The Risk of Your Portfolio Catching a Virus After conducting the monthly review of the holdings in the SSR track- ing portfolio, no stocks were identified that materially satisfied the unique quantitative deletion rules for each of the four SSR portfolio groups or the overall Stock Superstars Report strategy. Therefore, there are no portfolio deletions for the month and there are no portfolio additions for February. January Recap Through the close on Tuesday, January 28, 2020, the SSR portfolio was up 0.2% month to date, while the portfolio’s benchmark index—the iShares DJ U.S. ETF (IYY)—added 1.7% for the month on a price-change basis (excluding dividends). Sentiment to start the new decade was strong, as the two-year/10-year U.S. Treasury yield curve—a commonly used recession indicator—steepened to its widest point since October 2018, according to First Trust Advisors. Over the first three weeks of the new year, the broad U.S. market indexes were hitting new all-time highs. Mid-month, the U.S. and China signed a phase-one trade agreement, which lowered trade tensions between the two economic superpowers. The two sides billed this as a first phase of a broader trade pact. According to Bloomberg, the deal commits China to cracking down more on the theft of American technology and corporate secrets by Chinese firms and state entities and outlines a $200 billion spending plan to close China’s trade imbalance with the U.S. It also binds Beijing to avoid currency manipula- tion to gain an advantage and includes an enforcement system to ensure promises are kept. The U.S. economy added 145,000 jobs in December, marking the 111th consecutive month of gains. The economy also posted its 10th straight year of annual job gains; for the decade ended December 31, 2019, the U.S. economy created nearly 23 million jobs. Wage growth remained tepid, however, tempering expectations of future Federal Reserve interest rate increases. As of the afternoon of January 29, there was only a 19.5% chance that the Federal Reserve’s target rate would be at the current range of 150 to 175 basis points at the end of this year (down from 46.0% a month ago), according to the CME FedWatch tool. So where does the market anticipate that short-term interest rates are heading this year? Currently, there is only a 3% chance that the Fed will increase interest rates before the end of the year. There is a 77.5% probability that short-term rates will be lower than they are now at the end of this year, up from 51.9% a month ago. However, factors well beyond the scope of corporate earnings, economic data or monetary policy also impacted markets this month. After a strong first trading day of 2020, optimism was dampened by reports that the U.S. had carried out a drone strike on an Iranian military leader and an Iraqi militia leader. This was followed by threats of retaliatory strikes from Iran, which fired some 15 ballistic missiles at U.S. and coalition forces in Iraq. Ten of the missiles hit a U.S. military base, with no reports of U.S. WWW.STOCKSUPERSTARS.COM February 2020 | Volume 18 Issue 2 In This Issue SSR Tables Portfolio Alerts This Month 2 Portfolio Holdings 3 Growth of SSR Portfolio 4 Total Returns 4 Recent Earnings Announcements 5 Momentum & Growth Analysis 6 Value, Quality & Size Analysis 7 In-Depth Stock Reports Monster Beverage Corp. (MNST) 8 Beverage company develops, markets, sells and distributes energy drinks, sodas and/or concentrates for energy drinks. Washington Federal Inc. (WAFD) 9 Bank holding company that conducts its operations through Washington Federal, National Association subsidiary. Lam Research Corp. (LRCX) 10 Tech company that supplies wafer fabrication equipment and services to the semiconductor industry. Encore Capital Group, Inc. (ECPG) 11 A specialty finance company that provides, through its subsidiaries, debt recovery solutions for consumers and property owners across a range of financial assets. Portfolio Corner Evaluating Growth at a Reasonable Price With the PEG Ratio 12 When evaluating firms that are growing at significantly different rates or at high absolute rates, it is more practical to compare the price-earnings ratios and underlying growth rates. Next Publication Date: February 28, 2020 The Stock Superstars Report illustrates how to build and manage a well-diversified portfolio with controlled risk. Our goal is to create a portfolio that provides investment information and reflects an approach consistent with current research findings.
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The Risk of Your Portfolio Catching a Virus · The Risk of Your Portfolio Catching a Virus After conducting the monthly review of the holdings in the SSR track- ing portfolio, no
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Transcript
The Risk of Your Portfolio Catching a Virus
After conducting the monthly review of the holdings in the SSR track-ing portfolio, no stocks were identified that materially satisfied the unique quantitative deletion rules for each of the four SSR portfolio groups or the overall Stock Superstars Report strategy. Therefore, there are no portfolio deletions for the month and there are no portfolio additions for February.
January RecapThrough the close on Tuesday, January 28, 2020, the SSR portfolio was
up 0.2% month to date, while the portfolio’s benchmark index—the iShares DJ U.S. ETF (IYY)—added 1.7% for the month on a price-change basis (excluding dividends).
Sentiment to start the new decade was strong, as the two-year/10-year U.S. Treasury yield curve—a commonly used recession indicator—steepened to its widest point since October 2018, according to First Trust Advisors. Over the first three weeks of the new year, the broad U.S. market indexes were hitting new all-time highs.
Mid-month, the U.S. and China signed a phase-one trade agreement, which lowered trade tensions between the two economic superpowers. The two sides billed this as a first phase of a broader trade pact. According to Bloomberg, the deal commits China to cracking down more on the theft of American technology and corporate secrets by Chinese firms and state entities and outlines a $200 billion spending plan to close China’s trade imbalance with the U.S. It also binds Beijing to avoid currency manipula-tion to gain an advantage and includes an enforcement system to ensure promises are kept.
