2015 Stock Picks: 19 Out Of 300

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Includes: ANIP, CACC, CBS, CNI, CSCO, CTSH, DAL, FFIV, FL, GD, GIB, GILD, GTATQ, LKQ, LUV, MRVL, PCP, QQQ, RHT, SPTN, SPY, SWK, VMW
by: Dark-Liquidity

Summary

Review of 2014 best performing stock portfolios.

19 stocks for 2015 selected from 300 stock selections by investment professionals.

Stock selection screens used: 1) Price-to-Free-Cash-Flow, 2) O'Neil's CAN SLIM, 3) John Templeton.

In 2014, we tracked the performance of stocks selected by Piper Jaffray, Fidelity, Barron's, Barclays, Merrill Lynch, Deutsche Bank, Forbes, Credit Suisse, JP Morgan, Kiplinger, Jefferies, UBS, Needham & Company, MSN, USA Today's investment roundtable and a group of 20 star investors. We later added Sabrient Systems when their selections became available on January 13th.

Sabrient's "Baker's Dozen" portfolio took first place with a 22.73% gain in 2014, beating out second place Piper Jaffray's portfolio which had a market beating 18.43% gain. Sabrient also managed to pick the best performing stock selection; Southwest Airlines Co.(NYSE:LUV) with an impressive 99.91% gain, helped recently by the decline in the price of oil. (See chart below).

Southwest Airlines 2014 Chart

Sabrient Systems has an impressive track record, with their annual "Baker's Dozen" portfolios having beaten the market convincingly for the past six years with their quantitative GARP (growth at a reasonable price) method. Their 2015 "Baker's Dozen" selections will be made known on January 14th when they are released as a unit investment trust.

Our AAII SI Pro selections took third place with a 15.8% gain, which was enough to beat the S&P 500 (NYSEARCA:SPY) ETF's gain of 11.7% and 15 other professional portfolios but not the Nasdaq (NASDAQ:QQQ) which had a 17.9% gain. Our AAII SI Pro portfolio was made by running all 275 stock recommendations for 2014 though the AAII (American Association of Individual Investors) Stock Investor Professional software database and selecting the stocks that passed the standard AAII selection screens that had the highest annual returns over the past 3 years. You can see the original article here.

The worst performing stock selection was at one time the best performing stock during the course of the year up over 100%. The stock was GT Advanced Technologies (OTCPK:GTATQ), which declared bankruptcy on October 6, soon after the company learned that its sapphire material wouldn't be used in the screens of Apple's new iPhone 6. The stock ended the year down 96.2%. (See chart below).

GT Advanced Technologies 2014 Chart

The chart below shows the individual weekly portfolio performances throughout 2014. There were some volatile portfolios; you can see the MSN portfolio was up 20% at the end of August but ended with a -8.88% loss. Needham's portfolio was up over 10% in the first 2 months of year but down over -20% by October, somewhat recovering by year end to finish with a -6.15% loss.

2014 Stock Portfolio Performance Chart

Overall, only 4 of the 18 portfolios beat the S&P 500, showing how difficult it is to pick individual stocks expected to beat the market one year out.

For 2015, we have compiled about 300 stock, ETF and fund recommendations from Fortune, Oakmark Funds, Barron's, Goldman Sachs, TheStreet, Credit Suisse, Jefferies, Dan Dorfman, Needham & Company, Farr, Miller & Washington, Motley Fool, Kiplinger, USA Today's roundtable, Fidelity, RBC Capital Markets, Forbes and several groups of investment professionals. You can see all the recommendations, links to the original source articles, as well as a link to the stock charts of all of the stocks here.

The AAII SI Pro portfolio for this year is selected from the 300 professional stock recommendations by running them through the following screens:

1. Piotroski: High F-Score Screen (3 year - 69.9% annual return, 1 year - 7.5%)

This screen produced 6 passing stocks but none coincided with the professional's selections.

2. Rule #1 Investing (3 year - 34.7% annual return, 1 year - 50.3%)

This screen is adapted from Phil Town's book "Rule #1" and attempts to identify wonderful companies with attractive prices. This screen produced no passing stocks at this time.

