tag:blogger.com,1999:blog-79232749634173265112024-03-04T22:22:42.203-08:00A View on Valuekgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-7923274963417326511.post-1043075215725499092016-01-05T21:24:00.000-08:002016-01-05T21:24:13.141-08:00Book review: DIY Financial Advisor<html>
<p> <a rel="nofollow" href="http://www.amazon.com/gp/product/111907150X/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=111907150X&linkCode=as2&tag=avionva-20&linkId=W7VAPA4E2SANWK6N">DIY Financial Advisor</a><img src="http://ir-na.amazon-adsystem.com/e/ir?t=avionva-20&l=as2&o=1&a=111907150X" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /> picks up on and expands the general themes in co-author Wes Gray's excellent 2012 book <a rel="nofollow" href="http://www.amazon.com/gp/product/1118328078/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1118328078&linkCode=as2&tag=avionva-20&linkId=JFOWYPCDZ7BT7OMU">Quantitative Value </a><img src="http://ir-na.amazon-adsystem.com/e/ir?t=avionva-20&l=as2&o=1&a=1118328078" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" />. Gray and his latest co-authors, Jack Vogel and David Foulke, try to show individual investors simple methods for managing their entire investment portfolio, not just stocks. That way, they can potentially cut off their financial advisor and 'do it yourself', or at least be informed on what to look for in a capable, honest financial advisor. </p>
<p> The first major part of the book shows why you can do better than the pros. It retreads some famous studies showing how expert decision makers often fail compared to simple rules-based systems in a variety of fields, including investments. It is an indictment of human judgment, especially as exercised by knowledgeable experts. The authors tackle a few myths about relying on experts, such as the myths that complexity and qualitative informative adds value, and they present a number of biases exhibited by everyone, pros and amateurs alike. A lot of this goes into theories and explanations provided by behavioral finance, which always deserves explorations of its own. </p>
<p> The second major part comprises the vast majority of the book. In there, the authors present some simple methodologies that touch the essential elements of investing: asset allocation, risk management and security selection. In each of those aspects, they present simpler techniques that beat most other highly complex methods studied. For instance, naïvely equal-weighting between different asset classes is shown to equal or outperform far more sophisticated models like mean-variance. The authors also favor simple value and momentum criteria for stock selection. </p>
<p> The research is fascinating and my own observations and tests would suggest that simplifying things do seem to make investing easier. Having said that, the final chapter of the book, which presents obstacles why people would be hesitant to applying the suggested models, is probably the least convincing. The reasons presented there are fair enough but there is a much bigger one that trumps them combined: the authors, just like in Quantitative Value, overstate the ease with which this can be applied by most investors. The hardcore individual investors that this book should appeal to will likely find a lot of value here, but the complete solution presented is not all that easy to follow or implement. For the casual investors who picked this up on the basis of the title “DIY Financial Advisor”, thinking that this would truly be something they could do themselves, they are very likely to be lost halfway through the book. Financial advisors exist in part because a lot of people couldn’t be bothered to follow investing even should they have the time, which they don’t often have. </p>
<p> Nonetheless, the research pieces presented, if you have the patience to understand them, are very compelling and, to their immense credit, the authors provide a blueprint for evaluating other investment advisor services. I should also point that a lot of this research is present throughout their website <a href=http://www.alphaarchitect.com/>AlphaArchitect.com</a> and they also provide free <a href=http://www.alphaarchitect.com/tools>tools</a> if you do wish to implement their strategies yourself. They also recently launched a series of ETFs, which select stocks either through <a href=http://www.alphaarchitect.com/funds/valueshares>value</a> criteria or through <a href=http://www.alphaarchitect.com/funds/momentumshares>momentum</a> criteria, that at least make implementing the stock selection aspect much more palatable. As for the book itself, all in all, DIY Financial Advisor is very-well researched, presents some compelling things to reflect upon and is a solid addition to your investing library. </p>
<p>Disclosure: DIY Financial Advisor and Quantitative Value were purchased with my own money. I do not receive any compensation from the authors for this review.
If you buy these books through Amazon though my site, I do get a small commission.
</p>
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kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-54804576844705647662015-09-30T21:41:00.001-07:002015-09-30T21:41:47.456-07:00Recommended September Buy: Oceaneering<html>
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<table style="width:75%">
<tr>
<td>Ticker</td>
<td>OII (NYSE)</td>
</tr>
<tr>
<td>Fiscal Year End</td>
<td>December</td>
</tr>
<tr>
<td>Recent price (Closing Price on September 30, 2015)</td>
<td>$39.28</td>
</tr>
<tr>
<td>Market Capitalization</td>
<td>$3.97 Billion</td>
</tr>
<tr>
<td>52 week range</td>
<td>$37.00 – $72.19</td>
</tr>
<tr>
<td>Enterprise Value to EBIT (last full year)</td>
<td>7.5</td>
</tr>
<tr>
<td>EV to EBIT (7 year average earnings)</td>
<td>11.5</td>
</tr>
<tr>
<td>Enterprise Value to sustainable Free Cash Flow (last full year)</td>
<td>9.6</td>
</tr>
<tr>
<td>EV to SFCF (7 year average earnings)</td>
<td>17.0</td>
</tr>
<tr>
<td>Enterprise Value to Book</td>
<td>2.8</td>
</tr>
<tr>
<td>EV to Book (7 year average Book value)</td>
<td>3.1</td>
</tr>
</table>
<br>
<br>
<p> Having originated as a group of diving services companies, Oceaneering is now a provider of equipment and services to the offshore oil and gas industry. According to its filings, the company has over a third of all Remotely Operated Vehicles, small submersible vehicles for deepwater tasks, in the world. It also provides and rents out other specialty offshore oilfield products, as well as services ranging from installation and maintenance to testing and inspection. Finally Oceaneering also uses its marine expertise to provide services to the US Navy, NASA and the theme park industry.</p>
<p> I picked Oceaneering for notching a score of 8 on <a href="http://blog.alphaarchitect.com/2015/05/05/value-investing-research-simple-methods-to-improve-the-piotroski-f-score/">Alpha Architect’s</a>) tweaked Piotroski F-Score. It came up short only on having higher Long term debt and lower total asset turnover than in the previous year. Oceaneering is undervalued based on its ratio of Enterprise Value to Average EBIT, which is just under 12 times currently, while I estimate it to be worth around 17 times its average EBIT. It also does not seem to be overvalued based on its ratio of Enterprise Value to Average Book value. Oceaneering’s lowest Return on Invested Capital in the past 10 years was 13% and it has been much higher most other years. Despite the slump in oil prices, Oceaneering’s operations and profits have not been hurt nearly as much as other companies. It should still be able to generate returns of around 14% this year. Should oil prices rebound in the next couple of years, these numbers would be higher but the company is still generating enough profitability in the current environment. Oceaneering constitutes a buy at below $42 per share.</p>
<p>Disclosure: I own shares in Oceaneering</p>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQgOHT0Ac5l6tDqOo1lMOO3yLVi71pC2o1xtF4F_W7AAlka3e7uchmDFXEGtHKjHmIDd1MAsvBHyghrqUs8RtS0M9bEApY5De6OQutnT04pD3CU6zXf6OrhTG6ksriuVksI7WF_3vx0MLC/s1600/Oceaneering+Sept+2014+to+Sept+2015.jpg" imageanchor="1" ><a href="https://www.google.ca/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1443673911197&chddm=98923&chls=IntervalBasedLine&q=NYSE:OII&ntsp=0&ei=7rUMVqjdIoSeeZmcuaAK">Oceaneering, Sept 2014 to Sept 2015<img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQgOHT0Ac5l6tDqOo1lMOO3yLVi71pC2o1xtF4F_W7AAlka3e7uchmDFXEGtHKjHmIDd1MAsvBHyghrqUs8RtS0M9bEApY5De6OQutnT04pD3CU6zXf6OrhTG6ksriuVksI7WF_3vx0MLC/s400/Oceaneering+Sept+2014+to+Sept+2015.jpg" /></a></a>
</html>kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-88785677535728777512015-09-30T21:25:00.000-07:002015-09-30T21:25:12.408-07:00Recommended September Buy: Corning<html>
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<table style="width:75%">
<tr>
<td>Ticker</td>
<td>GLW (NYSE)</td>
</tr>
<tr>
<td>Fiscal Year End</td>
<td>December</td>
</tr>
<tr>
<td>Recent price (Closing Price on September 30, 2015)</td>
<td>$17.11</td>
</tr>
<tr>
<td>Market Capitalization</td>
<td>$21.60 Billion</td>
</tr>
<tr>
<td>52 week range</td>
<td>$15.42 – $25.16</td>
</tr>
<tr>
<td>Enterprise Value to EBIT (last full year)</td>
<td>6.7</td>
</tr>
<tr>
<td>EV to EBIT (7 year average earnings)</td>
<td>8.4</td>
</tr>
<tr>
<td>Enterprise Value to sustainable Free Cash Flow (last full year)</td>
<td>7.0</td>
</tr>
<tr>
<td>EV to SFCF (7 year average earnings)</td>
<td>11.2</td>
</tr>
<tr>
<td>Enterprise Value to Book</td>
<td>1.1</td>
</tr>
<tr>
<td>EV to Book (7 year average Book value)</td>
<td>1.3</td>
</tr>
</table>
<br>
<br>
<p> Corning is a producer of specialty glass and ceramics components for various technology fields. Its biggest business line is the Display Technologies segment, which makes glass substrates used the production of LCD displays for TVs, mobiles devices, etc. It accounts for about 40% of the company’s revenues. The Optical Communications line provides optical fiber solutions, both hardware and services, to the telecom industry, displacing traditional copper based systems. Environmental Technologies produces ceramic substrates and filter products. These are particularly used in motor vehicles to help control emissions. The Life Sciences segment caters to laboratories, supplying them with various highly specialized laboratory products from surfaces to dishes. Finally, the Specialty Materials segment manufactures products that don’t neatly fit into the previous categories, except maybe for the Gorilla Glass brand, which currently is Corning’s most visible product.</p>
<p> Corning registered a Piotroski score of 8 (based on <a href="http://blog.alphaarchitect.com/2015/05/05/value-investing-research-simple-methods-to-improve-the-piotroski-f-score/">Alpha Architect’s</a>) modifications), failing only to improve its Current ratio and its Gross margin. When it comes to valuation, it is cheap on almost all metrics. I picked it for trading at over 30% to its value based on its average sustainable Free Cash Flow, but it also trades at consistent discounts based on its book value and on earnings before interest and taxes. Historically Corning has not been this cheap relative to its performance in a long time. Its depressed price would seem to reflect fears that its display business, its biggest profit engine, will get pressured by competitors. But the company remains solidly profitable. It has the financial resources and knowledge to innovate and overcome any likely short-term setbacks.</p>
<p>Disclosure: I own shares in Corning Inc.</p>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuv3-U8Zlef6y3Xjc_Rwq09x25_HynZJ9227VkljJlWZtp1IKre4aMtakWWyQBiy0qFK8mSW3EDWoU6VWByCO18bXd3Ptuismz-3zRCaepZxlGHp9qJfH0VgJkWb83_ZmNrvpoLchI68mh/s1600/Corning+Sept+2014+to+Sept+2015.jpg" imageanchor="1" ><a href="https://www.google.ca/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1443672960659&chddm=98532&chls=IntervalBasedLine&q=NYSE:GLW&ntsp=0&ei=ebMMVtjoGc-7e56Fp8AL">Corning, Sept 2014 to Sept 2015<img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuv3-U8Zlef6y3Xjc_Rwq09x25_HynZJ9227VkljJlWZtp1IKre4aMtakWWyQBiy0qFK8mSW3EDWoU6VWByCO18bXd3Ptuismz-3zRCaepZxlGHp9qJfH0VgJkWb83_ZmNrvpoLchI68mh/s400/Corning+Sept+2014+to+Sept+2015.jpg" /></a>
</a>
</html>kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-21378144674060581162015-08-31T18:15:00.000-07:002015-08-31T18:15:16.380-07:00Recommended August Buy: Intel Corp.<html>
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<table style="width:75%">
<tr>
<td>Ticker</td>
<td>INTC (Nasdaq)</td>
</tr>
<tr>
<td>Fiscal Year End</td>
<td>December</td>
</tr>
<tr>
<td>Recent price (Closing Price on August 10, 2015)</td>
<td>$29.64</td>
</tr>
<tr>
<td>Market Capitalization</td>
<td>$138.1 Billion</td>
</tr>
<tr>
<td>52 week range</td>
<td>$27.62 – $37.90</td>
</tr>
<tr>
<td>Enterprise Value to EBIT (last full year)</td>
<td>9.5</td>
</tr>
<tr>
<td>EV to EBIT (7 year average earnings)</td>
<td>11.5</td>
</tr>
<tr>
<td>Enterprise Value to sustainable Free Cash Flow (last full year)</td>
