By:
On:
In: Commentary
Tagged: , , , , , , , , , , , , , , , , , , , ,
With: 0 Comments

ID-100203460The beginning of the year is when it seems like every financial website puts out its top or worst stocks. In that vein, I offer my 15 recommended stocks for 2014 – or at least the first half of the year. I cannot list the worst stocks, as there are too many of those to list. I can at least list the 15 recommended stocks that will give you a good basis for the first half of 2014.

Many sites do all year lists, but I am only committing to this list for the first 6 months. There is a great reason for this. It is almost impossible to predict the market farther out than 6 month. In fact, it is quite possible for the market to do a massive correction and even this list would be a fallacy. There is always some risk with any investment and you are encouraged to read this site’s disclaimer before acting on this list.

I would expect all of these companies to maintain their status as Good Companies on my Watch List. I would not expect all of them to make a top 15 recommended stocks list at the end of June. Some of them will grow a bit slower than I expect, and a couple of the 15 recommended stocks are probably going to lose money. As Peter Lynch famously said:

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

By Peter’s standards, I hope to right on this list with 9 of these picks. I don’t expect all 15 recommended stocks to be massive growth stocks in the year. I also think the list is successful if the list of 15 beats the S&P 500 and the Dow30. In July, perhaps I will publish a list for the second half of the year.

If we would go back in time (starting from December 1) and buy the 15 recommended stocks 3 years ago our portfolio would have grown very nicely. These stocks would have appreciated by 73.35% year over year. They would have grown 184.79% over the last three years. These stocks would have beaten the market (as measured by the Dow Jones Industrial Average) for the last three years by 330.57%. In the past year, these stocks would have beaten the market by 212.17%. With that track record, we should expect good results in the next 6 months.

All of the stocks on this list are rated as Good Companies using the method that I describe in my book The Confident Investor.  You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

The 15 recommended stocks were chosen from Good Companies on my Watch List. This means we already know they are fairly well managed and have a history of solid growth. While all of the stocks on the Watch List are Good Companies, these 15 recommended stocks seem to be the most well setup for aggressive growth in the first half of 2014.

The 15 recommended stocks for the first half of 2014 also performed very well over the past year and the past 3 years. As I have written before, the past is not a perfect indicator of the future, but it is probably the best indicator that we have to use.

I didn’t try overly hard to make this list of 15 recommended stocks to be a balanced portfolio covering multiple industries. I am happy to report that it isn’t a terrible unbalance. The most glaring omission is that it is very light in banking and in consumer technology. I simply could not find a banking stock that was worth the risk compared to other industries. Also, the consumer technology vertical is simply not performing that well right now. I anticipate that trend to continue for the next few months at least.

It might be possible to criticize this list by its heavy reliance on healthcare and retail. That would be fair but, once again, I wasn’t trying to get a perfectly balanced portfolio.

If you want a more balanced portfolio, you may want to consider some of the Honorable Mention stocks at the end of the list. Also, I always maintain that you should have approximately 30% of your portfolio invested in index funds. These funds should be divided by large and small cap funds, an index bond fund, and an index international fund. This would help to balance your portfolio.

You could also look at the Watch List of stocks. These stocks have shown that they are well-run companies. If you are concerned about a balanced portfolio, I suggest that you compliment the 15 recommended stocks with a couple stocks from the Watch List.

The list of 15 recommended stocks for the first half of 2014

  • ABMD
  • ALXN
  • BCPC
  • BLK
  • BWLD
  • CBI
  • CERN
  • GPOR
  • PCLN
  • QCOR
  • SAM
  • TMO
  • TSCO
  • UA
  • ULTA

Read More →

By:
On:
In: Fair company, Stock analysis
Tagged:
With: 0 Comments

Company name Extra Space Storage, Inc.
Stock ticker EXR
Live stock price [stckqut]EXR[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $68.89
Target stock price (averages with growth) $67.03
Target stock price (averages with no growth) $44.63
Target stock price (manual assumptions) $48.18

The following company description is from Google Finance: http://www.google.com/finance?q=exr

