Tracking The IBD 50

I love looking at data, discovering new trends, and finding hidden cause and effect relationships.  That is probably why I like spending hours analyzing computer event and security logs.   I also tend to do the same thing researching the stock market, especially when I notice a dramatic change.  In this case, I noticed a lot of new stocks listed on the weekly IBD 50 list.  So, I started something that I have been meaning to do for quite some time but never really got around to it.  Until now.

Tracking the IBD 50 list.

We all know the only state the market stays in is a constant state of change.  Prices fluctuate every day, every minute.  And it stands to reason that any watch list will do the same, though not necessarily on a daily basis.  My “gut” was telling me that the IBD50 list had been fairly stable and now quite a few new members had joined the list.  Conversely, this meant quite a few had fallen off of the list.  Of course I wanted to see the evidence for myself.  So I sat down and started plotting out the last two months or so of reports.

This is what I came up with.

Listed below is the stock symbol, IBD’s Group Classification, and the week the stock appeared / or not on the list.  If it appeared on the list the number is the ranking IBD gave it from 1 – 50 with 1 being the best of the best.  If it did not appear on the list then that week is left blank.

Now I have not had a chance, nor enough back testing evidence, to find out if these changes are due to quarterly reports, market conditions, changes in market cycles, investor/consumer sentiment, hype, fear, or some combination of all of the above.   But at least I seem to have enough proof that my gut was right.

Breaking it down into adds, drops, returns (on,off,back on again), and stay(remains on the list each and every week) and by sectors we get the following.  This was an attempt to see which sectors are strong and remain on the list, weak and dropping off, and gaining by being added to the list.

I’ll be tracking this further as time goes by and reposting any additional insights but I thought I would get it out there for those of you who might be interested.

Advertisements

Braking News and Research

no_brakes

Peter Lynch once said, “buy what you know”.  For this post, perhaps we should say “buy what happens to you”….

During the last week of 2016, the brakes on my wife’s car failed.  No the pads did not wear out.  Nor did the drums.  A no, nobody cut the brake lines, but the result was basically the same and could have been equally disastrous.

We have an older model Chevy Suburban whose brake lines were corroding and just happened to pick a “convenient” time to burst.

Note:  I really do not understand how this is not a recall since most everyone I talk to about older GM models knows about this and can relate a similar “repair” story.  GM even has a kit just for this purpose so people do not have to refabricate parts and installation.

My wife was driving our son and his friends back from basketball camp and after she had dropped everyone off at their respective homes and gone up and down some major hills, she was traveling along a four lane road back home when another car pulled out from a side street.  Now normally this should not be an issue but this person felt inclined to swerve across three lanes in front of her instead of just pulling out into the first right-hand lane.  And of course it was at this point that she discovered that the brakes had failed.  Fortunately nothing bad happened but it was scary.

So we called the tow truck and had the Suburban towed to our local brake shop.  It took them a whole extra day to get around to checking it out because of the current backlog.  Then another three days to get the parts ordered and perform the repairs.  At the time I didn’t think too much about this because it was the holiday weekend and they were on a skeleton crew, but still it was terribly inconvenient to be down to only one car.

Needless to say this event was the genesis of much conversation.  You know, stuff like movies are made out of:

–          “How to escape out of a car under water.

–          “How to stop a run-away car”.

And, the pros and cons of a floor/pedal emergency brake vs. a hand brake near the drivers seat.

Fast forward a day or two past getting the Suburban back and my daughter asks if I can pick her up at the local Merchants Tire and Auto if she drops her car off for an oil change.

“Sure, I can do that”.

Well about 20 minutes later she calls and says she is taking her car to Jiffy Lube because Merchants says it will be 2 days before they can get around to it and that the next “open” appointment they have is 2 weeks away.

“Really? Two days for an oil change?”

“Yup”

“So you don’t need me to pick you up?  Are you going to just wait at Jiffy Lube?”

“Yes”

“To what?  Pick up or Wait”

“Wait”

“OK”

Well, about an hour later I get a frantic call from my daughter who is yelling speaking quite loudly …

“What Did They Do To My Car!”

“What’s wrong”

“It just sped up and wouldn’t stop and I almost crashed and every time I turn it on it just races really fast and it scared the !@#$ out of me and They Broke My Car!”

