We purchased additional shares of Jack Henry & Associates (JHKY) at $17.85 and Wal-Mart (WMT) at $45.09. This increases our holdings in these companies to 4.4% for each. We are 97% invested.
The October 2005 Better Investing magazine featured Carnival Corp. (CCL) as a stock to study. Here is a PowerPoint presentation and a stock selection guide analyzing Carnival from the NAIC DC monthly stock to study presentation. The presentation is also here in pdf format.
Here is the bottom Line: Carnival is a quality stock. Value Line financial strength is B+ and earnings predictability is 80, and RQR is 69.6 It currently has an upside/downside ratio of 3.5 and a relative value is 110. It has an estimated total return of 17.8% and projected average return (PAR) of 12.8%. Carnival is a hold. It might be a buy if the PAR was a little higher (greater than 15%).
Investors Financial Services Corp. (IFIN) declined 13% for the quarter and 33.2% year to date. It is our second worst performing stock for the year. UTSI is the worst. The drop in IFIN stock price resulted from declining earnings growth. We looked at IFIN two months ago. This is a relook.
On July 17, Investors Financial cut its earnings forecast. The company gave 2005 earnings guidance of $2.30 a share, with core earnings flat with the year-ago $2.09. The company said 2006 core earnings would rise 8%-10%. Analysts had forecast earnings of $2.50 a share for 2005 and $2.98 for 2006. See page 2 of the second quarter earnings report for the companies explanation.
The announcement predictably drove the stock price down, although the market had already discounted the decline in earnings growth with the stock price slowly declining since February. See IFIN price chart. The bottom feeders of the securities bar immediately filed multiple class actions alleging that management had misled shareholders with false optimism prior to the reduced earnings guidance. The filing of class actions under the Securities Exchange Act of 1934 whenever a company announces bad news has become a cottage industry that ought to be closed. The litigating attorneys frequently settle these class actions for their fees and expenses and some minimal compensation to the shareholders. Most of these class actions are a wasteful drain on an overburdened legal system and on the finances of the targeted companies.
Morningstar rates IFIN with three stars, a narrow moat, and a “D” in stewardship, and concludes that it is fairly valued at $35. (It’s current price is $32.90). Manifest Investing gives IFIN a quality rating of 64 and estimates a PAR as 21.2%. The Investors Advisory service also has IFIN as a buy up to $53.
The company’s core business offers a wide range of administration services to mutual fund complexes, investment advisors, family offices, banks, and insurance companies. That business seems to be solid although it operates in a very competitive environment. The company’s banking services have suffered the same slow down as other banks due to flatter yield curve and narrower investment spreads. The market has probably over reacted to the news in July. Our current stock selection guide shows a projected average return of 19.4%. IFIN is a hold for now. However, we have four financial stocks, CBH, FITB, COF and IFIN. We may want to consider pruning back.
The Moose Pond Investors portfolio increased in value 1.5% for the third quarter of 2005. In comparison, the S&P 500 increased 3.2% and the Russell 3000 Index increased 4%. Overall, the portfolio has a quality rating of 72 (out of 100) and a projected average return of 15.4%. the quality rating is excellent. The PAR is is very good too but could be raised a little. The percent changes this quarter for our five best and worst stocks are listed below.
The Russell 3000 Index is a total market index representing approximately 98% of the U.S. equity market. The S&P 500 Index is a large cap index that includes 500 companies reflecting 80% of the same market.
Q3 Portfolio Winners
Amgen (AMGN) +31.8%
Chevron (CVX) +15.8%
Maxim Integrated Products (MXIM) +11.6%
Lowe’s Companies (LOW) +10.7%
Cardinal Health (CAH) +10.3%
Q3 Portfolio Losers
Investors Financial Services Corp. (IFIN) -13.0%
Patterson Dental (PDCO) -11.2%
Fifth Third Bancorp (FITB) -10.0%
Pfizer (PFE) -9.5%
Wal-mart Stores (WMT) -7.8%
Here are one-year price charts for the stocks in the Moose Pond portfolio and for the S&P 500 and the Russell 2000. If you click on a chart, it will take you to the Yahoo! Finance page for that stock. The charts automatically refresh each time the page is loaded. Placing the cursor over a chart will show the 5-day chart.