This update is to Kenneth Lee’s Benchmark Investing picks based on the latest Monday’s data release.
Since our last update, the market took a huge step back with a year opening drop of -6.4%. This period there are three companies in the DJIA 30
that are below their downside price targets. They are MMM -6%, CRM -32% and WBA -21%. However, MMM and WBA would not qualify as a BI pick because of single-digit
EPS growth rate. CRM might once their financials are updated. Stay tuned for updates on this candidate. 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.
New this year will be updated returns for the BI Portfolio. I will start the year assuming each holding is in an equal amount beginning Jan 1.
<b>Current BI Portfolio Holdings:
15 Holding in BI Portfolio: EOG, PFE, TAP, DXC, NWL, BEN, FB, AMZN, PXD, DISCA, MS, CAH, IVZ, LKQ, KMI
BI Portfolio Total Return +2.5%
S&P 500 Total Return -6.1%</b>
**Market Valuation (Dow 30):**
The DOW30 market is still overpriced according to the BI method of valuation by about 21%.
Downside: -36%
Upside: -6%
**Long Buy Rules:**
I am using the following TTD rules for Long position considerations:
1. Year-over-Year EPS growth must > 10%, which are the next 4Q / current quarter + previous 3 quarters earnings results
2. VL 3-5 Year price appreciation > average price appreciation of the market
3. 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
4. Avoid erratic ROE ratios, that is where they are > 2std deviations = Curr ROE > (10 Year Avg + 2 * Std Dev)
5. 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):
1. Price Appreciation < Market Average Appreciation
2. Current Price > BI HiPrice
3. Hold time > 365 days per cycle
4. ROE & BV must be current
5. No longer listed as a market average component
**Summary of Results**
VL Current ROE/BV Down Up %<10Y %<10Y EPS Div 3-5Y 3-5Y VL3-5Y VL18mo ROE
Ticker Date Price Updated Price Price Down Down4Qs Delta Yield VL L$ VL H$ % Chg % Chg <2STD Name
CAT 11-Feb-22 224 FALSE 165 250 35% 64% 15% 2.1 220 300 20% 7% FALSE Caterpillar Inc.
JNJ 11-Feb-22 176 FALSE 155 198 13% 20% 7% 2.4 210 255 33% 9% FALSE Johnson & Johnson
MCD 18-Feb-22 237 FALSE 9% 2.4 270 330 25% 26% TRUE McDonald's Corp.
CVX 25-Feb-22 164 FALSE 131 182 25% 69% 14% 3.6 125 190 0% -21% FALSE Chevron Corp.
BA 4-Mar-22 186 FALSE 163% - 215 325 42% 41% TRUE Boeing
TRV 4-Mar-22 182 FALSE 125 165 45% 64% -8% 2.0 225 275 39% -3% FALSE Travelers Cos.
UNH 4-Mar-22 508 FALSE 307 471 66% 93% 14% 1.2 475 580 5% 6% FALSE UnitedHealth Group
AMGN 4-Mar-22 236 FALSE 147 207 61% 58% 3% 3.5 315 390 52% 11% FALSE Amgen
VZ 11-Mar-22 51.28 FALSE 47 60 9% 3% 2% 4.9 90 115 95% 12% FALSE Verizon Communic.
CSCO 11-Mar-22 56.11 FALSE 38 53 48% 66% 8% 2.7 70 90 43% 27% FALSE Cisco Systems
HD 18-Mar-22 331 FALSE 3% 2.3 380 460 26% 38% TRUE Home Depot
PG 18-Mar-22 150 FALSE 101 134 48% 54% 5% 2.3 135 165 0% 14% FALSE Procter & Gamble
INTC 25-Mar-22 47.86 FALSE 33 48 45% 24% -36% 3.1 100 120 135% 7% FALSE Intel Corp.
AAPL 25-Mar-22 166 FALSE 76 133 119% 119% 6% 0.6 170 210 19% 32% FALSE Apple Inc.
