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Stephen Castellano  

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  • 24 Stocks For October 2015 [View article]
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    Oct 7, 2015. 11:29 AM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    Hi, thanks. Please contact me if you want to explore some options for paid research -- steve at ascenderellc dot com

    I can offer a range of paid research options, from simply early access to this model portfolio report, to quick overviews of stocks, to in-depth research of a particular stock. Eventually this entire model portfolio report will be put behind a paywall as well.

    example of a quick overview --

    example of a more in depth study --

    Other research styles:

    To answer your question, both X and AA share very similar fundamental profiles -- good value, but perhaps deceptively so relative to recently sharply lower consensus estimate revisions.

    Given the market surge over the last few days, I do think in general we will end the month up even higher. But I wouldn't plow into "lower quality" stocks like AA or X right now. There will be times when I do recommend getting long low-quality stocks, but in my opinion we are still not at that sweet spot yet.

    If the market continues to break out, you can still get upside with higher-quality stocks for lower risk. I guess it depends on your risk profile.
    Oct 5, 2015. 09:23 PM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    Our theoretical Opportunistic Short Model is likely to close the day October 5, 2015 with a month-to-date return above a portfolio-wide stop-loss trigger.
    Oct 5, 2015. 11:31 AM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    Steel analyst Michael Gambardella has been around for a long time. Covering metals is his 12hrs/day job. You can see from his ratings here how tough it is to be an analyst in a cyclical industry. I think the best signal you can get is to follow when he changes his rating for Century Aluminum Company from Sell to Neutral or higher. This could indicate that in general commodity pressure is over, and steel prices may recover as well. Here is one rating profile I found for him:
    You can find my ratings here:
    Better yet, if you can find pricing research from World Steel Dynamics, run by my former bosses and colleagues, use that instead.
    Oct 2, 2015. 01:26 PM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    NUE and STLD will always be the stronger companies during pricing downturn. They have lower fixed costs and their margins tend to compress less during price declines. This is in part due to pricing dynamics of their raw material inputs -- scrap steel for NUE and STLD versus iron ore for X. I don't know where pricing is right now, but I bet you will see more of a price decline in #1 heavy melt scrap steel than you do for iron ore and coke. If there are any 5yr call options available that's probably the best way to play a steel company during times like this. I don't see X going bankrupt ever.
    Oct 2, 2015. 01:17 PM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    In my opinion, X is probably dead money at best for the next few months, with more downside risk than upside risk. It shows good relative value, but consensus estimates are sharply lower recently, and I don't see steel prices rebounding anytime soon given to what's going on in commodity prices around the world. Steel imports could increase in the next few months given recently weakening Asian currencies. Don't listen to steel CEO supply/demand or pricing forecasts -- their job is to be optimistic. I'll follow up with a more detailed note when I have time.
    Oct 2, 2015. 11:19 AM | Likes Like |Link to Comment
  • 24 Stocks For October 2015 [View article]
    Thanks for the interest. If you'd like to explore the possibility of managing an account for you let me know. I'd have to first renew my FINRA registration to do that. This article represents theoretical returns and is not an advertisement for any investment management service. For now, I'm hoping to build a following for this research and to eventually monetize it as a research product. If you are aware of an investment management company that could use my work, either on a subscription or full-time basis, please let me know.
    Oct 1, 2015. 10:16 AM | 1 Like Like |Link to Comment
  • 26 Stocks For September 2015 [View article]
    Updated targets and returns here:
    Sep 9, 2015. 09:32 PM | Likes Like |Link to Comment
  • Chipotle: Its Market Is Smaller Than Investors Believe, Valuation Implies 30%+ Downside [View article]
    You seem to have nailed the 10-year revenue and EBIT forecast, thanks for sharing that. I do think there are three minor things that throw off your valuation though. I'm getting a value of ~$740 using your forecasts.

    I think your discount rate is too high given CMG's low beta, which is the result of its predictable cash flows and expanding ROIC. I have a WACC of 5.5% using an equity risk premium of 6.3%. Using a lower discount rate of course gives you higher present value of forecast cash flows as well as a much higher terminal multiple -- i have 29x.

    Also, I think you are overly penalizing CMG in your free cash flow calculation by not adding back the equivalent aftertax interest expense if you were to assume the capitalization of operating leases. Rather than go through that exercise, just start your free cash flow calculation with EBIT x (1-Tax Rate) instead of Net Income.

    From my calculations ROIC for the company peaked in Sept 2012 at 18.1% and is 16.9% right now, and could expand well above 18% next year. Based on this, I don't think the predictability of its cash flows are in question for the time being and as a result, I don't think the market is going to penalize the company by assuming it deserves a higher discount rate any time soon.