The U.S. economy added 145,000 jobs in December, marking the 111th consecutive month of gains. The economy also posted its 10th straight year of annual job gains; for the decade ended December 31, 2019, the U.S. economy created nearly 23 million jobs. Wage growth remained tepid, however, tempering expectations of future Federal Reserve interest rate increases. As of the afternoon of January 29, there was only a 19.5% chance that the Federal Reserve’s target rate would be at the current range of 150 to 175 basis points at the end of this year (down from 46.0% a month ago), according to the CME FedWatch tool. So where does the market anticipate that short-term interest rates are heading this year? Currently, there is only a 3% chance that the Fed will increase interest rates before the end of the year. There is a 77.5% probability that short-term rates will be lower than they are now at the end of this year, up from 51.9% a month ago.
However, factors well beyond the scope of corporate earnings, economic data or monetary policy also impacted markets this month. After a strong first trading day of 2020, optimism was dampened by reports that the U.S. had carried out a drone strike on an Iranian military leader and an Iraqi militia leader. This was followed by threats of retaliatory strikes from Iran, which fired some 15 ballistic missiles at U.S. and coalition forces in Iraq. Ten of the missiles hit a U.S. military base, with no reports of U.S.
www.sToCksuPeRsTaRs.Com February 2020 | Volume 18 Issue 2
In This Issue
SSR TablesPortfolio Alerts This Month 2Portfolio Holdings 3Growth of SSR Portfolio 4Total Returns 4Recent Earnings Announcements 5Momentum & Growth Analysis 6Value, Quality & Size Analysis 7
Beverage company develops, markets, sells and distributes energy drinks, sodas and/or concentrates for energy drinks.
Washington Federal Inc. (WAFD) 9Bank holding company that conducts its operations through Washington Federal, National Association subsidiary.
Lam Research Corp. (LRCX) 10Tech company that supplies wafer fabrication equipment and services to the semiconductor industry.
Encore Capital Group, Inc. (ECPG) 11A specialty finance company that provides, through its subsidiaries, debt recovery solutions for consumers and property owners across a range of financial assets.
Portfolio CornerEvaluating Growth at a Reasonable Price With the PEG Ratio 12
When evaluating firms that are growing at significantly different rates or at high absolute rates, it is more practical to compare the price-earnings ratios and underlying growth rates.
Next Publication Date: February 28, 2020
The stock superstars Report illustrates how to build and manage a well-diversified portfolio with controlled risk. our goal is to create a portfolio that provides investment information and reflects an approach consistent with current research findings.
2 February 2020
Stock Superstars Report
since JetBlue is primar-ily a domestic carrier.
Were the virus to con-tinue spreading, it could become a systematic risk. This would be the case if the health threat became big enough to potentially have broader economic ramifications.
This virus can be considered a black swan event. These are rare events that cause a significant reac-tion in the markets. Black swans are systematic risks because if you are invested in stocks when they occur, your portfolio is going to take a hit. They are also low-probability events.
Idiosyncratic risks can be rare too. Enron’s demise was an example of an idiosyncratic black swan event. It was very unusual to see such a large company go under so quickly. While systematic risk can only be avoided by staying out of the stock market—which brings about the far bigger risk of not growing your wealth—idiosyncratic risk can be reduced by holding several different invest-ments. The reason 36 stocks are held in the SSR model portfolio is to limit the impact any single stock can have on a portfolio.
It is also why you are encouraged to hold at least 16 of the 36 SSR stocks (four from each SSR group). Any single stock can rise or fall. Over the long term, a diversified portfolio of stocks with favorable characteristics will both increase in value and com-pensate you for the systematic and idiosyncratic risks taken.
The breadth of the SSR portfolio, which measures the overall direc-tion of the portfolio by examining the number of companies advancing and
weekly decline since August 2019 for the week ending January 24. Inves-tors worry that a widespread break-out would lead to a global economic slowdown.
As my colleague Charles Rotblut wrote last week in his VMQ Stocks commentary, there are two categories of risk facing investors: systematic risk and idiosyncratic risk. System-atic risk is market risk. An event impacting the broader market is a systematic risk. Ironically, Charles mentioned the ongoing streak of low volatility—as of the close on Friday, January 24, it had been 71 trading days since the S&P 500 experienced a daily move of greater than 1%—as a systematic event. On Monday, Janu-ary 27, the S&P 500 fell 1.6% and the following day it rebounded 1.1%. The coronavirus has the potential to be a systematic risk if it continues to spread.
Charles added that, as of now, the coronavirus is an idiosyncratic risk for U.S. companies. We’re seeing it priced into travel-related stocks and some casino stocks. Among SSR holdings, Carnival Corp. (Group 2: CCL) has the greatest exposure to idiosyncratic risk tied to the corona-virus. JetBlue Airways Corp. (Group 4: JBLU) doesn’t have the same exposure as global airlines such as United Airlines Holdings Inc. (UAL),
fatalities. While the U.S. stepped up economic sanctions against Iran and some of its leaders, no further mili-tary action took place.
With military tensions with Iran waxing and economic tension with China waning, the stock market and investors were poised to focus on the upcoming earnings season.
However, news of the fast-moving coronavirus outbreak that started in China put global markets on edge as January ended. The virus has spread to several countries, with multiple confirmed cases being reported in the U.S. In response, China has quaran-tined over 40 million people—more than the population of California—in the hopes of stopping the virus from spreading. At last count (as of the morning of January 30), there were nearly 8,300 confirmed cases, exceeding the number of people diagnosed with SARS in 2002–2003. So far, there have been 171 confirmed deaths, according to Johns Hopkins CSSE, lower than the 348 people who died in China from SARS. World health officials expressed concern that the virus is spreading between people outside of China and admit-ted that there are still questions as to how easily the new virus spreads and how severe it is.
