A Different Look At Neglect

by: David Merkel, CFA

It’s good to look at stocks that not everyone else is looking at. A little neglect can be a good thing.

  • Companies that are a little illiquid.
  • Companies with a dedicated shareholder base; they don’t sell at the drop of a hat.
  • Companies with control investors that don’t give outside passive minority investors the short end of the stick.
  • Companies that have odd business models that have most investors ignore them
  • Companies in boring businesses.

Let’s look at this top down, looking at neglect by market sector. Days to turn over indicates how rapidly stocks are traded. A high number means they trade more slowly.

Sector Market Cap ($M) Dollar Volume ($K) Days to turn over
05 – Consumer Non-Cyclical 1,536,807 7,274,592 211
07 – Financial 3,511,041 16,767,713 209
12 – Utilities 1,051,811 5,348,267 197
06 – Energy 2,425,787 14,781,550 164
02 – Capital Goods 1,253,361 7,882,012 159
08 – Health Care 2,428,969 16,080,916 151
Grand Total 23,817,027 161,861,109 147
01 – Basic Materials 947,830 6,770,631 140
11 – Transportation 594,989 4,279,380 139
03 – Conglomerates 15,805 116,462 136
09 – Services 4,936,835 37,308,869 132
10 – Technology 4,368,575 38,382,921 114
04 – Consumer Cyclical 745,217 6,867,798 109
Click to enlarge

In general, colder sectors attract more long-term holders. Sectors where competitive conditions change more rapidly turn over faster.

An aside before we go on — I excluded from this analysis:

  • Foreign stocks trading on US exchanges
  • Over the counter stocks
  • Stocks with less than $10 million in market cap
  • Exchange traded products

That left me with around 3900 stocks. As an aside, stock turnover seems have to increased, and I wonder if high frequency trading and ETP creation/liquidation might be driving that. 147 days for an average holding period means stocks trade their entire market capitalization around 2.5x per year. Cue up the commentary from Buffett and Munger about how most trading in the stock market is wasted effort.

But now let’s look at industries:

