"The best stock to buy is the one you already own."
― Peter Lynch
That gem of wisdom is among my favorites and I think it's even more true than usual in the current market environment. I believe that concept will be very important for 2014 so it's a central theme throughout this article.
I planned one new-year article with:  performance for all of my official calls to date,  a few brief lines of updates to each call (increasing most of my price targets, company news, etc.), and  general thoughts about 2013 and 2014 that relate to all of my calls. But, about halfway into that endeavor, I realized it was impractical since there are more than a few lines worth of updates for most of the companies, so the one article would have been way too long. As a result, this article now includes everything from the first and third categories above; while much of the second (the updates) morphed into a series of separate articles that will follow this one in fairly quick succession (quicker than usual for me, that is).
I'm explaining this so that the SA members who read my articles on a regular basis know the rationale behind, and can offer feedback on, my departure from my previous method of only writing articles that include my full investment theses. I plan to write two distinct types of articles going forward  the full-coverage type that I have written so far, which are for establishing each full investment thesis, or for replacing an initial thesis that has changed substantially, and  the relatively brief update type, which are driven by things that don't change the investment theses (price target updates, company developments, earnings reviews, etc.).
There are a few other things to mention related to updating my calls …
First, I'm still in process of coming up with an efficient way to track my calls, so please excuse any clumsiness. That's actually not as simple as it seems since my articles are generally about the same positions that I'm opening or adding to for my own portfolio, but the timing and prices of my buys rarely coincide with the time frames and prices of my calls. That's largely because it only takes two seconds to click "buy", but it takes two weeks to organize and write up each full investment thesis. Considering that the time frames are different for many of my calls, and I always scale into positions, the net result is a need to continually distinguish between and track multiple prices and timelines for dozens of stocks in different places. Frankly, that's challenging for a simpleton like me.
Also, this update only includes the stocks that I have offered my full thesis on via an article. There are many others that I own and comment on, but that are not included here since I've not yet offered a call [Aetna (NYSE:AET), HCI Group (NYSE:HCI), Magna International (NYSE:MGA), Raymond James (NYSE:RJF), Williams Companies (NYSE:WMB), etc.]. That doesn't mean I like those stocks any less. In fact, most of my top performers are in that category since it's hard to recommend them after such tremendous runs without redoing all of my research from several years ago, which I don't need.
Readers should also know that I'm not a sell-the-tops investor who exits each position at my first price target and has a completely different portfolio every few months or years. I rarely buy a stock unless I expect to raise my initial price target before it's reached. Similarly, I will usually only close out a position if a company changes in a negative, significant and lasting way. That's not the case with any of these companies so keep in mind that the time frame of each call is just as important as the target price. Most stocks go through relatively brief periods of weakness on the way to their gains, but there is not one stock on this list that I wouldn't buy or buy more of. In fact, I've already opened new positions, or added to existing positions, after I wrote about many of these companies.
Related to that, it's important to remember that these calls are all only a few weeks or months old and are for time frames that range from 6 to 18 months. So, the performance info only serves as context for price target increases and other information in the accompanying update articles that are pending. For example, some of the stocks are now, for the first time since the article, in the price range I recommend buying. In other words, the buy range associated with each call is far more relevant to the call than the date on which an article happens to get posted. The links below are to the original articles so that each call that interests a reader can be easily found and understood in full. Many links are repeated this time, but I won't be making calls on several stocks via a single article in the future.
[up ~54% from published call, up ~69% from initial buy/call]
I will soon post an update article to supplement my ACET thesis article.
[up ~3% from published call]
Since my ANAC article is very recent, my opinions remain unchanged and no update is necessary at this time.
[up ~23% from published call, up ~58% from initial buy/call]
Since my BX call was in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, I'm including my update here and plan to offer a full-thesis article as time permits. At ~$32, BX is already very close to my initial $34 price target from October and, based on recent developments, I now consider that target too low. As such, I'm raising my price target for BX to $37 with a 9-12 month timeline.
[up ~14% from published call, up ~37% from initial buy/call]
I will soon post an update article to supplement my CECE thesis article.
[0% change from published call, up ~24% from initial buy/call]
Since my CAG article is very recent, my valuation, opinions, price target and timeline remain unchanged; and no update is necessary at this time.
[down ~6% from published call, up ~75% from initial buy/call]
I will soon post an update article to supplement my CWCO thesis article.
[up ~6% from published call, up ~6% from initial buy/call]
I will soon post an update article to supplement my COT thesis article.
