NAIC Growth Fund

It is always helpful to compare portfolios. Here are summary dashboards for the NAIC Growth Fund and for the Moose Pond Investors portfolios. The NAIC Growth Fund is a closed end fund that was intended to demonstrate NAIC principles. You can click on either summary below for the complete dashboard.

In the past 6 months NAIC growth fund sold its position in Pepsi and Newell Rubbermaid. The fund added to its positions in Abbot Labs, Carlisle Companies, Jack Henry & Associates, Medtronic, Stryker, and Washington Mutual. The total return for the NAIC Growth Fund in 2005, based on change in net asset value, was 1.3% (slightly ahead of our return of 0.3).

While quality is about the same in both portfolios, the Moose Pond portfolio has higher PAR, higher projected growth, and a higher quality rating. We can probably improve the overall PAR by replacing several of our low PAR companies with higher PAR companies.

Intel Corp. (INTC)

SSG and PERT A | Google “stocks: INTC” | Company Website

Here is a revised stock selection guide for Intel Corp. Assuming 7.0% revenue growth and 8.8% earnings growth, the projected average return is 17.0%. Intel quality is high with a RQR rating of 71.6. Value Line rates its financial strength A++ but earnings predicatbility is only 50. As the two charts below show, Intel has contined to grow its earnings over the past four years while the market price has remained relatively constant for the last 18 months.

Lower than expected Q4 and year end earnings, and concerns about INTC losing market share to AMD have caused the share price to drop 17.4% YTD. Concern over AMD may be an overreaction (see story). Intel will be supplying CPU andrealtred chipsfor Apple’s new computers.

Intel remains a strong HOLD.

Purchased ITW and SYK

We took an initial position in Illinois Tool Works (ITW) yesterday at a price of $84.56.  On January 23, we took an initial position in Stryker (SYK) at a price of $45.34.

Morningstar Bellweather 50

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.

Stock Screens

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).

• Manifest 40. These are the top 40 stocks contained in the subscriber portfolios on Manifest Investing.
  
• Challenge Club. Stocks from an online model investment club.
  
• Tin Cup Portfolio. A hypothetical portfolio maintained by Manifest Investing.
  
• Forbes 200. Stocks from the Forbes Top 200 small companies.
  
• Solomon’s Select. A portfolio of stocks highlighted by Manifest Investing.
  
• StockFundas Selections. Stocks highlighted on StockFundas.

January Transactions

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:

1. Buy Stryker (taking a full position over 2 months buying half each month)
2. Buy Coca-Cola, Gannett, or Illinois Tool Works (talking a full position over two months)
3. Sell Cardinal Health and Brown & Brown when the market recovers from last week
4. Reinvest the remaining cash in current stocks with a quality rating above 65 and projected average return above 13%