3. O'Shaughnessy: Tiny Titans Screen (3 year - 33.0% annual return, 1 year - 21.4%)

The O'Shaughnessy screen tries to predict the future using historical long-term trends seeking value and price momentum. This screen produced 41 passing stocks but none coincided with the professional's selections.

4. Price-to-Free-Cash-Flow (3 year - 31.3% annual return, 1 year - 11.5%)

This screen looks for companies with positive and consistent free cash flow and reasonable stock valuations. This screen produced a total of 202 passing companies of which the following 16 were in the pros' choices:

  1. BroadSoft Inc. (BSFT)
  2. Canadian National Railway Co. (NYSE:CNI)
  3. CGI Group Inc. Cl A (NYSE:GIB)
  4. Cognizant Technology Solutions Corp. (NASDAQ:CTSH)
  5. Delta Air Lines Inc. (NYSE:DAL)
  6. F5 Networks Inc. (NASDAQ:FFIV)
  7. Foot Locker Inc. (NYSE:FL)
  8. General Dynamics Corp. (NYSE:GD)
  9. Gilead Sciences Inc. (NASDAQ:GILD)
  10. LKQ Corp. (NASDAQ:LKQ)
  11. Marvell Technology Group Ltd. (NASDAQ:MRVL)
  12. Precision Castparts Corp. (NYSE:PCP)
  13. Red Hat Inc. (NYSE:RHT)
  14. SpartanNash Co. (NASDAQ:SPTN)
  15. Stanley Black & Decker Inc. (NYSE:SWK)
  16. VMware Inc. (NYSE:VMW)

The passing criteria for this screen are:

  • Those companies in the financial sector and real estate operations industry are excluded
  • The market capitalization for the latest fiscal quarter (Q1) is greater than or equal to $50 million
  • The free cash flow per share for the last 12 months and for each of the past five fiscal years is positive (greater than zero)
  • Note that some companies may have negative free cash flow because of the seasonal nature of their business
  • The price-to-free cash flow per share ratio is lower than the industry's median price-to-free cash flow per share ratio
  • The price-to-free cash flow per share ratio is lower than the company's 5-year average price-to-free cash flow per share ratio
  • Only those companies with the 30 lowest price-to-free cash flow per share ratios are included in the final results

5. O'Neil's CAN SLIM Revised 3rd Edition (3 year - 29.8% annual return, 1 year - 44%)

The CAN SLIM approach seeks companies with a proven record of quarterly and annual earnings and sales growth showing strong relative price strength and support from leading institutions. This screen produced 2 passing companies with only one coinciding with the pros' choices;

  1. ANI Pharmaceuticals Inc. (NASDAQ:ANIP)

The passing criteria for this screen are:

  • The growth rate in earnings per share from continuing operations between the last reported fiscal quarter (Q1) and the same quarter one year prior (Q5) is greater than or equal to 20%
  • The growth rate in earnings per share from continuing operations between the last reported fiscal quarter (Q1) and the same quarter one year prior (Q5) is greater than the growth rate in earnings per share from continuing operations between the reported fiscal period two quarters ago (Q2) and the same quarter one year prior (Q6)
  • The growth rate in sales between the last reported fiscal quarter (Q1) and the same quarter one year prior (Q5) is greater than 25%
  • Earnings per share from continuing operations for the last reported fiscal quarter (Q1) is greater than zero (is positive)
  • Earnings per share from continuing operations for the last trailing 12 months (last four fiscal quarters) (12m) is greater than earnings per share from continuing operations for the last reported fiscal year (Y1)
  • Earnings per share from continuing operations for the last fiscal year (Y1) is greater than earnings per share from continuing operations from two fiscal years ago (Y2)
  • Earnings per share from continuing operations from two fiscal years ago (Y2) is greater than earnings per share from continuing operations from three fiscal years ago (Y3)
  • Earnings per share from continuing operations from three fiscal years ago (Y3) is greater than earnings per share from continuing operations from four fiscal years ago (Y4)
  • The consensus earnings estimate for the current fiscal year (Q0) is greater than fully diluted earnings per share from continuing operations for the last reported fiscal year (Y1)
  • The compounded, annualized growth rate in earnings per share from continuing operations over the last three years is greater than or equal to 25%
  • The current stock price as a percentage of its 52-week high is greater than or equal to 90%
  • The percentage rank for relative strength over the last 52 weeks is greater than 80
  • There are at least 10 institutional shareholders
  • The number of shares purchased by institutions over the last quarter is greater than or equal to the number of shares sold by institutions over the last quarter