<td>12.6</td>
</tr>
<tr>
<td>EV to SFCF (7 year average earnings)</td>
<td>13.9</td>
</tr>
<tr>
<td>Enterprise Value to Book</td>
<td>2.7</td>
</tr>
<tr>
<td>EV to Book (7 year average Book value)</td>
<td>3.1</td>
</tr>
</table>
<br>
<br>
<p>Intel is the largest semiconductor producer in the world. It is largely known to consumers for producing the processors and chipsets in personal computers and notebooks, whether they be Windows-based or Apple. It holds about four fifths of the microprocessor market. The company also dominates in processors for servers, a sizable and growing segment of its overall business as the traditional PC market stagnates. Intel is now also trying to catch up in serving the smartphone and tablet industries, where it was late at producing energy efficient processors for those products. Intel also now has a software security service in its McAfee subsidiary, bought in 2010. It hopes to integrate more security features directly into its hardware. </p>
<p>I identified Intel for notching a score of 8 on Piotroski’s F-Score (I use the 10-point variant detailed in Tobias Carlisle and Wes Gray’s excellent book <a href="http://www.amazon.com/gp/product/1118328078/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1118328078&linkCode=as2&tag=avionva-20&linkId=HLVGFYQQDRU2LAZF">Quantitative Value</a><img src="http://ir-na.amazon-adsystem.com/e/ir?t=avionva-20&l=as2&o=1&a=1118328078" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" />, as well as on Wes Gray’s website <a href="http://www.alphaarchitect.com/">Alpha Architect</a>). It came up short only on the Current Ratio test and the Free Cash Flow on Assets test. More importantly, Intel is undervalued based on its ratio of Enterprise Value to Average (7 year) Book value, which is just under 3.0 times currently. While this superficially doesn’t seem particularly cheap, it is so in light of Intel generating strong average Returns on invested capital, well above its cost of capital. I estimate its Return on invested capital at 20% over the last 7 years, while I estimate its cost of capital to be 9%. These numbers should roughly indicative of Intel’s future capacity. The PC market, while contracting, is unlikely to completely die out, at least not too soon. Intel’s efforts in the mobile space appear to be starting to pay off and the server segment will continue to do well. Meanwhile, Intel’s financial position appears strong and it certainly has more resources than a lot of its competitors. Therefore I recommend it as a buy.</p>
<p>Disclosure: I own shares in Intel Corp.</p>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9OLt6Gw525TwKgF_3Wpj-RRcPoyTrz5etvqiIkqraH_do94uY9xSaO5xR5T4_dcGOgha2K-BE3IgDiwSimla0aPw_AuNDcAweBNWqEsqpZ6lVcoENYtak3KgkSDX_aHgpudEOt_undUzS/s1600/Intel+Corp+Aug+2014+to+Aug+2015.jpg" imageanchor="1" ><a href="https://www.google.ca/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1439236800000&chddm=98532&chls=IntervalBasedLine&q=NASDAQ:INTC&&fct=big&ei=EfjkVan7GITHeamNkvAK">Intel Corp Aug 2014 to Aug 2015<img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9OLt6Gw525TwKgF_3Wpj-RRcPoyTrz5etvqiIkqraH_do94uY9xSaO5xR5T4_dcGOgha2K-BE3IgDiwSimla0aPw_AuNDcAweBNWqEsqpZ6lVcoENYtak3KgkSDX_aHgpudEOt_undUzS/s400/Intel+Corp+Aug+2014+to+Aug+2015.jpg" /></a>
</a>
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kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-73021189760654939642015-08-31T17:46:00.000-07:002015-08-31T17:46:17.343-07:00Recommended August Buy: Laurentian Bank of Canada<html>
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<table style="width:75%">
<tr>
<td>Ticker</td>
<td>LB (Toronto Stock Exchange)</td>
</tr>
<tr>
<td>Fiscal Year End</td>
<td>October</td>
</tr>
<tr>
<td>Recent price (Closing Price on August 10, 2015)</td>
<td>CAD $48.98</td>
</tr>
<tr>
<td>Market Capitalization</td>
<td>CAD $1.40 Billion</td>
</tr>
<tr>
<td>52 week range</td>
<td>$46.05 – $51.84</td>
</tr>
<tr>
<td>Price-to-Earnings (last full year)</td>
<td>9.9</td>
</tr>
<tr>
<td>Price-to-Earnings (7 year average earnings)</td>
<td>11.5</td>
</tr>
<tr>
<td>Price-to-Book</td>
<td>1.0</td>
</tr>
<tr>
<td>Price-to-Book (7 year average Book value)</td>
<td>1.07</td>
</tr>
</table>
<br>
<br>
<p>Laurentian Bank of Canada is a financial institution based in Montreal. The bank has four main business lines. Its Retail Services are offered through 156 branches in the province of Quebec (and 1 in Ottawa, Ontario), offering a wide line of personal banking services. The Commercial segment operates throughout the country, providing loans and other financing services to small and medium businesses. The bank claims to specialize especially in such niches as real estate developers, agriculture, health professionals and equipment financing. B2B Bank, the third main line, provides banking and investment solutions exclusively through independent financial advisors and non-bank financial institutions. This business in particular has grown significantly through recently acquiring other businesses such as AGF Trust and probably needs some time to adjust to its changes. The fourth segment, Laurentian Securities and Capital Markets, is focused mainly on investment banking and underwriting to small companies. </p>
<p>Laurentian Bank came up for meeting my modified Piotroski score for financial firms, obtaining a score of 5 out of 6. It’s only negative mark comes from issuing more shares compared to the previous year (a fairly recurring occurrence for the company in recent years). I also believe the company to be valued well below its intrinsic value, trading at about 1.07 times its average Book value. Also noteworthy, though it doesn’t factor in my calculations, Laurentian Bank pays a quarterly dividend of $0.56 a share, which translates to a hefty dividend yield of about 4%. The company reported quarterly earnings of $1.16 and $1.34 per share the last two quarters, so the dividend seems very sustainable and should be a reliable source of returns for the next few years.</p>
<p>Laurentian Bank has some acquisitions to digest from the last few years. But as it stands it trades at a substantial discount to its current value, at least compared to what other Canadian banks such as Canadian Western Bank trade at, with the further possibility of growth in its business across the country.</p>
<p>Disclosure: I own shares in Laurentian Bank of Canada</p>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuM2vK_pV8PlsSbpH7VLGp-xSz5IQ9xFxmI_tEWImWd5XgQ9RZyT5f5FA6cJ3g7S80Wt9P05gZMlk_OM1m9OYo2q3tYNtwQOgk5CJCw84Y_2hfe2ctLWnLQOes-vbubOm8xCKXQGqboHxu/s1600/Laurentian+Bank+Aug+2014+to+Aug+2015.jpg" imageanchor="1" ><a href="https://www.google.ca/finance?q=TSE%3ALB&ei=7fPkVbmrI5PKeYGypOgL">Laurentian Bank Aug 2014 to Aug 2015<img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuM2vK_pV8PlsSbpH7VLGp-xSz5IQ9xFxmI_tEWImWd5XgQ9RZyT5f5FA6cJ3g7S80Wt9P05gZMlk_OM1m9OYo2q3tYNtwQOgk5CJCw84Y_2hfe2ctLWnLQOes-vbubOm8xCKXQGqboHxu/s400/Laurentian+Bank+Aug+2014+to+Aug+2015.jpg" /></a>
</a>
</html>kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-3733801863207715492015-08-16T20:44:00.001-07:002015-08-16T20:44:52.920-07:00A Systematic Framework For Selecting Financial Stocks<!--[if gte mso 9]><xml>
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="heading 6"/>
<w:LsdException Locked="false" Priority="9" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="heading 7"/>
<w:LsdException Locked="false" Priority="9" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="heading 8"/>
<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
UnhideWhenUsed="true" Name="toc 2"/>
<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
UnhideWhenUsed="true" Name="toc 6"/>
<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="35" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="10" QFormat="true" Name="Title"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="1" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="11" QFormat="true" Name="Subtitle"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="22" QFormat="true" Name="Strong"/>
<w:LsdException Locked="false" Priority="20" QFormat="true" Name="Emphasis"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="39" Name="Table Grid"/>
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<w:LsdException Locked="false" Priority="61" Name="Light List"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1"/>
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<w:LsdException Locked="false" Priority="65" Name="Medium List 1"/>
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<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1"/>
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<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3"/>
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<w:LsdException Locked="false" Priority="72" Name="Colorful List"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 1"/>
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<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 1"/>
<w:LsdException Locked="false" SemiHidden="true" Name="Revision"/>
<w:LsdException Locked="false" Priority="34" QFormat="true"
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<w:LsdException Locked="false" Priority="29" QFormat="true" Name="Quote"/>
<w:LsdException Locked="false" Priority="30" QFormat="true"
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<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 1"/>
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<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 2"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 2"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 2"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 2"/>
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<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 2"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 2"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 3"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 3"/>
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<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 3"/>
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<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 4"/>
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<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 4"/>
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<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 4"/>
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<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 5"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 5"/>
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<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 5"/>
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<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 5"/>
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<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 5"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 5"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 6"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 6"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 6"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 6"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 6"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 6"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 6"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 6"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 6"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 6"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 6"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 6"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 6"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 6"/>
<w:LsdException Locked="false" Priority="19" QFormat="true"
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<w:LsdException Locked="false" Priority="21" QFormat="true"
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<w:LsdException Locked="false" Priority="31" QFormat="true"
Name="Subtle Reference"/>
<w:LsdException Locked="false" Priority="32" QFormat="true"
Name="Intense Reference"/>
<w:LsdException Locked="false" Priority="33" QFormat="true" Name="Book Title"/>
<w:LsdException Locked="false" Priority="37" SemiHidden="true"
UnhideWhenUsed="true" Name="Bibliography"/>
<w:LsdException Locked="false" Priority="39" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="TOC Heading"/>
<w:LsdException Locked="false" Priority="41" Name="Plain Table 1"/>
<w:LsdException Locked="false" Priority="42" Name="Plain Table 2"/>
<w:LsdException Locked="false" Priority="43" Name="Plain Table 3"/>
<w:LsdException Locked="false" Priority="44" Name="Plain Table 4"/>
<w:LsdException Locked="false" Priority="45" Name="Plain Table 5"/>
<w:LsdException Locked="false" Priority="40" Name="Grid Table Light"/>
<w:LsdException Locked="false" Priority="46" Name="Grid Table 1 Light"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4"/>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">I’ve thought for a long time about better ways to
