10/06/2014 10:00 am EST
In choosing stocks for his portfolio, Neil Macneale focuses exclusively on companies that have just announced stock splits; here, the editor of 2-for-1 Stock Split Newsletter discusses his strategy and highlights some of his recent stock split ideas.
Steven Halpern: Joining us today is Neil Macneale, editor of the 2-for-1 Stock Split Newsletter. How are you doing this morning, Neil?
Neil Macneale: Just great. Another day in paradise.
Steven Halpern: Well, thank you so much for joining us. Historical studies have shown that stocks selected from among those that have announced stock splits tend to outperform over the long-term. Could you expand on that?
Neil Macneale: Well, it was found back in 1996—by an academic study done by David Eikenberry—that stocks, the group of stocks that’s taken as a group that have announced splits, outperformed the market and outperformed a similar group that has not announced splits.
So, I took that and I created a portfolio of nothing but companies that have announced splits and, in 18 years, it turns out it has outperformed the market by just about double.
Steven Halpern: Now, following this strategy, you add one new stock each month to your model portfolio. Could you briefly explain the overall process?
Neil Macneale: Well, the idea is to keep this portfolio of 30 stocks moving through time and we do that by adding one new stock each month and taking off the one that is the oldest.
In other words, we hold it for 30 months, and that sell routine instills some discipline in the portfolio, it also takes advantage of the stock split advantage that occurs over two to three years but dissipates after that period of time, so it’s time to sell after 30 months.
Steven Halpern: The latest addition to your 2-for-1 portfolio is a company that many of our listeners may not be familiar with called Amphenol (APH). What’s the attraction there?
Neil Macneale: Well, Amphenol is one of those companies that I like because it makes things that people really need and—even though most people have never heard the name—they definitely own some products that have been made by Amphenol.
All of the electrical connections in their car and in their TV, and so forth and so on, probably most of them are manufactured by Amphenol so it’s one of those little companies that performs a real need and it’s growing, has terrific top and bottom line growth, a terrific cash flow. It’s just a great little company.
Steven Halpern: Now, when you select from among stocks that have announced splits—in this case, you chose Amphenol—and to do so, you passed over another company known as Continental Resources (CLR), which also announced a split. Could you explain why you chose one over the other?
Neil Macneale: Well, of course, first of all, you only need one. I’m adding one stock a month, and so, I just pick the one that I like the best but Continental Resources, in particular, seems quite expensive. I like to stick with low PEs and low book-to-value ratios.
Continental Resources does not pay a dividend, which I like, and it’s quite volatile, so there were a lot of reasons to go for Amphenol over Continental Resources. It’s just a decision that I have to make each month.
Steven Halpern: Yet, in your latest newsletter, you did mention that for those interested in an energy stock, you looked back at a previous recommendation of yours in the energy sector. Can you tell us a bit about that?
Neil Macneale: Well, Enterprise Products Partners (EPD) is the stock you’re referring to, I believe, and that was the Number Two ranked stock in the August newsletter. Enterprise Products is an oil and gas producer. It has good solid fundamentals.
It’s less volatile than the market, pays a 3.8% dividend, so those are good numbers. Again, though, I only need one stock per month and I happen to like Columbia Sportswear better, but if you’re looking for an energy stock, Enterprise Products—EPD—would be a good choice.
Steven Halpern: Now, when we last spoke, you had just added Apple (AAPL) to your portfolio. For our listeners who followed that recommendation, would you provide a brief update on your outlook?
Neil Macneale: Well, Apple has done real well since we bought it in May. It’s up about 17% so we can pat ourselves on the back for that but the outlook for us is really, we’re going to hold that stock for 30 months regardless of whether the market is up or down or whether the stock is up or down.
That’s just our methodology. I personally think that Apple is going to certainly be up over 30 months. How much, we can’t really say at this point.
Steven Halpern: Now, finally, congratulations are in order on—you recently licensed an index made up of your stock recommendations to USCF Advisors—and, if I understand correctly, a new ETF is now trading under the symbol (TOFR). It’s a real testament to the excellent work you’ve done over the years. I just wanted to take a moment to congratulate you on that.
Neil Macneale: Well, thanks very much, Steve. It’s a culmination of a lot of work, 18 years of publishing.
Steven Halpern: Well, thank you and congratulations and thank you for joining us.
Neil Macneale: Thank you, take care.