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Friday, 4 January 2013
FleetCor Technologies (FLT)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I would like to apologize to my friends and readers for my long hiatus here on this blog.  I am definitely an amateur blogger and know that successful blogging requires a consistent post or two.  If I can make this a New Year's resolution....  That being said, I wish all of you a happy and healthy 2013.

One of the strongest holdings in my Covestor 'Buy and Hold' Value model is my position in FleetCor (FLT). I purchased shares of FLT on September 12, 2012 at a price of $44/share.  Today (1/4/13) FleetCor is trading at $55.05, up $.16 or .29% on the day.  Let's take a closer look at this investment and try to understand what it does, how it's doing, and what kind of valuation this stock price represents.

According to the Yahoo "Profile" on FleetCor, the company...

"...provides specialized payment products and services to businesses, commercial fleets, oil companies, petroleum marketers, and government entities in North America, Europe, South Africa, and Asia. It sells a range of customized fleet and lodging payment programs; and offers various card products to purchase fuel, lodging, and related products and services at participating locations. The company also offers prepaid fuel and food vouchers and cards, as well as a telematics solution that enables fleet operators to monitor the capacity utilization and movement of vehicles and drivers."

First of all let's take a look at the latest quarter.  Zacks reported on their 3rd quarter results on November 9, 2012.  Revenues for the quarter came in at $186.9 million, up 32% over the prior year same quarter.  Revenue growth largely was due to international results which climbed 107.3% year over year, and moderate growth domestically, up 9.1% year over year.

Adjusted earnings came in at $.83/share, up 48% from $.56/share the prior year and exceeding the Zacks Consensus Estimate by 20.1%. The company also raised revenue guidance for 2012 to $678-$682 million from prior guidance fo $665-$675 million.

In terms of longer-term results, reviewing the Morningstar.com '5 Years Financials', we can see that revenue has grown  steadily from $341 million in 2008 to $520 million in 2011 and to $645 million in the trailing twelve months (TTM).  Net income has improved from, $97 million in 2008 to $147 million in 2011 and $194 million in the TTM.  On a diluted earnings per share basis, Morningstar reports FLT reported $1.34/share in 2010, $1.76 in 2011, and $2.27/share in the TTM.  Outstanding shares were 81 million in 2010 and have grown slightly to 85 million in the TTM.

Looking briefly at their balance sheet on Morningstar, we can see that the company as of December 2011, had $1,123 million in total current assets compared to $1,122 in total current liabilities giving it a current ratio of just over 1.0.

Free cash flow has improved from $52 million in 2008 to $266 million in 2011 and dipped to $224 million in the TTM.

Looking at Yahoo "Key Statistics" for some valuation numbers, we can see that this is a Mid Cap Stock with a market capitalization of $4.65 billion.  The company sports a moderate trailing P/E of 24.22 and a forward P/E of 16.62.  With rapid growth estimated the PEG Ratio (5 yr expected) comes in very reasonably at 1.15.  Yahoo reports the company with 84.53 million shares outstanding with only 56.62 million that float.  There are 1.84 million shares out short as of 12/14/12, resulting in a 'Short Ratio' of 2.20, under my own arbitrary 3 day level for significance.  The company does not pay a dividend.

In terms of technical strength, looking at the StockCharts 'Point & Figure' chart on FLT, we can see that FleetCor (FLT) which has a trading record since 2011, has fairly steadily increased its price from $25 to its current level of $55 where if anything it appears a bit over-extended short-term.

As the economy rebounds from the recession, the trucking industry is also rebounding.  Recently, one of my favorite sources for new ideas for stocks has been the Monday Edition of the IBD which lists the Investor's Business Daily top 50 stocks.  Not every stock on that list meets my own requirements for inclusion.  However, FleetCor (FLT) has been an IBD 50 favorite for some time and the underlying strong earnings growth and revenue record, reasonable valuation, and strong technicals along with sitting in a rebounding industry make it very attractive. 

Thank you for your continued interest and loyal readership.  If you have any questions or comments, please feel free to leave them right here.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 1:44 PM CST | Post Comment | Permalink
Wednesday, 19 September 2012
Barrett Business Services Inc. (BBSI)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Earlier today I purchased shares of Barrett Business Services (BBSI) at an average cost of $27.96/share for my Covestor Buy and Hold Value model.  BBSI closed today at $27.88, up $.35 or 1.27% on the day.  Let's take a closer look at this stock.

According to the Yahoo "Profile" on Barrett, the company

"...offers human resource management services in areas comprising payroll processing, employee benefits and administration, human resource management, risk management, and workers’ compensation coverage areas. It also provides professional employer organization services, which include employee benefits, health insurance, workers’ compensation coverage, workplace safety programs, federal and state employment laws compliance, labor and workplace regulatory requirements, and related administrative services; and payroll administrative services, such as payroll processing, payroll taxes, and human resource consulting services. In addition, the company provides staffing services, including on-demand or short-term staffing assignments, contract staffing, long-term or indefinite-term on-site management, direct placement, and human resource administration services."

On July 24, 2012, Barrett Business Services announced results for the second quarter ended June 30, 2012.  Revenue for the quarter grew 26% to $95.5 million compared to $76.0 million the prior quarter.  Net income was $3.7 million or $.53/diluted share compared to $3.4 million or $.34/diluted share the prior year.

A couple of articles on Barrett caught my eye.  Certainly growing dividends is an attractive feature in this low-interest-rate environment.  Here is a chart on the steadily increasing, although still somewhat small, dividend that Barrett has been paying: 

In addition, Zacks gave Barrett a nice plug this week ranking it a "Buy".  Zacks pointed out that the second quarter report that I reported above represented

"...an impressive record of outperforming quarterly earnings expectations, which it continued in its second quarter report with a surprise of more than 20%."

