Each month I update the limit order price ranges on our “Very Short List.” This list is made up of about 50 companies that we would love to own shares in (usually 20-30 at any one time) if there were some event that suddenly pushed prices down by 5% to 20% – like August 24th, 2015 when the market opened sharply lower and then quickly rebounded. Since we don’t know which day the market will wake us up with a negative surprise, we set limit orders for our initial positions. If markets continue downward, then we will add more stock positions as the markets settle. Below is our “Very Short List” and the prices we are buyers at:
Refer to the grids below to see the three categories of stocks that we are considering investing in. In each chart will be the company/fund name, symbol, buy range and a very brief rational for our bullish interest. There will generally be stocks in 30 to 50 companies that we are looking at on a monthly basis.
Using Limit Orders
We extensively use “limit” orders to set up buys. This beats sitting around in front of a computer watching green and red numbers that mean little to nothing. The price you set your buy limits at will depend on your risk tolerance, outlook and investment approach. The buy range is based upon fundamental and technical factors which I have made far more conservative due to the decreasing demand for financial assets by baby boomers, which is a massive sea change in the investment world, that is causing greater volatility.
The buy price ranges are consistent with looking for a blend of margin of safety and investment opportunity. The lower you buy, obviously the greater margin of safety. You need to answer for yourself how much safety you need.
In general, I recommend buying a small starter position near the high-end of the buy range and a bigger position at the bottom of the buy range. By establishing a buy limit near the high-end of the buy range, you can often gain as these holdings are recognized as valuable and don’t generally trade low for long.
The lower-end of the buy range recognizes that markets have become more fragile and more likely to exemplify extreme behavior relative to the past – consider the 1000 point down day on the Dow on August 24th, 2015. It is okay to only buy the low-ends of the buy range and simply wait for the very bad days and weeks to be a buyer. In fact, I think that is a great strategy for patient investors looking to manage risk.
I am listing the “Bull Rationale” for stocks, you should search out the bear scenarios before investing and consider those.
See the Research section and Forum for research on various stocks in our stock category lists: VSL = Very Short List, FL = Fundamental Leaders, EL = Emerging Leaders, CL = Cyclical Leaders.
Punch Card Stocks & Equity Income Stocks
This group of companies takes into account Warren Buffet’s idea that if we were only going to fill one punch card worth of stocks, that we’d be very careful about which ones we selected and therefore do better. This list will have 20 to 30 high quality companies on it. These companies are generally described as market leaders or blue chips. I am looking for the ones that offer some growth opportunity, a value on their assets or a combination of both. I have screened for return on equity, return on assets, growth, shareholder yield and various metrics of valuation, i.e. price to book. These companies are generally $10b or higher in market cap, thought there are a few exceptions. These stocks are on the Very Short List or Fundamental Leaders research lists.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Warren Buffett
Yellow = New
Green = Within or Very Near Buy Range
Equity Income Stocks are in bold and pay a dividend.
