Home
Previous
Next

January, 2005: 5 15 19 23 30

Disclaimer - IMPORTANT - Read this first!

Investor's Journal is a diary focused strictly on investments and personal finance issues, primarily from a contrarian and retiree point of view. Follow along with an average guy's failures and successes as he learns, by trial and error, the fine art of value investing.

As of 10 AM, the Leapin' Lizards are still well ahead, though a bit subdued in their advance since late last year, at 10.70%, while Classic Value has gained 5.42% since the 10/4/04 inception of the contest. The S&P 500 Index for the period is up 5.20%.

Our top 5 candidates for inclusion this week in the Classic Value portfolio are: GETI; INFO; SAB; STC; AND TALK.

My choice among them is Stewart Information Services (STC) (recent price $39.83), and, based on the then market price per share, it will be added to the Classic Value tracking portfolio a little later today. STC has a small-cap market capitalization, at $729.87 million. It has a low price to earnings ratio (8.86) and debt to equity (0.06). Its price to sales ratio is but 0.34. The price to book ratio is quite modest at 1.07, and its price to free cash flow is 3.57. Return on equity is 12.96%. STC has a 1.14% dividend, with a dividend payout ratio of only 10.02%. For my own portfolio, I have an initial price target of $62 for this stock, which would represent about a 54% increase over the current per share cost. Changes in the company's P/E and in the Aaa corporate bond yield would alter the final price target.

1/15/05-My wife and I have been lucky in our choices of retirement account mutual funds. Per AAII, among those with no or low fees, through yesterday our largest three mutual fund holdings have had the following 10-year compound annual total returns.

I continue to think highly of all of them and so will leave them untouched or add to them over the next year.

As of yesterday's market closing, in the Leapin' Lizards vs. Classic Value competition, the Leapin' Lizards continue to outshine either the S&P 500 Index or Classic Value. The Leapin' Lizards, since the 10/4/04 inception, are up 11.7%, while Classic Value has gained just 3.4%. The S&P 500 Index in the same period has appreciated 4.7%. (Dividends are not included in these results, but the portfolio purchase commissions have been subtracted.)

The competition selection this time will be added to the Leapin' Lizards tracking portfolio at the next trading session (Tues., 1/18) early market price. The five favorites are: HUBG, KMRT, PHS, TWMC, and USG.

My choice among them is Trans World Entertainment Corp. (TWMC) (recent price $11.96). TWMC has a market-cap of $399 million, a low P/E of 10.7, a price to sales ratio of only 0.3, a modest price to book value ratio (1.1), a return on equity of 11.4%, debt to equity of 0.1, and a healthy current ratio of 1.9. Trans World Entertainment, a music and video retailer, has been closing some stores and reducing overhead to improve revenues and net income. TWMC is up 50.4% relative to the S&P 500 Index over the last year.

Our total nest egg's net asset value, even after the bear market, the recent correction, having 25% of our assets is relatively stable but non-productive holdings, and paying all excess living expenses (over a fairly small income), remains up 15.3% since I retired at the end of December, 2001. Our equity book value is ahead of the 2005 year-end target ($348,282 vs. $342,000). The overall portfolio's equity price to book value ratio is now a relatively safe 1.3.

1/19/05-In the Leapin' Lizards vs. Classic Value competition, begun 10/4/04, the Leapin' Lizards continue to excel, with an average gain of 13.92%, while Classic Value is up 4.59% and the S&P 500 Index, in the same period, has appreciated 5.12%.

For the current week, the competition selection will be added to the Classic Value tracking portfolio at the market price prevailing shortly before today's closing. The final five candidates are: CSLMF, INFO, SAFY, TALK, and TOM.

My choice among them is Metro One Telecommunications (INFO) (recent price $1.41). INFO is a nano-cap stock, with a market capitalization of just $35.23 million. It has no dividend and currently has negative earnings, but its price to book and price to net working capital ratios, respectively, are quite low, at 0.29 and 0.53. Its current ratio is 5.91 and its debt to equity is 0.00. The stock thus meets two each of Ben Graham's value and safety criteria. Metro One Telecommunications' price to sales ratio is also low, at a mere 0.22.

1/23/05-Our nest egg's net asset value, after all expenditures, is down 1.5% thus far for 2005, compared with a loss of 3.6% for the S&P 500 since 12/31/04. It now seems unlikely the year will turn out to be positive for the major averages. They would need a terrific final few days in January to turn things around, and few years' averages are ahead by the end of December which start off poorly. We have no plans for a dramatic shift in our approach. Stock shares will continue to be bought based on their value or contrarian bargain characteristics. It is looking increasingly likely, though, that in the course of 2005 investors will be given more such opportunities for low price to value purchases than were found in 2004.

After redemptions due to expenses (not offset by a modest retirement income), our total equity book value now stands at $358,347, up a little over 7.6% (from $333,000) in the six months since I began keeping track of it here, on 7/22/04. Our total securities' price to book value ratio is 1.28.

In our Leapin' Lizards vs. Classic Value competition, begun 10/4/04, against my initial expectations the Leapin' Lizards are persistently well ahead, so far up 11.28% after commissions, despite the current correction, while Classic Value lags far behind, up just 2.90%. In the same period, the S&P 500 Index has appreciated 3.18%.

This week's selection will be added (at the early trading market price) on Monday, 1/24, to the Leapin' Lizards tracking portfolio. The finalists, each with 50% or greater relative 52-week performances compared with the S&P 500 Index, debt to equity .33 or below, and a price to sales ratio of .5 or below, are: CULS, KMRT, PHS, USG, and ZONS.

My choice is Cost-U-Less, Inc. (CULS) (recent price $8.49). CULS has a nano-cap market-capitalization of $31.79 million, a below average P/E of 14.20, a price to sales ratio of only 0.16, a price to book value of 1.68, positive free cash flow, a 12.20% return on equity, and a 0.18 debt to equity ratio. CULS has no dividend. Cost-U-Less, Inc., has appreciated 163.32%, relative to the S&P 500 Index, over the past year, and is already ahead 27.71% in the first three weeks of 2005.

1/30/05-We continue to suffer disappointing returns so far this year. After all expenses (including a new roof), our nest egg's net asset value is down slightly over 2% in 2005. The S&P 500 Index is down 3.38% (even without a new roof) in the same period.

For the Leapin' Lizards vs. Classic Value competition, the appreciation is also less than ideal, at least partly due to the recent correction. Yet the Leapin' Lizards, up 10.12%, remain well ahead. The average Classic Value stock is up just 2.43%. Since a 10/4/04 contest inception, the S&P 500 appreciation has been +3.45%.

Based on its early Monday (1/31) market value, the next competition selection will be added to the Classic Value tracking portfolio. The five finalist stocks this time are: AFC, GFR, NWLIA, PCIS, and VSH.

My favorite is Great American Financial Resources (GFR) (recent price $15.83). GFR's P/E is just 7.80. (Its 12.8% earnings yield is more than twice the 5.3% yield of the average Aaa corporate bond.) Its market-cap is $745 million. The stock has a small (0.65%) dividend, with a dividend payout ratio of 4.90%. GFR's price to sales value is 0.72. The price to book ratio is 0.70. The price to free cash flow is only 2.13. Debt to equity is 0.29. The operating margin is 13.72%. Return on equity is 9.78%. While patience is often required with such value bargains, their risk levels tend to be lower than for the market as a whole, while their average total returns, assuming sale of the assets once they achieve fair prices for their value, are generally superior to those of the major averages.

Home | Previous | Next