Extra Space Storage Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, manages, acquires, develops and redevelops professionally managed self-storage facilities. As of December 31, 2011, Extra Space Storage Inc. held ownership interests in 697 operating properties. Of these operating properties, 356 are wholly owned, and 341 are owned in joint venture partnerships. An additional 185 operating properties that are owned by franchisees or third-parties in exchange for a management fee, bringing the total number of operating properties, which it owns and/or manages to 882. The Company operates in three segments: property management, acquisition and development; rental operations, and tenant reinsurance.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns. The main reasons that the company has fallen to a Fair Company are the lack of increase in its P/E ratio and its revenue and income per employee. These items tend to be a bit cyclical and self-correcting so I am leaving the company on my Watch List for now.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

By:
On:
In: Commentary
Tagged: , , , , , , , , , , , , , , , , , , ,
With: 0 Comments

Many readers have reached out to me to ask about how to run a balanced portfolio. This article is designed to help you with general guidelines for developing such portfolio. A balanced portfolio should be 20-40% in index funds and 60-80% in individual stocks spread out among many industries. This allows you to have exposure to the general market, the international market, and the growth of truly well-run companies. The proportion of money between index funds and individual companies should be dictated by your age and how soon you will need the money to pay for life’s expenses.

The first thing to do is invest 20 to 40% of your portfolio in index funds. Divide these index funds into at least four categories:

  • international funds
  • bonds funds
  • small-cap or mid-cap funds
  • large-cap funds

I suggest that you balance your fund investments equally every year. This means that you would have 5% of your portfolio in each fund category. You may have to annually add money from the individual stock 80% of your portfolio to maintain at least 20% index fund exposure.

It really doesn’t matter which company manages the index fund you choose. There is some variation in international funds since they can track many different markets so you may need to study a bit for that component. There is little true variation in bonds funds so just find one that tracks the Barclays Capital Aggregate Bond Index. For the stock index funds, they should track one of the S&P indexes or one of the Russell indexes.

If you are over 65 then you may want to start dropping down to 60% of your portfolio being in individual stocks and 40% index funds. You definitely want to consider this if you are over 75 years of age. However, if you are under 65 then you probably should have a portfolio of stocks that is approximately 80% of your portfolio. At 65 you may think you need to be more cautious but there is a high probability that a 65 year-old person is going to live to be 90. If you have reached the glorious age of 75 then you are even more likely to live to 90.  With 25-45 more years of spending to do, you really need your money to continue to grow even if you are retired. As you approach 80 or 90 years, you may want to have a more even mix of stocks, bonds, and money-market cash. To understand this better, check out my whitepaper, Retire In Luxury.

Divide 80% of your portfolio into equal allotments that are larger than $5,000 per allotment. You should have at least 10 allotments in a balanced portfolio. You could have 20 or 30 allotments depending on the size of your portfolio. If you do not have $50,000 to divide 10 ways then divide your existing portfolio into $5,000 increments. You will find that you are much more efficient and profitable if you invest $5,000 or more using GOPM. If you have fewer than 10 allotments, be very diligent about getting a good mix of industries so that you are not overly hurt by any one trend.

Regardless of the number of allotments that you choose, you need to choose twice that number in stocks that you are tracking.  So if you have 10 allotments, you should track 20 stocks. This allows you to always have a stock that is rising to invest your money. Invariably, some of your tracked stocks will be going sideways or down but by tracking double the number you need, you are likely to have 10 that have upward momentum.

You should plan on investing in 10 to 30 companies at a time using the tools that I show in The Confident Investor. Grow your investment in any individual stock until you have doubled your money using GOPM (Grow on Other People’s Money).

When you have doubled your money in half of your companies, you may want to consider changing your allocation size to a larger allocation. This will allow you to continue to grow your investment in those great companies.

It is also possible to stop investing in any given company at half of an allotment or twice allotment depending on how you feel about that company. You should also factor the number of companies in the same industry you already having a portfolio. For instance, if you have 2 companies in nearly every industry except you only have one mining company, feel free to allow that mining company to grow to a double allotment. Similarly, if you have 3 software companies in your portfolio then you may want to limit one or all of them to a half allotment so that your portfolio is not overweight in that category.

