The Benchmark Investing board has been closed by TMF. Future updates will only occur here on the Mechanical Investing board. This update is to Kenneth Lee’s Benchmark Investing picks based on the latest Monday’s data release. Since our last update, the market (S&P500) took a turn for the better, advancing +4.1%.
This period there were five companies in the DJIA 30 that are below their downside price targets. They are CVX -26%, VZ -23%, DOW -15%, GS -42%, and WBA -34%. However, none would qualify as a BI pick because of either subpar EPS growth or volatile ROE estimates.
If you are interested in following along with this methodology against a broader range of stocks outside of the Dow30, these picks are posted in my Fool CAPS on a regular basis as trades occur. As an almost final update on the returns for 2022 BI Portfolio, with a few days left in the year stands at a small loss of -4.1%.
Market Valuation (Dow 30):
The DOW30 market is still overpriced according to the BI method of valuation by about 20%.
Downside: -35%
Upside: -5%
Long Buy Rules:
I am using the following TTD rules for Long position considerations:
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Year-over-Year EPS growth must > 10%, which are the next 4Q / current quarter + previous 3 quarters earnings results
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VL 3-5 Year price appreciation > average price appreciation of the market
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When calculating ROE and BV figures, ignore years when they are negative, but must have at least 7+ years of data to be included in final consideration
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Avoid erratic ROE ratios, that is where they are > 2std deviations = Curr ROE > (10 Year Avg + 2 * Std Dev)
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ROE and BV current figures must be updated by VL
Sell Rules:
I am using the following TTD rules to Sell Long positions:
Criteria (1 OR 2 OR 5, AND 3 AND 4):
- Price Appreciation < Market Average Appreciation
- Current Price > BI HiPrice
- Hold time > 365 days per cycle
- ROE & BV must be current
- No longer listed as a market average component
Summary of Results :
| Ticker | VL Date | Current Price | ROE/BV UpToDate | Downside Price | Upside Price | %<10Y Downside | %<10Y Downside : 4QAvg | EPS Delta | Div Yield % | 3-5 Y Low VL Price | 3-5 Y Hi VL Price | VL 3-5Y Price %chg | VL 18mo Price% Chg | ROE >2SD | Name |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CAT | 11-Nov-22 | 240 | TRUE | 170 | 257 | 41% | 45% | 14% | 2.0 | 225 | 300 | 8% | -11% | FALSE | Caterpillar Inc. |
| JNJ | 11-Nov-22 | 177 | TRUE | 153 | 195 | 16% | 16% | 3% | 2.5 | 215 | 260 | 33% | 12% | FALSE | Johnson & Johnson |
| MCD | 18-Nov-22 | 268 | FALSE | 5% | 2.3 | 280 | 345 | 16% | 19% | TRUE | McDonald’s Corp. | ||||
| CVX | 25-Nov-22 | 177 | TRUE | 241 | 334 | -26% | -8% | 3% | 3.3 | 250 | 380 | 80% | 13% | TRUE | Chevron Corp. |
| BA | 2-Dec-22 | 189 | FALSE | 112% | - | 225 | 335 | 42% | 19% | TRUE | Boeing | ||||
| TRV | 2-Dec-22 | 189 | TRUE | 119 | 158 | 59% | 54% | 7% | 2.0 | 225 | 275 | 31% | -2% | FALSE | Travelers Cos. |
