The Kirk Report

Top Stock Picks For 2009

One of the things I like to do around the middle of the year is to review some of the tracking lists that I create of those "top stock picks for 2009" that we hear so much around the start of each year. I enjoy this exercise because it it lends perspective on situations that have and haven't lived up to their high expectations with the benefit of the hindsight of the past six months.

One of my favorite tracking lists in this regard is the annual BloggingStocks poll which asked 75 advisors their "favorite stock for 2009." I like this list because it requires each advisor to also provide an simple explanation for each pick they provide.

In review of the performance so far of these picks, the overall list is currently up +10% year-to-date. The top five best performers are Teck Cominco Limited (TCK), Green Mountain Coffee Roasters (GMCR), Freeport Mcmoran (FCX), E-House China Holdings Limited ADR (EJ), & PowerShares DB Crude Oil Double Long ETN (DXO).

The bottom five worst performers are ProShares UltraShort Financials (SKF), Emergent BioSolutions Inc (EBS), Fuel Systems Solutions Inc (FSYS), Ezcorp (EZPW) & Allegiant Travel (ALGT).

Now take a moment to read the analysis of each of these recommendations when the pick was made:

Top 5 Performers:

• Teck Cominco (TCK)

• Green Mountain (GMCR)

• Freeport McMoRan (FCX)

• E-House Holdings (EJ)

• PowerShares DB Crude (DXO)

Bottom 5 Performers:

• ProShares UltraShort Financials (SKF)

• Emergent BioSolutions (EBS)

• Fuel Systems (FSYS)

• EZCorp (EZPW)

• Allegiant Travel (ALGT)

In your view, which analysis above surprised you the most and why? Do any of these recommendations (good or bad) still hold value? What were the key mistakes made so far? Is there anything common in the stocks that have outperformed the most?

When I started learning about stocks, this tracking and evaluation process with the benefit of some hindsight is something I did all of the time to learn and understand what it takes to pick the best stocks. Do this enough and you'll begin to see the same sort of patterns emerge year after year after year.

Widest Discounts From Book Value

Some of these dogs can sure hunt!

Stocks found within our last Widest Discounts From Book Value screen are up +52.33% (37 gainers & 2 losers). In fact, six stocks within that screen are up more than +100% over the past 20 trading days. Those are fairly impressive results, but not entirely unexpected in this environment.

As a top priority I continue to focus on this screen for trading setups. Until we see a change in performance (and a significant change of character for the market overall) this book value focused screen should continue to yield excellent results. In fact, the performance stats of February's screen are also impressive. Since February 18th, that screen is up +78.55% (34 gainers & 2 losers).

I'm sure you probably want to know which stocks currently appear within the same screen right now. As of this morning, 39 stocks have the characteristics that fit.....[READ]

The World's Most Ethical Companies

The Ethisphere Institute has released this year's list of The World's Most Ethical Companies. According to their website, 99 companies made this year's cut after a lengthy selection process. In addition, they also have made the bold claim that the past performance of the world's most ethical companies (the WME) have significantly outperformed the S&P 500 over the past five years:

While we all would like to believe and really hope that the world's most ethical companies reward their shareholder's the most, I must admit I'm skeptical of such performance claims based on my personal tracking and observation of socially conscious investment funds. As someone who desires very much to align my long-term investments in a socially conscious manner whenever possible, I've struggled with finding a way to do this without sacrificing my performance at the same time. Perhaps this year's list can help (or not). We shall soon see!

Last night I looked up the ticker symbols of the companies named within the most ethical group. Unfortunately, I was able to find only 62 of the 99 companies primarily because some of the companies named are private companies (like Trader Joe's), divisions of other companies (like T-Mobile is owned by Deutsche Telekom), or foreign companies (like Japan's Kao) that is impossible for U.S. investors to gain direct exposure to. This by itself raises an eyebrow due to the performance claims made in past years (after all, how do you compare the performance of firms to the S&P 500 that are not publicly traded?), but at least we can create a watchlist to track and monitor over the coming year on our own of the companies we can track.

In case you need it, here's the spreadsheet that also breaks down this group of stocks by sector. Ideally, if past significant outperformance continues, this would be a nice watchlist/screen to work with but we'll see how it performs over the coming year.

