STOCK TO STUDY: Copart, Inc. — From Trashed Cars to Treasure

Transcription

C1_Digi _Apr15_Apr15_C1 2/25/15 12:02 PM Page C1
STOCK TO STUDY: Copart, Inc. — From Trashed Cars to Treasure (p. 22)
April 2015 VOL. 64, NO. 7
www.betterinvesting.org
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02_03 TOC _Apr15_02_03 2/20/15 3:13 PM Page 2
CONTENTS | BetterInvesting | April 2015 | Vol. 64, No. 7
BetterInvesting’s mission is to provide a program of sound investment information,
education and support that helps create successful lifetime investors.
OUR PRINCIPLES
■
■
Invest a set amount regularly.
Reinvest earnings, dividends and profits.
■
■
Invest in quality growth stocks and equity mutual funds.
Diversify your investments.
FEATURES
Cover Story
39
On a Scale of 1 to 200
Did BetterInvesting’s members put on their
traveling shoes? Look at the stocks that hopped
highest up the Top 100 list this year: Four of the
top 10 sell transportation — Southwest Airlines,
Tesla Motors, Union Pacific and Air Lease. Why
not add Under Armour as No. 5? Feet, get running!
OTHER STORIES
Repair Shop
14
Sea Coast Traders Investment Club
Many would envy this investment club’s agenda: a discussion of stocks,
followed by socializing on the South Carolina shore. Writer Dan Boyle is
also impressed by the club’s selling criteria, detailed on page 17.
39
STOCK TO STUDY
Featured Company
Copart, Inc.
22
Looking for a used vehicle? Copart touts cars, dirt bikes, motorcycles
and trucks in live, online auctions for insurance companies, banks,
dealerships, fleet operators and the public. The firm operates in the U.S.,
Canada, the U.K., Brazil, Germany and the United Arab Emirates.
22
UNDERVALUED STOCK
Featured Company
FMC Corporation
27
Marigold, gardenia, safflower. Diversified chemical company FMC
distills the essence of flowers and vegetables to create natural
dyes for the food, beverage, cosmetic and pharmaceutical industries.
27
PERFORMANCE REVIEW
Assessing Stock to Study and Undervalued Picks
52
Research in Motion and Foot Locker
The once-beloved BlackBerry is now leaving a sour taste in investors’
portfolios, as shares fell 85 percent in the last five years. No need
to tiptoe around Foot Locker, however. This athletic stock’s jumping.
STOCKS
International Stocks Syngenta Aims to Jack Up Crop Yield
Stock Screen
Candidates Combining Growth, Quality
2
| BetterInvesting | April 2015
31
33
Magazine Advertising Policy
BetterInvesting Magazine accepts advertisements from companies promoting ownership of their stock or use of their products and services. Their appearance in the magazine does not
constitute or imply endorsement by NAIC’s BetterInvesting.
Investors should conduct their own review and analysis of any
company of interest seen in an advertisement before making an
investment decision. The association has posted its Sponsorship
and Advertising Policy on the website. On both the public and
members homepage, click Advertising at the bottom of the page.
On the page that follows is a link to the document. If you have
questions, please email [email protected].
02_03 TOC _Apr15_02_03 2/20/15 4:39 PM Page 3
BetterInvesting
CONTENTS | Inside | Upcoming Events | Online
4
7
EDITORIAL
PERFORMANCE PERSPECTIVE
PERSONAL FINANCE
Cash Flow
Due Diligence
Book Value
FINRA
Financial Planner
Grocery Bills That Won’t Eat Your Budget 8
Are CEOs Possibly Overpaid?
9
Wealthy Trumps Rich
10
Someone’s Phishing Without a License; 11
Make Sure You Don’t Get Hooked
Your Company’s Retirement Plan —
12
Why It Beats Keeping Money in a Sock
BEGINNERS
Fundamentals
of Investing
What Drives the Stock Market?
29
B
etterInvesting members have the opportunity to expand their
learning through online classes. Please join us for the following
webinars. Most webinars last from one hour to 75 minutes. Register
at: www.betterinvesting.org/webinars
TickerTalk
Wednesday, March 17, 2015
8:30 PM EST • FREE
Essential information to help you become a better
investor is presented in this online program.
Topics and panelists vary each month. A regular
feature is Five in Five, five stock ideas for you to consider.
BetterInvesting Open House
Thursday, March 19, 2015
Invite a guest to come on in and sample BetterInvesting resources.
Guests will learn how we can help them take control of their investments
through BetterInvesting’s unparalleled educational programs, powerful
online investing tools and in-depth investor information.
CoreSSG Tutorial
INVESTMENT CLUBS
Repair Shop
The Clubhouse
Online
Treasurer No. 2: On Training Wheels
A Scientific Approach to Stocks
14
19
20
Thursday, March 26, 2015
Learn how to use and navigate the new BetterInvesting CoreSSG Web app
to complete a Stock Selection Guide.
StockUp: Shopping in Your Portfolio
MUTUAL FUNDS
Mutual Fund Matters What If Everyone Decided to Cash Out?
The SEC Eyes This (Unlikely) Prospect
34
DISCUSSION & ANALYSIS
Between the Lines
36
Investing for Globetrotters
Wednesday, April 1, 2015
Clubs and individuals often shop only for new stocks to
buy; however, as Peter Lynch has said, “The best stock
to buy is one you already own.” Adding to positions
when fundamentals are still sound but prices have dropped may be a
smart thing to do. Join our group of experts to discuss when and how to
“shop” in your portfolio.
StockUp: Bridging the Gap — How to
Evaluate Data Differences
MEMBERSHIP
Home Office
Designer Pens Her Investing Background
Dig Into Our Digital Magazine
‘Family’ Time Without In-Laws at BINC
BINC: a Class Act
44
45
46
47
Upcoming Events
Chapter Contacts
see page
48
Upcoming Annual Meetings include:
Southeast Florida (March 14)
Channel Islands, Calif. (April 12)
Western Michigan (June 8)
Upcoming Investors Fairs & Events include:
see page
Indiana (March 28)
see page
West Texas (April 18)
see page
see page
see page
51
51
51
51
51
Twitter and Facebook
W
e invite readers to follow us on Twitter and
join our growing community on Facebook.
Just go to our homepage and click the links to begin
participating.
Wednesday, May 6, 2015
It can be frustrating when we see one EPS value
reported for a company by Morningstar, a different figure reported by Value Line and a third figure referenced by a website
such as Yahoo! Finance. Different data sources report different “flavors”
of fundamental data, especially earnings per share. This session defines
GAAP (based on generally accepted accounting principles), pro forma
and normalized data. Techniques to reconcile data differences are also
presented. Examples of how to analyze companies with a one-time
charge versus “serial adjusters” are reviewed.
StockUp: Buy the Best! — Industry
Study
Wednesday, June 3, 2015
Our online team presents a classic industry study. We
demonstrate how to identify the companies within a
particular industry, how to narrow the field to the top three or four and
then how to zero in on the best by using the Stock Comparison Guide.
Watch Us on YouTube
BetterInvesting’s YouTube channel includes videos of tools tutorials and other
public webinar recordings where they can
be easily viewed by those in the BetterInvesting community as well as by those who simply want to learn more
about our SSG methodology and products.
Tune into BetterInvesting videos at:
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April 2015 | BetterInvesting |
3
04_Editorial_Apr15_04 2/20/15 5:38 PM Page 4
Editorial
Three Stocks Bolt Onto the Top 100
Notes on the Top 100
Every year there are new names on the list of stocks most widely held by our
membership, and this year clubs were particularly interested in acquiring Air
Lease, Skyworks Solutions and Alibaba Group. We can only speculate, but with
stock valuations increasing it’s possible members were looking more for new
ideas than building on current holdings that had risen in price.
H
ere’s how we put together the list: At the beginning of the year,
we receive a file of the most widely held stocks among subscribing
clubs at myICLUB.com along with the number of shares for each
stock and total value of each holding as of Dec. 31. To extrapolate to
BetterInvesting holdings, we use a multiplier based on the number of
BetterInvesting-member clubs and clubs subscribing to myICLUB.com.
We then multiply the number of shares held by BetterInvesting clubs
along with each share’s total value by 3 to determine the total holdings of
a stock by BetterInvesting members. (This multiplier has been employed
going back to the survey’s beginnings, and the home office in recent years
conducted a survey that affirmed its use.)
Besides publishing the results here, we use the stocks in the Top 100 to
populate the BetterInvesting 100 Index. You can check the index at the
website of Solactive, which administers it for BetterInvesting (see
www.solactive.com/?s=betterinvesting+100). We also publish the month-end
levels in “Performance Perspective” (see p. 7) and provide a comparison to
the Standard & Poor’s 500 Equal-Weight index.
For both the individual investor and investment clubs, we hope the article provides plenty of fodder for discussions. But its most practical use
might be to provide investment ideas. The Second 100 list particularly is
interesting, as many newer and less-familiar names show up here. For example, we’re guessing that most members aren’t familiar with Mallinckrodt
and WhiteWave Foods.
We certainly aren’t recommending any stocks, but we think you’ll find
many names BetterInvesting members discovered well before the investing
public did.
How to Update Your Email Preferences
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etterInvesting wants to make sure you receive the types of emails you want
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To reach this webpage, after you log in click the Update Profile link next to your
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Make sure to click Save Changes when you’re finished. Please allow home office
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[email protected].
4
Vol. 64, No. 7
Official Publication of the
National Association of Investors Corporation
US ISSN 0006-016X
Toll Free: 1-877/275-6242 (1-877/ASK-NAIC)
248/583-NAIC (6242) Fax 248/583-4880
BetterInvesting website: www.betterinvesting.org
Editorial e-mail: [email protected]
NAIC/BETTERINVESTING BOARD OF DIRECTORS
Gary Ball, Robert Brooker, John Gannon,
Roger H. Ganser, Elizabeth N. Hamm, Eve Lewis,
Shanna Rendon, Stephen Sanborn, Stuart Schechter,
Julie M. Werner, Robert L. Wynn II.
NAIC OFFICERS
Roger H. Ganser, Chair; Kamie Zaracki, CEO and President;
Stephen Sanborn, Treasurer; John Gannon, Secretary.
BETTERINVESTING VOLUNTEER ADVISORY BOARD
Directors: Carol Theine, Chair; Susan Tampasis,
President; William Peterson, Treasurer; Patrick Donnelly,
Secretary; Diane Amendt; Kim Butcher; Len Douglass;
Henry Gold; Allen Holdsworth; Joan Loken; Joe Parks;
Christi Powell; Claire Struthers.
Associate Directors: Diane Ellison; Deane Jaeger;
Bobbie Kincaid; Mary Ann Rentsch; Sue Spurlin.
BETTERINVESTING MAGAZINE
Editor: Adam Ritt
Managing Editor: Jan Jeffres
Graphic Designer: Jack Downs
Editorial Staff: Cindy Kelley, Brenda Gayle
Editorial Advisory & Securities Review Committee:
Robert M. Bilkie, Jr., CFA; Daniel J. Boyle, CFA;
Donald E. Danko, CFA; Philip Dano, CFA;
Maury Elvekrog, CFA; Walter J. Kirchberger, CFA;
Paul McVey, CFA; Marisa Bradbury, CFA.
BetterInvesting Magazine is published 10 times per year
(January/February and June/July issues are combined) by
NAIC’s BetterInvesting, 711 W. 13 Mile Road, Suite 900,
Madison Heights, MI 48071.
Subscriptions: Individual subscriptions are $31 a year or
less; go to the store at the BetterInvesting website:
www.betterinvesting.org/Public/Store/Store/
BetterInvesting+Magazine/default.htm
Stocks and mutual funds mentioned in BetterInvesting
Magazine articles are used as illustrations or
suggestions for study and are presented for
educational purposes only. They are not to be
considered as endorsed or recommended for
purchase by NAIC’s BetterInvesting. Advertisements
in the magazine also do not constitute or imply
endorsement of these companies or their products
and services by the association. Investors should
conduct their own review and analysis of any
company of interest using the Stock Selection Guide
before making an investment decision.
Copyright© 2015 National Association of Investors
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BetterInvesting
Members
The Introduction to the SSG Series Is
Available Now as a FREE Member Benefit
This essential five-part OnDemand course provides instruction to new investors on how to use and complete
the Stock Selection Guide (SSG), BetterInvesting’s premier stock analysis tool. The Online Stock Selection
Guide is the centerpiece of BetterInvesting’s stock selection methodology and is the single most important
tool to BetterInvesting members.
The Introduction to the SSG Series is available now to all BetterInvesting
members in your MyClasses section of the BetterInvesting member website –
pre-loaded, ready for you to view.
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07_Performance Perspective_Apr15_07 2/18/15 4:43 PM Page 7
Performance Perspective
Performance Parameter
At 1/31/2015
5-Year Change
Annualized
BetterInvesting 100 Index (BIXX)
BetterInvesting 100 Index (BIXR — Total Return)
S&P 500 Equal-Weight Index (Total Return)
Vanguard Total Stock Market (CRSP U.S. Total Market Index)
Dow Jones Industrial Average (DJIA)
254.55
323.15
5,173.60
50.15
17,164.95
14.1%
16.4
17.5
15.7
11.3
S&P MidCap 400 Index
Russell 2000 (Small-Cap Index)
Nasdaq Composite
MSCI EAFE (Europe, Australasia, Far East) Index
MSCI Emerging Markets Index
1,435.10
1,165.39
4,635.24
1,782.70
961.61
15.4
14.1
16.6
3.4
0.6
Value Line Arithmetic Composite
Consumer Price Index (December)
4,572.69
234.81
15.2
1.6
Sources: Yahoo! Finance, Value Line, Bureau of Labor Statistics, Thomson Financial, Morgan Stanley Capital International, Nasdaq, Standard & Poor’s
Most Active List: Bubbling Under
Most Active List
Here are the companies attracting
the interest of the BetterInvesting
community, according to about 4,700
transactions by users of myICLUB.com
club accounting for the trailing
eight weeks ended Feb. 2.
Company (Ticker)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Apple (AAPL)
Gilead Sciences (GILD)
Verizon (VZ)
Schlumberger (SLB)
Chevron (CVX)
Ford (F)
General Electric (GE)
Alibaba (BABA)
BP (BP)
Google (GOOGL)
Qualcomm (QCOM)
Kinder Morgan (KMI)
Buys-Sells
95-34
46-19
35-18
40-10
33-12
25-19
24-16
28-11
22-16
26-11
21-15
23-12
This list is presented as a source of stock study
ideas. No investment recommendation is intended.
Our thanks to ICLUBcentral for
this information.
We maintain a Most Active List at the
website’s homepage. Please submit
investment transactions online at:
www.betterinvesting.org/members/
investing/stocks/mostactive/default.html
by email to
[email protected]
or by letter to:
BetterInvesting Magazine
Box 220, Royal Oak, MI 48068
Nos. 13-40 With Buy-Sell Ratio Over 2:1
Transactions for trailing eight weeks ended Feb. 2.
Company
Cognizant Technology
Ticker
CTSH
Buys
29
Sells
4
Total
33
Skyworks Solutions
SWKS
29
4
33
Southwest Airlines
LUV
29
2
31
31
Caterpillar
CAT
23
8
AT&T
T
22
9
31
Disney
DIS
25
3
28
Halliburton
HAL
24
4
28
Facebook
FB
18
9
27
Amazon.com
AMZN
16
7
23
Air Lease
AL
20
1
21
LKQ
LKQ
20
1
21
Under Armour
UA
17
4
21
Gentex
GNTX
19
0
19
Berkshire Hathaway
BRK.B
14
5
19
Visa
V
13
5
18
Union Pacific
UNP
11
5
16
Alcoa
AA
12
3
15
3M
MMM
12
3
15
Ambarella
AMBA
11
3
14
Boeing
BA
10
4
14
ConocoPhillips
COP
10
3
13
Precision Castparts
PCP
12
0
12
UnitedHealth Group
UNH
10
2
12
Fastenal
FAST
8
3
11
Biogen Idec
BIIB
9
1
10
Energy Select ETF
XLE
9
1
10
Gentherm
THRM
9
1
10
T. Rowe Price
TROW
9
1
10
Source: myICLUB.com
F
or the trailing eight weeks
ended Feb. 2, purchases
accounted for 57.2 percent of
transactions for clubs with
myICLUB.com accounts, down
significantly from 61.6 percent
for the eight weeks ended
Dec. 31 and from the 64 percent
reported for the trailing eight
weeks on Nov. 30.
Precision Castparts attracted
12 buys and no sells for the
eights weeks ended Feb. 2.
According to the Member
Sentiment feature of our
online tools, members are
expecting solid revenue growth
to continue for the provider of
aerospace components.
They’re forecasting 12 percent sales growth, compared
with the long-term rate of
11.3 percent. Earnings growth is
expected to be 11.2 percent.
Members are projecting the
annual high and low P/Es in line
with historical averages. The
finished Stock Selection Guides
had an average total potential
return of 14.4 percent.
Stocks are mentioned only
for educational purposes. No
investment recommendations
are intended.
7
08_10 WW_DD_BV_Apr15_08_09_10 2/19/15 4:10 PM Page 8
PERSONAL FINANCE | Cash Flow | Due Diligence | Book Value
Cash Flow
Strategic Saving Can Be as Much Fun as Impulse Purchasing
Shop Until Your Grocery Bills Drop
by Natasha Gural
We’re all guilty of overspending on food, whether we’re too
lazy to cook or we forget to check expiration dates on bulk
purchases or we impulsively grab the items on display.
There are several savvy ways to cut costs beyond coupons,
in-store loyalty programs and hoarding cases of canned
goods on sale.
masters by embracing mise en place, translated as
“putting in place.” Mince a whole head of garlic and put
the rest in a sealed container for future use. Make food
prep part of your morning routine and marinate proteins before work.
A
Play Chef at Home
Americans throw out an average of 25 percent of the
groceries they buy, according to the National Resources
Defense Council. Make scouring your cupboard and the
back of your fridge a ritual ahead of penning your
shopping list. A bonus is you’ll tidy up your kitchen as you find items to incorporate into your
weekly menu.
Do this once a week and place
items about to expire in the front so
that you remember to use them. Take
note of what’s expired or sitting
around and consider cutting those
items from your next grocery list.
This tiny task will save the family of
four between $1,700 and $3,890 a
year.
We’re certainly not all domestic
gods and goddesses, but taking charge of
our grocery shopping habits can amount
to major savings. It gets easier to curb
your overbuying tendencies as you see
the savings stack up bill by bill. Put your
investing skills to work in the grocery aisles and
scrutinize your picks.
Following these three suggestions could amount to
between $3,892 and $8,610 of yearly savings for a family of four. Slashing your grocery spending by up to 50
percent is entirely possible, according to Steve and
Annette Economides, co-authors of Cut Your Grocery
Bill in Half. Even with five kids, the Economides whittled their monthly food tab to $350 in 2010.
Put those unspent funds to better use by buying
more shares.
A 2013 survey from CouponCodes4u.com found that
the average American spends more than $900 a year on
take-out food and that 57 percent of 2,503 people from
across the U.S. surveyed say they preferred restaurant
food to cooking at home. About a third claimed they
don’t have time to cook from scratch.
You don’t need to invest in a culinary education or
even buy cookbooks. You can find any recipe for free
online. And planning ahead saves time. Pick recipes before you make your shopping list and follow the French
Websites of Interest
Grocery shopping tips from Steve and Annette Economides
www.moneysmartfamily.com/tip-types?tid=6
Retailwire, “Save Money by Checking Yourself Out”
www.retailwire.com/discussion/12449/
study-self-checkout-curtails-impulse-buys
Balancing Beauty & Bedlam’s comparison shopping spreadsheet
http://beautyandbedlam.com/wp-content/uploads/2011/10/BBBPrice-Comparison.pdf
Partake of Your Pantry
family of four spent between $566.70 and
$1,296.70 on groceries last November, according
to the United States Department of Agriculture.
Let’s estimate annual food costs for a family of
four at between $6,800.40 and
$15,560.40, based on the latest
USDA monthly estimate.
Here are some simple ways to
shave thousands a year from your
grocery bill so that you boost your
investment in stocks.
Curb Your Aisle Impulses
You’re a well-informed investor. You
don’t just pick stocks at random and
buy what’s cheapest. Think through
your grocery list as you would your
portfolio. Make a list before you go to
the store and don’t deviate from it,
unless you obviously omitted basics
such as eggs and milk.
The average American household overspends by as
much as 19 percent on groceries, according to a 2010
Cornell University research report, while other studies
say the figure is closer to 40 percent when people
impulse buy and don’t make a list. The Cornell study
also found that consumers tend to underestimate how
much their groceries are going to cost.
