Louis Navellier has been around for far longer than most of the newsletter pundits, and his quantitative system has proven itself to be pretty good on average for long periods of time (though it also has taken big hits during rapid market collapses, of course) — we write about his teaser picks from time to time because he sounds so dang positive… who wouldn’t want a “raging bull” stock that can “protect and grow your portfolio” when things are looking scary?
Of course, this is when we should insert our reminder that Navellier is not really a fundamental stock picker, and he’s not a focused stock picker — his newsletter issues look like spreadsheets, with dozens of stocks held at any given time, and with a numbers-driven system that works pretty well on average, that’s what you need. If you want to mimic a quantitative approach to mechanically buying highly-rated stocks and selling lower-rated stocks, you need to trade the whole system. Even quantitative systems that work over the long term (and they don’t all work, for sure) will not be terribly predictive for each individual stock.
So sometimes, when you go into the numbers, the individual stocks that light up his system are doing so for one-off reasons (big analyst upgrade cycle, big sales spurt from a short-term trend or large order) and are at the end, not the beginning or middle, of their growth spurt… so no guarantees, but no one else has any guarantees either (and I sure have picked lots of lousy stocks over the years without having a mechanical system)… but with that said, let’s look and see what he’s teasing for us today as his highly-rated “raging bulls.”
Here’s how the ad gets us salivating:
“We’ve managed to corral three bullish stocks which have fed off of the recession—and continue to soar during our so-called recovery. When a stock charges ahead in all markets, we call it a “raging-bull.” And these kinds of plays are making investors rich in all markets.
“We’ve put them all in a red-hot special report we want to give you, at no charge, called Three Raging-Bulls That Power-Up Your Portfolio In Any Economy.
“Their target is fast, but sustained growth.
“And it’s been the job of my quantitative analysis to pick these out before they shoot upward.
And considering we’ve been beating the S&P 500 by a 9-to-1 ratio for the last decade… our investors have become very happy – and very rich.”
I expect Hulbert would call “BS” on that last claim — Navellier’s letters have sometimes been top performers for specific time periods according to Mark Hulbert’s tracking (Hulbert, who runs a service for Marketwatch, subscribes to about 200 newsletters and tracks their specific portfolios over time… I don’t mention it that often because he doesn’t cover many of the most-marketed or newer letters, but he does cover some of Navellier’s), but overall Navellier’s Emerging Growth, which is the $995 newsletter being touted and teased in this ad, has done substantially worse than the broad market over the last ten years (2.8% annualized gain, vs. 8.5% for the Wilshire 5000), and at higher risk.
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The Wilshire and the S&P 500 are not wildly different in long-term performance, so I don’t know where he gets the “Beating the S&P 500 by a 9-to-1 ratio for the last decade” stuff. I expect there has probably been a year or a couple-year period in there when his strategy did beat the S&P by 9-1, and perhaps Navellier would argue with Hulbert’s methodology, but that’s certainly not the long-term average. Over the last three years, both Emerging Growth and Blue Chip Growth (the only two letters of his that Hulbert tracks — he doesn’t track the $5,000 letters) have been very close to the market average, with 20%ish annualized returns. If you’re curious, the S&P 500 is about 60% higher than it was a decade ago, or about 115% higher with dividends reinvested — so beating that by 9-to-1 would be stupidly phenomenal and such claims should trigger a lot of skepticism.
But let me get off that tangent — it’s those “raging bulls” that we’re looking for, and you can decide for yourself whether they seem likely to beat the market and earn your investment dollars and attention. How does he tease these picks?
“Raging-Bull #1: The Ultimate Energy Stock….
“The Rocky Mountains and the Midwest has pumped so much oil and gas that they’re practically swimming in the stuff.
“In fact, they barely have enough pipelines in place to transport or store the stuff coming out of the ground.
“That’s where raging bull #1 comes in.
“It serves this entire region with gas transportation and storage services. And they’ve got so much demand for their product, they can hardly keep up.
“All energy stocks have taken it on the chin in this market. But this company doesn’t care what the price of gas is. The product still has to get from point A to point B and this company charges the same no matter what….
“They just announced strong top- and bottom-line growth in the second quarter. The company posted a net income of $16.87 million, or $0.38 per unit, on $77.32 million in revenues… which was a 58.3% earnings surprise and a 3.5% sales surprise.”
Who is it? Thinkolator sez this is: Tallgrass Energy Partners (TEP), which I will confess I have never heard of before. It’s one of the new wave of energy master limited partnerships (MLPs) that have cropped up over the last couple years — and the wave is not stopping, half of the notes that I get from my brokerage firm about upcoming IPOs these days are for MLPs.
