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Markets. The average return, on the 1st three companies he recommended in his newsletter 3.5 years ago, was about 800%. These were not speculations, but value companies with revenues and profits. It is a lot harder to find them today. He is a bottom-up investor, and it is harder to find things, so he just wants to build cash, and wait for a better opportunity. Cash holdings are probably in the 40%-50% range. There seem to be a lot of earnings misses, and PE multiples seem to be going up. Thinks earnings are going to have to catch up to what the stock market is doing. Feels central banks globally are orchestrating a campaign to keep equity markets healthy and give people confidence. However, there comes a point where valuations have to catch up.

TOP PICK

Rode the turnaround from $1.30 to $16 and sold his holdings. Stock got weak and went down to $13 or lower. They took their cash flow and increased the dividend by 50%. A conservative board and they wouldn’t have done that unless they were super confident about the future. Also, announced a share buyback of 2 million shares. This goes from being a turnaround story to a dividend story. Thinks that the last legs of the turnaround will produce enough cash to increase the dividend another 50% or more over the next couple of years. Stable, safe and well run.

TOP PICK

Like all European banks, they have gone through a very rough time. Thinks that the balance sheet repair job is done. Didn’t have to, but was forced to raise a lot of equity which hurt the stock price. Feels the balance sheet is in good shape. Have lots of excess capital. Owns a lot of government bonds, which are going up in value. Now it is just a question of a turnaround in the economy in Greece.

TOP PICK

Has done really well, but feels there is more room to go. At some point big institutions will come around and re-enter the stock. Trades at a big discount to Book. It could be liquidated today, and give every shareholder almost $70 a share. Should give you a decent return, not a huge one, but maybe 15%-20%. Yield of 0.91%.

HOLD

Made a lot of acquisitions lately, and he wants to see the earnings power of the company. Revenues are there, but he wants to know where profitability comes in. Have talked about lodging students, but this doesn’t seem to be a priority in the short term.

PARTIAL SELL

Hit a rough patch awhile ago with a bribery scandal. Not a super risky company. They own a part of Highway 407, and they had really strong numbers from this. If you own, consider taking some profits.

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Profit taking. Always take profits. It’s really simple. A profit in your pocket is a “real” profit. One that is on paper can be meaningless. You owe it to yourself to take some off the table. The riskier the stock, the more you should take profit.

COMMENT

Doesn’t know this bank well, but obviously the US banking sector is in rebound mode. To the extent that this bank is participating in that, you are probably going to be okay. Very attractive looking chart. The recent drop is probably a temporary thing.

BUY

Used to own it, and regrets selling it. Thinks it has legs and is a turnaround story. Have some international operations that could kick in, in a big way. Well run. Strong management team. Valuation is reasonable. Decent dividend.

WATCH

This has come onto his radar very recently. These companies buy royalties, not oil and gas or gold. You can do quite well with this if you pay the right price and get the right return. Management seems to be very experienced, which is important. They don’t have a lot of track record.

RISKY

This is very small and speculative. Graphite is used in batteries from cell phones to Tesla cars. Tesla is building a giga-factory, and will be a huge buyer of graphite. The demand side looks good. Supply tends to come from China, and they are shutting down mines and putting export taxes on production. You want to make sure that the graphite play has a chance of becoming a mine. If you are interested in speculating on a resource name, he likes this one.

COMMENT

Their core business is Network Equipment for cable companies. The family that controls it are very entrepreneurial, and do a lot of interesting things at the margin. They are now building their cash up again. Outside of their core business, they have a couple of other sidelines, including a fleet management business and rural Internet service provider. Expects that both of these will be sold, adding even more to their cash. Expects they could pay out a special cash dividend of $3-$4 in the next couple of years.

BUY

Consolidating the car dealership industry. Superbly run. Has been a fantastic performer. Had a pullback because they did a financing, and will probably drift around here for a while, until the market adjusts. Over time there is still a lot of room for this to grow. Not a cheap stock. Thinks it is trading at 40X trailing earnings. You are probably okay to own this. Has a good future.

PAST TOP PICK

(A Top Pick July 26/13. Up 18.07%.) A niche lender to small businesses. Very, very well run. They raise their dividend almost every year. Insiders own piles of stock. Very conservative. They are finding new ways to grow the bottom line. Have lots of capital, which is all deployed. Expects earnings will continue to move up.

PAST TOP PICK

(A Top Pick July 26/13. Up 5.55%.) A special dividend was paid out in April. This has been a frustrating ride. It has been volatile and difficult to understand, because of all the non-core assets. Their mortgage business is superb and a market leader, and now reaching the stage of renewals, which should give higher margins.