Tag Archives: portfolio

Project $1M: Achieving A $1M Portfolio With Growth Stocks Pt. 3

Summary I’ve created Project $1M to try and attain a $1M capital base from growth stocks in 11 years. I’m focused on including stocks that have a moat and some strong growth drivers. I will introduce the final set of stocks in this update. I previously introduced the concept of my growth oriented model portfolio in a previous article. The focus of that portfolio was directed toward achieving a $1M capital base in approximately 11 years, starting from a base of $217,500. I previously introduced the first 6 stocks in the portfolio here , and the next 6 stocks in the portfolio here . I’d like to introduce the final set of stocks in the Project $1M portfolio here and show how the portfolio stands. My Criterion In addition to companies with moats and strong barriers to entry, I set a specific focus on companies with high returns on invested capital and that were generally achieving double-digit growth with respect to net income and earnings per share. My thinking here was that these types of companies would be likely be able to continue earning above double digit earnings while maintaining their market multiples, and thus generate strong rates of capital growth. The Remaining Companies Westinghouse Air & Brake (NYSE: WAB ) is a technology supplier to the freight rail and the passenger transit industries. The company provides engine cooling, braking and other design and engineering services. Wabtec holds a dominant market share position in North America for the supply of technology to the rail industry. In some specific component segments, such as pneumatic braking systems, Wabtec is part of a strong duopoly along with Knorr Bremse. This dominance is reflected in the significant positive trend in gross margin and operating margin for Wabtec over the last decade. Positive Train Control represents the next revenue driver for the company. Positive Train Control refers to the requirement that certain operational functions of a train be capable of being monitored and controlled electronically. Wabtec has almost tripled revenues from $1.03B in 2005 to over $3.04B in 2014, representing an annualized growth of close to 14%. The company derives returns on equity and returns on invested capital that are consistently over 15%. Celgene (NASDAQ: CELG ) is a strong player in the biotechnology space, with a portfolio of drugs targeted toward cancer and inflammatory conditions. The company’s Revlimid franchise is a blockbuster and delivered over $5B in revenue in 2014. Revlimid has received approvals for the treatment of a variety of conditions including lymphoma and myeloma. With patent protection on the franchise likely to last well beyond the end of the decade, Celgene is poised for long term growth. Celgene’s return on equity have been hovering around 30% for the last few years, which indicates that it is a good steward of shareholder capital. Celgene has managed strong double digit revenue growth for the last decade. I don’t see too many reasons why this won’t be the case for the coming decade as well. Medidata (NASDAQ: MDSO ) solutions provides cloud based simulations and prototyping for life sciences. Medidata provides a valuable service for company’s engaged in drug discovery by helping them to simulate and prototype the effect of a given molecular combination quickly and more cost effectively than with traditional methods. The company has been growing revenues at almost 20% annually, with gross margins seeing a positive upward trend, and hovering at around 75%. With the continued push for faster drug development and continued pressure on traditional pharmaceutical companies, the need for Medidata’s product offerings will only continue to grow. Vipshop (NYSE: VIPS ) is discount e-commerce retailer in China that has pioneered the concept of flash sales. The company aggressively marks down oversupplied or out of season stock, which it makes available on its platform. Vipshop has a particular focus on pushing product to consumers in Tier 3 or Tier 4 cities in China, where there are typically no malls selling brand name product. The company’s rate of growth has been nothing short of extraordinary, with revenue growth in excess of 100% annually for the last few years. While that will undoubtedly moderate overtime, Vipshop occupies a unique niche in the Chinese e-commerce market, With returns on equity in excess of 40%, and a long runway of growth ahead, I think Vipshop could be poised for good long term returns. Zhaopin(NYSE: ZPIN ) provides an online recruitment platform in China. Zhaopin offers online recruitment services, including executive search and campus recruitment. Zhaopin has maintained a strategy of moving into lower tier cities in the quest to drive further revenues. While LinkedIn’s (NYSE: LNKD ) entry into China remains a long term threat for this company, Zhaopin’s early entry and focus on smaller tier cities should provide a competitive edge that allows the company to continue to grow profitably for a number of years. The company has returns on invested capital of over 25%, with revenue growth also in excess of 20%. Polaris (NYSE: PII ) designs and manufactures off road vehicles and other sport utility vehicles including snow mobiles, ATVs and motorcycles. Polaris has a well deserved reputation for design excellence and innovation, which has helped the company stand out in an increasingly crowded market. Polaris has demonstrated a track record of financial discipline over the last decade. Gross margins have shown sustained increase, rising 600 bp over the last decade. This is coupled with returns on invested capital that have exceeded 40% over the last few years. When combined with strong double digit revenue growth over the last decade, Polaris looks quite attractive for future returns. United Therapeutics (NASDAQ: UTHR ) produces drug therapies for patients with chronic conditions and is focused on the unmet needs space. The company currently produces drugs for pulmonary hypertension, congenital heart problems and neuroblastoma. While the company remains exposed to the risk of generics eventually making their way into some of the key niches that the company currently occupies, UHTR is looking to expand the markets it currently serves, and is even looking at the manufacture of artificial organs as a new line of business. The company has grown revenues in the high double digits for the last decade, with returns on invested capital over 40%. This write up concludes the initial set of positions for Project $1M, which is currently fully invested. Below is what the portfolio currently looks like. I will provide periodic updates on portfolio performance and any new positions that are initiated, or existing positions that are existed. Name Shares Held $ Cost Per Share $ Total Cost $ Market Value $ Unrealized Gain/Loss Since Purch % Unrealized Gain/Loss Since Purch Baidu Inc ADR 54 187.47 10,123.38 11,161.26 1,037.88 10.25 Celgene Corp 122 122.71 14,970.62 13,848.22 -1,122.40 -7.5 Core Laboratories NV 64 116.33 7,445.12 7,190.40 -254.72 -3.42 Facebook Inc Class A 99 101.97 10,095.03 10,624.68 529.65 5.25 LinkedIn Corp Class A 42 240.87 10,116.54 10,620.54 504 4.98 MasterCard Inc Class A 305 98.99 30,191.95 30,347.50 155.55 0.52 Medidata Solutions Inc 174 43 7,482.00 7,830.00 348 4.65 Mercadolibre Inc 102 98.37 10,033.74 12,377.70 2,343.96 23.36 Moody’s Corporation 156 96.16 15,000.96 16,277.04 1,276.08 8.51 Novo Nordisk A/S ADR 235 53.18 12,497.30 12,861.55 364.25 2.91 Polaris Industries Inc 89 112.34 9,998.26 9,386.83 -611.43 -6.12 Priceline Group Inc 7 1,454.00 10,178.00 8,970.71 -1,207.29 -11.86 ResMed Inc 174 57.61 10,024.14 10,286.88 262.74 2.62 Starbucks Corp 201 62.57 12,576.57 12,459.99 -116.58 -0.93 United Therapeutics Corp 51 146.63 7,478.13 7,709.67 231.54 3.1 Vipshop Holdings Ltd ADR A 243 20.52 4,986.36 3,973.05 -1,013.31 -20.32 Visa Inc Class A 256 77.58 19,860.48 20,528.64 668.16 3.36 Westinghouse Air Brake Technologies Corp 121 82.87 10,027.27 9,285.54 -741.73 -7.4 Zhaopin Ltd ADR 314 15.19 4,769.66 4,788.50 18.84 0.39 Project $1M 217,855.51 220,528.70 2,673.19 1.23