6. O'Neil's CAN SLIM (3 year - 28.3% annual return, 1 year - 46.4%)

This is an interesting screen that combines both fundamental and technical factors to seek out companies with strong earnings and price momentum. This screen produced 4 passing companies with only one coinciding with the pros' choices;

  1. ANI Pharmaceuticals Inc.

The passing criteria for this screen are:

  • The growth of earnings per share from continuing operations, as of the latest fiscal quarter (Q1) over the same quarter one year prior (Q5), must be greater than or equal to 20%
  • The growth of earnings per share from continuing operations, as of the latest fiscal quarter (Q1) over the same quarter one year prior (Q5) must be greater than the growth of earnings per share from continuing operations, as of the previous fiscal quarter (Q2) over the same quarter one year prior (Q6)
  • Earnings per share from continuing operations for the two most recent fiscal quarters (Q1 and Q2) must be positive
  • Growth in earnings per share from continuing operations over the last five years must be 25% or more
  • Earnings per share from continuing operations must have increased over each of the last five fiscal years as well as over the last 12 months
  • The current stock price must be within 10% of its 52-week high
  • The stock's float must be less than 20 million shares
  • The 52-week relative strength must be in the top 30% of the entire database (percent rank greater than 70)
  • There must be at least five institutional shareholders

7. Murphy Technology (3 year - 25.7% annual return, 1 year - 6.2%)

This screen attempts to identify technology stocks with high R&D spending, strong margins and growth, but selling at attractive values. This screen produced 3 passing stocks but none coincided with the professional's selections.

8. Templeton (3 year - 25.0% annual return, 1 year - 9.8%)

This screen seeks companies with favorable margins, consistent earnings, growth and price-earnings ratios below historic norms. This screen produced 11 passing companies with 4 coinciding with the pros' choices;

  1. CBS Corp. Cl B (NYSE:CBS)
  2. Cognizant Technology Solutions Corp.
  3. Credit Acceptance Corp. (NASDAQ:CACC)
  4. Precision Castparts Corp.

The passing criteria for this screen are:

  • The price-earnings ratio is less than the average price-earnings ratio for the last five years
  • The average price-earnings ratio for each of the last five fiscal years is less than 75
  • The growth rate in earnings per share for the last 12 months is positive
  • The growth rate in earnings per share for the last five years is positive
  • The estimated long-term growth rate in earnings per share is positive
  • The estimated long-term growth rate in earnings per share is greater than the industry's median estimated long-term growth rate in earnings per share
  • Earnings per share for the last twelve months is greater than or equal to earnings per share for the last fiscal year (Y1)
  • Year-to-year earnings per share have increased over each of the last five fiscal years (Y5 to Y4, Y4 to Y3, etc)
  • The operating margin for the last 12 months is positive
  • The operating margin for the last fiscal year (Y1) is positive
  • The operating margin for the last 12 months is greater than or equal to the industry's median operating margin for the same period
  • The operating margin for the last fiscal year (Y1) is greater than or equal to the industry's median operating margin for the same period
  • The ratio of total liabilities to total assets for the last fiscal quarter (Q1) is less than the industry's median ratio of total liabilities to total assets for the same period

In summary, the stocks selected (in no particular order) for 2015 are:

2015 Stock Picks: 19 Out Of 300

1

BroadSoft Inc.

2

Canadian National Railway Co.

3

CGI Group Inc. Cl A

4

Cognizant Technology Solutions Corp.

5

Delta Air Lines Inc.

6

F5 Networks Inc.

7

Foot Locker Inc.

8

General Dynamics Corp.

9

Gilead Sciences Inc.

10

LKQ Corp.

11

Marvell Technology Group Ltd.

12

Precision Castparts Corp.

13

Red Hat Inc.

14

SpartanNash Co.

15

Stanley Black & Decker Inc.

16

VMware Inc.

17

ANI Pharmaceuticals Inc.

18

CBS Corp. Cl B

19

Credit Acceptance Corp.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.