Month: March 2019
Insiders Buy at Hartford Financial, Weight Watchers
Posted: March 28, 2019
March 11, 2018 (Maple Hill Syndicate) – Back in 1810, a group of businessmen in Hartford, Connecticut formed a fire insurance company for their mutual protection.
Today Hartford Financial Services Group Inc. is one of the largest insurance companies in the U.S. It sells property & casualty insurance, group life and health insurance, and mutual funds. I suspect that many people wouldn’t invest in Hartford because they think of it as old and stodgy.
Don’t tell that to Christopher Swift, the CEO. He bought $499,530 of his company’s stock in January. With his wife and affiliated trusts, he controls 208,188 shares, worth just over $10 million as of Friday.
The same month, David Robinson, the company’s general counsel, bought $110,870 worth of Hartford shares.
Hartford stock has moved up about 10% since Swift’s purchase, and about 3% since Robinson’s, but I think there is room for additional gains.
The stock sells for half what it did at its 2007 peak – more than $100 a share then, under $50 now. To me, the shares seem attractive at the current valuation of 10 times earnings and 0.9 times revenue.
Weight Watchers
I find Weight Watchers meetings painfully dull, but the stock looks rather exciting to me.
As recently as June 2018, less than nine months ago, Weight Watchers International Inc. (WTW) shares sold for just over $100. Friday’s quote was under $20.
Has the company gone down the tubes? I’d say no. Profits last year were $224 million on sales of $1.5 billion. Neither figure was a record but it was one of the company’s better years.
Last month, Weight Watchers said that its number of subscribers had declined to about 3.9 million people from 4.2 million a quarter earlier. It estimated 2019 revenue at about $1.4 billion, also a decline. The stock dropped 25% in a day, and a cluster of shareholder class action lawsuits followed.
Oprah Winfrey, the immensely popular talk show host owns about 8% of the company. Under her eye, the organization emphasizes lifestyle and good feelings more than it used to, and the verdict of the scale a little less.
On March 1, Mindy Grossman, the company’s CEO and President, bought 12,000 shares for about $260,000. I suspect Grossman’s timing was good. The stock – now at six times recent earnings and less than 1.0 times sales – seems cheap to me.
The company’s debt is high, however. So, if you’re tempted by these shares, I’d put no more than 2% of your portfolio in them.
Warning?
Using Guru Focus software, I screened over the weekend for companies where insiders had sold $2 million or more of stock this year, including at least $500,000 by the CEO and at least $200,000 by the chief financial officer. There were 85 such companies, which struck me as a lot.
The five biggest companies that met this description were Amazon.com Inc. (AMZN), Procter & Gamble Co. (PG), Boeing Co. (BA), Salesforce.com Inc. (CRM), and PayPal Holdings Inc. (PYPL).
Salesforce had the largest volume of sales by insiders – $60.8 million including $42 million by CEO Marc Benioff. Its stock also sells for the highest multiple of revenue, nine times revenue. I would judge it to be the most vulnerable of the five.
Box Score
Today’s column is the 49th one I’ve written about insiders’ buys and sells. I can tabulate 12-month results for 39 of them — all those from January 1999 through March 2018.
Stocks with insider buying and a recommendation from yours truly have beaten the Standard & Poor’s 500 by 1.8 percentage points per 12 months.
Stocks with insider buys, but which I said I would avoid, trailed the index by 25 percentage points per year.
Stocks in which I took note of insider sales beat the index by 2.1 percentage points – not the result I wanted.
Finally, there were a few stocks where I noted insider buying but made no recommendation either way. Those clobbered the index by 16.3 percentage points.
All in all, the evidence is mixed. But I think it buttresses the concept that insider buying is a plus. Insider selling, however, isn’t a clear signal. There are many reasons to sell (divorces, college tuitions and the like) and only one main reason to buy, a thirst for capital gains.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Disclosure: I have no personal positions in the stocks discussed in today’s column. My wife, who is also a money manager at my firm, owns shares in Amazon.com and Boeing personally and for clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.
