It Takes Energy to Make Energy!

Revisiting why we're interested in these ETFs, we looked at Energy as the worst performing sector within SPY.  From a long-term perspective, we believe that alternative energy has a great deal of upward potential and so could be a sound buy-and-hold investment.  We're interested in sustainability at a personal level, so why not spend a little time investing in something you believe in.

To narrow down our 3 potential picks for "alternative energy" ETFs, we put together this table below.

ETF Name	Expense ratio	Top Sector	International Holdings	Yield	Sustainability	Notes
TAN	0.7	Technology (72%) Utilities (24%) Real Estate (3%)	61%	1.82	Low	Middle of the road for Growth vs Value. Massive bid/ask spread (42%).
PBW	0.7	Technology (51%) Industrials (20%) Utilities (13%)	19%	1.33	Low	Mostly domestic.
ICLN	0.48	Utilities (52%) Technology (26%) Industrials (21%)	73%	2.48	Medium	Lowest expense ratio. Highest yield. Highest sustainability. Most diverse sectors.

This approach makes the choice surprisingly easy.  While we believe that the low sustainability scores for TAN and PBW come from the manufacture of solar panels, and the terrible things that go into that process, the long term for solar energy production is a sustainable path.  ICLN's utilities mean that it is investing in companies that use the solar panels and wind turbines and do not necessarily manage the production of this hardware.

The other factors listed in the notes really make ICLN stand out when it comes to our style of investing.  We'll spend a little more time next week making sure that this is the direction that we actually want to go and maybe get around to actually making a buy.

Profit!

Waiting.

Brexit? Apparently the Brits don't know much about it either. As far us as though, we'll have to wait and see. We're not so Euro-centric in our portfolio, so it probably won't have too much of an impact on our buying.

Infosys is in executive free fall. The founder and the board have been fighting over how the company has been run, but it doesn't seem to be tanking the stock price so who knows? We still have not triggered our auto sell, order (which had to be re-upped).

And EWZ, you are always on our minds:

You want out now?  No... Ok...

This chart shows EWZ's continued descent into the toilet or right where it was in 2009. Unfortunately we bought it when it was in the 70s.

Here you can see the up and down a little more zoomed-in. There is still movement on it, but it is beyond us as to what that might mean. Basically, there's a lot of theory that drives how people analyze movement on stuff. These tools are "more for short term trading looking for hyper volatile instruments," says a friend of ours who knows about these things. There a bit of risk, because it "comes down to timing as opposed to valuation fundamentals" he goes on to say.


More for short term trading looking for hyper volatile instruments. I'm not a big fan because it comes down to timing as opposed to valuation fundamentals

As far as a buy, if we like the idea of SPY, there are a few dividend options for something related. We like stability, and we like dividends. We like stable dividends.

Profit!

I'm a loser baby, so why don't you kill me?

We're taking a look at the items that were big losers two weeks ago to see how we might have done if we had picked them up. We looked at five items:

1. McKesson Corporation
2. Synaptics, Incorporated
3. World Fuel Services Corp.
4. AmerisourceBergen Corp.
5. Novo Nordisk A/D

In five out of six cases, the items did recover some amount. It is a small sample, but at least our top picks were up, and if we had gone all the way with all the stocks we picked, we would have been up. Of course, these are all domestic stocks and we just went through a presidential election, so there are probably some things that are skewed.

Here's how they shook out

	Date we pulled the data	How far they were down on that date	How far much they've changed as of now (11/19/16)
McKesson Corporation (MCK)	10/28/16	-22.7	12.80%
Synaptics, Incorporated	10/28/16	-22.4	3.20%
World Fuel Services Corp.	10/28/16	-13.7	8.90%
AmerisourceBergen Corp.	10/28/16	-13	14.60%
Novo Nordisck A/D	10/28/16	-12.9	-9%
Skechers	10/21/16	-20 approx.	17.10%

Going through the same exercise for today, we looked at the major losers for yesterday, Wins Financial Holdings, Gap, AveXis, Supernus Pharmaceuticals, and G-III Apparel Group. We are trying to find stocks that we believe may be seeing a short term loss. These top five have experienced recent gains preceding the losses. This makes it look like this is just some price adjustment going on. This means that the top five losers don't meet the cut for what we're looking for. In other words, we don't think that these stocks are going to jump up in the short term. Or at least, they would require much more investigation than what we're trying to do right now.