News of the spreading health scare sent the S&P 500 index to its biggest
Portfolio Alerts This MonthFebruary Portfolio Additions
Group Company (Exchange: Ticker) Latest Price3 Yr Risk
Index Descriptionno portfolio additions for February
Portfolio Deletions Since Last Monthly Issue
Date Priceno portfolio deletions since last monthly issue
GroupPortfolio Deletion Alert G/L Since
Purchase
iShares DJ U.S. (IYY) Change
Since Purchase
Portfolio Addition Alert
DateCompany (Exchange: Ticker)
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aaII’s stock superstars Report® (ssR) is not a registered investment adviser or a broker/dealer. This report is issued solely for informational purposes and should not be construed as an offer to sell or the
solicitation of an offer to buy securities. The opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless
of cause, or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users. all information contained in this report should be independently verified with the companies mentioned.
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February 2020 3
Stock Superstars Report
declining, weakened in January com-pared to the prior month. Through the close on January 28, 16 of the 36 stocks currently in the SSR track-ing portfolio (44%) were up for the month, compared to 31 of 36 (83%) at the end of December.
Looking at the individual SSR groups—each following a unique selection methodology—the stocks in Group 1, on average, were the strongest performers in January by a wide margin. This group consists of companies with a proven record of earnings growth that also show strong relative price strength. Only
two of the top 10 SSR holdings in January were in Group 1 [Visa Inc. (V) was the strongest Group 1 stock in January, adding 8.0%], but the group also avoided having any of the poorest overall performers for the month. Domino’s Pizza Inc. (DPZ) was the group’s weakest holding, los-ing 3.3% for the month through the close on January 28.
After being the group with the strongest stocks on average in De-cember, the stocks in Group 2, on av-erage, were the weakest this month. Only one Group 2 holding [First American Financial Corp. (FAF)]
ranked in the top 10 for the month, gaining 6.6%. The rest of the Group 2 holdings ranked in the bottom 21 slots, including two of the weak-est five in the overall SSR portfolio. Group 2 consists of value-oriented companies that pay a dividend and exhibit positive historical and pro-jected earnings growth as well as strong relative price strength and price momentum.
Group 4 held the top three SSR stocks in January: JetBlue, up 8.3%; Copart Inc. (CPRT), up 10.7%; and D.R. Horton Inc. (DHI), up 16.4%. The Group 4 approach looks for
RelativeLatest Strength RiskPrice One Since Since Index
Ticker Company Date Price (1/28/20) Month Purchase Purchase (3 Yr) IndustryGroup 1: Profitability & Relative StrengthMNST Monster Beverage Corp. 5/31/19 $61.86 $66.88 5.2% 5.1% 0.92 2.27 Non-Alcoholic BeveragesNXST Nexstar Media Group 4/26/19 $116.85 $123.00 4.9% 5.2% 0.95 2.23 BroadcastingORLY O'Reilly Automotive Inc. 1/4/19 $339.46 $428.06 (2.3%) 26.0% 0.99 1.63 Retailers - Autos, Parts & ServADBE Adobe Inc. 8/31/18 $263.51 $354.63 7.5% 36.5% 1.22 1.75 SoftwareBURL Burlington Stores Inc. 6/24/16 $63.53 $221.95 (2.7%) 251.4% 2.19 1.82 Retailers - Discount StoresV Visa Inc. 1/29/16 $74.49 $202.85 8.0% 175.9% 1.61 1.12 Online ServicesDPZ Domino's Pizza, Inc. 12/6/13 $69.78 $284.18 (3.3%) 310.6% 2.13 2.26 Restaurants & BarsGroup 2: Value & Financial StrengthKMPR Kemper Corp. 8/30/19 $69.98 $77.60 0.1% 10.9% 0.99 2.78 Insurance - Multiline & BrokersCMCSA Comcast Corporation 3/29/18 $33.98 $44.04 (2.1%) 30.2% 1.06 1.65 BroadcastingCCL Carnival Corp. 7/28/17 $66.40 $46.50 (8.5%) (30.9%) 0.53 2.01 Hotels, Motels & Cruise LinesSWKS Skyworks Solutions Inc. 7/29/16 $66.02 $119.79 (0.9%) 81.4% 1.21 2.88 SemiconductorsCSCO Cisco Systems, Inc. 1/29/16 $23.79 $47.77 (0.4%) 105.6% 1.20 1.75 Communications & NetworkingFAF First American Financial Corp. 8/28/15 $38.82 $62.17 6.6% 63.0% 0.99 1.82 Insurance - Property & CasualtyPCAR PACCAR Inc. 5/29/15 $63.56 $76.77 (2.9%) 21.0% 0.77 1.75 Heavy Machinery & VehiclesJPM JPMorgan Chase & Co. 2/27/15 $61.28 $134.43 (3.6%) 117.4% 1.36 1.61 BanksWAFD Washington Federal Inc. 8/1/14 $20.69 $35.00 (4.5%) 68.8% 0.95 1.56 BanksUNH UnitedHealth Group 8/31/12 $54.30 $285.87 (2.8%) 426.6% 2.09 1.73 Managed Health careUSB U.S. Bancorp 4/27/12 $32.29 $53.86 (9.2%) 67.4% 0.66 1.59 BanksPFE Pfizer Inc. 5/1/09 $13.58 $38.14 (2.7%) 173.8% 0.66 1.24 PharmaceuticalsGroup 3: GARP RevisionsCACI CACI International Inc. 1/3/20 $255.91 $269.36 7.7% 3.6% 1.03 1.63 IT Services & ConsultingGIII G-III Apparel Group 4/26/19 $43.02 $28.58 (14.7%) (34.1%) 0.60 4.39 Apparel & AccessoriesZUMZ Zumiez Inc. 2/1/19 $25.14 $32.39 (6.2%) 30.0% 1.09 4.62 Retailers - Apparel & AccessorCRMT America's Car-Mart, Inc. 9/28/18 $78.20 $112.75 2.8% 43.1% 1.29 2.70 Retailers - Autos, Parts & ServLRCX Lam Research Corp. 10/27/17 $208.00 $301.69 3.2% 45.3% 1.15 2.77 Semiconductor Equip & TestingBAC Bank of America Corp. 8/25/17 $23.77 $33.24 (5.6%) 39.8% 1.05 1.94 BanksJCOM j2 Global Inc. 1/6/17 $84.03 $99.75 6.4% 19.0% 0.84 1.53 Telecom Services - IntegratedGNTX Gentex