Traffic Engineer Wins Dorfman’s Three-Stock Derby
Posted: March 27, 2019
March 25, 2019 — (Maple Hill Syndicate) – Christopher Falcos, a traffic engineer from Amesbury, Massachusetts, won my stock picking contest this year.
By profession, Falcos helps the Massachusetts Department of Transportation analyze roads or intersections with a high number of accidents, to try to make them safer. As a hobby, he is “very interested in computers,” and used to build them.
So, it’s not surprising that all three of Falco’s winning stocks picks were technology stocks – Advanced Micro Devices Inc. (AMD), Microsoft Corp. (MSFT) and Square Inc. (SQ). Falcos averaged a gain of 83.8% on his three picks.
His biggest gain was 165.6% in Advanced Micro Devices, a chip maker. He continues to be bullish on AMD, which he notes has “a duopoly with Intel in processors.” AMD “withered away for a long time,” he says, but lately is giving Intel stiff competition.
Falcos also had a 58.1% gain in Square, and a 28% return on Microsoft.
Dorfman’s Three Stock Derby differs from some stock-picking contests in that contestants need to pick three stocks, not just one. I figure this reduces the luck element somewhat.
For his victory, Falcos will receive a gift certificate to the restaurant of his choice.
Second Place
In second place was Thomas Adamson, a stockbroker for Scott & Stringfellow in Virginia Beach, Virginia. His average return was 65.7%, spearheaded by a 92.3% gain in Rent-a-Center Inc. (RCII).
Adamson says he doesn’t usually buy on bad news, but was attracted to Rent-a-Center last spring, when the contest began, because its stock price had been smashed down. He also notched a 74.5% return in Chegg Inc. (CHGG) and a 30.3% return in Rogers Corp (ROG).
Chegg, with headquarters in Santa Clara, California, sells educational materials to students online. Adamson says he learned of it from a student and is impressed with its offerings.
Rogers makes telecommunications components. What excites Adamson about it is that it has “exposure to 5G,” the latest generation of mobile telecom systems.
Third Prize
Third place went to Laurent Condon, a retired stock trader in Saint Rambert-en-Bugey, France, who averaged 42.9%.
Condon had moderate gains on two of his choices and a 101.9% gain in Roku Inc. (ROKU). Based in Los Gatos, California, Roku operates a video streaming platform in several countries.
Currently, Condon says, he can’t find any stocks he likes in the U.S. He thinks the opportunities are better in Britain, where stock prices are held down by the uncertainties connected with Britain’s exit from the European Union. He particularly likes British utility stocks.
In September, Condon won my “Short Sellers Don’t Have Horns” short-selling contest, in which contestants bet on selected stocks to go down. He thinks Tesla Inc. (TSLA) is a good short now, commenting that CEO Elon Musk has “gone from an asset to a liability.”
Although I have never met Condon, I consider him a friend. He has read my column for many years, and sometimes offers constructive criticism (always tactfully).
Average 10.7%
Twenty people entered the latest contest, achieving an average gain of 10.7%. That compares favorably with 5.35% for the Standard & Poor’s 500 Index over the contest period (April 13, 2018 through March 22, 2019.
Of the 20 contestants, 12 achieved a gain on their picks while eight suffered a loss.
You Can Play
You can play too, if you wish.
To enter Dorfman’s Three-Stock Derby, send your three stock picks, and your rationale for them, to me at jdorfman@dorfmanvalue.com. If you prefer, you can mail them to John Dorfman, Dorfman Value Investments, 379 Elliot Street, Suite 100 H, Newton Upper Falls MA 02464.
All entries should be accompanied by the following information:
- Your name
- Address
- Occupation
- Email address
- Phone numbers for work and home.
If you finish in the top three, I will want to interview you on short notice and possibly on a weekend, so the phone numbers are vital.
You do not need to own any of the stocks you select, but it’s okay if you do. The stocks you pick must be traded in the U.S., but need not be based here. Short sales are permitted but not encouraged, since I have a separate short-selling contest in September.
Entries must be postmarked or time-stamped by midnight April 12. The contest will run from April 12, 2019 through March 20, 2020. Scores are total returns, including dividends.
There is no fee to enter. The winner will receive a $100 gift certificate at the restaurant of her or his choice.