It is interesting that the ones that we looked at this week didn't match what we looked at last time. The stocks that we picked as potential buys in the last few weeks, still look good. Maybe this is a good method for us. 

Profit!

Picking and Choosing

Peace and Love, Peace and Love. Ringo might not write you back anymore, but he'll sell you some shoes. 

Last week, a few of us met and talked about a potential investment strategy. One of us chose the consumer cyclical sector, specifically sports footwear. The rationale was that it is consumer cyclical, and it will do well if the economy was doing well. Also, it is historically strong, and it won't collapse, because, hey, people wear shoes.

So now he looked at which companies are there, and which ones have a lot of potential for growth
because they've been suffering or are potentially undervalued. He chose Sketchers, which was sitting around 19 and this week it is at 21--a bit of a bump. That is pretty good growth, but of course this is just one stock in one week. Originally, it was at 23 and had a 20% drop, which has nearly been recovered. It is important to note that, as an investment, it is good that it didn't go up all in one day, because you wouldn't be able to purchase it quickly enough to reap the gains.

This strategy would have worked well  in the short term. We tend to be a bit lazy, or let's long term. So what we might do is to look at something that we think will have some more long term growth potential.

Taking the same strategy, we took a look at the biggest losers based on price on google finance (google sorts this by percentage loss). Here's what we found:

*McKesson (drug retailers)
Synaptics (computer hardware)
World Fuel Services (petrol)
AmerisouceBergen (drug retailers)
Novo Nordisc (pharma)

Looking at this, you can tell the medical sector took a big hit. So if you look at related companies (in that sector), you see this is the case.

Look at this, the three we should look at are McKesson, AmerisourceBergen, and Cardinal Health.

Another company we pulled up is Synaptics.

You can see that it wasn't the sector that took a hit, just Synaptics.

The proposal is, that we're working through a strategy for making a purchase immediately following one of our meetings. This would not necessarily work for stocks to discuss next week. Therefore, once we have the strategy established we can do a quick run-through and identify potential stocks. This would let us dedicate more time in a meeting to choose one of those individual stocks. If for some reason we can't agree with something that week, we can take the same approach next week, based on the previous Friday's performance. This is sort of a day-trader strategy applied to a longer term investment. Of course, we don't know that and we're just guessing. We're essentially looking at what happened yesterday, so that we can make a purchase the next time the market is open.

As an aside, you can look at the weekend as a sort of long evening, in terms of buying and selling stocks.

Since this is a short-term strategy, we can set an automatic sell limit at some threshold, say 10% or some dollar amount. Also, if we're dealing with risky stocks, we can set a sell limit if it falls below some threshold as well. This helps us avoid another EWZ.

Really, we're trying to figure out what we're doing. Once we know that a little better, we can start implementing this with some degree of confidence.

Profit!

Looking at the Home Despot

In the near future, we're going to have a slightly more experienced investor to take a look at our portfolio and offer some suggestions.

We're buying 6 shares of PG this week, and we will have another buy about ready soon.

We still want to invest in some Consumer Discretionary and some sort of Tech.

Taking a look at Home Depot, we found a few articles. The first one is a bit confusing, what with all its statistics and number stuff. The second one is a little friendlier. There was yet a third article, and this one focused on dividends with Home Depot and Lowes. As a reminder, dividends are the dollar value paid out for having a stock, whereas a dividend yield is the percentage payout. As the price of a stock increases, the dividend by default doesn't change. This would lower the yield, since a fixed amount would be a smaller percentage of the value. Home Depot has increased the yield to keep up with their increasing stock price, which is nice. Home Depot probably increased the dividend to attract more investors, which in turn increased the price. However, there might be a bit of a chicken and egg scenario going on here. The point of all this is that there seems to be some potential with HD, however measured, and it might be a viable long-term investment.

