Situation: The S&P 400 MidCap Index is a very good investment. So let’s dig deeper and ask whether there are MidCap stocks that might represent an even better investment? We’ve toyed with this idea in the past (see Week 263 - “Bond-like” Stocks That Fly Under The Radar). Now we undertake a systematic study.
Mission: Make a spreadsheet based on the 65 Dividend Achievers in the S&P MidCap 400 Index. Then remove companies that don’t have 16-yr trading records, or S&P stock ratings of at least B+/M. Remove companies where long-term debt accounts for more than 1/3rd of Total Assets, as well as companies that have been unable to make dividend payments over the past 2 quarters exclusively from Free Cash Flow, or have a Return on Invested Capital (ROIC) that is less than their Weighted Average Cost of Capital (WACC).
Execution: We find that only 8 companies meet our criteria (see Table).
Administration: Only one of those companies, Owens & Minor (OMI), pays a good and growing dividend. However, OMI had a total return of less than 6%/yr over the past 5 yrs, whereas, the other 7 companies returned at least 11%/yr. The good news is that 5 of those beat MDY (the S&P 400 Index ETF at Line 19 in the Table) and two (CHD and SON) are likely to lose less than the S&P 400 MidCap Index in the next Bear Market (see Column M in the Table).
Bottom Line: None of these stocks looks to be a good “stand alone” bet. MidCap companies rarely have more than one product line. So, you would need to own stock in several to take advantage of “MidCap growth”. You would also have to pick those stocks to achieve an overall result that minimizes areas of vulnerability but maximizes areas of strength. That statistical exercise is now called “moneyball,” after the book by Michael Lewis (and hit movie) that explains how a young economist brought success to a major league baseball team that could only afford “MidCap players”.
Risk Rating: 6 (for owning stock in all 8 companies)
Full Disclosure: I do not own stock in any of these companies, but do own shares of ARTMX (the “MidCap Blend” Mutual Fund at Line 18 in the Table) and a 401(k) clone of VEXMX (the “MidCap Blend” Index Fund at Line 21).
NOTE: Metrics are current for the Sunday of publication. Red highlights denote underperformance vs. VBINX at Line 20 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256. Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = moving average for stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 10-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K in the Table (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% is designed to approximate Total Returns/yr from a stock index of similar risk (S&P 400 MidCap Index at Line 26) to owning a small number of large-cap stocks, where risk due to “selection bias” is paramount.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, November 27
Sunday, November 20
Week 281 - Investing for Capital Gains
Situation: Don’t leave money on the table. That means don’t accept a lower rate of return when you could get a higher rate of return by investing in the same asset class while taking the same risk.
This week we’ll focus on A-rated companies with over 9%/yr long-term growth in both Dividend and Price. Investing for Capital Gains starts with avoiding stocks that grow their dividends slower than 9%/yr. Why? Because you’ll soon find that 80% of the worthwhile companies are S&P Dividend Achievers, companies that have raised their dividend each year for at least the past 10+ years. Your benchmark is the S&P 400 MidCap Index, or its ETF (MDY). That index has a long-term growth rate of 9-10%/yr, which is higher than the growth rate for the S&P 500 Index while having a lower risk of loss (see Columns K & M at Lines 32 & 33 in the Table).
Mission: Make a spreadsheet of Dividend Achievers that have 1) grown their dividend at least 9%/yr over the past 10 yrs, and 2) have demonstrated price appreciation of at least 9%/yr over the past 25 yrs. We define price appreciation statistically, i.e., as the trendline derived from a “least squares” calculation of Standard Deviation for weekly price points . We exclude companies that have either an S&P stock rating lower than A-/M or an S&P bond rating lower than A-. We also exclude companies having a) Long-Term debt that amounts to more than 1/3rd of total assets (see Column N of the Table), b) insufficient revenue to be on the Barron’s 500 List published 4/30/16, c) insufficient Free Cash Flow in the most recent two quarters to fund their dividend (see Column O of the Table), and d) negative Tangible Book Value (see Column P in the Table). We also exclude any companies with a Weighted Average Cost of Capital (WACC) that exceeds their Return on Invested Capital (ROIC), as shown in Columns AB & AC of the Table. In other words, all of the companies listed have a clean Balance Sheet.
Execution: We find that 17 companies meet our requirements. Some have performed poorly under stress, i.e., during the 4.5 year Housing Crisis (e.g. the 5 stocks highlighted in red in Column D), or have a history of price volatility that predicts a greater loss in the next Bear Market than the S&P 500 Index (e.g. the 7 stocks highlighted in red in Column M not already highlighted in Column D). You might want to pay more attention to the 5 companies that had neither problem, namely, GWW, HRL, WEC, PH, APD.