Industry Market Cap ($M) Dollar Volume ($K) Days to turn over
0715 – Insurance (Property & Casualty) 632,449 1,730,968 365
0112 – Fabricated Plastic & Rubber 3,298 10,484 315
1206 – Natural Gas Utilities 435,106 1,407,846 309
0506 – Beverages (Non-Alcoholic) 354,710 1,217,841 291
1103 – Air Courier 139,858 505,601 277
0521 – Personal & Household Products 434,008 1,574,389 276
1209 – Water Utilities 17,103 64,198 266
0724 – Money Center Banks 223,336 877,033 255
0524 – Tobacco 272,385 1,170,334 233
0606 – Oil & Gas – Integrated 438,181 1,900,557 231
0957 – Retail (Grocery) 398,981 1,740,963 229
0712 – Insurance (Miscellaneous) 51,749 227,575 227
0218 – Misc. Capital Goods 417,891 1,859,649 225
0975 – Waste Management Services 59,927 283,562 211
0730 – S&Ls/Savings Banks 1,887 9,013 209
1112 – Railroads 186,397 902,219 207
0809 – Major Drugs 227,419 1,135,147 200
0915 – Communications Services 692,373 3,519,894 197
0503 – Beverages (Alcoholic) 52,692 273,645 193
0727 – Regional Banks 1,227,813 6,422,106 191
1030 – Scientific & Technical Instruments 265,595 1,393,898 191
0706 – Insurance (Accident & Health) 247,622 1,310,785 189
0718 – Investment Services 554,225 2,934,362 189
0418 – Footwear 80,706 428,470 188
0512 – Fish/Livestock 1,917 10,383 185
0703 – Consumer Financial Services 405,697 2,203,610 184
0203 – Aerospace and Defense 402,223 2,254,100 178
0960 – Retail (Home Improvement) 169,283 956,876 177
0127 – Misc. Fabricated Products 77,222 439,594 176
0221 – Mobile Homes & RVs 5,297 31,414 169
0612 – Oil Well Services & Equipment 574,292 3,407,144 169
0106 – Chemicals – Plastics and Rubbers 173,053 1,038,370 167
0954 – Retail (Drugs) 230,495 1,417,370 163
1109 – Misc. Transportation 73,963 456,181 162
0103 – Chemical Manufacturing 353,360 2,227,847 159
0709 – Insurance (Life) 166,263 1,052,261 158
0803 – Biotechnology & Drugs 1,613,675 10,424,895 155
1203 – Electric Utilities 599,603 3,876,223 155
0415 – Auto & Truck Parts 203,596 1,324,773 154
0509 – Crops 4,889 31,874 153
0918 – Hotels & Motels 94,044 616,953 152
0609 – Oil & Gas Operations 1,386,175 9,141,482 152
0209 – Construction – Supplies and Fixtures 140,270 934,529 150
1006 – Computer Hardware 72,374 487,123 149
1036 – Software & Programming 1,152,944 7,816,781 147
Grand Total 23,817,027 161,861,109 147
0921 – Motion Pictures 159,568 1,105,864 144
1024 – Electronic Instruments & Controls 182,569 1,279,912 143
0515 – Food Processing 403,598 2,854,143 141
0909 – Business Services 446,084 3,157,933 141
0812 – Medical Equipment & Supplies 436,733 3,130,033 140
0930 – Printing Services 7,170 51,557 139
0109 – Containters & Packaging 81,869 590,633 139
0933 – Real Estate Operations 594,286 4,295,888 138
0206 – Construction & Agricultural Machinery 137,131 991,809 138
0303 – Conglomerates 15,805 116,462 136
0969 – Schools 21,108 160,274 132
1115 – Trucking 44,104 336,398 131
0939 – Rental & Leasing 238,564 1,828,936 130
0130 – Non-Metallic Mining 4,789 37,031 129
0942 – Restaurants 219,661 1,709,208 129
1118 – Water Transportation 32,241 255,920 126
0406 – Appliances & Tools 55,182 456,389 121
0927 – Printing & Publishing 91,943 760,613 121
0133 – Paper & Paper Products 30,855 256,597 120
0936 – Recreational Activities 75,698 643,463 118
0124 – Metal Mining 98,839 864,894 114
0430 – Recreational Products 54,015 474,019 114
0421 – Furniture & Fixtures 31,741 279,508 114
0948 – Retail (Catalog & Mail Order) 266,904 2,421,091 110
0806 – Healthcare Facilities 151,142 1,390,841 109
0121 – Iron & Steel 76,186 704,432 108
0924 – Personal Services 41,546 386,447 108
0403 – Apparel/Accessories 89,378 848,477 105
1018 – Computer Services 1,023,238 9,989,880 102
1003 – Communications Equipment 837,801 8,227,385 102
0972 – Security Systems & Services 8,892 88,979 100
1021 – Computer Storage Devices 124,136 1,290,696 96
0963 – Retail (Specialty Non-Apparel) 216,223 2,271,386 95
0945 – Retail (Apparel) 160,390 1,696,879 95
0906 – Broadcasting & Cable TV 471,387 5,029,758 94
0433 – Textiles – Non-Apparel 11,455 123,789 93
1033 – Semiconductors 670,980 7,309,563 92
0951 – Retail (Department & Discount) 102,849 1,133,640 91
1012 – Computer Networks 14,378 159,288 90
0903 – Advertising 39,473 442,180 89
0409 – Audio & Video Equipment 11,660 130,676 89
0518 – Office Supplies 12,608 141,981 89
0215 – Construction Services 119,782 1,361,922 88
0912 – Casinos & Gaming 109,703 1,259,520 87
0424 – Jewelry & Silverware 6,527 78,568 83
0603 – Coal 27,139 332,366 82
0118 – Gold & Silver 20,871 256,842 81
0115 – Forestry & Wood Products 27,489 343,907 80
1027 – Office Equipment 4,010 51,064 79
0412 – Auto & Truck Manufacturers 189,092 2,548,454 74
0436 – Tires 8,943 126,838 71
0212 – Construction – Raw Materials 30,768 448,589 69
1106 – Airline 118,426 1,823,061 65
0966 – Retail (Technology) 20,283 329,637 62
0427 – Photography 2,923 47,837 61
1015 – Computer Peripherals 20,549 377,330 54
Click to enlarge

