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Ascendere Associates LLC

Innovative Long/Short Equity Research

Model Portfolio Monthly Update: January 31, 2014


There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report. We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC: Relative Value Operating Momentum Analyst Revision Momentum Fundamental Quality

Page 2 contains rebalancing actions for our long-only model portfolio. Page 3 contains rebalancing actions for our short-only model portfolio. Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Commentary Following a spike in volatility on January 24 the Opportunistic long model portfolio went to a 100% cash position. The Core long model portfolio, composed of the same stocks but without the volatility-based cash triggers, stayed long its group of stocks and finished the month with a better return. The Core long model finished the month down -2.62% versus -3.91% for the opportunistic model and down -3.45% for the S&P 500 Total Return Index. The Opportunistic long model stays 100% cash through at least February 23, or another 15 trading days. We publish a fundamental momentum strategy in which stocks relentelessely are replaced by ideas with better fundamental momentum every month. Despite the many stocks moving off the list, we would not be surprised if many of them perform well over the course of the year. Often there is value to be found in stocks that sell to far in reaction to a change in consesnus estimates but that is not the goal of this particular strategy. A number of stocks move off the buy list this month because of sharply lower estimate revisions. These include Signet Jewelers (SIG), Nu Skin Enterprises (NUS), Oceaneering International (OII), Old Republic International (ORI), Flowserve Corp. (FLS) and SanDisk Corp (SNDK). Not as sharp but still relatively lower revisions that are enough to move them off the buy list come from Dilliards (DDS), Hanesbrands Inc. (HBI) and FleetCor Technologies, Inc. (FLT). Huntington Ingalls Industries, Inc. (HII) moves off the list because relative valuation has gotten ahead of itself.
Ascendere Associates LLC J. Stephen Castellano January 31, 2014 steve@ascenderellc.com

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There are no changes to the fundamentals behind PAREXEL International Corporation (PRXL), Lennox International, Inc. (LII) and NXP Semiconductors NV (NXPI) but they are moving off the list to be replaced by higher-beta equivalents. It is very hard to find short ideas in the current market. Many stocks that may look poor based on recent results will likely post sharp rebounds within 2-3 quarters. There is an exception to that rule at the moment, and that is Yahoo! Inc. (YHOO). Of all the companies in our universe of coverage, YHOO by far is the best looking short idea at the moment.

NasdaqGS:YHOO NOPLAT Economic Charge Economic Profit Sequential growth NOPLAT Operating Capital ROIC (NOPLAT / Operating Capital) Sequential growth

3/31/15 (279) 1,433 (1,711) -2% (279) 19,209 -1.4% -8%

12/31/14 (303) 1,444 (1,747) 1% (303) 19,362 -1.5% 7%

9/30/14 (284) 1,453 (1,737) 1% (284) 19,480 -1.4% 6%

6/30/14 (268) 1,460 (1,727) 0% (268) 19,569 -1.4% 4%

3/31/14 (258) 1,466 (1,724) 1% (258) 19,653 -1.3% 10%

12/31/13 (232) 1,467 (1,699) -7% (232) 19,665 -1.2% -43%

9/30/13 (402) 1,430 (1,832) -167% (402) 19,506 -2.1% -110%

6/30/13 4,160 1,433 2,727 0% 4,160 19,928 21.7% 2%

3/31/13 4,036 1,300 2,736 -2% 4,036 19,773 21.3% -1%

12/31/12 4,016 1,221 2,796 -46% 4,016 18,905 21.4% -36%

9/30/12 6,283 1,152 5,132 881% 6,283 18,131 33.7% 262%

6/30/12 1,736 1,213 523 4% 1,736 19,034 9.3% -5%

3/31/12 1,817 1,315 503 -6% 1,817 18,973 9.8% 2%

12/31/11 1,762 1,230 533 30% 1,762 18,673 9.7% 6%

Source: S&P Capital IQ data and estimates, and Ascendere Associates data and estimates.

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Long Model Portfolio -- Rebalancing Actions

1/31/2014 Rebalancing Core and Opportunistic Long Portfolio: 22 stocks in the model portfolio = 4.55% weight per position

Close Position Dillard's Inc. DDS Hanesbrands Inc. HBI Signet Jewelers Limited SIG Nu Skin Enterprises Inc. NUS Oceaneering International, Inc. OII Old Republic International Corporation ORI PAREXEL International Corporation PRXL Lennox International, Inc. LII Flowserve Corp. FLS Huntington Ingalls Industries, Inc. HII SanDisk Corp. SNDK NXP Semiconductors NV NXPI FleetCor Technologies, Inc. FLT