Administration: Picking large-capitalization stocks for your retirement portfolio is fraught with risks, no matter how high you set the quality bar. Why? Because those companies typically have multiple product lines and strong brands, which allows them to borrow lots of money at low cost. Managers are incentivized to do this because their performance is often measured by Return on Equity (ROE). The more they use borrowed money, the higher ROE goes because returns go up while equity remains unchanged. Mid-Capitalization companies don’t yet have multiple product lines or strong brands, so their managers can’t borrow as much money. For those same reasons, it is rarely prudent to own stock in a Mid-Cap company, unless its Tangible Book Value is remarkably high. But a large aggregate of Mid-Cap companies (e.g. the S&P 400 MidCap Index) makes an excellent investment because there is little risk posed by long-term debt.
Owning individual stocks in a 401(k) through a mutual fund costs at least 1.59% more per year than owning index funds. Your costs, as an individual who likes to pick her own stocks, are at least 2%/yr more. Why would you do that? For starters, index funds are inefficient in ways that cost you almost 1%/yr. We all know another reason, which is that you can invest in Berkshire Hathaway (e.g. low-cost “B shares”) and beat the lowest-cost S&P 500 Index fund long-term while incurring less risk (compare Lines 23 & 28 in the Table). You can say the same about a few other companies, such as Johnson & Johnson at Line 22 in the Table. The cost of dollar-averaging $200/mo into JNJ stock online is 0.5%/yr.
I think the best reason to go with stock-picking is that a majority of companies in the S&P 500 Index have messy Balance Sheets and weak brands. If you confine your picks to companies with strong Balance Sheets and strong brands, as shown in Columns N through R in the Table, you will minimize losses in a downturn, as shown in Column D of the Table. Not losing money is the secret of making money. As Warren Buffett says, "Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."
Bottom Line: Investing requires a disciplined approach to goals. When capital appreciation is the goal, you’ll want to use a benchmark that achieves that goal with the least risk. We think the S&P 400 MidCap Index is appropriate, given that it has 20% less risk of loss than the S&P 500 Index and 10% greater price appreciation. By using the S&P 400 MidCap Index as our benchmark, we arrive at a 9% discount rate for the Net Present Value (NPV) calculation (see Appendix to Week 256). If your growth stock selections generate a negative NPV, you’d be better off investing in MDY, the SPDR Exchange-Traded Fund that tracks the S&P 400 MidCap Index. This week’s Table has 17 Dividend Achievers with positive NPVs after being “handicapped” by the 9% discount rate. Those are worthwhile dividend-growing stocks for your retirement portfolio, as evidenced by how well their price held up during the Housing Crisis (see Column D in the Table).
Risk Rating: 6 (where 1 = 10-yr US Treasury Notes and 10 = gold bullion).
Full Disclosure: I dollar-average into MSFT, NKE, and UNP. I also own shares of ROST, TJX, HRL, WMT, and MMM.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
This week we’ll focus on A-rated companies with over 9%/yr long-term growth in both Dividend and Price. Investing for Capital Gains starts with avoiding stocks that grow their dividends slower than 9%/yr. Why? Because you’ll soon find that 80% of the worthwhile companies are S&P Dividend Achievers, companies that have raised their dividend each year for at least the past 10+ years. Your benchmark is the S&P 400 MidCap Index, or its ETF (MDY). That index has a long-term growth rate of 9-10%/yr, which is higher than the growth rate for the S&P 500 Index while having a lower risk of loss (see Columns K & M at Lines 32 & 33 in the Table).
Mission: Make a spreadsheet of Dividend Achievers that have 1) grown their dividend at least 9%/yr over the past 10 yrs, and 2) have demonstrated price appreciation of at least 9%/yr over the past 25 yrs. We define price appreciation statistically, i.e., as the trendline derived from a “least squares” calculation of Standard Deviation for weekly price points . We exclude companies that have either an S&P stock rating lower than A-/M or an S&P bond rating lower than A-. We also exclude companies having a) Long-Term debt that amounts to more than 1/3rd of total assets (see Column N of the Table), b) insufficient revenue to be on the Barron’s 500 List published 4/30/16, c) insufficient Free Cash Flow in the most recent two quarters to fund their dividend (see Column O of the Table), and d) negative Tangible Book Value (see Column P in the Table). We also exclude any companies with a Weighted Average Cost of Capital (WACC) that exceeds their Return on Invested Capital (ROIC), as shown in Columns AB & AC of the Table. In other words, all of the companies listed have a clean Balance Sheet.