Again, the pattern is more volatile and controversial industries trade more frequently than the more stable industries. One one sense, this is obvious, because the stock market can be used for two purposes — investing and gambling. Gambling is much more attractive when prices are volatile, and the prospects for making a big win are significant. (Even if the possibility of big losses is high as well. Oh well, profits tend to flow to those who eliminate the downside.)

Finally, let’s look at individual stocks, segmented by market capitalization.

Behemoth Stocks

Company Ticker Sector Industry Days
Berkshire Hathaway Inc. BRK.A 07 – Financial 0715 – Insurance (Property & Casualty) 6,579
Wal-Mart Stores, Inc. WMT 09 – Services 0957 – Retail (Grocery) 542
Exxon Mobil Corporation XOM 06 – Energy 0609 – Oil & Gas Operations 453
Johnson & Johnson JNJ 08 – Health Care 0803 – Biotechnology & Drugs 427
PepsiCo, Inc. PEP 05 – Consumer Non-Cyclical 0506 – Beverages (Non-Alcoholic) 365
Procter & Gamble Company, The PG 05 – Consumer Non-Cyclical 0521 – Personal & Household Products 362
General Electric Company GE 02 – Capital Goods 0218 – Misc. Capital Goods 353
Wells Fargo & Co WFC 07 – Financial 0727 – Regional Banks 345
Coca-Cola Company, The KO 05 – Consumer Non-Cyclical 0506 – Beverages (Non-Alcoholic) 341
Chevron Corporation CVX 06 – Energy 0606 – Oil & Gas – Integrated 339
Comcast Corporation CMCSA 09 – Services 0915 – Communications Services 196
QUALCOMM, Inc. QCOM 10 – Technology 1033 – Semiconductors 193
Citigroup Inc C 07 – Financial 0727 – Regional Banks 175
Cisco Systems, Inc. CSCO 10 – Technology 1003 – Communications Equipment 161
Intel Corporation INTC 10 – Technology 1033 – Semiconductors 146
Bank of America Corp BAC 07 – Financial 0727 – Regional Banks 138
Gilead Sciences, Inc. GILD 08 – Health Care 0803 – Biotechnology & Drugs 123
Amazon.com, Inc. AMZN 09 – Services 0948 – Retail (Catalog & Mail Order) 105
Apple Inc. AAPL 10 – Technology 1003 – Communications Equipment 93
Facebook Inc FB 10 – Technology 1018 – Computer Services 50
Click to enlarge

The table above lists the biggest stocks — the top ten that are less traded, and the top ten that are most traded. No surprises, those that are most traded are more controversial than those that are traded less. Also, some companies have investors with control positions, which further slows down trading as most control investors rarely trade.

Large Cap Stocks

Company Ticker Sector Industry Days
Cheniere Energy Partners LP Ho CQH 12 – Utilities 1206 – Natural Gas Utilities 1,709
CNA Financial Corp CNA 07 – Financial 0715 – Insurance (Property & Casualty) 1,647
Icahn Enterprises LP IEP 09 – Services 0963 – Retail (Specialty Non-Apparel) 1,355
Spectra Energy Partners, LP SEP 12 – Utilities 1206 – Natural Gas Utilities 1,190
Enable Midstream Partners LP ENBL 06 – Energy 0606 – Oil & Gas – Integrated 1,166
Cheniere Energy Partners LP CQP 12 – Utilities 1206 – Natural Gas Utilities 1,041
Thomson Reuters Corporation (U TRI 09 – Services 0927 – Printing & Publishing 1,012
Western Gas Equity Partners LP WGP 06 – Energy 0609 – Oil & Gas Operations 969
Enterprise Products Partners L EPD 12 – Utilities 1206 – Natural Gas Utilities 956
Plains GP Holdings LP PAGP 06 – Energy 0612 – Oil Well Services & Equipment 953
Citrix Systems, Inc. CTXS 10 – Technology 1036 – Software & Programming 54
United Continental Holdings In UAL 11 – Transportation 1106 – Airline 53
LinkedIn Corp LNKD 10 – Technology 1018 – Computer Services 47
Yahoo! Inc. YHOO 10 – Technology 1018 – Computer Services 47
Whole Foods Market, Inc. WFM 09 – Services 0957 – Retail (Grocery) 45
Micron Technology, Inc. MU 10 – Technology 1033 – Semiconductors 39
CBS Corporation CBS 09 – Services 0906 – Broadcasting & Cable TV 37
Tesla Motors Inc TSLA 04 – Consumer Cyclical 0412 – Auto & Truck Manufacturers 21
Netflix, Inc. NFLX 09 – Services 0906 – Broadcasting & Cable TV 19
Twitter Inc TWTR 10 – Technology 1018 – Computer Services 19
Click to enlarge