    Based on a target of ~$740, CMG would be a great buy if declines below $620 again, in my opinion.
    Sep 6, 2015. 08:47 AM | Likes Like |Link to Comment
  • Methode Electronics: 60% Upside After Overdone Sell-Off [View article]
    Nice report. This quant driven market seems to provide opportunities for investors with patience. Do you you think an acquisition would be a better use of cash? China is having problems at the moment but they will probably need more car components more than we do.
    Sep 4, 2015. 07:48 AM | 1 Like Like |Link to Comment
  • 26 Stocks For September 2015 [View article]
    Price targets --
    Sep 3, 2015. 05:35 PM | Likes Like |Link to Comment
  • 26 Stocks For September 2015 [View article]
    Hi Golf, thanks for taking a look. Yes, I have price targets and will post them somewhere soon. These are short-term targets, based on volatility. There are no stop loss targets for the long ideas because tests have shown that would hurt returns more than help, on average. I do have stop loss targets on the short side, however. I don't have any proper long-term price targets for any of these except for NUVA, which I wrote about a few days ago.

    The idea of this portfolio is that you hold this basket of stocks and rebalance each month with a relatively better idea. When a relatively better idea comes along, that is your sell signal (or buy to cover signal).

    $DIS was actually on the list for a while and was re balanced out after consensus estimates were revised down about a month ago. Everything else looks good for the company. I think $EA looks very strong.

    $FB and $UA are priced too high for them to be in this portfolio. Furthermore, $FB and $UA operating momentum do not seem strong relative to other companies even though their consensus estimates have recently been revised sharply higher.

    Having said all that, keep in mind this this portfolio tends to find growth at a reasonable price (GARP) stocks. Once a stock's multiple drastically expands faster than what consensus estimates and a few trailing metrics can reasonably support, the stocks simply get rebalanced out of the portfolio.

    I've missed some pretty impressive runs with $NFLX and $AAPL in this way, but I've also avoided some sharp declines. Rebalancing only occurs at the end of the month; rebalancing more often just seems to hurt performance more than help -- on average.

    So the model actually has a lot of limitations, which a skilled investor should hopefully be able to take advantage of.

    And one more thing -- the short portfolio only works well during volatile market periods. Shorting stocks is much more difficult than going long.
    Sep 3, 2015. 05:06 PM | Likes Like |Link to Comment
  • 26 Stocks For September 2015 [View article]
    Bsorge, Thanks for pointing that out. I look a closer look at BABA based on your comment and you are right. Looks like BABA's EBITDA might double over the next 12 months and ROIC may have bottomed in the last quarter. The measurement of a number of fundamental trends are not working properly because of the skewed data from pre September 2014 IPO prices. I am going to see if there is a way I can omit IPOs with with less than 5 quarters of properly normalized trailing 12-month data from this screen. Your comment emphasizes a point I try to makes with regards to this model portfolio -- human intuition and experience should always beat a screen like this. Just eliminating 1 or 2 bad buy or sells from a list like this can drastically improve returns over time.
    Sep 3, 2015. 11:30 AM | Likes Like |Link to Comment
  • 26 Stocks For September 2015 [View article]
    Hello, thanks. That is an interesting overlap in our lists. Since the model is based on fundamentals it seems to often presage sell side analyst revisions. I guess the best recent example is Leerink Partners reiterating an Outperform and $65 target on today 9/1 on NUVA. The model is theoretical so I am not sure if you can actually short all of these stocks. I agree the market is quite risky. I don't pretend to be a market timer, but I do think the best position to be right now is hedged in some way for the next three weeks, if possible, and then reassess.
    Sep 1, 2015. 01:03 PM | 1 Like Like |Link to Comment
  • Cerner: As DoD Decision Looms, Marketing Position Suggests Overvaluation [View article]
    Very interesting article, thanks for sharing all those details.

    Valuation is directly rated to ROIC and cash flow growth, and revenue growth is definitely an important component of that. Management of fixed investments, working capital, and operating costs are other key drivers of ROIC and cash flow growth.

    Generalist analysts and portfolio managers like myself often defer to the quality of management teams with regards to competitive pressures. High quality management teams like CERN are able to consistently demonstrate their ability to drive improvements in ROIC well above the cost of company's capital. It's often wise to give such management teams the benefit of the doubt. By my measure, ROIC in the last quarter was 17.8% -- the highest in the company's history. I expect further improvements in ROIC for the next several quarters, even while extrapolating from consensus low estimates.

    Of course stock prices are driven by many things in the short-term, and this market seems more driven by earnings growth and stock price momentum rather than ROIC and cash flow growth. I would also point out CERN is no longer part of a quant model portofolio I run simply because of declining momentum in estimate revisions (even though this decline in momentum is largely due to declines in zero-margin travel revenue). Maybe CERN gets to $80 in a year or maybe not. What is certain is that CERN is a solidly managed company that has consistently generated improvement in cash flow and ROIC despite all these competitive pressures, and seems likely to continue to do so. At some point the market should recognize this.
    Jul 8, 2015. 03:06 PM | 1 Like Like |Link to Comment