Corporation 10/30/15 $16.39 $30.63 5.7% 84.9% 1.20 1.77 Auto, Truck & Motorcycle PartsTTEK Tetra Tech, Inc. 1/3/14 $27.63 $89.56 3.9% 216.3% 1.68 1.88 Environmental Services & EquipGroup 4: Reasonably Priced GrowthECPG Encore Capital Group, Inc. 5/31/19 $34.34 $35.76 1.1% (0.9%) 0.87 3.06 Corporate Financial ServicesDFS Discover Financial Services 3/29/19 $71.16 $75.23 (11.3%) 1.3% 0.90 2.09 Consumer LendingJBLU JetBlue Airways Corp. 6/1/18 $18.77 $20.27 8.3% 8.1% 0.93 2.22 AirlinesCPRT Copart, Inc. 1/27/17 $28.51 $100.71 10.7% 260.8% 2.54 1.82 Retailers - Autos, Parts & SerDHI D.R. Horton, Inc. 12/4/15 $32.99 $61.38 16.4% 90.5% 1.21 1.85 HomebuildingMGA Magna International Inc. 7/31/15 $54.36 $51.96 (5.3%) (6.0%) 0.61 2.14 Auto, Truck & Motorcycle PartsMET MetLife Inc. 9/28/12 $30.89 $50.55 (0.8%) 63.7% 0.67 1.62 Insurance - Life & HealthRGA Reinsurance Grp of America 6/24/11 $59.90 $154.55 (5.2%) 154.4% 0.93 1.17 ReinsuranceData as of 1/28/2020. Sources: AAII's Stock Investor Pro, Refinitiv and I/B/E/S.
stocks with a reasonable dividend-adjusted price-earnings to growth (PEG) ratio relative to that of the overall market, reasonable levels of estimated earnings and historical sales growth, positive free cash flow and strong profitability relative to the industry. See this month’s Portfolio Corner on page 12 to learn more about how to calculate PEG ratios.
Large-cap and growth significantly outperformed their smaller-stock and value-oriented counterparts in January. The iShares Core S&P 500 ETF (IVV) gained 1.6% for the month through the close on January 28, while the iShares Core S&P Small-Cap fund (IJR) logged a 0.9% loss month to date. The iShares S&P 500 Growth ETF (IVW) was up 3.6% for the month, while the iShares S&P SmallCap 600 Value fund (IJS) had fallen 3.4% as of the close on January 28.
SSR Portfolio PerformanceYear to date, through the close on
Tuesday, January 28, 2020, the SSR tracking portfolio was up 0.2%, while the iShares DJ U.S. ETF had gained 1.7%. Since inception, the iShares DJ U.S. fund is up 317.7%, while the SSR
portfolio has gained 345.3%. •
ssR stocks in the NewsCarnival Corp. (CCL)
(1/7/2020) Carnival will launch four new cruise ships in 2020 across four of its global cruise line brands. The introduction of the four new ships in 2020 is part of Carnival’s ongoing fleet enhancement strategy, with 16 new ships scheduled to be delivered through 2025. The ships are designed to improve the overall guest experience while accelerating demand for cruising, which is the fastest-growing segment in the vaca-tion industry.Comcast Corp. (CMCSA)
(1/8/2020) Comcast and Viacom-CBS (VIACA) reached an agreement under which the cable giant will carry a large portion of the broadcaster’s content on its video platforms. The deal includes retransmission of 23 CBS-owned stations in 15 markets, plus Showtime, CBS Sports Network, Smithsonian Channel and Pop TV. The agreement also sets up Comcast
to provide the CBS All Access app and carry CBS All Access on its Xfinity X1 cable/streaming and Flex streaming platforms later this year.
(1/14/2020) Comcast NBCUniver-sal announced the launch of SportsTech, a global accelerator for sports technology startups. The com-pany is partnering with six brands in a three-year $45 million deal. NASCAR, U.S. Ski & Snowboard and USA Swimming have signed on, join-ing Comcast sports brands in NBC Sports, Sky Sports and Golf Channel. Each of these partners will have a say in the priorities of SportsTech, which will provide up to 10 selected startups with resources and exposure to industry leaders. SportsTech is the third accelerator created by Comcast NBCUniversal in the last three years, joining LIFT Labs Accelerator and The Farm.First American Financial Corp. (FAF)
(1/2/2020) First American Finan-cial announced that it fully acquired Title Security Agency LLC, which specializes in title and escrow ser-vices for residential and commercial
As of 1/28/2020. The stock superstars portfolio started at the beginning of 2002. The ssR portfolio is run as if managed by a subscriber and includes delays in reaction time to ssR alerts, actual commissions and bid-ask spreads. since inception performance data is available at stocksuperstars.com.
February 2020 5
Stock Superstars Report
suite of measurement services for all broadcast and cable entities across Nexstar. This includes 197 local tele-vision stations and digital subchan-nels in 115 markets, and national rat-ings for cable entertainment network WGN America and digital network Antenna TV.Pfizer Inc. (PFE)
(1/9/2020) Pfizer and eFFECTOR Therapeutics Inc., a developer of selective translation regulators for the treatment of cancer, announced an exclusive worldwide license and collaboration agreement to develop small-molecule inhibitors of eukary-otic initiation factor 4E (eIF4E). Under the terms of the agreement, eFFECTOR will receive a $15 million payment upfront and will be eligible for an additional potential $492 million in research funding, develop-ment and sales milestone payments. eFFECTOR will receive royalties on sales of any products that may result from this collaboration if the program reaches commercialization and has an option to enter into a co-promotion and profit and loss share arrangement in the U.S.