What fascinates me here about the low turnover stocks is the dominance of energy limited partnerships. Since they are income vehicles, they don’t trade as much stocks used for speculative gains.

Mid-cap Stocks

Company Ticker Sector Industry Days
CIM Commercial Trust Corp CMCT 09 – Services 0939 – Rental & Leasing 9,382
Crown Media Holdings, Inc CRWN 09 – Services 0906 – Broadcasting & Cable TV 4,333
Clear Channel Outdoor Holdings CCO 09 – Services 0903 – Advertising 2,258
American National Insurance Co ANAT 07 – Financial 0715 – Insurance (Property & Casualty) 1,756
Gamco Investors Inc GBL 07 – Financial 0718 – Investment Services 1,627
Valhi, Inc. VHI 01 – Basic Materials 0103 – Chemical Manufacturing 1,385
OCI Partners LP OCIP 01 – Basic Materials 0103 – Chemical Manufacturing 1,205
Summit Midstream Partners LP SMLP 12 – Utilities 1206 – Natural Gas Utilities 1,199
TFS Financial Corporation TFSL 07 – Financial 0727 – Regional Banks 1,193
Global Partners LP GLP 06 – Energy 0609 – Oil & Gas Operations 1,131
FireEye Inc FEYE 10 – Technology 1036 – Software & Programming 21
AK Steel Holding Corporation AKS 01 – Basic Materials 0121 – Iron & Steel 21
Ariad Pharmaceuticals, Inc. ARIA 08 – Health Care 0803 – Biotechnology & Drugs 21
Zillow Inc Z 09 – Services 0933 – Real Estate Operations 20
Trulia Inc TRLA 09 – Services 0909 – Business Services 20
Sunedison Inc SUNE 10 – Technology 1033 – Semiconductors 19
J C Penney Company Inc JCP 09 – Services 0951 – Retail (Department & Discount) 17
SolarCity Corp SCTY 10 – Technology 1033 – Semiconductors 17
GT Advanced Technologies Inc GTAT 10 – Technology 1033 – Semiconductors 15
Yelp Inc YELP 09 – Services 0927 – Printing & Publishing 12
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Again. hot stocks with uncertain returns at the bottom, and stocks with more certain prospects at the top. Note the income vehicles in the less traded stocks.

