Category Archives: Search for New Ideas

The Limitations of 13F’s

It has become increasingly easy to track the equity holdings of today’s leading investors. Numerous sites track their holdings based on disclosures made in 13F filings.

These 13F’s are an excellent place to search for new ideas. However, there are limitations to this approach if it is not part of a broader, well-concieved investment process.

In order to make big money in the stock market, you need to make meaningfully sized bets when opportunity presents itself. You also need to have the conviction to hold your positions if they decline in price, which all stocks are apt to do from time to time, sometimes by as much as 50%.

If your purchase was based entirely on the fact that a “guru” purchased it, you are less likely to 1) make a meaningful bet and 2) remain calm and not be rattled if the stock goes down 20%, 30% or even 50%.

There is no substitute for having your own thesis – based on your own reasoning – on why a stock is cheap and a good company. The market frequently overeacts to short-term news or problems and the guru won’t be there whispering in your ear to reassure you.

If you know what you are doing and have done your homework, these can be viewed as opportunities to add to your position.

In order to exploit time arbitrage – the discrepancy between the clearing price for the market’s short-term oriented price setters and the company’s long-term intrinsic value – you need to do your own work. 13F’s are a good place to look for ideas, but only the first step in a sound investing process.

My Watchlist – December 15, 2010

I have reviewed issue 3 of Value Line looking for companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

I have added Tim Hortons Inc. (THI)

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts.

This week’s update is in part 1.

Watchlist – Part 1

Watchlist – Part 2

Stocks from issue 3 (see Watchlist – Part 1)

Ecolab Inc.

ConocoPhillips

Exxon Mobil Corporation

NewMarket Corporation

Praxair, Inc.

Sigma-Aldrich Corporation

My Watchlist – December 8, 2010

I have reviewed issue 2 of Value Line looking for companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

I have added Tim Hortons Inc. (THI)

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts.

This week’s update is in part 1.

Watchlist – Part 1

Watchlist – Part 2

Stocks from issue 2 (see Watchlist – Part 1)

C.H. Robinson Worldwide, Inc.

Expeditors International of Washington

United Parcel Service, Inc.

Rollins, Inc.

FactSet Research Systems Inc.

CEC Entertainment, Inc.

McDonald’s Corporation

Papa John’s Int’l, Inc.

Yum! Brands, Inc.

Tim Hortons Inc. (USA) – ADDED

Nothing in this group looks cheap. All but one of the stocks is within 5% of its 52-week high. Some caution is in order.

My Watchlist – November 22, 2010

I have reviewed issue 13 of Value Line looking for companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts.

This week’s update is in part 2.

Watchlist – Part 1

Watchlist – Part 2

Stocks from issue 13 (see Watchlist – Part 2)

Fiserv, Inc.

Total System Services, Inc.

Wright Express Corporation

Automatic Data Processing

Accenture Plc

H&R Block, Inc.

Paychex, Inc.

American Express Company

Brown & Brown, Inc.

Citigroup Inc.

Federated Investors, Inc.

MasterCard Incorporated

SEI Investments Company

T. Rowe Price Group, Inc.

Visa Inc.

Wells Fargo & Company

Cognizant Technology Solutions Corp.

Infosys Technologies Limited (ADR)

Microsoft Corporation

Oracle Corporation

SAP AG (ADR)

Google Inc.

Exelon Corporation

Stock Focus: Fiserv

Background:

Fiserv – Wikipedia, the free encyclopedia

Fiserv’s Ambitious Credit-Crunch Plans – Forbes.com

Fiserv’s Got Your Back (Office) – Barron’s

Why Is Buffett Buying Shares of Iron Mountain, Fiserv? — Seeking Alpha

Fiserv, Jack Henry Upbeat About Core Client Spending – American Banker Article

Notable owners:

Warren Buffett: 3,910,800 shares

Glenn Greenberg: 2,088,579 shares

Future Prospects

Growth prospects per Jan. 28, 2010 writeup on Value Investors Club.

