, for instance.

Today, I want to shift the focus towards small cap stocks with certain positive characteristics. After starting the year strongly, small caps are trailing larger companies in 2012. Over the past year, the S&P 500 price has increased 5%, while the Russell 2000 has dropped 2%. I spend a lot of time looking at smaller companies, and, while it's always difficult to generalize, I see all sorts of bargains these days. Among the bargains are names that should appeal to conservative investors. Sure, some of the names are relatively illiquid, with quality more difficult to judge than more familiar names perhaps, but, in the end, risk isn't eliminated by going with large companies.

In order to highlight some potential opportunities, I created a screen with Baseline. Here are the parameters:

Continue Reading 

A Dozen GARP Stocks to Consider

The pullback in the market is giving investors a chance to either get in if they have been on the sidelines or to reposition their portfolios otherwise. Last week's 1357 print on the S&P 500 (SPY) may have been the low, though I anticipate that we could perhaps test a bit lower. I remain constructive on the market and continue to expect 1600 on the S&P 500 in 2012, a forecast I first shared last October and reconfirmed in February.

In trying to find some new ideas to consider, I decided to screen for cheap stocks that are growing but that have technically corrected already. This "growth at a reasonable price" (GARP) screen I designed using Baseline is as follows:

• Universe = Russell 3000
• Market Cap: Between $1 billion and $10 billion
• 50dma > 200dma (in an uptrend still)
• Price = 75-90% of 52-week high (corrected)
• 1-year price return > 4% (beating S&P 500)
• 2-year price return > 15% (beating S&P 500)
• Trailing PE < 20X
• EV/EBITDA < 12X
• Trailing Sales growth > 10%
• Trailing EPS growth > 14%
• 2013 Projected EPS Growth > 12%

Here are the 12 names that met the criteria, sorted by EV/EBITDA:

 

READ MORE