Execution: We find that 17 companies meet our requirements. Some have performed poorly under stress, i.e., during the 4.5 year Housing Crisis (e.g. the 5 stocks highlighted in red in Column D), or have a history of price volatility that predicts a greater loss in the next Bear Market than the S&P 500 Index (e.g. the 7 stocks highlighted in red in Column M not already highlighted in Column D). You might want to pay more attention to the 5 companies that had neither problem, namely, GWW, HRL, WEC, PH, APD.
Administration: Picking large-capitalization stocks for your retirement portfolio is fraught with risks, no matter how high you set the quality bar. Why? Because those companies typically have multiple product lines and strong brands, which allows them to borrow lots of money at low cost. Managers are incentivized to do this because their performance is often measured by Return on Equity (ROE). The more they use borrowed money, the higher ROE goes because returns go up while equity remains unchanged. Mid-Capitalization companies don’t yet have multiple product lines or strong brands, so their managers can’t borrow as much money. For those same reasons, it is rarely prudent to own stock in a Mid-Cap company, unless its Tangible Book Value is remarkably high. But a large aggregate of Mid-Cap companies (e.g. the S&P 400 MidCap Index) makes an excellent investment because there is little risk posed by long-term debt.
Owning individual stocks in a 401(k) through a mutual fund costs at least 1.59% more per year than owning index funds. Your costs, as an individual who likes to pick her own stocks, are at least 2%/yr more. Why would you do that? For starters, index funds are inefficient in ways that cost you almost 1%/yr. We all know another reason, which is that you can invest in Berkshire Hathaway (e.g. low-cost “B shares”) and beat the lowest-cost S&P 500 Index fund long-term while incurring less risk (compare Lines 23 & 28 in the Table). You can say the same about a few other companies, such as Johnson & Johnson at Line 22 in the Table. The cost of dollar-averaging $200/mo into JNJ stock online is 0.5%/yr.
I think the best reason to go with stock-picking is that a majority of companies in the S&P 500 Index have messy Balance Sheets and weak brands. If you confine your picks to companies with strong Balance Sheets and strong brands, as shown in Columns N through R in the Table, you will minimize losses in a downturn, as shown in Column D of the Table. Not losing money is the secret of making money. As Warren Buffett says, "Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."
Bottom Line: Investing requires a disciplined approach to goals. When capital appreciation is the goal, you’ll want to use a benchmark that achieves that goal with the least risk. We think the S&P 400 MidCap Index is appropriate, given that it has 20% less risk of loss than the S&P 500 Index and 10% greater price appreciation. By using the S&P 400 MidCap Index as our benchmark, we arrive at a 9% discount rate for the Net Present Value (NPV) calculation (see Appendix to Week 256). If your growth stock selections generate a negative NPV, you’d be better off investing in MDY, the SPDR Exchange-Traded Fund that tracks the S&P 400 MidCap Index. This week’s Table has 17 Dividend Achievers with positive NPVs after being “handicapped” by the 9% discount rate. Those are worthwhile dividend-growing stocks for your retirement portfolio, as evidenced by how well their price held up during the Housing Crisis (see Column D in the Table).
Risk Rating: 6 (where 1 = 10-yr US Treasury Notes and 10 = gold bullion).
Full Disclosure: I dollar-average into MSFT, NKE, and UNP. I also own shares of ROST, TJX, HRL, WMT, and MMM.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, November 13
Week 280 - A-rated Commodity-related Dividend Aristocrats
Situation: The S&P 500 Index is increasingly overvalued, and now has a P/E that is 25 times trailing earnings. Investors have withdrawn almost $100 Billion in the past 12 months but the S&P 500 Index keeps rising because companies have bought back even more of their own stock. Earnings of ~$150 Billion barely cover dividend payments. Unless demand picks up, companies will continue returning profits to investors instead of using those for expansion. If planet-wide demand does pick up, stocks will return to reasonable valuations. If it doesn’t, we’ll have a correction or Bear Market.
One slice of the market already appears to have started an upswing, i.e., commodity-related companies. We have documented this from various points of view in several recent blogs. To be very cautious, you might consider investing small amounts of money regularly in one or two of the best companies. Look at the few Dividend Aristocrats in that sector having A-rated stocks and bonds. Dividend Aristocrats are rarely in the spotlight because so few companies have the earnings consistency to generate 25+ consecutive years of dividend increases.