The top-line growth is coming from several drivers, including:

  1. Increased outsourcing – there are still banks that operate on legacy, in-house developed and inefficient systems. These are slowly being converted.
  2. Online banking is expanding and Fiserv is the largest provider. An increasing number of banks are transforming to digital branches, providing more online services to their customers. Also, online bill payments continue to replace the typical paper payment methods. Fiserv has only 3,900 online customers, a small percentage of the total. There are only 7.8 million E-bill consumers – penetration within the Fiserv’s client base is very low – below 10%. The number of e-bills per subscriber is only 2.5 per month. An average individual pays several times that number in bills a month. Continued adoption should lead to steady growth.
  3. New technology leads to additional billed services.
  4. Growth in number of deposit accounts – industry CAGR for the last 5 years was 7%.
  5. Increased number of debit and prepaid card transactions. These two are projected to grow at 7% and 15%, respectively over the next three years.
  6. Additional add-on products like fraud and loyalty services and cross-selling existing products (increasing penetration)

Long-term guidance provided by Fiserv management at 2010 Investor Conference, October 5, 2010.

Internal revenue growth rate: 4-8%

EPS growth rate: 11-18%

FCF growth rate: 8-14%

Operating margin: 50-100 bps

Valuation

Market cap: 8.38 billion

EV: 11.34 billion

2010 EPS Estimate: 4.05

PE on 2010 estimate: 13.86

TTM FCF: 683 million

FCF Yield: 8.15%

EBITDA: 1290 million

EBIT: 953 million

EV/EBITDA: 8.81

EV/EBIT: 11.9

EBIT/Tangible Capital Employed: 107%

Acquisition comp: Per an article in Barron’s, in 2010, Blackstone Group offered $35 a share to purchase Fiserv competitor Fidelity National Information Services. This works out to about 10 times estimated 2010 EBITDA.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

Search Tools Tab Added

I have replaced the Investing Ideas section of the blog with “Search Tools” (see the tabs above). This page contains my watchlists of high-quality companies along with additional watchlists and screens.

I plan to add to these over time. Regularly following these watchlists and screens should increase your chances of finding good investment ideas. As always, I welcome your feedback and suggestions.

My Watchlist – November 15, 2010

I have reviewed issue 12 of Value Line and added companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts.

This week’s update is in part 2.

Watchlist – Part 1

Watchlist – Part 2

Stocks Added This Week (see Watchlist – Part 2)

Harley-Davidson, Inc.

Matthews International Corporation

Polaris Industries Inc.

Pool Corporation

The Walt Disney Company

News Corporation

International Game Technology

The McGraw-Hill Companies, Inc.

John Wiley & Sons Inc

Omnicom Group Inc.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

My Watchlist – November 8, 2010

I have reviewed issue 11 of Value Line and added companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts. This week’s update is in part 2.

Watchlist – Part 1

Watchlist – Part 2

Stocks Added This Week (see Watchlist – Part 2)

Gildan Activewear Inc. (USA)

AutoZone, Inc.

CarMax, Inc

Costco Wholesale Corporation

Family Dollar Stores, Inc.

Kohl’s Corporation

Target Corporation

Wal-Mart Stores, Inc.

NIKE, Inc.

Aeropostale, Inc.

Bed Bath & Beyond Inc.

Best Buy Co., Inc.

Coach, Inc.

Fossil, Inc.

Hibbett Sports, Inc.

RadioShack Corporation

Ross Stores, Inc.

The TJX Companies, Inc.

A few thoughts…

Many stocks are close to new highs and are well above their lows. Some caution is in order.

Please take the expected return estimate with a large grain of salt. This projection is based in large part on the company’s growth over the past ten years. This may OR MAY NOT be indicative of its future growth.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

My Watchlist – November 1, 2010

I have reviewed issue 10 of Value Line and added companies that have exceptional returns on equity. The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts. This week’s update is in part 2.

