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February 2011

Recs

9

Food for Thought

February 07, 2011 – Comments (0) | RELATED TICKERS: SYY , HSH , WFM

At Wax Ink, our goal is to try and provide individual investors with information about a few stocks they may want to research. There is no particular reason we suggest the stocks we suggest, though for the most part, we attempt to focus on stocks that are soon to announce earnings instead of what happens to be the hot stock on that particular day.

Admittedly, we aren't very interested in diversification or portfolio rebalancing, relying instead not only on our ability to buy great companies at reasonable prices, but on our ability to hang on to them for very long periods of time.

Simply put, we took all of the rules about investing, and replaced them with rules that we felt made better sense, ending up with a portfolio that consists of individual equities, cash, and nothing else. Gone are any type of bond, mutual fund, ETF, option, limited partnership, or insect.

When it comes to putting our capital at risk we simply found that anything other than cash, and equities held for extended periods, was only making our discount broker money. So we wised up and decided instead of hedging our risk, why not get well paid for taking the risk in the first place.

The first thing we decided as we reinvented our investing universe, was that investment returns should be based on a lifetime of investing, not just a few years. We also decided that since we could not control the weighting of companies that made up an index, anything which compared investment returns to an index was simply an attempt at showmanship. So, you guessed it, we don't use the SP 500 for anything.

Many of today's popular investment websites offer newsletter subscription services. For $150 or so, a subscriber ends up with an annual subscription to a newsletter that generates a couple of investment ideas a month. Some of our clients use these newsletter services to generate investment ideas, so we have had occasion to see some of them. And while most of them are very well done, we have to wonder about the investment value of some of the selections.

What made us wonder about some of these newsletter investment selections was we noticed in several instances, the investment selections for a particular month were repicks, meaning the company producing the newsletter just regurgitated something from prior months and repackaged the information.

Another of the things we found interesting not just about newsletters but investment services generally, was that none of them provided an estimate of the value of the investment. Nor did they provide a buy target, a sell target, or even a breakdown of a company's financial metrics. Instead they seemed to provide lots of charts and graphs, which made us wonder whatever happened to the power of independent thought?

Wax


Disclaimer

We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours, nor do we receive any compensation to write about a specific stock, sector or theme.

Basis

Our valuation work is based on audited or annual financial information as taken from a company's most recent SEC Form 10-K filing. Unaudited, or quarterly financial information as taken from a company's SEC Form 10-Q filing, is not used unless otherwise noted.

The Entrees

Sysco Corporation, Inc. - (NYSE: SYY) The company markets and distributes a range of food and related products primarily to the food service industry in the United States. The stock closed recently at $29.85, with Resistance at $31.99, First Support at $29.60 and Second Support at $29.525. Should the stock price fall below second resistance, the next stopping point would be at the 52 week low of $26.99.

Our Reasonable Value Estimate for the stock at this time is $35.00, with a Buy Target of $21.00, a First Sell Target of $41.00, and a Close Target of $43.50, based on a minimum 5 year hold. The stock currently has a trailing PE of 15.3 and forward PE of 14.

Earnings are scheduled to be announced the bell on Monday, with analysts expecting earning of $0.47, $0.02 better than one year ago.

Flowers Foods, Inc. - (NYSE: FLO) The company is a producer and marketer of bakery products in the United States. The stock closed recently at $25.65, with First Resistance at $26.17, Second Resistance at $27.58, First Support at $25.43 and Second Support at $22.97.

Our Reasonable Value Estimate for the stock at this time is $33.00, with a Buy Target of $19.50, a First Sell Target of $38.50, and a Close Target of $40.50, based on a minimum 5 year hold. The stock currently has a trailing PE of 17.3 and forward PE of 15.4.

The company will announce earnings this week with consensus estimates of $0.39 versus $0.33 from one year ago.

Sara Lee Corporation - (NYSE: SLE) The company manufacture and marketing of a range of branded packaged meat, bakery, and beverage products worldwide. The stock closed recently at $17.02, with First Resistance at $17.06, Second Resistance at $20.26, First Support at $15.14, Second Support at $12.09.

Our Reasonable Value Estimate for the stock at this time is $21.00, with a Buy Target of $12.50, a First Sell Target of $24.75, and a Close Target of $26.00, based on a minimum 5 year hold. The stock currently has a trailing PE of 22.7 and forward PE of 15.8.

The company is scheduled to announce earnings next week of $0.25, $0.11 worse than one year ago.

Whole Foods Market, Inc. - (Nasdaq: WFMI) The company owns and operates natural and organic food supermarkets. The stock closed recently at $53.00, with Resistance at $53.46, First Support at $50.20, and Second Support at $41.54. Should the stock price slip below second support, expect it to fall to its 52 week low of $26.88.

Our Reasonable Value Estimate for the stock at this time is $36.50, with a Buy Target of $22.00, a First Sell Target of $42.75, and a Close Target of $45.00, based on a minimum 5 year hold. The stock currently has a trailing PE of 37 and forward PE of 27.5.