Even by the most conservative estimates, the typical
family of four annually shells out between $1,292 and
$3,820 more than it needs to at the supermarket.
8
Due Diligence | Book Value | PERSONAL FINANCE
Due Diligence
Do Investors Gain From High CEO Pay Packages?
Compensating Factors
by Thomas D. Saler
It’s perhaps one of the most contentious issues of our
uber-contentious times: Are the nation’s top business executives overpaid?
T
hat most leaders of U.S. corporations are generously compensated is beyond dispute. According
to PayScale.com, CEOs at the five companies with
the largest leader-to-worker pay gaps earned an average
of 301 times the median salary of their employees. Click
on Full List near the top of the PayScale page (see URL
below) to see various ratios among the 100 highestgrossing publicly traded American companies and on
any table category to view the
data ranked from highest to
lowest, or vice versa.
The sixth column of the
table (CEO-to-Worker Pay Ratio)
reveals a surprisingly wide variation. Berkshire Hathaway CEO
Warren Buffett, for example,
pulls down a modest nine times
the salary of his company’s employees, while CVS Caremark’s
Larry J. Merlo earns 422 times the
median compensation.
You’ll also find information on
how employees rate the satisfaction, stress and “meaning”
that their job provides.
Finally, click on Methodology for concise explanations of how the data was accumulated. You’ll note that
PayScale’s CEO compensation figures don’t include the
value of stock options, which in some cases can be considerable. Also, the Percentage Above or Below Market
category is potentially revealing owing to its breadth —
drawn from 40 million employee profiles — and because
companies that pay above market value for workers
could be making sound investments in their futures by
attracting higher-skilled labor.
A Sign of Our Times
The sizable gap between typical CEO and employee
compensation is a relatively recent phenomenon.
According to the Washington think tank Economic
Policy Institute, leaders at the 350 largest U.S. corporations in 1965 drew annual compensation packages —
including the value of stock options — of 20.1 times
that of their workers. By 2012, that figure had jumped
more than 13-fold to 272.9 times, although that ratio is
down from 411.3 times in 2000.
But are shareholders getting their money’s worth?
Two academics, Kasper Meisner Nielsen of Hong Kong
University of Science and Technology and Bang Dang
Nguyen of the University of Cambridge Judge Business
School, devised a novel — if somewhat morbid — set of
criteria for finding the answer.
Writing in the journal Management Science, the
authors studied the impact on a company’s share price
when a CEO who was making a premium salary to
his industry peers died suddenly. Over the
18 years through 2008, the study noted 149
unexpected deaths of top executives.
If a company’s stock rose after their
sudden demise, the deceased CEO was
judged to be overpaid. By that standard, only
63 of the 149 CEOs (42 percent) were excessively compensated.
Value Added?
The study also determined that CEOs
pulled down the lion’s share of whatever increase in value they brought to a
company. But with the average U.S. stock
having nearly tripled since March 2009, most
shareholders are probably well-satisfied.
Be forewarned: Like any academic paper, this
one is chock-full of arcane arguments, regression analysis,
intricate formulas and the like.
Still, the research makes a meaningful contribution to
an issue that affects workers and shareholders alike. On
balance, it reveals that a majority of CEOs do add value
for investors, though there are a significant number
of exceptions.
Those somewhat middle-of-the road conclusions are
bound to leave many minds unchanged on the topic,
however, especially in the current Age of Contention.
PayScale
www.payscale.com/data-packages/ceo-income
“CEO Pay in 2012 Was Extraordinarily High Relative to Typical
Workers and Other High Earners,” Lawrence Mishel and Natalie
Sabadish, Economic Policy Institute, Issue Brief No. 367, June
26, 2013
http://s4.epi.org/files/2013/ceo-pay-2012-extraordinarily-high.pdf
“What Death Can Tell: Are Executives Paid for Their
Contributions to Firm Value?” Bang Dang Nguyen and Kasper
Meisner Nielsen, Management Science, May 2014
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572216
9
PERSONAL FINANCE | Book Value
Book Value
Rich and Wealthy Aren’t Really Synonyms
Grab Your Slice of the Upper Crust
by Angele McQuade
Ask someone whether they want to be rich, and they’re
probably going to say yes. Wrong answer, says New York
Times “Wealth Matters” columnist Paul Sullivan. For true
financial success, our ultimate financial goal should be to
become truly wealthy.
T
he difference between the
two is the subject of Sullivan’s
new book, The Thin Green
Line: The Money Secrets of the
Super Wealthy.
The idea was sparked in part by
angry letters from Sullivan’s New
York Times readers. They “directed
their vitriol and hatred of the rich at
me,” he recounts, “(and) convinced
me that ignorance about wealth
and money was so widespread and
deep that this book could fill a
need.”
The book was also inspired by
Sullivan’s realization that though he
considered himself wealthy, his family’s financial situation was far more
tenuous and risky than he imagined. Launching from this financial
emotional crisis, Sullivan takes
us on a personal, professional, geographical and at times literary
journey as he digs deeply into the
financial decisions of the rich, the
“
What I liked: Sullivan’s distinction between wealthy
(which he defines as having more money than you need
to do all the things you want to do) and rich (a number
that doesn’t always equal financial security) and why
being on the wealthy side of the title’s “thin green line”
should be our goal.
The gap between the haves and
have-nots is widening, but so is the
gap between the haves and the
have-mores.
“Knowing the difference between
being wealthy and being rich,” he
says, “is the difference between
living a secure or a fraught life.”
What I loved: Sullivan’s breezy,
compelling writing. He’s a natural
storyteller and each chapter feels
more like a thoughtful conversation
with an old and trusted friend than
some important lesson you’re supposed to be memorizing.
What makes The Thin Green Line
worth buying: How open Sullivan is
about the details of his own financial life. One of the main themes of
his book is the importance of the
personal side of money, and he
The Thin Green Line: The Money Secrets
opens up his own financial history
of the Super Wealthy, Paul Sullivan,
with incredible candidness.
Simon & Schuster (2015), hardcover ($27)
“If people aren’t honest with
and ebook, 256 pages
themselves,” he writes, “they won’t
make progress on their feelings
toward money.”
Read The Thin Green Line if: You’re looking for new
ideas to increase your personal net worth or you want
to see how your own decisions measure up to those
who’ve had great financial success.
How we think about money
is incredibly important to how we
end up financially.
”
wealthy, heirs, philanthropists, trust-fund babies and
others, following insight and guidance from academics,
psychologists, economists and a host of other experts.
Sullivan concludes that how we think about money
is incredibly important to how we end up financially,
and he offers up simple steps we can take to change the
way we think and improve our own odds for greater
financial success. He finishes with a summary of the
financial changes he and his wife ended up making
based on all he learned, including selling their vacation
condo at a loss, a tough but ultimately correct choice.
10
Paul Sullivan
http://pauljsullivan.com/
Paul Sullivan on Twitter
Twitter: @sullivanpaul
Angele McQuade (www.angelemcquade.com) is the
author of two books, including Investment Clubs for
Dummies. She lives in Arlington, Va., where she also
writes novels for children and teens.
11_ FINRA Use_Apr15_11 2/18/15 4:49 PM Page 1
FINRA | PERSONAL FINANCE
Part 1 of a 2-Part Series on Internet Fraud
Phishing: Don’t Take the Bait
by Gerri Walsh, Senior Vice President, FINRA’s Office of Investor Education
According to computer security experts, economic cybercrime continues to surge. “Phishing” attacks — scams that
use spam email or a fake website to lure you into revealing
your bank or brokerage account information, passwords or
PINs, Social Security number or other types of confidential
information — have increased significantly since they were
first discovered nearly 10 years ago.
Don’t Get Hooked
raudsters can turn on a dime when it comes to creating new pitches to separate hard-working Americans
from their money. Virtually any news item, positive or
negative, can become a “hook” for a new scam — whether a
natural disaster or the launch of a new product or company.
But sometimes the hook can look more mundane —
and can come in the form of a seemingly authentic email
from a well-known company, financial institution, or even
a government agency or regulator you know and trust. For
instance, around tax time, the Internal Revenue Service
regularly warns of phishing schemes that use references
to tax refunds, filing issues or investigations to lure recipients into opening a bogus email. A recent scam involved
an email that appeared to be from the IRS Taxpayer
Advocate Service. The email included a bogus case number and links to the supposed “advocate,” which actually
led to a Web page that phishes for personal information.
The Securities and Exchange Commission (SEC)
warned investors to beware of emails that appear to come
from SEC staff, including a bogus email scam using the
name of the SEC’s director of the Office of Investor Education and Advocacy.The email was in fact not from the SEC,
and contained a link to malicious software.
F
“Phishing:” Fraudulent Emails That Steal Personal Info
Phishing scams typically involve emails that falsely claim
to be from brokerage firms, banks, credit card companies,
Internet auction sites, electronic payment services or
some other service that you use. In other instances, the
emails purport to be from government agencies.To appear
genuine, these emails may use:
■ The names of real people.
■ Legitimate looking email addresses, such as
support@(name of your financial institution).com.
■ Authentic looking logos and graphics.
■ Links to pages of a bona fide website.
■ Official looking fine print and references to laws.
Most of these emails attempt to lure you into providing
sensitive personal information by requesting that you
provide it in a reply email or by clicking on a link to a web-
site that mimics a legitimate website and asks you to provide
the information.“Urgent” messages are used such as:
■ Your account will be shut down unless you update
your information.
■ You need to verify your identity because your account
appears to be used by a third-party in violation of the law.
■ Security measures to protect your account from identify
theft require you to verify your account information.
■ Due to a technical update you must reactivate your
account.
■ Recent changes in the law require users to identify
themselves.
Financial Phishing
Fraudsters regularly target customers of financial services
firms with deceptive email tactics. According to a recent industry study, 71 percent of phishing scams detected in 2014
spoofed banks. Some fraudulent emails appear to originate
from a financial institution that acquired the consumer’s
bank, savings and loan or mortgage. They direct recipients
to update, validate or confirm account information by clicking on a link that redirects to a “spoofed” website that looks
similar to, but is actually a fraudulent copy of, the website of
a legitimate financial institution or lender. Be wary of emails
from financial institutions that purport to have updated
their online security systems.
Trojan Horses — Track Your Every Move Online
Trojan Horses are malicious software programs (often
called “malware” or “crimeware”) that hide in files attached
to an email or that you download from the Internet and
install on your computer. While these can take many forms,
Trojan Horses used in identity theft scams usually take the
form of keystroke loggers — programs that log the keystrokes you type and allow scamsters to find your usernames and passwords, giving them access to your online
accounts. Over the years, Trojan Horses have increasingly
been showing up in “phishing” scams to secretly capture
sensitive information. A crime group sent false email messages purporting to be from popular social networking sites
that contained fictitious offers for popular software upgrades and fake tax forms.These “lures” took victims to sites
where the criminals infected their computers with “crimeware,” allowing them to access the computers remotely to
steal personal information.
FINRA is the largest independent regulator for all securities firms doing business in the United States. Its
chief role is to protect investors by maintaining the
fairness of the U.S. capital markets.
11
12_13 PF_Financial Planner_A_K_Apr15_12_13 2/20/15 10:42 AM Page 12
PERSONAL FINANCE | Financial Planner
If You Don’t Look Out for Your Own Future, Who Will?
401(k): Going to the Max
by Alexandra Armstrong, CFP, and Kelly Wright, CFP
Most of us have many financial goals we wish to achieve,
such as owning a house, educating children or starting a
business. We think one of the most important financial goals
is to accumulate enough money so that you can retire when
you wish in financial comfort. To accomplish this, most of us
should contribute the maximum we can to our retirement
plans and start as early as possible.
W
ith the demands of short-term financial needs,
it’s hard to convince some people of the importance to set money aside for tomorrow.
Some who are counting on an inheritance from their
parents to pay for retirement may find their parents living
longer and needing the income for their own care. How
much is enough to save for retirement? The answer often
is,“As much as you can.”You don’t know how long you’ll
live or how much it’ll cost you to live.
Some of the Benefits of Saving for Retirement
The amount you contribute is excluded from current taxation.
You can have as much as 100 percent of your salary
up to certain maximum annual amounts automatically
deducted from your paycheck and put into your retirement account.
Whatever amount you have deducted is excluded
from current federal and state taxation, so this means
Uncle Sam actually helps you make the contribution.
For instance, if you contribute $100 a month for a
total of $1,200 annually and are in the 25-percent federal
tax bracket, your out-of-pocket cost would really be $75
a month, or $900 annually: $1,200 minus $300 in federal
income taxes you would have had to pay. In addition, if
you live in a state that taxes your income, you would save
that amount of taxes as well.
Whatever you accumulate in your retirement account isn’t
currently taxed. This means your money grows faster than
if it were taxed. For instance, if you contribute $40 every
two weeks for 10 years and it gains 8 percent annually,
at the end of 10 years you’ll have accumulated $15,945.
In 20 years, $40 invested every two weeks will be worth
$51,389, and in 30 years it’ll become $130,173.
If you’d saved that same amount in your own name
instead of in a retirement account and it earned 8 percent
annually, and if you had to pay taxes on your earnings at
a rate of 25 percent, the results would have been dramatically different (see table at right).
You may also have a Roth option in your retirement
plan. If you choose to contribute to a Roth 401(k) instead
of a regular 401(k), you don’t get a current tax deduction.
The money in this account, however, grows without
12
being taxed and when you withdraw from this fund at
retirement age, this money isn’t taxed either federally or
locally. Contributing to a Roth 401(k) might work well for
those who are in a low tax bracket now or are expecting
their taxes to rise in the future.
The maximum you can contribute to the plan has
increased from 2014. The maximum amounts are shown
on the table on the next page.
Future annual increases will be adjusted for inflation
in $500 increments.
Your Employer’s Match
Some employers match your investments in the plan up to a
certain amount. For instance, an employer might match
every $1 you put in a retirement plan with $0.20 of the
employer’s money on the first 5 percent of compensation you invest each year.
If your employer matches, it’s important to contribute
at least enough to get the maximum employer match.
So in the case above, you’d maximize the match by contributing 5 percent of your salary but would be getting
the equivalent of 20 percent return on that money.
Your employer puts the matching money in a separate account and can choose from one of two vesting
schedules. The first is gradual vesting, in which a certain
percentage each year for up to six years becomes yours
to take if you leave the employer.
The other provides no vesting until the third year,
whereupon you’re fully vested. When you’re fully vested,
you can take all matching contributions plus their earnings with you. Note that you’re always 100-percent vested
in your own contributions plus their earnings.
You can increase the amount you contribute to your retirement plan. When you first start working, you might not
think you can afford to contribute the maximum you’re
Untaxed Versus Taxed Investment Earning
Assumes an 8% annual return
Time
period
Total personal
savings invested
*401(k) or
403(b) growth
25% tax
bracket
10 years
$10,400
$15,945
$14,228
20 years
20,800
51,389
40,136
30 years
31,200
130,173
87,310
example is for illustrative purposes only and doesn’t
* This
reflect the actual return of any particular investment.
There can be no guarantee that any particular yield or
return will be achieved from any investment.
12_13 PF_Financial Planner_A_K_Apr15_12_13 2/20/15 10:47 AM Page 13
Financial Planner
allowed to contribute. As time progresses and you get raises, you can
increase the amount you contribute
with a goal of contributing the maximum as soon as you can. Most plans
allow you to change the amount you
contribute at least twice a year.
You can choose how your money is
invested within the retirement plan. The
employer selects the various investment choices, but you can choose
from among them to determine how
you want your particular plan invested. You can periodically change
the amount you’re having withdrawn
from your paycheck and how that
money is invested. Usually, you can
make changes to the investments
you’ve already made within the retirement plan at any time.
You Can Take It With You
Whatever you defer in your retirement
plan is yours. If you move from one
job to another, you can take whatever
you’ve accumulated in the retirement
plan with you. Although employer
contributions may follow a vesting
schedule, you’re always completely
vested in whatever amount you defer
from your salary. You can roll it over
either into a self-directed individual
retirement account in your own
name, where it would continue to
grow tax-deferred or in some cases
into your new employer’s retirement
plan.You could even cash it in, which
we wouldn’t recommend since whatever you take out will be taxed in
your tax bracket, and if you’re under
the age of 5912⁄ , under most circumstances barring specific exclusions,
you’ll also be charged a 10-percent
surtax.
You’ll receive investment education. You might be overwhelmed by
the various investment choices available to you in your retirement plan.
Typically, the financial adviser who
helped your employer select investments for the retirement plan comes
in periodically to talk to employees
about the various options. Attend
those meetings, read the information
provided and ask questions. Usually
that person is available to consult
Allowable 401(k) Contributions
Year
Age 49 or
younger
Age 50 or
older
2014
$17,500
additional
$5,500
2015
$18,000
additional
$6,000
with you individually. If you need
help, don’t hesitate to take advantage
of this opportunity.
Parental Assistance
Maybe your parents can help you.
Despite the many obvious advantages of contributing to an employersponsored retirement plan, we find
many younger employees underparticipate in their retirement plans or
don’t participate at all. Many feel
they’re too young or need the money
to cover current expenses. It’s in
these earlier years, however, that
participation can be very effective
later on as those early contributions
have more time to grow.
It might be true that they do
need the money to cover current
expenses. But if they’re fortunate
enough to have parents who can
help them out, the parents could gift
them enough to make sure they can
contribute to their retirement plan.
For example, a parent can gift a
child as much as $14,000 a year (in
2015) without having to be concerned about filing a gift tax return.
Let’s say that the adult child cannot
afford to contribute to her retirement plan. She could sign up to contribute $500 a month, which would
lower her taxable income, and her
parent could give her $500 a month,
which would help her build her
retirement account. But not everyone
is fortunate enough to have wealthy
parents who are willing to be that
generous!
Start Early
Waiting to participate isn’t a good decision. To illustrate why it’s important
to start saving early, let’s look at the
numbers. If you start at age 22 and
contribute $100 at the beginning
of each month to your retirement
plan, and it earns 8 percent a year, by
the time you’re 65 years old the
account will be worth $450,478. If
instead you wait just 10 years until
you’re age 32 to contribute $100 per
month and it earns 8 percent, at age
65 you’ll have $194,654 — quite
a difference.
Particularly now that Congress is
talking about the strain on the Social
Security retirement system, we think
that saving for your retirement is
more a necessity than a choice and
you should make it a priority. If you
start saving early and contribute the
maximum amount you can, you’ll
help make your retirement years
your “golden years” and not your
“nickel-dime years”!
Alexandra Armstrong is a certified financial planner practitioner and chairman
of Armstrong, Fleming & Moore, Inc., a
registered investment advisory firm
located at 1850 M St. NW, Suite 250, in
Washington, D.C. 20036-5813, 202887-8135. Securities are offered through
Commonwealth Financial Network,
member FINRA/SIPC. Kelly Wright,
certified financial planner practitioner,
co-author of this article, is vice president
of financial planning at Armstrong,
Fleming & Moore, Inc. Investment
advisory services are offered through
Armstrong, Fleming & Moore Inc., an
SEC-registered investment adviser not
affiliated with Commonwealth Financial
Network. Consult your personal financial adviser before making any decisions.
Ms. Armstrong and Mr. Wright can’t
answer individual inquiries, but they
welcome suggestions for future article
topics. This material has been provided
for general informational purposes only
and does not constitute either tax or
legal advice. Investors should consult a
tax or legal professional regarding their
individual situation.The above examples
are hypothetical and are for illustrative
purposes only. No specific investments
were used in the examples. Actual results
will vary. Past performance doesn’t
guarantee future results.
13
14_18 Repair Shop DB_Apr15_14_15_16_17_18 2/19/15 1:38 PM Page 14
INVESTMENT CLUBS | Repair Shop
Dot-com Meltdown Was a Learning Experience for South Carolina Club
First Stock Talk, Then a Beach Break
by Daniel J. Boyle, CFA
I had a fun conversation with members of the Sea Coast Traders
Investment Club of North Myrtle Beach, S.C. After I complimented them on their choice of location to maximize winter
temperatures, we got down to business talking about their club.
Fourteen members started the club in 2001 after getting to
know one another in their newly formed gated community.
T
oday there are 16 members, eight of whom are original. The club’s founding wasn’t long after the dotcom market meltdown, and members felt it would
be good to learn about the market from this experience.
They made no investments for the first year and studied
well-known stocks such as Microsoft (ticker: MSFT) to learn.
