One of the most frustrating things about investing is finding a great
stock then pricing it out and discovering that everyone else seems to
have done the same thing! In other words, the stock is not good enough
value. In this scenario many investors just buy it anyway, but the more
disciplined among us will try to keep these things on a monitor list.
Now monitoring a monitor list is about as interesting as getting stuck
in a lift listening to Carrie Bradshaw talking about Kim Kardashian’s
new haircut, but it has to be done. With that in mind, I thought I’d
make a watch list of stocks to monitor based on previous articles.
It’s not only useful for me to come back to my articles, but I hope readers might get an idea or two out of it. I’ll also try to discuss any updates.
Outlining Portfolio Performance
I’ve been trying to objectify my investments by writing about them on here. I would encourage all investors to try writing things down; it helps you to truly understand what and why you are doing what you do. With that in mind, here are the portfolio write-ups to the end of August, September, October and November. I want to focus on the stocks that I‘ve looked at previously and thought were attractive but too rich.
5 Recent Stocks to Monitor
There are five stocks that have been looked at relatively recently, and I don’t want to dwell on them. The linked articles should suffice. First up, anyone looking for a company in a solid recession resistant industry with good growth prospects should keep an eye out (sorry) for soft lens manufacturer Cooper Companies, and in a similar vein I’m a big fan of Sirona Dental Systems. The latter has an under-penetrated and leading technology enabling same day tooth restorations. Contrary to rumor and plenty of evidence, I am not their PR agent!
I’m also a fan of Beacon Roofing Supply, which has consolidation opportunities within a fragmented industry. Another small company that I think is benefiting from a form of ‘trading down’ in the financial services sector is information service company FactSet Research Systems. And why not? In my experience, a Bloomberg Terminal never made anyone a better investor.
Lastly in this group is Costco (NASDAQ: COST), which is discussed here. It gives results soon, and I’m expecting some improvement in margins and revenues here, which may create an entry point. Costco and the other US based big box retailers are interesting because they will benefit from an improving US economy on the top line, and input costs should moderate as emerging market growth slows.
The Defensives
One facet of investing this year has been the willingness of the market to pile into decent yielding stocks even if their growth prospects are limited. I suspect a lot of this has to do with ridiculously low Government bond yields and investors subsequently using these stocks as substitutes. With that said some ‘defensives’ do have good growth prospects. I think McCormick is a compelling mix of defensive end markets in food with some growth kicker coming from the increasing tendency of food manufacturers to innovate with flavoring.
Within consumer staples I like Church & Dwight (NYSE: CHD) and Colgate Palmolive (NYSE: CL), and I’ve discussed these stocks here and here. It is hard to argue that they are attractively priced now even as their managements prove themselves to be some of the best in the sector. CHD has benefited from being a smaller, more nimble company which has been able to adjust to the changing landscape of a more value conscious US consumer. There are some signs that the likes of Procter and Gamble are now adjusting and fighting back. As for CL, there are signs (McDonald's, Yum! Brands etc) that emerging market (EM) mass consumer spending may not be growing as strongly as many expect it too. This could be an issue for a highly rated stock like CL, which is relying on EM growth and is under constant pressure to innovate in its home markets.
Finally, while I like the prospects for Perrigo, I simply can’t get anywhere near the valuation, and there are some cautionary signs with the stock. It has disappointed the market with its last two sets of results.
The Cyclicals
Perhaps Google (NASDAQ: GOOG) doesn’t deserve a place on this list? The company really is a one-off. Its management refuses to give guidance and this tends to cause stomach churning volatility over its results. However, it continues to grow strongly even while generating huge cash flows with which it steadfastly refuses to pay a dividend. I would argue that the stock would get a massive re-rating if it changed its policy over these issues alone.
From the retail sector, I think Nordstrom and VF Corp are two of the best run companies in the sector and are well worth monitoring for any. Industrial and construction parts supplier Fastenal (NASDAQ: FAST) is a great company with strong prospects; but is a forward PE of 25 really good value? Despite a host of improving metrics (cited in the article) no company is immune from competitive pressures. As such, I think it is going to take significant earnings disappointment to get Fastenal anywhere near what I would pay for it.