The company should announce earnings this week of $0.45, $0.13 better than the same period last year.   [more]

Recs

7

Waldo Thinks Ahead

February 01, 2011 – Comments (0) | RELATED TICKERS: BBBY , HAL , KFY

They speak with incredible clarity, with candor, and with conviction. Their target audience being the average investors just like me and you. Many of us follow along like sheep, hoping against hope that if we take their advise, nothing bad will befall our investment.

You would think our lesson, by this time, would be learned. But no, we back up time and time again to repeat the same mistakes, to believe the same silliness, to fall yet again for the same sales pitch.

The markets have been moving ever higher of late, and this upward movement has again brought sensational investment articles carrying headlines like Dow Above 12000 In The Next Ten Seconds, or Buy These Stocks Before You Put Your Pants On. But the reality, at least in our opinion, is that the vast majority of stocks are simply overpriced.

Curious, we decided to take a peak at five stocks highlighted by Zacks as the ones to own.

Basis

At Wax Ink, our valuation work is based on audited or annual financial information as taken from a company's most recent SEC Form 10-K filing. Unaudited, or quarterly financial information as taken from a company's SEC Form 10-Q filing, is not used unless otherwise noted.

The Nimble Five

ADTRAN, Inc. - (Nasdaq: ADTN) The company designs, manufactures, markets, and services network access solutions that enable voice, data, video, and Internet communications across wireline and wireless networks. The stock closed recently at $41.72, with Resistance at $43.60, First Support at $36.15 and Second Support at $31.85. Should the stock price fall below second resistance, the next stopping point would be at the 52 week low of $20.76.

Our Reasonable Value Estimate for the stock at this time is $32.00, with a Buy Target of $19.00, a First Sell Target of $37.50, and a Close Target of $40.00, based on a 5 year hold. The stock currently has a trailing PE of 23.5 and forward PE of 18.5.

The company announced earnings of $0.56 a couple of weeks ago, beating consensus estimates by $0.16, which was $0.29 better than the same period last year.

Bed Bath and Beyond, Inc. - (Nasdaq: BBBY) The company operates a chain of retail stores that sell any manner of completely and utterly worthless stuff for the home. The stock closed recently at $48.60, with Resistance at $50.95, First Support at $47.473 and Second Support at $43.20. Should the stock price break below second support, the toilet for this one is $26.50.

Our Reasonable Value Estimate for the stock at this time is $48.00, with a Buy Target of $29.00, a First Sell Target of $56.50, and a Close Target of $59.50, based on a 5 year hold. The stock currently has a trailing PE of 17.3 and forward PE of 14.5.

The company announced earnings in December of $0.74, $0.08 better than consensus estimates, and $0.16 better than one year ago.

Fairchild Semiconductor International, Inc. - (NYSE: FCS) The company designs, develops, and markets power analog, power discrete, and certain non-power semiconductor solutions. The stock closed recently at $17.61, with Resistance at $18.45 and First Support at $15.53, Second Support at $11.21. After that, the next support level is at $7.71.

Our Reasonable Value Estimate for the stock at this time is $33.00, with a Buy Target of $20.00, a First Sell Target of $39.00, and a Close Target of $41.00, based on a 5 year hold. The stock currently has a trailing PE of 14.6 and forward PE of 9.9.

The company announced earnings last week of $0.45, $0.06 better than conscensus estimates, and $0.22 better than one year ago.

Haliburton Company, Inc. - (NYSE: HAL) The company provides various products and services to the energy industry for the exploration, development, and production of oil and natural gas.The stock closed recently at $43.88, with Resistance at $44.00, First Support at $39.67, Second Sup[port at $32.33, and the end of the support line at $21.10.

Our Reasonable Value Estimate for the stock at this time is $34.50, with a Buy Target of $21.00, a First Sell Target of $40.50, and a Close Target of $43.00, based on a 5 year hold. The stock currently has a trailing PE of 22 and forward PE of 12.6.

The company announced earnings about a week of $0.68, $0.05 higher than consensus, and $0.40 better than the same period last year.

Korn/Ferry International, Inc. - (NYSE: KFY) The company provides provides executive recruitment, leadership, and talent consulting and talent acquisition solutions. The stock closed recently at $22.74, with Resistance at $24.00, First Support at $21.49, Second Support at $16.96, with the bottom of the barrel at $12.78.

Our Reasonable Value Estimate for the stock at this time is $24.50, with a Buy Target of $14.75, a First Sell Target of $28.75, and a Close Target of $30.00, based on a 5 year hold.The stock currently has a trailing PE of 25.5 and forward PE of 16.6.

Earnings of $0.30 were announced back in early December, beating consensus estimates by $0.06.

Final Thoughts

Without exception, all of the nimble five have more downside than upside, and based on current PEs, all of them, at least to our mind, are overpriced. Yet analysts and websites alike continue to tout these and similar companies as must haves going forward. Going forward to what, investment losses?

Perhaps individual investors, instead of talking about the stocks mentioned in an article, or as seen on CNBC, should take the time ask the simplest of questions.

What's it worth?

We have a feeling if more investors asked that question, substance, not content, would become the order of the investing day.

Wax


Disclaimer

We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. We receive no compensation to write about any specific stock, sector or theme.  [more]

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