Technology has made running the club considerably
easier over the years. In the early days Stock Selection Guides
were completed and updated by hand. Today the club uses
Toolkit 6, making analysis a breeze.Their gated community
includes a golf clubhouse meeting room where the members meet once a month at 8 a.m. sharp.This is particularly
great in the summer, as members socialize on the beach
afterward.The room is equipped with a projector, so members can pull up their research on screen and minimize the
use of paper. The club uses Folio Investing as its brokerage
and appreciates this BetterInvesting benefit.
A typical agenda includes a review of old business,
reports on each stock in the portfolio and a discussion of
new candidates. Meetings take about 90 minutes. Each
member is responsible for following an existing stock, and
during the combined November/December meeting the
club shifts stock responsibilities to minimize the tendency
we all feel about falling in love with our stocks.
One complaint I’ve heard from other clubs is they
often feel meeting only once a month limits their ability to
take action when something happens to a stock in their
portfolio. Sea Coast Traders has solved this problem by
emailing between meetings, sometimes taking votes to sell
or add to a position. I like this practice and would suggest
other clubs look into the application of it for their use.
The club’s written into its operating agreement a target
range of eight to 18 stocks in their portfolio. It operates with
16 stocks today, an even one per member. This implies a
typical stock weight of about 6.25 percent per position.
The club finds stocks through BetterInvesting channels,
including the magazine and ICLUBcentral resources, as well
Company
Ticker
No.
shares
Anthem
Apple
Air Lease
Amazon
Berkshire Hathaway
Crown Castle International
ConocoPhillips
Costco
Cognizant Technology Solutions
Duke Energy
Echo Global Logistics
Eaton
CarMax
Oracle
Skyworks Solutions
Wells Fargo
Cash
Average
TOTAL
ANTM
AAPL
AL
AMZN
BRK.B
CCI
COP
COST
CTSH
DUK
ECHO
ETN
KMX
ORCL
SWKS
WFC
105
50
50
10
50
51
53
76
50
40
98
53
50
52
139
205
Cost
$ 7,207
4,561
1,853
3,830
6,169
3,554
3,512
8,977
2,400
2,242
2,047
2,546
2,169
1,506
6,649
8,634
5,822
* Based largely on rankings published by Value Line.
14
$ 126
110
34
310
150
79
69
142
53
84
29
68
67
45
73
55
Gain/
(loss)
%Gain/
(loss)
$13,217
5,565
1,717
3,104
7,508
3,989
3,665
10,808
2,633
3,349
2,872
3,609
3,329
2,335
10,127
11,222
5,822
$ 6,010
1,004
(135)
(727)
1,339
435
153
1,831
233
1,107
825
1,063
1,160
829
3,478
2,588
84
22
(7)
(19)
22
12
4
20
10
49
40
42
54
55
52
30
$94,871
$21,193
29
Quality % Growth
% of
Trailing Trailing
rating* estimate** portfolio
P/E
EPS
1
1
3
1
1
2
1
1
1
1
3
1
2
1
2
1
10
13
19
20
9
10
9
10
18
5
20
10
15
10
19
7
13.9
5.9
1.8
3.3
7.9
4.2
3.9
11.4
2.8
3.5
3.0
3.8
3.5
2.5
10.7
11.8
6.1
13
$73,677
** As estimated by the author, with data from Thomson Financial Network.
Note: Numbers in the table have been rounded.
Dec. 31, 2014
Price
Value
16
17
15
NMF
17
19
11
29
21
18
41
15
26
15
31
13
20
100
$7.97
6.43
2.28
(0.48)
8.82
4.04
6.11
4.82
2.47
4.68
0.72
4.49
2.52
2.91
2.37
4.08
Repair Shop
as playing “themes.” For example, the 26 percent, from four holdings. Air businesses in the fold include elecclub decided to look into stocks that Lease (AL) is a young company, only in tric utilities, railroads, candy making,
might benefit from the new health its sixth year of operation. But it’s run ice cream, building products, jewelry
care law, leading to the selection of by industry luminary Steven Udvar- and newspapers. Acquisitions have
Anthem (ANTM).The club also practices Hazy, the founder and longtime CEO been the fuel for growth, including
something I like: tracking its previous of International Lease Finance. Both the firm’s recently announced innew stock ideas, particularly those companies buy and lease out aircraft tention to purchase Van Tuyl Group,
that look like high-quality companies around the world.
the nation’s largest auto dealership
but were too expensive to
group, and the Duracell
acquire. Some of my best
battery business of Procter
stock picks were those that
& Gamble.
I’d kept an eye on for a while
I’m not much of a fan of
and was able to purchase
conglomerates. Because of
when the price became
their diversification, which
acceptable.
Berkshire has in spades,
As I discussed the portthey struggle to generate
folio with members of the
the 10 percent-plus growth
Sea Coast Traders, I got an
I seek. A quick look at
appreciation for their willBerkshire’s SSG illustrates
ingness to sell stocks when
my point, as the 10-year
things weren’t going well.
average earnings growth
Digging a bit, I found out
rate is only 7 percent.
they had nice criteria for
Analysts project annual
selling stock (see page 17).
growth of only 9 percent,
Selling is one of the hardest Sea Coast Traders Investment Club of North Myrtle Beach, S.C.
and when compared with
things for all of us, and put- Front row, from left: Joyce McKenna, Jo Moore, Regina Kelley, Betsy Easton a trailing P/E of 17, the PEG
ting something in writing and Kathy Turnauer. Back row: Betty Berginski, Carol Snyder, Corky Felber, ratio of 1.9 is a bit high.
that can be referred to Betsy Carver, Pat Angelini and Nancy Mercurio. Not pictured: Barb Baker,
Smartphones are becomwhen examining a holding Ardie Praetorius and Diane Shipley.
ing ubiquitous, and Crown
can help take the emotion
Castle Inter national (CCI)
The advantage Air Lease has as a helps provide the infrastructure to supout of the decision.
I’d like to add one more sell crite- young company is the availability of port them. The firm owns, leases or
ria to the club’s list. I recommend that new, fuel-efficient planes. With the manages more than 40,000 cellphone
all clubs challenge their holdings recent drop in oil prices some of this towers, with sites in the U.S., Puerto
with new stock ideas that look like advantage is mitigated, but the firm Rico and Australia. 2014 was an excelthey have a better balance between has sold out all its 2015 bookings and lent year, as strong earnings growth
growth and valuation. It’s natural for a 65 percent of 2016, so growth looks was driven by upgrades stemming from
holding’s growth to slow over time, assured for a while.
the carrier’s move to 4G LTE to supAt estimated long-term annual port data bandwidth for smartphones.
as the law of large numbers makes it
more and more difficult for com- earnings growth of 19 percent comThese upgrades are largely companies to avoid regressing to average pared with a trailing price-earnings pleted, but the company should benegrowth rates. Over time it becomes ratio of 15, the PEG (P/E to earnings fit from higher lease rates for a time.
easy for investors to accept this lower growth rate) ratio is under 1.0. This Crown Castle recently converted its
growth rate, especially if the stock’s is cheap compared with the range of corporate structure to a real estate
done well for them. We should never 1.0-1.5 I like to pay for a growth investment trust, avoiding corporate
be afraid to replace an existing port- stock. I note the club has only a 2 per- taxes as long as it distributes the majorfolio position with a faster growing cent position in the stock and might ity of its earnings. At an estimated longcandidate, even if there isn’t anything want to use recent share price weak- term growth of 10 percent and a trailparticularly wrong about how that ness as an opportunity to bring the ing P/E of 19 the stock carries a PEG
stock up to a full weight.
holding is performing.
of 1.9, a bit expensive for my tastes,
The leading business segment of but since near-term growth looks
Berkshire Hathaway (BRK.B), a diversified good, I’d hold for now.
Air Lease, Berkshire Hathaway,
holding company led by legendary
Wells Fargo (WFC) is one of the
Crown Castle International,
investor Warren Buffett, is property largest bank holding companies in
Wells Fargo
The largest sector in the Sea Coast and casualty insurance, including the the U.S. The firm’s done a solid job
Traders portfolio is financial, about well-known GEICO brand. Other rebuilding its capital base after the
15
financial crisis and loan loss chargeoffs have been on the decline. But it’s
been a rough ride for the club, as the
shares are up only 30 percent since
purchase in 2007. If I were looking
for safety and a decent dividend yield
of 2.6 percent, I’d consider these
shares. But future expected annual
growth in earnings of only 7 percent
isn’t what I’m looking for as a growth
investor. Other financial stocks for
the club to compare as possible
replacements include Signature Bank
(SBNY) and Visa (V).
Apple, Oracle, Skyworks Solutions,
Cognizant Technology Solutions,
Information technology represents
about 22 percent of the portfolio.
Everybody knows Apple (AAPL), even
if we don’t own an iPhone or iPad.
Speaking of iPhone, the company’s
enjoying a strong boost from the
introduction of the iPhone 6 and
iPhone 6 Plus, both of which have
larger screens that can double as tablets for emerging-market customers
who can afford only one mobile device.
Further expansion into nations such
as China, India, Russia and Brazil, coupled with the introduction of highmargin services such as Apple Pay,
should lead to continued earnings
leverage. At an expected annual earnings growth rate of 13 percent and a
trailing P/E of 17, the PEG ratio of 1.3
is in my sweet spot.
(CTSH) is a solidly growing IT services
provider arbitraging low-cost Indian
labor in high-cost developed markets
in North America and Europe. Financial
services and health care have been the
strongest growth segments for the
firm. Health care will get a boost from
the November acquisition of TriZetto,
allowing Cognizant to offer integrated
software and service offerings.
Expected annual earnings growth
of 18 percent and a trailing P/E of 21
generates a PEG of 1.2. I note the club
holds about a 3 percent position and
would recommend it purchase a few
more shares to bring the stock up to a
normal weight.
The world’s largest database vendor,
Oracle (ORCL), is successfully executing a growth strategy that embraces
cloud computing, the delivery of IT
applications over the Internet. But
this transition isn’t without costs
when examined from a growth perspective, as sales growth has fallen
to the low single digits, down from
double digits just three years ago.
Higher margins from cloud computing should offset weakness from
licensing and service renewals, leading
to expected annual earnings growth
of 10 percent.
So at a trailing P/E of 16, the stock
isn’t expensive. But the club may want
to look at faster-growing IT stocks
such as IPG Photonics (IPGP) and
ANSYS (ANSS).
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Presented by Scott Horsburgh, Author, CFA and
President of Provident Investment Management
www.betterinvesting.org/sellstock
16
Repair Shop
Sea Coast Traders Investment
Club of North Myrtle Beach, S.C.
Selling Criteria
Reasons to Sell
■
■
■
■
■
■
Because of an adverse management
change.
Because of declining profit margins.
Because of a deteriorating corporate
financial condition.
Because competition is affecting profits.
Because of dependence on a single
stock.
Because the stock’s quality will
change as economic circumstances
change. Watch for deteriorating financials
Skyworks Solutions (SWKS) is a semiconductor company focused on mobility and the “Internet of Things” — that
is, traditional appliances and devices
that previously haven’t been enabled
for networks and the Inter net.
Skyworks is putting together entire
electronic systems for devices, in particular those of smartphones that
continue to evolve new uses, such
as video.
The company reports that 26 percent of its sales are to nonmobile
devices. Growth for the next year
seems assured, as Skyworks has more
content in the iPhone 6. Expected
annual earnings growth of 19 percent
compared with a trailing P/E of 31
yields a PEG ratio of 1.6, slightly higher
than the 1.0-1.5 range I like but quite
reasonable for such an interesting
growth stock.
Anthem
The next-largest sector for the portfolio is health care, about 14 percent
from only one position, Anthem
(ANTM). Formerly WellPoint before it
changed its name in December, the
company is one of the largest U.S.
managed health care organizations
with more than 36 million members.
The new health care law has been a
boon to the firm, as it has picked up
members from the law’s expansion of
■
■
■
■
such as increased competition, an
adverse management change, a
decreased product pipeline, a shrinking
customer base or being overly dependent
on a small number of major customers.
Because securities that have proven to
be cyclical and that have a recent
history of slow growth should be sold
when the economy peaks.
Because it’s important to maintain
balance by company size in your
portfolio.
Because we need money.
Because of declining financial strength.
Check this by analyzing company
balance sheets, including the debt-to-
Medicaid, leading to Anthem’s $40 billion Medicaid pipeline. But after this
expansion settles down, it’s difficult to
see how the company will grow much
faster than the market.This is reflected
in the expected earnings growth rate
of 10 percent.
With a trailing P/E of 16, the stock’s
PEG of 1.6 is reasonable. The holding
has done so well for the club since its
purchase — up more than 80 percent
in two-plus years — that it’s grown to
more than double a normal weight. I’d
recommend the club take some profits and look into beefing up its health
care holdings by examining ideas such
as Gilead Sciences (GILD), Catamaran
(CTRX) and Myriad Genetics (MYGN).
Costco
Consumer staples makes up 11 percent of the Sea Coast Traders’ portfolio, all from Costco (COST). I’ve
admired Costco’s business model for
many years, as the company makes all
its money on annual membership
dues and just enough product margin
to pay selling, general and administrative expenses.
This combination creates consistency and predictability of earnings
that investors prize, leading to an
elevated P/E ratio. But the current
trailing P/E of 31 is simply too pricey
for annual expected growth of only
equity ratio and the current ratio (the
ratio of current assets to current
liabilities, which indicates whether a
company can pay back its short-term
liabilities).
Rules Concerning Selling:
■
■
■
■
■
Don’t sell just because the price hasn’t
moved.
Don’t sell because of a paper loss.
Don’t sell because of a paper profit.
Don’t sell on temporary bad news —
don’t take action until a company
delivers three quarters of poor
performance.
Don’t sell just to take action.
10 percent. At a minimum I’d recommend the club take the position down
to a normal weight.
Amazon.com, CarMax
Amazon.com (AMZN) is one of two
consumer discretionary stocks. I’m
continually amazed at the valuation of
Amazon in the face of excellent sales
growth but continually declining profitability. One look at the SSG makes
this clear: Instead of the usual “railroad
tracks” performance of sales and earnings, the lines look like a “Y.” Historically the company has been given the
benefit of the doubt for its substantial
cost investments, but the downside
risk if growth fails to materialize is
simply too high for my tastes.
The other consumer discretionary
stock, CarMax (KMX), is targeting an
interesting niche of automotive retailing. Most of us find the process of
buying a used car about as pleasant as
a root canal, but CarMax strives to
make things easy. The firm specializes
in used cars that are nearly new, up to
three or four years old, and offers to
find the best financing deal, whether
that’s your local bank or CarMax’s
lending arm.
Straightforward pricing and tradein assistance complete the sale. With
auto industry sales back at all-time
highs I foresee good availability of
17
inventory for CarMax as nearly new
vehicles come off lease.
Expected annual earnings growth
of 15 percent compares favorably with
a trailing P/E of 26. The club might
want to study purchasing additional
shares to bring the position to a normal weight.
Echo Global Logistics, Eaton
The industrials sector has two stocks,
one of which is Echo Global Logistics,
(ECHO).This small-cap is a transportation and supply-chain management
services company that looks more
like an IT play. The company compiles and analyzes data from its network of more than 24,000 providers
to match client’s shipping and freight
management needs.
Growth has been inconsistent but
much better over the past couple of
quarters. The stock isn’t cheap,carrying a valuation of 41 compared with
expected annual earnings growth of
20 percent. I like the opportunity but
would keep a close eye on performance
at this multiple.
Eaton (ETN) is the other industrial
holding. The company is a diversified
manufacturer of hydraulic and fluid
connectors, electric power distribution and control equipment, truck
drive train systems and engine components. Most of these markets are
growing only in the low single digits.
Analysts expect annual earnings
growth of 10 percent, but the 10-year
average growth rate from the SSG is
only 4.7 percent. I’m tempted to
think the historical growth rate is
closer to the truth, so I’d look for an
upgrade, perhaps Precision Castparts
(PCP) or Gentex (GNTX)
ConocoPhillips, Duke Energy
The last two stocks in the portfolio,
ConocoPhillips (COP) and Duke Energy
(DUK), are in the energy and utility
sectors, respectively. I’m not a fan of
either stock at the moment. In the
case of ConocoPhillips, the recent
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18
drop in oil prices will wreak havoc
with the firm’s 2015 EPS, possibly
cutting it in half.
As for Duke, utilities have benefited from low interest rates, as investors searching for yield have bid up
their share prices. With the Federal
Reserve likely to increase interest
rates this year in response to a
stronger U.S. economy, this could
be bad news for Duke.
Daniel J. Boyle, CFA, is vice president
of the investment management firm
Provident Investment Management
(www.InvestProvident.com), Novi,
Mich. He’s also a member of the
magazine’s Editorial Advisory and
Securities Review Committee and
co--author of the Investor Advisory
Service newsletter. The author and/
or clients of his firm may have positions in some of the stocks mentioned in this article. No investment
recommendations are intended.
19_The Clubhouse_Apr15_19 2/19/15 4:51 PM Page 19
The Clubhouse | INVESTMENT CLUBS
Club Accounting
Other Club Members Should Learn These Essential Skills
Tag Team: Tax Time as Treasurer Training
by Russell Malley, Club Accounting Adviser, ICLUBcentral
Clubs often cite the inability to replace a treasurer as a
reason for dissolving an investment club. Conducting a
good training program to pass along those treasurer skills
is good practice for a club. Tax season can be a good time
to train an aspiring treasurer.
T
his time of the year offers some challenges, and
sharing the tasks can make the burden lighter on
the treasurer. It also provides a possible
new treasurer insight into coping with the
additional stresses of tax return preparation. Look at tax season as a learning
and growing opportunity for treasurers.
For other club members, it’s a good
time to remember the work the treasurer does and try to be patient.
Much of the information needed
to complete and check the club
tax returns may not be available
to the treasurer as soon as you
think.
Although many brokers send Form 1099s by the end
of January, they aren’t required to have them to customers
until around Feb. 15. Weekends and holidays will cause
this to vary a bit.
Because of tax law changes, a treasurer needs the information on this form to complete a federal partnership
return. It can also be used to check accounting entries.
Treasurers, a wish for you is a good assistant who is
eager to learn — or at least willing. I hope you use this
time to advise your assistant on the instances in which the
club records and the broker information can legitimately
differ. Among those are securities involved with a spinoff
or merger.
Remember also that brokers can make mistakes.
They’re getting better, but a few errors slip in now and
then. I usually see at least one each tax season.
Let a new prospective treasurer know there’s help
available. Many treasurers are linked through the BetterInvesting treasurers list, where members can ask for help
from other club treasurers.
The site listed below is a webpage for BetterInvesting members who want to sign up for this
list. There’s also the ICLUBcentral support group.
Besides answering questions, we think of ways to
improve the software.
The tax software has a few additions this
year to make it easier to use, and my favorite
recent change is to the myICLUB.com
online service.
The multiple transaction
types needed to enter mergers
with cash and stock has been
simplified to a single entry type.This
will make these complex transactions easier to enter.
I wish you a rewarding educational experience for this
season.
Club Treasurers Email List: After logging into the member website, navigate to the following address to sign up:
www.betterinvesting.org/Members/Tools/OnlineCommunity/
DiscussionForums/E-mail+Lists/E-mail+Lists.htm
19
20_ The Clubhouse_Apr15_20 2/23/15 10:35 AM Page 20
INVESTMENT CLUBS | BetterInvesting Family
Investing Is Cultivated by Her Science and Gardening Training
See How Her Portfolio Blooms
as told to Angele McQuade by Elaine Huang of Warwick, N.Y.
I became interested in investing after taking a break from my
life-science research work. Realizing all my family savings
were tied up in rental properties sent chills down my spine.
What if we lost our jobs and ran out of cash to cover our living expenses? Inspired by Peter Lynch’s book Beating the
Street, I decided to learn how to invest by joining an investment club.
W
hen I couldn’t find a club nearby, I placed an
ad in the newspaper and formed one of my
own. Our club of 16 members quickly joined
BetterInvesting (then NAIC) as Kinnelon Investment Club.
We’ve learned so much over the past 20 years.
I was raised in a small village in Taiwan with nine
siblings, including my twin sister. When I was a teenager,
I used to help my father, a well-known doctor, dispense
medications to patients. That enticed me to study pharmaceutical science.
After graduating from the School of Pharmacy at
National Taiwan University, I also obtained a master’s
in pharmaceutical chemistry there and then a Ph.D. in
biochemistry and molecular biology at the New Jersey
Medical School.
I immigrated to the U.S. with my husband and two
children in 1982. Because my husband likes country
living, we moved from Kinnelon, N.J., to Warwick, N.Y.,
in 1998 and have been here since.