Let me show you an example of a 50-year-old man (we will call him Bob) that has been able to save $150,000 in his IRA account.

  • $7,500 in an international index fund
  • $7,500 in a bond fund
  • $7,500 in a small-cap  or a mid-cap fund
  • $7,500 in a large-cap fund
  • $120,000 divided into 10 allotments of $12,000 each.  This means that Bob will purchase up to $12,000 in any stock on the 20 possibilities.

For the 20 stocks, Bob chose the following from the Confident Investor Watch List:

Apple Inc. Technology – Personal
Akamai Technologies Technology – Internet
Ansys, Inc. Technology – Enterprise Software
Atlas Pipeline Energy
Caterpillar, Inc. Manufacturing – Machinery
Chipotle Mexican Retail – Restaurant
Cirrus Logic Technology – Semiconductor
Deckers Outdoor Footwear
Ebay Inc. Retail – Web
Extra Space Storage Real Estate
Goldcorp Inc. Mining – Gold
Google Inc. Advertising – Web
Hms Holdings Corp Healthcare – Services
Helmerich & Payne Energy
Merck & Co., Inc. Pharmaceutical
Net Servicos de Comunicacao Telecommunications – International
Priceline.com Inc. Retail – Web
Boston Beer Alcohol Beverages
Washington Banking Finance
Yum! Brands, Inc. Retail – Restaurant

Bob will invest in these companies as indicated by the technical indicators described in my book, The Confident Investor.  You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.

By:
On:
In: Fair company, Stock analysis
Tagged:
With: 0 Comments

Company name Extra Space Storage, Inc.
Stock ticker EXR
Live stock price [stckqut]EXR[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $52.3
Target stock price (averages with growth) $49.29
Target stock price (averages with no growth) $31.26
Target stock price (manual assumptions) $36.93

The following company description is from Google Finance: http://www.google.com/finance?q=exr

Extra Space Storage Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, manages, acquires, develops and redevelops professionally managed self-storage facilities. As of December 31, 2011, Extra Space Storage Inc. held ownership interests in 697 operating properties. Of these operating properties, 356 are wholly owned, and 341 are owned in joint venture partnerships. An additional 185 operating properties that are owned by franchisees or third-parties in exchange for a management fee, bringing the total number of operating properties, which it owns and/or manages to 882. The Company operates in three segments: property management, acquisition and development; rental operations, and tenant reinsurance.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns. The company has dropped a bit since the last time that I reviewed it. This drop is primarily because of the decrease in growth of P/E. This metric is very hard for the managers of the company to control so I don’t want to penalize them too much.  I am leaving the company on the Watch List until the next time I review.  It is one of the few REITs on my list so I want to be slower to penalize.

 

By:
On:
In: Good company, Stock analysis
Tagged:
With: 0 Comments

Company name Extra Space Storage, Inc.
Stock ticker EXR
Live stock price [stckqut]EXR[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $49.69
Target stock price (averages with growth) $63.82
Target stock price (averages with no growth) $39.6
Target stock price (manual assumptions) $50.21

The following company description is from Google Finance: http://www.google.com/finance?q=exr

Extra Space Storage Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, manages, acquires, develops and redevelops professionally managed self-storage facilities. As of December 31, 2011, Extra Space Storage Inc. held ownership interests in 697 operating properties. Of these operating properties, 356 are wholly owned, and 341 are owned in joint venture partnerships. An additional 185 operating properties that are owned by franchisees or third-parties in exchange for a management fee, bringing the total number of operating properties, which it owns and/or manages to 882. The Company operates in three segments: property management, acquisition and development; rental operations, and tenant reinsurance.

 

Confident Investor comments: This is a very solid REIT. If you need real estate exposure in your portfolio, it probably doesn’t get much better than Extra Space [stckqut]exr[/stckqut]. At this price and at this time, I think that a Confident Investor can confidently invest in this stock.