Zacks goes on to point out that Barrett is expected to grow its earnings at a 22% rate going forward for the next 5 years ahead of the 11.6% growth rate of similar companies in the same industry.  In addition the company and analysts have been raising guidance.

Looking at some longer-term results from Morningstar.com, we can see that revenue for this company actually dipped from $289 million in 2007 to a low of $236 milion before resuming stronger growth with $273 million in 2010, $315 million in 2011 and $348 million in revenue for the trailing twelve months (TTM).

Diluted earnings/share have followed the revenue pattern dipping from $1.44/share in 2007 to a loss of $(.46)/share in 2009 before turning higher to $.71/share in 2010 and $1.41 in 2011.  Morningstar does report that earnings did come in a bit lower at $.74/share in the TTM.  The company has been buying back shares and reported 12 million shares in 2007 dipping to 10 million in 2009 and 9 million in the TTM.

In terms of free cash flow, the company reported $13 million in 2007, dipped to $2 million in 2009, then since then reported $16 million in 2010 and $30 million in 2011 and the TTM.

Briefly looking at the Morningstar.com balance sheet we can see that Barrett has $129 million in total current assets vs. $79 million in total current liabilities yielding a current ratio of 1.63.

Looking at Yahoo "Key Statistics" on BBSI, we can see that this is actually a 'micro cap' stock with a market capitalization of only $195.24 milion.  The trailing p/e is rich at 37.93, but the forward p/e is 15.40 due to the rapid growth in earnings anticipated.  Thus with the quick growth, the PEG ratio comes in at a very reasonable 0.84.  

Yahoo reports shares outstanding of only 7 million with 6.79 million that float.  Currently there are 182,440 shares out short resulting in a short interest ratio of 6.40, ahead of my own arbitrary '3 day rule' for significance.

Currently the company pays a forward dividend rate of $.44/share with an indicated yield of 1.60%.  The payout ratio is 49% suggesting adequate earnings coverage for continuing and increasing the dividend if the estimated earnings growth continues.  

The company last split its shares with a 3:2 split back in May, 2005.

Let's take a look at the 'point & figure' chart on BBSI from StockCharts.com:

We can see that the chart demonstrates the same weakness in the stock price that followed the downturn of business into 2009 and the rebound in earnings and revenue growth resulted in the strong rebound in the stock price.  Certainly the chart looks very strong if not a big over-extended at the moment.

To summarize, BBSI is a recent purchase of mine.  The earnings, the revenue growth, the free cash flow, the valuation, the technicals all look encouraging.  And the company is reducing outstanding shares as well.  Unfortunately, the company is very small and is likely to experience additional volatility that a reduced float may result and investors both pile in and pile out of a company on varying news.  The earnings report is likely very soon for the third quarter and hopefully will see this stock continue to move higher.

Thank you again for stopping by!  I have been away a little longer than usual from this blog, but I hope this entry will not be an isolated event but continued posting from me on this site.  As always, please feel free to leave your comments right here on the blog.  I shall try to remove those comments that are just links to individuals promoting their own websites.  I know how that works.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 8:33 PM CDT | Post Comment | Permalink
Saturday, 28 April 2012
Writing Articles on Seeking Alpha

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

For several years now I have had a close relationship with the Seeking Alpha website. David Jackson started this brilliant website back in 2004, shortly after this own website was started.  Many of the entries here have been picked up by Seeking Alpha and have been reposted on their page where further distribution occurs including on Yahoo Finance and elsewhere.  

This past week I have written a few articles directly on Seeking Alpha that I wished to make sure you were aware of as they may be of interest you if you enjoy my own approach to looking at investing.  I wrote about Warren Buffet's Cancer and what that meant for him and for his Berkshire Hathaway as well as for stocks like Varian (VAR), Theragenics (TGX) and Intuitive Surgical (ISRG).  It is an interesting read and hopefully may give you some insight on the disease as well as investments that are related to the treatment. Full disclosure, I own some shares of ISRG in my Covestor Healthcare Model.

Prior to the earnings announcement, I took a look at Merck (MRK).  I do not have any stock in Merck at this time,  but wrote up my thoughts of the company and actually while the company did end up exceeding expectations on earnings, still had some issues with underlying revenue growth.  Sometimes growth stocks evolve into dividend and income stocks and there is nothing wrong with that.  But it isn't my own particular 'cup of tea'.  Or should I say medicine.

Finally I wrote a small review of Nordstrom (JWN).  I own shares in my new Covestor model called 'Sustained Momentum'.  (I need to do a separate blog entry all about that model in the near future.)  My own personal purchase of this stock was about as Peter Lynch as I have ever gotten :).  It's a great stock and it has been on a tear recently.

In my own mind, I would like this blog to be a bit looser and more casual.  Sort of Jeans and a Tee-shirt I guess.  Like my own article on my stock club, which wasn't particularly an analysis as it was a sharing of my own life with you the reader, that's where I would like this blog to go.  I don't want to worry about spelling, grammar, even being politically correct.  I do want to be able to even share political ideas that are important to me as well.  I might even lose some of my readers here.

I shall do analyses here also, but shall be writing more over at Seeking Alpha.  I seem to have a larger audience in that location.  As you can see, even at 57 my life and my blog is still a work in process.

Thank you so much for visiting and supporting my own interest in investing and sharing ideas and perspectives.  

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 7:54 AM CDT | Post Comment | Permalink
Sunday, 15 April 2012
McKesson (MCK)

Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I wanted to share with you what I call a 'swap' in my Covestor Healthcare Model last week.  Centene (CNC) shares swooned last week after they lost a contract for the Ohio Department of Job and Family Services. I sold my shares at $43.49 and the stock already has bounced back to a slightly higher level!


I cannot deny that I have a little seller's remorse, but I have also noticed that stocks after a sharp decline often have a bounce higher, but way once again move lower into the future. 

Anyhow, I picked up some shares of McKesson (MCK) with the proceeds.  One of the first times I reviewed McKesson was back on January 1, 2004, literally over 8 years ago right here on this blog! (The years have really flown by here!)  

