Occidental Petroleum (OXY)

SSG and PERT A (11-17-2005) | Google “stocks: oxy” | Company Website

We took an initial position today in OXY (and increased our existing position in Chevron). This is our second energy stock. For an assessment of OXY, see the October 15 report by McDep Associates. OXY has the lowest ratio of market capitalization and debt to present value (“McDep” ratio) making it the best value among the medium and large cap independent oil and gas producers. Value Line rates its financial strength A+. OXY pays a 1.5% dividend.

Business Description. Occidental Petroleum Corporation primarily engages in the exploration for, development, production, and marketing of crude oil and natural gas in the United States, Latin America, and Middle East. As of December 31, 2004, the company had proved reserves of 2,489 million barrels of oil and gas equivalent. Occidental Petroleum also manufactures and markets basic chemicals, such as chlorine, caustic soda, potassium chemicals, and their derivatives; vinyls, including polyvinyl chloride (PVC), vinyl chloride monomer, and ethylene dichloride; and performance chemicals, including chlorinated isocyanurates, resorcinol, antimony oxide, mercaptans, and sodium silicates. PVC resins are used in piping, electrical insulation, external construction materials, flooring, medical and automotive products, and packaging. The company markets its chemical products to industrial users or distributors through its own sales force. Occidental Petroleum is headquartered in Los Angels, California.

Sold O’Reilly Automotive

Reluctantly, we sold ORLY and redeployed the cash. It has been a good performer but we needed to reduce the number of stocks in the portfolio (moving torward a total of 20 stocks). Although ORLY remains a quality company, the project average return dropped to 7.5%. We have replaced it with a stock of comparable quality and higher return.
(more…)

Sold Lincare Holdings

We sold LNCR today and redeployed the cash. LNCR’s revenue and earnings growth has declined over the past two years. See PERT A graph (above). Lower federal reimbursement for supplemental oxygen has cut into its margins. We used the above stock selection guide in making this decision.
(more…)

Sold Fiserv Inc.

We sold FISV today and redeployed the cash. FISV has had three quarters of declining revenue and earnings growth. See PERT A graph (above). Also, FISV’s market overlaps with two other portfolio holdings — JKHY and SNV. We used the above stock selection guide in making this decision.
(more…)

Sold Johnson Controls, Inc.

We sold JCI today and redeployed the cash. Although a still quality stock, revenue growth has been slowing and the project average return dropped to 6.5%. We used the above stock selection guide in making this decision.
(more…)

Pfizer Inc. (PFE)

SSG and PERT A (07-21-2005) | Google “Stocks: PFE” | Company Website

The stock selection guide for Pfizer has been updated to reflect Q2 earnings. Using a 5-yr projected revenue growth of 6.5% and consevative PEs (high PE of 22 and low PE of 12.5), the projected average return ofor the next five years is 18.1%. PFE remains a high quality stocks and is a buy up to $32.70.
(more…)

Investors Fin. Services (IFIN)

SSG and PERT A (07-14-2005) | Google Stocks | Company Website

At the Q2 press conference on July 14, Investors Financial Services Corp. (IFIN) revised is earnings guidance downward for 2005 (10%), 2006 (8-10%), and 2007 and beyond (12-14%). See Q2 press release.

We previously had used 16% in our projections for June. The reduced earnings guidance is due in part to reduced interest income. A revised SSG, using 12% expected EPS growth, shows a projected average return PAR of 14.2% and a buy up to $48. However, given the company’s lowered guidance, the may be a stock to consider replacing.

Note: IFIN’s price dropped 17% on July 15 on announcment of the lowered guidance. The SSG was revised after the announcement using a projected EPS growth of 10% and the lowered price. The new projected average return is 15.51%. See revised SSG (07-15-2005). This certainly suggests some efficiency in the market.

The June Investor Advisory Service by IClub had reported IFIN a buy as well:

Investors Financial Services had a surprisingly slow quarter. First quarter revenue grew 8% with core services revenue growth of 16% being partially offset by an 11% drop in ancillary services revenue. EPS rose 11%, but a securities gain in 2005 and a one-time prepayment penalty in 2004 accounted for all of the apparent growth. The company obtained almost 30% of its revenue from net interest income. An analysis of its balance sheet shows that customers are withdrawing low-cost demand and savings deposits while Investors Financial adds to more expensive funding sources like time deposits and borrowed money. The concern is that it must exercise great care to avoid getting pinched by rising interest rates. IFIN (42.74) is a buy up to 65.
(more…)

Sold Commerce Bancorp (CBH)

We sold CBH on June 12, 2007. Primary reason was declining on return on assets.

(more…)

Lowe’s Companies (LOW)

SSG and PERT A (05-06-2005) | Google Stocks | Company Website

Growth. Value Line (8 April 2005 report) projects revenue growth for LOW to be 14.5% and EPS growth to be 17%. Historic sales growth over the past 10 years has been between 18% and 20%.

Quality. Two of the key indicators of quality management, pretax profit margin and return on equity have shown steady increases over the past 10 years. See table from Part 2 of the stock selection guide.

The Robertson Quality Rating for LOW is 75.6 calculated as follows:
Value Line Financial Strength of A+ = 22.5
Earnings Predictability of 95 = 95 / 4 = 23.8
Projected Sales growth = (14.5 / 11.8) * (25 /2) = 15.4
Projected Profit Margins = (10.6 / 9.4) * (25 / 2) = 14.0

Valuation. 5-year projected EPS is 6.07. With a high PE of 25.1, projected high price is $152.40. With a low PE of 16.3, projected low price is 44.8. Using 25% / 50% / 25% zoning, LOW (currently $53.54) is buy below $71.70.

Negatives. LOW currently has a slightly negative free cash flow (cash flow form operations – capital expenditures). Home Deport (HD) its primary competitor has a positive free cash flow.

What Others Are Saying. A recent Motley Fool article discusses Home Depot and Lowe’s Companies. The author finds both HD and LOW attractive but prefers Home Depot as the market leader and notes it has superior margins and returns, and a lower relative price tag (with comparable bottom-line growth). Morningstar rates LOW with four stars, below average business risk, fair value estimate of $62 and a wide economic moat.
(more…)

Bed, Bath & Beyond (BBBY)

SSG and PERT A (04-01-2005) | Google Stocks | Company Website

Stock Selection Guide Updated. The SSG for Bed, Bath & Beyond has been revised. BBBY remains a high quality company and is within the “buy” range up to a price of $44.90.

There is an excellent article by Mark Robertson at www.fundas.com discussing Bed, Bath and Beyond. His analysis is right on target.

On April 6, BBBY reported its year end results. Sales were up 15% and net earnings increased 26.4%. This shows very positive growth and is in line with past years. Comparable store sales increased by 5.1%.
(more…)