I’ve created several flower gardens and a large vegetable garden at our home, and watching the flowers and
vegetables grow is my main pastime in the summer. My
husband and I also both like to travel and have been to
Japan, China, Southeast Asia, South America, Europe and
Africa.We also enjoy playing golf together so that we can
laugh at each other.
We didn’t know how expensive a college education
was until our two children reached their teens. We
started late in investing for that, but luckily the growth
in the ’90s was enough to pay for their college tuition.
Giving Back.
Elaine Huang of Warwick,
N.Y., and her husband often
donate some of their investment gains to favorite charitable organizations and plan
to set up a scholarship fund
to assist medical students.
Their grandchildren will also
get help with their college
education from the Huang
family’s portfolio.
With the lesson learned, we invested early in our two
granddaughters’ education funds at their first birthdays. It
will be a big help in getting them through their education.
We often make donations to colleges and various
charity organizations with our investment gains. My husband put himself through medical school by tutoring
and with a scholarship donated by a doctor. To give back
to the community, we plan to set up a scholarship fund
to help medical students in need. We will also use our
investment gains for our retirement.
I always remember a story my friend Bob told about
his dying father. As Bob sat with him at his bedside,
Bob’s father thanked him for the investment advice that
provided enough money to spend in his old age. This
story tells us how important it is to do the right things
when planning for our retirement.
Being a scientist, I find little difficulty in studying investments. I truly enjoy using the Stock Selection Guide
to analyze stocks and since joining BI, I haven’t bought
a single stock without completing one.
Angele McQuade is the author of two books, including Investment
Clubs for Dummies. She lives in Arlington, Va., where she also writes
novels for children and teens. If you’d like to be featured in a
future profile, contact Angele through www.angelemcquade.com.
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20
21_myICLUB Ad_Apr15_21 2/20/15 1:05 PM Page 21
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myICLUB.com now has a new more attractive user interface with a more efficient screen layout featuring
a new left side navigation menu which provides links to all transactions and reports from expandable
sub-menus, while retaining the same menus and basic navigation system you’re familiar with so you can
find features the same way as you have in the past.
But the real story is underneath the hood with more than 15 new features and enhancements that will
make myICLUB.com even more useful to all investment club treasurers and members.
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myICLUB.com later in 2015
There are too many great new features to describe them all here
so please visit www.myICLUB.com and Check Out What’s New.
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22_23_24 Stock to Study[1]_Apr_22_23_24 2/20/15 11:43 AM Page 22
STOCK TO STUDY | Featured Company
Salvaging Big Bucks From Banged-Up Buggies
Copart, Inc.
Operating salvage facilities and helping insurers sell off
damaged vehicles might not sound like a sexy way to make
money. But Copart, Inc. (ticker: CPRT), the nation’s largest
operator of vehicle auctions and associated salvage yards,
has turned such gritty services into a sophisticated — and
profitable — international business.
According to Yahoo! Finance, nine analysts recently
were following Copart. A search of a leading publication
database turned up 263 articles about Copart published
over the past 12 months. In contrast, competitor LKQ,
with nearly twice Copart’s market capitalization and more
than four times its annual revenues, had 566 published
articles for the same period.
lthough Copart purchases
Fourteen analysts were coversome vehicles outright
ing LKQ. As a comparison,
and resells them on its
Apple, one of the world’s bestown account, the Dallas-based
known businesses, had 22,653
company generates most of its
stories, with 46 analysts followrevenue by acting as an agent
ing the company.
for sellers.
Committee members also
Copart processes vehicles
emphasized that the share
in return for consignment
price could benefit if managefees — either a flat charge or
ment resumes its aggressive
a percentage of the auction
repurchasing of stock. Copart
sale price. The company sells
reduced the number of shares
some vehicles to the general
outstanding 17.4 percent
public, but it deals mostly with
through 2013 under a repurSalvage Heaven. After an accident, if the insurance carrier
licensed buyers that include
chase program started in 2011.
says a vehicle is totaled, it’ll end up at an auction service such
used-car dealers, exporters and
With that authorization, the
as Copart. Copart holds some 36 percent of this U.S. market.
businesses that repair, rebuild
company could buy back up to
or dismantle damaged vehicles.
98 million shares.
Copart still operates physical auctions at some of
Under the current program, Copart could repurchase
its sites where buyers can kick the tires. Over the past almost 48 million more shares. The company made no
10 years, however, its proprietary Internet platform has repurchases in 2014, but analysts suggest that manageaccounted for a growing proportion of revenues. Potential ment may buy more shares if market conditions warrant
buyers can review and purchase vehicles without actually a resumption.
examining them, conducting transactions online 24 hours
a day.
Salvage Solutions
Sellers that outsource the disposal of vehicles to auc- When a vehicle is in an accident, the owner’s insurance
tion services such as Copart gain several advantages. carrier estimates repair costs. When the projected costs
Since a greater number of buyers can check out vehicles exceed the resale value, the insurer typically sends the
online, auction prices trend higher. The potential for “totaled” vehicle to an auction service.
transaction fraud is eliminated. And Copart offers numerIn fiscal year 2014 (ended July 31, 2014), insurers
ous ancillary services that hold down costs and make supplied 81 percent of the vehicles Copart processed.
the process go more smoothly.
The company conducts business with all major domesMembers of the Editorial Advisory and Securities tic insurers, and in 2014 it reportedly had an exclusive
Review Committee acknowledged that Copart’s results deal to service Allstate, the country’s third-largest carrier.
in recent quarters have been relatively flat. They noted,
The company also handles vehicles from car rental
however, Copart’s history of solid growth.They also sug- agencies, automotive charities, banks and other financial
gested that industry trends and overseas expansion institutions.A small part of the business involves auctionopportunities could boost the company’s potential in ing collectible vehicles.
coming years.
Management reports that the auction price for a typInvestors sometimes find good prospects among ical salvage vehicle ranges from $2,000 to $2,500. The
stocks that are flying below the market’s radar. In that company sold more than 1 million vehicles in 2014.
regard, committee members characterized Copart as an According to one estimate, Copart may hold 36 percent
underfollowed company.
of the domestic market.
A
22
STOCK TO STUDY | Featured Company
trade groups and market research
firms are showing positive trends,
however. As the largest operator of
auto auctions, Copart should benefit.
Based on surveys of member businesses, the National Auto Auction
Association estimated that 15.2
million vehicles entered auction in
2013, up 4.3 percent from 2012.
Unit sales rose to 8.2 million vehicles,
up 4.2 percent from the previous
year.
Meanwhile, owners who kept
their vehicles longer through the
recession have been driving greater
distances as the economy recovers.
Both factors contribute to the
growing demand for replacement
parts from salvage vehicles.
The U.S. Highway Administration
reported that in June 2014, the
beginning of the peak summer
travel season, American drivers
logged 251.7 billion vehicle miles,
1.4 percent more than in the yearearlier month. For the 12 months
from mid-2013 to mid-2014, drivers
logged almost 3 trillion miles, the
highest level in six years.
IHS, a leading market research
company, reported in mid-2013 that
the average age of light vehicles in
the United States had climbed to
11.4 years as financially stressed
drivers put off replacing their vehicles. In contrast, the average vehicle
was just 9.6 years old in 2002. The
research firm reported that the proportion of vehicles that are older
than 12 years has risen significantly.
Final Notes
Readers are urged to conduct their
own studies of Copart using the
BetterInvesting methodology. The
Stock to Study goal is a doubling in
investment value within five years.
No investment recommendation is
intended.
BetterInvesting hasn’t previously
featured Copart.The company didn’t
appear on the Top 200 survey of
investor holdings for 2014 (see the
story on page 39).
The Editorial Advisory and Securities Review Committee met on March 6. The Stock to
Study and Undervalued Stock selected for the May 2015 issue of the magazine were
announced shortly afterward. Look for the Stocks to Study box on the right-hand side of
the homepage. The link will take you to the BetterInvesting Newsroom:
www.betterinvesting.org/Public/MediaCenter/MediaCenter/News+Releases/default.htm
SSG Study Notes
Capitalization section: Copart has about 22 percent debt
to total capital. Value Line has assigned an above-average
Financial Strength rating of A to the company. Insiders own
about 7 percent of Copart’s common stock, Morningstar
reports, indicating that management’s interests are aligned
with those of shareholders. Common shares outstanding
currently stand at about 126 million, continuing a long-term
decrease. Value Line projects shares to decline to 120 million over the next three to five years.
■
Section 1 (Visual Analysis of Sales, Earnings and Price):
Long-term sales have increased by 10.2 percent and earnings per share by 11.5 percent. Sales have increased consistently, while earnings have been flat or down the last
couple of years. What has caused this decline? Are the
24
Copart, Inc.
www.copart.com ■ ■ ■
National Auto Auction Association
www.naaa.com
Used Car News
www.usedcarnews.com
— Reporting by contributor Kevin Lamiman
growth rates acceptable for a company of Copart’s size
(revenues of $1.2 billion in 2014)?
During your analysis of Copart, you might consider the following
comments and questions for further study:
■
Copart shares underwent 2-for-1
stock splits in 2012, 2000 and 1999.
A 3-for-2 split occurred in 2002. The
company doesn’t offer a direct
stock-purchase plan.
More background on Copart and
its industry, including the Morningstar data report (it doesn’t have
an analyst assigned to Copart), Value
Line analyst report and Value Line
industry report, can be accessed
through the Additional Resources
menu in the magazine’s section of
the website.
For more information, contact
Investor Relations, Copart, Inc.,
14185 Dallas Parkway, Suite 300,
Dallas, TX 75254-1327.
■
Section 2 (Evaluating Management): Both pre-tax profits
on sales and return on equity were down in 2014 compared with the five-year average. PTP was 25.7 percent
last year, compared with 28.9 percent for the past five
years. The PTP was above 30 percent every year from
2005 to 2012. ROE was 22.4 percent, versus 23.8 percent
for the past five years. Note that the percentage of debt to
equity decreased to 21.4 percent in 2014 from 62.2 percent in 2012. How does debt affect ROE?
■
Section 3 (Price-Earnings History): The high P/E has
increased to above 27 over the past two years from 20-22 in
2010-2012. Do you expect the recent highs to continue over
the next five years? The low P/Es also increased in 2013 and
2014. Which companies constitute Copart’s peers, and
what are their valuations?
Featured Company
Copart Inc.
2014
(ended 7/31/14)
Net sales
2013
%
(ended 7/31/13) change
FY 2015
Q1
$1.2 billion
$1.0 billion
Net income*
$178.7 million
$180.0 million
Diluted EPS*
$1.36
$1.39
(2.2%)
$0.40
—
—
—
—
Declared dividends
Stock exchange
Ticker symbol
Price at time of selection
Past year’s price range
FY 2014
Q1
%
FY 2015
change year to date
FY 2014
year to date
%
change
—
—
11.2% $290.4 million $279.9 million
3.8%
—
(0.7%) $52.6 million
$41.4 million
27.0%
—
—
—
$0.32
25.0%
—
—
—
—
—
—
—
—
Nasdaq
CPRT
$37.49
$29.93 – $37.82
Recent market price
$37.67
Market capitalization
$4.8 billion
Value Line long-term earnings growth estimate
13.5%
Consensus long-term earnings growth estimate (two analysts)
13.8%
Fiscal year ended July 2015 consensus EPS estimate
$1.73
Fiscal year ended July 2016 consensus EPS estimate
$1.92
Recent price-earnings ratio**
26.0x
* Excluding nonrecurring and special items.
** The P/E ratio is based on diluted EPS of $1.45 for the four quarters ended Oct. 31.
Sources: Morningstar, Yahoo! Finance, Value Line, Reuters and company reports
Copart offers sellers a broad range
of digital and onsite services. The
company transports vehicles, for example. Its facilities include inspection stations, and Copart personnel
can offer salvage estimates.
Service revenues in all categories,
including fees from consignment
sales, constituted 82 percent of the
2014 total. Vehicle sales represented
the rest of total revenues.
In 2014 Copart owned or leased
facilities in all except five states. The
company reportedly was running
160 salvage yards and 203 auction
facilities in the United States, Canada
and the United Kingdom.
The company has expanded further overseas and now has operations in Germany, Spain, Brazil and
the United Arab Emirates.
In 2014 North American operations accounted for $904 million of
revenues — 77.7 percent of the
total. Copart’s business in the United
Kingdom produced $235.2 million
— 20.2 percent. Other countries
generated $24.2 million.
The Fundamentals
Drawing on 10 years of experience
in the vehicle salvage field, Willis J.
Johnson co-founded Copart in 1982.
He bought out his partner four years
later. Johnson, 68, remains on the
board as executive chairman.
The company began with a single salvage yard near Oakland, Calif.
Copart grew rapidly as Johnson built
a nationwide network of salvage
yards largely via acquisitions. Copart
also offered customers innovative
new services. Copart first issued
publicly traded stock in March 1994.
A. Jayson Adair, 46, became CEO
in February 2010. He’s served as a
Copart executive since mid-1989.
Morningstar reported that officers and directors recently owned
7 percent of 126 million weighted
average shares outstanding and institutions held 89 percent.
Yahoo! Finance reported insiders
owned 10.5 percent of shares outstanding and institutions, 88 percent.
According to the company’s October
2014 proxy statement, insiders held
17.4 percent of shares outstanding.
Among the company’s competitors,
Morningstar reports, are AutoNation
(AN), Penske Automotive Group (PAG),
CarMax (KMX), Inchcape (INCH.L)
and USS Co. (USSJY). Direct competitors include KAR Auction Services
(KAR), formerly known as ADESA;
LKQ (LKQ); and privately held
Manheim, says Yahoo! Finance.
Driving Forward
Although Copart opens some new
facilities, the challenges can be formidable. For example, zoning regulations
in many communities put up bar riers to establishing new salvage
yards.
The company avoids those headaches as well as the startup expenses and capital costs of establishing
new locations by functioning chiefly
as an industry consolidator. Copart
acquires auction and salvage yard
businesses, mostly small, privately
owned operations. In 2014 the company acquired or opened 21 additional facilities worldwide.
The company sometimes buys
larger concerns. One recent example
was its 2013 acquisition of privately
held QCSA Direct of Davenport,
Iowa, which had 39 facilities in
14 states and was auctioning more
than 100,000 vehicles a year. Terms
of the transaction weren’t disclosed.
Copart pioneered the use of technology to broaden its reach. The
company introduced its proprietary
virtual bidding Internet auction-style
sales technology in its domestic
operations in 2004.
The company began using the
system in the United Kingdom in
2008. Copart launched the third generation of the platform systemwide
in August 2013.
Several key domestic industry indicators slumped during the depths of
the Great Recession. Industry statistics compiled by federal agencies,
23
25-26 SSG Apr15_Apr15_25_26 2/18/15 4:43 PM Page 25
The Stock Selection Guide | STOCK TO STUDY
Figure 1
Capitalization information.
Besides background about
the company, including the
data source used for the
study, this section provides
information about the
number of common and
preferred shares and the
percentages held by
insiders and institutional
investors. The company’s
total debt and the percentage of debt to total capital
also are detailed.
Figure 2
Recent sales and earnings results. This section
contains the company’s
most recent quarterly results along with a comparison of results from the
same quarter a year ago.
Figure 3
Visual analysis of sales,
earnings and price. The
graph provides a quick view
of the company’s financial
results. A long-term history
of consistent sales and
earnings growth at relatively high rates indicates
the company is well-managed and worth the time
to study further.
The company’s historical
sales growth is plotted on
the green line and historical earnings growth is
represented by the blue
line. The black bars provide information about the
stock price. For each year,
the top of the bar is the
annual high price, while
the bottom is the low
price.
1
Company
Date
Copart
Prepared by
Where Traded
Data taken from Morningstar
Auto & Truck
Nasdaq Major product/service Dealerships
Reference
CAPITALIZATION --- Outstanding Amounts
Preferred($M)
Common (M Shares)
Debt($M)
1
280.0
0.0
126.2
% Insiders
% Institution
7.0
89.1
% to Tot.Cap. 21.8 % Potential Dil. None
Symbol: CPRT
VISUAL ANALYSIS of Sales, Earnings and Price
2K
2
FY 2015 Q1 (Ended 10/31/2014)
1K
700
600
500
400
($M)
($)
Latest Quarter
290.4
0.40
Year Ago Quarter
279.9
0.32
Percentage Change
3.8%
26.2%
300
200
3
2014 sales = $1.2 billion
100
70
60
50
40
2014 high price = $37.50
30
30%
2014 low price = $30.40
25%
20
2014 EPS = $1.36
20%
10
7
6
15%
5
4
10%
3
2
5%
1
2005
2006
2007
2008
2009
2010
10.2 %
4 (1) Historical Sales Growth
Forecasting future sales
%
(2) Estimated Future Sales Growth
and earnings growth rates.
This is the section in which you provide the first two primary judgments. The
core of the BetterInvesting methodology is this: Sales growth drives earnings growth, and earnings growth drives stock price. Using the Stock
Selection Guide, you’ll forecast growth rates and determine the stock’s
potential high and low prices over the next five years.
Figure 4
2011
2012
2013
2014
2015
(3) Historical Earnings Per Share Growth
(4) Estimated Future Earnings Per Share Growth
2016
2017
11.5
2018
2019
%
%
The first step is to forecast sales growth. The company’s historical performance is useful information, but you’ll need to research the company
and decide whether its revenue growth will continue at the historical level,
slow down or possibly speed up.
Remember, however, that even though a company can grow earnings
faster than sales by cutting costs or buying back shares, this can’t last
forever. EPS growth eventually will drop to the same rate as sales.
You’ll use the estimated growth rate for earnings to forecast the earnings
per share five years from now. On the second page of the SSG, you’ll use
the future EPS to determine the stock’s potential high price.
A key question to ask yourself is whether the company is growing at a
sufficient rate relative to its size. Look for higher growth rates for small
companies compared with medium-size and large companies.
After estimating sales growth, the next step is to forecast growth in earnings per share. In many cases you can estimate EPS growth that’s similar
to the rate you used for sales. EPS growth can differ from sales because
of rising or falling expenses, an increasing or decreasing number of outstanding common shares and changing tax rates.
Editor’s note: The Stock Selection Guide and Value Line and Morningstar company and industry reports are available at the BetterInvesting website for your use in conducting stock studies; see
the online version of this article. You’ll need Adobe Acrobat software to read the Portable Document Format files.
25
25-26 SSG Apr15_Apr15_25_26 2/18/15 4:43 PM Page 26
STOCK TO STUDY | The Stock Selection Guide
2
Copart
Company
EVALUATING MANAGEMENT
(CPRT)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
A
% Pre-tax Profit on Sales
(Net Before Taxes ÷ Sales)
B
% Earned on Equity
(E/S ÷ Book Value)
3
LAST 5
YEAR AVG.
UP
TREND
DOWN
5
36.1 33.0 38.8 31.8 30.6 31.0 30.3 31.0 26.5 25.7
15.4 16.3 17.6 17.7 16.2 16.8 33.0 30.7 22.4
PRICE-EARNINGS HISTORY as an indicator of the future
This shows how stock prices have fluctuated with earnings and dividends. It is a building block for translating earnings into future stock prices.
PRESENT PRICE
A
Year
1
2
3
4
5
2010
2011
2012
2013
2014
TOTAL
AVERAGE
8
C
HIGH
LOW
19.2
24.0
27.9
38.3
37.5
15.8
15.6
17.9
23.3
30.4
Earnings
Per
Share
E
F
Dividend
Per
Share
G
H
% Payout
F ÷ C X 100
% High Yield
F ÷ B X 100
0.000
0.000
0.000
0.000
0.000
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Price Earnings Ratio
HIGH
LOW
A÷C
B÷C
17.8
14.4
12.9
16.8
22.3
21.6
22.1
20.1
27.6
27.5
0.89
1.09
1.39
1.39
1.36
Figures 7 & 8
LOW THIS YEAR
D
6
6
7
4
HIGH THIS YEAR
B
PRICE
9 CURRENT PRICE EARNINGS RATIO
AVERAGE PRICE EARNINGS RATIO
EVALUATING RISK and REWARD over the next 5 years
Assuming one recession and one business boom every 5 years, calculations are made of how high and how low the stock might sell. The upside-downside ratio is the key to evaluating risk and reward.
A HIGH PRICE — NEXT 5 YEARS
Avg. High P/E
X Estimate High Earnings/Share
(3D7 as adj.)
B LOW PRICE — NEXT 5 YEARS
(a) Avg. Low P/E
Selected Estimate Low Price
C ZONING
(4A1)
7
(4A1)
= $
(3B7)
(c) Recent Severe Market Low Price =
(d) Price Dividend Will Support
= Forecast High Price $
X Estimated Low Earnings/Share
(3E7 as adj.)
