CWS Market Review – January 1, 2016

The 2015 trading year is on the books, and I’m happy to report that we once again beat the overall market. This is the eighth time in the last nine years in which our Buy List has outpaced the S&P 500.

For the year, our Buy List gained 3.73%, and with dividends, we were up 4.93%. The S&P 500 lost 0.73%, but with dividends, it was up 1.38%.

Our biggest gainer on the year was Hormel Foods (HRL), with a gain of 51.79%. Who knew Spam was so profitable? Fiserv (FISV) was a distant second at 28.87%.

Our biggest loser was Bed Bath & Beyond (BBBY), with a loss of 36.65% followed by Qualcomm (QCOM), which lost 32.75%.

Counting the eBay/PayPal investment as one position, then 12 of our 20 stocks made money this year. To people who care about such things, the “beta” of our Buy List was 0.9981. The correlation of the daily changes of the Buy List and of the S&P 500 was 96.5%.

Over the ten-year history of the Buy List, our total compounded gain including dividends is 163.67%. That compared with 102.42% for the S&P 500. That assumes annual rebalancing, which—let me stress—is not necessary for you to do. Feel free to let your winners run. Now let’s dig into the numbers.

Details of Last Year’s Buy List

The table below details the Buy List’s performance for 2015. I’ve listed each stock, along with the number of shares and the starting and ending prices. For tracking purposes, I assume the Buy List is a $1 million portfolio that starts out equally divided among the 20 stocks.

Stock Shares 12/31/14 Beginning 12/31/15 Ending Profit/Loss
AFL 818.4646 $61.09 $50,000.00 $59.90 $49,026.03 -1.95%
BBBY 656.4264 $76.17 $50,000.00 $48.25 $31,672.57 -36.65%
BCR 300.0840 $166.62 $50,000.00 $189.44 $56,847.91 13.70%
BLL 733.4605 $68.17 $50,000.00 $72.73 $53,344.58 6.69%
CTSH 949.4873 $52.66 $50,000.00 $60.02 $56,988.23 13.98%
EBAY 890.9480 $23.6197 $21,043.92 $27.48 $24,483.25 16.34%
ESRX 590.5279 $84.67 $50,000.00 $87.41 $51,618.04 3.24%
F 3225.8065 $15.50 $50,000.00 $14.09 $45,451.61 -9.10%
FISV 704.5230 $70.97 $50,000.00 $91.46 $64,435.67 28.87%
HRL 959.6929 $52.10 $50,000.00 $79.08 $75,892.51 51.79%
MOG-A 675.4019 $74.03 $50,000.00 $60.60 $40,929.36 -18.14%
MSFT 1076.4263 $46.45 $50,000.00 $55.48 $59,720.13 19.44%
ORCL 1111.8523 $44.97 $50,000.00 $36.53 $40,615.96 -18.77%
PYPL 890.9480 $32.5003 $28,956.08 $36.20 $32,252.32 11.38%
QCOM 672.6759 $74.33 $50,000.00 $49.985 $33,623.70 -32.75%
ROST 1060.8954 $47.13 $50,000.00 $53.81 $57,086.78 14.17%
SBNY 396.9514 $125.96 $50,000.00 $153.37 $60,880.44 21.76%
SNA 365.6575 $136.74 $50,000.00 $171.43 $62,684.66 25.37%
SYK 530.0541 $94.33 $50,000.00 $92.94 $49,263.23 -1.47%
WAB 575.4402 $86.89 $50,000.00 $71.12 $40,925.31 -18.15%
WFC 912.0759 $54.82 $50,000.00 $54.36 $49,580.45 -0.84%
Total $1,000,000.00 $1,037,322.75 3.73%

Note that Ross Stores (ROST) split 2-for-1 on June 12. Also, eBay (EBAY) spun off shares of PayPal (PYPL) on July 6. Here are the details of the accounting for the spin-off.

Starting Prices and Shares for the 2016 Buy List

Now for the 2016 Buy List. Below are all 20 positions with the number of shares for each and the closing price for 2015. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to. The Buy List is now locked and sealed, and I can’t make any changes for 12 months.

