Split Expert Serves Up Starbucks
05/22/2015 10:00 am EST
Neil Macneale, editor of the 2-for-1 Stock Split newsletter, assesses all the stocks each month that have announced splits; his proprietary system then selects one stock from this group to be the new addition to his model portfolio. Here, he discusses his strategy and looks at some recent split candidates.
Steven Halpern: Our very special guest today is Neil Macneale, editor of the 2-for-1 Stock Split newsletter. How are you doing today, Neil?
Neil Macneale: Well, just great. Thanks, Steve.
Steven Halpern: Thank you for taking the time. You focus exclusively on stocks that have announced upcoming splits. Could you share some background on this strategy and walk us through how you compile your model portfolio?
Neil Macneale: Right. Well, the 2-for-1 strategy relies on three simple principals. First, keep it simple. We have 30 stocks, all picked after their split announcement.
And number two is that we add one and delete one every month. It’s a very mechanical procedure.
And the third principal is to rebalance periodically to keep an equal weight across all the 30 positions in the portfolio.
Now for the monthly pick, I review all the recent split announcements. I pick the one that scores the highest in our screening algorithm—and then at the same time—I delete the position that’s been in the portfolio the longest, for 30 months.
Steven Halpern: Now, some of that also comes down to being subjective because you’ll sometimes doing your screening and are there other factors that come into play where you might choose to include one stock over another?
Neil Macneale: Well, I do try to stick with the ranking algorithm as often as I can, which is almost all the time, but every once in a while there will be a situation, for instance, where possibly like a cigarette company, a tobacco company might come to the top of the list and I just won’t pick that for personal reasons. That would really be the only exception.
Steven Halpern: Would your strategy fit into alternate investing, which is something we hear so much about today?
Neil Macneale: Well, alternates were initially thought of as, sort of, anything besides stocks and bonds, like commodities, and real estate, and so forth. Now the definition has kind of gotten a little fuzzy, I think, but 2-for-1, I think, is definitely not an alternate investment strategy.
This is a very simple portfolio of 30 great companies and I don’t use any leverage, or shorting, or hedging, market timing, so it’s pretty straight forward. It’s not really out of the mainstream.
Steven Halpern: Okay, so a recent addition to your model portfolio was Starbucks (SBUX), a well-known name. Could you tell us what you considered when deciding on this addition?
Neil Macneale: Sure, Starbucks scored very well in the growth and profitability categories. It pays a nice dividend and it does have a lower measure of volatility than the market.
And then I threw in a couple of other companies that had announced splits in the previous months and Starbucks just came out on top. It was pretty simple. You have got to remember, I only need one great company every month. That’s the rule.
Steven Halpern: So, now you’ve just completed your research regarding the latest month’s split announcements. Could you possibly share some insights for what you gained from the most recent splits?
Neil Macneale: Well, I don’t think there’s any earth shaking insight, but the newsletter and index revision come out in just less than an hour from now so I can’t really reveal what the May pick will be, but I will say that the four split announcements for April were Marathon Petroleum (MRO), Exponent Incorporated (EXPO), PPG Industries (PPG), and G-III Apparel (GIII).
Now, I did look all of those very carefully, I’m going to recommend the one that I think is going to have the best chance of adding value to the 2-for-1 portfolio. They’re all good companies, but like I said before, we just need one, so you have to stay tuned and you’ll know shortly.
Steven Halpern: Okay, again, our guest is Neil Macneale, editor of the 2-for-1 Stock Split newsletter. Thank you for your time today.
Neil Macneale: Oh, you’re more than welcome Steve. Have a great day.