Widest Discounts From Book Value

One month ago, I provided a value screen with the goal of finding stocks that 1) have the widest discounts from their current book value and, 2) which have enough cash on their books to be able to survive although business hasn’t been the best of late. Here's a quick performance update.

Since February 18th, this stock screen is up +13.93% (23 gainers & 12 losers). Over the same month, the S&P 500 fell -1.31%.

Interesting enough, if you instead waited to buy each of the stocks at the bottom close on Monday, March 9th, your returns would have improved to gain of +47.98% (36 gainers & 0 losers) in comparison to the +15.02% gain in the S&P 500.

Running the same exact stock screen this morning, 39 stocks were found.....[READ]

Price-To-Sales Filter

Needless to say, if you're putting money to work in this market you better have good reason to do so including holding stocks that have very attractive valuations. Over the years, I've made no secret to the fact that I'm fond of using the price-to-sales ratio in this regard (i.e. the lower the ratio - the better especially when you compare stocks within the same sector).

Through this Excel spreadsheet you can see a breakdown of all of the stocks currently found within my stock screen machine along with their respective price-to-sales ratios. When looking through this data, I tend to focus my time on stocks in each sector that sport the highest and lowest price to sales ratio. I focus on the highest because I want to figure out why the market continues to value the stock so highly among its peers (and whether that will continue) as well as the lowest to determine if the risk/reward is such that on a valuation basis alone whether the stock is worthy of a nibble.

I know from personal experience it isn't easy looking for stocks to buy in this market. After all, no one really wants to buy anything right now which is exactly why you have to keep plugging away and staying focused on finding tomorrow's big winner.

Members' Top Picks

Although we still have one trading day left of the second quarter, I thought it would be ok if I went ahead and provided some tracking data for the members' top picks contest for the second quarter.

As you will see, far and away the members' top picks performed very well since March 31st. During this same time frame, the S&P 500 lost -3.35%. Here's how the tracking portfolios performed based on the picks that were submitted:

1) All Stocks: Up +8.74% (47 gainers & 37 losers)

2) Popular Stocks: Up +17.25% (9 gainers & 2 losers)

3) Repeat Stocks: Up +23.31% (3 gainers & 1 loser)

4) Top 25 Picks Screen: Up +11.45% (18 gainers & 7 losers)

Once again, the repeat stocks outperformed everything else. (You can view the 3rd quarter picks here).

In addition, congratulations goes to member Donald Brown who named Patriot Coal (PCX) as his favorite stock pick for the second quarter. As you can see below, it was a wonderful pick with a +217% gain! For all of those tried once again to submit penny stocks for this quarter's contest, you may want to note that PCX was trading at $46 per share on March 31st before this terrific gain.

Like in previous contests, I've asked the contest winner Mr. Brown to offer some insight to his approach, but I haven't heard from him yet. Perhaps he's on vacation enjoying the fruits of his labor! If he reports back, I'll share his profile as I have other winners. In addition, as the winner of this quarter's contest, he'll receive a nice check and a lifetime membership.

Good luck to all for the next quarter's contest!

The Fantastic Four Filter Portfolio

It's time for another quarterly update for my Fantastic Four Filter Portfolio. Here's how the portfolio has performed since March 4th through June 2nd (the S&P 500 was up +4.44% during the same time frame):

With the exception of Hormel Foods (HRL), the stocks performed relatively well. Hopefully we'll see the same kind of performance for the next portfolio. After applying the same four filters to my stock screen machine, only 10 stocks passed this morning.

Top Stock Picks

We're just about at the half-way point for the second quarter, so I thought you may find it of interest to see how your top stock picks are doing so far.

At the end of every quarter I ask members to submit one stock that they think will outperform in the next quarter. I then build several portfolios based on those stock picks including one which is tracked and shared through my stock screen machine under the "Members' Top Picks."

Here is how all four portfolios have performed:

For more information on each of these portfolios including detailed tracking information, please login.

Top Stock Picker: Allan J. Knepper

In the first quarter the top performing stock in our members' top picks contest was Lindsay Manufacturing (LNN) selected by member Allan J. Knepper. Congratulations to Allan who has become a lifetime honorary member (i.e. no more yearly membership dues) and will receive a prize check for $150!

