AB Analytical Services

STJ: Potential Pressure Relief Ahead

STJ has called out "renal denervation" as a huge LT driver, and the company's device, EnligHTN, received a CE Mark this week, ahead of schedule.  They aren't the first to market, but the market for hypertension that can't be reduced with drug therapy is quite large.  It will take a while to develop sales, and it it will be a few years before they can sell in the U.S., but it's worth paying attention to this new technology.

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Why RAVN is a Hidden Gem

Raven Industries is located way far from the financial markets.  I know, because I visited the company two years ago, making the drive from Minneapolis to South Dakota.  I have followed RAVN for several years and consider it a great price.  Often, it is difficult to justify the valuation, but a recent pullback is allowing a reasonable entry.  I profiled the company this weekend on Seeking Alpha:

Read about RAVN

My Own Analyst: Get an Edge

Looking for an off-the-run source of investment ideas from a veteran stock-picker who has blown away the S&P 500 with a fully-invested 20-stock model portfolio up 110% over the past four years?  My Own Analyst is designed to give you an edge.  While most of the commentary is reserved for my 100-stock Watchlist, I also try to weigh in on interesting situations off my list as well.  Here are some recent highlights:

 

FSLR 2/28/12

I am circling back today because I want to make sure that if anyone is involved, the stock did everything and more that I had expected. I DON'T ENDORSE THIS STOCK HERE AT 34.  When I hear news like this, I don't want to be involved at ANY price. 

WSM 03/08/12

WSM (along with AEO and TRLG) is one of the retailers I called out the other day as off to a poor start in 2012 but appearing to look interesting.  As hyped up as the housing stocks and related stocks are, one might think that WSM would be getting some love.  The stock is down today and near the lows.  I think that the main issue is that the COO and CFO, Sharon McCollam, is leaving.  She is young (I say this because she is two years older than me!), just 49.  WSM has a relatively new CEO - Laura Alber, who really is young, especially for a CEO, at 43.  McCollam has served as CFO since 2000 and was named COO in 2006.  She was also a director.

While this is certainly not good news, I think that it isn't terrible news.  The stock would likely have been up were it not for this news.  I think it's a high quality company with a pretty deep bench and would look at this as a buy entry.

GMCR 03/09/12

The stock is quite cheap relative to its history as well as to its earnings growth.  Estimates are for sales to grow 61% this year and 30% in 2013.  The stock trades at less than 20PE - a level not seen since early 2005.  

Technically, I see support near 50 on this one.  This seems like a good opportunity, at least for the short-term, as the constant fear of SBUX crushing them should actually abate for now as the SBUX machine doesn't compete.  Keep in mind, many have speculated that SBUX will buy this company.

MIDD 03/12/12

Breakout Alert

MIDD had made a new high a couple of weeks ago, but on no volume.  Today, an all-time high yet again, but on huge volume following big earnings.

 

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Some Recent Articles

The market broke out in many respects this week on good fundamental data.  This seems like a good time to be involved!  This week, I share five stocks that look good to me right here right now.  All of them are in long-term uptrends, with two off to a good start in 2012 but three that are lagging.  Check it out here!

In case you missed it, I challenged the popular notion that only "trash" stocks are leading the market by examining all of the stocks up 20% or more YTD in the S&P 500.  While this article might give you some ideas, it's really more about gaining conviction that the rally is sustainable.  Check it out here!

Finally, I don't typically link here to my Invest By Model blog, but this is something I publish every single week.  You can find the blog by clicking here.  Below is an excerpt from this week's commentary:

 

Market Outlook

The market has moved very close to the post-2009 highs.  While we are still below the late-April closing high for the S&P 500 of 1364, there are several signs that we will soon eclipse that level.  For one, the NASDAQ did so today, and in grand fashion.  Also, the Technology sector (see the XLK ETF), which is at the highest level since 2001, and the Consumer Discretionary sector (see XLY ETF), which posted an all-time high, have already cleared their previous highs.  Finally, the Dow Jones Industrial Average has made a new high too.

While my 1600 target for year-end, which is less than 20% from here, may seem overly optimistic, I am sticking with it.  Valuations are too low, while technicals are very encouraging.  As I have said previously, the fundamentals have been the obstacle.  While I am not looking for a super robust economy, it doesn't appear to be as weak as many have feared.  With low valuations for stocks and terrible sentiment, there is plenty of reason for people to deploy cash.  Would it be so wild if the market were to trade at 14 or 15 PE?  I don't think so, and that's how I come up with 1600.  The current outlook for 2012 is about $105 per share - maybe this is too high.  If we assume, though, that $110 for 2013 is about right, we can get to 1540 (110 * 14).  15PE implies 1650.  

