Housing Starts, More Retail Earnings: Daily Contrarian, May 18
Good morning commonstockers! Stocks are flat a day after posting healthy gains, leading some to ask whether the worst is over for what is now being called a correction…

We have the Census Bureau’s New Residential Construction report out at 0830 this morning. $LOW just reported mixed results. Waiting for $TJX and $TGT before the open.

More in today’s briefing and podcast, available here:
Shared Research Screens:
Value Line Top 100 Highest Growth
I’ve always seen excerpts in books touting Value Line as a valuable source of research analysis, but had never looked at subscribing. They’d always mentioned it was available at local public libraries free of charge. I don’t pay for investment advice like I don’t pay for women, so off to the library I went. I was shocked when the librarian showed me the giant binders of already crunched numbers of everything I’d ever wanted and more!
I said I was going to start sharing research screens weekly, but due to the backlog, I need to spit a few out a little quicker while valuations are still accurate & relatively attractive.
This first list started with a list of Value Line growth companies, 100 of them. I had to narrow the list somewhat, without my bias, so I used their provided statistics to cull the best investable options from the original list of their Top 100 Highest Growth Stocks.
The reason this quality growth screen jumped out at me in the first place was the qualifying criteria, eliminating most of the risk of making a bad decision (based on emotion or hype).
Value Line quote: “To be included, a company’s annual growth of sales, cash flow, earnings, dividends, and book value must together have averaged 10% or more over the past 10 years and be expected to average at least 10% in the coming 3-5 years.”
That says a lot about the stability, strength, & trajectory of a company and that’s the type of near zero risk, sleep well at night (SWAN) stocks I like to own. Especially when they’re undervalued or out of favor, just reported a bad quarter, or trading at historically low valuation multiples for any other myriad reasons.
Statistical categories included in this Value Line table include 1) Timeliness Rank, 1 being best time to buy, 5 being the worst, 2) Safety Rank, 1 being safest, 5 being the riskiest, 3) current P/E ratio, 4) estimated 3-5 year price appreciation, and 5) the company’s industry rank. I’ve chosen to personally eliminate all fortune telling/future predictions/economic forecasts, etc. from my analysis, therefore will exclude forward looking estimates whenever possible. To narrow the list from the top 100 to a more manageable list of the cream of the crop, I chose to look for company’s with a Timeliness & Safety rank of 1-2 to ensure highest quality & fair value/positive outlook, a P/E ratio below 30 to ensure I’m not paying too high a price, and top 10 rank in their industry to hopefully provide additional quality/moat/competitive advantage strength to the final contestants on #INVESTWITHDEEBO. Ensuring quality first, and value second, hasn’t failed me yet.
Turns out, only 2 companies met such high standards, so I had to relax criteria just a tad. Those two companies were Google and Microsoft ($MSFT just barely, with a P/E of 30.xx) Google was the sole company with an absolutely perfect score; 1 on Timeliness & Safety, P/E ~20, ranked #3 in their industry. And had +100% 3-5 year estimated price appreciation to boot.
So, relaxing the standards, I was able to get almost 25 company’s I think provide higher probability of outperformance going forward, although I don’t believe there’s a bad company on the list.
Value Line Top 100 Highest Growth Stocks; additionally screened for my 4 additional quality & valuation hurdles (timeliness, safety, P/E, industry rank) produced the following:
Hitting a perfect 4/4 parameters:
An exceptional 3/4 Parameters:
Still great 2/4 Parameters:
Couple Honorable Mentions that narrowly missed the expanded standards:
The reason I love screens like this is because every one of these 100 companies is a strong company. Starting with a high quality list, then further screening for quality & valuation from there, has drastically reduced the probability of making a bad investment. Unless I get my emotions involved, then I take an L occasionally. So I try to keep it as near 100% mechanical as possible. I understand the voting machine vs the weighing machine; price will always follow performance, may just take a bit for the herd to catch up😉
Sorry again for the forward looking estimates, I’m keeping them at a minimum, promise.
After doing this for hours today, I wanted to score them to give more of an idea on which I thought might provide the most upside. So I spent hours today developing a point system based on the quality & valuation metrics already discussed, plus quality, profitability, valuation metrics & margin of safety estimates from 3 of my most trusted & accurate data sources. The primary reason I wanted to do this, was because to take advantage of the most irrationally priced stocks, doesn’t always require us buying the best companies. So this scoring system gives points ranging from 5-25 per category, for 6 additional categories of quality, value, & MoS. Higher quality rank= more points, larger margin of safety=more points. This scale (admittedly with 100% personal emotion and bias) was intended to reward the companies that 1) hit the most parameters, and 2) had the largest margin of safety, therefore minimizing downside risk to an absolute minimum, while simultaneously increasing the probability of outperformance. So here is the same list, in order of points scored, on my totally made up point scale, to hopefully provide some context as to the level of undervaluation.
The points for all criteria equaled a possible total of 165 points. This would be a dream stock at a dream price. Google is the ONLY company to pass every single criteria every single step of my analysis today. Taiwan Semiconductor only scored slightly higher because the estimates for MoS were much deeper for $TSM than $GOOG. So even though they got 0 points on one indicator, they made up for it with more points for MoS. Google scored points as a top ranked candidate (top 25% of companies at time of comparison) in every single category. I’d have to dig through an entire notebook to count the data points that went into this 10 hour waste of a day, but Google scored perfect at every step. But with MoS estimates of only 6%-16%, this is a classic Buffet, “wonderful company at a fair price”. So here is my totally biased list of quality companies trading at fair or below fair value.
$TSM 125
$GOOG 120
$LAD 120
$NFLX 110
$SWKS 110
$MSFT 100
$ON 95
$LOW 95
$TMO 95
$MA 75
Remember, this is not a quality ranking. This list weights margin of safety equally with other metrics. The companies at the bottom of this list are great, just not as much probability of upside compared to more undervalued/out of favor stocks at the top of the list.
Hope this provides some SWAN stocks for other value, or growth at value, investor’s out there🤙
PS: Craziest part of seeing the results of this list, since it was just made today, is that I have actually opened positions in $TSM, $GOOG, $NFLX, $MSFT, $AVGO, $NVDA, $KLAC, & $LRCX in the last 30 days, based on my own analysis of what’s important. I don’t feel 100% confident just because any specific source agrees; but I feel comfortable trusting my outside data sources as 2nd opinions based on the experience I’ve had using them over the last few years. Never hurts to find more reasons to want to buy, or maybe avoid, a specific company.
This is one impressive post! Really appreciate all the time and effort you put in. Nice to see $GOOG make it to the top list but also there any a few companies that I need to check out since I never seen this tickers and maybe there some hidden gems for myself to explore more on!

