We continue to look for stock ideas that can help provide both growth and stability for long term investors. This may be something of a detour as I am picking up on a selection of stocks by Danny Guttridge from Kapitall Research:
Stocks under $10 that are undervalued according to the Graham Number but with quarterly gains. I take this to be a screen for companies that may be on the upswing.
Danny's list of six are:
- ARMOUR Residential REIT, Inc. (ARR): Invests in mortgage-backed securities issued by or guaranteed by U.S. Government.
- Market cap at $1.2B
- Graham Number fair value $9.0
- Recent stock's price:$6.93
- Monster Worldwide, Inc. (MWW): Provides online employment solutions worldwide.
- Market cap at $964.47M
- Graham Number fair value $10.22
- Recent stock price $8.66
- Astoria Financial Corporation (AF): Operates as the bank holding company for Astoria Federal Savings and Loan Association that provides various banking services in the United States.
- Market cap at $855.32M
- Graham Number fair value $12.39
- Recent stock price $9.03.
- Iridium Communications Inc. (IRDM): Provides mobile voice and data communications services through satellites
- Market cap at $620.55M
- Graham Number fair value $11.39
- Recent stock price $8.66
- X-Rite, Incorporated (XRIT): Develops a range of color management systems primarily in the United States, Europe, and Asia.
- Market cap at $478.05M
- Graham Number fair value $6.94
- Recent stock price $5.54
- Wilshire Bancorp Inc. (WIBC) Offers a range of financial products and services.
- Market cap at $377.08M
- Graham Number fair value $6.76
- Recent stock price $5.23
Right at the outset, I admit that this should never be a core part of a long term portfolio. This is going to be volatile with potentially big swings. It might be worth considering for a part of a portfolio that can absorb these big swings.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- 6 Stocks Under $10 Undervalued By Graham With Quarterly Gains -- 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%||6%||66%||12%||110%||7%||57%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||2%||-1%||-3%||10%||95%||1%||4%|
|6 Stocks Under $10 Undervalued By Graham With Quarterly Gains||14%||1%||2%||5%||18%|
From this table, I worry that this may be chasing returns. This selection of stocks has done reasonably well over the past year but the results over the longer term are choppy. This is not surprising as the companies had to find a way to become undervalued. The real question is whether or not they are a good investment over the next six months.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
We have already said that these are not long term selections. I would worry about whether the banks will be caught up in the current Eurozone problems. They are more local banks so they may be more insulated. The other companies may have some potential.
This is a selection on which I am going to wait. There is not enough here to motivate me to look deeper into the companies to find out whether there is more here. The returns are good but, for a higher risk, higher return play, I think there are better alternatives.
Additional disclosure: 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.