Well, to make a long story short the throttle cable in her car runs right next to the air filter cover and got knocked out of its brackets as they were doing their “inspections”.   The lead tech even drove down the road to help out and make things right.  I was hoping to get my daughters money back since they screwed up and nearly caused a serious accident.  But all she got was a coupon for a free oil change, which is pretty useless since she vows never to go back to Jiffy Lube ever again.

However, she did comment on how she knew exactly what to do based on our discussions about the suburban, no brakes and run-away cars.

Sometimes the lord works in mysterious ways.

I just wish he didn’t have such a flair for the dramatic.

So what does all this have to do with stocks and investing?

Well thinking about how busy the brake shop and Merchants were, I started thinking that perhaps this season might be a good time for auto repair businesses.  Unfortunately, Merchants is private.  So is Midas, AAMCO, PEPBOYS, and a whole host of others.  However, there are some publically traded auto part companies which still exist and could be worth consideration. After all, regardless if you you’re your car to the shop or do it yourself, one still needs to purchase the parts.  Two of the more popular and well-known brands are AutoZone and Advanced Auto Parts.

Though these could be added to any watch list, what I usually do is see how they rank when compared to their peers.

  • AAP and AZO rank 4th and 5th in their group (according to IBD)
  • AAP recently reported better than expected sales and an upgrade.
  • AZO has also seen better than expected results.
  • Both have benefited from the Trump Rally.

aap

However, they both have pretty poor overall composite ratings.

Again, maybe not a terribly bad thing if you think they might be good turnaround candidates.

When I look at peer groups within IBD it gives me a sense of how they are doing compared to their peers and, as you can see, gives me alternative stocks to research.

Since different systems classify, rate and rank stocks differently, I often go to other sites and run screens to see what else may pop up.  In other words to cast a wider research net. One such site I use is FINVIZ.

screen

For my screen, I kept it pretty simple.  I looked for stocks with positive EPS, Sales, and ROI.  Depending on my results, number of stocks, I sometimes add selection criteria to narrow it down.  In this case, I really did not have to.

I also expanded my research a little bit to include other auto part categories as well as companies which might be related to the field such as Tools and Accessories.

This is what I came up with and is a good starting point to do any additional research and comparisons.

Ticker Company Industry Market Cap P/E Price Volume
ALV Autoliv, Inc. Auto Parts 10.02B 16.55 113.28 427,803
CPS Cooper-Standard Holdings Inc. Auto Parts 1.87B 15.39 106.74 138,260
GNTX Gentex Corporation Auto Parts 5.96B 17.24 20.52 2,416,357
LEA Lear Corporation Auto Parts 9.64B 10.4 136.9 548,065
TEN Tenneco Inc. Auto Parts 3.62B 9.5 65.25 386,360
ORLY O’Reilly Automotive, Inc. Auto Parts Stores 26.93B 27.28 281.78 472,638
MGA Magna International Inc. Auto Parts Wholesale 17.39B 8.82 45.06 862,433
SNA Snap-on Incorporated Small Tools & Accessories 10.10B 19.32 173.19 228,880
SSD Simpson Manufacturing Co., Inc. Small Tools & Accessories 2.13B 24.61 44.2 216,775

What do you think of the prospects of the auto part industry?

Will their increased sales trend continue?

Now What?

“Wow! Now What?” That is what a colleague of mine texted to a group of us early Friday morning when he found out about the Brexit result.

This is an evaluation image and is Copyright Pamela Perry. Do not publish without acquiring a license. Image number: 0515-1103-1504-1337. http://www.acclaimimages.com/_gallery/_pages/0515-1103-1504-1337.html

Over the years, we have formed a kind of virtual water cooler group.

Somebody else texted back that my puts must be really doing well.

Another “Holy Crap”.

Another person sent back a “congratulations” message to me.

I’m not sure why.  For some reason they think I am good at this sort of thing.

Yes I do have some August QQQ puts.  And yes I did place a couple weekly calls last week, which I closed out of all but one which of course expired worthless.  But the calls were placed just to help cover my losses on my puts.  I actually consider myself lucky that I came out ahead throughout the whole (up-down-up-down) pre-Brexit and Brexit event.

I keep telling everyone if I were really good at this sort of thing, I wouldn’t have to work.

But back to the “Now What” question.

My short answer is this . . . What has changed?

