Financial Services Outlook

Here is an interesting article by Tom Brown, CEO of Second Curve Capital, discussing the outlook for 2005 for the financial services industry. The article notes that retail branch growth can’t go on indefinitely. The report is positive about Capital One (COF), Investors Financial Services (IFIN), Commerce Bancorp (CBH) and Morgan Stanley (MWD). (We hold three of these four stocks.) His website is www.bankstocks.com.

Recent Transactions

Yesterday we purchased an initial postion in Chevron Texaco (CVX). We also sold all of our shares in the NASDAQ 100 index fund (QQQQ) to free up cash for other purchases. We had a net gain in QQQQ of 37% from May 2003.

ChevronTexaco (CVX)

SSG and PERT A (07-06-2006) | Google Stocks | Company Website

Growth. ChevronTexaco is not a classic growth company. However, the increasing demand for energy, the increase in energy prices and acquisitions have caused CVX’s revenues to grow at an annualized rate 16.5% over the past ten years. Earnings have grown at 12.2% over the same period. The attached SSG assumes a 5-year revenue and EPS growth rate of 5.7%. Value Line projects 5% revenue growth and 11.5% earnings growth. The First Call consensus projects EPS growth at 7.1%. So the SSG rate of 5.7% is convervative.

Valuation. Valuing energy companies is a specialty. Classic NAIC-type analysis is helpful but not very. So let’s look at what the experts say. McDep Energy Investment Research makes it energy stock recommendations and investment research available to the public (with a slight time lag from its subscribers). The “McDep” ratio provides a relative measure of whether an energy company is over or under valued using futures prices and assumption about energy reserves. Of the so called “mega caps,” CVX has the lowers McDep ratio (lower is better). See page 5 of the McDep “Meter Reader” report. Also the McDep web site have posted several reports discussing CVX

Bottom line. If energy prices recede, CVX will show a modest return. CVX currently pays an annual dividend $1.60 (3.13% yield) and earnings should grow at about 5%. Under this scenario, the projected average return for CVX is 12.2%. (This assumes a projected high PE of 12.1.) If energy prices remain the same or increase, CVX has considerable price appreciation potential.
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Performance for 2004

The following table shows the performance of Moose Pond Investors through December 31, 2004. Total return is the return from the start of the portfolio on October 4, 2000. All returns are shown on an annualized basis.

 

Since uninvested cash reduces overall return, the table shows both overall performance of the portfolio and, separately, performance of the stocks in the portfolio. Portfolio Record Keeper and bivio.com were used to make these calculations. The table also shows the IRR that would have resulted from making identical investments in Vanguard’s S&P 500 index fund.

Winners and Losers

Our winners for the year have been: FDS (+46.7%), LNCR (+41.2%), COF (+37.0%), PDCO (+36.4%), and CBH (+28.5%). Our losers for same period have been: PFE (-24.8%), PAYX (-10.9%), INTC (-15.3%), UTSI (-5.5%), and FNM (-3.9%).

UTStarcom, Inc. (UTSI)

SSG and PERT A (12-19-2004) | Google Stocks | Company Website

Stock Selection Guide Updated. The SSG for UTStarcom has been revised. UTSI is a higher risk company than others in our portfolio but has the potential for significant return if it resumes even part of its historical growth rates. A recent webcast presented at the Lehman Brothers T4 conference on December 10 provides a good current overview.
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Quality Growth Screen

NAIC publishes an annual survey of the 200 most widely held stocks by investment clubs. Screening that list for stocks for a projected 5-year average return of 12% or more and for an upside /downside ratio of 3 or more, yields 34 stocks. We already own 11 of these stocks. Here is the list of stocks passing the screen.