(b) Avg. Low Price of Last 5 Years =
Present Divd.
High Yield (H)
High Forecast Price Minus
=
=
= $
Low Forecast Price Equals
(4B1)
(4C2) Lower 25% = (4B1)
to
(4C3) Middle 50% =
to
(4C4) Upper 25% =
to
(Buy)
(Maybe)
(4A1)
Present Market Price of
8
(4B1)
Range. 1/3 of Range =
(C)
(4CD)
9
(Sell)
is in the
Range
(4C5)
D UP-SIDE DOWN-SIDE RATIO (Potential Gain vs. Risk of Loss)
High Price (4A1)
Minus Present Price
=
Minus Low Price (4B1)
Present Price
=
10
To 1
(4D)
E PRICE TARGET (Note: This shows the potential market price appreciation over the next five years in simple interest terms.)
High Price (4A1)
=(
Present Market Price
5
5-YEAR POTENTIAL
A Present Full Year’s Dividend $
Present Price of Stock
) X 100 = (
) - 100 =
$
=
X 100 =
X Avg. % Payout
C ESTIMATED AVERAGE ANNUAL RETURN OVER NEXT FIVE YEARS
5 Year Appreciation Potential (4E)
5
Average Yield (5B)
Average Total Annual Return Over the Next 5 Years
(5C)
(5A)
% Appreciation
11
Present Price $
%
%
%
Figure 5
Evaluating management. The key to successful investing is finding wellmanaged companies whose stocks are reasonably priced. The company’s
historical growth rates provide evidence of good management, as do the
numbers in this section.
Pre-tax profit margins represent how much of each sales dollar a company
keeps before taxes. We look at pre-tax margins because companies have
limited control over their tax rates. Look for stable or growing margins.
Return on equity indicates how well the company manages the money shareholders have invested in the company. Again, look for stable or growing returns.
Figure 6
Price-earnings ratio history. Section 3 includes information you’ll use in
Sections 4 and 5. Columns D and E detail the high and low P/Es for each
Present Yield or % Returned on Purchase Price
=
(3G7)
© 1996. National Association of Investors Corporation; 711 West Thirteen Mile Road, Madison Hgts., Michigan 48071
26
(4E)
This combines price appreciation with dividend yield to get an estimate of total return. It provides a standard for comparing income and growth stocks.
Note: Results are expressed as a simple rate; use the table below to convert to a compound rate.
B AVERAGE YIELD OVER NEXT 5 YEARS
Avg. Earnings Per Share Next 5 Years
of the past five years. You
can also see the average
P/E for the last five years
as well as the current P/E.
Information about the
dividend yield also is
offered.
=
%
(5B)
Forecasting the high and
low prices. The stock’s
P/E history will inform
your judgments about the
potential high and low
prices. Multiply your predicted high P/E by the
high EPS you calculated
on the first page to determine the potential high
price. Multiplying the expected low P/E by the low
EPS (for a growth company, this often is the
most recent year’s earnings) is one way to predict the future low price.
Figures 9 & 10
Buy-Hold-Sell zones and
upside-downside ratio.
After calculating the potential high and low prices,
you can use the SSG to
determine whether the
stock is reasonably priced.
The upside-downside ratio
compares the potential
price increase to the
potential price drop. Look
for stocks that are both in
the Buy zone and have an
upside-downside ratio of
at least 3 to 1; beware of
abnormally large or small
ratios.
Figure 11
Estimated average annual
return over the next five
years. In this final section, you’ll learn about the
stock’s potential return
over the next five years. This figure includes both the expected return from
increases in the stock’s price and predicted dividends.
Editor’s note: Those who want to learn more about estimating
future growth rates, predicting a stock’s potential return and other
issues regarding the SSG are urged to contact their local chapter
for a schedule of classes. See the Regional Notices section in this
issue for a list of chapters and contact information. A number of
resources also are available at the BetterInvesting website. In the
StockUp Series, among other things, volunteer educators take you
step by step through an SSG for specific companies. There’s also an
online tutorial you can access by clicking the Getting Started
Curriculum for stocks at the website’s homepage. You can also
order our Stock Selection Handbook through the online store.
27_28 Undervalued_Apr15_27_28 2/19/15 5:01 PM Page 27
Featured Company | UNDERVALUED
Extra Ingredients: Company Creates Additives for Food and Health Products
FMC Corporation
FMC Corporation (ticker: FMC) continues to undergo transformation. The chemical company’s management has engineered a series of acquisitions and divestitures designed to
expand its agricultural, food and health product lines and deemphasize raw materials.
The United States and Brazil dominated in the Americas,
with each country contributing more than $1 billion
in sales.
FMC Agricultural Solutions, the company’s primary
segment, accounted for $2.1 billion of 2013 revenues —
55.4 percent of the total. The unit produces insecticides,
ne recent change is the acquisition of Chemi- herbicides and fungicides used to protect a broad range
nova, a Danish chemical company that proof crops. Nonagricultural markets include
duces crop-protection compounds. FMC
herbicides for controlling weeds on turf and
will pay $1.5 billion and assume Cheminova’s
roadsides. FMC also sells pest-control prod$340 million in debt.The deal is expected
ucts for use in homes and gardens.
to close early this year, pending final reguFMC Health and Nutrition generated
latory approvals.
$762 million — 19.7 percent of the company’s
FMC also will sell its alkali chemicals
top line. The segment markets carrageenan
business, which produces soda ash. FMC is
and alginates, thickening and stabilizing
selling the business to Tronox (TROX), a U.S. mining
agents derived from refined seaweed. The
and minerals company. Tronox will pay just over
additives are used in foods and in pharmaceutical
$1.6 billion, and the deal is expected to close
and nutritional supplement capsules. The unit’s
shortly, pending regulatory approvals. The
microcrystalline cellulose also has applicaalkali chemicals sale will help reduce debt
tions in foods and pills.
related to the Cheminova acquisition.
FMC Health and Nutrition markets pectin,
The long-term narrowing of the company’s
an additive used to add texture and stabilize
focus hasn’t seemed to impress the markets.
foods; omega-3 fish oils, used as a nutriAt the recent share price of $61.72, the
tional supplement; and coloring agents
Flower Power. FMC Corstock was down 26.5 percent from its
derived from natural sources, used in
poration produces natural dyes
52-week high of $83.94 on March 10, 2014,
foods, pharmaceuticals, cosmetics and
from agricultural products such
when FMC announced plans — since abanpersonal care products.
as these safflowers for food,
doned — to split up the company.
FMC Minerals produced $970 million —
beverages and drugs.
Members of the Editorial Advisory and
25 percent of the total. The segment has
Securities Review Committee remarked
been the world’s largest supplier of natural
that with the slide in the share price, FMC’s valuation has soda ash, which it mines from trona ore located primarily
become more reasonable. The stock therefore may present in Wyoming’s Green River Basin. Soda ash is a component
a buying opportunity for investors who believe that of glass, detergents and various chemical compounds.With
FMC’s narrowed focus will improve its long-term access to natural deposits, FMC has had an advantage in
growth prospects.
competition with overseas producers of synthetic soda
ash, which requires more energy to produce and generCorporate Chemistry
ates waste products requiring costly disposal.
Management reported that in 2013, FMC was operating
The minerals segment also extracts lithium from brine
about 30 production facilities and mines in 18 countries. deposits in mountainous locations in Argentina. Lithium
International sales produced $2.6 billion, 66.8 percent of applications include specialty polymers, pharmaceuticals,
the $3.9 billion revenue total for 2013. (Editor’s note: greases and lubricants, and glass and ceramics. The eleRelease of FMC’s 10-K report containing details on its ment is also used to manufacture high-capacity batteries
2014 results was anticipated shortly after deadline for used in consumer electronics, military devices, aerospace
this issue of the magazine.)
applications and electric-car production.
Competitors include BASF (BASFY), Dow Chemical
Here is FMC’s regional sales picture for 2013:
(DOW) and Air Liquide (AIQUY), Morningstar reports.
■ North America, $1.3 billion, 33.2 percent
Among the company’s direct competitors are Dow Chem■ Latin America, $1.4 billion, 35.7 percent
ical, E.I. DuPont de Nemours and Company (DD), as
■ Asia Pacific, $0.7 billion, 17.5 percent
well as the privately held Asahi Glass, according to
■ Europe/Middle East/Africa, $0.5 billion,13.6 percent
Yahoo! Finance.
O
27
27_28 Undervalued_Apr15_27_28 2/19/15 5:01 PM Page 28
UNDERVALUED | Featured Company
FMC Corporation
2014
2013
%
(ended 12/31/14) (ended 12/31/13) change
Net revenues
$4.0 billion
$3.9 billion
Net income*
$397.5 million
$453.3 million
Diluted EPS*
$2.96
Dividends
$0.59
Stock exchange
Ticker symbol
Price at time of selection
Past year’s price range
Recent market price
Market capitalization
4.2%
FY 2014
Q4
FY 2013
Q4
$1.1 billion
$1.1 billion
%
FY 2015
change year to date
FY 2014
year to date
%
change
(3.4%)
—
—
—
(12.3%) $84.5 million $133.0 million (36.5%)
—
—
—
$3.33
(11.1%)
$0.62
$0.95
(34.7%)
—
—
—
$0.54
8.3%
$0.15
$0.14
11.1%
—
—
—
NYSE Value Line long-term earnings growth estimate
FMC Consensus long-term earnings growth estimate (13 analysts)
$62.06 2015 consensus EPS estimate
$51.04 – $83.94 2016 consensus EPS estimate
$61.72 Recent price-earnings ratio**
11.5%
10.0%
$3.74
$4.64
20.9x
$8.2 billion
* Excluding nonrecurring and special items.
** The P/E ratio is based on diluted EPS of $2.96 for the four quarters ended Dec. 31.
Sources: Morningstar, Yahoo! Finance, Value Line, Reuters and company reports
Growth Formula
The Cheminova acquisition will
expand FMC’s access to agricultural
markets in Europe, Latin America and
parts of Asia. The business operates
manufacturing plants in Denmark
and India.
Cheminova recently reported annual sales of about $1.2 billion. Its
acquisition will likely allow FMC’s
annual revenues to top $5 billion.
The Cheminova and Tronox deals
are just the latest stages in a four-year
segment realignment program that
management has titled Vision 2015.
Before negotiating the sale of its soda
ash business to Tronox, FMC had laid
plans to spin off its minerals segment
to existing shareholders. In March
2014 management announced it
would complete the tax-free spinoff
in early 2015. The minerals unit
would have become FMC Minerals,
and the remaining two segments
would be renamed New FMC. Dr.
Pierre R. Brondeau, FMC’s current
chief executive, would have remained
in charge of New FMC.
FMC executives had described
the proposed breakup as a strategy
to allow the management of each
publicly traded corporation to narrow their focus in pursuit of greater
earnings growth. With the sale of the
soda ash business, however, the
breakup plan was abandoned. The
28
minerals unit will remain an operating segment of FMC, going under the
name FMC Lithium. Management has
noted that selling its lithium assets in
Argentina would require the permission of that country’s government.
The reconfigured segment will be
one of a small number of lithium producers. It reportedly will be unique as
the only pure-play lithium producer
with a proven track record.
In mid-2013 the minerals unit applied for a state mineral lease in an
area of southwestern Wyoming where
a major new lithium deposit has
been identified. Researchers studying
the deposit in the Rock Springs
Uplift formation estimated it could
contain lithium worth $500 billion
at April 2013 prices.
The United States currently imports more than 80 percent of the
lithium it requires. If estimates of the
Wyoming find’s extent prove correct,
the deposit has the potential to meet
100 percent of U.S. requirements.
Preliminary studies suggested the reservoir contains 228,000 tons of lithium,
equivalent to 720 years of current
global production.
As part of the ongoing Vision
2015 realignment, FMC management
divested a low-growth division last
year. In March FMC sold its division
producing peroxygens — oxidizing
disinfectants. Private equity firm One
Equity Partners, a private investment
arm of JPMorgan Chase (JPM), paid
$200 million for the business.
Final Notes
The goal for an Undervalued Stock is
a 20 percent increase in investment
value (market price appreciation
plus dividends) within 18 months.
BetterInvesting is profiling FMC for
educational purposes only. No investment recommendation is intended.
The magazine hasn’t previously
featured FMC. FMC didn’t appear in
the Top 200 Survey of investor holdings for 2014 (see p. 39).
Shares underwent 2-for-1 splits in
2012 and 2007. The company does
not offer a dividend reinvestment
and direct stock-purchase plan.
Internet links to background on
FMC and its industry, including the
Value Line analyst report, Morningstar data report (the service currently
doesn’t have an analyst assigned to
the company) and Value Line industry report, can be found via the
Additional Resources menu in the
magazine’s section of the website.
For more information, contact
Investor Relations, FMC Corporation,
1735 Market St., Philadelphia, PA
19103.
— Reporting by contributor Kevin Lamiman
29_ Fundamentals of Investing_Apr15_29 2/19/15 3:41 PM Page 29
Fundamentals of Investing | BEGINNERS
Like Online Auctions, Wall Street Is Driven by Fear and Greed
Of Ugly Scarves, eBay and Stock Market Forces
by Sam Levine, CFA, CMT
Explaining the forces that move stock markets used to be
hard, but along came eBay in the late ’90s, followed by the
Internet and real estate bubbles. Now what used to take hours
to explain to new investors takes minutes. So in this one-page
article I’ll cover how markets work, what drives stock prices
and how people are charged for buying and selling a stock.
Stock Exchanges and the Ugly Scarf at the
Bottom of Your Closet
he easiest way to sell unwanted yet expensive
clothes used to be at a garage sale, where
you might price a $150 scarf for $10 just
to get rid of it. That markdown was necessary
to make your scarf attractive enough for someone who didn’t know he needed that ugly scarf
to actually buy it. Worse, it’s likely the scarf didn’t
sell at all. Another solution might have been
listing it in the classified section of a local newspaper.With classifieds, you might have attracted
more buyers but you still ran the risk of
underpricing your scarf, no matter how
badly you wanted to get rid of it.
EBay revolutionized the ugly scarf
business, along with a few million other
categories. Many potential buyers will go
to that site specifically to find a scarf and, if it’s
one that many buyers want, will bid up the price until
only the buyer who wants it the most will get it. And for
doing very little other than putting together motivated
buyers and sellers, eBay receives a hefty commission
when the item sells. Frequent eBayers will agree with
the following few observations:
T
■
■
■
The more trustworthy the seller, the more you’ll pay
for the item.
The rarer the item is compared with how many people want it, the higher the price will be.
The better the quality, the higher the selling price.
Stock Markets Have Much in Common With eBay
A stock market — and there are quite a few of them
across the world — is where investors can buy and sell
the stocks they own or wish to buy. The value of an exchange comes from centralizing the trading of a stock in
one location, physical or online. Like eBay, the more buyers and sellers interested and able to trade a certain
stock, the more valuable that stock becomes.
Also, one individual share of a listing of a company
has exactly the same specifications as any other, so
they’re all priced the same because investors trust what
they’re buying. If many people want to buy a stock but
few are selling it, the price will go up.
Also, like scarves on eBay, the higher the company’s
quality, the more it’ll fetch in a share price, even if
a wildcat bargain can be found buying something a little riskier.
It’s a tired cliche that stocks are driven by fear and
greed, but it’s accurate. Investors buy and sell in anticipation of what they believe other investors will do with
the stock. If investors believe others will be bidding
the price up, they’ll buy. The more certain investors are of the outcome, the
more they’ll be willing to pay —
which leads to a lower but, hopefully, less risky profit if they’re right.
If they believe other investors will
sell a stock, they’ll look to sell first.
Long-term investors think about the demand
over years. Short-term investors might think
about the next five seconds or less. Because a
share of stock represents ownership in a company, the demand for a stock is mostly tied to how
much profit the company is expected to earn.
Sometimes, stocks or goods will start trading inde-
“
Like scarves on eBay, the
higher the company’s quality, the
more it’ll fetch in a share price.
”
pendently of their real value, as was seen during the
Internet stock bubble or the eBay Beanie Baby craze.
You can sometimes profit from that, too.
Once you’ve decided on a stock to purchase, there
are two costs. One is the bid-ask spread. If you buy a
stock and simultaneously sell the same number of shares
for a little less, you’ll have a loss. Usually a small amount,
but if you trade often, that loss will pile up. Commissions
are what the broker receives for facilitating the trade —
one commission charge for the buy and another for the
sell. Those costs vary widely depending on where you
trade your stocks. Keep them as low as you can while
getting the service you need. In the next column, we’ll
dissect a stock and look at its different features.
Sam Levine holds the chartered financial analyst and
chartered market technician designations. He’s a frequent contributor to this magazine.
29
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31_ International Stocks_Apr15_31 2/19/15 3:50 PM Page 31
International Stocks | STOCKS
Currency Changes Bite Into Swiss Company’s Gains
Syngenta’s R&D: Will Seeds of Profit Sprout?
by Nic Van Broekhoven
The United Nations is forecasting the world’s population to
increase from 7 billion in early 2015 to 9 billion by 2050.
Overall living standards are improving in most areas, and this
requires dietary changes. Western standards are being
imported and leading more people to eat protein and dairy.
The world’s agriculture landmass isn’t growing and productivity isn’t keeping pace with worldwide population growth.
C
ompanies such as Monsanto (U.S.) and Bayer (Germany)
are working to improve agricultural productivity via
genetic modification and other food- enhancing techniques. During 2014 their Swiss competitor Syngenta lagged
its peers, as its investments in agrochemicals and seeds hadn’t
yielded the desired results so far. But Syngenta believes its
research and development dollars will yield better results in
the future, so the company may be worth your attention.
Syngenta trades on the Swiss Exchange. American depositary receipts representing its stock are traded on the New
York Stock Exchange under the ticker SYT.
In 2000 Syngenta was founded as a merger between
the agribusinesses of Novartis and AstraZeneca, two of
the world’s largest pharmaceutical companies. Today
Syngenta is a global leader in agriculture-related chemicals with leading global market positions
in herbicides and fungicides (it’s the
No. 1 player), nonselective herbicides,
seed care and insecticides (No. 2 player).
Growth at Syngenta will come from
technology adoption in emerging markets
and new product launches.
Crop protection represents 75 percent
of Syngenta’s revenues, seeds account for
21 percent, and lawn and garden make up
4 percent.
Syngenta has a market capitalization of
$31 billion. Management has announced a
target to achieve sales of $25 billion by
2020 — 66 percent higher than 2014 sales
of $15 billion. It’s expected to earn $21
per share in 2015, increasing to more than
$25 per share in 2016. At its current valuation of $66 per share, the shares trade
below 15 times 2015 expected earnings,
cheap versus its peers trading at 18 times
on average.
Syngenta has historically achieved high
return on equity and has consistently been
free-cash-flow positive. Investor concerns
around Syngenta have centered on significant research and development expendi-
tures that have yielded little results. A significant slump in
key crop prices — corn, soy, wheat — have curbed farmer
incentives to spend on agriculture technology. Receiving
regulatory approval for new products, including chemical
and genetically modified foodstuffs, also is challenging, as
there’s more opposition from consumer advocacy groups
and regulators.
Another risk to the stock price is that the 2020 sales
targets the company announced might be unachievable
and disappoint investors.
Finally, in January 2015 the Swiss National Bank announced it would no longer hold the Swiss franc to a
fixed exchange rate with the euro. This action currently
has an adverse effect on Syngenta. Every 10 percent
strengthening of the franc reduces Syngenta’s EBIT (earnings before interest and tax) by 5 percent.
(Companies mentioned in this article are for educational purposes only; no investment recommendation is
intended. Readers are urged to conduct their own studies
of any stocks of interest.)
Nic Van Broekhoven is a portfolio manager at Value Square
Asset Management. which holds no position in Syngenta.
31
32_Folio Investing Ad_Apr15_32 2/20/15 12:37 PM Page 32
33_ Stock Screen _Apr15_33 2/20/15 2:28 PM Page 33
Stock Screen | STOCKS
30 and Under Only, Please — We’re Talking P/E Ratios Here
18 Stocks Combining Growth, Quality
by Adam Ritt, Editor
The following screen combines elements of growth, quality and
value. Using the MyStockProspector.com online program, we filtered for these qualities on Feb. 6:
■
■
■
■
■
■
10-year annual sales, earnings per share growth of at least
10 percent
Quarterly sales, earnings per share growth of at least
3 percent
Current price-earnings ratio of 30 and under
10-year sales, EPS growth R2 (a measure of consistency,
with 1.0 the highest figure possible) of 0.90
Trends of even and above for pre-tax income and return
on equity
Ratio of debt to capital of 33 percent or less
Stocks are mentioned only for educational purposes. No investment recommendations are intended.