Disclosure: I own none of the stocks discussed today, personally or for clients. Some of my family members own Microsoft.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.
My Favorite Stocks on Nasdaq
Posted: March 20, 2019
March 18, 2019 — (Maple Hill Syndicate) – Two kinds of companies dominate the Nasdaq Stock Market, small ones and giant technology firms.
Both groups interest me. That’s why each year I write a column about my favorite Nasdaq stocks.
My Nasdaq recommendations have done pretty well over the years. In twelve columns beginning in 2001, my picks have returned 15.1% on average. That compares with 14.3% for the Nasdaq Composite Index and 11.0% for the Standard & Poor’s 500 Index.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Here are five Nasdaq stocks that look especially interesting to me now.
Apogee
Need some windows for your skyscraper? Apogee Industries Inc. (APOG) of Minneapolis, Minnesota, is a specialist in architectural glass and metal glass frames.
Only six analysts follow this company, which had sales of $1.3 billion in fiscal 2018. Five of them rate it a “buy,” with three calling it a “strong buy.”
I can’t claim that Apogee is growing fast, but it has grown pretty steadily. I think the stock is alluring at 0.7 times sales and about 10 times this year’s estimated earnings.
Hub Group
Ever hear of a trucking company that doesn’t own a lot of trucks? Hub Group Inc. (HUBG), based in Oak Brook, Illinois, is such a company. If you want to ship goods, Hub Group arranges for shipment by rail or truck, or both. But it doesn’t typically use its own equipment; it is “asset light.”
Hub Group has contracts with some 2,500 drivers. Many of its trucks are driven by owner-operators.
At first glance, the stock is very cheap – seven times earnings. Earnings are expected to drop, however, so it’s not quite as cheap as it appears – yet still attractive at 12 times expected earnings. Insiders have shown a healthy appetite for the stock.
Alphabet
Normally, a cheapskate investor like me wouldn’t own a stock like Alphabet Inc. (GOOGL), the parent to Google. But the company is so innovative and its results so impressive, that I am willing in this case to pay up for quality.
In addition to the Google search engine, Alphabet’s projects include You Tube, self-driving cars, and intense work on artificial intelligence. (Disclosure: My daughter works for Google’s DeepMind subsidiary.)
Alphabet has grown its earnings at better than a 14% clip in the past ten years, while revenue has grown at 18%. Last year both growth rates accelerated.
I expect Alphabet to have some annoying legal troubles related to its inability to prevent all objectionable material (hate speech, pornography and the like) from appearing on You Tube. But I think that problem will be a minor annoyance in the context of the company’s overall success.
Apple
Shares in Apple Inc. (AAPL) took a beating last year, dropping from about $227 in August to below $150 when the year mercifully ended. The main cause: A drop in sales of the company’s flagship product, the iPhone, especially in China.
I believe that the iPhone is still an extremely strong product, and will continue to be for five years or longer. In addition, Apple derives great profits from selling apps (applications), getting a nice slice of revenue from the sales of each app.
Apple’s return on stockholders’ equity in the past four quarter was astounding, 46%. The stock has bounced from its December low, and is now at about $186, which is 15 times earnings.
PetMed Express
Selling for less than 11 times earnings is PetMed Express Inc. (PETS), a Delray Beach, Florida, firm that sells pet medications via the Internet. In the past four quarters it has earned a very high return on equity, 34%.
More than a year ago, a short seller alleged by PetMed was profiting by selling opioids to humans, not pets. That attack is still kicking around on the Internet, but I believe it is false. The company tells me that opioids constitute less than 0.5% of sales.
Last year
I would be further ahead of the indices if I hadn’t messed up mightily last year. Four of the five stocks I recommended a year ago declined, with the worst thud registered by Beasley Broadcast Group Inc. (BBGI), down 60%.
My five stocks averaged a loss of 19.1%, compared to a gain of 4.7% for the Nasdaq Composite and 4.0% for the S&P 500.
Disclosure: Personally, and for most of my clients, I own Alphabet, Apple and PetMed Express.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.
