Dipping a toe into the financial waters...

Written by: Andrew Giovinazzi

We go back to the past in terms of marking financial assets as the FASB (Financial Accounting Standards Board) hits the redo button. While there are solid arguments on both sides for relaxing or not relaxing the accounting standard (Steve Forbes will be happy) market liquidity and “fair value” are linked. Right now, there is no liquidity in these asset markets but there are real assets underpinning the securities. Without an active secondary market Mark-to-Market is a guess.

In mature markets with central clearing functions (for example: the OCC handles the clearing function for the option markets which are no stranger to volatility) this is a non issue. Every security closes with a bid and offer that a regulated, properly capitalized market participant is willing to make. Changing FASB is a half solution until a more permanent central clearing function for asset backed securities (ABS) can be established or the USA will be revisiting this problem very soon.

Short term this looks like a halt to the balance sheet rot of the last 12-18 months. While I am not ready to wade into the single digit Banking names just yet I think it is worth focusing on the best financial names now. Here I will use my Solid Dividends and apply it only to all names finance or finance related.



I will sort the market first by Financial Names to narrow down the range. In this case I am looking only at the top end of this group (Blue Stocks). I have sorted by Market Capitalization (big ones) to better see my choices in Big Cap and Small Cap names for a more informed view of how this metric produces results.


The names that stand out are:

The Chubb Corporation (CB)
McGrath RentCorp (MGRC)
Northern Trust Corp (NTRS)
Brown & Brown (BRO)
Royal Bank of Canada (RY)
Wells Fargo & Company (WFC) (from an earlier column)

There are several banks that fit the criteria but most are too small for what I was interested in. Since I think the new FASB standard is marking a market bottom of sorts, my next column will focus on the single digit numbers that look poised to gain from the new accounting largess. Using AlphaVision should give me those names in about 5 minutes but you will have to wait until next week for a look.

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Digging for Dividends

Written by: Andrew Giovinazzi

While the market falls to multi-year lows (not today though!), and the demand for Treasuries is out of sight, the contrarian in me wants to find an alternative. I want to find companies that pay good dividends and have the solid cash flow to keep paying them. I want better than the 30 year yield on Treasury Bonds and stocks that are on or near their 12-month lows.

Commodities and affiliated industries fit the bill right now. With oil and most commodities in the basement (except gold) it is worth looking at this group in detail. I will sort the market for stocks that fit this description and rearrange the landscape for my custom metric "Solid Dividends".



My metric focuses on steady history of dividend payouts, EPS growth and strong cash flow coverage. I run my metric across commodity stocks - and there are quite a few standouts (in blue). The next step is to sort by stocks closest to their 12-month lows which in our example are closest to the left hand edge of each sector. Most of my top picks happen to be trading close to their 12-month lows even though only 2 of the 6 metrics are price related (Dividend Yield, 5 year Avg and Dividend Yield).

By looking at the Dow Jones News History, I found that these companies h ave either recently raised or reaffirmed their dividend or bought back shares. Simple but nice confirmations and you can get them on or near their lows.



MRO - Marathon Oil Corp.
CVX - Chevron Corp.
CRS - Carpenter Technology Corp.
CRR - CARBO Ceramics Inc.
RPC - RPC Inc.

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Super Values Today

Written By: Andrew Giovinazzi

Let's start by using the standard metrics for value, Low P/E (in this case Enterprise Value/EBITDA for debt conscious times), Low Debt/Equity and a Price to Book around .8. I am looking for at least a 7% Net Income Change for companies that grow in difficult times. My new SuperValues metric would look something like this.



Next I limited my view by market cap to $2 billion or greater to see if there is any differentiation in the upper market cap tiers. Since cash or lack of it is an overriding factor, I want to sort the SuperValues metric results by TTM Growth in Cash from Operations. Stocks in Green scored very high (700+ of 1000) with most in the Mid and Large Cap range. Those on the outer edge (lower left) have very high growth in Cash from Operations. Some companies manage to do well on both the value side and growth in cash from operations.

Stocks of note are:

Wesco Financial Corp (WSC)
Thermo Fisher Scientific (TMO)
Apple, Inc. (AAPL)
CME Group (CME)
National-Oilwell Varco, Inc. (NOV)
Ensco International Inc. (ESV)
Avnet, Inc. (AVT)

After switching to a sector view [below] it becomes quite clear that we are diversified across the market. The issues identified using SuperValues metric lead or are close to leading in their sector with concentrations in certain sectors that might warrant a closer look.

The market in general is not making a distinction between leaders in Value and Cash from Operations. In fact (and what we are looking for), our SuperValues portfolio has underperformed the market by a good margin and this is where the opportunity lies for the patient investor.

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