[up ~37% from published call, which was essentially a "Hold"]
This was one of my worst calls of 2013 and my single worst published call. Only a month before DAKT gapped up in reaction to an earnings beat, my conclusion was "I just don't see anything to support an argument that the stock is significantly undervalued." I missed the boat on this one, though I at least saw that there was a boat where few others noticed. I originally said "my plan is to periodically revisit the stock," but I'm not certain I will.
[up ~5% from published call, up ~41% from initial buy/call]
My GE call was in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, so I'm including my update here and plan to offer a full-thesis article as time permits. Although it has since retraced slightly, GE has already achieved my initial $28 price target from October. My initial expectations for GE were far too modest, and that has now been confirmed, so I'm raising my 9-12 month price target to $31.
[0% change from published call, up ~73% from initial buy/call]
Since my HAL call was in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, I'm including my update here and plan to offer a full-thesis article as time permits. Although it has sold off from its recent ~$56.50 high, HAL had been well on its way to my initial $60 price target from October. I consider the current weakness just another chance to buy so I'm raising my 9-12 month price target to $66.
[up ~7% from published call, up ~13% from initial buy/call]
My opinions on IHG are unchanged, but I've increased my recommended buy ranges by $1 (making $30 the top) and may increase by another $1, if there is no dip soon. The comments section of my thesis article includes details about the buy ranges and other updates that don't change the call.
[0% change from published call, up ~66% from initial buy/call]
Because I recently posted a KR article that is more thorough than the one in which I first made my call on KR; my opinions, price target and timeline remain unchanged. KR closed within my recommend buy range January 6.
[up ~11% from published call, up ~259% from initial buy/call]
I will soon post an update article to supplement my MWA thesis article.
[up ~25% from published call, up ~112% from initial buy/call]
I will soon post an update article to supplement my MTW thesis article.
[up ~2% from published call, 0% change from initial buy/call]
Perficient CEO Jeff Davis will "highlight the company's recent performance and future prospects" with his Needham Growth Conference presentation on January 15. I will most likely post an update article shortly thereafter. In the meantime, my opinions, price target and timeline remain the same.
[up ~5% from published call, up ~34% from initial buy/call]
Since my PFE call was in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, I'm including my update here and will offer a full-thesis article as time permits. Currently at ~$31, and having sold off from a recent ~$32.50 top, PFE has already exceeded my initial $31 price target from October. Because I believe PFE remains undervalued and will continue being underestimated, as it has been for years, I'm raising my price target to $35 with a 9-12 month timeline.
[0% change from published call]
Because my SXI is very recent, my valuation, opinions, price target and timeline remain unchanged; and no update is necessary at this time.
[up ~19% from published call, up ~131% from initial buy/call]
My TRN call was in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, so I'm including my update here and will offer a full-thesis article as time permits. Having retraced slightly from a recent ~$56.50 top to settle at ~$55, TRN has well exceeded my initial $51 target from October, which was far too conservative. I believe the growth will resume so I'm raising my 9-12 month price target to $61.
[up ~42% from published call, up ~52% from initial buy/call]
My VLO call was also in an article that covered several stocks relatively briefly, rather than a dedicated full-thesis article, so I'm including my update here and will offer a full-thesis article as time permits. At ~$52, has already far exceeded my initial $44 target from October to achieve the second best performance by any of my published picks thus far. I considered my initial price target too conservative all along, but I let all the negativity that was circulating about refiners at the time influence me. I still think VLO is "just starting a new growth spurt that will last for many years," so I'm raising my price target to $59 with a 9-12 month timeline.
Looking Back To See The Way Forward
Since my calls/articles very much parallel my own buys, but my portfolio predates any of my articles, perhaps an idea of how my strategy evolved to where it is now might help some investors feel less like starting to read a book in the middle and better understand the thinking behind my picks. So, by putting my specific calls in context, the rest of this article attempts to offer broader portfolio and market ideas to consider as we go forward.
At the same time, I fully accept that my investment strategy and tactics do not suit everyone. I strongly believe in the time-honored wisdom of the know-thyself maxim, so I understand that my investment approach emanates from my personal belief system, as is true for everyone. For example, in most any context of life, I am patently opposed to the very common human desire to put everything in neat little boxes to be sealed, closed and labeled (including people). So, I'm actually most comfortable with an arm in one box (i.e., income investing), a leg in yet another box (i.e., position trading), and my keister parked squarely in the middle of all boxes. Granted, that doesn't sound very comfortable, but my point is that our investment approach has to suit who we are as individuals. For me, an overarching investment strategy doesn't have to be static since the market environment certainly is not. Where the market has been is a part of where it's headed so I have to look back a bit to make sense of it all.