And they’ve been raising their distribution each quarter since their IPO about a year and a half ago, sometimes aggressively, so the stock trades with those growth expectations and therefore has a lower current yield. They are a midstream MLP, like most of the steadier ones, owning gas processing plants and a couple Rocky Mountains natural gas pipeline systems in Colorado and the environs (both some long-distance pipes to move Rockies gas to the East, and some distribution pipelines for local communities) and also — this is key to their growth, I suspect — a portion of the just-opened Pony Express crude oil pipeline that brings Bakken oil to Cushing, Oklahoma.
So there’s definitely some growth expectation built in, and the expectation that their third and fourth distributions of 2014 will continue to grow, but I haven’t looked at them before this moment so I don’t know much else. They’re still small, they are expected to grow the distribution, and the current distribution (assuming that the last quarterly payment is paid four times) would be a yield of about 4.1%. That’s actually not that much lower than the average yield for MLPs, and they certainly have much faster distribution growth than the average MLP, so if you’re looking for a midstream gas and oil MLP that’s more growth-focused this one might be worth your time to research.
“Raging Bull #2: The Super Supplier
“This 2nd bull is poised to charge forth, like it’s aiming at a matador caught daydreaming.
“Because this company makes its living from head-hunting….
“They provide executive search service around the globe, making possible the recruitment of on-the-rise star executives.
“Today, so many companies need specific talent that it can’t grow at home… so they reach out to this company with its worldwide intelligence network, to find a perfect fit.
“My quantitative formulas give this stock a grade of “A.” And their fundamentals are very exciting:
“Recent earnings revisions suggest this company will once again beat estimates.
“Over the past 60 days, the consensus EPS estimate has risen 25% – a very bullish sign.
“This company is expected to grow its sales and earnings at a fast clip for the next several quarters.
“Plus, it’s trading at just 15 times forecasted earnings, so it’s a strong buy.”
This one must be CTPartners Executive Search (CTP) … another company I confess to never having heard of before today. They have been clobbering estimates in recent quarters, which always gets the attention of Navellier’s system, and they are the only recruiting/staffing company I can think of that’s A-graded in Navellier’s Portfolio Grader system Analysts have not upgraded their earnings by 25% according to the estimates I’m looking at, but they have upped estimates since last quarter and there are only a couple analysts covering the stock, so those numbers don’t necessarily mean much.
It’s a very small stock, market cap around $100 million, and, well, I’ll refrain from further elaborating on my ignorance of this company (and this sector, frankly) and just leave you to it — if you know these folks are have any sense of their prospects or uniqueness, feel free to let us in on the secret with a comment below.
One more for you?
“Raging Bull #3: The High-Flying Profit Machine
“I don’t think I’ve ever seen a more promising airline stock before. But the truth is, I generally avoid them. Why?
“Most airlines hardly ever run on time, are sensitive to fuel costs, have numerous customer complaints, and have a habit of losing your luggage.
“I won’t say that this company never loses a bag, but I will say that its fundamentals are flying high.
“Raging Bull #3 is a low-fare airline company and it offers services to the U.S., Latin America and the Caribbean.
“In the most recent quarter, the company’s net income soared 54%, and their adjusted earnings per share beat analysts’ expectations.
“Revenue climbed 23%, also beating forecasts, and posted an earnings surprise, as well.
“For the next quarter, sales and earnings are expected to grow even higher.
“All told, the company’s low-cost, ultra-low fare model remains in demand and the company reported record profitability last year. New aircraft are also being added to the fleet.”
This one, dear friends, is the only repeat from the last time Navellier teased a crop of stocks with a similar “raging bulls” theme back in April (though then he called them “Perma Bulls”), Spirit Airlines (SAVE).
(Back then, incidentally, the “ultimate energy stock” was MTDR, the “Super Supplier” was POWR — MTDR and SAVE have been within 10% or so of the S&P 500, POWR was quickly clobbered and is down 50%.)
SAVE has more or less tracked with the other airlines — about the same as Delta (DAL), a little worse than JetBlue (JBLU) or Southwest (LUV), rising this year and last as the economy improved and as the discipline brought on by years of overcapacity in the sector finally kicked in with fuller planes that made profit possible.
All the airlines have been falling over the last month or so (after great performance for a year or more) as markets have fallen, though part of that’s also the Ebola scare — frankly, the good news of dramatically lower oil prices should be such good news for airlines that the Ebola stuff shouldn’t be hitting the stocks so hard, and I bought some JetBlue options during the recent panic, but you can’t ever know how far a panic will go in discouraging travel. My guess is “not very far” this time, but I could be wrong… and, on the more significant side, the fact remains that airlines, all airlines, are very cyclical and subject to economic growth as well as being buffetted by energy costs. If the economy keeps growing, even fairly slowly, and oil prices stay low, all the airline stocks could be awesome. If the economy takes a real step backward or if oil prices recover dramatically (which seems unlikely, given the rapidly growing supply), the airlines will take it on the chin.
So what’s going to happen? Will Ebola keep people at home? Will the economy grow? Will people put up with Spirit’s ridiculous add-on fees in order to get cheaper tickets? (so far, “yes”)… let us know what you think with a comment below.