(1/13/2020) Biogen Inc. (BIIB) signed an agreement with Pfizer to acquire the latter’s CNS-penetrant
small molecule inhibitor, PF-05251749. The early stage candidate has exhibited potential as treatment of behavioral and neurological symp-toms across various psychiatric and neurological diseases in early stage studies. Per the terms of the agree-ment, Biogen will pay $75 million upfront to Pfizer along with potential additional development and commer-cialization milestone payments of up to $635 million. Pfizer is also eligible to receive tiered royalties. The trans-action is expected to be completed in the first quarter of 2020.Visa Inc. (V)
(1/14/2020) Visa entered into an agreement to buy privately held software startup Plaid Inc. in a $5.3 billion deal. The San Francisco-based company develops technology that connects customers’ bank accounts to a variety of other fintechs, includ-ing Chime, Zelle, TransferWise and Venmo. In recent years, Plaid’s tech-nology has eliminated the cumber-some and time-consuming process of putting microdeposits into a check-ing account for customer verifica-tion purposes. About a quarter of people with a U.S. bank account have used Plaid to connect to the roughly 11,000 financial institutions it works
Group 2Comcast Corporation (CMCSA) Jan 23 $0.79 $0.762 3.7%JPMorgan Chase & Co. (JPM) Jan 14 $2.57 $2.351 9.3%PACCAR Inc. (PCAR) Jan 28 $1.53 $1.506 1.6%Pfizer Inc. (PFE) Jan 28 $0.55 $0.575 (4.3%)Skyworks Solutions Inc. (SWKS) Jan 23 $1.68 $1.652 1.7%U.S. Bancorp (USB) Jan 15 $1.08 $1.084 (0.4%)UnitedHealth Group (UNH) Jan 15 $3.90 $3.776 3.3%Washington Federal Inc. (WAFD) Jan 14 $0.58 $0.594 (2.4%)Group 3Bank of America Corp. (BAC) Jan 15 $0.75 $0.684 9.6%CACI International Inc. (CACI) Jan 29 $3.11 $2.786 11.6%Lam Research Corp. (LRCX) Jan 29 $4.01 $3.850 4.2%Tetra Tech, Inc. (TTEK) Jan 29 $0.84 $0.838 0.2%Group 4D.R. Horton, Inc. (DHI) Jan 27Discover Financial Services (DFS) Jan 23 $2.25 $2.241 0.4%
$1.07 $0.916 16.8%
JetBlue Airways Corp. (JBLU) Jan 23 $0.56 $0.548 2.2%Reinsurance Group of America (RGA) Jan 28 $3.43 $3.657 (6.2%)Announcements through the open on 1/30/2020.
No Group 1 companies reported earnings this month.
transactions. First American had been a minority owner for five years. Title Security Agency has 17 offices in Arizona and will become part of the direct operations of First American’s largest subsidiary, First American Title Insurance Company. Although the terms of the deal are still undis-closed, the acquisition is set to ex-pand First American Title’s Arizona operations.JPMorgan Chase & Co. (JPM)
(1/20/2020) JPMorgan Chase & Co. announced the creation of the JPMorgan Development Finance Institution (DFI) to expand its development-oriented financing ac-tivities in emerging markets. In con-sultation with leading development institutions, JPMorgan has created rules-based criteria to help identify business activities and opportunities that generate both financial and de-velopmental returns. With its newly launched DFI, JPMorgan expects to attract additional investment into emerging economies—the DFI esti-mates that JPMorgan will be able to finance development activities valued at more than $100 billion annually from investment banking transac-tions alone, with additional contribu-tions from its markets businesses.Magna International Inc. (MGA)
(1/16/2020) Magna International announced its financial outlook for the 2020–2022 period and scrapped its partnership with Lyft Inc. (LYFT) to co-develop self-driving technol-ogy. Magna said it expects 2020 sales to be between $38 billion and $40 billion and net income attributable to be in the range of $1.8 billion to $2.0 billion. Additionally, the company anticipates cumulative free cash flow of approximately $5.5 billion over the 2020–2022 period. Magna blamed a stronger U.S. dollar, the sale of its fluid pressure and controls business and estimated lower light-vehicle production in Europe for its lower sales outlook.Nexstar Media Group Inc. (NXST)
(1/9/2020) Nielsen Holdings PLC (NLSN) and Nexstar announced a multi-year agreement whereby Nielsen will provide a comprehensive
Compound Annual Growth Rate—Est EPS – The average of analysts’ expected long-term (three- to five-year) growth rate in earnings per share. Compound Annual Growth Rate—Hist EPS – The compound annual percentage change in fully diluted earnings per share from continuing operations over the last five fiscal years. Compound Annual Growth Rate—Hist Sales – The compound annual percentage change in total sales over the last five fiscal years. Cur Yr Est EPS Revision (1 Mo) – The percentage change (over the last month) of the average consensus earnings estimate for the current fiscal year. Daily Dollar Volume (Mil) – The current stock price multiplied by the average daily trading volume over the last three months. Div Adj PEG Ratio—Fwd PE to Hist Grth – The PeG ratio based on the historical long-term growth rate in earnings per share adjusted to reflect the dividend yield. It is calculated by dividing the forward price-earnings ratio by the sum of the historical long-term growth rate in earnings per share and the current dividend yield. Div Adj PEG Ratio—TTM PE to Est Grth – The PeG ratio based on the estimated long-term growth rate in
with. The acquisition is set to posi-tion Visa to deliver even more value for developers, financial institutions and consumers. The deal, subject to customary regulatory approvals, is expected to close in three to six months.