Beyond rebuilding a few select positions I had cashed out a couple years earlier and adding to select long-time holdings, I wasn't ready to start buying stocks again until 2010. So, I'll start there. In fact, my hesitation and strategy didn't fully change until 2011 so I'll combine those years.
In 2010 and 2011, there was still talk of a double-dip recession or worse. I was convinced that we (the U.S.) were already past that so I set out to take advantage of the volatility created by the lingering fear. I focused on short-term gains, making relatively high-risk short-term trades that were totally opposite of my style, before transitioning back to investing mode in the second half of 2011. I had some big winners (MEG, XRM, etc.) and some big losers (LIWA, TLAB, etc.), but the winners more than made up for the losers and I'm risk averse enough to get out of losers early. But alas, we're well past a time when this approach might've made sense.
By 2012, I had completely written off doom and gloom predictions and stepped up my efforts to take advantage of the political consternation by loading up on new large-cap positions from the bargain bin. It turns out that my May through July stock shopping spree was only bested by my smaller spree in late 2011. I mention this in hopes that the parallels to stage one of a secular bull market start becoming obvious and resonate.
By 2013, I had reached full-on Raging Bull mode, as anyone who has read any of my comments or had a conversation with me knows. My focus was small caps since, as to be expected, many were not as far along in their recoveries as large caps. Again, the parallels to stage two of a secular bull market are glaring. My main mistake of 2013 was expecting a buyable market dip in the last few months, even though I don't subscribe to the circular reasoning that the market must go down only because it has gone up. Luckily, that was a mistake that didn't cost a dime, which is rare.
For 2014, the strength in 2013 with a lack of any pullbacks makes figuring out what to do next more difficult so everything mentioned thus far is just a foundation for tackling this topic. On the first trading day of 2014, the market sold off sharply, which I strongly believe was just a reverse of the tax-loss harvesting that often happens in December. In other words, most investors didn't have many losses to harvest from 2013 and actually had lots of gains. So, many people delayed profit taking until the start of 2014 in order to delay the resulting capital gains taxes for a full year. I believe that's why the market is still soft into week two since, as evidenced by the slow ramp in volumes, there are many stragglers just getting around to tax-delay profit taking. That's important since it implies that the market is not as weak as it seems, which in turn has implications for the year.
My view is that the current secular bull market will continue throughout this entire year at least, if not for several years, and that stage two is not ending. Even so, my experience is that it's best to position for sentiment shifts before they occur since we only know of them in retrospect. That's why I reviewed my year-by-year strategy adjustments -- what I described was seizing opportunities to buy stage two stocks (secondary stocks) as close to the end of stage one as possible. That's because the masses buy those stocks when stage two arrives and the prices rise precipitously. However, to be crystal clear, I'm not suggesting buying stage three stocks (speculatives) now or at all. The stages indicate prevailing sentiment and are a tool to guide strategy, not a literal buying guide. In fact, now is a good time to refer back to the Peter Lynch quote at the top of the article.
The point is that understanding how the sentiment stages progress allows us to make sure that, if we choose to buy anything during the stage three that we won't know we're in until it's too late, we're primarily buying more of the non-speculative stocks we bought during the preceding stages. One of my primary 2014 investing goals is to avoid getting greedy so I'll come through the current and eventual next stage of the bull market not only with profits, but also without losses. After a great year like 2013, it would be easy for anyone to get overconfident and drift toward the complacency that defines stage three. That leads to excessive speculation at exactly the wrong time. Again, that's why I detailed the years leading up to this point -- to convey the point that the extreme bargains in the early years of the economic recovery were ideal for portfolio positioning and diversification.
In other words, 2009 through 2013 were portfolio foundation years -- the time for my type of investor to decide which new positions I want for the long term since most all were on sale at the same times so I had my pick. Now, 2014 is for building on that strong foundation. So, a focus for 2014 is growing the size of the best new positions (listed above), while opening new positions selectively and resisting temptation to get too speculative. Related to the last part, I expect 2014 to hold more stock-specific buyable dips as some investors get speculative in search of outsized returns and sell out of top performers to take profits and redirect cash to speculatives. One tactic I hope to employ is using stock-specific dips to add to some of my top performers. HAL comes to mind and I'm hoping for a buyable dip in VLO soon, although I'm not predicting one. I also expect some themes of 2013 to remain strong in 2014 (industrials, energy, lodging, healthcare, etc.). Overall, I think 2014 will be another very positive year, albeit more of a slow and steady climb with periods of sideways trading.
Thank you for reading and feel free to comment below.
I researched and wrote this article 1/2-1/8.