Small Cap Stocks

Company Ticker Sector Industry Days
PHI Inc. PHII 06 – Energy 0612 – Oil Well Services & Equipment 13,434
First Mid-Illinois Bancshares, FMBH 07 – Financial 0727 – Regional Banks 10,674
QAD Inc. QADB 10 – Technology 1036 – Software & Programming 8,529
Intermountain Community Bancor IMCB 07 – Financial 0727 – Regional Banks 8,374
Greene County Bancorp GCBC 07 – Financial 0727 – Regional Banks 7,021
Oconee Federal Financial OFED 07 – Financial 0727 – Regional Banks 6,143
Bel Fuse, Inc. BELFA 10 – Technology 1024 – Electronic Instruments & Controls 5,131
PrimeEnergy Corporation PNRG 06 – Energy 0609 – Oil & Gas Operations 4,303
Community Financial Corp TCFC 07 – Financial 0727 – Regional Banks 3,608
Transcontinental Realty Invest TCI 09 – Services 0933 – Real Estate Operations 3,168
PowerSecure International, Inc POWR 12 – Utilities 1203 – Electric Utilities 20
Penn Virginia Corporation PVA 06 – Energy 0609 – Oil & Gas Operations 20
Pixelworks, Inc. PXLW 10 – Technology 1033 – Semiconductors 20
IsoRay, Inc. ISR 08 – Health Care 0812 – Medical Equipment & Supplies 18
Quantum Fuel Systems Tech Worl QTWW 04 – Consumer Cyclical 0415 – Auto & Truck Parts 17
Pacific Ethanol Inc PEIX 01 – Basic Materials 0103 – Chemical Manufacturing 17
Glu Mobile Inc. GLUU 10 – Technology 1036 – Software & Programming 15
Achillion Pharmaceuticals, Inc ACHN 08 – Health Care 0809 – Major Drugs 14
Walter Energy, Inc. WLT 06 – Energy 0603 – Coal 14
Plug Power Inc PLUG 10 – Technology 1024 – Electronic Instruments & Controls 8
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Look at all of the regional banks amid those that turn over less. Look at all of the controversial stocks amid those that trade frequently.

Microcap Stocks

Company Ticker Sector Industry Days
Bridgford Foods Corporation BRID 05 – Consumer Non-Cyclical 0515 – Food Processing 20,286
Magyar Bancorp, Inc. MGYR 07 – Financial 0727 – Regional Banks 8,948
Bowl America Incorporated BWL.A 09 – Services 0936 – Recreational Activities 8,599
MSB Financial Corp. MSBF 07 – Financial 0727 – Regional Banks 5,562
Siebert Financial Corp. SIEB 07 – Financial 0718 – Investment Services 5,136
Pathfinder Bancorp, Inc. PBHC 07 – Financial 0727 – Regional Banks 4,764
Jacksonville Bancorp Inc JXSB 07 – Financial 0727 – Regional Banks 4,567
Oak Valley Bancorp(NDA) OVLY 07 – Financial 0727 – Regional Banks 4,363
Howard Bancorp Inc HBMD 07 – Financial 0727 – Regional Banks 4,308
Bay Bancorp Inc BYBK 07 – Financial 0727 – Regional Banks 4,240
Hyperdynamics Corporation HDY 06 – Energy 0609 – Oil & Gas Operations 16
InterCloud Systems Inc ICLD 09 – Services 0909 – Business Services 14
BioFuel Energy Corp. BIOF 01 – Basic Materials 0103 – Chemical Manufacturing 10
India Globalization Capital, I IGC 02 – Capital Goods 0215 – Construction Services 8
LiveDeal Inc LIVE 10 – Technology 1018 – Computer Services 8
Giga-tronics, Incorporated GIGA 10 – Technology 1024 – Electronic Instruments & Controls 7
Digital Ally, Inc. DGLY 04 – Consumer Cyclical 0409 – Audio & Video Equipment 5
DARA Biosciences Inc DARA 08 – Health Care 0803 – Biotechnology & Drugs 4
Spherix Inc SPEX 09 – Services 0909 – Business Services 4
USEC Inc. USU 12 – Utilities 1203 – Electric Utilities 3
Click to enlarge

Look at all of the bitty banks that don’t get traded. Perfect for some of my friends who buy and hold such banks, if they can get the trade on. And then, look at all of the controversial companies whose stocks trade trade like a spinning top.

I encourage all of my readers to analyze situations where there are fewer eyeballs looking. Analyze situations where control investors limit the trading relative to the size of the firm. Go where others don’t go, because it is dull. Look for advantage where few others do. And after that, be willing to hold for a while — years, not months. Pay attention as to whether the company has a defensible business model — strong balance sheet, moat versus competition, etc. Then look for a reasonable to low price. There is the making of a good investment.

Disclosure: Long CVX & BRK.B