Mission: We’ve checked, and there are only 11 such commodity-related companies. So let’s drill down on those (see Table).
Execution: I know what you’re thinking, that 9 of those 11 companies have P/Es over 20. If the market does drop 10-20%, those 9 will drop at least that much. True enough (quality goods attract money). Either you buy the idea of putting a similar amount of money into the stock market each and every quarter, or you don’t. When the market is down, that money buys more shares of stock. If you have a 401(k) plan at work, dollar-cost averaging is already on automatic pilot.
The main point is to be a disciplined buyer. Never put a big slug of dollars into the market at once, and avoid “one-off” purchases. Pick a theme and build on it over time. Eventually you’ll settle on a plan and fund it with automatic monthly withdrawals from your checking account. Then, sit back and do the math: See how your stock picks perform in comparison to your benchmark mutual fund, e.g. MDY, which is the S&P 400 MidCap Index ETF. If your stocks perform poorly or erratically, invest in the benchmark instead of trying to pick stocks.
Bottom Line: You want safe and effective investments. You have to be careful about investing in companies that draw their feedstocks from the ground. Stocks issued by those companies are vulnerable to boom-and-bust commodity cycles. But the A-rated ones can be safe and effective bets over a 10-year holding period, IF they’ve increased their dividend each year for at least the past 25 years.
Risk Rating: 6
Full Disclosure: I dollar-average into XOM, and also own shares of HRL, MKC, KO, and WMT.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote underperformance vs. VBINX at Line 21 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256. Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = moving average for stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 10-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column L (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% is designed to approximate Total Returns/yr from a stock index of similar risk to owning a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index (at Line 26 in the Table). MDY (at Line 20 in the Table) is the ETF for that index.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
One slice of the market already appears to have started an upswing, i.e., commodity-related companies. We have documented this from various points of view in several recent blogs. To be very cautious, you might consider investing small amounts of money regularly in one or two of the best companies. Look at the few Dividend Aristocrats in that sector having A-rated stocks and bonds. Dividend Aristocrats are rarely in the spotlight because so few companies have the earnings consistency to generate 25+ consecutive years of dividend increases.
Mission: We’ve checked, and there are only 11 such commodity-related companies. So let’s drill down on those (see Table).
Execution: I know what you’re thinking, that 9 of those 11 companies have P/Es over 20. If the market does drop 10-20%, those 9 will drop at least that much. True enough (quality goods attract money). Either you buy the idea of putting a similar amount of money into the stock market each and every quarter, or you don’t. When the market is down, that money buys more shares of stock. If you have a 401(k) plan at work, dollar-cost averaging is already on automatic pilot.
The main point is to be a disciplined buyer. Never put a big slug of dollars into the market at once, and avoid “one-off” purchases. Pick a theme and build on it over time. Eventually you’ll settle on a plan and fund it with automatic monthly withdrawals from your checking account. Then, sit back and do the math: See how your stock picks perform in comparison to your benchmark mutual fund, e.g. MDY, which is the S&P 400 MidCap Index ETF. If your stocks perform poorly or erratically, invest in the benchmark instead of trying to pick stocks.
Bottom Line: You want safe and effective investments. You have to be careful about investing in companies that draw their feedstocks from the ground. Stocks issued by those companies are vulnerable to boom-and-bust commodity cycles. But the A-rated ones can be safe and effective bets over a 10-year holding period, IF they’ve increased their dividend each year for at least the past 25 years.
Risk Rating: 6
Full Disclosure: I dollar-average into XOM, and also own shares of HRL, MKC, KO, and WMT.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote underperformance vs. VBINX at Line 21 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256. Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = moving average for stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 10-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column L (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% is designed to approximate Total Returns/yr from a stock index of similar risk to owning a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index (at Line 26 in the Table). MDY (at Line 20 in the Table) is the ETF for that index.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, November 6
Week 279 - Barron’s 500 Agricultural Producers
Situation: This week’s blog looks at how the 12 largest Ag Producers have been doing since 2012. They had been in a slump but have appeared to turn the corner. It seems hard to believe. Agricultural commodity prices remain in a slump and the Dow Jones Commodity Index (^DCI) has shown trendline growth of only 2.0%/yr after completing a 25 yr Commodity Supercycle. But that Index recently bounced off its 1999 low, likely heralding a new Commodity Supercycle . Our regular readers know we think food commodities should be able to buck that trend for two reasons: 1) food is an essential good; 2) the global middle class is projected to grow 10%/yr through 2030.