Hold/Rebalance Foot Locker, Inc. FL Lumber Liquidators Holdings, Inc. LL Bally Technologies, Inc. BYI Western Refining, Inc. WNR Omega Healthcare Investors Inc. OHI SEI Investments Co. SEIC EPR Properties EPR United Therapeutics Corporation UTHR Grifols, S.A. GRFS VCA Antech Inc. WOOF American Airlines Group Inc. AAL Paychex, Inc. PAYX Packaging Corporation of America PKG

Open Position DIRECTV Macy's, Inc. Pilgrim's Pride Corporation Fifth Third Bancorp Raymond James Financial, Inc. ICON Public Limited Company Align Technology Inc. Broadridge Financial Solutions, Inc. Great Plains Energy Incorporated

DTV M PPC FITB RJF ICLR ALGN BR GXP

Source: Ascendere Associates LLC

Ascendere Associates LLC J. Stephen Castellano

Page 4

January 31, 2014 steve@ascenderellc.com

Short Model Portfolio -- Rebalancing Actions


When the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the improvements are discounted from a more depressed base.

1/31/2014 Rebalancing Core and Opportunistic Short Portfolio: 21 stocks in the model portfolio = 4.76% weight per position

Close Position Forum Energy Technologies, Inc. FET Cheniere Energy, Inc. LNG BioMarin Pharmaceutical Inc. BMRN Genesee & Wyoming Inc. GWR Eaton Corporation plc ETN IHS Inc. IHS Pentair Ltd. PNR JDS Uniphase Corporation JDSU VeriFone Systems, Inc. PAY Chemtura Corporation CHMT

Hold/Rebalance Sinclair Broadcast Group Inc. SBGI General Motors Company GM Liberty Media Corporation LMCA Deutsche Bank AG DB Allscripts Healthcare Solutions,MDRX Inc. Woodward, Inc. WWD Clean Harbors, Inc. CLH KBR, Inc. KBR TIBCO Software Inc. TIBX Concur Technologies, Inc. CNQR Allegheny Technologies Inc. ATI

Open Short Sale Peabody Energy Corp. BTU Plum Creek Timber Co. Inc. PCL Radian Group Inc. RDN Equity One Inc. EQY The Hartford Financial Services Group, Inc. HIG Kennametal Inc. KMT Yahoo! Inc. YHOO Nimble Storage, Inc. NMBL Air Products & Chemicals Inc. APD Carpenter Technology Corp. CRS
Source: Ascendere Associates LLC

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Return Data December 2013


Core & Opportunistic Long Model
12/31/2013 to 1/31/2014 Sector Industrials Healthcare Health Care Financials Industrials Information Technology Financials Materials Health Care Industrials Consumer Discretionary Consumer Discretionary Information Technology Financials Consumer Discretionary Consumer Discretionary Energy Information Technology Industrials Health Care Information Technology Financials Consumer Discretionary Consumer Discretionary Energy Consumer Staples Company American Airlines Group Inc. Grifols, S.A. Parexel International Corp. Omega Healthcare Investors Inc. Huntington Ingalls Industries, Inc. NXP Semiconductors NV Entertainment Properties Trust Packaging Corp. of America VCA Antech Inc. Lennox International Inc. Hanesbrands Inc. Signet Jewelers Limited SanDisk Corp. SEI Investments Co. Bally Technologies, Inc. Foot Locker Inc. Western Refining Inc. Paychex Inc. Flowserve Corp. United Therapeutics Corp. FleetCor Technologies, Inc. Old Republic International Corp. Dillard's Inc. Lumber Liquidators, Inc. Oceaneering International, Inc. Nu Skin Enterprises Inc.
Ticker

Theoretical Longs MTD Stopped Out on 8/4/2011 close for a -12.33% loss Target/ Date+1 Stop Date Sell Price 1/29/2014 $ 33.80

AAL GRFS PRXL OHI HII NXPI EPR PKG WOOF LII HBI SIG SNDK SEIC BYI FL WNR PAYX FLS UTHR FLT ORI DDS LL OII NUS

12/31/2013 25.25 36.12 45.18 29.80 90.01 45.93 49.16 63.28 31.36 85.06 70.27 78.70 70.54 34.73 78.45 41.44 42.41 45.53 78.83 113.08 117.17 17.27 97.21 102.89 78.88 138.22

1/31/2014 33.55 39.61 48.81 31.94 95.02 48.35 51.08 64.60 31.94 86.56 71.14 79.55 69.55 34.06 73.32 38.60 39.11 41.82 72.33 102.62 106.32 15.62 87.30 88.99 68.15 85.15

