As we continue to look for investment ideas, we follow up our previous article on what South Texas Money Management's top ten holdings are. Jim Kee, Chief Economist and President of South Texas Money Management, was interviewed by Rebecca Lipman of Kapitall.com, and they followed up by running a screen for equities meeting the following criteria:
- Market cap above $50 million
- Price/Free Cash Flow below 15
- Price/Sales below 2
- Positive sales growth in the past 5 years and quarter over quarter
- Positive EPS growth in the past 5 years and quarter over quarter
- Encouraging DuPont breakdown: Most recent quarter's (Net Profit margin)*(Asset turnover)*(Leverage ratio)
The companies found by this filter should have strong fundamental businesses. I am troubled by the small market cap number. I would rather it be at least $500M, but let's see what the results are.
The resulting 15 stocks.
- Assisted Living Concepts (ALC): Senior living residences in the United States. Market cap at $334.09M.
- Ascena Retail Group (ASNA): A specialty retailer of apparel for women and teen girls. Market cap at $2.91B.
- Belden, (BDC): Designs, manufactures and markets cable, connectivity and networking products. Market cap at $1.45B.
- CF Industries (CF): Manufactures and distributes nitrogen and phosphate fertilizer products. Market cap at $10.93B.
- Comcast (CMCSA): Provides entertainment, information and communications. Market cap at $77.78B.
- CNO Financial (CNO): Development and marketing of health insurance, annuity and life insurance. Market cap at $1.61B.
- Coventry Health Care (CVH): A managed healthcare company in the United States. Market cap at $4.38B.
- Life Technologies (LIFE): A life sciences company. Market cap at $7.47B.
- Parker Hannifin (PH): Manufactures fluid power systems, electromechanical controls and related components. Market cap at $12.74B.
- RTI Biologics. (RTIX): Produces orthopedic and other surgical implants. Market cap at $199.87M.
- Standex International. (SXI): Operates as a diversified manufacturing company. Market cap at $517.8M.
- Symetra Financial (SYA): Operates as a financial services company in the life insurance industry. Market cap at $1.32B.
- Tetra Tech . (TTEK): Provides technical services for resource management. Market cap at $1.6B.
- Universal Health Services. (UHS): Operates acute care hospitals. Market cap at $3.78B.
- Verint Systems. (VRNT): Provides actionable intelligence solutions. Market cap at $1.15B.
Most of these are reasonably large concerns, with the smallest being around $200M. There is also a fair mixture of different market segments, with a slight bias towards health care. I would prefer to see larger concerns, but we will benchmark this against our dividend bearing ETF portfolio.
|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|
- South Texas Money Management Filter -- 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
|Portfolio/Fund Name||1 Week|
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|South Texas Money Management Filter||1.0%||10.7%||0.9%||2.8%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||0.1%||1.8%||7.7%||99.9%||13.8%||115.9%||7.2%||57.4%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||-0.2%||3.1%||1.1%||18.6%||12.0%||94.1%||1.6%||6.2%|
*: NOT annualized
**YTD: Year to Date
This selection of equities include some with a short life, and so we only have one year data in the table. I can see trouble, because I see good returns year to date, but troubling Sharpe numbers in the full year, which tells me there is going to be volatility.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
These may be businesses with good fundamentals, but the mixture is too volatile. Perhaps the list could be pruned, but I would look for a selection with larger companies and leave this one alone.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.