select stocks in the financial sector. Many screens explicitly or indirectly
exclude financial stocks. It’s become a somewhat popular chorus in recent years
that financials are too risky or too opaque to invest in. However I do not take
this view, I’m of the opinion that no asset class or sector is inherently
unattractive. There is plenty of money to be made in analyzing financial stocks
judging by the portfolios of some of the more renown value funds such as
Arlington Value and Tweedy Browne. </span></span></div>
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<br /></div>
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</span></span><div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">I’ve settled for customizing Piotroski’s Fundamental F-Score
as a way of quickly and efficiently sorting promising financial companies from
the ugly ones. Recall that the original F-Score is a 9-point scoring system
used to screen promising stocks. For each of the 9 measurements that improved
over the last year, a company would score a 1; otherwise it would get 0. With
scores ranging from 0 to 9, companies with low scores were unattractive and
companies with higher scores were attractive. The F-Score alone was found to
produce good results historically. However, financial companies are explicitly
screened out. Indeed, a lot of the metrics would not apply to financial sector
stocks anyways. Therefore I removed from consideration the following tests that
I felt were irrelevant to the sector.</span></span></div>
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<br /></div>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">- Positive Free Cash Flow</span></span></div>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">- Current ratio improves over the previous year</span></span></div>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">- Gross margin improves over the previous year</span></span></div>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">- Total asset turnover improves over the previous year </span></span></div>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span></div>
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</xml><![endif]--><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">I kept
the remaining 5 tests and added one more of my own to capture improvement in
overall leverage (from having thrown away the current ratio test), therefore
making it a 6-point scoring system, with the following tests:</span></span></span><br />
<br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">1) Net income is positive, score 1, otherwise 0</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">2) Return On Assets latest year is greater than ROA previous year, score 1, otherwise score 0</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">3) Operating cash flow is greater than Net income, score 1, otherwise 0</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">4) Ratio of long-term debt to total assets latest year is equal or less than Ratio of long-term debt to total assets previous year, score 1, otherwise 0</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">5) Shares outstanding latest year is equal or less than Shares outstanding previous year, score 1, otherwise 0</span></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="line-height: 107%;">6) (New) Financial leverage (total assets divided by total equity) latest year is equal or les than Financial leverage previous year, score 1, otherwise 0</span></span></span><br />
<br />
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<br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Using Portfolio123’s screen building tool, I backtested
groupings of this modified Piotroski score against an equal-weighted portfolio of
all the Financial sector stocks in the total market S&P 1500 index.
Portfolios are formed every 4 weeks and held for 1 year from June 1999 to June
2015. </span></span></div>
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<o:OfficeDocumentSettings>
<o:RelyOnVML/>
<o:AllowPNG/>
</o:OfficeDocumentSettings>
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<br />
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<w:WordDocument>
<w:View>Normal</w:View>
<w:Zoom>0</w:Zoom>
<w:TrackMoves/>
<w:TrackFormatting/>
<w:PunctuationKerning/>
<w:ValidateAgainstSchemas/>
<w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid>
<w:IgnoreMixedContent>false</w:IgnoreMixedContent>
<w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText>
<w:DoNotPromoteQF/>
<w:LidThemeOther>EN-CA</w:LidThemeOther>
<w:LidThemeAsian>X-NONE</w:LidThemeAsian>
<w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript>
<w:Compatibility>
<w:BreakWrappedTables/>
<w:SnapToGridInCell/>
<w:WrapTextWithPunct/>
<w:UseAsianBreakRules/>
<w:DontGrowAutofit/>
<w:SplitPgBreakAndParaMark/>
<w:EnableOpenTypeKerning/>
<w:DontFlipMirrorIndents/>
<w:OverrideTableStyleHps/>
</w:Compatibility>
<m:mathPr>
<m:mathFont m:val="Cambria Math"/>
<m:brkBin m:val="before"/>
<m:brkBinSub m:val="--"/>
<m:smallFrac m:val="off"/>
<m:dispDef/>
<m:lMargin m:val="0"/>
<m:rMargin m:val="0"/>
<m:defJc m:val="centerGroup"/>
<m:wrapIndent m:val="1440"/>
<m:intLim m:val="subSup"/>
<m:naryLim m:val="undOvr"/>
</m:mathPr></w:WordDocument>
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<w:LatentStyles DefLockedState="false" DefUnhideWhenUsed="false"
DefSemiHidden="false" DefQFormat="false" DefPriority="99"
LatentStyleCount="371">
<w:LsdException Locked="false" Priority="0" QFormat="true" Name="Normal"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 1"/>
<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="9" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="footnote text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="annotation text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="header"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="35" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="caption"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="page number"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="endnote reference"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="endnote text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="table of authorities"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="macro"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="toa heading"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Bullet 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Bullet 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Bullet 5"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Number 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Number 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Number 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Number 5"/>
<w:LsdException Locked="false" Priority="10" QFormat="true" Name="Title"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Closing"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Signature"/>
<w:LsdException Locked="false" Priority="1" SemiHidden="true"
UnhideWhenUsed="true" Name="Default Paragraph Font"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text Indent"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Continue"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Continue 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Continue 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Continue 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="List Continue 5"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Message Header"/>
<w:LsdException Locked="false" Priority="11" QFormat="true" Name="Subtitle"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Salutation"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Date"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text First Indent"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text First Indent 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Note Heading"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text Indent 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Body Text Indent 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Block Text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Hyperlink"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="FollowedHyperlink"/>
<w:LsdException Locked="false" Priority="22" QFormat="true" Name="Strong"/>
<w:LsdException Locked="false" Priority="20" QFormat="true" Name="Emphasis"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Document Map"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Plain Text"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="E-mail Signature"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Top of Form"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Bottom of Form"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Normal (Web)"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Acronym"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Address"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Cite"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Code"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Definition"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Keyboard"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Preformatted"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Sample"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Typewriter"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="HTML Variable"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Normal Table"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="annotation subject"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="No List"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Outline List 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Outline List 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Outline List 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Simple 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Simple 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Simple 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Classic 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Classic 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Classic 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Classic 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Colorful 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Colorful 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Colorful 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Columns 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Columns 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Columns 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Columns 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Columns 5"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 5"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 6"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 7"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Grid 8"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 4"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 5"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 6"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 7"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table List 8"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table 3D effects 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table 3D effects 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table 3D effects 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Contemporary"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Elegant"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Professional"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Subtle 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Subtle 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Web 1"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Web 2"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Web 3"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Balloon Text"/>
<w:LsdException Locked="false" Priority="39" Name="Table Grid"/>
<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
Name="Table Theme"/>
<w:LsdException Locked="false" SemiHidden="true" Name="Placeholder Text"/>
<w:LsdException Locked="false" Priority="1" QFormat="true" Name="No Spacing"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading"/>
<w:LsdException Locked="false" Priority="61" Name="Light List"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 1"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 1"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 1"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 1"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 1"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 1"/>
<w:LsdException Locked="false" SemiHidden="true" Name="Revision"/>
<w:LsdException Locked="false" Priority="34" QFormat="true"
Name="List Paragraph"/>
<w:LsdException Locked="false" Priority="29" QFormat="true" Name="Quote"/>