(1/21/2020) Africa-focused fintech firm Flutterwave announced a $35 million fundraising round and part-nerships with Visa and Worldpay, as it targets expansion in northern and Francophone Africa. The startup, founded in 2016 by Nigerians and
headquartered in San Francisco, spe-cializes in individual and company payment transfers. Visa’s invest-ment is its first buy into Flutterwave, with which it joined last year on a consumer payment platform called GetBarter that allows individuals to make payments to one another across borders. As part of the latest funding round, Flutterwave will scale up and expand that service, allowing it to issue physical and virtual Visa cards and process payments using Visa’s networks. •
February 2020 7
Stock Superstars Report
Price/ Cur Yr Total DailyFwd PE TTM PE Book Est EPS Liab Dollar Market
Div Adj PEG Ratio Earnings OperatingP/E Ratio Surprise Profit
Value, Quality & Size Analysis
Definitions of Terms Used in Tables (Continued)
earnings per share adjusted to reflect the dividend yield. It is calculated by dividing the current (trailing 12-month) price-earnings ratio by the sum of the estimated long-term growth rate in earnings per share and the current dividend yield. Div Yield – The indicated dividend (last quarterly per share dividend multiplied by four) divided by the current stock price. Earnings Surprise—Last Qtr – The difference, expressed as a percentage, between the latest announced quarterly earnings and the consensus quarterly estimate for the past quarter. Earnings Surprise—Prior Qtr – earnings surprise as a percentage two quarters ago. Fiscal-Year EPS—Current Year Est – estimated earnings per share for the current fiscal year. Fiscal-Year EPS—Last Year – earnings per share for the last fiscal year. Fiscal-Year EPS—Prior Year – earnings per share for the fiscal year two fiscal years ago. Fiscal-Year EPS—Next Year Est – estimated earnings per share for the next fiscal year. Operating Profit Margin—Co – operating income divided by total revenues.
Operating Profit Margin—Ind – The median operating profit margin for the industry. P/E Ratio Forward Co – The forward or estimated price-earnings ratio based on the current stock price and the estimated earnings for the current fiscal year. P/E Ratio Trailing—Co – The current stock price divided by diluted earnings per share from continuing operations for the trailing 12 months. P/E Ratio Trailing—Ind – The median price-earnings ratio for the industry based on trailing 12-month earnings per share. Price/Book Value Ratio – The current stock price divided by book value per share for the latest reported fiscal quarter. Book value per share is equal to total assets less total liabilities and preferred stock, divided by common shares outstanding. Quarterly Growth (Year-Over-Year)—EPS – The percentage increase or decrease in diluted earnings per share from continuing operations from the last quarter compared to the diluted earnings per share from continuing operations in the same fiscal period one year ago. Quarterly Growth (Year-Over-Year)—Sales – The percentage increase or decrease in total sales from
the last quarter compared to total sales in the same quarter one year ago. Relative Price Strength Percentile Rank—4-Wk, 26-Wk, 52-Wk – an indication of how a stock has performed relative to all u.s.-listed stocks over the stated time period. A rank of 75% reflects performance that surpassed 75% of all stocks over the period—or that places the stock within the top 25% of the universe. Relative Strength Since Purchase – Price performance of a stock compared to the ishares Dow Jones u.s. eTF (IYY) since the stock was purchased for the ssR portfolio. a value of 1.00 represents stock performance equal to the index.Risk Index (3 Yr) – The 36-month annualized standard deviation of return for the stock divided by the 36-month annualized standard deviation of return for the ishares Dow Jones u.s. eTF (IYY). The baseline value for the index is 1.00. Values above 1.00 indicate greater risk than the index. Values below 1.00 indicate less risk than the index. Total Liab to Assets – The ratio of total liabilities to total assets for the last quarter.
8 February 2020
Stock Superstars Report
SSR Group 1: Monster Beverage Corp. (MNST) $66.88 ($68.01 - $52.23)
Group 1: Profitability & Relative StrengthAddition Alert Date: 5/31/2019Price at Alert: $61.86 Risk Index: 2.27Market Cap (Million): $36,289.0Avg Daily Dollar Volume (Million): $196.9Primary Sector: Consumer Non-CyclicalsPrimary Industry: Non-Alcoholic Beverages
Sources: AAII's Stock Investor Pro, Refinitiv and I/B/E/S. Data as of 1/28/2020.
Monster Beverage Corp. develops, markets, sells and distributes energy drink beverages, sodas and/or concentrates for energy drink beverages. The company has three segments: Monster Energy Drinks segment, which consists of its Monster Energy drinks, as well as Mutant Super Soda drinks; strategic brands segment, which includes various energy drink brands owned through Coca-Cola Co.; and other segment, which includes the American Fruits & Flavors (AFF) third-party products. The strategic brands segment sells concentrates and/or beverage bases to authorized bottling and canning operations.
MNST passed the Group 1 screen, which looks for companies with a proven record of earnings growth that are showing strong relative price strength. MNST has a current P/E of 33.6 based on trailing 12-month EPS of $1.99. The consensus EPS estimate for current fiscal year, ending 12/2020, is $2.27 and $2.48 the year after. On November 7, 2019, MNST reported quarterly EPS of $0.55, beating analyst expectations by 1.5%. Two analysts are projecting adjusted earnings to grow by 11.8% a year over the next three to five years. Earnings have grown at an annual rate of 22.0% over the last five years. MNST's stock price has underperformed the S&P 500 by 3% over the last 52 weeks and has outperformed 70% of all U.S. stocks over the same period.