Oh, and here's another article.

Profit!

It is better to regret something you have done, than to regret something you haven't done.

Non, Je ne Regrette Rien

At this point ENZL has balanced out our losses with EWZ. I guess this proves the value of diversification.

Today we're looking at Home Depot, CVS, Proctor & Gamble.

Both Home Depot and CVS have been outperforming respective their sectors (consumer discretionary and staples). They also have higher dividends than their funds (VCR & VDC, respectively).

We can do two buys, and we'd like to do one consumer discretionary and one staples. For consumer discretionary we liked Amazon, but it was too expensive, and we hated Comcast on principle, because that's only a rung above investing in privatized prisons.

On a side note, what sector would even fall under?

This means that for consumer discretionary Home Depot looks good.

We talked to someone we knew who was a sales rep who worked quite a bit with Home Depot, and he had a lot of good things to say anecdotally about how they do business. While this isn't really data-driven, it does seem to bolster our case.

Anyhow, let's narrow our decision on staples. We had been considering CVS and Proctor & Gamble. P & G was 12% of VDC and CVS is 5%. Basically, these are companies we are looking at making a substantial investment in anyway if we were to go with the ETFs. However, we are hoping to pick the winners, at it were, from those funds. Another reason for going with a single stock is investing solely in the companies we like, either economically or with respect to values (Philip Morris, Comcast, Wal-Mart), but that's getting off track again.

Even though P&G has been underperforming relative to its index, it still has a better dividend than CVS, making it more appealing to us, given our strategy. In theory, it is a (relatively) more guaranteed return.


P&G has a low beta and  a reasonable dividend. Those aspects fit very nicely with our generally risk-averse strategy and mindset. We like something safe that will give us a steady, even if small return. The purpose of the consumer staples sector is to have a stable investment. Our thought is to pick a representative component of a stable consumer staples fund. Additionally, we are due for two purchases, which means making a simple decision may be best for moving forward. Or as the great poet laureate Gibby Haynes once said, "It is better to regret something you have done, than to regret something you haven't done."

It looks like we are going to buy PG, so next week we will look at Home Depot vs. its fund and whether or not we want to purchase it.

Profit!

Use those staples with discretion?

Last week we talked about how emerging markets were showing a slowdown, but we really didn't have any understanding of why. Conveniently, this story on Marketplace aired. Basically, when the US economy was crap, emerging markets were a good place to park some money for a reasonable return. As the domestic economy heats up, emerging markets are less enticing. Couple this with possible corruption and mismanagement of finances, and our USA USA USA economy seems like a better place to put your dollars. Maybe this sort of big macro news should compel us to even out our portfolio with our next buy by looking into something in the US. We can still look to better balance our sector weighting, but do so with a domestic investment.

Consumer Discretionary had been going pretty well, and as you can see below, it has been tracking (and outpacing) the US economy as a whole. This fund, as a Consumer Discretionary ETF, has been going in the direction you would expect for a recovery. You will even see the recent dips for both VCR and SPY are in line.

If you take a look at the Vanguard Consumer Staples ETF (VDC), you see another correlation:

We also noticed how the beta is calculated differently for the same item on say Yahoo Finance and Morningstar. We're not really sure why, but perhaps it may have to do with the way each is calculated. Really though, we are interested in beta in terms of broad strokes. Is something a little or a lot over or under a beta of 1? Since we are so risk-averse, we tend to prefer a lower beta, and there is not much difference to us between say 0.5 and 0.6. It makes sense to just stick with one method (or site) and use solely that for reference.

It might be a good idea to take a look at the Motley Fool's definition of beta for even further reading.