Mission: Prove that Ag Producers “have turned the corner”.
Execution: First, we’ll look at the negative side of the argument. Farm production has exceeded demand for 3 years. That has resulted in low crop prices, which have a) reduced farm incomes, b) limited the ability of farmers to buy farm equipment , and c) depressed farmland prices: “The amount of rent farmers pay to landowners also dropped precipitously in the St. Louis area. Farmland rent slid 10% and ranchland rent by 20% in the quarter."
Now we’ll look on the positive side. The 12 Barron’s 500 companies that produce equipment, fertilizer, seeds, and agronomy chemicals appear to be doing better. Year-over-year rankings comparing 2013 rankings with 2012 rankings show that only one (Monsanto) did better in terms of cash flow and revenues. However, 8 of the 12 did better when comparing 2015 to 2014. Sequential year-over-year results are shown for all 12 in Columns N-Q of the Table, with green highlights denoting year-over-year improvement.
Administration: Drill down on those largest Ag Producers and try to figure out why they turned the corner in 2015. It shouldn’t have happened, since crop inventories were rising and crop prices were falling, partly because Food Stamp usage in the US fell by 15%. The increased Federal spending to expand Food Stamp participation (after the 2008-2009 Recession) ended when The Recovery Act expired on 11/1/2013.
Bottom Line: Ag Producers are recovering. Briefly, we explain why by noting that the S&P 500 Index went through 10% corrections in October of 2014 and February of 2016. That last correction was associated with a 25% Bear Market for the Basic Materials Industry (XLB at Line 22 in the Table), and coincided with a bottoming of stock prices for 11 of our 12 Ag Producers. For 2015 vs. 2014, 10 of those 12 companies are highlighted in green, indicating improved sales and ROIC (see Columns O and P in the Table), and the aggregate Barron’s 500 Rank for all 12 companies improved to 369 from 398.
Risk Ranking: 7
Full Disclosure: I dollar-average into MON and also own shares of CAT and ADM.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote underperformance vs. VBINX at Line 21 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256. Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = moving average for stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 10-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% is designed to approximate Total Returns/yr from a stock index of similar risk to owning a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index (at Line 27 in the Table), and MDY (at Line 20 in the Table) is the ETF for that index.
Mission: Prove that Ag Producers “have turned the corner”.
Execution: First, we’ll look at the negative side of the argument. Farm production has exceeded demand for 3 years. That has resulted in low crop prices, which have a) reduced farm incomes, b) limited the ability of farmers to buy farm equipment , and c) depressed farmland prices: “The amount of rent farmers pay to landowners also dropped precipitously in the St. Louis area. Farmland rent slid 10% and ranchland rent by 20% in the quarter."
Now we’ll look on the positive side. The 12 Barron’s 500 companies that produce equipment, fertilizer, seeds, and agronomy chemicals appear to be doing better. Year-over-year rankings comparing 2013 rankings with 2012 rankings show that only one (Monsanto) did better in terms of cash flow and revenues. However, 8 of the 12 did better when comparing 2015 to 2014. Sequential year-over-year results are shown for all 12 in Columns N-Q of the Table, with green highlights denoting year-over-year improvement.
Administration: Drill down on those largest Ag Producers and try to figure out why they turned the corner in 2015. It shouldn’t have happened, since crop inventories were rising and crop prices were falling, partly because Food Stamp usage in the US fell by 15%. The increased Federal spending to expand Food Stamp participation (after the 2008-2009 Recession) ended when The Recovery Act expired on 11/1/2013.
Bottom Line: Ag Producers are recovering. Briefly, we explain why by noting that the S&P 500 Index went through 10% corrections in October of 2014 and February of 2016. That last correction was associated with a 25% Bear Market for the Basic Materials Industry (XLB at Line 22 in the Table), and coincided with a bottoming of stock prices for 11 of our 12 Ag Producers. For 2015 vs. 2014, 10 of those 12 companies are highlighted in green, indicating improved sales and ROIC (see Columns O and P in the Table), and the aggregate Barron’s 500 Rank for all 12 companies improved to 369 from 398.
Risk Ranking: 7
Full Disclosure: I dollar-average into MON and also own shares of CAT and ADM.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote underperformance vs. VBINX at Line 21 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256. Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = moving average for stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 10-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% is designed to approximate Total Returns/yr from a stock index of similar risk to owning a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index (at Line 27 in the Table), and MDY (at Line 20 in the Table) is the ETF for that index.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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