At that time the stock was trading at $32.16.  MCK closed at $90.48 on 4/13/12, so the stock really has done very well since that post.

Let's take a closer look at MCK and let's see if it is still was wise to pick up shares now that the stock has nearly tripled in price since I first visited it!

According to the Yahoo "Profile" on McKesson, the company

"...delivers medicines, pharmaceutical supplies, information, and care management products and services for the healthcare industry."

Unlike Centene (CNC) which suffered from a loss of a contract, McKesson (MCK) has been strong recently due to a continuance of a contract with the Department of Veteran affairs (VA).

In terms of its latest quarter,  McKesson reported their 3rd fiscal quarter (ended December 31, 2011) on January 30, 2012.   As Motley Fool pointed out on January 31, 2012, they had strong results with revenue growth of 9.2% coming in at $30.84 billion ahead of last year's $28.20 billion and exceeding analysts' expectations of $30.19 billion.

The company reported earnings of $1.40 ahead of estimates of $1.38 on same basis.  GAAP earnings of $1.20 were 100% higher than the prior year's $.60/share result.  

In terms of longer-term results, reviewing the Morningstar.com "Financials" on McKesson, we can see that revenue has steadily grown from $93.0 billion in 2007 to $112.1 billion in 2011 and $119.9 billion in the trailing twelve months (TTM).   Earnings have grown but somewhat less consistently from $2.99/share in 2007 to $4.57 in 2011 and $5.13/share in the TTM. 

The company has been retiring shares through buybacks with 305 million shares outstanding in 2007, 263 million shares in 2011 and 254 million in the TTM.  The company announced another $650 million in stock repurchases on January 31, 2012. 

Morningstar reports McKesson with $22.4 billion in current assets and $18.7 billion in current liabilities for a current ratio of 1.20.  The company has also grown its free cash flow which has increased from $1.2 billion in 2007 to $2.0 billion in 2011 and $2.3 billion in the trailing twelve months.

Examining the valuation of the stock, we can see from the Yahoo "Key Statistics" page, that McKesson is a large cap stock with a market capitalization of $22.27 billion. 

The trailing P/E is reported at 17.64 with a forward P/E of 12.57.  With solid growth expected the PEG Ratio (5 yr expected ) works out to a very reasonable 0.95 indicating reasonable valuation.

Yahoo reports 246.10 million shares outstanding with 245.30 million that float.  As of March 30, 2012, there were 1.88 million shares out short with a very modest short interest ratio of 1.00 (well below my own arbitrary 3 day rule for significance). 

McKesson pays a modest dividend with a forward dividend yield of 0.90%.  The company last split its stock in January, 1998, when it declared a 2:1 stock split.

McKesson is a solid stock for my portfolio and belongs in this blog.  Summarizing a few findings here, the stock recently reported a renewal of a very significant pharmaceutical contract with the Veterans Administration, the latest quarterly report was strong with growth in revenue and earnings that both exceeded expectations.  Technically the stock has a strong chart going back for at least eight years.  They have steadily grown their revenue, earnings (not quite as steady), and grown their free cash flow the past five years.  Meanwhile they have bought back shares reducing the float and increasing shareholder value while maintaining a dividend and a strong balance sheet.  The stock is modestly priced and considering estimated growth, the PEG is under 1.0 which is not a common finding in the stocks that I review on this blog.

My hand isn't as steady when bad news derails one or more of my holdings.  I am relatively quick to sell on this news and even though Centene (CNC) may turn out to be a terrific stock long term, it appears that McKesson (MCK) is also a good choice.  I shall be keeping Centene on my 'watch list' and may well revisit this holding in the future!

Thanks again for visiting here.  If you have any comments or questions, please feel free to leave them right here.  

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 10:06 PM CDT | Post Comment | Permalink
Wednesday, 11 April 2012
Which Auto Parts Stock Should my Stock Club Buy?

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

In about 2 1/2 hours my Grounded Investment Club (named after the Coffee Shop where most of the members hang out) shall be meeting.  Last month I suggested that the club take a look at the auto parts stores.  I have some shares in my Covestor Buy and Hold Model in Genuine Auto Parts (GPC), and have smaller positions in Autozone (AZO), O'Reilly Automotive (ORLY), and Advance Auto Parts (AAP) in my personal trading account. But the Secretary of the club, Rick A. tasked me to pick one for the club and now at 3:17 pm (with the meeting starting at 5:30) I haven't done so yet.  So with the Club and my readers in mind let's take a quick look at these four companies and let's see if I can narrow this down in any rational fashion.

For ease of this, let's concentrate on the parameters of value, fundamentals and technicals. From my perspective all of these companies have virtually been 'on fire' demonstrating very strong price appreciation this past year.

For value, to keep things simple (It is now 3:20 and getting later!), we shall use the p/e, price/sales and the PEG ratio to consider value in terms of price compared to the earnings as well as the PEG which allows us to adjust for future earnings.  I will throw in the Dividend Yield into this section which is generally attractive to any value investor.

GENUINE PARTS:  P/E of 17.29, p/s of 0.75, PEG of 1.86, forward yield 3.2%

AUTOZONE:  P/E of 17.59, p/s of 1.75, PEG of 1.06, no dividend

O'REILLY: P/E of 25.29, p/s of 2.01, PEG of 1.23, no dividend

ADVANCE AUTO PARTS: P/E of 17.55, p/s of 1.04, PEG of 1.05, forward yield of 0.3%

In this comparison, I would have to vote for Genuine Parts (GPC) which has the lowest p/e, the best price/sales, and the best yield.  However, you pay a bit more for the growth with the PEG being higher than the others in this group.  From my perspective, the investor makes up for that with a real dividend.

OK it is 3:35 and I have about an hour and a half to finish the other comparisons....

