CWS Market Review – January 1, 2014

Happy New Year!

Last year was a great year for Wall Street and for our Buy List. I’m pleased to report that our Buy List beat the market for the seventh year in a row. Thanks to everyone for your support. Our strategy of focusing on high-quality stocks and low prices continues to pay off.

Here are the final numbers. For the year, our Buy List gained 36.42%. Including dividends, we were up 38.48%. That makes 2013 our second-best year ever.

The S&P 500 was no slouch. The index gained 29.80%, and including dividends, it was up 32.39%. The dividend yield of our Buy List was 1.51%. For the S&P 500, it was 2.15%. The Buy List’s “beta” was 1.0067.

Every stock on our Buy List made money last year. Our best performer was little Moog ($MOG-A), which soared 65.59%. Our worst stock was Oracle ($ORCL), which gained 14.83%

Over the eight-year history of our Buy List, our total compounded gain, including dividends, is 124.71%. For the S&P 500, the total return is 75.62%.

Details of Last Year’s Buy List

This chart below details the Buy List’s performance. I’ve listed each stock, along with the number of shares and the starting and ending prices. I assume the Buy List is a $1 million portfolio that is equally divided among the 20 stocks.

Stock Shares 12/31/2012 Beginning 12/31/2013 Ending Profit/Loss
AFL 941.2651 $53.12 $50,000.00 $66.80 $62,876.51 25.75%
BBBY 894.2944 $55.91 $50,000.00 $80.30 $71,811.84 43.62%
CA 2,274.7953 $21.98 $50,000.00 $33.65 $76,546.86 53.09%
CTSH 676.7731 $73.88 $50,000.00 $100.98 $68,340.55 36.68%
BCR 511.5613 $97.74 $50,000.00 $133.94 $68,518.52 37.04%
DTV 996.8102 $50.16 $50,000.00 $69.06 $68,839.71 37.68%
FDS 567.7947 $88.06 $50,000.00 $108.58 $61,651.15 23.30%
FISV 1,265.3422 $39.515 $50,000.00 $59.05 $74,718.46 49.44%
F 3,861.0039 $12.95 $50,000.00 $15.43 $59,575.29 19.15%
HRS 1,021.2418 $48.96 $50,000.00 $69.81 $71,292.89 42.59%
JPM 1,137.1390 $43.97 $50,000.00 $58.48 $66,499.89 33.00%
MDT 1,218.9176 $41.02 $50,000.00 $57.39 $69,953.68 39.91%
MSFT 1,871.9581 $26.71 $50,000.00 $37.41 $70,029.95 40.06%
MOG-A 1,218.6205 $41.03 $50,000.00 $67.94 $82,793.08 65.59%
NICK 4,032.2581 $12.40 $50,000.00 $15.74 $63,467.74 26.94%
ORCL 1,500.6002 $33.32 $50,000.00 $38.26 $57,412.96 14.83%
ROST 924.3853 $54.09 $50,000.00 $74.93 $69,264.19 38.53%
SYK 912.0759 $54.82 $50,000.00 $75.14 $68,533.38 37.07%
WFC 1,462.8438 $34.18 $50,000.00 $45.40 $66,413.11 32.83%
WEX 663.3939 $75.37 $50,000.00 $99.03 $65,695.90 31.39%
Total $1,000,000.00 $1,364,235.66 36.42%

Starting Prices and Shares for the 2014 Buy List

Here are the starting prices and number of shares for the 2014 Buy List. Whenever I discuss how well our Buy List is doing, this is what I’m referring to.

Company Ticker Price Shares Balance
AFLAC AFL $66.80 748.5030 $50,000.00
Bed Bath & Beyond BBBY $80.30 622.6650 $50,000.00
CA Technologies CA $33.65 1485.8841 $50,000.00
Cognizant Technology Solutions CTSH $100.98 495.1476 $50,000.00
CR Bard BCR $133.94 373.3015 $50,000.00
DirecTV DTV $69.06 724.0081 $50,000.00
eBay EBAY $54.87 911.2448 $50,000.00
Express Scripts ESRX $70.24 711.8451 $50,000.00
Fiserv FISV $59.05 846.7401 $50,000.00
Ford Motor F $15.43 3240.4407 $50,000.00
IBM IBM $187.57 266.5671 $50,000.00
McDonald’s MCD $97.03 515.3045 $50,000.00
Medtronic MDT $57.39 871.2319 $50,000.00
Microsoft MSFT $37.41 1336.5410 $50,000.00
Moog MOG-A $67.94 735.9435 $50,000.00
Oracle ORCL $38.26 1306.8479 $50,000.00
Qualcomm QCOM $74.25 673.4007 $50,000.00
Ross Stores ROST $74.93 667.2895 $50,000.00
Stryker SYK $75.14 665.4245 $50,000.00
Wells Fargo WFC $45.40 1101.3216 $50,000.00

