We continue to look for investment ideas and this is a third review of selections derived from Neil Hennessy, Portfolio Manager and Chief Investment Officer of The Hennessy Mutual Funds. In this case, we are looking at companies with consistently growing profits and a price to sales ratio below 1.5. Rebecca Lipman of Kapitall.com took this and applied a filter to find six small cap stocks ($300M-$2B) that met this requirement.
I would prefer to find larger companies than this but it is likely that finding a company with growing profits and not at a large premium can only be done lower down the "cap chain."
- The Andersons, Inc. (NASDAQ:ANDE): Engages in the agriculture and transportation businesses in the United States
- AmeriGas Partners LP (NYSE:APU): Operates as a retail and wholesale distributor of propane gas in the United States.
- Echo Global Logistics, Inc. (NASDAQ:ECHO): Provides technology enabled transportation and supply chain management services in the United States.
- Netflix, Inc. (NASDAQ:NFLX): Provides subscription based Internet services for TV shows and movies in the United States and internationally.
- Penske Automotive Group, Inc. (NYSE:PAG): Operates as an automotive retailer in the United States, Puerto Rico, the United Kingdom, and Germany.
- rue21, Inc. (NASDAQ:RUE): Operates as a specialty apparel retailer in the United States.
Four of the selection only serve the US market. Today, that may not be a bad thing but I would like to see more exposure to emerging markets. Netflix has been all over the news with its rise and fall and....? It is a relatively diverse set of equities and it will be interesting to see how they compare with our dividend bearing ETF benchmark portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(NYSEARCA:ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(NYSEARCA:TIP) iShares Barclays TIPS Bond|
|Emerging Market||(NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(NYSEARCA:DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(NYSEARCA:VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(NYSEARCA:IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond|
- 6 Small Cap Stocks at a Good Price With Consistently Rising Profits -- Total of $10K invested equally in each stock
- 11 Dividend Stocks That Meet Hedge Fund`s Requirement -- Total of $10K invested equally in each stock
- Neil Hennessy`s No-Nonsense Investing Strategies -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||2%||7%||71%||14%||117%||8%||59%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||4%||1%||14%||13%||102%||2%||7%|
|6 Small Cap Stocks at a Good Price With Consistently Rising Profits||11%||-23%||-70%|
|11 Dividend Stocks That Meet Hedge Fund`s Requirement||9%||9%||31%||21%||87%|
|Neil Hennessy`s No-Nonsense Investing Strategies||10%||16%||56%||34%||137%|
This is the third of Neil Hennessy's approaches we have reviewed and it is the least stable and has the shortest history so this table doesn't really tell us what we want to know. However, I like the no-nonesense strategy as it comprises 30 stocks and are larger in size which leads to greater stability and better returns. I know that Netflix has been going through the wars and that may be the reason for the precipitous drop but in terms of a blind filter, I like this one least of all.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
I think to believe in this selection (the purple line), you would have to think that the bad news is behind and there is value and strength ahead. I have too many reasons to like the no nonsense strategy to really want to dig into the 6 small cap companies with consistently rising profits.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.