Fundamentals. Let's take a look at the latest quarterly report for each, the Morningstar trend on revenue and earnings growth, free cash flow trends, and current ratios.  That's a lot, but I think I have the time to do this.  So no more delays....First of all, the latest quarterly earnings:

GENUINE PARTS:  GPC reported on 2/21/12--revenue came in at $3.01 billion, this was actually under the $3.05 billion expected but 7.4% ahead of last year's $2.81 billion.  Earnings came in at $.86, ahead of the expected $.83/share and 15% higher than last year.

AUTOZONE: AutoZone reported on 2/28/12 with sales increasing 9% to $1.8 billion, in line with estimates.  Earnings came in up 24% to $4.15/share from $3.34/share the prior year and $.11 ahead of estimates.

O'REILLY: ORLY reported on 2/13/12 with revenue of $1.39 billion, under estimates of $1.41 billion but 6.2% ahead of prior year's $1.31 billion result.  GAAP earnings of $.94 (and non-GAAP eps of $.93) were ahead of the single estimate of $.86/share and 29% higher than the prior year.

ADVANCE AUTO PARTS: AAP reported on 2/23/12 a 58% increase in profit to $.90/share up from $.57/share.  This exceeded estimates by $.16/share. Sales grew 4.5% to $1.33 billion from $1.27 billion the prior year. This news story also reported that margins deteriorated 39 basis points to 49% from 49.4% from the prior year same period.  

In terms of the latest quarter AUTOZONE would have to be my selection with strong sales growth and earnings growth.

It is now 3:58 and I have about an hour. 

Let's see if we can look at Morningstar.com and get some figures on consistent revenue growth, earnings growth, free cash flow, and current ratios.

GENUINE PARTS: Revenue has grown from $10.8 billion in 2007 to $12.46 billion in the TTM. Revenue had a dip in 2009. Earnings in 2007 $2.98/share dipped to $2.92 in 2008, $2.50 in 2009, before climbing to $3.00 in 2010 and $3.58 in 2011.  Free cash flow $526 million in 2007 and up and down to 2011 when it came in at $521 million. Current ratio 2.53.

AUTOZONE:  Revenue shows steady growth from $6.17 billion in 2007 to $8.34 billion in TTM.  Earnings show steady growth from $8.53/share in 2007 to $21.44/share in the TTM. Free cash flow has grown from $621 million in 2007 to $966 million in the TTM. AZO has a current ratio of .814.

O'REILLY:  Revenue of $2.52 billion in 2007 increasing steadily to $5.79 billion in 2011.  Earnings increahttp://financials.morningstar.com/income-statement/is.html?t=AAP&region=USA&culture=en-ussed from $1.67/share in 2007, dipped to $1.48 in 2008, then increased steadily to $3.71 in 2011.  Free cash flow has been a bit erratic coming in at $17 million in 2007, dipped all the way to $(130) million in 2009, then increased to $338 million in 2010 and $791 million in 2011.  Morningstar reports a current ratio of 1.65 for 2011.

ADVANCE AUTO PARTS:Revenue growth from $4.8 billion in 2007 to $6.2 billion in 2011. Earnings growth from $2.28/share in 2007 to $5.11/share in 2011.  Free cash flow increasing from $200 million in 2007 to $561 million in 2011.  Current ratio works out to 1.05.

My nod would have to go to O'Reilly (ORLY) in terms of fundamentals with an outstanding record of revenue growth, earnings growth, free cash flow, and a solid balance sheet.

It's now 4:34 and with about 40 minutes to go, let's try to get some charts up here and see if we can find an obvious 'winner'.

GENUINE PARTS:


AUTOZONE:


O'REILLY:


ADVANCE AUTO PARTS:

OK maybe I am reading these charts wrong, but for me GENUINE PARTS wins this competition.  ALL of the charts look terrific, but the others appear a bit over-extended.  What's your take?

It's now 4:45 and I need to wrap this entry up and get down to Java Vino where I will likely have my full order of Lox and Cream Cheese on an everything bagel holding the onions.  OK forget the food.  What's the conclusion?

I shall be reporting back to my stock club that Genuine Parts (GPC) is my choice with the best value, and most reasonable stock chart.  Autozone (AZO) wins on the latest quarter report, and O'Reilly best on fundamentals. Heck they all look terrific.  If I could, I would buy a 'basket' of all four.

Looks like I made it. Now 4:50 and club starts at 5:30.  I have time to finish up my coffee at Starbucks (SBUX) and publish this blog entry.


Thanks so much for stopping by and visiting with me as I get ready for my Stock Club. 

Yours in investing,

 

Bob

-------------

P.S. I got to my club by 5:25 (Central Time of course) and found we had a little cash in the till.  My club dipped their toes into the water and purchased 10 shares of Genuine Parts to start us out.   

Here is a picture of the guys: Michael, yours truly, Rick, Steve, and Jerry.  Great friends and fellow investors who aren't quite sure why the world would care about seeing them or I suppose reading about them in my blog.  I don't know why either.  But it is part of my world and that's what blogging is about.

I asked if they wanted to wait while I got this posted but they are off now back to their real world where I shall be rejoining in a sec.  Have a great week my friends!

 

 


Posted by bobsadviceforstocks at 4:19 PM CDT | Post Comment | Permalink
Updated: Wednesday, 11 April 2012 7:20 PM CDT
Sunday, 1 April 2012
W.W. Grainger (GWW)

Hello friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I am now approaching my 3rd anniversary of my "Buy and Hold" model on Covestor which had its inception on April 15, 2009.  Similarly I am approaching my 9th anniversary of my first entry on this blog on May 12, 2003. I would like to thank all of my readers and everyone at Covestor and Seeking Alpha who have supported me and encouraged my blogging. 