Company Ticker Price Shares Balance
Alliance Data Systems ADS $276.57 180.7861 $50,000.00
AFLAC AFL $59.90 834.7245 $50,000.00
Bed Bath & Beyond BBBY $48.25 1,036.2694 $50,000.00
CR Bard BCR $189.44 263.9358 $50,000.00
Biogen BIIB $306.35 163.2120 $50,000.00
Cerner CERN $60.17 830.9789 $50,000.00
Cognizant Technology Solutions CTSH $60.02 833.0556 $50,000.00
Express Scripts ESRX $87.41 572.0169 $50,000.00
Ford Motor F $14.09 3,548.6160 $50,000.00
Fiserv FISV $91.46 546.6871 $50,000.00
HEICO HEI $54.36 919.7940 $50,000.00
Hormel Foods HRL $79.08 632.2711 $50,000.00
Microsoft MSFT $55.48 901.2257 $50,000.00
Ross Stores ROST $53.81 929.1953 $50,000.00
Signature Bank SBNY $153.37 326.0090 $50,000.00
Snap-on SNA $171.43 291.6642 $50,000.00
Stericycle SRCL $120.60 414.5937 $50,000.00
Stryker SYK $92.94 537.9815 $50,000.00
Wabtec WAB $71.12 703.0371 $50,000.00
Wells Fargo WFC $54.36 919.7940 $50,000.00
Total $1,000,000.00

The five new stocks for this year are Alliance Data Systems, Biogen, Cerner, HEICO and Stericycle.

The six deletions are Ball, eBay, Moog, Oracle, PayPal and Qualcomm. We have an extra stock leaving this year due to the PayPal spinoff.

The average market cap is $58 billion. That ranges from a high of $443 billion for Microsoft (MSFT) to $3.6 billion for HEICO (HEI). Please note that these are all liquid stocks. Many trade millions of shares a day. Even our smaller ones see heavy volume. You should have no trouble getting orders filled with these stocks.

Eleven of our twenty stocks pay dividends. The total yield of the Buy List works out to 0.95%. Only three stocks have been on the Buy List all eleven years: AFLAC (AFL), Bed Bath & Beyond (BBBY) and Fiserv (FISV). This will be Stryker’s (SYK) ninth year on the Buy List.

Buy Below Prices for the New Buys

Now let me give you the Buy Below prices for our five new buys. Remember, these aren’t price targets. They’re guidelines for new entry.

I’m starting Alliance Data Systems (ADS) with a Buy Below of $293. Please don’t let the high share prices scare you. Buy fewer shares if you need to. I’m starting Biogen (BIIB) as a Buy up to $330 per share. Cerner (CERN) is a very good buy any time you see it below $64 per share. HEICO (HEI) has been doing quite well lately. I’m rating it a buy up to $58 per share. Lastly, I’m starting Stericycle (SRCL) as a buy up to $130 per share. I’m very exciting for our new stocks this year.

We have one Buy List earnings report coming next week. On Thursday, Bed Bath & Beyond (BBBY) will report fiscal Q3 earnings. They’ve already told us it won’t be a good one. They’re expecting earnings between $1.07 and $1.10 per share. The home furnisher sees revenues rising just 0.3% to $3 billion. Their initial guidance for same-store sales was for an increase of 1% to 3%. Now they see that falling by 0.4%.

Given that bad news, why do I still like the stock? It’s because I think the selling is overdone. Below $50 per share, the stock is a bargain. I’ll also be curious to hear if they can offer any guidance for Q4. That’s the big quarter for them. The company previously suggested that December was a good month. Don’t overlook BBBY.

That’s all for now. The market is closed today for New Year’s Day, but the new trading year begins bright and early on Monday morning. We’ll get some of the key turn-of-the-month econ reports. ISM comes out on Monday. The ADP payroll report is on Wednesday. Then the big jobs report comes next Friday. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

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Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 eight times in the last nine years. This email was sent by Eddy Elfenbein through Crossing Wall Street.

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