"Mortgage origination is a hot area right now. We found one stock with a name similar to one of the characters of a favorite TV show of the 60's, the Beverly Hillbillies"

Dow Jones Industrial Average 13,437 (Down) Week ending 09-28-2012

             
Elly Mae Clampett

Every time I see the name of this stock, Ellie Mae Inc. (Symbol ELLI, $27.23), it always makes me laugh and I think back to my childhood in the 1960's and watching the situation comedy show The Beverly Hillbillies, with Jed Clampett, and his curvaceous, tom-boy daughter Elly Mae Clampett. 

Of course, the first week out after my great Return on Equity tenet declaration, I am already stretching my rules by discussing a stock that has an ROE of only 14.29%.  ELLI though,  has some other great attributes like a 1 year Total Return on the stock of 389.75%. That buys you a little more credibility. The PEG ratio is fine at a safe 1.16.

The Clampetts arrive in Beverly Hills

Ellie Mae, Inc. provides automation software for a large segment of the mortgage industry in the United States. ELLI, 5 year sales growth has averaged 8.83% per year. Projected Long Term Earnings growth is forecasted at 60.47%, so this will probably take care to improve that ROE. 2012 earnings are projected at .74 cents per share and for 2013, $0.79 cents per share.

The Wall Street Journal , MarketWatch website this week stated:

"Ellie Mae , Symbol ELLI, hard on the heels of reporting second-quarter results, again raised its full-year forecast for profit and revenue as well as earnings before interest, taxes, depreciation and amortization on an adjusted basis. As revised, the Pleasanton, Calif.-based provider of automation solutions for the residential mortgage industry sees 2012 net income in a range of 49 cents to 52 cents a share, up from 26 cents to 28 cents a share previously. Profit on an adjusted basis now stands at 68 cents to 72 cents a share for 2012, up from 42 cents to 45 cents a share previously. Full-year revenue is now pegged at $90 million to $91 million, up a prior range of $78 million to $79 million. And adjusted EBITDA is projected at $21.6 million to $22.7 million, well above the $13.1 million to $14.1 million previously forecast for 2012. Sig Anderman, CEO of Ellie Mae, noted that mortgage origination volume during the second quarter ran higher than had been forecast by Fannie Mae, Freddie Mac and the Mortgage Bankers Association earlier in 2012 and that projections have been revised higher."

Jed Klampett

Elly Mae and Granny and friend

       So this Ellie Mae is looking a lot better that Fannie Mae and Sallie Mae.  I think that Mr. Drysdale, Jed's banker , would also like the balance sheet of this Ellie Mae.  The company also has zero long term debt. There are 25 Million shares outstanding on the stock.

 Jethro eating his Kellogg's cornflakes

So it looks like both Ellie Mae's are looking pretty good. One for your Small cap portfolio and the other to add to your vintage TV show collection.

Elly and critter friend


So, I hope you strike crude oil while shooting in your backyard, (or in PA. , natural gas will work too!)

All the best,        Freewilly 

                                

"Time to tighten up our investment Tenets and add a little more emphasis on "Return on Equity"

Dow Jones Industrial Jones Average 13,579  (Up)  Week ending 09-21-2012

I was looking last night at my "The Essential Buffett"
book by Robert G. Hagstrom and decided to add an investment Tenet in regards to "Return on Equity"to my investment discipline.  Buffett puts a very large emphasis on ROE as part of his criteria and "Margin of safety" where I have always focused on earnings and earnings growth.

So here is my new "Dual " Tenet to add to my investment Tenets in Blog #1 of "Freewilly's Stockpicker blog", that is my first blog from 2009.(a must read along with Isaac Asimov's verse there in the comments section).

Here it is: "I will only purchase stocks with a Return on Equity of 15% or higher and that have a PEG Ratio of less than 1.50." *** ( It is OK if the PEG ratio goes above 1.50 after you are already invested in the stock.)

So I will put out a few examples of stocks that fit in with this new dual criteria. Oddly, they are both in the suddenly hated Transportation sector. 



Tata Motors Ltd. ADS ( Symbol TTM, $25.36) is the first stock that fits this more scrutinizing criteria. This Mumbai , India of passenger, commercial, defense and homeland security vehicles has some very interesting numbers. This one comes up aces with the new criteria. Tata Motors has a current Return on Equity of 49.99%. That will work for sure. But add to that a PEG ratio of a very low .58.

(*** definition of PEG - Price/earnings-to-growth ratio. The PEG is calculated by dividing a stock's P/E by its projected long-term earnings growth rate. (SmartMoney.com PEGs use forward P/Es, and three-to-five-year growth rates.) The PEG provides a snapshot of the relationships between three important stock attributes — share price, earnings per share and the rate at which those earnings are expected to grow. Generally speaking, the lower the PEG, the less expensive a stock is relative to its growth projections.) 

