Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/01/2007 11:19 AM |
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Ralph Seger is well-known to many of us in the fundamental investing community, so it is a real pleasure to have him participating in our "competition." Ralph is a former long-time member of BetterInvesting's Board of Trustees and, for many years, wrote the "Repair Shop" column in BetterInvesting Magazine. Additionally, Ralph is co-founder and Chairman Emeritus of Seger-Elvekrog, the money management firm behind the market-beating Investor Advisory Service. Ralph has this to say regarding his picks: I based them on the
following criteria.
- Evidence that growth of sales, pre tax profit and
EPS would continue as I expected.
- An opportunity for a P/E expansion and EPS
growth.
- A current P/E ratio, based on analysts estimate
of EPS for the 12 months ending December 2007, that was reasonable, in my
judgment, relative to expectations for EPS, pre tax profit, and sales growth for
the future.
- Avoiding cyclical and mature
industries.
- A diversification among economic sectors suitable
for a portfolio
Ralph Seger's first pick is L-3 Communications Holdings Inc. (LLL).
You will find Ralph's SSG and ITK files in the LLL Ticker Forum. Please feel free to discuss the company there!
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Joe |
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Richard Pollard
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| 01/04/2007 9:51 PM |
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| Regarding your first bullet, what "evidence" are you looking for that assures you of continued growth of sales, profits, etc? The SSG gives us a good look backward, but as every prospectus states "the past is no guarantee of the future." |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/05/2007 11:17 AM |
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Ralph's reply:
I look at the PERT graph to see if growth is continuing.
I look at the percent pre tax profit margin both in the PERT graph and the PERT-A numbers to see if the trend is holding up.
I do a lot of reading such as The Wall Street Journal, Barrons, Business Week and Fortune magazine. While these publications are not always right I find that trends and reasons for expecting the future are frequently in stories.
I pay little or no attention to publication's recommendations as to what to buy, because they do not use the George A. Nicholson, Jr, philosophy that I use and have found to be successful. |
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Joe |
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Elizabeth Elie
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| 01/05/2007 10:40 PM |
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| How did you choose what Hi and low PE's on the ssg to eliminate and why???? |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/06/2007 1:24 PM |
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Ralph's answer:
Selecting which high and low P/Es for the SSG is, in my humble opinion, one of the most crucial decisiosions for success or indifferent result in selecting stocks to buy. It is all about judgment. Just because a stock sported a 50 or 75 P/E ratio in the past when speculators went crazy is no
reason to expect such foolishness to repeat.
Among other things, P/E ratios tend to be related to investor sentiment. Ask yourself, what is a reasonable P/E ratio to pay for a given growth rate? Of course the answer to this question relates to whether your expectations of future growth rate are reasonable or not. I tend to be neither too optimistic nor too conservative in estimating the expected future growth rate. In selecting a possible future high P/E ratio I look at several factors.
- What has the actual historical high P/E been?
- Are any of these unreasonable in light of expectations for the future?
- What is the PEG ratio of these P/E ratios? I tend to think that a highPEG ratio of more that 150% is probably unrealistic. Therefore, I delete those high P/E ratios that suggest a PEG ratio of greater than 150%.
In selecting the estimated future low P/E ratios I realize that these values represent investors concern and negative opinions. Therefor, I tend to delete those low P/E ratios which indicate a PEG ratio greater than 100%.
Having said all of the above, there are exceptions to all such rules. If the stock is a favorite of intuitional investors the future P/E ratios will probably reflect excesses on the high side. It would be unrealistic to ignore such influences. When all is said and done the decision as to what P/E ratios to expect in the future boils down to judgment based on experience. What has worked and what has not worked. This is one of the benefits of an investment club. Gross errors in judgment tend to be diluted by fractional ownership of the club's assets and the having to defend your decisions
from a number of fellow club members.
Ralph
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Joe |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/08/2007 11:32 AM |
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Ralph Seger's second stock is Amgen (AMGN).
Ralph's SSG and ITK files are posted in our AMGN forum. Click here to see them, and to discuss this stock.
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Joe |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/15/2007 11:08 AM |
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Ralph Seger's third pick is Quality Systems (QSII).