|Company||Symbol||Buy Range||Bull Rationale|
|AbbVie||ABBV||46-54||Humira is a huge seller, solid financials, buyout target, dividend and buybacks|
|Apple||AAPL||77-96||Cash-flow machine, IOT mover, EV mover, dividend and buybacks|
|Berkshire Hathaway||BRK-B||116-127||Like owning a very well run fund without the redemption problems, massive financial resources, buybacks on weakness|
|Cummins||CMI||79-89||Very strong fundamentally, low debt, market leader engines, dividend|
|Emerson||EMR||29-42||Strong financially, aggregator of assets, environmental business, dividend|
|First Solar||FSLR||42-48||Global leader in fast growing solar, financially strong, takeover target|
|Flour||FLR||40-49||Leader in engineering, will do well at next stimulus, financially strong, dividend|
|Gamestop||GME||19-27||Leader video games, extremely strong financially, low price to book, low debt, dividend|
|General Dynamics||GD||75-94||Defense leader, oligopoly, very strong financially, low debt, buyback & dividend|
|General Electric||GE||16-26||Improving finances, refocused business, buyback and dividend|
|Gentex||GNTX||14-15||Will be big winner w/smart cars and have play on IoT with fire protection|
|Googlebet||GOOG||530-590||Cash flow machine, parts are worth a lot in future spin-offs, IOT is a major long-term growth opp|
|IBM||IBM||95-130||Watson is a very big deal, dividend & buyback|
|Intel||INTC||20-28||Moving into mobile and VR, dividend & buyback|
|L Brands||LB||53-63||Victoria’s Secret, Pink, dividend & buyback|
|Lockheed Martin||LMT||120-182||Military-industrial powerhouse. Perforene, dividend & buyback|
|Mosaic||MOS||17-23||Fertilizer leader, dividend|
|Nvidia||NVDA||24-28||Virtual Reality, autonomous car leader, GPU domination, dividend|
|Phillips 66||PSX||70-79||Refining & chemical leader, on Buffett’s buying list on dips, dividend & buyback|
|Potash||POT||12-16||Fertilizer leader, dividend|
|Qualcomm||QCOM||35-43||Patents, patents, patents, virutal reality, rock solid financially, dividend & buyback|
|Rockwell Automation||ROK||91-99||Global automation leader. Potential takeover target.|
|Roper Industries||ROP||138-162||Software as a service, IoT, for ag, energy, water, education.|
|Sony||SNE||17-22||Significant content holdings, cameras, gaming & IoT. Potential spin-outs.|
|SunPower||SPWR||13-19||Solar leader with backing from Total, will be spun out eventually at higher price, solid financially, high growth|
|United Technologies||UTX||78-88||Military-industrial leader, climate tech, controls, rock solid financially, dividend & buyback|
|Wells Fargo||WFC||28-40||On Buffett’s buy list, top 3 bank for safety, little to no international exposure, dividend & buyback|
|Western Refining||WNR||19-25||Benefits from low oil prices and location, solid financially, big dividend|
Emerging Opportunity Stocks
These stocks are by nature higher risk. The concepts behind these companies are more in line with Peter Lynch in that we are looking for companies that will either grow rapidly or turn things around. It is important to buy a basket of at least five of these companies if buying any at all as one big winner can offset the losers and break-evens. The screening mechanism here is similar to above but with less proven results and more forward looking estimates. The forward looking estimates are inherently more risky than companies that already just churn out profits and all we have to do is discount those earnings. These companies are generally $500m to $10b in market cap, thought there are a few exceptions. These stocks are on the Emerging Leaders or Cyclical Leaders research lists.
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” Peter Lynch
|Company||Symbol||Buy Range||Bull Rationale|
|Antero||AR||18-23||Natural gas pure play, extremely well hedged to 2017, strong financially|
|Chesapeake Energy||CHK||3-6||Asset value now exceeds debt (STACK acres, eastern, Eagle Ford…), rising natural gas prices can generate fcf by 2017|
|Devon Energy||DVN||12-19||Excellent acreage in Permian & Eagle Ford, financial flexibility allowed recent acquisitions|
|Exact Sciences||EXAS||12-16 (UPDATE)||Potential $1-2b/yr sales by 2019, buyout target once Cologuard commercialized, strong balance sheet|
|GNC Holdings||GNC||16-24||Health theme, high gross profit margin, dividend & buyback|
|Greenbrier||GBX||20-26||Will benefit from shale recovery, 1 P/B, very solid financials, dividend & buyback|
|Kinder Morgan||KMI||12-16||Largest pipeline company isn’t close to being obsolete, P/B near 1, big value investors piling in, dividend|
|Micron||MU||6-10||New chip tech could be game changing, will rebound with next cycle|
|PayPal||PYPL||30-36||Payments leader, buyout target, growth and value, solid balance sheet, will pay dividend if not bought out first|
|PTC||PTC||28-32||Software as a service, IoT. Takeover target|
|Silver Spring Networks||SSNI||11-13||Enables utilities to implement smart grid technology via IoT. Takeover target.|
|Sierra Wireless||SWIR||12-15||IoT leader with major smart city initiative. Takeover target.|
|Tesla||TSLA||120-150||The future is eletric cars, Tesla is the leader, could be the Apple of EVs, Musk|
|Weight Watchers||WTW||6-12||There’s a lot of fat people, Oprah|