| UNH | 2-Dec-22 | 531 | TRUE | 318 | 488 | 67% | 70% | 13% | 1.3 | 490 | 600 | 3% | 27% | FALSE | UnitedHealth Group |
| AMGN | 2-Dec-22 | 264 | FALSE | 80% | 2% | 3.2 | 320 | 390 | 33% | -7% | TRUE | Amgen | |||
| VZ | 9-Dec-22 | 38.41 | TRUE | 50 | 63 | -23% | -23% | 3% | 6.9 | 90 | 115 | 171% | 27% | FALSE | Verizon Communic. |
| CSCO | 9-Dec-22 | 47.48 | FALSE | 37 | 52 | 29% | 29% | 6% | 3.3 | 70 | 90 | 67% | 10% | FALSE | Cisco Systems |
| HD | 16-Dec-22 | 319 | FALSE | 3% | 2.6 | 380 | 460 | 31% | 7% | TRUE | Home Depot | ||||
| PG | 16-Dec-22 | 153 | FALSE | 105 | 139 | 46% | 48% | 2% | 2.4 | 135 | 165 | -1% | 2% | FALSE | Procter & Gamble |
| INTC | 23-Dec-22 | 26.09 | TRUE | 18 | 27 | 42% | 0% | -48% | 5.4 | 55 | 65 | 123% | 33% | TRUE | Intel Corp. |
| AAPL | 23-Dec-22 | 132 | FALSE | 70% | 2% | 0.7 | 170 | 205 | 38% | 44% | TRUE | Apple Inc. | |||
| IBM | 23-Dec-22 | 142 | TRUE | 85 | 117 | 66% | 55% | 16% | 4.6 | 125 | 190 | 10% | -1% | FALSE | Int’l Business Mach. |
| DOW | 30-Dec-22 | 50.86 | TRUE | 60 | 101 | -15% | -26% | -18% | 5.9 | 95 | 145 | 136% | 26% | FALSE | Dow Inc. |
| MRK | 30-Dec-22 | 112 | TRUE | 82 | 110 | 36% | 38% | -8% | 2.6 | 115 | 140 | 14% | 7% | FALSE | Merck & Co. |
| HON | 7-Oct-22 | 214 | TRUE | 135 | 187 | 59% | 56% | 13% | 1.9 | 225 | 280 | 17% | 2% | FALSE | Honeywell Int’l |
| MMM | 7-Oct-22 | 120 | TRUE | 112 | 155 | 8% | -16% | -21% | 4.8 | 200 | 250 | 82% | 22% | FALSE | 3M Company |
| GS | 7-Oct-22 | 346 | TRUE | 599 | 913 | -42% | -8% | -1% | 2.9 | 470 | 635 | 57% | 8% | TRUE | Goldman Sachs |
| CRM | 7-Oct-22 | 129 | TRUE | 60 | 99 | 115% | 52% | 382% | - | 250 | 375 | 139% | 48% | FALSE | Salesforce Inc. |
| KO | 14-Oct-22 | 63.82 | TRUE | 45 | 57 | 41% | 38% | 1% | 2.9 | 60 | 75 | 5% | 13% | FALSE | Coca-Cola |
| WBA | 21-Oct-22 | 38.63 | TRUE | 59 | 85 | -34% | -33% | -7% | 5.0 | 45 | 65 | 42% | 21% | FALSE | Walgreens Boots |
| WMT | 21-Oct-22 | 144 | TRUE | 91 | 123 | 58% | 46% | 4% | 1.5 | 200 | 240 | 51% | 16% | FALSE | Walmart Inc. |
| NKE | 21-Oct-22 | 116 | FALSE | 98 | 150 | 18% | 15% | 11% | 1.2 | 160 | 195 | 53% | 20% | FALSE | NIKE Inc. ‘B’ |
| DIS | 28-Oct-22 | 88.01 | TRUE | 43 | 61 | 107% | 35% | 177% | - | 155 | 210 | 109% | 47% | FALSE | Disney (Walt) |
| JPM | 4-Nov-22 | 131 | TRUE | 98 | 142 | 34% | 32% | 5% | 3.1 | 145 | 195 | 28% | 7% | FALSE | JPMorgan Chase |
| AXP | 4-Nov-22 | 147 | TRUE | 127 | 188 | 16% | 17% | 5% | 1.4 | 175 | 235 | 39% | 26% | FALSE | Amer. Express |
| V | 4-Nov-22 | 206 | FALSE | 195 | 279 | 5% | 11% | 11% | 0.9 | 285 | 345 | 52% | 15% | TRUE | Visa Inc. |
| MSFT | 4-Nov-22 | 239 | FALSE | 184 | 288 | 29% | 29% | 18% | 1.1 | 320 | 390 | 45% | 30% | FALSE | Microsoft Corp. |
| DJI | 33,204 | 21,652 | 31,416 | 2.5 | 40,566 | 52,397 | Dow Jones Industrial Avg | ||||||||
| Appreciation Potential | -35% | -5% | 22% | 58% | 52% | 17% |
AllTooFoolish’s CAPS Portfolio:
If you are interested in seeing this method applied to a broader universe of stocks, follow my actively managed Benchmark Investing portfolio using Fool CAPS. I have been using this methodology exclusively on Fool.com for many years with great success. In the Fool CAPS you will find my current portfolio and can see my most recent activities.