Click here to see Ralph's SSG and to discuss this pick. |
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Joe |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/22/2007 10:57 AM |
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Ralph Seger's fourth stock is actually two stocks.
Ralph initially picked Caremark (CMX) for his portfolio. As many of you know, CVS has made an offer to purchase CMX, and Express Scripts has also entered into the bidding.
"It appears to me that the bidding contest between
CVS and Express Scripts for Caremark (CMX) has gone from the sublime to the
ridiculous Therefore, I will sell my CMX and replace it with Fastenal (FAST)."
Our contest records will show that Ralph purchased CMX at the 12/31/2006 closing price. CMX was sold at the 1/18/2007 closing price and replaced by FAST.
Ralph's SSG and comments about FAST are here.
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Joe |
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Mark Robertson
Rochester Hills, Michigan
www.manifestinvesting.com
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JAMES THOMAS
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| 01/22/2007 2:33 PM |
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Ralph sold his $1000 position in CMX for $1,021.71, less a $15.95 sale commission (StockBuilder). So, he invested 1,005.76 in FAST (from which a $15.95 purchase commission was subtracted).
Is that correct? |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/22/2007 2:49 PM |
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Nnote that I've "changed brokers" to "TDAmeritrade" which features trades at $9.99. I'll be using this for the contest. When all selections have been announced (end of next week), I'll post a complete summary of the current holdings for all of the portfolios.
Here are the details of Ralphs Caremark and Fastenal transactions.
25- Ralph Seger's Portfolio
Date Investment Activity Quantity Price Commission Total
1/1/2007 Caremark Rx, Inc. Buy 17.510069 $57.11 1,000.00
1/18/2007 Caremark Rx, Inc. Sell 17.510069 $58.35 9.99 1,011.72
1/18/2007 Fastenal Company Buy 27.1398 $36.91 9.99 1,011.72
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Joe |
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JAMES THOMAS
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| 01/22/2007 3:52 PM |
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You'll probably say I'm being too picky, but if Quantity is going to be tracked to six decimal places, it may as well be done accurately.
The Quantity for CMX should end in "68" not "69". |
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JAMES THOMAS
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| 01/22/2007 4:06 PM |
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> I've "changed brokers" to "TDAmeritrade" ... <
TDAmeritrade won't let you buy fractional shares, will they? |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/22/2007 4:25 PM |
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Re Ameritrade ... let's just say that I changed the rules to $9.99 for all buy and sell tranactions rather than $15.95.
As for the numbers, I did a quick cut/paste from MoneyCentral where I have the portfolios stored. This presumed rounding error isn't mine!
As to whether you are being overly picky ... well ... you did think to ask the question. |
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Joe |
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JAMES THOMAS
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| 01/22/2007 5:14 PM |
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> As to whether you are being overly picky ... well ... you did think to ask the question. <
My expectations have been set from past experience with being told that 1 + 1 is only approximately equal to 2 or that 8.3 properly rounded is 9. |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/22/2007 5:19 PM |
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I once wrote a program that showed that 1 + 1 = 3 (well, ok ... 1.4 + 1.4 = 2.8 ...)
Way back in prehistoric times, I wrote a program that accidentally changed +1 to -1. You have NO IDEA how much havoc that caused, or how long it took to find the error. [Actually, I never did find the error. But, in describing the program's odd functioning to a fellow grad student he said "That reminds me of the time that I ..." He was right, too!] |
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Joe |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/25/2007 11:00 AM |
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From Ralph Seger:
MORE ABOUT THE DECISION TO SELL CAREMARK
In addition to my feeling that the price to acquire Caremark was reaching
too elevated level I also knew that big mergers and acquisitions seldom work
out for the stock holder. Yes, the CEO can be in a position to suggest that
a major increase in size of the company warrants a higher compensation
package when compared to peers, but that does not mean the stock holder will
benefit by a similar magnitude. In fact the stock holder usually is very
disappointed. |
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Joe |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 01/29/2007 8:40 AM |
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Ralph's final pick is Lowes (LOE). You can see Ralph's SSG and ITK files in the LOW Forum.
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Joe |
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