As of today, absolutely nothing – except expectations and more uncertainty.

  • Britain is still part of the European Union.
    • It will take months to even start planning the exit and years to execute.
    • If it happens at all.  Google “bregrexit”.
    • The Scotts and Irish are already planning their anti-Brexit referendums to remain.
  • The Fed is still second guessing their rate hike decisions.
  • The economy, both locally and globally, is not firing on all cylinders.
    • Brexit has only fueled concerns within the financial and European markets.
  • There is uncertainty with the coming US elections.
  • And, most importantly, the market hates uncertainty.

Analysts have already set the economic and quarterly reporting bar pretty low.  So low, that certain companies have been able to beat those low expectations.  The problem has been in forecasting.

ADBE is a perfect example.  Last week they beat quarterly report estimates.  Their projections for next quarter were conservatively in-line.  Note, not a bad report.  The price tanked 5%.

Now, with Brexit, companies and the market have one more very real added concern to append to their estimates.

The Brexit vote caught a lot of people and the markets by surprise.  The fact that Brexit will most likely take several years to complete, is reason enough to think that any huge sudden correction is most likely to be an over-reaction to Friday’s result.  I am not sure that the dust has settled yet but at some point it will.  And when it does, I suspect that there will be some good bargains out there.

Now is no time to panic and sell everything or jump all in to inverse ETF’s or Gold.  Though they certainly could be part of your investment strategy or plan.

You should always have a plan.  And your plan should account for changes in market direction and change.  Whether it is to be sufficiently diversified, or to actively maintain trailing stops, or to look for undervalue stocks, your plan should not be to make any sudden changes or to panic.

This is the most important answer to “now what”.

keep calm

Keep calm, stick to your plan.  Keep your watch lists up to date.  Protect your profits and capital.  Look for opportunity.

This much should never change.

IBD Says We Are In A Confirmed Uptrend

I don’t believe them – yet.

Yes, technically a reversal, a successful test and rebound of the low support, and a follow through day signals a confirmed uptrend.

However, until at least 2 indexes trade above their 50 day moving average, I’m going to be skeptical.

Take a look at the NASDAQ chart.  It is pretty similar to all the other indexes.  So I will use this one as reference.

NASDAQ Chart Example

IMHO a reversal is fine and dandy but until a breakout occurs, all bets are off.

If one listens to some of the stock market guru’s out there, we are in a full blown bear market.

I don’t believe them – yet.

Taking a closer look at the chart, I see a different pattern forming.

NASDAQ Chart Pattern 50 dma resistance

From a chart pattern perspective, there are two forces at work here.  The downward pressure/ resistance of the 50 day moving average and the flat support of the reversal low.

The real question is, which force will win?

If we experience another failed breakout of the 50 dma, then my bet is for a continued bear market.  But I could be wrong.  Who knows?

IMHO the market is too unpredictable for the average investor – or any investor for that matter.

So does that mean you should be completely out of the market?

That all depends on your investment style and tolerance for risk.  For me, I am still mostly cashed out about 90%.  The only thing I have recently started investing in is occasional options on index funds.

On September 18th the market failed its first attempt to break the 50 day moving average.  So I put bought a couple SPY October puts.

Now that the market seems to have bounced off of the low support, I have a couple call options.

Personally, I would love to see the market remain range bound for the next couple months (between 4500 and 5000 if you are following the NASDAQ).

  • NOTE: A range bound pattern would be yet another new pattern and would set a new resistance level at the top of the range instead of the downward 50 dma.  But my statement of needing a breakout above resistance would still apply to confirm a true reversal AND uptrend.

But the truth is nobody knows what the market will do next and right now it is too early to declare a true uptrend reversal or a true bear market.

So, for now, I will build my watch lists and dally here or there with SPY trends until I see the market become a bit more predictable.

But if you do feel compelled to research some stocks, here are two interesting lists.

The first is my watch list compilation of screens I run, with an added chart breaking down the sector distribution.

The second is my investment clubs list.

We will just have to wait and see which stock market force and watch list wins.

Until next time . . .

Be good , have fun, trade well !

