One of our annual traditions is to enter into Financial Uproar’s Annual Stock Picking contest – and this year is a special one. We’re the defending champion!
Let’s launch into the picks:
- NeuStar Inc. (NYSE:NSR)
- Cal-Marine Foods (NASDAQ:CALM)
- Tesoro Corp (NYSE:TSO)
- Honda Motor (NYSE:HMC)
Neustar is an information services company, providing real time information and analytics. They’ve got a market cap of one and a quarter billion dollars.
Their ‘increasing’ earnings over the last few years have come with a drop in earnings per share. However, balance that out with their explosive revenue growth and you’ll recognize what I think I do – an excellent bet on a solid company, especially for us stock picking contestants.
If you’ve read my past contest dispatches, I’m a bit hand-wavey with what exactly makes a good pick – it’s one of those Potter Stewart, “I know it when I see it” deals. NeuStar strikes me as a solid bet – our Discounted Cash Flow calculator especially likes it when you raise your earnings expectations a bit, which I think is a fair bet.
All of the common indicators are good – Price to Earnings is a touch high based on the earnings per share trend (quarterly, since TTM looks good), but the rest of the “Price pers” are strong. RoA, RoE, RoIC are all solid, and they’re generating a good chunk of free cash flow. I like it in 2016.
Cal-Marine Foods Inc
Cal-Marine produces, grades, and sells eggs. They are listed on the NASDAQ and have an excellent ticker in CALM. They paid a fat dividend in 2015, have a tiny price to earnings ratio and have seen impressively increasing revenue over the last half a decade.
Pretty much every indicator is off the charts – low Price to Everything, 33%+ TTM RoA, and 43%+ TTM RoE and ROIC. Financials are very strong. If you poke around their financials you’ll like them too – although CALM’s probably a bet on egg prices staying elevated through 2016, (especially in a one-year stock picking contest).
Oh, and dietary cholesterol is no longer in your doctor’s sights. (That’s good, since a dozen scrambled eggs seems like a reasonable breakfast to me).
Tesoro is a mid-cap energy company with a $13 Billion market cap.
I picked energy so heavily last year in the contest… so I couldn’t resist making another play this year. They haven’t been completely immune to the wider reality of the energy sector, so the last 12 months have seen revenues on par with their 2011 – but you’re still looking at strong cash flows and solid income even through a tough time. That’s worth something.
TTM RoA is ~ 10.5%, RoE is an (insane) 32.7%. Return on Invested Capital, at least by Morningstar’s definition, rounds to 20%. Price to Book is close to the S&P’s aggregate, but every other price ratio is low – on the order of an 8 P/E, .4 Price to Sales and 6 Price to Cash Flow. Our Graham Number Calculator doesn’t like it – but assuming (give me a break, I can assume in a one-year contest) stabilizing earnings in a DCF analysis puts TSO as undervalued.
Honda Motor Corporation
Does Honda really need any introduction? This is the ADR of the Honda Motor Company. Honda makes cars and trucks. You probably know people who drive them.
(Anyway, my play on Honda is weaker than the others, but I’m just not seeing tons of value in my screens.) 3.15% ROA, 8.15% ROE and tons of free cash flow makes me feel comfortable with this pick – plus solid financials (in my quick perusal). Every price measure is far below the S&P 500 – Price to earnings, Price to Cash Flow, Price to Sales and especially Price to Book. It pays a small dividend and it’s growing revenue at a rapid pace.
Yeah its a solid fourth corner in my 2016 stock pick plan, even if it’s not the most exciting. Wouldn’t you say that’s a good analysis?
An Aging Market
I’ve been shaky on the market since November of 2013 – yeah, it was a bit early, but 2015 was a mulligan – as you can see when we calculated 2015’s S&P 500 gains with dividends reinvested. (+1.19% is beatable). That said, there are always pockets of value in the markets – which might have to fight some tough seas. With that in mind, I especially like my first three picks.
As for last year, you can read my 2015 stock picks here if you want – but by my math, they returned +15.7914%. That was all on the strength of CACC and VLO, by the way. And, yes, since I’ve been entering these contests I’ve been beating the S&P 500 – go ahead and audit me, I already did.
So, wish me luck or wish for me to lose – it’s time for another stock picking contest!
Full disclosure: I own none of the securities mentioned and won’t buy them for at least 72 hours. That’s Thursday, 1/7/2016 if-you-think-I’ll-actually-buy-some-of-them-and-you-want to-front-run-me.