This past month I picked up shares of W.W. Grainger (GWW) for my Covestor Buy and Hold Model on March 12, 2012, at a cost of $212.98/share. GWW closed at $214.81 on March 30, 2012, down $(2.74) or (1.26)% on the day, slighly ahead of my own purchase price.  Let's take a closer look at the business, the fundamentals of performance, some of the valuation figures and finally the technicals of the price chart.

According to the Yahoo "Profile" on W.W. Grainger (GWW), the company

"... provides material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, fasteners, instruments, welding and shop equipment, and various other items for facilities maintenance market; and services comprising inventory management and energy efficiency solutions. Its customers include small and medium-sized businesses to large corporations, government entities, and other institutions."

How is the business doing?  On March 12, 2012, GWW reported strong February, 2012 sales, with an 18% increase aided by an additional selling day (21), higher prices, and higher volumes.

Examining their latest quarterly report, Grainger (GWW) reported 4th quarter results on January 25, 2012.  Revenue came in at $2.08 billion, ahead of the $2.07 billion analysts were expecting according to FactSet Research, and earnings came in at $148.5 million or $2.04/share, or an adjusted $2.13/share ahead of last year's $132.2 million or $1.83/share while also exceeding expectations of $2.11/share. The company maintained guidance of $9.90 to $10.6/share for the 2012 fiscal year.

Longer-term, Grainger, according to the Morningstar.com 'Financials' has increased its revenue from $6.4 billion in 2007 to $8.07 billion in the trailing twelve months (TTM). During the same period earnings have increased from $4.94/share in 2007 to $9.07/share in the TTM.  Outstanding shares have decreased from 85 million in 2007 to 71 million shares outstanding in the TTM as the company bought back shares steadily during this period.

As of December, 2011, GWW had $2.7 billion in total current assets $.87 billion in total current liabilities for a healthy current ratio of 3.1.  Free cash flow has grown from $271 million in 2007 to $549 million in 2011.

In terms of valuation, using the Yahoo 'Key Statistics' on W.W. Grainger (GWW), we can see that this is a large cap stock with a market capitalization of $15.06 Billion.  The trailing P/E is a bit rich at 23.68 but with continued growth, the forward P/E is estimated (fye Dec 31, 2013) at 17.84 with a PEG Ratio (5 yr expected) working out more reasonable at 1.55. 

The company has 70.1 million shares outstanding with 60.32 million that float.  As of 3/15/12, there were 1.49 million shares out short ahead of my own arbitrary '3 day rule' at 5.60 days or short interest.  The company pays a dividend estimated going forward at $2.64 yielding 1.20%.  The company has a payout ratio of 28% and last had a stock split in 1988 when it split its shares 2:1.

There is little to explain about the technicals on GWW.  Looking at the 'point & figure' chart on Grainger from StockCharts.com, we can see a chart of impressive strength.  After a small correction in April, 2010, from $112/share to a level of $94/share in June, 2010, the stock has soared steadily to its current level of $214.81.  If anything, the chart suggests the stock may well be a bit ahead of itself and ripe for a retesting of support levels at the $170 level.

Recently, the IBD reported how W.W. Grainger (GWW) and Fastenal (FAST) as well as Home Depot and Tractor Supply (TSCO) could well benefit from an economic rebound as they are all involved in the 'nuts and bolts' of business growth. 

While the economic recovery in America is far from certain, there are signs that America is turning around from recession at least into slow growth.  With things picking up, I would have to second the idea that Grainger (GWW) might be a good place to put one's investment dollars.  That certainly was what I did in my own portfolio.

Grainger has a broad range of products serving multiple industries, reported strong February sales figures, came in with a very healthy quarterly report that exceeded expectations and has a track record of growth going back several years at least.  They have a solid balance sheet and are generating increasing free cash flow while reducing their outstanding shares.  These factors generally bode well for shareholders.

Valuation-wise, the company is priced a bit rich with a P/E north of 23, but if growth continues as expected (or perhaps exceeding expectations), this will work out to a PEG just over 1.5 for a relatively reasonable valuation.  The company has a lot of shares out short possibly setting itself up for a squeeze if they continue to do well. 

Technically, the shares have been extremely strong without even a suggestion of weakness for the past 2+ years.  That enough should make you a little cautious.  But I would rather invest in stocks showing persistence of price momentum than the alternative.

Thanks again for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them right here.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 9:11 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Sunday, 1 April 2012 10:47 PM CDT
Wednesday, 28 March 2012
A Reader Writes "Is it time to take some profits on Costco?"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I received an interesting series of questions today from a reader of mine who wrote:

"Noticed that Costco is flirting with a new 52-week high and has delivered about 22% over the last year and 7% or so YTD.  It's a hugely important stock to a lot of investors. Is it time to take some profits on Costco? If no, why not? How does the stock look from a valuation basis at this point? What new initiatives does management have underway that warrant watching? How does Costco stack up with its competitive set at this point? What does Costco's strong performance say about consumer sentiment?"

That is quite a few questions at once!  But let's take a look at some of these and let's see if I can address them.

Let's first look at the stock chart.  Here is the 'point & figure' chart from Stockcharts.com on Costco (COST):

One of the things that leads me to sell a stock is technical weakness which for me is a chart that looks like it is breaking its presumed upward trend.  There is nothing in the Costco chart above to my amateur eyes that appears to demonstrate anything except continued upward price momentum since bottoming at around $37 in March, 2009.  As I write, COST is trading at $90.42 down $(.87) or (.95)% on the day.  The stock appears to be trading well within its trading range on the chart above.

Costco was just recently added to my Covestor 'Buy & Hold' portfolio on March 7, 2012, at a price of $87.30, just a couple of points below its current price of $90.42.  In general, I do not start 'taking profits' until I have a significant gain resulting in an oversized position within a portfolio.  For me, a significant gain, which I do not have yet, is in the ballpark of a 30% price appreciation.  