Found On the Rack Here: Ross Stores, a Major Off-Price Apparel Chain
Company
Ticker
10–Yr
Sales Growth
10–Yr
EPS Growth
Quarterly
Sales Growth
AmTrust Financial Services
AFSI
34.2 %
27.9 %
34.5 %
Ametek
AME
11.7
16.7
15.9
Check Point Software Technologies
CHKP
12.9
14.7
CTSH
34.5
30.1
Quarterly
EPS Growth
Current
P/E
10–Yr
Sales R2
10–Yr
EPS R2
Trend
ROE
Trend
PTI
100.0 %
9.7
0.98
0.91
-+
++
10.2
21.4
0.92
0.94
+
++
7.6
4.9
22.8
0.98
0.96
+
++
11.9
10.7
24.2
0.98
0.98
Even
Even
Dollar Tree Stores
DLTR
11.1
23.4
11.2
11.8
24.1
1.00
0.97
++
++
NIC
EGOV
19.4
18.1
13.4
100.0
29.9
0.99
0.96
+
++
Equitable Group
EQB.TO
21.5
17.0
16.5
16.6
8.6
0.98
0.98
+
++
F5 Networks
FFIV
21.7
25.5
13.9
38.0
25.7
0.98
0.94
-+
Even
Fossil Group
FOSL
14.8
24.5
10.4
24.0
14.6
0.98
0.94
++
Even
MTY Food Group
MTY.TO
25.5
24.1
20.3
6.3
24.2
0.99
0.98
Even
Even
Novo Nordisk
NVO
13.2
24.0
8.7
3.8
25.7
0.99
0.99
++
+
Prosperity Bancshares
PB
18.6
10.6
21.8
14.4
10.7
0.96
0.95
+
+
PRA Group
PRAA
21.8
19.3
20.8
8.6
14.4
0.99
0.91
++
+
ResMed
RMD
14.7
22.8
10.0
7.6
25.6
0.96
0.95
++
+
Ross Stores
ROST
10.0
25.9
8.4
16.0
22.1
0.99
0.99
+
++
Syntel
SYNT
17.9
22.6
8.8
3.5
15.2
0.99
0.94
+
++
Texas Roadhouse
TXRH
15.3
15.8
15.1
11.7
28.5
0.95
0.96
++
Even
Westinghouse Air Brake Technologies WAB
12.4
22.4
26.3
22.1
25.0
0.94
0.91
++
++
Source: MyStockProspector.com
Join Us Each Month for TickerTalk, a Free Online Program for
BetterInvesting Members. Each Session Is Packed Full of Investing
Tips and Stock Ideas to Help You Become a More Successful Investor.
33
34_35 Mutual Fund Matters_Apr15_34_35 2/20/15 12:05 PM Page 34
MUTUAL FUNDS | Mutual Fund Matters
Certain Alternative Offerings Might Pose Redemption Risks, Analysts Say
SEC Aims to Avert Flight Hazards With Some Funds
by Craig Guillot
In the current low-yield environment, investors have been
looking for any and all options to earn more income. Fund
managers have responded in recent years by offering more
alternative funds that engage in nontraditional strategies
from commodities and currencies to hedging and private
equity. Although inflows and returns have been healthy,
regulators and analysts are beginning to question whether
certain of these funds could have redemption risks.
he Securities and Exchange Commission recently
announced that it’s embarking on a comprehensive review of the mutual fund sector to assess
whether some funds are on shaky ground. The concern
is that those with lots of leverage and too little cash could
have problems paying investors should they decide to
flee the market en masse.
T
The Threat of Redemption Issues
Alternative strategies are booming. According to a Goldman Sachs report from 2013, “Retail Liquid Alternatives:
The Next Frontier,” retail alternative products are in the
early stages of a five- to 10-year growth trend and could
expand into a $2 trillion market. Between 2008 and
2014, the alternative fund space grew from 482 funds
with $42.6 billion to 1,569 funds with $309 billion
under management, Morningstar says.
Alternative funds come in a variety of shapes and
sizes, says Morningstar alternative investments analyst
Josh Charney. They typically hold nontraditional asset
classes that can include currencies and commodities.
Alternative funds can also engage in hedging and shorting and can hold illiquid assets such as private debt or
private equity.
Although these alternative strategies can boost returns
in good times, they can also amplify losses and impact
liquidity when events go south. Regulators have begun
to question what could happen to such funds if shareholders decided to redeem them en masse during a
severe market downturn.
The fear is managers might not be able to sell the
investments fast enough to raise the cash needed to pay
off all the investors looking to get out. Those redemption
fears could create a run on a fund, sparking further
sell-offs and dragging down its share price.
In a December 2014 speech at the World Trade Center
in New York, SEC Chairman Mary Jo White said liquidity
risks affect investors through the underlying assets in
which those funds hold. She said a fund that doesn’t
manage liquidity risk in its portfolio could have trouble
meeting redemptions if it comes under stress. This is
34
especially true for open-ended investments that are
required to provide shareholders with proceeds within
seven days of a request.
If a fund had to sell securities at below-market prices
to meet redemptions, it could further drive down asset
prices for funds with similar assets.White also expressed
concerns about derivatives, which can pose a separate
set of risks. Derivatives use has grown tremendously in
recent years and many funds are now using them in
complex ways.
White says the SEC staff is considering whether broad
risk-management programs should be required for funds
and exchange-traded funds to address risks related to liquidity and use of derivatives. New requirements could include updated liquidity standards, disclosures of liquidity
risks or measures to limit leverage created by the use
of derivatives.
“Such changes could better protect investors, provide
better transparency about the liquidity risks associated
with various funds and mitigate any broader market implications were funds forced to sell assets precipitously
to meet redemptions,” White said.
A Real Risk With Certain Funds
Analysts and institutional advisers have also been questioning redemption risks. Moody’s Investors Service
released sector comments in July 2014 about the issue.
The comments noted that strong inflows in retail products
that package illiquid retail bank loans may be masking
mounting liquidity problems.
The asset-liability mismatch could place tremendous
pressure on liquidity should investors start leaving a
fund. Moody’s analyst Stephen Tu, co-author of the
Moody’s sector report “Mind the Gap: Retail Bank Loan
Funds Pose Liquidity, Reputational Risks for Managers,”
said that although most investors are aware they could
lose money on an investment, few are aware of a fund’s
possible redemption risks.
He explained: “If the number of redemptions at once
is large enough, they may not have the cash from the
proceeds of their sales to keep paying back investors. It
could take longer than (investors expect) for the proceeds to come back.”
Whereas most funds must meet redemptions in seven
days, bank loan funds have settlement times ranging from
15 to 25 days, potentially even more. Moody’s noted a few
bank loan funds that had limited liquidity cushions to
meet redemptions, a number of which had 0 percent in
cash. The July report included PowerShares Senior Loan
Portfolio Fund (ticker: BKLN), SPDR Blackstone/GSO
34_35 Mutual Fund Matters_Apr15_34_35 2/20/15 12:05 PM Page 35
Mutual Fund Matters
Senior Loan ETF (SRLN) and Oppenheimer Senior Floating Rate A (OOSAX).
(Funds are mentioned only for educational purposes. No investment
recommendations are intended.)
The Moody’s report said deteriorating credit conditions, increasing
interest rates or changes in credit
markets could cause outflows and
impact the liquidity of such funds.
It noted that investors often have
short memories, forgetting that bank
loans traded at less than 50 cents on
the dollar as recently as 2008.
Although the threat is real, Chris
Cook, president of Beacon Capital
Management in Dayton, Ohio, says
redemption risks typically aren’t an
issue across the entire fund space.
But it could grow to become a problem for those employing leverage
and holding illiquid assets.
“It is a concern for those with certain (alternative funds),” Cook says.
“Some of these products are using
two to three times leverage and I
wouldn’t imagine there would be
enough liquidity in a mass exodustype situation.”
Protecting Investors
ReKeithen Miller, client services
manager at Palisades Hudson Financial Group in Atlanta, says the SEC is
trying to prevent a repeat of the issues
the market saw in 2008. Dur ing
Ain’t We Got Funds?
Stats from the SEC
■
10,000 mutual funds are registered
with the SEC.
■
46 percent of U.S. households
own mutual funds.
■
57 million U.S. households
own mutual funds.
■
$63 trillion of assets are under
management in the U.S.
that time, the bankruptcy filing of
Lehman Brothers Holdings caused a
fall in the shares of the Reserve
Primary Fund. Ensuing investor anxiety almost caused a run on money
market funds and forced the Fed to
step in.
The Fed’s intention in redemption
risks isn’t to protect investors from
market losses, Miller says, but to
ensure that mutual funds aren’t venturing beyond their missions by
engaging in strategies that carry too
much risk and that investors can’t
understand.“You can’t blame them
when you look at what happened in
money market accounts,” he says. “A
lot of it hinges on the ability to (meet
redemptions), and I think they’re
looking out for investors.”
The SEC is expected to work on
the proposed rules over the course
of 2015. The Moody’s comments
mention a couple of methods asset
managers can employ to address the
asset-liability gap. One way is to simply hold a portion of the fund’s
assets in cash or bonds.Another is to
establish credit facilities that can be
used as a source of liquidity. Other
means include increasing fund leverage and delivering securities in-kind.
Each method has its drawbacks, and
using credit further increases the
fund’s leverage.
Some of the funds report they
already have measures in place to
deal with potential liquidity issues.
Oppenheimer’s Senior Floating Rate
Fund, for example, has a credit line
worth $2.5 billion that it can draw
on if it needs cash for redemptions.
Fund managers have typically
taken very seriously the need to deliver proceeds within seven days,
and many say that recent outflows
from leveraged-loan funds haven’t
impacted redemptions. Nevertheless,
redemptions could become an issue
with certain funds in an abnormally
turbulent time and it’s something
the SEC will continue to investigate
in the coming months.
“It’s not something that has been
widely discussed until recently,” Tu
says, “but we believe it is an issue
that investors should be aware of.”
35
36_37 Between the Lines_Apr15_36_37 2/19/15 5:23 PM Page 36
DISCUSSION & ANALYSIS | Between the Lines
International Stocks May Help Reduce Portfolio Volatility
Why Investors Need a Global Outlook
by Sam Levine, CFA, CMT
Everyone knows that a diversified portfolio should include
non-U.S. stocks. Most people know why: Portfolio fluctuation
will decline because each country’s economy will trend differently at any given time and much of a stock’s performance
depends on the trends of the broad market itself. Even though
most investors agree on the benefits of global diversification,
there are a few new facets to consider before investing in a
foreign market. We’ll look at those here.
E
ven considering a few notable multibillion-dollar
fraud cases every decade or so, the United States
enjoys well-regulated and highly liquid capital markets. Foreign equity investors frequently look to the U.S.
as a safe haven from more volatile developing markets,
and rightfully so.That stability means a lower likelihood of
a crash, but with that also come fewer opportunities for
runaway gains. All that scrutiny of our markets means
there are fewer untapped ideas to profit from.
The U.S. market had a good year in 2014, gaining a little
under 13 percent, but the U.S. was only 17th out of 74
countries as ranked by CNN Money. The top five markets
gained between 25 percent in Turkey and an eye-popping
55 percent in Argentina. This isn’t unusual. A Callan Associates chart ranking 10 global indexes from 1994 to 2013
found the MSCI Emerging Market index outperformed the
Standard & Poor’s 500 index 11 years out of 20. If you think
the U.S. had a good year in 1999 when the S&P gained 21
percent, think about how happy you might’ve been if you
had invested in emerging markets and made 66 percent.
That same MSCI Emerging Markets index also fell by
31 percent in 2000, compared with only a 9 percent loss
for the S&P 500, even though it seemed as if everyone lost
a lot more by buying Internet stocks heavily on margin.
The loss from emerging markets was bad, but 2008 was
much worse when this group dropped by 53 percent. We
can see that higher returns that can be found in foreign
markets come with more volatility. Consider too that the
MSCI index was diversified among countries.
The most unfortunate bunch of investors in 2008
could probably have been found in Iceland. Their stock
index dropped by more than 90 percent when their top
three banks went into receivership and their stocks were
repriced at zero.
I Have a Feeling We’re Not in Kansas Any More, Toto
Each country has its own cultural norms, securities laws
and attitude toward complying with those laws. Some
countries have little regulation and the wealth is unrepentantly directed to a select group, while other markets
might have tight regulations that are lightly enforced.
36
Unfortunately, much of this knowledge is difficult to
obtain from the distant perspective of the U.S. investor.
Our distance from the country we’re considering forces
us to frequently rely on secondary or unreliable sources of
information. Some of the more notable emerging market
disappointments in recent years have been preceded by a
market trending up coupled with the government making
lofty pronouncements about opening up its economy and
adopting free-market policies. Foreign investors are often
poorly equipped to evaluate the sincerity of those statements, so they regard the market’s gains as supporting
evidence. This leads to a positive feedback loop and perhaps even a speculative bubble.
Even though countries do usually benefit from integrating their markets into the global economy, there’s
always an element of political danger involved as this
process unfolds. Countries may appear to be moving
toward a U.S.-like economic system, but those policies
can be reversed at the slightest hint of a setback. Shortterm political expediency is the norm, and the less integrated the country is in the global economy, the more likely there will be a reversal. Russia, India and China are
often mentioned as unfolding markets with a wealth of
attractive investment opportunities. This might very well
be true, but they’ve also been volatile markets over the
years owing to country-specific risk factors.
Russia’s economy is heavily dependent on oil and natural gas exports — as high as 68 percent — and as of this
writing, an oil glut coupled with economic sanctions is
wreaking havoc on the country’s economy. In the past,
Russia’s defaulted on its national debt. India has been
enjoying the fruits of economic liberalization ever since
1991 but is hampered by its infrastructure, disputes with
neighboring Pakistan and the pervasive corruption of government officials. China is cautiously opening its markets,
but they’re still primarily controlled by the central government. As daunting as these country-specific risks may be,
they can be diversified away by investing in the stocks of
as many different countries as you can comfortably follow.
It’s Not Just How Much the Stock Goes Up,
It’s What You Get Back
Fluctuations in exchange rates can have a surprisingly
large impact on the investment return for a domestic
investor. If you buy an investment that goes up by 10 percent, but the home currency declined by 12 percent compared with the dollar, you’ll have a loss on the books
rather than a gain. Studies indicate that rising equity markets tend to be associated with rising local currencies,
leading to even larger gains in the dollar-denominated
36_37 Between the Lines_Apr15_36_37 2/19/15 5:23 PM Page 37
Between the Lines
return, though it isn’t remotely a perfect relationship. A rapidly rising dollar
isn’t an issue if you invest solely in
domestic equities, but it could mean
that all your foreign holdings will
return you fewer dollars or will pay
smaller dollar-denominated dividends.
The same holds true in reverse: If the
dollar is falling in relation to the currencies of your foreign holdings, you’ll
receive more dollars when you sell
your foreign stock. If the stocks have
also appreciated in terms of their
home currency, you’ll see even more
gains in your portfolio statement.
American Depositary Receipts
Foreign companies can get access to
U.S. capital markets without directly
listing their stock on a U.S. exchange.
In fact, financial institutions don’t
need the company’s permission to
offer American depositary receipts.
ADRs are proxies for the actual
shares. When you buy an ADR, you’re
buying a receipt issued by a U.S.
financial institution confirming that a
foreign bank owns shares in that
company underlying the ADR.
The Securities and Exchange Commission allows for three different
classes of ADRs. Level 1 ADRs are
traded over the counter, and the
underlying company isn’t required to
report its operating results in accordance with SEC regulations or even
in English. Level 2 ADRs impose more
reporting requirements but can be
listed on an exchange.
The most prestigious Level 3 ADRs
can be offered for sale via a public
offering, but they also report results
according to stricter standards. The
ADR structure aids U.S. investors by
making a foreign stock — that is, the
surrogate of the foreign stock — as
easy to buy as a share of domestic
stock, even if the analysis requires
considering factors beyond how much
earnings will grow.
Even though U.S. investors don’t
directly hold the company’s shares,
ADR prices tend to follow the underlying shares because of the possibility
of arbitrage — the simultaneous purchase and sale of an asset to profit
from the price difference. If the underlying shares trade higher in their
home country than the ADR’s current
price would imply, an arbitrageur can
sell the actual shares and buy the ADR
for a riskless profit.
Occasionally, this may not hold
owing to liquidity issues or the cost of
doing those trades, but the possibility
of arbitrage is likely to keep the ADRs
of large foreign companies in line
with the underlying common stock.
Although ADRs trade in the U.S., they
still have currency risk. Dividends are
exchanged for dollars at the current
rate, and because a fluctuating dollar
will impact the number of actual
shares that can be bought, the ADR
will fluctuate with exchange rates.
Other Paths to Global Diversification
Many investors who are knowledgeable about domestic equities may want
to delegate the management of international exposure because the expertise they may have in the U.S. market
might not readily translate to other
countries. Wall Street analysts often
specialize in either foreign or domestic equities so that they aren’t overwhelmed with information.
Investors would be wise to take
that same perspective. You have many
choices for diversifying internationally,
including open-ended mutual funds,
exchange-traded funds and unit investment trusts. Those may often have
costly internal charges that negate
some of the benefits, though passively
managed index funds will offer a less
costly alternative than actively managed open-ended ones.
Allocating Between Regions
Simply buying different foreign funds
won’t lead to proper diversification.
You could be inadvertently doubling
up on one region, so check how each
fund allocates its assets and sum them
up to calculate exposure to different
regions. If you buy the India Fund
(ticker: IFN) along with a broader
emerging markets fund, for example,
you’ll probably be quite concentrated
in India.That may work out very well,
but it should be a conscious decision.
Most actively managed portfolios,
whether they’re mutual funds, endowment funds or personal portfolios,
have (or should have) a default allocation that goes beyond simple stocks,
bonds, cash or even industries. As you
add foreign stocks into the mix, you’ll
want to ensure you’re balancing your
regional exposures, too.
Once you decide what percentage
of your equities should be foreign,
you should consider how to weight
the different regions. Institutional
portfolio managers frequently follow
market-cap weightings: The larger the
market is compared with other regions, the heavier it’ll be weighted in
a fund.
In that case, a fund would have
a higher exposure to Europe than it
would to Australia. You’re not required
to follow market weighting, however.
You may decide to weight each region
equally if you don’t have a belief
about which ones will outperform
the others.
Regardless of which allocation you
choose, remember to periodically rebalance to prevent a gradual drift
away from your target allocation.
Invest Locally, Diversify Globally
A quick look at multinational companies based in the United States will
reveal a surprising fact: Many of them
do most of their selling outside our
borders. Investing in those stocks will
lead to global exposure while still
providing the transparency and confidence coming from U.S. reporting
standards and regulation.
For example, as of its 2013 annual
report, Johnson & Johnson (JNJ)
received 55 percent of its revenue
outside the United States and had operations in 60 countries. Caterpillar (CAT)
is also very much a global company:
Only 39 percent of Caterpillar’s revenue came from North America.
So if you invest in the largest U.S.based companies, you may be quite
diversified already.
Sam Levine, CFA, CMT, writes frequently for this magazine.
37
38_StockUp Ad_Apr15_38 2/20/15 12:57 PM Page 38
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StockUp
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of your own investments. Tips and techniques applicable to Investment Clubs will be included as well.
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It can be frustrating when we see one EPS value reported for a company by Morningstar, a different figure reported by
Value Line, and a third figure referenced by a website, such as Yahoo! Finance. Different data sources report different
“flavors” of fundamental data, especially earnings per share. This session defines GAAP (based on Generally Accepted
Accounting Principles), Pro Forma and Normalized data. Techniques to reconcile data differences are presented.
Examples of how to analyze companies with a one-time charge vs. “serial adjusters” are reviewed.
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Upcoming Live StockUp Webinars or to Access a Recorded Session
39_41 Cvr Story_Apr15_39_40_41 2/20/15 2:40 PM Page 39
Cover Story | FEATURE
Our annual Top 100 Survey of Investment Clubs is presented on the following pages.
The Top 100 companies are listed on pages 40 and 41, while the Second 100 listing
is on page 42. An alphabetical index of the Top 200 Companies is on page 43.
Club portfolios increased to
an average of $164,100
from $134,500 the year
before, according to
myICLUB.com data.The
average holding period for
stocks held steady at about
3 years.