After being overly optimistic last year and enduring a five-month hit to the long-term trend (from late April to early October), I am somewhat humbled and perhaps not as confident as I might ordinarily be, but this is how I see it.  I am still looking for some confirmation outside of US stocks.  Encouragingly, non-US stocks are flying.  If the world were such a hostile place, this would not be the case.  In fact, Europe is leading the way.  While everyone is fearful of recession (in Germany and France, the two that matter), it's just not in the cards.  Their manufacturing indices remain expansionary.  One area that isn't confirming stronger growth ahead is bonds.  It's a very manipulated market (Operation Twist, for one), but our rates remain so low that they signal crisis still.  To the extent our 10-year Treasury rates rise towards 3%, the more optimistic I will be regarding our prospects for a recovering economy.  Today, we did move in the right direction, but we are still below 2%.

As my conviction builds longer-term, I have to share some near-term caution, as the market has rallied five straight weeks and is a little overbought.  This doesn't mean a big pull-back is ahead, but I wouldn't be surprised to see a small dip (similar to what we saw last week but lasting more than a day or two).  With that said, this is definitely a dip-buying kind of market.

Final Thoughts

This week, Facebook filed its initial documents with the SEC to go public.  Many people view this as a potential catalyst for a better market, and I have to agree, as it could attract new investors to the market.  I am saddened by what has happened to the individual investor in recent years.  It's no wonder, after the Dot-com Bubble and then the Great Recession, many people have just given up on the idea that they can make money in stocks.    This is especially the case for younger people, who didn't get to experience the great run from 1982-2000 but had to live through two terrible bear markets in their adulthood.

Unlike the crazy IPOs in the late 90s, FB (that's the symbol) is highly profitable.  It touches hundreds of millions of people around the world and is a great reminder of the power of capitalism and the ability of great ideas to enrich their creators.  This deal, expected to come in May, is likely to draw tremendous attention and to be an incredible opportunity in the short-term to those who are able to get shares.  I stray from hyperbole, but it could be a game-changer when it comes to attitudes about stocks for the younger generation.

As a contributor to Seeking Alpha, I am exposed to lots of different investors through their comments on my articles as well as their direct messages to me.   Many of these people (who are actually in the market) think Utilities and AT&T are appropriate long-term investments, which I view as totally incorrect.  Younger investors should be betting on growth stocks!  But, I think that their thinking is clouded by near-term performance and too much media reference to the "lost decade" for stocks.  While it is true that "stocks have gone nowhere" this century if you measure the S&P 500, it's just not the case.  It's been a tale of overvalued stocks coming down but many stocks going up.  For stock-pickers, the last decade has been quite fruitful.  The Russell 2000 (small stocks) has increased  over 65% since the turn-of-the-century.

 

 

A Free Look at my Conservative Growth Stocks

Prospective subscribers to my Invest By Model service can always have a free 30-day look, but once a year I expose the model in its entirety to the general public.  Here is how the Conservative Growth/Balanced Model Portfolio looked at year-end.

My Top 20 Model Portfolio: Annual Undressing

Since the end of 2008, I have been sharing my entire Top 20 Model Portfolio once a year on Seeking Alpha.  Of course, prospective subscribers always can get a free 30-day look anytime they choose.  Here is how the portfolio was positioned at year-end.

4 Names Due for Potential Reversal

I have a proprietary technical indicator I use that suggests many of the names on my watchlist are due for a reversal.  In this article, I focus on four that are primarily domestically focused.

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Joplin Tornado Blows Away This Company's Dividend

 

Empire District Electric Company (EDE) is yet another victim of the horrific devastation from the tornado in Joplin this past weekend. The stock had initially declined modestly earlier this week, but it plunged yesterday by 15%, wiping out $125mm in market value after the company suspended its dividend for two quarters. The company cited 8-10k customers that will be out of service for the forseeable future that will result in 10-15% loss of revenue and damage repair of $20-$30mm before potential insurance recoveries.

 

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Two Obscure REITs worth Investigating

One of the great benefits of working with several institutional investors is that I get exposed to a lot of different ideas across market sectors. One of my clients has been an investor in the REIT market for quite some time, and I am very grateful for the exposure I get from participating in their Investment Committee meetings. While they generally like to invest in the "best" REITs in terms of management skill and market leadership, they often look to one-offs, especially when they believe the stock is mispriced. In December, we approved two new names, both of which I find timely.

 

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Lowe's: Conservative Consumer Company Looks Compelling

Lowe's (LOW) has a symbol that describes the way I feel about the stock price. While it's not as "low" as it was in the summer, when we added it to our Conservative Growth/Balanced Model Portfolio near 20, it's low enough that we added to the position this past week. I believe that the stock can reach 31 over the next year as it enjoys robust earnings recovery and some slight improvement in its PE. Here is what I like about the name:

• It's a great company with good position in a recovering industry
• The fundamentals are improving
• The balance sheet is conservative
• The valuation is reasonable
• Market dividend is likely to rise
• The chart is good

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