I’m excited for this year’s Buy List, but don’t expect another blow-out year like 2013. Our gains last year were driven by the Fear Bubble deflating. The gains will be harder to come by in 2014.

The Buy List has a stronger large-cap presence this year. That’s not a conscious strategy on my part. I simply found better names among the big boys. The average market cap is $80 billion. That ranges from a high of $312 billion for Microsoft ($MSFT) to $3 billion for Moog ($MOG-A). Thirteen of the twenty stocks pay dividends. The average yield is 1.35%.

Buy Below Prices for Our New Buys

Now let me give you the Buy Below prices for our five new buys. Remember, these aren’t price targets. They’re guidelines for new entry. I’m starting eBay ($EBAY) off as a buy up to $58. Express Scripts ($ESRX) is a buy up to $74 per share. I like IBM ($IBM) as long as it’s below $195. Don’t be afraid of the high nominal price. McDonald’s ($MCD) is a good buy up to $102 per share. Finally, Qualcomm ($QCOM) is a buy up to $79 per share.

There hasn’t been much news lately, but I promise you that will change soon. The ISM report for December comes out tomorrow. The last few reports have been quite good, and I hope to see that trend continue. On Friday, we’ll get a look at car and truck sales. Despite the recent pullback, Ford ($F) had a great year for sales.

This Wednesday, January 8, Bed Bath & Beyond ($BBBY) is due to report its fiscal Q3 earnings (Sep-Oct-Nov). The company has said it expects earnings to range between $1.11 and $1.16 per share. My take: I think they’ll be towards the high end of that range. I’ll be curious if they provide an update to their Q4 guidance. That’s the holiday quarter, and it’s the most important, by far, for BBBY’s business. They’ve already given us a range of $1.70 to $1.77 per share for Q4 (that’s more than one third of their full-year earnings coming in one quarter). Other retailers, like Ross Stores ($ROST), have been more modest with their forecasts, so it will be interesting to hear what BBBY has to say. Bed Bath & Beyond continues to be a good buy up to $83 per share.

Next Friday will be the big jobs report for December. The unemployment rate could dip below 7% for the first time in more than five years. I’m sure the folks inside the Fed will be watching this report closely. Speaking of which, on Wednesday, we’ll get a look at the minutes from the Fed’s December meeting. This is the meeting in which they decided to taper their bond purchases. Traders will be carefully scrutinizing the minutes for any possible indicators of what the Fed may have up its sleeve in 2014. I expect to see more tapering, but I don’t believe the Fed will raise short-term rates for a while.

I also wanted to raise a few of our Buy Prices this week. The stock market has done very well, and I want to make certain our Buy Below prices reflect that. Oracle ($ORCL), for example, has been doing very well lately (despite being the laggard in 2013). I’m raising our Buy Below on ORCL to $41 per share.

Wells Fargo ($WFC) will be one of our first stocks to report for the Q1 earnings season. The bank has topped estimates for the last eight quarters in a row. Wells is due to report on Tuesday, January 14. Wall Street expects earnings of 98 cents per share. I think WFC can beat that. I’m raising our Buy Below on Wells to $48 per share.

I’m also raising Stryker’s ($SYK) Buy Below to $79 per share. CA Technologies ($CA) has done well lately, so I’m going to raise its Buy Below to $35 per share. Lastly, I’m raising Cognizant’s ($CTSH) Buy Below to $104 per share. (It seems like I’m raising that one every week!) CTSH soared 57% in the second half of last year.

That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Posted by on January 1st, 2014 at 8:57 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.