 Tata Motors has 5 year sales growth of 76.19%. Earnings for 2012 are looking like $3.51 per share and for 2013 it appears to be $3.89 per share. The one year Total Return is 68.84% and the 3 year Total Return is $105.3 %.  You certainly can live with those numbers.

The second transport stock that appeared with this type of ROE/PEG screening is: 

C.H. Robinson Worldwide Inc. (Symbol CHRW, $57.62) has a Return on Equity of 35.11%. The PEG ratio is 1.27, so within our strict parameters. CHRW offers a 2.29% dividend yield to get you started. 5 years sales growth has been a healthy 8.26%.

Earnings look fine here with 2012 earnings of $2.89 per share and 2013 earnings of $3.29 of share. 

Wall Street has not been kind to CHRW,  with the one year total return of (-11.97)% and a 3 year total return of only 3.71%. So you need to think long term here, and get good sleep at night. 

Happy Trails!

Freewilly

"Do a little align on your teeth and your portfolio by adding the stock of Align Technology (ALGN)"

Dow Jones Industrial Average 13,593 (UP) Week ending 09-16-2012

As you know, no matter what you do or how much milk
your kids drink, you will ultimately end up at the orthodontist
for your kids to have braces installed to straighten their teeth.

Align Technology Inc. (ALGN, $38.22) has a solution that seems to solve the problem which is less invasive and
also probably less expensive.

First of all Align has zero long term debt which is always a
nice feature for a company. 2012 earnings per share is projected at $1.22 per share and for 2013,  $1.38 per share.
5 year sales growth has been 13.75%. Projected long term earnings growth is 21.76%.

Align Technology has their much recognized marketing brand name , "invisalign", which has defined this industry and the trend of moving away from the traditional metal brace appliances.The company has a 17.93% Return on Equity.

The company has had a One year Total return on the stock of 122.86% and a 3 year total return of 179.39%.  The stock has a PEG ratio of 1.63 here , so it is a little pricey with a forward PE (Price to Earnings) ratio of 31.59%. You might want to be patient and wait and see if you can get a better price in October when the market usually corrects a little bit. The company also runs at a very healthy 73.79% Gross Margin, so they have allot of profit going into the financials to make their way to the bottom line.

The company did about a 1/2 billion dollars in sales in 2011 ,so it is a small-cap stock heading towards being a small- mid-cap company. 

I see lots of room for growth here so consider it a 1 to 3 year holding in your portfolio.

I gotta run, hope you and your family are well,


(I missed last week because I was traveling to Washington, DC.)

Freewilly

"No matter who wins the election here in the US, we are still all going to be interested in Food, Home and Garden"

Dow Jones Industrial Average 13090.84 (Down) Week ending 08-31-2012 

Well, one election Convention done (Republican) and one left to go (Democratic). Neither party seems to have a clear advantage in this fray. No matter who wins though, you will need to keep investing  in the stock market  because you can't make any money putting your money in the bank in a Saving certificate of deposit (CD) or a savings account.

Make no mistake, these next two months here in the stock market are going to be treacherous with high volatility. You should take some profits off here on your winners. At the same time, you will still need to start "accumulating" good quality stocks that you can hold for 1 to 3 years.

Scripps Networks Interactive Inc. Class A  (Symbol SNI, $59.10), 

is one such of these stocks. Scripps has a nice blend of shows 


that cover all the things that people like. Scripps Networks Interactive is a
leading developer of
 lifestyle-content for television and the Internet.
The company's brands includes HGTV, Food Network, Travel Channel,
 DIY Network, Cooking Channel and country music network 
Great American Country. 

       

Scripps has a One year total return of 45.89% and a 

3 year total return of 80.02%. Return on Equity is a tidy

 30.49%. The 5 year  sales growth has been a steady

 8.75% per year. 2012 earnings look like they will come 

in at at around $3.37 a share. 2013 is looking like $3.80 

per share according to Smartmoney's estimates. 

2 Billion plus in annual revenues make this a nice Mid-Cap stock to add to your portfolio.
 I would buy into it in parts or even wait a
 little bit here because the next 8 weeks show allow
 some lower price entry points.
The company operates at Gross Margins of
56.53% so is very profitable. 

 Food Network Stars - Season 8

The Current ratio on the stock is 6.34 to 1 so SNI is in very good financial condition.
Year to date the stock is up over 39%
a very healthy number. The real secret in the sauce here may be that

Scripps programming is interactive with the audience, 
which is

a very good ingredient for success. Food, Home, Garden,

Travel, Music, and "Do it Yourself" , all the stuff that people like and 

are always interested in. 

 Bobby, Giada, and Alton a winning lineup

Enjoy your Labor Day weekend. Don't work too much, give yourself a break. 

That's what this holiday is about.

As the chairman's nephew says at SNI's - Iron Chef's Kitchen Stadium, 

"Allez Cuisine!!" and good luck.

Freewilly