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(B)(N) Overheard on The Street

November 24, 2014
Wall Street?

“Overheard” on Wall Street?

Drama. TheStreet has given us sixty stocks that have the legs to make it into the New Year, and not slip so much on Wall Street (TheStreet, November 18, 2014, Jim Cramer: Which Stocks Stand Out as Winners? Here’s My List).

Mr. Cramer is a “chartist” (as a hobby, we gather, ibid TheStreet) and he bolsters that information with interviews of the company’s management, and insights into its competition and the markets for its products.

This portfolio also has an excellent track record – it was up +13% in 2012, +25.6% in 2013, and another +20.5% this year, and it earned $166 billion and paid $67.7 billion to its shareholders for a return of earnings of 40.8% and a current dividend yield of 1.8%; please see Exhibit 1 below for the fundamentals and click on the links “(B)(N) Heard on The Street – Prices & Portfolio and Cash Flow Summary” for further details.

Exhibit 1: (B)(N) Heard on The Street – Fundamentals

(B)(N) Heard On The Street - Fundamentals - November

(B)(N) Heard On The Street – Fundamentals – November

Figure 1.1: (B)(N) Heard On The Street - Risk Price Chart - November

Figure 1.1: (B)(N) Heard On The Street – Risk Price Chart – November

The fundamentals show that the aggregate Enterprise Risk for these companies is +0.53; the Debt Risk is +0.72; the Dividend Risk is +0.10; the Fixed Assets Productivity is -0.76 (negative); and the Inventory Productivity is +0.69; none of which are particularly challenging, but the “inventory” has to “work for it” to produce earnings and the negative Fixed Assets Productivity suggests that they also need to produce their more than adequate “fixed assets” and are in a position to do so.

However, the per company measures show a lot of variation and each company has its own challenges; for example, Abercrombie & Fitch has a Dividend Risk of +1.49 and a Payout Rate of 163% for a Dividend Yield of 2.7%, currently, and a Fixed Assets Productivity of -3.42 (deep), and an Inventory Productivity of -1.76 (tough); please click on the link (and again to make it larger as required) “(B)(N) Heard on The Street” for further details, and the Theory of Firm for more explanations.

But what else have we heard?

If we look at all the companies in the NYSE, excluding the really big-caps in the Dows, for example (for which see our recent Post “(B)(N) What’s A Girl To Do?“), we have a domain of 608 companies that have done some service in the (B)-class this year for three or more months, and the average is ten months of the previous eleven, and there are about 6.4×10^83 (6400 followed by 80 zeros) different portfolios of 60 companies that we can form from these companies; which ones should we do?

Exhibit 2: Crowd Sourcing Works!

Figure 2.1: (B)(N) Overheard On The Street - Risk Price Chart - November

Figure 2.1: (B)(N) Overheard On The Street – Risk Price Chart – November

And the answer is, Any of them as long as they’re managed as a portfolio of (B)-class companies; please see Exhibit 2 on the left (and click on it to make it larger as required).

In order to get really negative results, we need to draw our portfolio in the companies in the (N)-class, and in this case, among the companies that were (B)-class for only one or two months this year; there are 67 of them and they did some amazing things this year.

For example, they earned $59.4 billion (net of losses of $18.9 billion) and paid 63.9% of it, and $39 billion, to their shareholders for a current dividend yield of 3.4%, but they also lost 13% and $165 billion in market value this year, which is 4× what they paid in dividends – and they still have a current market value of $1.1 trillion; please see Exhibit 3 below for the summary, and click on the link for all of the grim details and the named names “(B)(N) The Zero (N)-class Companies – Fundamentals“.

How about the “Zero (N)-class Companies”?

Exhibit 3: The Zero (N)-class Companies – Fundamentals

(B)(N) The Zero (N)-class Fundamentals - Summary

(B)(N) The Zero (N)-class Fundamentals – Summary

Figure 3.1: The Zero (N)-class Portfolio

Figure 3.1: The Zero (N)-class Portfolio

We call them the “Zero (N)-class” because their stock prices can’t be usefully defended by the stop/loss, and the price might as well be “zero”, although if the price is low enough, they might become candidates for a “takeover price”.

Nevertheless, their combined market value is currently $1.1 trillion and their earnings return on the shareholders equity is 6.7% (which is very low), and the return on the assets is only 2.4%; the Enterprise Risk is +0.29 (which is modest), but the Fixed Assets Productivity is -2.29 which suggests that what they have, needs to be “fixed” and “produced”.

For more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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