Big Movers on the Top 200 List
▼
B
etterInvesting
members flocked to
three new companies
this year: Skyworks
Solutions, Alibaba Groups
and Air Lease. Meanwhile,
Gilead Sciences, ResMed
and Cognizant Technology
continue to gain favor with
clubs. And old favorite
Southwest Airlines saw a
resurgence in popularity.
Places Moved Company
Movement From 2014 to 2015
UP
NEW
Skyworks Solutions
Not on List
NEW
Alibaba Group
Not on List
NEW
Air Lease
Not on List
54
Southwest Airlines
101 to 47
47
Gilead Sciences
47
Tesla Motors
122 to 75
44
Under Armour
104 to 60
22
ResMed
83 to 61
20
Union Pacific
85 to 65
15
28 to 13
75 to 28
Some of the companies making the most significant upward
movements in the BetterInvesting Top 200 from 2014 to 2015.
Club holding information is from myICLUB.com.
39
FEATURE | Cover Story
Companies
**
*
*
*
*
*
*
*
*
*
*
Ticker
Apple Inc.
General Electric Company
Google Inc.
Johnson & Johnson
Ford Motor Company
Microsoft Corporation
PepsiCo, Inc.
Procter & Gamble Company, The
Exxon Mobil Corporation
Qualcomm Incorporated
Disney (Walt) Company, The
Starbucks Corporation
Cognizant Technology Solutions Corp.
Costco Wholesale Corporation
Verizon Communications Inc.
Berkshire Hathaway Inc. Class B
Intel Corporation
Home Depot, Inc., The
McDonald’s Corporation
AT&T Inc.
Aflac Incorporated
Caterpillar Inc.
Visa Inc.
Stryker Corporation
Facebook, Inc.
Cisco Systems, Inc.
Oracle Corporation
Gilead Sciences, Inc.
Wells Fargo & Company
Coca-Cola Company, The
Wal-Mart Stores, Inc.
Pfizer Inc.
Walgreens Boots Alliance, Inc.
LKQ Corporation
Express Scripts, Inc.
Amazon.com, Inc.
AbbVie Inc.
Schlumberger Limited
CSX Corporation
CVS Health Corporation
Target Corporation
3D Systems Corporation
Abbott Laboratories
Boeing Company, The
Chevron Corporation
Lowe’s Companies, Inc.
Southwest Airlines Co.
EMC Corporation
Fastenal Company
3M Company
40
AAPL
GE
GOOGL
JNJ
F
MSFT
PEP
PG
XOM
QCOM
DIS
SBUX
CTSH
COST
VZ
BRK.B
INTC
HD
MCD
T
AFL
CAT
V
SYK
FB
CSCO
ORCL
GILD
WFC
KO
WMT
PFE
WBA
LKQ
ESRX
AMZN
ABBV
SLB
CSX
CVS
TGT
DDD
ABT
BA
CVX
LOW
LUV
EMC
FAST
MMM
Rank by #
of Clubs
Holding
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Number
of Clubs
Holding
Stock
Rank by
Total
Shares
Held
1,993
1,009
910
899
730
641
636
603
599
599
590
566
565
561
558
539
529
526
513
476
474
424
420
414
410
409
405
394
393
385
380
373
369
350
336
330
325
318
291
285
279
278
274
271
256
246
246
246
243
239
1
2
83
9
3
5
16
22
10
15
25
24
7
39
20
29
4
23
28
11
6
45
62
31
43
14
13
36
21
18
41
19
37
12
33
95
34
54
30
49
68
75
40
66
38
44
42
32
26
80
Number of
Shares
Held by
Members
1,189,479
806,837
54,116
305,492
728,697
454,924
234,754
206,675
298,130
248,442
194,512
203,275
380,701
137,590
226,934
177,706
597,526
205,933
177,850
294,824
421,216
113,982
81,717
162,240
123,389
259,966
272,457
152,509
212,004
230,191
130,149
229,845
149,523
274,290
160,007
31,117
156,200
95,822
176,324
103,051
75,295
66,726
133,886
77,985
146,244
117,644
130,084
160,804
181,971
57,020
Rank by
Total Value
of Shares
Held
1
12
3
2
29
11
7
15
4
16
17
18
13
14
31
5
8
9
19
36
6
32
10
21
40
53
25
23
26
38
30
54
27
50
24
39
33
45
56
35
65
98
59
34
20
46
67
75
44
42
Total Value of
Shares Held
by Members
on 12-31-14
$131,294,712
20,388,758
28,648,580
31,945,332
11,294,809
21,131,219
22,198,367
18,825,999
27,562,081
18,466,682
18,321,114
16,678,700
20,047,699
19,503,388
10,615,989
26,682,496
21,684,224
21,616,835
16,664,592
9,903,129
25,732,073
10,432,744
21,426,267
15,304,134
9,626,771
7,232,266
12,252,405
14,375,543
11,622,082
9,718,667
11,177,235
7,159,669
11,393,645
7,713,048
13,547,817
9,657,202
10,221,696
8,184,135
6,388,233
9,924,808
5,715,606
2,193,287
6,027,549
10,136,536
16,405,621
8,093,890
5,505,150
4,782,318
8,654,555
9,369,467
* Advanced five positions or more in rank since last year. ** Includes both A and C classes of Google.
Companies in bold are new to the Top 100 listing this year.
Cover Story
Shown on these two pages are the most popular and widely held stocks among
investment clubs and their members nationwide as of late 2014.
Companies
*
*
*
***
*
*
Bank of America Corporation
Bio-Reference Laboratories, Inc.
Mondelez International, Inc.
ConocoPhillips
Corning Incorporated
National Oilwell Varco, Inc.
Kraft Foods Group, Inc.
Medtronic, Inc.
Skyworks Solutions, Inc.
Under Armour, Inc.
ResMed Inc.
Altria Group
YUM! Brands, Inc.
Whole Foods Market, Inc.
Union Pacific Corporation
FactSet Research Systems Inc.
Alibaba Group Holding Ltd.
TJX Companies Inc.
Amgen Inc.
Danaher Corporation
Bed Bath & Beyond Inc.
Deere & Company
Harley Davidson, Inc.
Philip Morris International, Inc.
Tesla Motors, Inc.
Kinder Morgan, Inc.
Merck & Co., Inc.
Johnson Controls, Inc.
eBay Inc.
Celgene Corporation
Dollar Tree Stores, Inc.
BP p.l.c.
United Technologies Corporation
Air Lease Corporation
JPMorgan Chase & Co.
Nike Inc. Class B
Phillips 66
Stericycle, Inc.
United Parcel Service, Inc. Class B
Sysco Corporation
Baidu.com, Inc.
International Business Machines Corp.
UnitedHealth Group Incorporated
Colgate-Palmolive Company
Coach Inc.
Cummins Inc.
C.H. Robinson Worldwide, Inc.
Comcast Corp. Class A
Emerson Electric Co.
Citigroup Inc.
Ticker
BAC
BRLI
MDLZ
COP
GLW
NOV
KRFT
MDT
SWKS
UA
RMD
MO
YUM
WFM
UNP
FDS
BABA
TJX
AMGN
DHR
BBBY
DE
HOG
PM
TSLA
KMI
MRK
JCI
EBAY
CELG
DLTR
BP
UTX
AL
JPM
NKE
PSX
SRCL
UPS
SYY
BIDU
IBM
UNH
CL
COH
CMI
CHRW
CMCSA
EMR
C
*** Acquired shares of KMP, KMR and EPB in 2014.
Rank by #
of Clubs
Holding
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
Number
of Clubs
Holding
Stock
230
229
221
220
218
215
215
214
213
213
211
210
208
205
198
198
196
195
189
188
184
181
176
173
171
170
170
165
165
164
164
164
160
158
154
153
153
150
148
146
141
139
139
133
131
130
130
130
129
129
Rank by
Total
Shares
Held
17
27
56
59
8
60
87
69
51
57
64
35
63
74
55
71
93
67
84
50
82
72
85
53
100
48
76
52
79
61
78
70
89
65
46
81
91
92
98
73
99
94
86
58
96
47
88
90
77
97
Number of
Shares
Held by
Members
Rank by
Total Value
of Shares
Held
Total Value of
Shares Held
by Members
on 12-31-14
233,375
179,129
91,594
85,593
352,911
84,772
45,963
74,693
100,345
89,284
81,151
154,815
81,502
68,435
95,525
69,976
37,354
76,664
49,398
101,748
54,618
69,348
48,577
95,909
13,708
103,656
64,389
97,343
57,687
84,546
61,440
72,220
44,895
81,073
111,626
55,963
42,372
38,095
26,877
69,230
25,960
33,739
48,305
86,090
30,791
104,238
44,945
44,198
61,721
27,418
80
64
87
63
47
66
93
69
52
58
77
51
61
85
28
37
82
71
48
43
81
57
89
49
90
78
84
76
88
41
79
95
72
94
55
70
91
73
92
96
62
68
74
60
100
22
86
97
83
99
4,175,071
5,755,426
3,327,615
5,911,072
8,092,246
5,555,140
2,880,072
5,392,824
7,296,110
6,062,413
4,549,346
7,627,725
5,937,409
3,450,512
11,379,883
9,849,065
3,882,595
5,257,604
7,868,683
8,720,829
4,160,265
6,135,234
3,201,705
7,811,778
3,048,870
4,385,671
3,656,631
4,705,538
3,237,388
9,457,284
4,324,162
2,753,035
5,162,901
2,781,630
6,985,544
5,380,821
3,038,104
4,993,537
2,987,920
2,747,727
5,918,155
5,413,132
4,883,187
5,956,593
1,156,520
15,027,982
3,365,928
2,563,948
3,810,043
1,483,565
41
42_43 Cover STORY 2 _Apr15_42_43 2/20/15 4:06 PM Page 42
BetterInvesting’s 2nd 100
Companies for 2014
FEATURE | Cover Story
BetterInvesting Magazine continues its expanded
coverage of the most widely held stocks among
investment club members nationwide by presentRank
by No.
of Clubs
Holding Company
Number Total Value
of Clubs of Shares
Holding Held by
Ticker Stock Members
101
* 102
103
104
* 105
* 106
107
108
109
** 110
* 111
112
113
* 114
115
116
117
118
119
120
121
* 122
123
124
125
126
* 127
128
* 129
* 130
131
132
133
134
135
136
137
* 138
139
140
141
142
143
144
145
* 146
147
148
149
* 150
ORLY
GMCR
TEVA
FDX
GIS
SSYS
PNRA
PAYX
GNTX
DNOW
TROW
WM
TRN
KORS
CNI
CERN
FISV
BWLD
NSC
DUK
DD
AA
ITW
SIRI
VLO
AMT
YHOO
MA
KR
TSCO
SJM
NVS
CLX
NEE
DTV
DOW
ADP
TM
DEO
PETM
AXP
DG
HAL
FCX
GPRO
HPQ
KMB
NVO
RPM
STZ
42
O’Reilly Automotive, Inc.
Keurig Green Mountain Inc.
Teva Pharmaceutical Industries Ltd.
FedEx Corporation
General Mills, Inc.
Stratasys, Ltd.
Panera Bread Co.
Paychex, Inc.
Gentex Corporation
NOW Inc.
Price (T. Rowe) Group, Inc.
Waste Management, Inc.
Trinity Industries, Inc.
Michael Kors Holdings Ltd.
Canadian National Railway Co.
Cerner Corporation
Fiserv, Inc.
Buffalo Wild Wings Inc.
Norfolk Southern Corporation
Duke Energy Corporation
DuPont (E. I.) de Nemours and Company
Alcoa Inc.
Illinois Tool Works Inc.
Sirius XM Holdings Inc.
Valero Energy Corporation
American Tower Corporation
Yahoo! Inc.
MasterCard Incorporated
Kroger Co., The
Tractor Supply Company
Smucker (J.M.) Company, The
Novartis AG
Clorox Company, The
NextEra Energy Inc.
DirectTV
Dow Chemical Company, The
Automatic Data Processing, Inc.
Toyota Motor Corporation
Diageo plc
PetSmart, Inc.
American Express Company
Dollar General Corporation
Halliburton Company
Freeport-McMoran Copper & Gold Inc.
GoPro Inc.
Hewlett-Packard Company
Kimberly-Clark Corp.
Novo Nordisk A/S
RPM International Inc.
Constellation Brands, Inc.
126 $9,520,853
126 5,296,582
126 3,569,015
125 4,392,798
124 2,708,070
124 1,430,060
123 2,869,471
121 3,055,581
120 4,241,267
120
408,325
116 4,096,895
116 1,958,374
115 1,812,960
115 1,801,042
114 4,124,980
113 3,975,652
111 6,765,717
109 4,526,426
106 3,020,982
106 2,603,796
103 3,290,067
101 1,253,338
100 3,384,803
100
722,027
99 13,075,860
99 2,362,580
99 1,968,637
98 2,784,418
98 1,650,882
95 3,312,158
95 2,413,402
95 2,080,737
94 2,579,581
93 2,602,046
91 3,133,539
91 1,774,320
88 2,601,878
88 1,811,009
86 1,848,955
85 1,707,264
84 2,529,723
84 2,064,888
84 1,222,900
84 1,189,327
81
809,673
80 1,248,348
78 2,393,601
78 2,335,460
75 3,227,069
75 2,784,517
ing the Second 100, companies that are among
the 200 most popular holdings by active club
investors in today’s equity market.
Rank
by No.
of Clubs
Holding Company
*
*
*
*
*
*
*
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
Number Total Value
of Clubs of Shares
Holding Held by
Ticker Stock Members
Honeywell International Inc.
Bristol-Myers Squibb Co.
Chicago Bridge & Iron Company
Seadrill Limited
Twitter, Inc.
Activision Blizzard, Inc.
American Water Works Company, Inc.
Aqua America Inc.
Organovo Holdings Inc.
Netflix Inc.
Church & Dwight Co., Inc.
Archer-Daniels Midland Company
Chesapeake Energy Corporation
Vodafone Group
Frontier Communications Corporation
InvenSense, Inc.
IPG Photonics Corporation
Delta Air Lines Inc.
Enterprise Products Partners LP
Oceaneering International, Inc.
Spectra Energy Corp.
General Motors Company
Varian Medical Systems, Inc.
US Bancorp
Dunkin’ Brands Group, Inc.
CDK Global, Inc.
Chipotle Mexican Grill, Inc.
MWI Veterinary Supply, Inc.
Thermo Fisher Scientific Inc.
Becton, Dickinson and Company
Dominion Resources, Inc.
Catamaran Corp.
Southern Company, The
Potash Corporation of Saskatchewan Inc.
Intuitive Surgical, Inc.
Hershey Corp.
Rite Aid Corporation
Ulta Salon, Cosmetics & Fragrance, Inc.
American International Group, Inc.
Eaton Corporation plc
WhiteWave Foods Company, The
Lockheed Martin Corp.
SPDR S&P 500 ETF
Neogen Corporation
Echo Global Logistics, Inc.
NXP Semiconductors N.V.
CenturyLink, Inc.
Mallinckrodt plc
Priceline Group Inc., The
United Therapeutics Corporation
* Advanced five positions or more in rank since last year.
Companies in bold are new to the Top 200 listing this year.