<w:LsdException Locked="false" Priority="30" QFormat="true"
Name="Intense Quote"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 1"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 1"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 1"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 1"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 1"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 1"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 1"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 1"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 2"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 2"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 2"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 2"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 2"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 2"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 2"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 2"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 2"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 2"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 2"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 2"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 2"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 2"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 3"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 3"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 3"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 3"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 3"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 3"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 3"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 3"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 3"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 3"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 3"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 3"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 3"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 3"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 4"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 4"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 4"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 4"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 4"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 4"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 4"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 4"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 4"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 4"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 4"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 4"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 4"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 4"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 5"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 5"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 5"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 5"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 5"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 5"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 5"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 5"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 5"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 5"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 5"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 5"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 5"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 5"/>
<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 6"/>
<w:LsdException Locked="false" Priority="61" Name="Light List Accent 6"/>
<w:LsdException Locked="false" Priority="62" Name="Light Grid Accent 6"/>
<w:LsdException Locked="false" Priority="63" Name="Medium Shading 1 Accent 6"/>
<w:LsdException Locked="false" Priority="64" Name="Medium Shading 2 Accent 6"/>
<w:LsdException Locked="false" Priority="65" Name="Medium List 1 Accent 6"/>
<w:LsdException Locked="false" Priority="66" Name="Medium List 2 Accent 6"/>
<w:LsdException Locked="false" Priority="67" Name="Medium Grid 1 Accent 6"/>
<w:LsdException Locked="false" Priority="68" Name="Medium Grid 2 Accent 6"/>
<w:LsdException Locked="false" Priority="69" Name="Medium Grid 3 Accent 6"/>
<w:LsdException Locked="false" Priority="70" Name="Dark List Accent 6"/>
<w:LsdException Locked="false" Priority="71" Name="Colorful Shading Accent 6"/>
<w:LsdException Locked="false" Priority="72" Name="Colorful List Accent 6"/>
<w:LsdException Locked="false" Priority="73" Name="Colorful Grid Accent 6"/>
<w:LsdException Locked="false" Priority="19" QFormat="true"
Name="Subtle Emphasis"/>
<w:LsdException Locked="false" Priority="21" QFormat="true"
Name="Intense Emphasis"/>
<w:LsdException Locked="false" Priority="31" QFormat="true"
Name="Subtle Reference"/>
<w:LsdException Locked="false" Priority="32" QFormat="true"
Name="Intense Reference"/>
<w:LsdException Locked="false" Priority="33" QFormat="true" Name="Book Title"/>
<w:LsdException Locked="false" Priority="37" SemiHidden="true"
UnhideWhenUsed="true" Name="Bibliography"/>
<w:LsdException Locked="false" Priority="39" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="TOC Heading"/>
<w:LsdException Locked="false" Priority="41" Name="Plain Table 1"/>
<w:LsdException Locked="false" Priority="42" Name="Plain Table 2"/>
<w:LsdException Locked="false" Priority="43" Name="Plain Table 3"/>
<w:LsdException Locked="false" Priority="44" Name="Plain Table 4"/>
<w:LsdException Locked="false" Priority="45" Name="Plain Table 5"/>
<w:LsdException Locked="false" Priority="40" Name="Grid Table Light"/>
<w:LsdException Locked="false" Priority="46" Name="Grid Table 1 Light"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark"/>
<w:LsdException Locked="false" Priority="51" Name="Grid Table 6 Colorful"/>
<w:LsdException Locked="false" Priority="52" Name="Grid Table 7 Colorful"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 1"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 1"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 1"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 1"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 1"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 2"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 2"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 2"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 2"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 2"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 2"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 2"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 3"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 3"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 3"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 3"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 3"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 3"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 3"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 4"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 4"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 4"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 4"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 4"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 4"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 4"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 5"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 5"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 5"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 5"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 5"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 5"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 5"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 6"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 6"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 6"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 6"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 6"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 6"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 6"/>
<w:LsdException Locked="false" Priority="46" Name="List Table 1 Light"/>
<w:LsdException Locked="false" Priority="47" Name="List Table 2"/>
<w:LsdException Locked="false" Priority="48" Name="List Table 3"/>
<w:LsdException Locked="false" Priority="49" Name="List Table 4"/>
<w:LsdException Locked="false" Priority="50" Name="List Table 5 Dark"/>
<w:LsdException Locked="false" Priority="51" Name="List Table 6 Colorful"/>
<w:LsdException Locked="false" Priority="52" Name="List Table 7 Colorful"/>
<w:LsdException Locked="false" Priority="46"
Name="List Table 1 Light Accent 1"/>
<w:LsdException Locked="false" Priority="47" Name="List Table 2 Accent 1"/>
<w:LsdException Locked="false" Priority="48" Name="List Table 3 Accent 1"/>
<w:LsdException Locked="false" Priority="49" Name="List Table 4 Accent 1"/>
<w:LsdException Locked="false" Priority="50" Name="List Table 5 Dark Accent 1"/>
<w:LsdException Locked="false" Priority="51"
Name="List Table 6 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="52"
Name="List Table 7 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="46"
Name="List Table 1 Light Accent 2"/>
<w:LsdException Locked="false" Priority="47" Name="List Table 2 Accent 2"/>
<w:LsdException Locked="false" Priority="48" Name="List Table 3 Accent 2"/>
<w:LsdException Locked="false" Priority="49" Name="List Table 4 Accent 2"/>
<w:LsdException Locked="false" Priority="50" Name="List Table 5 Dark Accent 2"/>
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">While the annually rebalanced portfolios of Financials
stocks averaged an annual return of 6.75%, portfolios of stocks with a modified
Piotroski score of 5 or 6 (out of 6) returned an average of 8.64%, portfolios
of stocks with scores of 3 or 4 averaged 6.54%, while portfolios of stocks that
scored 2 or less only returned 4.20%. This suggests that there is a good way of
systematically choosing stocks in the financial sector. There might be other
systematic methods, and some other criteria should likely be applied, namely the
nature of the business, low valuation in relation to earnings or book value, etc.
But this is a good, simple starting point for researching financial stocks and
is the first criteria I use for selecting and recommending companies in that
sector.</span></span></div>
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kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-45340361141713964952014-08-04T06:09:00.001-07:002014-08-04T06:09:25.432-07:005 stocks now!Here are 5 stock picks I am recommending today for buying. These are short summaries of each and my basis for recommending them. I am also starting another tracking portfolio, KVOV, to track the performance of my picks.
<p><b><u>Petsmart</b></u> (Nasdaq: <a href="http://seekingalpha.com/symbol/PETM?s=petm">PETM</a>; last closing price $67.43), a retailer in pet food and supplies, is primarily attractive because of the high level of its “shareholder yield” (dividends, plus net debt payback, plus net common stock repurchase). In particular, the company has reduced its share count by about 20% since 2010, adding a boost to its earnings per share, in addition to its underlying earnings growth. Business could still continue to grow, albeit at a slower pace, in the next few years. The pet supplies industry is becoming a crowded space but Petsmart is the largest company in the market. Some stores are expanding their own pet offerings, but it’ll be a while before (if?) they can become a serious threat. In the meantime, the company is still purchasing large amounts of its stock. It is also reportedly exploring other avenues, such as a sale of the company or a special dividend, which may boost shareholder returns.
<p><b><u>Occidental Petroleum</b></u> (NYSE: <a href="http://seekingalpha.com/symbol/OXY?s=oxy">OXY</a>; $97.89) has gone up slightly since I mentioned it in <a href="http://viewonvalue.blogspot.com/2014/04/recommended-stock-pick-occidental.html">April</a>. It is still trading at a large discount to what I believe it is worth and my outlook hasn’t changed.
<p><b><u>Guangshen Railway Co.</b></u> (NYSE: <a href="http://seekingalpha.com/symbol/GSH?s=gsh">GSH</a>; $20.00) operates railways in the prosperous southern Chinese province of Guangdong. Its main lines connect the three major southern business cities of Guangzhou, Shenzen and Hong Kong, giving the company a very attractive geographic market. Guangshen is affected by slowing economic growth in China, hurting its freight business in particular. However, ongoing reforms in railways in the country to subject them to market prices will be a boost to the company. It also trades cheaply compared to its Book value, even compared to its recent history and after adjusting for cash and debt on the balance sheet. In the meantime, the stock is paying a decent dividend of almost 3%.