The reader asks about 'valuation'.   According to Yahoo, Costco (COST) currently has a P/E of 26.35, a PEG of 1.79, and a Price/Sales ratio of 0.42. Over the past 5 years, Costco has carried a P/E ranging from 15.62 to 27.51 with an average p/e of 23.06.  Thus at least historically, the P/E is a bit rich but not wildly overvalued.

In absolute terms, we can utilize the PEG ratio (called the "Fool Ratio" on Motley Fool)  to determine if we are overpaying for a growth stock.  This can also help us determine if we might wish to sell some of our Costco stock if it appears 'overvalued'.  In this case the PEG is 1.79, above my own preferred range of 1.0 to 1.5.  (Motley Fool even suggests we consider shorting a stock at this level!)

Another way to consider valuation is in terms of the Price/Sales ratio.  Each 'industrial group' of stocks may have its own way of valuing sales.  Back in 2005, Paul Sturm wrote a great article on valuing companies by their relative P/S ratio.  

As Sturm wrote:

"Price/sales analysis can be particularly useful when comparing companies in the same industry. Take supermarkets. P/E ratios are all over the aisle. But the big three (Albertsons, Kroger, Safeway) sell for nearly identical P/S ratios of 0.24." 

But what are the competitors to Costco?

According to the NASDAQ website, Costco's competitors include Amazon (AMZN), Big Lots (BIG), Dollar General (DG), Dollar Tree (DLTR), Family Dollar (FDO), Kohl's (KSS), Target (TGT) and Wal-Mart Stores (WMT) among other.

Recalling that Costco (COST) has a P/E of 26.35, and a P/S of .42, the others have--

Amazon (AMZN): P/E of 147.14, P/S of 1.94

Big Lots (BIG):  P/E of 15.37, P/S of 0.58

Dollar General (DG):  P/E of 20.79, P/S of 1.04

Dollar Tree (DLTR):  P/E of 23.42, P/S of 1.67

Family Dollar (FDO): P/E of 18.07, P/S of 0.79

Kohl's (KSS):  P/E of 11.35, P/S of 0.64

Target (TGT): P/E of 13.58, P/S of 0.56

Wal-Mart (WMT):  P/E of 13.52, P/S of 0.47

Certainly, from the Price/Sales ratio perspective Costco (COST) is the least expensive of the group even though the P/E and the PEG are a bit rich.

In terms of the company's prospects, Zacks Equity Research recently commented on Costco's "Steady Start in 2012".  Pointing out that even removing the effects of higher gas prices and currency fluctuations, the company is reporting same store sales growth of 7%, a very strong performance.

As the Zacks report concludes:

"Given the pros and cons, we maintain our long-term “Neutral” recommendation on the stock. However, Costco holds a Zacks #2 Rank that translates into a short-term “Buy” rating."

The company operates

"...600 warehouses, including 433 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea, and 3 in Australia."

Certainly, there are opportunities for growth internationally as well as domestically with both same store improvements and new locations for new warehouse operations.

On the latest quarter conference call, Costco management pointed out some of their initiatives including a greater presence on the internet with Costco.com, an app for the smartphones, and the opening of 17 new units this year.

At least in the United States, the consumer is 'alive' and if not 'well' at least recovering as these latest numbers report with US retail sales posting their biggest gain in five months in February, 2012.

Costco (COST) with their upscale warehouse sales appeals to the middle class consumer who is still looking for value to stretch their still-limited dollars.   

To summarize, personally I never know when a stock is overpriced as stocks tend to trade much higher than arbitrarily set 'true value'.  Similarly, many stocks will trade much lower than values would suggest.  While COST appears a bit rich in valuation in terms of P/E and PEG at least historically, in terms of Price/Sales it is a great value relative to its competitors.  The company is performing well and growing its sales with same store sales in the high single digits being reported this year. 

Technically the stock appears strong with no evidence of deterioration at least from my amateur perspective looking at the 'point & figure' chart.  

I do believe that it is wise to take portions of oversized profits 'off the table' when they are present.  In other words, it is prudent to sell your gaining stocks slowly and partially and your losing stocks quickly and completely.  I do not have a large gain in this stock as my current holding is only literally days old.  As the economy continues to recover I suspect that Costco will also continue to grow its business as it appears to be in a relatively recession-resistant position in the retail category.

I hope that I have addressed some of the issues you were considering with your questions on Costco (COST).  If not, let me know if you have further thoughts on 'what to do'.  I cannot predict the future nor know when a long-term peak in a stock price has been reached, when it is time to sell a position, and when it is necessarily the right time to keep holding.   I do my best to assemble a group of stocks in a portfolio with charts that look optimistic, fundamentals that appear promising and valuation that is at least reasonable.

Yours in investing,

 

Bob.


Posted by bobsadviceforstocks at 3:34 PM CDT | Post Comment | Permalink
Updated: Wednesday, 28 March 2012 7:27 PM CDT
Tuesday, 27 March 2012
DXP Enterprises (DXPE)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

This past month I added DXP Enterprises (DXPE) to my Covestor Buy and Hold Model.  This stock has shown tremendous technical strength since the purchase on March 16, 2012 at a cost of $42.90.  DXPE closed today (3/2712) at $44.47, down $(.68) or (1.51)% on the day.

DXP has been 'strong out of the gate' for me, yet it is not what I would consider a well-known stock.  Let's take a closer look at this investment.

According to the Yahoo "Profile" on DXPE, this company

"...engages in distributing maintenance, repair, and operating (MRO) products, equipment, and services to industrial customers in the United States. Its Service Centers segment provides MRO products, equipment and services, including technical design expertise and logistics capabilities to industrial customers with the ability to provide same day delivery. This segment’s product categories comprise rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, and safety products; and services consist of field safety supervision, in-house and field repair, and maintenance services. The company’s Supply Chain Services segment manages the supply-chain of its customers from various industries."

and

"DXP Enterprises, Inc. distributes its products and services through service centers and distribution centers to customers in the oil and gas, food and beverage, petrochemical, transportation, mining, construction, chemical, municipal, agriculture, pulp and paper, and other general industrial industries."