BWTB October Watch List:

Sector Breakdown

Ticker Symbol Company Name Sector
BFAM Bright Horizons Family Solutions, Inc. Services Personal Services
BNCN BNC Bancorp Financial Regional – Mid-Atlantic Banks
BOFI BofI Holding, Inc. Financial Savings & Loans
BSQR B SQUARE CORP Technology Application Software
CALM CAL-MAINE FOODS INC Consumer Goods Food – Major Diversified
CBRL Cracker Barrel Old Country Store, Inc. Services Restaurants
CDW CDW Corporation Technology Information Technology Services
CMG Chipotle Mexican Grill, Inc. Services Restaurants
CMN Cantel Medical Corp. Healthcare Medical Instruments & Supplies
COR CoreSite Realty Corporation Financial REIT – Office
DPS Dr Pepper Snapple Group, Inc. Consumer Goods Beverages – Soft Drinks
EBSB Meridian Bancorp, Inc. Financial Savings & Loans
EGBN Eagle Bancorp, Inc. Financial Regional – Mid-Atlantic Banks
EPAM EPAM Systems, Inc. Technology Information Technology Services
ESI I T T EDUCATIONAL SVCS Services Education & Training Services
EVOL EVOLVING SYSTEMS INC Technology Technical & System Software
FAF First American Financial Corporation Financial Property & Casualty Insurance
FLIC The First of Long Island Corporation Financial Regional – Northeast Banks
GILD GILEAD SCIENCES INC Healthcare Biotechnology
GLOB Globant S.A. Technology Information Technology Services
GTN Gray Television, Inc. Services Broadcasting – TV
HDB HDFC Bank Ltd. Financial Foreign Regional Banks
HOMB Home Bancshares, Inc. Financial Money Center Banks
IDTI Integrated Device Technology, Inc. Technology Semiconductor – Broad Line
IPG The Interpublic Group of Companies, Inc. Services Advertising Agencies
KR The Kroger Co. Services Grocery Stores
LFVN Lifevantage Corp Consumer Goods Personal Products
LQDT LIQUIDITY SERVICES INC Services Catalog & Mail Order Houses
MLHR Herman Miller Inc. Consumer Goods Business Equipment
NCLH Norwegian Cruise Line Holdings Ltd. Services Resorts & Casinos
NVR NVR, Inc. Industrial Goods Residential Construction
ONE Higher One Hldgs Inc Services Business Services
PDLI P D L BIOPHARMA INC Healthcare Biotechnology
PFBC Preferred Bank Financial Regional – Pacific Banks
PGR Progressive Corp. Financial Property & Casualty Insurance
PLAB Photronics Inc. Technology Semiconductor Equipment & Materials
PLAY Dave & Buster’s Entertainment, Inc. Services Restaurants
PPBI Pacific Premier Bancorp Inc. Financial Regional – Pacific Banks
PSA Public Storage Financial REIT – Industrial
SFST Southern First Bancshares, Inc. Financial Money Center Banks
SSNC SS&C Technologies Holdings, Inc. Technology Business Software & Services
SSS Sovran Self Storage Inc. Financial REIT – Industrial
SUI Sun Communities Inc. Financial REIT – Residential
TSCO Tractor Supply Company Services Specialty Retail, Other
TYL Tyler Technologies, Inc. Technology Technical & System Software
VRSK Verisk Analytics, Inc. Services Business Services
WILN Wi-Lan Inc Technology Wireless Communications
XRS TAL Education Group Services Education & Training Services
YDKN Yadkin Financial Corporation Financial Regional – Mid-Atlantic Banks

 

 

Investment Club Watch List:

 

Investment Club Watch List

TICKER SYMBOL COMPANY NAME SECTOR
ABMD Abiomed, Inc Healthcare  Medical Appliances & Equipment
ALK Alaska Air Group, Inc Services  Regional Airlines
AMZN Amazon.com , Inc Services  Catalog & Mail Order Houses
AZO AutoZone, Inc Services  Auto Parts Stores
DY Dycom Industries, Inc Industrial Goods  Heavy Construction
EPAM EPAM Systems, Inc Technology  Information Technology Services
EXR Extra Space Storage, Inc Financial  REIT – Industrial
FLO Flowers Food, Inc Consumer Goods  Processed & Packaged Goods
JBLU JetBlue Airways Corp Services  Regional Airlines
LGIH LGI Homes, Inc Financial  Real Estate Development
MOH Molina Healthcare, Inc Healthcare  Health Care Plans
ORLY O’Reilly Automotive, Inc Services  Auto Parts Stores
P Pandora Media, Inc Services  Broadcasting – Radio
PAYC Paycom Software, Inc Technology  Application Software
SBUX Starbucks Corp Services  Specialty Eateries
SCMP Sucampo Pharmaceuticals, Inc Healthcare  Drug Manufacturers – Other
TFM The Fresh Market, Inc Services  Grocery Stores
TSS Total System Services, Inc Financial  Credit Services
UA Under Armour, Inc Consumer Goods  Textile – Apparel Clothing
ULTA ULTA Salon, Cosmetics & Fragrance, Inc Services  Specialty Retail, Other
UVE Universal Insurance Holdings Inc Financial  Property & Casualty Insurance