<p><b><u>Kyocera</b></u> (NYSE: <a href="http://seekingalpha.com/symbol/KYO?s=kyo">KYO</a>; $47.37) is a Japanese firm that produces a number of electronic components from lenses for printers to solar cells modules. Their usage can vary from industrial to home to automobiles and often form the unseen parts of branded products. Kyocera looks like the perennially “undervalued” company, its share price oscillated between $40 and $55 over the past five years, often at a slight discount to its book value. Unlike previous years, Kyocera has been making a few more improvements to its financial situation, as exemplified by its Piotroski F-Score. The company still has a rock solid balance sheet with very little debt and financial leverage and a high current ratio.
<p><b><u>Axis Capital Holdings</b></u> (NYSE: <a href="http://seekingalpha.com/symbol/AXS?s=axs">AXS</a>; $44.00) is a Bermuda-based firm with the majority of its operations in the United States. Its profits are roughly equally from the insurance and reinsurance businesses. It has moderate amount of leverage for a financial company and has been repurchasing large amounts of its own stock over the last few years, reducing its number of shares outstanding by almost a third since 2007. A good dividend yield of 2.4% and an average Price-to-Book value of about 1.0 make it an attractive purchase.
kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-71688428701599124052014-04-27T20:54:00.000-07:002014-04-27T20:54:41.660-07:00Recommended stock pick: Occidental Petroleum<b><u>Occidental Petroleum</u></b> (Symbol: <u><b>OXY</b></u>) is one of the largest energy companies in the U.S. It operates solely as in the exploration and production of oil and gas reserves (whereas some others might be involved in refining, transmission or retailing of oil, for instance, or even all of the aforementioned). Almost two thirds of Occidental Petroleum’s production comes from the U.S., with California being a particularly important geography where it is the biggest acreage among oil companies operating. The Middle-East accounts for about one third of the company’s production without some smaller contributions from Latin America. The company specializes in unconventional oil recovery techniques, using new technology to recover additional oil from mature fields where conventional extraction methods are no longer useful. Immediate plans for the future include are to divest the California operations into a new separate company, while Occidental Petroleum focuses on the Middle East and the unconventional operations in the Permian basin, namely Texas and New Mexico.
<p>By a lot of measures, Occidental Petroleum <a href="http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1262984400000&chddm=690506&chls=IntervalBasedLine&q=NYSE:OXY&ntsp=0&ei=ZsRZU9DoDKqXiQLBHw"><u>has worked out superbly for investors</u></a>. The company has increased its dividend each year since 2002, now paying out a yield of about 2.7%. With a market capitalization of over $75 Billion, it’s the 5th largest energy company and 47th overall in the S&P 500 index. It had a market capitalization of approximately $9 Billion at the end of 2002. That said, Occidental Petroleum’s stock value has languished in recent years. It went over $110 per share briefly in 2011 before falling to just north of $70 just a few months later and <a href="http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1397246400000&chddm=421107&chls=IntervalBasedLine&q=NYSE:OXY&ntsp=0&ei=ZsRZU9DoDKqXiQLBHw"><u>has traded up and down within that range ever since</u></a>. The stock price is now at $96. This is far from the prettiest picture. That said, I believe Occidental Petroleum has the markings of a profitable investment. I score Occidental Petroleum a 9-on-10 on fundamentals score, reflecting a number of improving operational and financial metrics in the past fiscal year. The company still has high gross profitability over its invested capital, even though it’s somewhat lower than in years past, specifically in the boom years that ended in 2009. It has been consistently profitable and sports a solid balance sheet with much more equity than liabilities. Currently I believe the company has a relatively low enterprise value compared to its asset value. Operating as it is and of course barring some catastrophic unforeseen circumstances, I believe Occidental Petroleum could be worth as much as the equivalent of $190 per share within 5 to 7 years, with the spinoff of the California operations possibly acting as an early catalyst for unlocking part of that value sooner. Therefore I recommend the stock as a buy.</p>
<p>Diclosure: I have a long position in OXY in my Marketocracy portfolio
kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-37862605085263009152014-01-22T20:28:00.000-08:002014-01-24T07:42:49.598-08:002013 Overview<p>2013 is closed for the books and this had been a good year on the stock market and for me also. A while ago, I created a profile and a fund at <a href="http://www.marketocracy.com">Marketocracy.com</a>. It is a website for running simulated mutual fund portfolios. The founders state their mission is to find and reward up and coming investment managers, whether they are professionals in the field or amateurs. You are given a hypothetical amount of money to manage according to SEC-like mutual fund rules, including management fees, positions restrictions, etc. There are other websites to run and track simulated portfolios like that and Marketocracy has its shortcomings (I find notably it is not the fastest website, and tracking of corporate events can be improved). But overall it is a great place to showcase your investment management skills and your business.</p>
<p>As of December 31, it showed that my flagship KMF mutual fund was up by almost 28% after fees for the year, compared with almost 32% for the S&P 500 index. However you’ll notice my fund was more or less flat from its start in October 2012 until April 2013. It was almost two-thirds in cash or in short-term bonds in the beginning of the year. That was due to a lack of investing ideas to start and I don’t like to trade on companies when their annual report is close to being due. I scarcely pay attention to quarterly reports and, since the vast majority of companies have their year-end in December, I basically sat on my hands rather than try to put that cash to work in stocks in the latter part of 2012 and in early 2013. So comparing the performance since the beginning of April, when I got around to investing most of the portfolio following the annual reports releases, to December 31, the performance of my fund was 27% after fees, compared to the 22% for the S&P 500 and 24% for the Russell 2000 index, a representative index for small companies.</p>
<p>It is entirely foolish to extrapolate what was basically 9 months’ worth of good performance into the future. Do I expect my outperformance to continue in 2014? While that would be nice, I shouldn’t expect that every single quarter or every year. If anything, all great investors had periods of time where they lagged the market, often for 2-3 years at a time or more. So of all people, I’m very unlikely to be different in that respect. I do, however, have the utmost confidence in my portfolio and my process, and I do think I’ll be able to outperform the market in the long term. As for the stock market in general for 2014, I can’t predict what’s going to happen. Neither can most trained analysts and managers for that matter. So I won’t jump into a fool’s game. Some people think that because the market went up so much in 2013, it must come down in 2014. There’s nothing preordained, just because it went up doesn’t necessarily mean it will come down sooner rather than later. That said, the market does seem to be trading at above average levels compared to overall profits. And I’ve found it to slightly harder these last few months to find new ideas. So maybe we will have a down year, who knows. Since I try to find well-defined undervalued situations, I don’t care much what the stock market will do. I think my portfolio is well protected on the downside and any correction will only help me find more opportunities.</p>
<p>So my fearless prediction for 2014? Like the old saying goes, “it will vary”.</p>
<p>My Marketocracy fund can be found <a href="http://portfolio.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=KoPfDeKiFaHdJjAlMaKiAbDf">here</a> so you can track my performance for yourself.</p>
kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-10630074475944274412013-06-17T20:10:00.000-07:002013-06-17T20:12:42.203-07:00The return<p>An admittedly long time has passed since my last update. It has been a tumultuous year for me. On the personal side, there was the birth of my first child, followed by the return of some of my stepchildren to the household under unfortunate circumstances. We now have a household of five kids. Given that I didn’t have any kids just four years ago, that has been quite the adjustment for me. Meanwhile, on the professional side, I have been on some side projects at work, while also preparing for the next level of the CFA program.</p>
<p>Understandably, writing has taken a back seat amongst all my activities. However that does not mean I have stopped studying, analyzing and refining my investing techniques. A big portion of my off time over the past year has been spent reading and re-reading books, research articles and ideas from all over the blogosphere. A lot of what I’ve seen has been interesting and helpful. A lot of it still has been… less useful. But the important thing has been learning something new every day, trying it out for myself and applying it. That has led me to tweak my investing criteria in different ways. The broad principles of value investing guide me as always, it is to me the most logical philosophy. For the time being I am much more comfortable relying on simple quantitative analysis, à la old school Graham or Schloss style. Investing is never a static discipline and there is always room to grow. I will elaborate in the future on my current views, methods and where I see my thoughts evolving on investing.</p>
<p>In the meantime, while I wasn’t writing for most of the past year, I have continued to actively manage simulated portfolios. I now have profiles on Investopedia.com (profile name: kgateau), Marketocracy.com (kgateau) and the Motley Fool at Fool.com (konradgateau). My profile on Fool.com is <a href="http://caps.fool.com/player/konradgateau.aspx">publicly available</a> to see. I’ll have to see if the others can also be viewed publicly. I’ll comment on my successes and failures so far and my general portfolio compositions. For now, it is great to be back and writing.</p>
kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-74453515741294733442012-01-24T21:15:00.000-08:002012-01-24T21:15:28.327-08:00Evolving thoughts: My current quantitative stock selection processNow that the holidays are over and I have successfully passed the Level 1 of the CFA exam, I’ve gone back to one of my current investment projects. I’ve been working on developing and refining my stock selection method, specifically for non-financial companies (financial companies have distinctly unique financial statements so they won’t be covered here). Forecasting is beyond my means and, gathering from my readings on the topic from James Montier to David Dreman, probably more harmful than anything. In any case, few people can do it reliably, myself not included. In that regards, I’ve decided to focus squarely on the published financials of companies to identify and value opportunities. Like this <a href="http://www.grahaminvestor.com/wp-content/uploads/2010/01/graham-seminar.pdf">article</a> by Benjamin Graham points out, as well as various other observations and research from Graham again to Joseph Piotroski to Tweedy Browne Company, it is entirely possible to have objective and somewhat simple stock selection criteria based on the publicly disclosed financial statements while obtaining more than satisfactory results, provided the criteria are logical both in theory and in practice.<br />
<br />
