Very Short List: August Stock Limit Orders

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