 

You Got To Have Sole

Nike

Several years ago I hired an employee where I worked who, as I later discovered, owned over 100 pairs of Nike shoes.  He had three closets full of them.  Two at his house and one at his mother’s.  Of course he never wore all of them.  In fact, most of them, he never wore at all.  Some he wore only once and then put away.  Some he occasionally sold on eBay, but most – he just collected.

This was so alien to me.  When I think of going out to buy a pair of sneakers, I look to buy them because I, or one of my kids, need a pair of sneakers.  Not because I feel compelled to own the latest and greatest model that just came out.  And I certainly don’t think about spending hundreds of dollars on a pair of sneakers.  I think of going to the local Walmart or Payless shoe store.

This person was, and still is, a huge sports fan.  He followed basketball, which explains why he was so hooked on Nike shoes.   Since the early 90’s, Nike has infiltrated amateur and collegiate sports and has successfully hooked millions and multiple generations of sports fans.  Of course, their tactics came under scrutiny and if you ever want to see a great documentary on how amateur sports, and college sports in particular, has become such a business – and in some ways – a racket, you need to watch the ESPN 30 for 30 series called Sole Man.

I highly recommend it.

Being a sports fan myself, I knew companies endorsed athletes and athletes had signature shoes and clothing lines.  But seeing firsthand how pervasive this phenomena is within certain cultures and segments of the population and how fanatical certain consumers can be; it was a real eye-opener for me and really was the first time I started taking Nike seriously as an investment idea.

It was at about this time that Nike also released their five year global growth strategy.

In this publication Nike outlined their goals for expanding into global markets.  One of the key features was something called DTC, Direct To Consumer, marketing.  This segment includes brand name Nike storefronts and the Nike.com online store.  The DTC line of business has higher margins because Nike does not have to share revenues with middle men or third parties.  Over the years they have very successfully leveraged their brand and high end merchandise to market directly to their loyal consumer base both here in the states and around the world.

BTW, the employee I mentioned earlier, he purchases over 90% of his shoes either online from Nike.com or from one of their storefronts.  The others, he gets from eBay.

Nike has been very successful implementing this DTC model.  So who else has a similar strategic model?   Two companies which immediately come to mind are Apple and Ulta.  Both companies can be considered specialty retailers with high end products and name recognition.  Both companies have brand name brick and mortar storefronts.  Both companies have a well-established online presence and a loyal, if not somewhat fanatical in the case of Apple, fan base.  I constantly keep these companies on my ready list and often purchase or add to positions during weakness.

With this information in mind, I am going to expand my research for companies implementing a similar DTC strategy.

I curious if anybody else knows of similar companies with similar DTC strategies.

Trivia:

During my research online of Nike, I came across this interesting fact.

Most of the sneakers sold in the U.S. are made outside the country, usually in places where cheap labor is easily available. However, the cheap labor costs are usually offset by the fact that shoe companies have to pay a 37.5% tariff on sneaker imports. Nike, however, seems to have found a way around this problem for its Converse brand. How has Nike done this? By proving that Converse shoes are actually slippers. Nike did this by creating a process for the manufacture of Converses that makes its shoes slippers in the eyes of the law. Under U.S. law, sneakers are defined as footwear having a rubber sole, while slippers are defined as footwear with a fuzzy sole. Converses are manufactured in such a way that they have a rubber sole covered by a fuzzy layer which quickly wears off when the sneakers are actually worn.  As a result, the company has been able to keep the average unit price of its Converse shoes down to $55 since slippers are only subject to an import tariff of 3%.

It seems Nike is also innovators of loopholes as much as they are with shoes.