Next week we try to narrow down our purchase options. Right now we are torn between something in Discretionary, Staples, or Asian Tech, and we just need to pull the trigger on something.

Profit!

I'm more of a Beta.

Following up on our previous foreclosure post, two more rounds of bidding have happened since last time--at both higher and lower prices than the initial minimum bid. The rumors about the site appear to hold true as far as having to go through multiple rounds of bidding over the course of weeks or months. We'll keep you posted, as this is going to be an ongoing process.

In other news, SPY had a $10 drop over the course of the past two weeks. American markets were moving around because of really poor performance in emerging markets. So we wanted to look and see how other parts of our portfolio were affected by the same events. VPU (utilities ETF) didn't follow the trend, fluctuating up and down as a result of other stimuli.

Here's a comparison chart:

Now here's a comparison between SPY & NORW:

As you can see, SPY and NORW correlated the same way, but NORW was much more volatile. This should meet with our expectations, since NORW has a beta greater than one. Since beta is based on the S&P 500, which we can say has a beta of one. We don't even want to look at EWZ.

The beta for ENZL is 0.83, which means it is slightly less volatile than SPY, which is confirmed by what has happened with them. 

Here:

It's nice to see something like beta start to reveal itself when we look at the charts. Additionally, it seems like we are starting to have a deeper understanding of how these things behave, even if we can't always anticipate how that will be--we never will.

Profit!

Telecom Foolishness

We took a look at FTR on the recommendation of a friend. They are a communications company serving rural areas of the country. They are involved in broadband, cable tv, and computer tech support. FTR may exist because of anti-trust telecommunications legislation that sought to make sure Ma Bell and her brood of Baby Bells didn't monopolize telecom. Here is an analysis from nasdaq.com (in partnership with The Motley Fool). It explains the rationale behind their evaluation of the stock. While they didn't put a lot of confidence in FTR, it was interesting to see the breakdown of how they evaluated it. This might be a good model for us to try and become more methodical about evaluating stocks. 

Here were their criteria: 

Profit Margin
Relative Strength
Compare Sale and EPS Growth to Same Period Last Yeara
Insider Holdings
Cash Flow From Operations
Profit Marghin Consistency
R&D As a Percentage of Sales
Cash and Cash Equivalents
Accounts Receivable to Sales
Long Term Debt/Equity Ratio
P/E to Growth 
Average Sales Outstanding
Sales Ratio (P/E Growth)
Daily Dollar Volume 
Income Tax Percentage

The article assessed the overal desirability of this stock in terms of Passing of Failing at each of these criteria. There were more than a few criteria where they failed because a lack of data. We found this a little misleading, thinking some other term might be more accurate. 

However, it is interesting to note that we found another article associated with The Motley Fool that said kinder things about FTR. This article supposed that FTR could continue its impressive dividend yield. The problem is that these two analyses send different messages. This is the portion of the program where we mention that investing will never be an exact science. Additionally, the first article is likely heavily automated, whereas the second is obviously the work of a real person. One is not necessarily superior, and there are advantages and pitfalls to both. 

Next week, we should keep hacking through our friend's portfolio. 

And here's the last bit of telecom foolishness.

Profit!

Stock Valuation: Part Deux

Members present: Brian (with Justin) and Yousef

Last week we proposed to look at a company and try to examine the financials in order to put some of our recent knowledge about stock valuation to use. We chose Target. With an established company like this it is best to look at the YPEG, or yearly projected growth. We get this by multiplying the stock's projected growth by their current price.

In our quest to understand stock valuation we stumbled across http://www.freestockvalueranker.com, which seems to pull data and do the math automatically. The problem is that we still don't understand the numbers involved yet. 

Here's a screenshot with all those glorious numbers:

We started to crunch some numbers and are beginning to understand the rationale between something being under- or overvalued based on P/E ratio and PEG. They are two different ways of trying to gauge  whether a company is over- or undervalued. The idea is that an undervalued company is expected to some day reach its value, and you are catching them on the upswing. Sort of like being the first person to like an awesome band before they become popular. 