The Bottom Line
In conclusion, I think all of these stocks are well worth monitoring. Patience is the strongest weapon of a private investor, and I think this kind of exercise is valuable. In reality, investors should be rejecting many more stocks than they buy, and this process helps to avoid pulling the trigger too early.
It’s not only useful for me to come back to my articles, but I hope readers might get an idea or two out of it. I’ll also try to discuss any updates.
Outlining Portfolio Performance
I’ve been trying to objectify my investments by writing about them on here. I would encourage all investors to try writing things down; it helps you to truly understand what and why you are doing what you do. With that in mind, here are the portfolio write-ups to the end of August, September, October and November. I want to focus on the stocks that I‘ve looked at previously and thought were attractive but too rich.
5 Recent Stocks to Monitor
There are five stocks that have been looked at relatively recently, and I don’t want to dwell on them. The linked articles should suffice. First up, anyone looking for a company in a solid recession resistant industry with good growth prospects should keep an eye out (sorry) for soft lens manufacturer Cooper Companies, and in a similar vein I’m a big fan of Sirona Dental Systems. The latter has an under-penetrated and leading technology enabling same day tooth restorations. Contrary to rumor and plenty of evidence, I am not their PR agent!
I’m also a fan of Beacon Roofing Supply, which has consolidation opportunities within a fragmented industry. Another small company that I think is benefiting from a form of ‘trading down’ in the financial services sector is information service company FactSet Research Systems. And why not? In my experience, a Bloomberg Terminal never made anyone a better investor.
Lastly in this group is Costco (NASDAQ: COST), which is discussed here. It gives results soon, and I’m expecting some improvement in margins and revenues here, which may create an entry point. Costco and the other US based big box retailers are interesting because they will benefit from an improving US economy on the top line, and input costs should moderate as emerging market growth slows.
The Defensives
One facet of investing this year has been the willingness of the market to pile into decent yielding stocks even if their growth prospects are limited. I suspect a lot of this has to do with ridiculously low Government bond yields and investors subsequently using these stocks as substitutes. With that said some ‘defensives’ do have good growth prospects. I think McCormick is a compelling mix of defensive end markets in food with some growth kicker coming from the increasing tendency of food manufacturers to innovate with flavoring.
Within consumer staples I like Church & Dwight (NYSE: CHD) and Colgate Palmolive (NYSE: CL), and I’ve discussed these stocks here and here. It is hard to argue that they are attractively priced now even as their managements prove themselves to be some of the best in the sector. CHD has benefited from being a smaller, more nimble company which has been able to adjust to the changing landscape of a more value conscious US consumer. There are some signs that the likes of Procter and Gamble are now adjusting and fighting back. As for CL, there are signs (McDonald's, Yum! Brands etc) that emerging market (EM) mass consumer spending may not be growing as strongly as many expect it too. This could be an issue for a highly rated stock like CL, which is relying on EM growth and is under constant pressure to innovate in its home markets.
Finally, while I like the prospects for Perrigo, I simply can’t get anywhere near the valuation, and there are some cautionary signs with the stock. It has disappointed the market with its last two sets of results.
The Cyclicals
Perhaps Google (NASDAQ: GOOG) doesn’t deserve a place on this list? The company really is a one-off. Its management refuses to give guidance and this tends to cause stomach churning volatility over its results. However, it continues to grow strongly even while generating huge cash flows with which it steadfastly refuses to pay a dividend. I would argue that the stock would get a massive re-rating if it changed its policy over these issues alone.
From the retail sector, I think Nordstrom and VF Corp are two of the best run companies in the sector and are well worth monitoring for any. Industrial and construction parts supplier Fastenal (NASDAQ: FAST) is a great company with strong prospects; but is a forward PE of 25 really good value? Despite a host of improving metrics (cited in the article) no company is immune from competitive pressures. As such, I think it is going to take significant earnings disappointment to get Fastenal anywhere near what I would pay for it.
The Bottom Line
In conclusion, I think all of these stocks are well worth monitoring. Patience is the strongest weapon of a private investor, and I think this kind of exercise is valuable. In reality, investors should be rejecting many more stocks than they buy, and this process helps to avoid pulling the trigger too early.
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