Finding Value With The Piotroski F-Score: Results

The final results of the Piotroski F-Score experiment. The portfolio lost half of its value mainly due to the fall in the price of oil. The experiment wasn’t a total failure. It has been a year since I began my Piotroski F-Score experiment (Finding Value With The Piotroski F-Score). Unfortunately, the results of the experiment are less than impressive, although the unexpected collapse in the price of oil is partially to blame. You can find the first part of this series, which explains the methodology behind the F-score, as well as an initial summary for each company, here . The second part, assessing the portfolios performance up to the beginning of February can be found here. Part three. Part four. The thesis behind my F-Score experiment was simple. The Piotroski F-Score was designed to hunt out value opportunities that are profit-making, have improving margins, don’t employ any accounting tricks and have improving balance sheets . As a contrarian value investor, I was interested in seeing how this strategy performed in the real world. It is both a way to discover value stocks and trade them without fundamental analysis, the screening criteria and investments are based purely on the financials (something Benjamin Graham recommended). Piotroski recommended scoring the bottom 20% of the market in terms of price to book value and rating these companies based on how many F-Score criteria they passed. The criteria looked at points such as leverage, liquidity, profitability and operating efficiency. One point is awarded for each criterion the company passes and the stocks that score the highest, eight, or nine are regarded as being the strongest candidates for recovery. Using the following system, Piotroski’s April 2000 paper Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. This time last year I selected 20 companies that passed Piotroski’s criteria and were, at the time of initial investment, trading below book value per share. I constructed a hypothetical portfolio investing $1,000 in each company excluding commissions. The positions were based on financial data only with no weighting to fundamental factors. The companies selected were: Noble (NYSE: NE ), Ternium SA (NYSE: TX ), Unit (NYSE: UNT ) Ocean Rig (NASDAQ: ORIG ), CYS Investments (NYSE: CYS ), Pacific Drilling (NYSE: PACD ), Hornbeck Offshore Services Inc (NYSE: HOS ), OM Inc. (NYSE: OMG ), Speedy Motorsports (NYSE: TRK ), Gulfmark Offshore Inc (NYSE: GLF ), Schnitzer Steel Industries Inc (NASDAQ: SCHN ), Bill Barrett (NYSE: BBG ), Penn Virginia (NYSE: PVA ), Steel Excel Inc (OTCQB: SXCLD) McClatchy Co (NYSE: MNI ), Ducommun Inc (NYSE: DCO ), Vantage Drilling Co (NYSEMKT: VTG ), Nuverra Environmental (NYSE: NES ), Willis Lease Finance (NASDAQ: WLFC ) and Ellington Residential Mortgage (NYSE: EARN ). How did the portfolio perform? (click to enlarge) Values taken after market close 11/20/2015. A 49.32% loss in 12 months is a terrible performance. Dividends received over the period totaled $61.20, although these cash payments didn’t do much to soften the blow. OM Group was taken p rivate by Apollo Global . It’s clear that turbulent oil markets were to blame for this underperformance. There’s no way the strategy could have identified or prevented the carnage in the oil sector over the past year or so. And there is no reason to give up on the F-Score after just one year of poor returns, so I’m going to continue the experiment for another year but make several adjustments. A new crop of stocks will be selected using the same criteria as the ones that qualified last year. However, this time around I’m also going to short hypothetically the 20 worst stocks — as the original F-Score study suggested. Moreover, I’m going to run another portfolio alongside the one described above which will exclude all resource stocks. I’ll be publishing the details of these two portfolios over the next week. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

