by Doug Gerlach, ICLUBcentral Inc. July 2013

Transcription

1 by Doug Gerlach, ICLUBcentral Inc. July 2013 } Use Questions box in GoToWebinar applet to type questions. 2 1

2 } The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting National Association of Investors Corporation ( BI ) or volunteers. The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting. Investors should conduct their own review and analysis of any company of interest before making an investment decision. } Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations. 3 } Club doesn t have (or doesn t follow) fixed investment guidelines. } All clubs should have written investment policy statement and written stock selection guidelines to add members in researching companies. } Tonight s presentation will give you guidelines on 20 questions to review & discuss before buying any stock. } Your club should develop own guidelines. 4 2

3 5 } Growth of company s profits drive growth of stock price. } Without growth in profits, price can t be driven upwards with sufficient regularity & strength to reward investors. COMPANY PROFIT GROWTH DRIVES SHARE PRICE GROWTH OVER LONG- TERM. 6 3

4 Source: myiclub.com Stock Quote/Information page. Historical growth should be close to straight line. 7 Source: Toolkit 6 Manual. Buying companies that are growing too slowly will lower portfolio returns. 8 4

5 Source: Toolkit 6. Outliers should be removed. Recent growth is weighted more heavily. 9 Recent quarter should not show downtrend. Investigate if necessary. 10 5

6 } What are the primary drivers of future growth (tailwinds) } What are the key obstacles to future growth that should be monitored (headwinds)? } You should be able to identify several of these specific issues and advantages. 11 } Question: Where do I find information on tailwinds & headwinds that can affect growth? 12 6

7 } Question: Where do I find information on tailwinds & headwinds that can affect growth? } Answer: Some good research sources include: Company s 10-Q, 10-K, 8-K SEC filings. Seeking Alpha conference call transcripts. News articles & commentary at Yahoo! Finance News for company. 13 } Project your idea of most likely future growth for company. } Review & incorporate: Expected drivers of future growth. Company guidance. Analysts estimates. Assessment of past growth. Trend of change in growth rate. Implied growth rate. 14 7

8 } Question: What is company guidance? 15 } Question: What is company guidance? } Answer: Companies often provide public estimates of range of their future expected growth of revenues & earnings. } You can find this info on company IR website, in press releases, or in conference call transcripts. 16 8

9 If growth is slowing, incorporate that fact into future expectations. 17 Toolkit allows plotting of future EPS estimates to aid future growth projection. 18 9

10 } Do all growth measures suggest that this company warrants consideration? Historical Relevant Recent By Company Size If so, continue. If not, find another company! 19 Questions? 20 10

11 21 } Companies that exhibit indicators of high quality are: Better suited to weather bad times. Perform better than competitors. Deliver more consistent results. LOW-QUALITY COMPANIES MAY BE MORE LIKELY TO DISAPPOINT IN LONG-TERM

12 Margins should be steady or growing. 23 Company or IndustryGroup 5-Yr Average PTP Margins Company #1 18.6% Company #2 2.2% Company #3-1.7% Company #4-0.2% Industry Average 12.1% Industry averages from StockCentral.com, competitors from Yahoo! Finance

13 } Question: Where do I find industry comparisons for margins and other ratios? 25 } Question: Where do I find competitors and industry comparisons for margins and other ratios? } Answer: I like the following: StockCentral.com s sector/industry average browser. MSN Money s key fundamental ratios. Yahoo! Finance competitors

14 } What are the primary drivers (tailwinds) & key obstacles (headwinds) that should be understood & monitored with respect to company s margins? } Research sources: Company s 10-Q, 10-K, 8-K SEC filings. Seeking Alpha conference call transcripts. News articles & commentary at Yahoo! Finance News Headlines for company. 27 } Do quality measures suggest that this company warrants consideration? If so, continue. If not, find another company! 28 14

15 Questions?

16 } Better to be patient or even miss opportunity is stock is outside range of good valuation. PAYING TOO MUCH FOR A STOCK WILL LOWER RETURNS OR EVEN INCREASE LOSSES. 31 Eliminate outliers, &d also consider past P/Es in respect to future selected growth

17 Its often OK to see downtrend for company with slowing growth, but incorporate trend into future P/E judgment. 33 } Is company currently selling below or close to Average P/E Ratio (Relative Value <~100%)? Try to buy only when Relative Value is near or below 100%

18 } You will usually adjust future expected High & Low P/E Ratios below historical levels. } Proj Avg P/E = (Sel High P/E + Sel Low P/E)/2 } How does Current P/E compare? Current P/E should be close or lower

19 High P/E Low P/E 10-Year Averages Adjusted 10-Year Averages Year (Section 3) Averages Adjusted 5-Year (Section 3) Averages TK6 Median TK6 Alt-M (Avg. 5 lowest high/avg. 5 lowest low) x EPS Growth Rate (13.3%) User Entered?? For anything except mature growth companies, future P/Es should likely be below historical levels. 37 Use Revenue-Based EPS tool (Preferred Procedure) to double-check EPS projection

20 Forecast low price option is usually best. 39 Don t buy if U/D Ratio is less than 3:

21 } Total return doesn t have to be >15% for every stock, but the more stocks you have in your portfolio that underperform this target, the less chance you will have at beating overall market. 41 Questions? 42 21

22 43 } How does current & near-term economic climate affect this company s business? Is company cyclical or adversely affected by economic slowdowns? } How stable & competent is company s board & management team? How long has key management been in place? Are insiders buying or selling? Is board diverse & independent? } Are there poorly performing holdings that should be sold or replaced in your portfolio? 44 22

23 } How does the size of this company fit with other holdings? Do not overload on large company stocks. } How does industry group of company fit with other holdings? Diversify by industry group. } Would buying this company improve the overall quality & return of portfolio? Is there a weaker holding you can replace with this stock? 45 } Use Questions box in GoToWebinar applet to type questions

24 More Questions? 47 myiclub.com ICLUBcentral Inc. Write me: 48 24