CWS Market Review – January 1, 2015

Happy New Year!

The 2014 trading year is officially on the books. It was another profitable year for our Buy List. I want to thank everyone for their support. We again showed that a set-and-forget portfolio of high-quality stocks can do well.

Here are the final numbers. For the year, our Buy List gained 10.26%. Including dividends, we were up 11.80%.

Unfortunately, we were beaten out by the S&P 500, but it was close. For 2014, the S&P 500 gained 11.39%—13.69% when you include dividends. For those who care about such things, the Buy List’s “beta” was 0.9361.

Nine of our Buy List stocks were up more than 20%. There was nearly a four-way tie for our top-performing stocks of the year. Ultimately, Medtronic ($MDT) edged out Ross Stores ($ROST), 25.81% to 24.80%, while DirecTV ($DTV) and Stryker ($SYK) were right behind, tied at 25.54%. Fifteen of our 20 stocks made money last year. The biggest loser was IBM ($IBM), which lost 14.46%.

Over the nine-year history of our Buy List, our total compounded gain, including dividends, is 151.28%. For the S&P 500, the nine-year total return is 99.64%.

Details of Last Year’s Buy List

The 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. For tracking purposes, I assume the Buy List is a $1 million portfolio that starts equally divided among the 20 stocks.

Stock Shares 12/31/2013 Beginning 12/31/2014 Ending Profit/Loss
AFL 748.5030 $66.80 $50,000.00 $61.09 $45,726.05 -8.55%
BBBY 622.6650 $80.30 $50,000.00 $76.17 $47,428.39 -5.14%
CA 1,485.8841 $33.65 $50,000.00 $30.45 $45,245.17 -9.51%
CTSH 990.2952 $50.49 $50,000.00 $52.66 $52,148.95 4.30%
BCR 373.3015 $133.94 $50,000.00 $166.62 $62,199.50 24.40%
DTV 724.0081 $69.06 $50,000.00 $86.70 $62,771.50 25.54%
EBAY 911.2448 $54.87 $50,000.00 $56.12 $51,139.06 2.28%
ESRX 711.8451 $70.24 $50,000.00 $84.67 $60,271.92 20.54%
FISV 846.7401 $59.05 $50,000.00 $70.97 $60,093.14 20.19%
F 3,240.4407 $15.43 $50,000.00 $15.50 $50,226.83 0.45%
IBM 266.5671 $187.57 $50,000.00 $160.44 $42,768.03 -14.46%
MCD 515.3045 $97.03 $50,000.00 $93.70 $48,284.03 -3.43%
MDT 871.2319 $57.39 $50,000.00 $72.20 $62,902.94 25.81%
MSFT 1,336.5410 $37.41 $50,000.00 $46.45 $62,082.33 24.16%
MOG-A 735.9435 $67.94 $50,000.00 $74.03 $54,481.90 8.96%
ORCL 1,306.8479 $38.26 $50,000.00 $44.97 $58,768.95 17.54%
QCOM 673.4007 $74.25 $50,000.00 $74.33 $50,053.87 0.11%
ROST 667.2895 $74.93 $50,000.00 $94.26 $62,898.71 25.80%
SYK 665.4245 $75.14 $50,000.00 $94.33 $62,769.49 25.54%
WFC 1,101.3216 $45.40 $50,000.00 $54.82 $60,374.45 20.75%
Total $1,000,000 $1,102,635.22 10.26%

Note that Cognizant Technology Solutions ($CTSH) split its shares 2-for-1 on March 10. The results above have been adjusted for the stock split.