VT – The Easy Way To Start Investing For Retirement

Summary Investing for retirement can be as simple or as complex as you want to make it. If you enjoy researching investments, trading frequently, struggling with your taxes and some sleepless nights when your investments are tanking – then this article is not for you. If you want to get started investing or simplify the investing process then please keep reading. Simply Investing – Philosophy Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. Whether you are just starting to invest for yourself or your kids or thinking about taking control of your investing back from your investment advisor, remembering to keep investing simple, consistent and well-diversified, will help lead to success. The problem for many people is investing can get complicated quickly and when it gets complex it is easy to lose focus on your overall investment objective, which often leads to mistakes. Investing doesn’t have to be difficult, time consuming, involve large fees or lead to restless nights. Establishing a core investment in well-diversified, low expense, Exchange Traded Funds (ETFs) is a good way to either get started investing or to reduce the complexity of your investment portfolio. An investment portfolio with a “core” allocated to ETFs held for the long term is probably the best option for most people starting to invest. As one’s investing experience, the time one wants to dedicate to investing activities and desired risk, increases, an investor may want to allocate a percentage of their portfolio to “edge” positions, which offer additional risk and opportunity. Vanguard Total World Stock ETF (NYSEARCA: VT ) This article reviews VT, an ETF that Simply Investing believes can effectively make up a large portion of the core of most people’s retirement portfolios. Future articles will look at additional ETFs that can be added to the core portion of your portfolio and for those interested, potential holdings for the part of your portfolio allocated to edge positions. VT – Regional allocation and investment approach Source: Vanguard (allocation as of 10/31/2015) VT seeks to track the performance of the FTSE Global All Cap Index. It has holdings in over 7,000 stocks with broad exposure across developed and emerging equity markets around the world, including the U.S. VT’s broad global diversification helps to minimize volatility that any one region may experience. As indicated above, the majority of VT is invested in North American stocks and although not broken out above, 53% of the common stock holdings are in the U.S. VT -Equity Characteristics and Holdings Source: Vanguard (as of 10/31/2015) As the table above indicates, VT is very well diversified, holding 7,391 stocks. The median market cap is quite large at $34.0 billion. VT’s current price/earnings ratio is high compared to historical levels for global markets. The high current price/earnings ratio is not unique to VT. The price/earnings ratios for the U.S. market and many global markets are currently higher than historical norms. These high price/earnings ratios are likely due to the low returns that alternative investments, such as fixed income, currently offer. Investing for retirement should be done on a consistent basis. A simple investment plan to follow, makes it that much more likely to happen. The relatively high current price/earnings ratio of stocks suggests that if you have a large amount of capital to invest today, it is advisable to dollar cost average this investment into the market over a period of time. Source: Vanguard (as of 10/31/2015) VT’s top 10 holdings are dominated by U.S. companies, with nine out of the 10 holdings based in the U.S. However, these top 10 holdings only account for 8.2% of total net assets and as previously indicated foreign stocks make up 47% of VT’s holdings. VT makes a good core portfolio holding with a diversified mix of stocks from U.S., other developed and emerging markets. Expenses VT’s expense ratio is 0.17%, this is well below the average expense ration of similar funds at 1.27%. Given the relatively high price of the market today, it is likely that future returns may be lower than those recently experienced. In this environment, it is important that the core of your portfolio is allocated to funds with low expense ratios such as VT. Conclusion Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. One of the easiest ways to accomplish this is to build a core retirement portfolio around ETFs such as VT. In fact, VT might be the only investment many people’s equity portfolio requires, but future articles will look at additional ETFs that can be added to your core portfolio and for those interested, holdings for the “edge” of your portfolio that offer additional risk and opportunity.