HON
BMY
CBI
SDRL
TWTR
ATVI
AWK
WTR
ONVO
NFLX
CHD
ADM
CHK
VOD
FTR
INVN
IPGP
DAL
EPD
OII
SE
GM
VAR
USB
DNKN
CDK
CMG
MWIV
TMO
BDX
D
CTRX
SO
POT
ISRG
HSY
RAD
ULTA
AIG
ETN
WWAV
LMT
SPY
NEOG
ECHO
NXPI
CTL
MNK
PCLN
UTHR
75 $1,817,483
74 2,560,226
71 1,221,599
71
641,337
71
552,092
70 2,848,556
70 1,339,524
70
970,843
70
606,988
69 2,484,505
68 2,649,412
68 1,926,761
68
866,407
68
842,806
68
289,125
66
579,151
65 1,930,460
65 1,611,067
64 1,916,339
64 1,206,046
64 1,060,425
64
556,596
63 1,954,048
63 1,238,522
61
915,242
61
353,578
60 2,229,802
60 2,094,146
59 2,449,523
59 2,112,116
59 2,061,427
59 1,540,019
59 1,421,136
59
936,548
58 4,160,753
58 2,342,138
58
996,747
56 1,538,925
56 1,533,229
56 1,429,759
56
951,070
55 1,605,798
54 4,070,581
54 1,817,133
54 1,489,110
53 1,301,273
53 1,132,755
53 1,055,531
51 2,511,470
51 2,100,459
** Spun off from National Oilwell Varco.
42_43 Cover STORY 2 _Apr15_42_43 2/20/15 4:08 PM Page 43
Cover Story
Alphabetical Listing of the Top 200 Companies
Company
Rank
3D Systems Corp.................................................42
3M Company .......................................................50
Abbott Laboratories..............................................43
AbbVie Inc. ..........................................................37
Activisin Blizzard, Inc. ........................................156
Aflac Incorporated................................................21
Air Lease Corporation...........................................84
Alcoa Inc. ..........................................................122
Alibaba Group Holding Ltd....................................67
Altria Group..........................................................62
Amazon.com, Inc. ................................................36
American Express Company ..............................141
American International Group, Inc.......................189
American Tower Corporation ..............................126
American Water Works Company, Inc. ................157
Amgen Inc. ..........................................................69
Apple Inc. ..............................................................1
Aqua America Inc...............................................158
Archer-Daniels Midland Company .......................162
AT&T Inc..............................................................20
Automatic Data Processing, Inc..........................137
Baidu.com, Inc.....................................................91
Bank of America Corporation................................51
Becton, Dickinson and Company ........................180
Bed Bath & Beyond Inc. .......................................71
Berkshire Hathaway Inc. (B) .................................16
Bio-Reference Laboraties, Inc...............................52
Boeing Company, The ..........................................44
BP p.l.c................................................................82
Bristol Myers Squibb Co.....................................152
Buffalo Wild Wings Inc. ......................................118
Canadian National Railway .................................115
Catamaran Corp. ................................................182
Caterpillar Inc.......................................................22
CDK Global, Inc..................................................176
Celgene Corporation.............................................80
CenturyLink, Inc.................................................197
Cerner Corporation.............................................116
C.H. Robinson Worldwide, Inc. .............................97
Chesapeake Energy Corporation .........................163
Chevron Corporation ............................................45
Chicago Bridge & Iron Company.........................153
Chipotle Mexican Grill, Inc. .................................177
Church & Dwight Co., Inc...................................161
Cisco Systems, Inc. .............................................26
Citigroup Inc. .....................................................100
Clorox Company, The .........................................133
Coach Inc. ...........................................................95
Coca-Cola Company, The .....................................30
Cognizant Technology Solutions Corp. .................13
Colgate-Palmolive Company .................................94
Comcast Corporation Class A...............................98
ConocoPhillips .....................................................54
Constellation Brands, Inc....................................150
Corning Incorporated............................................55
Costco Wholesale Corporation..............................14
CSX Corporation ..................................................39
Cummins Inc. ......................................................96
CVS Health Corporation........................................40
Danaher Corporation ............................................70
Deere & Company................................................72
Delta Air Lines Inc..............................................168
Diageo plc..........................................................139
DirecTV..............................................................135
Disney (Walt) Company, The ................................11
Dollar General Corporation..................................142
Dollar Tree Stores, Inc. .........................................81
Company
Rank
Dominion Resources, Inc. ..................................181
Dow Chemical Company, The.............................136
Duke Energy Corporation....................................120
Dunkin’ Brands Group, Inc..................................175
DuPont (E. I.) de Nemours and Company............121
Eaton Corporation plc.........................................190
eBay Inc. .............................................................79
Echo Global Logistics, Inc. .................................195
EMC Corporation..................................................48
Emerson Electric Co.............................................99
Enterprise Products Partners L.P. ........................169
Express Scripts, Inc. ............................................35
Exxon Mobil Corporation ........................................9
Facebook, Inc. .....................................................25
FactSet Research Systems Inc. ............................66
Fastenal Company................................................49
FedEx Corporation ..............................................104
Fiserv, Inc. ........................................................117
Ford Motor Company .............................................5
Freeport-McMoran Copper & Gold Inc. ..............144
Frontier Communications Corporation .................165
General Electric Company ......................................2
General Mills, Inc. ..............................................105
General Motors Company...................................172
Gentex Corporation.............................................109
Gilead Sciences, Inc.............................................28
Google Inc. ............................................................3
GoPro Inc. Class A.............................................145
Halliburton Company..........................................143
Harley Davidson, Inc. ...........................................73
Hershey Corp.....................................................186
Hewlett-Packard Company .................................146
Home Depot, Inc., The .........................................18
Honeywell International Inc.................................151
Illinois Tool Works Inc. .......................................123
Intel Corporation...................................................17
International Business Machines Corporation ........92
Intuitive Surgical, Inc. .........................................185
InvenSense, Inc..................................................166
IPG Photonics Corporation ................................167
Johnson & Johnson ...............................................4
Johnson Controls, Inc. ........................................78
JPMorgan Chase & Co. ........................................85
Keurig Green Mountain Inc. ................................102
Kimberly-Clark Corp. ..........................................147
Kinder Morgan Inc................................................76
Kraft Foods Group, Inc. ........................................57
Kroger Co., The..................................................129
LKQ Corporation ..................................................34
Lockheed Martin Corp........................................192
Lowe's Companies, Inc. ......................................46
Mallinckrodt plc..................................................198
MasterCard Incorporated ....................................128
McDonald’s Corporation.......................................19
Medtronic, Inc......................................................58
Merck & Co., Inc..................................................77
Michael Kors Holdings Ltd..................................114
Microsoft Corporation ............................................6
Mondelez International, Inc...................................53
MWI Veterinary Supply, Inc.................................178
National Oilwell Varco, Inc. ...................................56
Neogen Corporation ...........................................194
Netflix Inc...........................................................160
NextEra Energy Inc.............................................134
Nike Inc. Class B .................................................86
Norfolk Southern Corporation .............................119
Novartis AG ......................................................132
Company
Rank
Novo Nordisk A/S...............................................148
NOW Inc. ...........................................................110
NXP Semiconductors N.V. ..................................196
O’Reilly Automotive, Inc. ....................................101
Oceaneering International, Inc.............................170
Oracle Corporation ...............................................27
Organovo Holdings Inc. ......................................159
Panera Bread Co. ..............................................107
Paychex, Inc. .....................................................108
PepsiCo, Inc. .........................................................7
PetSmart, Inc.....................................................140
Pfizer Inc .............................................................32
Philip Morris International, Inc. .............................74
Phillips 66............................................................87
Potash Corporation of Saskatchewan Inc. ...........184
Priceline Group Inc., The ....................................199
Price (T. Rowe) Group, Inc. ................................111
Procter & Gamble Company, The............................8
Qualcomm Incorporated .......................................10
ResMed Inc..........................................................61
Rite Aid Corporation ...........................................187
RPM International Inc. ........................................149
Schlumberger Limited ..........................................38
Seadrill Limited ..................................................154
Sirius XM Holdings Inc. ......................................124
Skyworks Solutions, Inc. ......................................59
Smucker (J.M.) Company, The ...........................131
Southern Company, The .....................................183
Southwest Airlines Co. .........................................47
SPDR S&P 500 ETF ...........................................193
Spectra Energy Corp. .........................................171
Starbucks Corporation..........................................12
Stericycle, Inc. .....................................................88
Stratasys, Ltd.....................................................106
Stryker Corporation ..............................................24
Sysco Corporation ...............................................90
Target Corporation................................................41
Tesla Motors, Inc. ................................................75
Teva Pharmceutical Industries Ltd. ....................103
Thermo Fisher Scientific Inc. ..............................179
TJX Companies Inc ..............................................68
Toyota Motor Corporation ...................................138
Tractor Supply Company ....................................130
Trinity Industries, Inc. ........................................113
Twitter, Inc. ........................................................155
Ulta Salon, Cosmetics & Fragrance, Inc. .............188
Under Armour, Inc................................................60
Union Pacific Corporation .....................................65
United Parcel Service, Inc. Class B .......................89
United Technologies Corporation ..........................83
United Therapeutics Corporation.........................200
UnitedHealth Group Incorporated ..........................93
US Bancorp .......................................................174
Valero Energy Corporation ..................................125
Varian Medical Systems, Inc...............................173
Verizon Communications Inc. ...............................15
Visa Inc. ..............................................................23
Vodafone Group .................................................164
Wal-Mart Stores, Inc. ...........................................31
Walgreens Boots Alliance, Inc. .............................33
Waste Management, Inc. ....................................112
Wells Fargo & Company .......................................29
WhiteWave Foods Company, The........................191
Whole Foods Market, Inc......................................64
Yahoo! Inc..........................................................127
YUM! Brands, Inc. ................................................63
43
44_ From the Home Office_Apr15_44 2/19/15 5:15 PM Page 44
MEMBERSHIP | BetterInvesting Family
Seattle Woman Says Investment Club Drew Her to Financial Success
Graphic Artist Has Designs on Money
by Georgi Krom, individual investor and BetterInvesting member for 25 years
I am a 61-year-old graphic designer who worked part time
while my children were growing up. I consider myself a good
investor — thanks to BetterInvesting — and thought I would
share my history with you and your readers.
W
We learned about many attractive companies and acquired
their stocks over the years.
I volunteered as a director for the local Seattle chapter of BetterInvesting during the 1990s. At this time I
was lucky enough to learn from Seattle
experts Gary Ball and Bob Adams, who
speak at BetterInvesting national conventions. I also met one of BI’s longtime executives, Ken Janke, who published useful articles such as “When to
Sell” and “How to Negotiate a Declining
Market.” I still refer to this information
in my investing today.
hen my husband and I were
first married more than 30 years
ago and had a small amount of
money to invest, we interviewed several financial advisers in Seattle. One was
a stockbroker, but I wasn’t very familiar or comfortable with stocks back
then. Another analyst presented an
extensive plan, showing how much
money we would lose if we didn’t
Investing for the Long Term
invest with him. We finally decided on
The wisdom of this approach served us
an adviser who seemed smart, conwell in the tech crash in 2000. Since we
cerned about us and had a nice office.
only consider companies with a solid
I felt confident with him.
history of earnings, the newer headline
He immediately put us into an expenstocks gaining attention up to the crash
sive universal life insurance plan and
weren’t of interest. Friends and relaseveral mutual funds with large expense
tives lost thousands during the tech
ratios. We lost money, and I figured
downturn, but the quality companies
there must be a better way to invest. Giving Back. Georgi Krom was a director we liked held up well.
At this time some friends of mine were of the Seattle Chapter of BetterInvesting
Our club got out of Washington
starting an investment club and I joined during the 1990s. Photo courtesy of Mutual before its awful meltdown,
up. Since I knew nothing about stocks, Stewart Tilger Photography, Seattle.
thanks to a member who questioned
I thought it was a good way to learn
its loans. We made some mistakes, such
more. Looking back, this turned out to
as selling Starbucks when its earnings
be a great move for my family’s investments.
and stock price collapsed in the most recent recession.
This was the scariest time to keep going, but stock
Starting an Investment Club
prices looked attractive. In the club we swallowed our
Our good luck was starting the club in 1988, after the fear and kept investing — adding Apple, Google, Disney,
crash of ’87 when stock prices were low. We called our- Schlumberger, Visa and Priceline in recent years. The
selves W.H.A.M. (Women Hot After Money) and joined a BetterInvesting approach of consistent investing kept us
local chapter of BetterInvesting, then known as NAIC. going when many people panicked and sold.
We were assisted by local volunteers of the Puget Sound
My point in writing this article is that you don’t have
Chapter in Seattle.
to be a hedge-fund manager or listen to TV commenBetterInvesting’s Stock Selection Guide is a superb tators to pick good stocks. Starting small and adding
tool for investing. The two-page glimpse into any public gradually to positions is a great way to go.
company’s history of revenues and earnings is a really
Do your own research, even if you get ideas from
visual way of seeing a company. I like that you set your other sources. The younger you are when you start the
own estimates for future growth to see whether the better — but try not to put it off. Stock appreciation is
company offers enough upside to be a good investment. powerful over time.
Since many investors tend to overpay for popular stocks,
Sadly, our 25-year-old investment club, W.H.A.M., is
this exercise is useful to set a good entry point.
ending. Some of us have moved to new locations and
Each club member invested $30 to $50 a month into others have personal conflicts that interfere with running
club holdings. Thinking about stocks every month was a club. What will remain is the benefit of being better
a great discipline, and many of us included these ideas investors, thanks to the useful SSG and our valuable
into our personal investment and retirement accounts. years of investment education together.
44
45_ From the Home Office_Apr15_45 2/20/15 1:19 PM Page 45
From the Home Office | MEMBERSHIP
Find Us on Mobile Devices and Online
Tired of the Paper Route? Go Digital
by Adam Ritt, Editor
This might be hard to believe, but mail delivery has become
even slower, according to a Government Accountability
Office report. Despite the U.S. Postal Service’s moves to
improve service, starting around mid-2013 “the amount of
mail delivered on time for most products either leveled off or
declined,” according to an article in Government Executive.
(USPS argues the GAO study is flawed.)
The BetterInvesting App
www.BetterInvesting.org/members/tools/ipad
The BetterInvesting DigiMag
www.BetterInvesting.org/members/tools/magazine
M
eanwhile, to control postage
costs, magazine delivery today
typically involves methods
that further slow their arrival. BetterInvesting offers a way to beat the mailbox blues. The magazine app available through iTunes, Google Play and
Amazon’s Appstore for Android is a
great way to experience “Repair Shop,”
the Stock to Study/Undervalued Stock
features and other favorites.
For the majority of issues, you’ll
have access to the magazine faster
than by mail.You’ll have years of back
issues at your fingertips.You’ll be able
to find articles in these issues using the
app’s excellent search capability. And
it’s a benefit of your membership.
Go to Websites of Interest at the
end of this article to learn more.When
you’re at the app webpage you’ll create the credentials required for your
free access. Downloading the app is
free, but you’ll need to enter these credentials in the app to access issues.
Note that BetterInvesting doesn’t have
the mechanism to offer refunds to
members who purchase the magazine
directly through iTunes or other stores.
Those who prefer to read the magazine on a computer also have options.
They can access the DigiMag, which
has many of the same features as the
app, or download a full PDF of issues.
Because of the work involved, particularly to create the PDF, the availability of new issues in this format won’t
be as timely as with the app, however.
Please consider taking advantage
of this benefit. If you have questions,
please contact the home office at:
877/275-6242 • [email protected]
45
46_ BINC_Apr15_46 2/20/15 10:06 AM Page 46
MEMBERSHIP | BetterInvesting National Convention
When These Investors Gather, You Know You’ll Get Some Great Tips
BINC 2015: A Betterinvesting Family Reunion
by Susan Tampasis, President, BetterInvesting Volunteer Advisory Board
Only a few short months to go and we’ll be in San Jose, Calif.,
at BINC 2015, also known as the BetterInvesting Family
Reunion. Last May when we were in Chicago, I shared with
everyone how the BI family is connected on so many levels
and challenged attendees to return May 14-17, 2015, to share
how their year progressed.
ost of us started out with an investment club and
sought ways to educate ourselves so that smart
choices would be made.We took advantage of the
classes offered by our local chapter and the wonderful
chapter directors who volunteer their time to share not
only their investing knowledge but also personal experiences. These chapter directors gave us the knowledge, the
confidence, the fun and the friendships to go back to our
clubs and begin our adventure into the world of investing.
Many of us gathered that knowledge and shared it with
our fellow club members.We also became involved with our
local chapter; we found that by being involved with the
chapter, we brought even more knowledge and experience to our clubs.
The chapters sponsor educational events such as
Investors Fairs, Education Fairs and seminars. Education
has always been the backbone of BetterInvesting, and
these chapter directors give of their time unselfishly to
support investment clubs and individual investors.
Once a year all of us — individuals, investment clubs, chapter directors, chapter volunteers and national volunteers —
gather at the national convention to share our knowledge,
experiences and friendships. The BetterInvesting Volunteer
Advisory Board comprises chapter directors and volunteers
who give their time to produce this terrific event for not
only all BI members but also anyone interested in creating
a financially sound future for themselves. The convention
committee began work on the 2015 BINC in San Jose about
two years ago. A city was chosen, convention sites visited
and work began in earnest.
The BINC chair, Henry Gold of San Francisco, and his
co-chair, Sue Spurlin of Chicago, brought together the
committees that coordinate education, audiovisual support,
meals, keynote speakers, corporate presenters, volunteer
training and fun activities. I’d like to share with you some
of the results of these efforts.
Education classes designed for beginner to experienced
investors have been developed. Sixty classes led by some
of our most respected and knowledgeable instructors
have been prepared. We’ve also invited guest instructors
from the private sector to share their expertise with us.
Here are a few titles we hope catch your interest:“Central
Banks and Money,” “Portfolio Reports in the SSG,” “Using
M
46
the Stock Comparison Guide,” “When to Sell — Besides
Never.”The link to the classes at BINC 2015 is listed at the
end of this article. (Also see the next page.)
Keynote speakers this year bring an air of anticipation as
to the future of the stock market and our own portfolios.
Julie Jason, author of Managing Retirement Wealth: An
Expert Guide to Personal Portfolio Management in
Good Times and Bad and The AARP Retirement Survival
Guide: How to Make Smart Financial Decisions in Good
Times and Bad, has examined the markets since the
1930s and will share observations that investors can put
into action for themselves.
By studying the worst historical periods — and their
aftermath — investors can gain confidence to ride through
downturns with fewer mistakes. Julie will provide attendees with a smart plan of action so that they can be prepared for all types of markets, both good and bad.
Our second keynote speaker is Kenny Polcari, who’s on
CNBC regularly as a market analyst. His appearances include programs such as “Power Lunch” with Sue Herera
and Tyler Mathisen,“The Closing Bell” with Kelly Evans and
Bill Griffeth and “Squawk on the Street” with Carl Quintanilla, where he gives his market commentary from
the floor of the New York Stock Exchange. He’s been a
member of the NYSE for 28 years and has more than
30 years of experience in the financial services industry.
Kenny is currently director of NYSE floor operations
at O’Neil Securities.
Thursday afternoon before the opening of BINC, chapter
directors from across the country gather for lunch and
educational sessions designed to enhance and strengthen
their skills.They exchange ideas and methods and receive
additional tools from BI on how to make sure their chapters flourish.They’ll be bringing this information home to
help clubs and individuals within their chapter. Be sure
to make contact with your chapter directors at BINC.
There should also always be fun when we gather to
share. We’re a family with ups and downs, with mistakes
and triumphs, all of which is shared and makes us
stronger. Whether during meals, small gatherings in the
hall, CEO Kamie Zaracki’s welcome get-together,
BINC@NITE or just passing each other between classes,
a smile, a frown, a look of bewilderment unites us all.
Come join the family reunion in San Jose on May 14-17
and share with us.
BINC classes
http://bit.ly/1BuEKav
47_ BINC List_Instructors_Apr15_47 2/20/15 12:48 PM Page 47
2015 BetterInvesting National Convention | MEMBERSHIP
BINC 2015: San Jose, Calif., May 14-17
Instructors and Seminars
Here are just some of the educators who’ll be at BINC and the classes they’ll be offering.
Julie Jason, Keynote Speaker
The Crystal Ball: Is It Possible to Predict the Future Using
Historical Returns?
Kenny Polcari, Keynote Speaker
A Walk Down Wall Street — 1980 – 2015 — What Was,
What Is and How We Got Here
Suzi Artzberger
What’s Behind Analyst Estimates?
Ann Cuneaz
Adding Judgment Series
Phil Keating
Importance of Dividends
Pat Donnelly
Beginning Investing Series
Gary Ball
Portfolio Allocation
Dan Boyle
A Live Repair Shop
Avi Horwitz
Annual Report — Getting a Bead on the Company
Shanna Rendon, Christi Powell
Unconventional Equities — REITs and LPs
Cy Lynch
Preferred Procedure: Projecting Future EPS Based on Sales
and Profitability
Craig Braemer
Finding Small Companies
Carol Theine
Technology Industry
Diane Amendt
Free Online Screening Tools
Doug Gerlach
Identifying Excellence in Company Management
Ron Bruyn, Kim Butcher
Language of Business Financial Accounting
Christi Powell
Cover Your Bases: Decisions Before & During Your Retirement
Scott Horsburgh
Caution Lights on the SSG
Hugh McManus
Central Banks and Money
Joe Parks, Deane Jaeger
On Dividends …
Joseph Burgoyne
Options, a Presentation From The Options Industry Council
Group Presentations
National Instructors
Let’s Talk Stocks
Kim Butcher, Mary Ann Rentsch, Mary Enright
BI Gals Talk Stocks
For more information, go to www.betterinvesting.org/biconvention
47
52_Perf Review_Apr15_52 2/19/15 3:24 PM Page 52
MEMBERSHIP | Performance Review
BlackBerry’s in a Jam, but Foot Locker Steps Up to the Plate
Tech Gone Sour and New Shoes
by Miles G. Putnam, CFA
Research in Motion
April 2010’s Stock to Study was wireless phone maker
Research in Motion (ticker: BBRY), which now goes by the
name BlackBerry Limited. This one has been a disaster.
BBRY shares have fallen 85 percent in the last five years
from $66.17 at the time of selection to $10.10. Meanwhile,
the Standard & Poor’s 500 index has more than doubled, up
105 percent.
A
t the time of selection, BlackBerry’s historical
growth looked terrific. The Stock Selection
Guide showed 10-year sales growth of 67.5 percent with earnings per share growth of 124 percent.
Those are the annual compound numbers, not the
10-year totals. Analysts were expecting just 18.5 percent
annual growth going forward; that’s a lot of deceleration,
but that would still be plenty to justify the stock’s priceearnings ratio of 15 based on expected 2010 EPS of $4.36.
Book value was about $10 per share. The reason for the
slowing growth rate was increasing competition from
Apple and Google.
Still, it seemed like BlackBerry would maintain a good
slice of the market. By April 2010, Apple’s iPhone had
already been on the market for three years and Google’s
Android operating system had been out for over a year.
If BlackBerry was going to fade into obsolescence, it
should have done so already.
As it turned out, BlackBerry was sort of dead on its
feet. The company had just enough runway left to keep
growing through mid-2011. As Apple pushed into the
international markets where BlackBerry was still strong
and Android-based manufacturers quickly followed in
step, BlackBerry was quickly muscled out of the market
it once dominated.
Sales growth turned negative in mid-2011 and EPS
started to decline at the same time as sales.The company
has lost money in nine of its last 12 quarters. In 2013,
a slew of write-offs caused a loss of more than $11 per
share, which shows you what that “book value” was
worth: not much.
Investors sitting on big gains in Apple should keep
this story in mind and book some profits if a position gets
too big. BlackBerry itself probably won’t rise again to steal
the smartphone crown from Apple, but somebody else
will someday. It’s just the nature of the industry.
Foot Locker
October 2013’s Undervalued Stock was footwear retailer
Foot Locker (FL). Shoes are a low-growth industry, but
Foot Locker seems to play in a good corner of it, benefiting from the steadily-rising popularity of sports and fitness.
They also sell to fashion-conscious customers. Done
right, selling boutique fashion is a simple business. Foot
Locker does it right.
Stores tend to be small. Rent is average. Inventory
turns fast. Merchandising is easy — you just stock whatever is popular. Nike products account for two-thirds of
sales. Declining traffic at shopping malls presents a headwind for the company, but Foot Locker isn’t necessarily
chained to the malls. It can locate its stores wherever the
shoppers are.
The Securities Review Committee believed the
stock’s P/E of 14 undervalued the company’s growth
prospects. Its timing was really good on this one. At a
selection price of $37.26 and a recent price of $52.13,
plus $1.28 in dividends, shares have appreciated 43 percent in the past 18 months.That’s almost double the S&P
500’s 23 percent return during this time. I wouldn’t bet
on Foot Locker to be a great investment long term, but
the committee caught the stock at the right price.
Miles G. Putnam, CFA, is a portfolio manager for
Provident Investment Management in Novi, Mich.
(www.investprovident.com).
Contacting BetterInvesting
To ensure faster service, please have the following information ready:
BetterInvesting Membership Number (on your BetterInvesting Magazine
mailing label).
DIAL #
Then the extension
for a specific
employee
DIAL 0
For the Employee
Directory
When calling BetterInvesting please listen to the recording that will direct
you to the service you require. You can reach a specific department by
dialing the extension below:
DIAL 1
For Membership
and Subscription
Services
DIAL 2
For Investment
Products
Toll-Free: (877) 275-6242 • Phone: (248) 583-6242 • Fax: (248) 583-4880
Mail: BetterInvesting, P. O. Box 220, Royal Oak, MI 48068
e-mail: [email protected] • Website: www.betterinvesting.org
52
DIAL 4
For Club
Accounting
Products
DIAL 5
For Chapter
Services
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STOCK TO STUDY: Copart, Inc. — From Trashed Cars to Treasure

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