Today the market has been up and sideways basically, perhaps a little more defensive this afternoon,...
Roundtable Winner's Best Picks for 2014
03/11/2014 10:08 am EST
MoneyShow’s Tom Aspray takes a technical look at the stocks picked by Barron’s Roundtable winner Meryl Witmer to see how they’re doing and what their outlook might be.
The setback for the stock market was generally mild on Monday with the homebuilding sector being hit the hardest. The market internals were slightly negative like last Friday, which has dropped the McClellan oscillator to -47 but the A/D line is still holding above support. The futures are a bit lower in early trading.
Many of you are likely familiar with Barron’s Roundtable feature where they discuss the views and recommendations of their panelists for the year ahead. This year’s coverage included the views of ten panelists and was spread over three issues. Even though Barron’s is available in most libraries, I continue to recommend that you consider a subscription as I have been a reader for over 30 years. The convenience of finding a copy in my driveway every Saturday is a real plus.
In the past, you could count on any stocks mentioned favorably to get the “Barron’s Boost” when the market opened on Monday. In my non-scientific study it has been my observation that many of these stocks will give up these gains several weeks later. Therefore, if you wait to buy a stock that has been recommended in Barron’s, you might get a better price later.
This table reviews the performance of their picks for 2013 where the clear winner was Meryl Witmer. Her recommendations were up 60.9%, which was well above the second place 37.7% gain of Oscar Schafer. The average of 21.2% was worse than the S&P 500’s 28.6% gain. Longer term, they have done much better as since 2002 they have posted a 13.3% average return versus just 1.5% for the S&P 500.
Ms. Witmer’s 2014 picks included Wyndham Worldwide Corp (WYN), Spectrum Brands Holdings (SPB), Esterline Technologies Corp. (ESL), and Constellium NV CI A (CSTM). So, how have these stocks done, so far, and what is their technical outlook?
Chart Analysis: Wyndham Worldwide Corp. (WYN) is one of the new picks and it was trading at $72.97 when recommended. It closed Monday at $74.68, and from the Barron’s article, Meryl Witmer said:
- "The company is the largest global franchisor of hotels. It has 15 brands in 67 countries…. Like most franchisor businesses, lodging requires little capital to grow organically. Incremental margins typically are in the 40% range. Capital spending in this business is around $40 million a year, and EBITDA is $300 million."
- The weekly chart shows that last week’s close at $95.70 was quite close to its weekly starc+ band at $76.70.
- The daily starc+ band (not shown) was tested last week
- The relative performance bottomed in 2013 and tested its uptrend, line d, during the February correction.
- The RS line is now testing its downtrend and may be forming a negative divergence.
- The weekly OBV formed a clear uptrend, line e, last year and this support was tested last month.
- The OBV is above its WMA but has not confirmed the recent highs.
- The daily OBV (not shown) shows a more severe negative divergence.
- There is first support in the $70.80-$72 with the quarterly pivot at $68.64
Spectrum Brands Holdings (SPB) is a global branded consumer products company with a market cap of $4.12 billion.
- In terms of fundamentals, Meryl Witmer said "Last year my low-end estimate of free cash flow for 2015 was $7 a share. Management recently forecast that free cash flow will be at least $350 million in 2014, so with 52 million shares outstanding, Spectrum is a year ahead of my schedule."
- The weekly chart shows that SPB has formed three dojis over the past three weeks (see circle), which indicates indecision.
- The stock was recommended at $69.80 and is up over 12%, closing Monday at $78.18.
- There is minor support now at $77 with the rising 20-week EMA at $71.61.
- The quarterly pivot is even lower at $68.04 and SPB has held above this pivot since August 2013.
- The weekly relative performance made impressive new highs in early 2014 and is well above its WMA.
- The weekly OBV made its high in early January and has formed a negative divergence, line h.
- There is important OBV support now at line i.
NEXT PAGE: 2 More Meryl Witmer Picks|pagebreak|
Esterline Technologies Corp. (ESL) is an aerospace and defense products company that was recommended at a price of $101.67 and closed Monday at $109.44. This is a 7.6% gain since it was selected.
- In a comment regarding the financials for ESL, Ms. Witmer said “Total revenue is split 45% from commercial aviation, 35% from defense, and 20% from industrial customers. The company reported $2 billion in total revenue for fiscal 2013, ended Oct. 25, of which 15% came from higher-margin aftermarket business."
- ESL tested its weekly starc+ band in mid-January before its 11% pullback as it hit a low of $97.12 in February.
- The weekly starc+ band is now at $115.30 with the quarterly projected pivot resistance at $119.51.
- The relative performance broke through resistance, line b, at the end of November and is well above its WMA.
- The weekly OBV has been above its WMA since late last November and broke through resistance (line c) in early 2014.
- The OBV has been very strong recently as it is leading prices higher.
- The daily OBV (not shown) is also positive with the 20-day EMA now at $107.88.
- There is further support at $105.64, which is the monthly pivot.
Constellium NV CI A (CSTM) has a market cap of $2.92 billion and it designs and manufactures aluminum products for the automotive and aerospace industry. It was recommended at $22.98 and closed Monday at $27.84, which is a gain of over 21%.
- Meryl Witmer has a very positive outlook for its earnings “Constellium is expected to earn about $2 in 2013.... It has the potential to earn more than $2.50 a share in two or three years, all while generating free cash flow.... Our target is $30 to $35 in the next two to three years. The company estimated that the replacement value of its assets is north of six billion euros.”
- The weekly chart shows that it has moved sideways over the past three weeks with a high of $29.08.
- The weekly starc+ band is at $30.40 with monthly projected pivot resistance at $31.84.
- The monthly pivot is at $27.06 with much stronger support at $24.30 to $25.40, which includes the February low.
- The weekly relative performance has identified CSTM as a market leader since last fall when it moved strongly above its WMA.
- The RS line has first support at line e, and then its rising WMA.
- Volume was strong last week as it was the highest in over a year.
- The OBV has risen sharply after testing the support at line f and made a new high last week.
What It Means: As I have commented previously, I do not think buying a stock and holding it for the entire year allows the investor to pay proper attention to the risk.
The weekly divergences evident in Wyndham Worldwide Corp. (WYN) and Spectrum Brands Holdings (SPB) makes them vulnerable to a deeper correction. Both are in a higher-risk buy area, basis the starc+ band analysis.
How to Profit: For Esterline Technologies Corp. (ESL), go 50% long at $105.78 and 50% long at $104.16, with a stop at $101.36 (risk of approx. 3.4%).
For Constellium NV CI A (CSTM), go 50% long at $26.38 and 50% long at $25.36, with a stop at $24.19 (risk of approx. 6.5%).
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