My goal is to identify companies that are both safe and cheap with good upside potential. The three are in general linked to each other. Bought at a cheap enough price, most companies can be a good investment opportunity with little downside. Plus, minimizing your chance of a loss is actually a precursor to achieving good returns. I’ve decided to look into four general areas of criteria: 1) financial position 2) improving fundamentals 3) valuation 4) quality. The first two areas are fairly non-controversial, though at the same time I’m sometimes surprised at how little is paid attention to them. First off, I initially screen for adequate financial position, to be more precise I look for a leverage ratio of less than about 2.5 (meaning a company has a capital structure of at least 40% equity, or conversely no more than 60% liabilities) and a current ratio (current assets to current liabilities) of about at least 1. For smaller companies, I tighten the criteria to a leverage ratio of less than 2 and a current ratio of at least 2. The next area I look at is the Piotroski F score. The F score is a convenient summary of 9 fundamental indicators. While it is a quantitative measure, there are no complicated calculations; it is instead more of a checklist of observations. To summarize the F score, it consists of the following tests:<br />
<br />
1) If Net Income > 0, score 1<br />
2) If Cash Flow from Operations > 0, score 1<br />
3) If Cash Flow from Operations > Net income, score 1<br />
4) If Return on Assets (ROA) in the current period > ROA previous period, score 1<br />
5) If ratio of Long-term debt in the current period < ratio previous period, score 1
6) If Current Ratio current period > Current Ratio previous period, score 1<br />
7) If number of shares outstanding in the current period < shares outstanding previous period, score 1
8) If Gross margin in the current period > Gross margin previous period, score 1<br />
9) If Asset turnover in the current period > Asset turnover previous period, score 1<br />
<br />
Any test that is not met gets a score of 0. The scores are added up for a maximum possible score of 9, so companies with such a rating basically have all the fundamental indicators pointing in the right direction. Some of these criteria can probably be changed as one sees fit and the F score doesn’t explicitly purport to be the be-all, end-all of fundamental summaries. Nonetheless the original observations have been proven to work very well when combined with a low valuation with the aim to avoid likely value traps.<br />
<br />
Which leads me into my next area of selection: valuation. Not surprisingly this is probably the area where I focus the most on. In the past I would have at least taken a look at the trailing 12 month price-to-earnings (PE) ratio, or at least the PE for the most recently completed yearly period. Fairly early on in my investment practice, I had already gotten into the habit of virtually ignoring forward PE ratios. It wasn’t uncommon for me to look at stock that was supposedly trading at a seemingly “reasonable” 12 times forward earnings (that is, next year’s estimated earnings) but then I would realize, after taking a quick look at the data, that it was trading at more around 20-25 times last year’s earnings, often quite a bit more, most likely implying that the market was anticipating some bumper jump in earnings. Forward earnings are far more subjective than anything else; it depends on whatever assumptions are put into the estimation. Basically, any prediction, provided that it is optimistic enough, can yield a reasonable-looking forward PE. If a large enough amount of predictions were at least vaguely accurate, this wouldn’t be an issue but since a number of studies point out that forecasts aren’t usually accurate by even generous standards, that means the forward PE probably isn’t worth considering in most cases. One thing you can do with it though is gauge what the market seems to expect from the company and whether or not those expectations are reasonable. Another aspect to consider is that the trailing 12 months PE might be somewhat misleading for cyclical companies. For instance, in mid-2008, you could have bought shares in Posco, a Korean steelmaking company with a healthy balance sheet and decent returns, at over around $120 per share, representing about 9-10 times its 2007 earnings, which would initially look cheap. However that year mostly reflected a high point in the economic cycle. While the company remained profitable, it fell to less than $60 in late 2008 and early 2009 in the great economic crisis. To smooth out the effects of the economic cycle, Graham and Dodd proposed simply taking an average of previous years’ earnings. Taking at least 5 years average, and preferably 10 years, this should be able to encompass both boom and bust periods. Applying this to Posco would have yielded a multiplier well north of 15 times its average earnings, its highest for several years. Therefore I’ve incorporated multiyear averages of earnings into my screening.<br />
<br />
Another idea I’ve incorporated for valuation is using Free Cash Flow instead of regular Earnings. Normally this is calculated from the financial statements as Cash Flow from Operations minus Capital Expenditures. Free Cash Flow represents the actual cash that goes to the company, as opposed to using earnings which in some ways is just an accounting figure with little indication of how much cash actually goes to the company. Free Cash Flow represents the amount left over that the company could use to, say, repurchase stock and pay dividends. Also cash flow numbers have the advantage of being less manipulatable than earnings. While thus superior to earnings as a representation of what the company has generated, Free Cash Flow, if non-adjusted, still leaves something to be desired. The capital expenditures number is basically all the capital expenditures, whether it is spent to grow the company or simply maintain its current business level. As Fairholme’s Bruce Berkowitz points out in the latest edition of Security Analysis (one book that I’m currently reading while taking copious notes), a more appropriate definition of free cash flow would be the amount of cash generated that is left over for the company to invest in growth, repurchase stock or repay shareholders. This takes away expenses needed to maintain operations at its current level. Unfortunately, this also happens to be very hard to calculate. Few companies provide detailed information on which spending is for growth and which is for business maintenance. Fortunately, as this <a href="http://www.magicdiligence.com/articles/free-cash-flow-the-right-way">article</a> on the blog MagicDiligence points out, there is a way to go around that, by estimating the maintenance expenditure as the depreciation and amortization cash charges in the cash flow statement. Depreciation and amortization represent that the expensing of tangible and intangible assets over their estimated useful life. Since those assets will have to eventually be replaced it is thus entirely feasible to use depreciation and amortization as proxies for maintenance expenditures. In short, Free Cash Flow, as suggested in that article, can be estimated as Cash Flow from Operations minus Amortization & Depreciation (summarized as “Sensible Free Cash Flow” or SFCF). It can be somewhat crude but the general direction and logic is sound in my view. So putting that together with what was mentioned, my current favorite tool for putting a valuation on a company is calculating the ratio of its price compared to its multiyear average of Sensible Free Cash Flow, calculated over a period of at least 5 years, preferably 10 where available.<br />
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Finally, in the fourth major aspect of my selection, I decided to look at the quality of the company. In theory, quality companies will deliver superior investment results. As a short aside, in practice, any commitment regardless of quality can produce great results if bought at a low enough price and with enough research, but I will save this topic for another time to explore. This is partly out of convenience because this would take a whole other article, but also because if a couple of methods work well enough for you, you can probably just stick with them for the most part. <br />
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Returning to our topic, when quality has been mentioned as being identifiable through the financial numbers, it has often been interpreted that some measure of return on capital is the proxy. One measure that is seen very often is Return on Invested Capital. There are probably a few variations on the calculation but for all intents and purpose the one I am referring to is Net Operating Profit After Tax / (Short-term debt + Long-term liabilities + Equity). Basically, the Invested Capital should be the capital used to acquire the company’s income-generating assets. Starting with this calculation of ROIC, I have modified it a bit along the same lines as I explore the earnings or income issue as mentioned above. Net Operation Profit After Tax is replaced by Free Cash Flow (after depreciation and amortization) as that should better reflect the cash the company can use. I also look at the 5-year average, which should give a better indication of whether this is a quality enterprise, rather than an unusually high or low return on one specific year.<br />
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To summarize my four current stock selection criteria, I look at the financial statements for a combination of:<br />
1) Strong financial position, measured by high current ratio and low financial leverage ratio<br />
2) Improving fundamentals, measured by the Piotroski F score<br />
3) Low valuation, measured by low ratio of price to average SFCF<br />
4) Quality, defined by high average SFCF/IC<br />
<br />
I’ve collected and processed the financial data for approximately 70 companies so far, with all the caveats that this could entail. A cursory glance at the results would seem to vindicate such a selection on strictly financial statement data. I’ll eventually be going through them more in detail but so far, they seem very robust.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-74156631937790499702011-10-16T19:49:00.000-07:002011-10-16T19:49:06.699-07:00Book Review: The Little Book of Behavioral Investing, by James MontierGiven that James Montier’s <a href="http://www.amazon.com/gp/product/0470686022/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=avionva-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0470686022">The Little Book of Behavioral Investing</a> recently topped the list of bestselling business books in Canada, according to the Globe & Mail newspaper (August 30th), now seemed like a particularly good time to provide a full review. In his latest book, Montier provides an introduction to behavioral economics. He identifies a list of common emotional pitfalls in regards to how we invest money and proposes some safeguards against most if not all of them.<br />
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Montier starts by introducing our brains’ two main decision-making systems. The X-System, having appeared first, is the more developed and corresponds to emotional decision-making. It uses mental shortcuts and is quicker to activate. The C-System has only developed in humans over the past few centuries. It corresponds to logical thinking and usually takes more time to activate. People who tend to rely more on their C-System tend to make far better investors. However there are serious limitations to it. It comes in limited supply (those who habitually use it more tend to get more usage of it) and even if you use it, you can still fall prey to a number of biases and other problems. These are:<br />
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1) Over-optimism bias<br />
2) Self-serving bias<br />
3) Overconfidence, especially demonstrated by experts<br />
4) Confirmatory bias<br />
5) Conservatism bias, in that we hang on to our views too long<br />
6) Action bias<br />
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Montier takes a strong stance against many of today’s common investment practices. This starts with forecasting, which he compares to trying to be one step ahead of everyone. This is put in direct contrast to analysis of the facts on hand and knowing generally where you stand in a cycle or trend. He rails against our seeming addiction to collecting more information, despite this having no positive effect on the results from our decision-making (though it sure raises our confidence in our otherwise faulty decisions). A number of counters, some very practical, are put forward. For example, Montier advocates the use of pre-commitments, such as pre-entered buy and sell orders, in order to deal with our inability to predict how we will react in the future (that’s called an empathy gap). Another one is to keep an investment diary detailing the why of each decision at the time it was taken.<br />