15.8%
17
22
$0.47
2
$2.042
Annual12/2019
$0.46 $2.04$0.47 $2.04
Year Ago
TTM
TTMSales/Sh (Qtr)
Quarterly
EPS (Qtr)
Year Ago
CurrentMonth Ago
12/201915
7.4%
$0.53
Est Surprise
EPS Estimates# of Estimates
Aug 7, 2019Nov 7, 2019
EPS$0.55
% Surp1.5%(5.0%)
Index
13.3%
--
11.8%
22.0%
22.7%23.0%
--
11.2%TTM
Gain
14.3%
17.5%
6%19%2%20%
Stock
1.10
0.97
3 Year
1.04
Rel Strgth
0.94
$0
$10
$20
$30
$40
$50
$60
$70
$80
Feb 2015 Feb 2016 Feb 2017 Feb 2018 Feb 2019
February 2020 9
Stock Superstars Report
SSR Group 2: Washington Federal Inc. (WAFD) $35.00 ($38.26 - $27.82)
Group 2: Value & Financial StrengthAddition Alert Date: 8/1/2014Price at Alert: $20.69 Risk Index: 1.56Market Cap (Million): $2,708.8Avg Daily Dollar Volume (Million): $12.0Primary Sector: FinancialsPrimary Industry: Banks
Sources: AAII's Stock Investor Pro, Refinitiv and I/B/E/S. Data as of 1/28/2020.
WAFD passed the Group 2 screen, which looks for dividend-paying stocks with a low price-earnings ratio exhibiting positive historical and projected earnings growth and moderate levels of liabilities. WAFD has a current P/E ratio of 12.5 based on trailing 12-month EPS of $2.80. The consensus EPS estimate for current fiscal-year ending September 2020 is $2.34 and $2.47 for the next year. The latest quarterly EPS came in at $0.58, which was 2.4% below analyst expectations. Earnings have increased on an annualized basis by 13.5% over the last three years. Revenues have grown by 7.7% a year over the same period. WAFD's current yield is 2.5% based on an indicated dividend of $0.88 per share. Over the last 12 m onths, WAFD's 17% price increase has outperformed 68% of all stocks.
0.89
0.95
Washington Federal Inc. is a bank holding company conducting its operations through a federally insured national bank subsidiary, Washington Federal, National Association. The bank accepts deposits from the general public and invests these funds in loans of various types, including first lien mortgages on single-family dwellings, construction loans, land acquisition and development loans, loans on multi-family, commercial real estate and other income-producing properties, home equity loans and business loans. As of the end of 2019, it had 234 branches in eight western states of the U.S.
3 Year
0.93
Rel Strgth
0.89
(5%)(4%)(4%)17%
Stock
% Surp(2.4%)1.1%
Index
15.3%
12.8%
7.7%
8.6%
13.3%13.5%
13.4%
8.0%TTM
Gain
2.7%
7.2%
$0.66
Est Surprise
EPS Estimates# of Estimates
Oct 15, 2019Jan 14, 2020
EPS$0.58
Year Ago
TTM
TTMSales/Sh (Qtr)
Quarterly
EPS (Qtr)
Year Ago
CurrentMonth Ago
3/20203
(11.9%) (10.6%)
3
03
$0.61
0
$2.463
Annual9/2020
$0.61 $2.47$0.57 $2.34
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Feb 2015 Feb 2016 Feb 2017 Feb 2018 Feb 2019
10 February 2020
Stock Superstars Report
SSR Group 3: Lam Research Corp. (LRCX) $301.69 ($316.73 - $163.60)
Group 3: GARP RevisionsAddition Alert Date: 10/27/2017Price at Alert: $208.00 Risk Index: 2.77Market Cap (Million): $42,622.7Avg Daily Dollar Volume (Million): $466.1Primary Sector: TechnologyPrimary Industry: Semiconductor Equipment & Testing
Sources: AAII's Stock Investor Pro, Refinitv and I/B/E/S. Data as of 1/28/2020.
Annual6/2020
$3.84 $15.11$3.85 $15.31
11.7%
21
30
$3.86
4
$15.110
Year Ago
TTM
TTMSales/Sh (Qtr)
Quarterly
EPS (Qtr)
Year Ago
CurrentMonth Ago
12/201919
9.7%
$3.62
Est Surprise
EPS Estimates# of Estimates
Jul 31, 2019Oct 23, 2019
EPS$3.18
% Surp5.7%5.7%
Index
(20.5%)
54.2%
17.9%
33.8%
35.7%38.0%
72.5%
(13.2%)TTM
Gain
(8.6%)
(2.4%)
3 Year
1.01
Rel Strgth
1.32
3%12%43%82%
Stock
1.03
1.47
Lam Research Corp. supplies wafer fabrication equipment and services to the semiconductor industry. The company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). It operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. Its products are designed to enable its customers to build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices and networking equipment.
LRCX passed the Group 3 screen, which seeks companies with upward earnings estimate revisions, a positive earnings surprise in the most recent quarter, relatively strong price momentum and reasonable valuations. LRCX's current P/E ratio is 22.2 based on trailing EPS of $13.57. The latest quarterly EPS was $3.18, exceeding the consensus estimate by 5.7%. The consensus EPS estimate for the current fiscal year ending June 2020 is $15.31 and $18.71 for the next year. The historical five-year annual EPS growth rate is 30.5% and 15.9% for revenue. The consensus long-term estimated annual earnings growth rate from two analysts is 14.1%. LRCX's yield of 1.5% is based on an annual indicated dividend of $4.60. Over the past 52 weeks, LRCX's price has increased 82%, outperforming 93% of U.S.-listed stocks.
$0
$50
$100
$150
$200
$250
$300
$350
Feb 2015 Feb 2016 Feb 2017 Feb 2018 Feb 2019
February 2020 11
Stock Superstars Report
SSR Group 4: Encore Capital Group, Inc. (ECPG) $35.76 ($39.19 - $26.52)
Group 4: Reasonably Priced GrowthAddition Alert Date: 5/31/2019Price at Alert: $34.34 Risk Index: 3.06Market Cap (Million): $1,101.0Avg Daily Dollar Volume (Million): $9.5Primary Sector: FinancialsPrimary Industry: Corporate Financial Services
Sources: AAII's Stock Investor Pro, Refinitiv and I/B/E/S. Data as of 1/28/2020.