Appreciate all the work you put into this
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💸 Dividend Forecast - Week of 5/2 💸
And we're back to our regularly scheduled Weekly Dividend Updates! Here are my incoming dividends this week and how I intend to use them:
Taxable
$T - $0.28 per share, $0.56 total, cash
Roth
$LOW - $0.80 per share, $0.80 total, reinvesting
Do you have any dividends coming in this week?
Starting my position in $LOW FINALLY
$LOW has been on my radar for a while as a great dividend stock to add to the portfolio. They have a pretty safe dividend with 1.5% yield at these prices and 18% dividend growth over the last 5 years. They haven't missed a dividend or an increase in 59 years.

They have a conservative payout ratios, growing EPS, sales levels are higher than prepandemic levels as we exit the pandemic, they have an aggressive buy back program, great ROI, and decent debt levels.

$LOW went on a tear in 2021 and went went from prices in the $150s all the way highs in the $260s. Much of this was fueled by the pandemic. People were stuck at home during quarantine and had stimulus money to spend on projects and upgrades to make that stay more comfortable. The real estate market rocketed as quarantines eased which gave homeowner's of the older generations a great chance to remodel, sell at high prices, and then downsized. Real estate investors also pushed the market higher by taking advantage of the very profitable flipping market. All of these activities contributed to the awesome 2021 that $LOW had.

However, the story is changing now and $LOW is down over 11% in the last three months. With interest rates rising and inflation at the highest levels in decades, that activity is starting to slow. I think the backdrop conditions of home buying, building/renovating, mixed with recession fears and credit market conditions makes for an especially interesting story for $LOW.

If conditions worsen, and I think they will, $LOW should see more downside. At these levels today, I feel comfortable starting a small position and will continue to add to it as the direction of our economy becomes clearer, for better or worse!
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Credit Markets and Financial Conditions
There has been a reasonable degree of damage beneath the surface on a stock-level; credit markets, however, have not shown the same degree of uncertainty.

In an interview with Bloomberg TV, former New York Fed President Bill Dudley mentioned the lack of cooperation by financial markets; in other words: the Fed isn't seeing the type of sea change it would like to see in order for a reverse wealth effect to kick in.

Just how much the Fed will be able to tighten financial conditions will likely depend on market signals such as the GS Financial Conditions Index and Corporate High Yield OAS.

If we were to look at specific stocks that are highly sensitive to credit conditions: homebuilders, do-it-yourself outlets ($HD $LOW), banks ($JPM, $C, $GS) as well as private equity transactions financed via debt offers -- there are many more.

I hesitate to paint a doom & gloom scenario; it is, however, valuable to keep an eye on the tone of credit markets and be aware of sub-surface dynamics.

Goldman Sachs Financial Conditions Index

Corporate High Yield OAS
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I know @austin recently opened up a $LOW position with a strong case, and has also discussed $HD. I have no skin in the game currently but I think the backdrop conditions of home buying, building/renovating, mixed with recession fears and credit market conditions makes for an especially interesting story.

I feel as though it is either an excellent time to buy these names or a horrific time to buy these names with little in-between haha. Would be shocked at a horizontal move in this sector over the next 12-18 months. Excited to see this one play out
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Austin Lieberman's avatar
$451.1m follower assets
My $LOW trades
Made Lowe's my largest position. Proven winner in a market that's not going away. I believe there's a lot of negative housing sentiment built into the stock price and as a reliable dividend grower, I really like Lowe's here.

Based off expected 12% EPS CAGR from now until 2025 and a P/E of 15.5, Lowe's earns a 10% annual RoR from here.

Guess the last time it traded at a P/E of 15..... 2012.

Is Lowe's a better business now than in 2012? I think so.
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I've been watching $LOW for a while and I think its getting close to a level where I want to start my position! However, I'm holding off till I get a better feel of the economy and how it will affect $LOW. With inflation picking up and people returning to work post-pandemic, I think there will be less of a budget and less of a need for ordinary folks to work on their homes which is quite contradictory to what $LOW and $HD had experienced for the last two years. What do you think? Should I hold off or pull trigger?
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