Man from Omaha Wins My Derby of Economic Forecasting
Posted: March 06, 2019
February 25, 2019 (Maple Hill Syndicate) – “What did everybody get wrong this year?” my wife asked me at breakfast Sunday.
It was a good question. I’ve been running the Derby of Economic Forecasting Talent, or DEFT, more or less annually since 1999.
Contestants must predict six economic variables – gross domestic product, inflation, the interest rate on ten-year bonds, the price of a barrel of oil, the unemployment rate and the level of retail sales in December.
When one of these variables moves sharply, most people miss it by a mile.
In the contest just ended, 21 out of 22 contestants guessed too high for inflation in 2018. All 22 contestants guessed too high on the price of oil.
That’s because people tend to anchor on the present level of each variable, or to engage in straight-line extrapolation.
Price inflation, as measured by the Consumer Price Index, had run 2.1% in 2017, and the prevailing expectation was that it would rise. Instead, it dropped to 1.9% in 2018.
The price of oil dipped to $45.41 a barrel at the end of 2018, from $60.46 when the year began. No one came close to foreseeing that plunge.
Wilmes’ Win
Bob Wilmes, a retired information-technology director from Omaha, Nebraska, came closer than anyone else to the oil price: His guess was $51.50.
Why did he guess a low number for a barrel of ooze? “The U.S. has done a great job of fracking, and the Saudis and Russians need to produce to get revenue,” he says. Therefore, he figured supply would be “more than sufficient.”
What’s more, he thinks demand for oil will grow very slowly, as people turn to LED lighting, electric cars, and other devices that use less petroleum, or none. “I have an electric Prius myself,” he says.
Wilmes also scored points by nearly pinpointing U.S. retail sales as of December 2018. He guessed $505.55 billion; the actual number was $505.83 billion, up less than 1% from the year before.
Why did he guess that retail sales would be up only by a smidgen? “The Fed drives everything,” he says, and the Federal Reserve was “upping interest rates” in 2018.
He expects the Fed to go easier in 2019, and is also hoping for a U.S.-China trade deal. Accordingly, he is “pretty upbeat” about the outlook for this year.
Runners Up
In second place was Sebastian Ciccullo of Hillarys, Western Australia. He got his points mainly by coming within seven basis points (0.07%) on the interest rate for 10-year government bonds. Ciccullo didn’t give his occupation, and I was unable to reach him by phone and email Sunday.
Third place was a tie among three contestants. Charles Henry is an executive in the printing business from Greensburg, Pennsylvania. Lorraine Terrell is an insurance underwriter from Omaha. Jesse Plummer is a surgical technologist in Houston, Texas.
For his victory, Wilmes will receive a plaque. Second and third place carry no prize but glory.
Scoring System
In the Derby, a contestant who guesses one of the variables most closely gets three points. Second place gets two points and third place one point. Since there are six variables, the theoretical maximum is 18 points. No one comes close to that score in practice, though. Wilmes won with seven points.
Try Your Luck
Would you like to enter the DEFT contest for 2019? Everyone is welcome, from professional economists to plumbers.
To enter, please provide your name, occupation, address, and phone number. The phone is important in case you win and I want to interview you.
Then answer my six questions. The rationale behind your guesses is appreciated but not required.
- U.S. gross domestic product grew 1.9% in 2018. How fast will it grow in 2019?
- Inflation, as measured by the Consumer Price Index, was 1.9% in 2018. What will be the inflation rate this year?
- The interest rate on a ten-year government bond was 2.65% as 2018 ended. What will it be when this year draws to a close?
- A barrel of West Texas intermediate oil cost only $45.41 when last year ended, though it has since climbed to $55.80. What will it be at the end of December?
- Retail sales inched up to $505.83 billion in December 2018 from $502.22 billion a year earlier. How much will consumers buy in December 2019?
- Unemployment fell two tenths of a percent last year, ending at 3.9%. What will be the unemployment rate on December 31, 2019?
Email entries to John Dorfman at jdorfman@dorfmanvalue.com, or mail them to John Dorfman, Dorfman Value Investments, 379 Elliot Street, Suite 100 H, Newton Upper Falls MA 02464. Entries must be postmarked or time-stamped by Saturday March 30.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.