Stingy Investor Contact - Subscribe - Login
  Home | Articles | Screens | Links | SNW | Rothery Report
 
3 Stingy Stocks for 2014

I started the Stingy Stock method in 2001 in an effort to beat the S&P500 by picking value stocks within the index itself. I'm pleased to say the results have exceeded my expectations.

Over the last year the Stingy Stocks have climbed by an average of 37.8% while the S&P500 (as represented by the SPY exchange traded fund) advanced only 29.7%. Both fared well but the market trailed by 8.1 percentage points.

Naturally it is unwise to expect returns north of 30% each and every year. But the Stingy Stocks have done quite well over the long term. They're up an average of 17.3% annually since 2001 whereas the S&P500 (SPY) has moved ahead only 6.4% a year. Despite a few ups and downs along the way, the Stingy Stocks have outperformed the index by 10.9 percentage points a year on average and the full performance record is shown in Table 1.

Table 1: Past Performance
PeriodStingy StocksS&P500 (SPY)+/-
2001 - 2002 -1.9% -22.1% 20.2
2002 - 2003 33.8% 23.0% 10.8
2003 - 2004 29.8% 13.4% 16.4
2004 - 2005 29.2% 8.2% 21.0
2005 - 2006 28.9% 12.6% 16.3
2006 - 2007 -5.5% 7.4% -12.9
2007 - 2008 -40.1% -37.5% -2.6
2008 - 2009 64.5% 26.0% 38.5
2009 - 2010 69.4% 12.4% 57.0
2010 - 2011 -16.1% -0.3% -15.8
2011 - 2012 10.9% 20.8% -9.9
2012 - 2013 37.8% 29.7% 8.1
Total Gain Since Inception 474% 96%

How do I go about picking Stingy Stocks? I look for companies that are both cheap and relatively safe, which, as it turns out, can be an uncommon combination.

On the bargain front, I like stocks trading at price-to-sales ratios of less than one. Typically only a few stocks pass the test and this year was no exception.

Cheap stocks are great but I also want some assurance they won't go bust. That's why I stick with firms in the S&P500, which tend to be large and relatively stable. But that isn't a guarantee.

Because size is an insufficient measure of safety, I also look for companies with little debt and lots of assets. Such firms are stronger than companies perched precariously on piles of IOUs.

Three ratios are useful when searching for companies with little debt. Perhaps the most important is the debt-to-equity ratio which is calculated by dividing a company's debt by its shareholder's equity. The amount of debt that a company can comfortably support varies from industry to industry but debt-to-equity ratios of more than 1 can be too high. I prefer very conservative companies with debt-to-equity ratios of 0.5 or less.

The next balance sheet figure to consider is the current ratio which is calculated by dividing a company's current assets by its current liabilities. Current assets are assets, such as receivables and inventory, that can be turned into cash within the next year. Current liabilities are payments that the company must make over the next year. Naturally, an investor would like a company's current assets to be much more than its current liabilities and I prefer companies with current assets at least twice as large as current liabilities. After all, you can be pretty sure that a firm's creditors will demand prompt payment of the current liabilities. On the other hand, some current assets, such as inventory, might not turn out to be worth as much as expected.

Finally, a company's earnings before interest and taxes should be large in comparison to its interest payments. The ratio of earnings-before-interest-and-taxes to interest-payments is called interest coverage and I like this ratio to be at least two or more.

While the debt ratios I've selected are useful in determining a firm's ability to shoulder debt, they are not perfect. For instance, some long-term obligations may not be fully reflected on a company's balance sheet and are, sensibly enough, called off-balance sheet debts. Regrettably, off-balance sheet debt can be a source of considerable consternation. Things like unexpected legal liabilities can sideswipe what might otherwise be a good investment. That's why, as with all screening techniques, you should embark on a more detailed investigation of each stock before making a final investment decision.

Continuing the safety theme, I also want a company to show some earnings and cash flow from operations over the last year. After all, a business is less likely to go bust when it is profitable and has cash coming in the door.

That's a daunting list of requirements and I've summarized the primary factors in Table 2.

Table 2: Stingy Stock Criteria
1. A member of the S&P500
2. Debt-to-Equity Ratio less than or equal to 50%
3. Current Ratio of more than 2
4. Interest Coverage of more than 2
5. Some Cash Flow from Operations
6. Some Earnings
7. Price to Sales ratio of less than 1

Last year the method uncovered 8 value stocks but this year the list shrank to a mere 3 as the market moved higher. It's not a pleasing development and it indicates that value stocks are becoming rather scarce.

Details on the 3 stocks for 2014 are shown in Table 3 where you can see each stock's dividend yield and multiple of sales (P/S), earnings (P/E), and cash flow (P/CF).

I hope the method piques your interest, but be sure to fully investigate each stock before investing. The Stingy Stocks might be relatively safe, but there is no such thing as a risk-free stock.

Table 3: Stingy Selections for 2014
Company Price P/S P/E P/CF Yield
Jacobs Engineering (JEC) $58.48 0.64 18.1 17.1 0.0%
FedEx (FDX) $139.39 0.98 27.9 9.4 0.4%
Quanta Services (PWR) $29.54 0.99 18.9 16.7 0.0%
Source: Zacks.com, MSN.com, Yahoo.com, December 6, 2013

First published in the February 2014 edition of the Canadian MoneySaver. Performance numbers are based on the dates in the data table and do not represent calendar year figures.

Additional Resources:
  MoneySense Articles
 Cdn Top 200 2016
 US Top 500 2016
 Retirement 100: 2015
 Cdn Top 200 2015
 US Top 500 2015
 Retirement 100: 2014
 Cdn Top 200 2014
 US Top 500 2014
 Retirement 100: 2013
 Cdn Top 200 2013
 US Top 500 2013
 Retirement 100: 2012
 Buffett Buys
 FB IPO
 Stocks that pay
 Value in the S&P500
 Cdn Top 200 2012
 US Top 500 2012
 Retirement 100: 2011
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Cdn Top 200 2011
 US Top 500 2011
 Retirement 100
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividends
 Dividend growers
 Cdn Top 200 2010
 US Top 500 2010
 Graham's prescription
 Income 100: 2009
 The case for optimism
 Cdn Top 200 2009
 U.S. Top 500 2009
 Wicked investments
 Simply spectacular
 Income 2008
 Small stocks, big profits
 Cdn Top 200 2008
 US Top 500 2008
 Value that sizzles
 So simple it works
 Income 100
 No assembly required
 Investing by the book
 Cdn Top 200 2007
 US Top 500 2007
 Invest like the masters
 A simple way to get rich
 Top Trusts 2006
 Stocks for cannibals
 Car bites dogs
 Cdn Top 200 2006
 US Top 1000 2006
 So easy, so profitable
 Top Trusts 2005
 Dogs of the Dow
 Top 200 2005
 Money for nothing
 Yield of dreams
 Return of the master

MoneySaver Articles
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Globe & Mail Articles
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Long-Short
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Norm Speaks
Flip Books

Tools:
 Asset Mixer
 Periodic Table
 ETF Fee Calculator



 
About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...