Another list of stocks worthy of further study is the Morningstar Bellweather 50. This is a watch list of large-cap companies that Morningstar rates with a wide economic moat. Morningstar uses its star ratings to show relative valuations of these stocks. A rating of five stars mean the stock is undervalued. The link above shows projected average return and RQR quality rating for each of these stocks.
One of the challenges when starting a new portfolio or updating an existing one is finding stocks to buy. Here are several public lists of stocks maintained by Manifest Investing. The lists provide both projected average return (PAR) and a quality rating (1-100).
The stock market drop this past week has provided a buying opportunity. Moose Pond has some cash to invest
Proposed Purchases for January
We recently considered several companies: Stryker [SYK], Microsoft [MSFT], and Kohl’s [KSS], and decided to purchase Stryker.
In addition, three defensive stocks look attractive: Coca-Cola [KO], Gannett [GCI], and Illinois Tool Works [ITW]. These stocks have several things in common. Their prices have gone nowhere or down over the past several years even though their earnings are solid and have continued to grow. Comparing their current price earnings ratio (P/E) to their historical P/E, current P/Es are at an all time low. Value Line rates their financial strength A+ or better, and their earnings predictabillity 85 or better. All three stocks pay dividends, which provides some downside price protection. These three stocks are currently out of favor in spite of their fundamentals. All three have a projected average return of more than 13% which is excellent for a large company.
Coca-Cola has an enormous franchise in its name and also has a strong international marketing and distribution network. Gannett, which publishes USA today, has been suffering from rumors of the early demise of print media and the ascendancy of the Internet. Companies like Gannett will be awash with a Tsunami of political cash as we move into the next presidential election cycle. Illinois Tool Works is a 100+ year old tool company that is the clear leader in almost every market in which it sells tools.
Weeding and Feeding the Stock Garden
These are several good, quality stocks whose prospects are not as good as the others in the portfolio. These are Cardinal Health and Brown & Brown. (Harley Davidson and Capital One Financial are borderline on joining that group.) We are considering selling Cardinal Health and Brown & Brown sometime in the next two or three months after the market recovers from its current bounce down. We plan to reinvest the proceeds in several of the stronger existing stocks.
Summary
Here are the proposals:
Here are the slides from the portfolio management class held by the D.C. Chapter of BetterInvesting. The slides are available in PowerPoint and Adobe PDF formats. Also, here are links to the Portfolio Record Keeper reports and the Excel spreadsheet discussed at the workshop.
Happy New Year to all! We started Moose Pond Investors a little over five years ago. It is hard to believe that five years have gone by. We now have 18 partners made up of family and friends.
Given the amount of effort that went into research and analysis this year, the results for 2005 were a little disappointing. However our 5-year total return is well ahead the S&P 500 (large stock index) and almost even with the Russell 2000 (small stock index).
Here is our Annual Report for 2005.
Given the amount of effort that went into research and analysis this
year, the results for 2005 were a little disappointing. On a
cash flow basis, we finished with a very small gain. While
that is better than losing money, we did not beat either the
S&P 500 or the Russell 2000. They were up 4.9% and
4.6% respectively. On a positive note, we have soundly beaten
the S&P 500 over the past five years and we are almost even
with the Russell 2000.
The table and chart below show the annual return for Moose Pond
Investors over the past five years. The “Stocks
Only” column only shows the return of the stocks we
held. The next column, “Stocks &
Cash,” includes cash awaiting investment and monthly
brokerage fees. As a result, the return is slightly
lower. As our portfolio holdings grow larger, cash on the
sidelines and fees will have less of an impact on overall portfolio
return.
|
Stocks
Only |
Stocks
& Cash |
S&P 500
|
Russell 2000
|
Unit
Value |
|
| 2005 | 0.3% | 0.1% | 4.9% | 4.6% | $13.097 |
| 2004 |
16.1%
|
13.8%
|
10.9%
|
17.0%
|
$13.256
|
| 2003 |
35.1%
|
23.1%
|
28.7%
|
47.3%
|
$11.802
|
| 2002 |
-23.4%
|
-19.1%
|
-22.1%
|
-20.5%
|
$9.707
|
| 2001 |
37.9%
|
13.8%
|
-11.9%
|
2.5%
|
$11.970
|
| 3-year | 10.4% | 9.3% | 12.4% | 22.1% | |
| 5-year | 8.1% | 7.1% | 0.5% | 8.2% |
The annual returns for Moose Pond Investors are calculated using
internal rate of return (IRR). This method is more precise
because it
looks at actual cash flows. It better accounts for partner
investments
and market fluctuations throughout the year. We could have
calculated
annual return using the change in unit value from year to
year.
However, we opted for the more accurate IRR method.
The two
indices that we have been using for comparison, the S&P 500 and
Russell 2000, show the total return for each year including
dividends.
These return calculations do not take into account the actual cash
flows for Moose Pond Investors.