We obviously need to continue working through this before we are prepared to make financial decision based on these valuation methods, but the hope is that we will be able to do that soon. 

On another note, the particular type of sell that we tried to use on our SPY stock saved us from dumping it before it grew a bit. 

No profit now for future profit later. 

But do you really Value me?

All members present.

A while back we talked about how the market tends to jump after an election. The idea is that the market likes certainty, no matter how the election plays out. Well, that didn't happen. I suppose we can point to the Fiscal Cliff and Europe and her problems.

This week we wanted to take a look at stock valuation. We have been wanting to experiment with buying a single stock, and betting on the value of it to make a profit. While we do have some AT&T, we are doing that as an experiment in dividends. The point of this exercise would be to try and do our homework on a stock, pick it, and dump it for a profit at some point in the future. 

We looked at an article from the Motley Fool about how to value stocks. There are several methods and each of us took a stab at trying to understand a view and present it to the group. Here are our findings: 

Price/Earnings Valuation

P/E ratio looks at the share price for a company and the earnings of the company per share of stock. The P/E shouldn't be looked at by itself. It is a backwards looking metric. We're going to use it for the PEG ratio or the P/E Growth Ratio

You take the P/E and divide it by the projected change in earnings per share. A low number implies more future growth.

This should only be used for companies in a growth phase because P/E tells you little for established companies or shrinking ones.

For more established firms, the YPEG is used. It is a ratio of the projected P/E ratio over the projected % 5-Year growth.

Price/Revenue Valuation

When companies receive money for a good or service, they are generating revenue. Sometimes earnings (profitability) can take a hit temporarily due to things like higher taxes or product development. It may be valuable to look at the ratio of stock price to revenue generated to judge the actual health of a company.

Price/Sales Ratio, or PSR is a way of looking at stock price vs. revenue. It can be helpful when a company has not made profit in a year. As long as the company isn't going out of business, a low PSR can tell you if it is undervalued compared to its peers. The example the article used is the auto industry. There are years when none of the car companies make a profit, however they sell cars and eventually make a profit. The PSR seems to be a way of judging the strength of a company, and thus the ability to make investors money, based on sales and instead of profit generated. If that company can turn a profit, you will be in a good position, since you purchased it at a lower price. 

Cash Flow

This approach values a company based on amount of money actually moving around. It looks at earnings before interest, taxes, depreciation, and amortization. The taxes can effect the perceived value of a company. Look at this before taxes, since taxes can affect net income in so many ways. Say a company has a bad year. This means that their taxes will be reduced, which will carry into the next year. The next year will look more profitable, simply because of lower taxes. Cash Flow Valuation is a way of making sure that you are accounting for thos fluctuations by looking at the earnings before those are taken into account.

Equity-based Valuations

This method values a company based on liquidation value--assets! Shareholder equity is cash and hard assets,
intangible assets are things like trademarks and brand recognition. Some companies are worth more as parts than as a whole. This seems to be an indicator of how "safe" an investment is, say if things were to go completely pear-shaped, at least this company could be scrapped for parts, as it were. 

*As an aside, brand recognition could also decrease the barrier of entry into other industries. 

Member-based Valuations

This is a way of valuing a company based on projected income based on a subscriber base. This is the value of  cost per subscriber, based on average amount of time a subscription is maintained to determine the value of the company. We are looking at things like phone companies, cable, online subscription companies (see Netflix). You have to take into account things like infrastructure. 

Standing by themselves each of these stock valuations will not tell you the entire story. It will never be that simple. However, we can use these to give us a better picture of a potential investment, something to chew on in making the decision to lay down that 

cheddar.

Next week we should take a look at AT&T and these valuations, and see if we can get a 

better understanding of how me might apply these to a potential acquisition. 

Profit!