Five Excellent Companies You Don't Want in Your Portfolio Right Now

 |  Includes: BUCY, CRM, CTRX, EGO, GMCR
by: Steven Bauer

Brief Introduction: My focus is investing wisely by taking advantage of the bull/bear cycles as they occur within the overall marketplace. Integrating modern analytics within these cycles means maintaining a process of the thorough fundamental analysis of many companies, sectors and more than 200 industry groups in my universe. I believe that this discipline provides the necessary clarity regarding the rotation that most all sectors, industry groups and companies go through – from fundamentally favorable times to unfavorable times and perhaps back again.

Often one of the most important things an investor forgets is that what appears to be a fact is, in reality, very creative fiction. The flow of fictional stories being told by Wall Street, the media, financial analysts and asset managers are so compelling that the average Investor takes the hook, nearly every time. That’s a fact and, for me, it is very sad. The fact for you is that it is very expensive.

To offer some help, I have selected five of the top 10 companies in Fortune Magazine’s most current ranking of the top 100 companies to share with you my thoughts. Frequently I see lists of what are supposed to be the “best of the best” and often just smile. When I do fundamental valuation on those companies I find a very few that meet or even come close to an acceptable risk/reward ratio. The five companies that I have chosen to share my valuation perhaps should have been in your portfolio, but definitely not now!

In a month or two these companies may very well be on a list of my candidates for buying, but even then they may not fundamentally, technically, or consensus-wise, measure up to other companies in other sectors/industry groups that (at that time) have a lower risk/reward ratio (factor) and a higher profit potential. Remember, you can only invest in just so many companies and ETFs before you are over diversified.

If you are not selective with your specific investment decisions, in this current marketplace your profit will be adversely affected by 10% or more by the time you liquidate those securities. That’s a big percentage of give away that can be avoided with just a little homework prior to taking positions.

In the table below you will see why my approach of valuation offers five rather strong companies that I believe can be profitable in the intermediate term, however not at this time. Remember to be a bit patient before taking positions.

Valuation / Comparative Analytics Table: Five Top Companies


Current Price

My Target Price % Above (+) or Below (-) Current Price Tweaked



Forward P/E Average of Low/High Estimates

Divergence (%) (Two-Year Projected Mean)


Eldorado Gold (NYSE:EGO)


+ 20% to 75%




+ 152%

Obviously a very strong valuation and price projection.

Green Mountain Coffee (NASDAQ:GMCR)


+ 30% to 99%




+ 164%

Obviously a very strong valuation and price projection. (NYSE:CRM)


+ 20% to 65%




+ 143%

Obviously a very strong valuation and price projection.

SXC Health Solutions (SXCI)


+ 10% to 40%




+ 118%

Obviously a very strong valuation and price projection.

Bucyrus Int’l (NASDAQ:BUCY)


+ 20% to 50%




+ 131%

Obviously a very strong valuation and price projection.

Click to enlarge

Notes: Fundamental valuation, data in today’s marketplace, requires that I look at the numbers as being either realistic or creative. The more creative are recently using new / funny math and other unorthodox procedures. This has caused many valuation data inconsistencies that are notably misleading. I have adopted an additional procedure that I call "Tweaking the Results." This procedure is sometimes needed to get me back to realistic valuations. It requires having an eye on the short- as well as intermediate-term company’s price movement and is definitely not a part of my rather unique technical analysis. My valuations also considers the two-year forward price earnings data. Using this procedure produces very accurate analytics for decisions at bullish and bearish inflection points.

Most financial analysts determine the price target range by estimating a future earnings per share and then applying a price-to-earnings multiple, also known as the price earnings ratio. I prefer to calculate price targets (high/low) for both the current and next fiscal year by applying the stock's present multiple to the average analyst's estimates and follow with some foxy tweaking of the results.

Further, I believe that there should be just two aspects of fundamental valuation. They are now and later, which translates to 1-2 years and more than three years. Obviously, the further out we try to project earnings and cash flow the more inaccurate the data becomes. That is why I do my valuations rather frequently.

PEs & PEGs: You will note that some of these companies are carrying rather high PEs – I have a problem with my risk/reward formula with companies that are much too high. You will also note that some of these companies are carrying lower PEG ratios than others – I tend to prefer those lower PEG companies to the higher ones. I guess that is because I am both conservative and focus on having a very high percent of my investment end up profitable.

Since coming out of retirement in October 2007, I have witnessed a vast change in the valuation practices being offered by many financial analysts. The shenanigans and other accounting practice games were active before, but have now reached a new height of deception. The general public is often lazy about learning and perhaps naive. The financial analysts know that these characteristics exist and now are taking advantage. It's simple, the average Investor is asking to be told that all is "ok,” so that is what they are being told.

My Technical Thoughts/Analytics: The general market and many companies have obviously been on a tear since early September, except for the pullback of the past few weeks. The tear seems to have receded and given way to the beginning of a meaningful pullback. So selling and seeking the protection of cash or perhaps taking bear market positions is currently the best investment strategy.

I will now just let this consolidation (pullback) run its course. So for this old bearish fox, I’m very pleased with the fundamental statistics, indicators and technical charts.

My Wrap: So while I believe the general market may already be in a near- to a short-term pullback, the prevailing question from most investors is: How big will it be? Do I hold my current positions or do I sell? Is there a profitable alternative, etc. The answer will be obviously quite clear when it (the pullback) is over but an old axiom tells us to be prudent in times like this. You might want to remember that cash is always an excellent safe harbor. However, if you are a proactive Investor, taking bearish positions may be also being wise.

The good news about the current "marketplace" is that we are presented frequent and conservative/low risk opportunities to, invest long, invest short or to simply to hold cash. For me, this is investing wisely.

Disclosure: No positions