On February 29, 2012, DXP Enterprises announced their fourth quarter 2011 results.  The company reported net income of $9.2 million or $.61/diluted share for the quarter which represented a sequential increase of 10.9% from the prior quarter when it reported earnings of $.55/share with $8.3 million in net income.

During the prior year 2010 same quarter, the company had $5.9 million of income or $.39/diluted share for a year-over-year increase of 56.4% on a per share basis.

For the full year, the company reported net income of $31.4 million or $2.08/diluted share which was a 57.6% over the prior year's result of net income of $19.4 million and earnings of $1.32/share.  

Sales for the fourth quarter 2011 increased 28.7% from $169.7 million in 2010 to $218.4 million in 2011.  For the full year,
Sales grew 23.0% to $807 million from $656.2 million the prior year.

These are terrific numbers of growth both for the quarter and the full year.  Even more impressive was the fact that the company beat expectations.  As Motley Fool reports, expectations for revenue was $209.8 million and the company came in at $218.4 million.  In addition, earnings came in at $.61/share ahead of the S&P Capital IQ estimates of $.53/share.  

Examining the Morningstar Financials on DXPE, we can see that revenue has grown somewhat unevenly from $445 million in 2007 to $807 million in 2011.  Earnings have also been a bit erratic with a big dip to a loss of $(3.24) share in 2009.  Otherwise, earnings have grown from $1.36/share in 2007 to $2.08/share in 2011. Diluted outstanding shares have increase from 13 million in 2007 to 15 million in 2011.

Free cash flow has also improved from $(2) million in 2007 to $22 million in 2011.  Morningstar shows that the company has $239 million in current assets and only $134 million in current liabilities yielding a healthy current ratio of 1.78. 

Yahoo "Key Statistics" on DXPE shows that this is a small cap stock with a market capitalization of only $623.36 million. The company has a moderate P/E of 21.42 with a more reasonable forward P/E of 14.73 (fye Dec 31, 2013).  With the company expected to continue to show rapid growth the PEG ratio of 0.64 (5 yr expected) reveals that the valuation relative to growth is quite reasonable.

DXPE has only 14.13 million shares outstanding with only 8.72 million that float.  Currently there are 335,950 shares out short (as of 2/29/12) with a short ratio of 4.40 slightly ahead of my own 3 day rule for significance.  No dividends are paid and the last stock split was a 2:1 split on October 1, 2008.

Inspecting the StockChart 'point & figure' chart on DXPE we can see that the company appreciated steadily from a low of $9 in March, 2009 to $27 in July, 2011.  After correcting to $17 in October, 2011, the stock price has soared to its current level of $44.47 without any significant pullback.  Certainly it appears a bit over-extended but the stock rise is nothing short of incredible.

In summary, I own shares of DXPE that I have recently purchased in light of incredible technical strength, outstanding earnings (although longer-term earnings and sales have been a bit erratic), and valuation that is quite reasonable with a PEG under 1.0.  Their balance sheet is solid and the company is generating plenty of free cash flow.

With the sharp rise, I expect a short-term correction as the stock price needs to consolidate.  However, as the economy appears to be rebounding (although somewhat weakly), this industrial company appears well-positioned for infrastructure spending as well as spending for equipment for oil pipeline pumping, firewater and potable water pumping.

Thank you again for stopping by and visiting my blog.  If you have any comments or questions, please feel free to leave them here and I shall try to respond as able.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 10:28 PM CDT | Post Comment | Permalink
Wednesday, 21 March 2012
Liquidity Services (LQDT)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

One of the top performing stocks in my "Buy and Hold" Model on Covestor is Liquidity Services.  And I believe I owe it to you the readers of this blog a few words about this holding.  Liquidity Service (LQDT) closed at $46.23 today, down $(.07) or (.15)% on the day.  Liquidity is a top-ranked stock on the IBD 50 published each Monday by Investor's Business Daily.  

According to the Yahoo "Profile" on LQDT, the company

"... operates various online auction marketplaces for surplus and salvage assets in the United States. Its auction marketplaces include liquidation.com, which enables corporations and selected government agencies located in the United States to sell surplus and salvage consumer goods and capital assets...."

Recently Zacks ranked Liquidity Services as a "Buy" based on outstanding earnings reports but pointed out that the stock is far from a 'cheap' selection with PE's in the mid 30's above the industry average in the low teens.

On February 1, 2012, Liquidity Services reported that in the fiscal 2012 first quarter net income came in at $9.1 million or $.28/share, up 550% from $1.4 million or $.05/share the prior year.  Revenue climbed 35% to $106 million from $.75.5 million the prior year.  The company beat expectations on revenue that was expected by eight analysts polled by S&P at $102.6 million.  Similarly the company beat the $.27 expected by analysts for earnings.

Reviewing the longer-term results from Morningstar.com, we can see that except for a dip between 2008 and 2009, revenue has grown strongly from $199 million in 2007 to $327 million in 2011 and $358 million in the trailing twelve months (TTM).  Earnings have been erratic with $.39/share reported in 2007, climbing to $.41/share in 2008 before dipping to $.21 in 2009.  Earnings rebounded to $.44/share in 2010, dipped to $.29/share in 2011 and climbed again sharply to $.54/share in the TTM. Dilouted shares outstanding has been relatively stable at 28 million shares in 2007 and 30 million in the TTM.

Morningstar reports the company with $171 million in total current assets and $60 million in total current liabilities resulting in a current ratio near 3.  Free cash flow has grown nicely from $2 million in 2007 to $35 million in 2011 and $41 million in the TTM.

Looking at Yahoo "Key Statistics" on LQDT for some valuation numbers we first can see that this is a small cap stock with a market capitalization of only $1.42 billion.  The stock has a very rich p/e of 86.74 but it so quickly growing that the forward p/e (fye Sep 30, 2013) is estimated at only 28.54.  Thus, with the rapid growth in earnings expected, the PEG (5 yr expected) works out to a reasonable value of 1.34 despite the rich current trailing p/e!