Like with previous winners (see 4Q 2007), I asked Allan a few questions about himself, experience, strategy, and lessons he's learned:

NAME: Allan J. Knepper

PROFESSION: I recently retired after 31yrs. from GM Corp. where I held management positions in customer service, training and development, dealership systems and processes and warranty management. I worked both in GM Central Offices in Detroit as well as Field Offices throughout the U.S. I have been a lifelong “gearhead” growing up in a small Iowa town and working in a small Chevrolet dealership in high school while building race cars and eventually earning a BA in Psychology after a tour of duty in the Navy. I currently supplement my small pension by combining my hobby into a very small business buying/repairing/selling antique tractors, trucks and cars. I am also very faithfully supported by my wife of 32yrs., Barbara who still works full time as our church secretary. I have also been fortunate to be able to indulge my passion for conservative policies, leadership, government, capitalism and our popular culture by being chosen for a seat on the Milwaukee Journal Sentinel Reader Advisory Board. After a one year stint, I was then very fortunate to be chosen to spend this year as a Community Columnist. In my writing as in my trading and investing, I struggle to develop the discipline and routine to be successful.

MARKET EXPERIENCE: As my background would suggest, I had absolutely no experience or training in personal financial basics or stock market basics. I did have a 401K at GM and I became very interested in slowly learning to manage it myself. In the downturn of 1987, I quickly realized I was a “value” investor and I began buying cheap stocks in a very small personal account I had opened at a discount broker. I bought things I knew (Pepsi, Goodyear, John Deere etc.) . After being caught up in a huge GM downsizing in 1999, I vowed to ramp up my computer skills to begin on-line researching, investing, trading in my non-401K account. I also set a goal of having at least a small income stream in the future from frequent and/or day-trading in order to be more financially independent.

MARKET STRATEGY: I am a very, very simple, basic investor and trader. I have always tried to do lots of study and simple research and after many losses and lessons learned with “hot stocks” in the early days, I try to stick once again to things I know and can understand what the company does. I therefore stay clear of most tech stocks, biotechs, financials etc. This does obviously limit me but I do try to stick to that discipline. I look for trends but more importantly “second tier” stocks that are not closely followed. During the beginning of the ethanol craze, I did make a little money in the ethanol stocks themselves, but I looked for “undiscovered “ stocks related to the trend (especially in my own backyard). This led me to railroads, railroad equipment, stainless steel, barges, farm equipment, irrigation (LNN), fertilizer etc. I did the same thing early in the “water scarcity” trend. I am currently working on wind energy plays involving towers, equipment, installation services, maintenance and repair service and parts etc. I look at price to book, short interest, 5yr. trends in growth, cash flow etc. I not only buy these stocks for short to medium term gains, but I have been focusing more effort on trading a large, familiar basket of these same kinds of stocks around earnings seasons. This is where my success has been sporadic but steadily improving. Once again, I have no interest in trading well-followed, popular stocks around earnings season, but rather lesser known stocks whose behavior I may have already studied for several years.

MOST IMPORTANT THINGS I HAVE LEARNED: I began being a sporadic WSJ reader in the 1980’s and quickly had a Saturday routine of picking up IBD and Barrons and studying them on the weekend. I have during the last yr. subscribed to Telechart since my chart skills are very basic and limited to those provided by the two online brokers I use. I need to develop better discipline going hand in hand with better daily record-keeping. After mention in Kirk Report, I have recently enrolled in BeSpoke and SentimenTrader. Since discovering Kirk Report in 2006, I have become hooked, especially the links to a wide variety of sources, market commentary, guest Q+A, charting and most of all, a very conservative, disciplined outlook on the big picture of both the markets and life in general. We have been very blessed in having our two daughters be recent graduates of UW Madison ( a special ed. teacher and a real estate developer). Through what I’ve learned both in the Kirk Report and other linked sources, I hope to coach them in the importance of sound money management and the value of beginning to save and invest early in their careers. Thanks again Charles.

Thank you Allan. I'm happy to have you with us and good luck to everyone who is participating in the second quarter contest!

Top Stock Picks of 2008

It's January, and you know what that means - everyone takes time to publish their top stock picks for 2008!

People are drawn to these kinds of lists like bees to honey. Although I don't like to admit it, I have to say that I also find it interesting to see which stocks make it to these annual top stock pick lists if for no other reason to see which stocks show up in both these lists and my own stock screens.....[READ]