Watchlist – Part 1

Watchlist – Part 2

Stocks Added This Week (see Watchlist – Part 2)

Campbell Soup Company

General Mills, Inc.

H.J. Heinz Company

The Hershey Company

Hormel Foods Corporation

Kellogg Company

McCormick & Company, Incorporated

Sara Lee Corp.

Unilever plc (ADR)

The Kroger Co.

SYSCO Corporation

Sara Lee Corp.

Brown-Forman Corporation

The Coca-Cola Company

Hansen Natural Corporation

PepsiCo, Inc.

Altria Group, Inc.

British American Tobacco (ADR)

Philip Morris International Inc.

Apollo Group, Inc.

ITT Educational Services, Inc.

Strayer Education, Inc.

Greenlight Capital Re, Ltd.

A few thoughts…

Many stocks are close to new highs and are well above their lows. Some caution is in order.

Please take the expected return estimate with a large grain of salt. This projection is based in large part on the company’s growth over the past ten years. This may OR MAY NOT be indicative of its future growth. If it was as easy as looking up the past growth rate and projecting it into the future, librarians would all be very rich.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.


My Watchlist – October 25, 2010

I have reviewed issue 9 of Value Line and added companies that have exceptional returns on equity. I am moving the posting of this list to Monday in order to make it more timely. The list is not perfect and some judgment is required in deciding whether to include a particular stock. As always, I welcome your feedback and comments.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Here is the updated watchlist.

Stocks Added This Week

Caterpillar Inc. (CAT)

Donaldson Company, Inc. (DCI)

Graco Inc. (GGG)

The Middleby Corporation (MIDD)

Stanley Black & Decker, Inc. (SWK)

The Toro Company (TTC)

AMETEK, Inc. (AME)

Danaher Corporation (DHR)

Honeywell International Inc. (HON)

ITT Corporation (ITT)

3M Company (MMM)

United Technologies Corporation (UTX)

POSCO (ADR) (PKX)

Goldman Sachs Group, Inc. (GS)

TD Ameritrade Holding Corp. (AMTD)

Check Point Software Technologies Ltd. (CHKP)

Matthews International Corporation (MATW)

A few thoughts…

Many stocks are close to new highs and are well above their lows. Some caution is in order.

The key to getting the most out of the list is to review it on a regular basis. In time, some obvious opportunities will emerge.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

My Watchlist – October 18, 2010

I have reviewed issue 8 of Value Line and added companies that have exceptional returns on equity. I am moving the posting of this list to Monday in order to make it more timely. The list is not perfect and some judgment is required in deciding whether to include a particular stock. As always, I welcome your feedback and comments.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Here is the updated watchlist.

Stocks Added This Week

AFLAC Incorporated – AFL

E.I. du Pont de Nemours & Company – DD

FMC Corporation – FMC

Abbott Laboratories – ABT

Allergan, Inc. – AGN

Bristol Myers Squibb Co. – BMY

Forest Laboratories, Inc. – FRX

Gilead Sciences, Inc. – GILD

GlaxoSmithKline plc (ADR) – GSK

Hospira, Inc. – HSP

Eli Lilly & Co. – LLY

Merck & Co., Inc. – MRK

Novartis AG (ADR) – NVS

Novo Nordisk A/S (ADR) – NVO

Pfizer Inc. – PFE

Stocks within 10% of a 52-week low:

None

Stocks with an earnings yield greater than 8%:

Gilead Sciences, Inc. – GILD

Eli Lilly & Co. – LLY

Merck & Co., Inc. – MRK

A few thoughts…

The majority of stocks in these sectors are close to new highs and are well above their lows. Some caution is in order.

The pharma stocks exemplify the potential danger of blindly extrapolating past growth rates into the future. Their earnings going forward will not be a function of what they did in the past but what they are able to do in the future. Predicting the future success of these companies’ pipelines is difficult.