Yahoo reports 30.65 million shares outstanding with 21.37 million that float.  Currently there are 1.7 million shares out short (as of 2/29/12) yielding a short ratio of 2.90---just under my own 3 day rule for significance of short interest.  The company does not pay a dividend and no stock splits are reported.

What is so attractive to me is the price chart of this stock.  Like many investors who work hard to identify potential 'winners' I have come to appreciate the beauty of a stock chart like this one that shows a 3 year price appreciation from a low of $4.75/share in February, 2009, to its current levle of $46.23 with nary a correction in the movement. Here is the 'point and figure' chart on Liquidity Services from StockCharts.com


Liquidity Services (LQDT) is a star holding in my portfolio.  It is richly priced in terms of trailing p/e but the PEG ratio under 1.5 suggest reasonable valuation for the sharply increasing earnings reported.  The balance sheet is sound with the company reporting growing free cash flow and revenues while earnings have been less than consistent.  Technically the chart is gorgeous with a 45 degree line that I like to see that starts low on the left side of the chart and higher on the right side!

Thank you again for visiting my blog!  If you have any comments or questions, please leave them here.  I do not post as often as I would like.  But I haven't forgotten about all of you and I appreciate your continued loyalty.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 6:28 PM CDT | Post Comment | Permalink
Sunday, 22 January 2012
O'Reilly Automotive (ORLY)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I have recently written up two auto parts chains: Genuine Parts (GPC) and Autozone (AZO). Genuine Parts is a holding in my Covestor "Buy and Hold" Model, I also have a very small position (2 shares) of Autozone (AZO) but I do not own any shares of O'Reilly (ORLY).  ORLY closed at $82.28 on 1/20/12, down $(2.50) or (2.95)% on the day.

Simply put, this entire group of stocks has been doing quite well in the market reflecting, I believe, the underlying strength of their business. People are owning their vehicles longer than ever and they are thus repairing them more often to keep them on the road.  As this article points out:   

"...the age of the cars and trucks we’re driving has hit an all-time high. Here’s the breakdown

  • 2011: 10.8 years vs. 10.6 years in 2010
  • Average car in US 11.1 years old vs. 11.0 in 2010
  • Average truck in US is 10.4 years old vs. 10.1 in 2010
  • There are now 240.5 million vehicles in the US - up nearly 500,000 from 2010"

Since what caught my attention first was the underlying performance of the stock let's take a look at the 'point & figure' chart on O'Reilly from StockCharts.com

What can you say about such a gorgeous price chart except that the stock may be getting a bit ahead of itself.  And no I do not own any shares although I am kicking myself for not buying shares in late 2008 when the stock was trading about $20. Of course, the bigger question is what the stock is likely to do in the future.  Let's take a closer look.

On October 27, 2011, O'Reilly Automotive reported 3rd quarter results.  Net income for the company came in at $148.4 million or $1.10/share, up from $116.5 million, or $.82/share the year earlier.  Revenue increased 7.7% to $1.54 billion from the year earlier period.  These results exceeded analysts expectations of $1.00/share on revenue of $1.51 billion.

In terms of longer-term results, reviewing the Morningstar.com financials on ORLY we can see that revenue has grown steadily from $2.3 billion in 2006 to $5.4 billion in 2010 and $5.7 billion in the trailing twelve months (TTM).  Diluted earnings per share have not been quite as consistent increasing from $1.55 in 2006 to $1.67/share in 2007 before dipping to $1.48 in 2008.  Earnings climbed to $2.95/share in 2010 and have come in at $3.45/share in the TTM. During this period, the company has increased outstanding shares from 115 million in 2006 to 142 million in 2010 and 141 million in the TTM.

Looking at the balance sheet on Morningstar for O'Reilly, we see that in the latest period the company had $2.3 billion in current assets and only $1.2 billion in current liabilities for a current ratio of nearly 2.  From my perspective a current ratio of over 1.5 indicates strong financial health at least for the short-term.

Free cash flow as reported by Morningstar has been relatively unimpressive until recently.  The company has $(43) million in free cash flow in 2006, dipped to an even larger negative $(130) million in 2009, came in at $338 million in 2010 and $619 million in the TTM.

Reviewing the Yahoo "Key Statistics" on O'Reilly, we can see that the company is a large cap stock with market capitalization of $10.58 billion.  The trailing p/e is a moderate 23.68 with a forward p/e of only 18.79 (fye Dec 31, 2012).  The PEG ratio (5 yr expected) comes in at an acceptable 1.33.

Yahoo reports that there are 128.3 million shares outstanding with 123.6 million that float.  Currently there are 3.53 million shares out short with a short interest ratio of 4.20 slightly ahead of my own 3 day rule for significance.  The company does not pay a dividend and last split its stock June 16, 2005, when it declared a 2:1 split.

What do I think?  Well I like this stock and would buy shares if the opportunity arose.  Currently I have a position in GPC and a very small holding of AZO.  However, Barrons recently gave O'Reilly a nice mention discussing the T. Rowe Price New Horizons Fund, and manager Henry Ellenbogen who has O'Reilly as the largest single holding representing 2.3% of the fund.

The company is sitting in an area that may well continue to resist economic weakness, has terrific technical strength, same store sales growth remains solid at 4.8% in latest reported quarter, valuation is reasonable and financials appear solid with a strong current ratio and growing free cash flow.  The only consideration is that the stock may simply be a bit ahead of itself currently and may pull back over the short-term. 

Thanks again for visiting!  If you have any comments or questions, please feel free to leave them on the blog!

Yours in investing,

 

 

Bob

 


Posted by bobsadviceforstocks at 5:37 PM CST | Post Comment | View Comments (2) | Permalink

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