Our strategy is based on adding one stock each month to our model portfolio; the stocks are chosen exclusively from those that have announced splits in the previous month, explains Neil Macneale of the 2-for-1 Stock Split Newsletter.
The universe from which we are is selecting, the group of split stocks, is already assumed to be performing ahead of the market. So all one has to do is achieve an average performance within that pre-selected group.
First, companies that are making money the old-fashioned way are preferred. In other words, companies that have real earnings that are growing at a moderate pace get preference.
Second, companies that pay dividends receive high marks. Dividends are a hedge against a falling market and are a signal, in themselves, that the company's management recognizes for whom they are working.
Finally, companies that have reasonable price/earnings and price/book ratios are favored. This is in keeping with one other well-known stock picking method, the Value Line Survey's rating system that has had good results over the years.
Using these guidelines, incorporated into a proprietary screening algorithm, stock splits for each month are ranked relative to each other, and the highest ranked stock is picked to be added to the portfolio and is recommended in the newsletter.
Our pick for July, Franklin Resources (BEN), is the best of the four stocks that announced splits in June.
However, one metric is distinctly not to my liking. I have been trying hard to reduce the volatility of the portfolio by avoiding stocks with a Beta of more than 1.0 and BEN's Beta is 1.55.
Nevertheless, I'm still recommending it because it will add a strong company from the financial sector and its other fundamental numbers look very good.
BEN's most outstanding characteristics are how conservatively managed, yet how profitable this company is, compared to its peers.
Franklin Resources, better known as Franklin Templeton Investments, was founded in 1947 by Rupert H. Johnson, Sr., and has been run by the Johnson family ever since.
Buying up Sir John Templeton's company in 1992 solidified BEN's as one of the world's premier investment management firms. Franklin's 3-for-1 split indicates its Board's strong belief in the ongoing success of this company.
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