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Montier generally takes the approach of introducing a behavioural problem and how it applies in the general population, giving an example or two, and then he presents how it manifests itself in the investor or the investment manager or both before prescribing a potential counter. Often the experiments have interesting results and implications. For instance, it is documented (and not the first or the last time I’ve seen this) that women are better investors than men. In another, he compares the confidence levels of predictions made by weathermen versus doctors and their actual accuracy.<br />
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Compared with his previous book Value Investing and other investing books, this one presents a different kind of usefulness. For one thing, it barely qualifies as an investing book as it deals strictly with psychology. There aren’t any investing nuggets so to speak or great lessons or much else of immediate, obvious practicality. What it does offer however is ways to take a hard look at ourselves and how we make decisions. Depending on your style, The Little Book of Behavioral Investing probably won’t be a book you will refer to particularly often but one you’ll go back to periodically over longer periods of time.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-77229946791396968862011-07-14T20:32:00.000-07:002011-07-14T20:32:53.884-07:00Capella Education: pass or fail?My latest investment idea, Capella Education, comes from the battered for-profit education sector. It is the parent company of Capella University, an online-only institution who’s clientele is comprised at 80% of professionals seeking graduate degrees and with an average age of 39. As per the usual cliché, the market tends to throw the baby out with the bathwater and I think this was the case here. Not to trivialize the concerns attributed to this sector for they were very real for the most part. To briefly recap, stocks in for-profit companies had increased substantially over the past few years as they became a popular alternative to traditional schools. They continued to rise during 2008 while the broad market tanked as the difficult economy gave a double incentive for people to go back to school in the form of more free time and the necessity to compete for fewer jobs. But in 2009-10, the situation reversed dramatically: as the markets roared back, education stocks as a whole were falling badly. Part of it was a much needed cooling off period after an extended growth run, as education stocks had traded at hefty valuations previously. But for the most part, it was because the industry as a whole was in turmoil.<br />
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As it turns out, the value that the sector brings was being called into question. The US Government Accountability Office released a report detailing its <a href="http://www.gao.gov/new.items/d10948t.pdf">investigation</a> into questionable recruitment tactics, going from misrepresenting employment prospects and financial aid eligibility to encouraging outright fraud. Also in the spotlight have been <a href="http://www.bloomberg.com/news/2010-04-30/homeless-dropouts-from-high-school-lured-by-for-profit-colleges-with-cash.html">attempts</a> by for-profits to recruit within homeless shelters. A far larger proportion of students go into default than in traditional institutions. At the same time, many former students complain that they haven’t been able to find meaningful employment in their field following graduation, if they graduate at all for in that respect also the numbers are significantly worse than in traditional colleges. This is largely reminiscent of a similar rough patch for the industry in the late 80s, when various allegations of fraud and other dubious practices led to restrictions on access to federal funding for students of these institutions. These reforms had been partly undone by the Bush administration, therefore enrollment soared and stock prices along with them in the past decade. <br />
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Now, there is scrutiny on the for-profit sector and the Department of Education had been working on changing the rules that govern whether a student that goes to these institutions can receive federal aid. Ostensibly, if a prospective student cannot get funding from attending a certain institution, then they would not be interested in that institution. This would effectively kill the business. On June 2nd, 2011, the Department of Education added a rule on <a href="http://www.cnsnews.com/news/article/government-cracking-down-profit-schools">"gainful employment"</a> to the existing rules that determined eligibility to federal funds. All interested observers had been awaiting the official announcement on the gainful employment rule for a long time now, hence the uncertainty around the sector for the last while. All in all, and in spite of most of the industry’s protests to the contrary, the new criteria proved to be much weaker than previously anticipated and so for profit stocks had a nice bounce in the aftermath. But as much as the entire sector had been oversold previously, plenty of otherwise weak companies have recovered to the same extent as their stronger peers. Buying in a distressed sector is an almost universally sound way of turning up very profitable investment. However the important idea is to choose wisely within that sector, not buy blindly whatever pops up. A casual reading of news concerning the for-profit industry will turn up more or less the same names mentioned negatively and another set of names positively.<br />
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Here are the 3 main rules affecting eligibility to federal funds:<br />
1) Gainful Employment. There are 3 subtests to this general criteria: A) At least 35% of former students are repaying their loans, or B) Estimated annual loan payment of a typical graduate must not be bigger than 30% of his or her discretionary income, or C) Estimated annual loan payment of a typical graduate must not be bigger than 12% of his or her total income. This rule won’t take effect until 2015.<br />
2) 3-year cohort default. Modified from its prior version in 2009, this is the proportion of students in a cohort taking debt who default 3 years after leaving school. An institution can have its eligibility in jeopardy if its 3-year default rate is 25% or more for 3 consecutive years.<br />
3) The “90/10” rule. An institution cannot derive more than 90% of its cash sales from Title IV federal funds for 2 consecutive years.<br />
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The Department of Education estimates that only 5% of all programs offered by for-profit organizations will be affected, the precise amount probably varying from one company to the next. Nevertheless, having only until 2015 to comply, the date is far enough that at least some organizations can adjust so this is not a concern for the most part. The latest numbers on 3-year cohort default rate, though available for the most part in annual reports, can also be conveniently found at the level of the industry <a href="http://www.quickanded.com/2011/02/three-year-default-rates-at-publicly-traded-companies.html">here</a>. Compliance with the 90/10 rule should be available in the financial statements.<br />
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In short, some companies indeed standout very much from the rest, both in the news (some mostly for not being mentioned in the news in the first place) and in the metrics. There are 3 that I was particularly looking into: Strayer, Devry and Capella. Devry’s showing in regards to the 90/10 rule was exemplary, at least for a for-profit organization (74% of revenue from federal funds according to its 2010 annual report) but I do not like that the 3-year cohort default for 2008 was 20%, not bad but far from stellar either. Strayer clocks in at 14% and Capella only 8%. Both Strayer (latest figures are of 2009) and Capella have 78% of their revenues provided by federal funds so they are far enough from the 90% threshold for it to be a concern. Overall they all have similar business risk profiles (i.e. relatively little) with Devry probably slightly less good. As a measure of financial analysis, their respective Piotroski F-scores are all excellent. However, I give preference to Capella due to its much stronger balance sheet compared the others. Its current ratio is above 5 and, at its current price, cash and equivalents represents well over a quarter of the market cap of the company. It also happens to trade at barely 10X its (adjusted) free cash flow so from a valuation perspective it is definitely very attractive. By comparison, Devry is both expensive and has quite a bit less protection on its balance sheet. Strayer is about as cheap as Capella but its leverage has been going steadily up for a number of years and it also doesn’t have much protection left in the form of a solid current ratio. Capella, at current prices of around $43-44, offers the most protection both on the balance sheet and from a valuation perspective.<br />
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Disclosure: Konrad does not own any of the securities mentioned in this article.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-50082708237876992692011-05-03T19:59:00.000-07:002011-05-04T03:58:39.995-07:00Book Review: Value Investing: Tools and Techniques for Intelligent Investment, by James Montier<a href="http://www.amazon.com/gp/product/0470683597/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=avionva-20&linkCode=as2&camp=217145&creative=399349&creativeASIN=0470683597">Value Investing: Tools and Techniques for Intelligent Investment</a><img src="http://www.assoc-amazon.com/e/ir?t=avionva-20&l=as2&o=1&a=0470683597&camp=217145&creative=399349" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /> is at its heart a gathering of James Montier's recent online writings. For his online followers, most of the material here has been touched upon and is, for the most part, reprinted here with little modification. However there a number of new additions, most notably on the recent financial crisis. Mr. Montier, of British origin and previously from Société Générale, now plies his trade at GMO, a value investment firm with a quantitative orientation. Perhaps not surprisingly, Value Investing is a book heavy on stats and graphs from various experiments and research. Apart from those graphs demonstrating value investing results and the pitfalls of investing in general, the most interesting of the research cited in the book chronicle various human weaknesses, often at first seeming unrelated to finance, and how they contribute to our lower performance on the stock market. These include, among others, overconfidence, obsession with excessive information, and tendency to extrapolate recent trends into the future. Generally speaking, not surprisingly given that he authored three other books on the topic (<a href="http://www.amazon.com/gp/product/0470516704/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=avionva-20&linkCode=as2&camp=217145&creative=399349&creativeASIN=0470516704">Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance</a><img src="http://www.assoc-amazon.com/e/ir?t=avionva-20&l=as2&o=1&a=0470516704&camp=217145&creative=399349" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /><br />
, <a href="http://www.amazon.com/gp/product/B003GY0K6Q/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=avionva-20&linkCode=as2&camp=217145&creative=399349&creativeASIN=B003GY0K6Q">The Little Book of Behavioral Investing: How not to be your own worst enemy</a><img src="http://www.assoc-amazon.com/e/ir?t=avionva-20&l=as2&o=1&a=B003GY0K6Q&camp=217145&creative=399349" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /><br />
and <a href="http://www.amazon.com/gp/product/0470844876/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=avionva-20&linkCode=as2&camp=217145&creative=399349&creativeASIN=0470844876">Behavioural Finance: Insights into Irrational Minds and Markets</a><img src="http://www.assoc-amazon.com/e/ir?t=avionva-20&l=as2&o=1&a=0470844876&camp=217145&creative=399349" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /><br />
), Mr. Montier believes, and I tend to agree, that most of our investment failings are due to psychological factors.<br />
<br />