IBM 25-Mar-22 128 FALSE 101 138 27% 27% -1% 5.2 135 165 18% -4% FALSE Int'l Business Mach.
DOW 31-Dec-21 63.12 TRUE 52 99 22% 25% -19% 5.0 105 160 122% 20% FALSE Dow Inc.
MRK 31-Dec-21 79.72 FALSE 73 97 10% 19% 9% 3.5 100 120 40% 16% FALSE Merck & Co.
HON 7-Jan-22 194 TRUE 126 180 54% 61% 12% 2.1 215 260 29% 30% FALSE Honeywell Int'l
MMM 7-Jan-22 148 FALSE 158 221 -6% -1% 4% 4.1 215 265 75% 29% FALSE 3M Company
GS 7-Jan-22 341 FALSE 246 369 39% 52% -36% 2.4 420 570 54% 20% FALSE Goldman Sachs
CRM 7-Jan-22 214 FALSE 314 526 -32% -35% 137% - 240 365 47% 48% FALSE [salesforce.com](http://salesforce.com)
KO 14-Jan-22 60.42 TRUE 45 56 35% 45% 6% 3.0 60 70 13% 12% FALSE Coca-Cola
WBA 21-Jan-22 47.74 TRUE 61 88 -21% -24% -9% 4.0 60 90 79% -17% FALSE Walgreens Boots
WMT 21-Jan-22 145 FALSE 103 139 41% 60% 4% 1.5 185 225 51% 13% FALSE Walmart Inc.
NKE 21-Jan-22 130 TRUE 97 148 33% 61% -1% 1.0 160 195 47% 76% FALSE NIKE Inc. 'B'
DIS 28-Jan-22 139 TRUE 77 111 80% 111% 230% - 155 210 35% 32% FALSE Disney (Walt)
JPM 4-Feb-22 139 TRUE 107 154 30% 48% -20% 2.9 135 185 22% 30% FALSE JPMorgan Chase
AXP 4-Feb-22 190 FALSE 126 187 50% 76% 8% 1.2 185 225 13% 7% FALSE Amer. Express
V 4-Feb-22 217 TRUE 172 246 26% 55% 19% 0.7 245 300 28% 32% FALSE Visa Inc.
MSFT 4-Feb-22 299 TRUE 187 292 59% 118% 8% 0.8 305 370 14% 32% FALSE Microsoft Corp.
<b>Dow30 34,754 22,202 32,637 2.3 39,017 49,958 Dow Jones Industrial Average
Appreciation Potential -36% -6% 13% 44% 41% 19%</b>
**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 in [Fool.com](http://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:
- no new buys or sells this period
Current BI Portfolio Holdings:
15 Holding in BI Portfolio: EOG, PFE, TAP, DXC, NWL, BEN, FB, AMZN, PXD, DISCA, MS, CAH, IVZ, LKQ, KMI
BI Portfolio Total Return +2.5%
S&P 500 Total Return -6.1%
My overall Fool CAPS Rating at the time of this post was 55 (+4 points since previous quarter)
Score: 1503 (59%)
Accuracy: 46% (48%)
**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 Valueline Dow30 reports made publicly available on the VL website. [https://research.valueline.com/research#list=dow30&sec=l...](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://discussion.fool.com/Message.asp?mid=20916205&sort=who...](http://discussion.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 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.
My question is how has the strategy done over all these years? What has the experience been like? I did read the book by the way.
I haven’t been good about tracking the returns over the years. The pure BI methodology focuses only on DOW30 stocks. Once I found this wasn’t practical to do in recent years, I branched out to a broader group of stocks and didn’t keep track of their individual returns.
Confounding the problem is that I hold my BI picks within a broader group of stocks using different methodologies, and they are all in the same account. I haven’t taken the time to do the proper math to see how BI Picks have done separately from the others. I wish I had, but didn’t, so now it would take a lot of effort to untangle the returns.
I might try and find the time to do it going back in time one year at a time. If I do I will append these results to the thread.
Ok, thank you. It seemed like a good strategy when I read the book.