Notable activity in my CAPS portfolio over the past three months:
TAP, ADD, passes all rules for purchases. Added to position -26% downside price.
BALL, BUY, passes all rules for purchase. New entry to portfolio -20% downside price.
KMI, ADD, passes all rules for purchases. Added to position -47% downside price.
META, ADD, passes all rules for purchases. Added to position -62% downside price.
PXD, SELL, limited upside potential, less upside than overall market potential. Average total return +64% vs the market average return same time frame +20%. Held for 1238 days since initial entry.
Static 2022 BI Portfolio Holdings:
15 Holding in BI Portfolio: EOG, PFE, TAP, DXC, NWL, BEN, META, AMZN, PXD, WBD, MS, CAH, IVZ, LKQ, KMI
BI Portfolio Total Return -4.1%
S&P 500 Total Return -18.4%
The 2023 BI Portfolio Holdings will be:
15 Holding in BI 2023 Portfolio: CAH, EOG, KMI, DVA, LKQ, NWL, TAP, BEN, IVZ, WBD, PYPL, PTC, DXC, AMZN, META
BI Portfolio Total Return TBD%
S&P 500 Total Return TBD%
My overall Fool CAPS Rating at the time of this post was 55.5 (-2.5 points since previous update)
Score: 1529 (61%)
Accuracy: 46% (45%)
Disclosures and Useful Terms
VL Date is the date of the last summary report update from Valueline as indicated in the post’s subject line. All data sources from the Valueline Dow30 reports made publicly available on their website. https://research.valueline.com/research#list=dow30&sec=list
Current Price is the closing price of the stock as reported by VL, which is usually a few days behind the date
of the time period mentioned in this posting’s subject line.
ROE/BV Updated is an indication if the stock’s BV and ROE have been updated through the end of the Benchmark evaluation time frame.
10Yr Down is the 10 year downside price. The company must have at least 7 years of non-negative ROE data to qualify.
10Yr Down4Qs is the 10 year downside price averaged over the previous 4 quarter’s valuation price.
10Yr Up is the 10 year upside price. The company must have at least 7 years of non-negative ROE data to qualify.
Both upside and downside are calculated using method outlined in TTD book.
Also, a discussion of calculating the upside and downside can be found here:
http://boards.fool.com/Message.asp?mid=20916205&sort=who…
%<10Y Downside is the current price divided by the 10 Yr downside expressed as a percentage.
EPS Future Delta is the projected growth in EPS for the next 4 quarters versus the last four reported quarters.
I use the latest EPS data from the VL spreadsheet which are updated as soon as new earnings are reported.
Div Yield is the current % dividend payout ratio per share.
3-5 Y Low/Hi Price Est. is the downside/upside price estimate which is calculated using the projections of Book Value
and ROE as discussed in TTD.
Min VL Price Appreciation is the expected change in price from current price to low end VL projected 3-5 year
appreciation price.
VL Price 18 Price Appreciate is the VL projected % change in price from the current price within the next 18 months.
ROE >2STD is part of a margin of safety consideration, which is briefly discussed in TTD on pg 70-71.
I compare the current year’s ROE versus the last 10 years of ROE data. If the current ROE is greater than average (10 Yr ROE) + (2 * stdev(10 Yr ROE)), than this column is TRUE, else it is FALSE. This tells me that the stock’s ROE is much higher than its historic average and should therefore be avoided.