Starting Prices and Shares for the 2014 Buy List

Here are the starting prices and number of shares for the 2015 Buy List. For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 20 stocks. Whenever I discuss how well our Buy List is doing, this is what I’m referring to:

Company Ticker Price Shares Balance
AFLAC AFL $61.09 818.4646 $50,000.00
Ball Corp. BLL $68.17 733.4605 $50,000.00
Bed Bath & Beyond BBBY $76.17 656.4264 $50,000.00
Cognizant Technology Solutions CTSH $52.66 949.4873 $50,000.00
CR Bard BCR $166.62 300.0840 $50,000.00
eBay EBAY $56.12 890.9480 $50,000.00
Express Scripts ESRX $84.67 590.5279 $50,000.00
Fiserv FISV $70.97 704.5230 $50,000.00
Ford Motor F $15.50 3,225.8065 $50,000.00
Hormel Foods HRL $52.10 959.6929 $50,000.00
Microsoft MSFT $46.45 1,076.4263 $50,000.00
Moog MOG-A $74.03 675.4019 $50,000.00
Oracle ORCL $44.97 1,111.8523 $50,000.00
Qualcomm QCOM $74.33 672.6759 $50,000.00
Ross Stores ROST $94.26 530.4477 $50,000.00
Signature Bank SBNY $125.96 396.9514 $50,000.00
Snap-on SNA $136.74 365.6575 $50,000.00
Stryker SYK $94.33 530.0541 $50,000.00
Wabtec WAB $86.89 575.4402 $50,000.00
Wells Fargo WFC $54.82 912.0759 $50,000.00

There are five new stocks and five stocks that I’m removing. The five new stocks are Ball Corp. ($BLL), Hormel Foods ($HRL), Signature Bank ($SBNY), Snap-on ($SNA) and Wabtec ($WAB).

The five deletions are CA Technologies ($CA), DirecTV ($DTV), IBM ($IBM), McDonald’s ($MCD) and Medtronic ($MDT).

The average market cap is $69 billion. That ranges from a high of $382 billion for Microsoft ($MSFT) to $3 billion for Moog ($MOG-A).

Thirteen of the twenty stocks pay dividends. The total yield of the Buy List is 1.06%.
Only three stocks have been on the Buy List all ten years: AFLAC ($AFL), Bed Bath & Beyond ($BBBY) and Fiserv ($FISV). Stryker ($SYK) and Moog ($MOG-A) are both making their eighth appearance.

Buy Below Prices for the 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 Ball Corp. ($BLL) out as a buy up to $72 per share. This is a good stock for conservative investors. Ball also pays a very small dividend. I’m going to initiate Hormel Foods ($HRL) with a Buy Below of $56. By the way, Hormel reports on a Jan-Apr-July-Oct Cycle, so its earnings will come a bit after most of our other stocks. Signature Bank ($SBNY) is a buy up to $133. I’d like to see SBNY start paying a dividend soon. Snap-on ($SNA) is a buy anytime you see it below $143 per share. Lastly, I rate Wabtec ($WAB) a buy up to $90 per share. This week, I’m also raising the Buy Below on Ross Stores ($ROST) to $96 per share.

On Thursday, January 8, Bed Bath & Beyond ($BBBY) will report earnings for its fiscal third quarter. This covers September, October and November. On the last earnings call, BBBY said they expect Q3 to range between $1.17 and $1.21 per share. Interestingly, they also gave guidance for Q4 which they see ranging between $1.78 and $1.83 per share. The fourth quarter is the biggie for Bed Bath. For the entire year, management said they see earnings coming in between $5.00 and $5.08 per share.

I was impressed with this guidance. Buybacks are helping out a lot. My numbers pretty much match up with what the company is saying. If they hit $5.08 for the year, that means the stock is going for 15 times earnings, which is hardly overpriced. Last week, Barron’s ran a feature on BBBY and noted that the company has ramped up its Internet presence. For now, I’m going to keep a fairly tight Buy Below on BBBY. Let’s see how Q4 is shaping up. Bed Bath & Beyond remains a buy up to $77 per share.

That’s all for now. The market is closed on Thursday for New Year’s Day, but Friday will be a full work day. At 10 a.m., the December ISM will come out. Next Friday, we’ll get some of the key turn-of-the-month econ reports like Trade Balance and Factory Orders. The latest Fed minutes come out on Wednesday. This all leads up to the big jobs report next Friday. 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, 2015 at 7:42 am

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.