0.97
0.98
Encore Capital Group Inc., through its subsidiaries, is a specialty finance company providing debt recovery solutions for consumers and property owners across a range of financial assets. Its geographical segments include the U.S., Europe and other. Encore purchases portfolios of defaulted consumer receivables at discounts and manages them by partnering with individuals as they repay their obligations and work toward financial recovery. The company, through certain subsidiaries, is engaged in portfolio purchasing and recovery in the U.S., including Puerto Rico.
ECPG passed the Group 4 screen, which looks for a combination of low P/E ratios, solid EPS growth forecasts, a strong record of sales growth, and strong relative profitability. It has a current P/E ratio of 6.5, based on a trailing 12-month EPS of $5.47. The latest quarterly EPS was $1.64, which was 18.1% below the consensus estimate. The consensus EPS estimate for the current fiscal year ending 12/2020 is $6.37 and $7.19 for the next year. Earnings have grown, on average, by 6.6% a year over the last five years, while sales have grown by an average of 12.0% a year. ECPG does not pay a dividend. ECPG's 22% price gain over the last year has underperformed the S&P 500 by 2% but has outperformed 71% of all U.S.-listed stocks over the same period.
3 Year
0.99
Rel Strgth
0.94
1%6%2%22%
Stock
% Surp18.1%(1.2%)
Index
80.2%
--
6.4%
36.9%
32.6%16.4%
--
5.1%TTM
Gain
110.7%
82.0%
$1.28
Est Surprise
EPS Estimates# of Estimates
Aug 7, 2019Nov 6, 2019
EPS$1.64
Year Ago
TTM
TTMSales/Sh (Qtr)
Quarterly
EPS (Qtr)
Year Ago
CurrentMonth Ago
12/20197
(3.3%) 46.4%
5
00
$1.46
0
$5.940
Annual12/2019
$1.45 $5.94$1.45 $5.94
$0
$10
$20
$30
$40
$50
$60
Feb 2015 Feb 2016 Feb 2017 Feb 2018 Feb 2019
12 February 2020
Stock Superstars Report
Valuation ratios are a way for investors to get an idea of whether a stock is undervalued, fairly valued or overval-ued. You are probably familiar with the price-earnings ratio, which is one of the most basic metrics for stock valuation. It is calculated by dividing a stock’s current price by its earnings, giving a relative valuation of a com-pany based on its level of earnings per share.
Though the price-earnings ratio may be the most widely used valuation ratio, there are glaring weaknesses in the figure. Perhaps most importantly, the price-earnings ratio fails to directly take into account an important character-istic of any company—growth (or lack thereof). However, the price-earnings ratio is viewed as a measure of the market’s opinion of the company’s future prospects, which includes growth. From a pure price-earnings valuation standpoint, a stock with a price-earnings ratio of 10 is trading at a discount relative to a stock with a price- earnings ratio of 15. Still, investing in the lower price-earnings ratio stock may not be a prudent choice if the higher price-earnings ratio stock is growing twice as fast.
Consider the situation when a company trading with a price-earnings ratio of 10 is growing at 10% per year while another company trading with a price-earnings ratio of 15 is growing at 15% per year. Choosing the better investment gets much more difficult. When evaluating firms that are growing at significantly different rates or at high absolute rates, it is more practical to compare the price-earnings ratios and underlying growth rates, a metric commonly referred to as a PEG ratio. In addition, the PEG ratio can provide you with an idea of whether a high-growth company is worth its rich price-earnings valuation.
The PEG ratio looks at growth, typically of earnings, relative to the price-earnings ratio. Many investors use the PEG ratio to better differentiate stocks and to add a growth element to the basic price-earnings ratio. The PEG ratio is calculated by dividing a company’s
price-earnings ratio by its growth rate in earnings per share:
PEG ratio = (current price ÷ earnings per share) ÷ earnings per share growth rateThere are also many variations of the PEG ratio, which
are beneficial in different situations. The table below shows the underlying data for Gentex Corp. (Group 3: GNTX) and the calculations for various PEG ratios.
Historical PEG RatioPerhaps the simplest PEG ratio is the historical PEG,
which divides the trailing price-earnings ratio by the his-torical growth rate in earnings. It is up to the investor to choose the time frame for historical growth, but three- to five-year periods are generally the norm.
Forward PEG RatioThe forward PEG ratio compares the forward price-
earnings ratio (current price divided by the consensus earnings per share estimate for the current fiscal year) to the estimated growth rate in earnings per share.
The rationale behind using this ratio is simple—stocks with a high-expected growth rate should trade with higher price-earnings ratios than stocks with low expecta-tions for future earnings growth.
Dividend-Adjusted PEG RatioOften, especially in value investing, there are large and
highly profitable companies that return much of their earnings to shareholders in the form of cash dividends. These companies may be growing slowly and appear to be significantly overvalued. However, in addition to earnings growth driving share prices, shareholders get a sizable dividend on a regular basis. These dividends are a form of return and the normal PEG ratios do not take into account the dividend these companies pay, placing them at a disadvantage. In these cases, an adjustment can be made to the PEG ratio to “level the playing field” between these types of stocks and non-dividend-paying stocks. The dividend-adjusted PEG ratio is calculated as follows:
Dividend-adjusted PEG ratio = price-earnings ratio ÷ (earnings growth rate + dividend yield)However, there are two different dividend-adjusted
PEG ratios investors can use. The historical dividend-adjusted PEG uses the trailing price-earnings ratio and historical earnings growth rate, while the forward PEG uses the forward price-earnings ratio and an estimated earnings growth rate.
More to ComeNext month we will take a “deeper dive” into PEG
ratios, including how to interpret them as well as their shortcomings. •
Portfolio Corner: evaluating Growth at a Reasonable Price with the PeG Ratio