Not that actual investment methods are faultless in all of this. Mr. Montier takes an axe to today's investment teachings revolving around the Efficient Market Hyphothesis and most of its assumptions. The first part of the book explores EMH's implications, logical incoherence and empirical results. Amongst other things, for instance, low beta stocks are shown to outperform high beta stocks, which is the exact opposite of theory. Mr. Montier also explores the shortcomings of Discounted Cash Flow models and the inability of analysts' to forecast, and others. <br />
<br />
A few alternatives are offered throughout the book, such as the use of the "Graham-and-Dodd PE", the Piotroski score, using reverse-engineered DCF to analyze the implied assumptions behind current prices, guarding against business and financial risks, etc. In what is probably the most interesting part of the book, Mr. Montier proposes some tests to identify short candidates. While I myself have no interest in shorting, it does give a suggestion on stocks to avoid. In all most if not all cases, these involved quantitative measures. While these don't occupy the majority of the book, which clocks in at well over 300 pages, Mr. Montier goes well enough in the detail of their reasoning and results for the book to merit the "Tools and Techniques" part of the title.<br />
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The text isn't without flaws. One thing that might grate some readers is how vitriolic Mr. Montier is in pointing the weaknesses of current investment theory and practices. Not that his points aren't valid, quite the contrary, but it's hard not to get distracted by his sometimes acidic tone. Another criticism is that, while there are plenty of quantitative tools suggested, this book doesn't give any clue whatsoever how to approach the qualitative features of stocks. That said, some value investors are far more, if not exclusively, concerned with the numbers in the financial statements as opposed to doing a business analysis, and most analysis can probably be quantified, but the omission of this topic is noticeable and a huge disappointment. Perhaps the biggest criticism one can address to this book is the format. As mentioned previously, most of Value Investing consists of reprinted material from Mr Montier's online postings over the past few years, with some updates. Readers and non-readers of his blog would probably feel offended at paying for something that is free online. But I think this is a moot point. Rehashed ot not, there's is far too much material to make revisiting Mr. Montier's online postings an easy task. If anything, having them all regrouped in one tome makes far more convenient to revisit them (for my part, I've read the book 2 times from start to finish so far, while revisiting specific sections numerous other times). That said, the format does make the text disjointed. Perhaps more time should've been spent rewriting and editing the postings so they fit each other more, rather than making it seem like an obvious copy and paste job.<br />
<br />
Nonetheless, Mr Montier's Value Investing is certainly a highly practical book and very actionable. The most important thing to take away from this book, and a recurring theme in all of Mr. Montier's writings, is that investing is more psychological than anything else. Entertaining and with interesting implications, I highly recommend this book. I plan to come with a review of Mr. Montier's follow up, the Little Book of Behavioral Investing, some time soon.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-78493011526634812562011-02-22T18:52:00.000-08:002011-02-22T19:48:37.980-08:00What goes up...? Momentum in investingA recent article in The Economist newspaper, entitled <a href="http://www.economist.com/node/17848665">"Why Newton Was Wrong"</a>, explores the effect of momentum in investing. Several studies, presented in the article, have all demonstrated that picking the best performing stocks from the previous 12 months would provide market-beating results. Moreover, this momentum effect exists for other securities markets, such as commodities and currencies, and has been observed for decades.<br />
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While several other stock market "anomalies" have been observed and then disappeared due to exposure, the persistence of the momentum effect had been a mystery. Nonetheless, the Economist puts forth possible explanations. Namely, the momentum effect may represent a lag between the perception of companies and their actual results. When investors have a negative view of a business, they tend to dismiss positive news about it as a blip. Then when the good news continues, they pile into the stock. Moreover, the effect may be carried over as fund managers proceed with "window-dressing" their portfolios by buying securities that had recently gone up, thus contributing to further boost stem.<br />
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Momentum strategies have been devised over the past to exploit the effect. These strategies have grown more complex, sometimes involving trading at incredible speeds. However that has made some of those strategies vulnerable to random movements in the markets. Moreover, momentum investing, over long time periods, loses out to value investing as prices of unfavored securities are driven down to bargain territory. It is noted that momentum investing has tended to misfire horribly at times and the article muses that the strategy may be behind the creation and maintaining of asset price bubbles. Some of this was not necessarily unknown in value investing circles. In its <a href="http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedInInvesting.pdf">"What Has Worked In Investing"</a> paper, noted value investing firm Tweedy Browne cites studies that point out how value investing outperforms momentum investing over periods longer than 12 months. Some of this had also been reprinted in <a href="http://www.blogger.com/%3Ciframe%20src=%22http://rcm.amazon.com/e/cm?t=avionva-20&o=1&p=8&l=as1&asins=0470055898&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr%22%20style=%22width:120px;height:240px;%22%20scrolling=%22no%22%20marginwidth=%220%22%20marginheight=%220%22%20frameborder=%220%22%3E%3C/iframe%3E">"The Little Book of Value Investing"</a> by the late Christopher Browne, former director at Tweedy Browne.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-58367590176768354862011-02-01T21:24:00.000-08:002011-02-01T21:24:02.723-08:00Why Value?I figure the first subject to explore is why am I doing this blog and how I came about upon value investing. It took me a somewhat elongated route to get there, though not necessarily a convoluted one, just long. In hindsight the signs were probably there somewhat. I wasn't raised with a background in finance or business or the like. Even in my extended family it's not a reoccurring interest, and this also wasn't a topic that was discussed much, if ever. Nonetheless, as far back as my early teens when I started getting interested in reading newspapers, I was immediately drawn to the business section. Mind you, like any hockey-loving teen, nothing took precedence over the sports section but business quickly became another favorite as I became interested in what companies did, how they made money and how the stock market functioned.<br />
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My first stock pick was in my first economics class, in high school, at 15. It was in Biochem Pharma, a medium sized Canadian pharmaceuticals. Back then I had no concept of investing, reading financial results or what not, I merely picked that company because it had popped up quite a few times in the news, usually with good news. Then I watched the stock price go down more or less continuously as the company was then appearing in the press but with bad news. (Not much later, Biochem Pharma ended up being absorbed into Shire PLC, of the UK).<br />
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In spite of this inauspicious start to an investing career, I was not deterred from doing some more research into the investment industry. I graduated from university with a bachelor's degree in business administration. There I first became aware of the securities analyst profession. At the same I did a lot of reading on investing and the stock market. Early on, I found that the Value investing philosophy made the most sense to me. The most logical way of investing is to buy a stock trades beneath its value, not on what it may or may not do next quarter. Furthermore stocks are more than just symbols to play around with like a lottery, they represent ownership in a real business. Therefore the soundest way to approach investing is through the view of a business owner.<br />
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I now spend a lot of my free time reading. There's a lot of interesting books on the subject of value investing and its approaches. I also dedicate time to perusing the financial statements of companies that might interest me, both for my own real portfolio, as well as for my electronic portfolio, which will only include businesses after I have researched. You can only better at things by practicing and I intend to accumulate lots of experience. The goal of this blog is therefore to gain experience by chronicling my own reflections on investing, my picks and recommendations, as well as presenting business and investing news that I find particularly interesting. Thus far I have a bit over 2 years experience at investing and I'm looking forward to learning more and refining my style. Professionally, I'd love to get into security analysis or portfolio management as a career as I find it fun to learn about different businesses and I'm currently studying to obtain the CFA designation. I don't expect all my decisions to be home runs and like any good investor I expect to see some losers but this is a thoroughly enjoyable interest and I hope everyone can enjoy and benefit alongside me.kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.comtag:blogger.com,1999:blog-7923274963417326511.post-66236475567623117992010-11-08T04:21:00.000-08:002010-11-09T05:25:07.519-08:00Picks<table border="1" cellpadding="4" cellspacing="0" style="page-break-before: always; width: 571px;"><col width="86"></col> <col width="69"></col> <col width="69"></col> <col width="75"></col> <col width="60"></col> <col width="76"></col> <col width="78"></col> <tbody>
<tr valign="TOP"> <td width="86"> <br />
<br />
</td> <td width="69"> Buy Price<br />
</td> <td width="69"> Date Triggered<br />
</td> <td width="75"> Price 11/04/2010<br />
</td> <td width="60"> Stock Return<br />
</td> <td width="76"> Benchmark Return<br />
</td> <td width="78"> Benchmark<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> General Electric (GE)<br />
</td> <td width="69"> $19.95<br />
</td> <td width="69"> 11/04/08<br />
</td> <td width="75"> $16.51<br />
</td> <td width="60"> -17.20%<br />
</td> <td width="76"> 21.40%<br />
</td> <td width="78"> S&P 500<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> U.S. Bancorp (USB)<br />
</td> <td width="69"> $14.54<br />
</td> <td width="69"> 04/08/09<br />
</td> <td width="75"> $25.16<br />
</td> <td width="60"> 73.00%<br />
</td> <td width="76"> 48.00%<br />
</td> <td width="78"> S&P 500<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> Novartis (NVS)<br />
</td> <td width="69"> $36.10<br />
</td> <td width="69"> 04/23/09<br />
</td> <td width="75"> $59.05<br />
</td> <td width="60"> 63.60%<br />
</td> <td width="76"> 45.50%<br />
</td> <td width="78"> iShares MSCI EAFE<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> Hudson City Bancorp (HCBK)<br />
</td> <td width="69"> $12.70<br />
</td> <td width="69"> 05/24/10<br />
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</td> <td width="75"> $11.94<br />
</td> <td width="60"> -6.00%<br />
</td> <td width="76"> 13.70%<br />
</td> <td width="78"> S&P 500<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> Banco Santander (STD)<br />
</td> <td width="69"> $11.45<br />
</td> <td width="69"> 06/22/10<br />
</td> <td width="75"> $12.50<br />
</td> <td width="60"> 9.20%<br />
</td> <td width="76"> 19.00%<br />
</td> <td width="78"> iShares MSCI EAFE<br />
</td> </tr>
<tr valign="TOP"> <td width="86"> Johnson & Johnson (JNJ)<br />
</td> <td width="69"> $60.67<br />
</td> <td width="69"> 09/15/10<br />
</td> <td width="75"> $64.76<br />
</td> <td width="60"> 6.70%<br />
</td> <td width="76"> 8.50%<br />
</td> <td width="78"> S&P 500<br />
</td> </tr>
</tbody></table>kgateauhttp://www.blogger.com/profile/17544565955570322828noreply@blogger.com