Prudence Will Be Rewarded, by Brian Nelson, CFA
There are a number of ways members use our research. Some members use the Best Ideas portfolio and Dividend Growth portfolio for idea generation; others like our systematic stock-selection process (fair value estimates, Valuentum Buying Index ratings) that allows for the comparison of ideas across sectors and industries, while others like to evaluate the incremental ideas that we add to the portfolios via transaction alert emails and/or the next idea that registers a 9 or 10 on the Valuentum Buying Index, our stock-selection methodology.
This month, we were very pleased to see the valuation thesis on new portfolio addition, Chinese search giant Baidu (BIDU) come to fruition in such a short time. On August 1, the firm was added to the Best Ideas portfolio (see page 8), and the stock hasn’t looked back since. Though most of the portfolio ideas have performed well, Baidu has the unique distinction of converging to the fair value estimate in relatively short order. The company also holds the coveted rank of a 10 on the Valuentum Buying Index, showcasing the efficacy of the process.
Though the Best Ideas portfolio has had its share of disappointments in 2013, we view Intuitive Surgical (ISRG) and Teva Pharma (TEVA) as long-term positions—the former focused on the trend toward robotic surgery and the latter the proliferation of generic pharmaceuticals across the globe. Though we think 2014 will shape up relatively better for these two holdings, we continue to point to the largest weightings in the portfolio (Apple, Ford, Visa, Precision Castparts) as a few of our favorite positions heading into the new year. You can always gauge the level of conviction of an idea by the size of its weighting in the Best Ideas portfolio.
Still, investors should be cognizant that broader market valuations aren’t spectacular at the moment. We encourage members to be prudent in putting new capital to work in the equity markets. The Best Ideas portfolio is well-positioned for outperformance, but while 2014 will be exciting, it offers a much more challenging market than 2013, given present valuations.
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INSIDE THIS ISSUE
1 Prudence Will Be Rewarded
2 Ford Shines Bright in November (tickers: F, GM, HMC, NSANY, TM)
6 Mining Capital Spending Still Expected to Fall (tickers: RIO, VALE)
7 Apple Up on News of China Mobile Deal and Icahn Request (tickers: AAPL, CHL)
8 Our Best Ideas Portfolio (see article for tickers)
9 PC Shipments Expected to Stabilize (see article for tickers)
10 Share Buybacks in Vogue for Portfolio Holdings (tickers: UNP, PSX)
10 Cyber Monday Online Sales Rocketed Higher; Mobile Growth Spectacular (see article for tickers)
12 Merger Rumors Helping Best Ideas Portfolio Holdings (see article for tickers)
12 Portion Packs Still in Strong Demand at Green Mountain; Free Cash Flow Surges in Fiscal 2013 (ticker: GMCR)
15 The ‘House’ May Be Giving a Little Back; It Did in October
16 Lampert May Be Bailing on Sears; J.C. Penney’s November Comps Showed Life (tickers: SHLD, JCP)
17 Baidu Up Big Since August Email Transaction Alert (ticker: BIDU)
18 Surveying Results at the Auto Parts Retailers (ticker: PBY, AZO)
20 Ideas for Your Radar
22 Featured Reports: BIDU, USG, ISRG
25 Our Stock-Selection Methodology