Stocks to Study
Here are several companies we are studying this month in the D.C. Model Investment Club. Any of these might be good replacements for the stocks that we are considering selling.
- Wells Fargo & Company (WFC). Key screening parameters: PAR 13.2%, quality 75.6, current PE 14.4, and projected revenue growth 11%. Stock selection guide.
- East West Bank Corp. (EWBC). Key screening parameters: PAR 14.4%, quality 80.1, current PE 18.9, and projected revenue growth 17%. Stock selection guide.
- Medtronic Corporation (MDT). Key screening parameters: PAR 16.6%, quality 87.7, current PE 24.6, and projected revenue growth 13.5%. Stock selection guide.
- William Wrigley Jr. Company (WWY). Key screening parameters: PAR 13.9%, quality 100, current PE 25.2, and projected revenue growth 10%. Stock selection guide.
Quarterly Report
The net asset value for Moose Pond Investors increased +4.1% in the first quarter of 2006. Unit price is up from $13.10 to $13.65. All of the major indices are up as well: the Dow +3.7%, the Nasdaq +6.1%, the S&P 500 +3.7%, and the Russell 2000 +13.7%. See quarterly performance report.
The portfolio summary on this web site has been updated through March 31. (You can find the portfolio snapshot the “Portfolio Summary” section in left side column.) Also, the stock selection guides linked to the portfolio summary has been updated so you can see how we computed projected average return.
Winner and Losers. Winners for the quarter were: Jack Henry & Associates (JKHY) +27.2%, Johnson & Johnson (JNJ) +20.1%, and Occidental Petroleum (OXY) +16.5%. Losers were: UTStarcom (UTSI) -22.0%, Intel (INTC) -21.7, and Amgen (AMGN) -7.8%. Fortunately the winners outflanked the losers and the net gain for the quarter was $1,260.
Transactions. During the quarter, we purchased new positions in Illinois Tool Works (ITW) and Stryker (SYK). We also added to our position on Intel (INTC). We have continued to reinvest dividends as we receive them.
Diversification. Our holdings are spread across six sectors. The financial services sector (27%) remains our largest sector holding, with technology (21.9%) and healthcare (20.9%) the next largest. See diversification report.
The Way Ahead. We currently have 26 companies in our portfolio. We only need 17 or so to achieve diversification of nonsystematic risk. Nonsystematic risk results from the volatility of the prices of individual companies. Systematic risk comes from volatility of the overall market (e.g., movement of the market — all or most stocks — as a whole). We can’t diversify for that risk within the portfolio. Some people address systemic risk through asset allocation, i.e., investing in various asset classes. Quality growth stocks might be one such class. This gives us the flexibility to reduce the number of companies, without harming our overall diversification.
Looking at the projected average return (PAR) and the current P/E ratios for the companies listed in the portfolio summary, Brown & Brown (BRO) and Cardinal Health (CAH) appear to be candidates for replacement. Patterson Companies (PDCO) also is a possible candidate for replacement.
SSG Judgment Class
Electronic copies of materials from the class today on stock selection guide judgment skills are available here. The materials include completed stock selection guides and judgment worksheets for INTC, HD, JNJ, MSFT, PFE, and WMT. Since all of these companies are part of the Dow 30, data sheets are available for free at the Value Line website.
More information about educational classes conducted by the D.C Regional Chapter of BetterInvesting can be found on the chapter website.
Report for February 2006
For the first two months of 2006, the Moose Pond Investors portfolio increased in value by 3.1%. In comparison, the S&P 500 index increased 2.6% for the same period.
The best performing stocks were Investors Financial, IFIN (+22.5%), Jack Henry & Associates, JKHY (+15.3%), and Occidental Petroleum, OXY (+15.1%). The worst performing stock was Intel, INTC (-17.5%).
A performance report for 2006 can be downloaded here.
Sold Capital One Financial (COF)
We sold COH on June 12, 2007.
Brown & Brown (BRO)
SSG and PERT A Graph | Google “stocks: bro” | Company Website
Brown & Brown remains a high quality growth stock. Currently at $31.25, our stock selection guide has BRO a buy up to $26.40 with a projected average return of 8.3%. BRO pays a 0.8% dividend. Its current price makes it a HOLD. We wouldn’t buy more at this price but we are reluctant to exchange this quality company for another.
The Feb 24, 2006, Value Line comments that Brown & Brown has made solid progress
of late and has bright prospects over the coming 3 to 5 years. VL rates BRO’s financial strength as an “A” and earnings predictability as 90. Morningstar also speaks well of the company and projects revenue growth of 16% while Value Line projects revenue growth of 14%. However, Morningstar only gives BRO 2-stars indicating that the current price is high relative to its fair value calculation.
Investor Advisory Service also follows BRO and notes: “Business remains quite solid at insurance broker Brown & Brown. Fourth quarter EPS increased 14%. Sales grew 21%, with internal revenue growth of 5.2%. CEO J. Hyatt Brown notes that 2005 was the thirteenth consecutive year in which Brown & Brown had earnings growth of at least 15%. Acquisitions are clearly an important part of its growth. The past two years were extremely robust in terms of acquisitions, and the company says that its pipeline of new deals is “a strong as ever.” IAS has as a buy up to 28.