Performance 32.87% 9.66% 8.03% 7.18% 5.57% 5.27% 3.91% 2.09% 1.85% 1.76% 1.24% 1.08% -1.40% -1.93% -6.54% -6.85% -7.78% -8.15% -8.25% -9.25% -9.26% -9.55% -10.19% -13.51% -13.60% -38.40%

Return 33.86%

1/22/2014 $

97.20

7.99%

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Core & Opportunistic Short Model


12/31/2013 to 1/31/2014 Sector Consumer Discretionary Materials Consumer Discretionary Energy Consumer Discretionary Industrials Industrials Industrials Information Technology Industrials Industrials Industrials Materials Health Care Industrials Financials Energy Information Technology Healthcare Information Technology Information Technology Company Sinclair Broadcast Group Inc. Allegheny Technologies Inc. General Motors Company Forum Energy Technologies, Inc. Liberty Media Corporation Clean Harbors Inc. Woodward Governor Co. Genesee & Wyoming Inc. Tibco Software Inc. IHS Inc. Pentair, Inc. Eaton Corp. Chemtura Corporation BioMarin Pharmaceutical Inc. KBR, Inc. Deutsche Bank AG Cheniere Energy Inc. JDS Uniphase Corp. Allscripts Healthcare Solutions, Inc. VeriFone Holdings Inc. Concur Technologies, Inc.
Ticker

Theoretical MTD shorts hit target 8/4/2011 for 14.84% gain Target/ Stop Date 1/15/2014 1/22/2014 1/24/2014 1/16/2014 1/13/2014 1/22/2014 1/29/2014 1/13/2014 Date+1 Sell Price 31.89 33.02 36.76 25.90 136.70 56.43 43.31 93.14 112.01 72.01 25.92

SBGI ATI GM FET LMCA CLH WGOV GWR TIBX IHS PNR ETN CEM BMRN KBR DB LNG JDSU MDRX PAY CNQR

12/31/2013 35.73 35.63 40.87 28.26 146.29 59.96 45.61 96.05 22.48 119.70 77.67 76.12 27.22 70.35 31.89 48.24 43.12 12.99 15.46 26.82 103.18

1/31/2014 31.42 31.44 36.08 25.12 131.63 56.08 42.85 90.34 21.29 113.41 74.33 73.09 26.14 68.88 31.30 48.18 43.94 13.29 16.56 29.01 121.34

Performance -12.06% -11.76% -11.72% -11.11% -10.03% -6.47% -6.05% -5.94% -5.29% -5.25% -4.30% -3.98% -3.97% -2.09% -1.85% -0.12% 1.90% 2.35% 7.12% 8.17% 17.60%

$ $ $ $ $ $ $ $

Return -10.75% -7.33% -10.06% -8.35% -6.56% -5.89% -5.04% -3.03% -6.42% -7.29% -4.78%

1/28/2014 $ 1/24/2014 $ 1/8/2014 $

1/13/2014 $

53.20

10.28%

1/21/2014 $ 1/21/2014 $ 1/16/2014 $

17.27 29.96 111.61

11.71% 11.71% 8.17%

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Theoretical Model Portfolio* 01/31/14 Simple Returns (No Compounding) Stock Targets Core Model Long Short Core Long/Short Opportunistic Model Long Short Opportunistic Long/Short Opportunistic Model III Long Stocks Long Inverse ETF ^SH Opportunistic Long/Short III S&P 500 Index S&P 500 Total Return Index

MTD

YTD

Since 03/31/09

Sharpe

-0.44% 0.12% -0.56%

-2.62% -1.98% -0.64%

-2.62% -1.98% -0.64%

136.0% 84.0% 52.0%

1.05 0.75 0.55

Stock Targets and Portfolio Targets

-0.44% 0.00% -0.44%

-3.91% -1.98% -1.94%

-3.91% -1.98% -1.94%

125.9% 35.5% 90.4%

1.28 0.29 1.12

Stock Targets and Portfolio Targets

-0.44% 0.00% -0.44% -0.60% #REF!

-3.91% -3.56% -0.36% -3.56% -3.45%

-3.91% -3.56% -0.36% -3.56% -3.45%

125.9% 62.1% 63.8% 87.77% 98.09%

1.28 0.74 0.89 1.04 1.15

* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not assume any costs. This table is not to be construed as advertising for any investment service. Real portfolios that attempt to exactly replicate these theoretical strategies will generate lower returns relative to these models due to slippage, transaction costs, tax expenses and other costs. Theoretical returns in this table are based in part on backtests which may be changed or updated at any time as refine our strategies. There are limitations inherent in our backtested theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information, but do not guarantee this. Please see additional disclosures and disclaimers.

Ascendere Associates LLC J. Stephen Castellano

Page 8

January 31, 2014 steve@ascenderellc.com

Core

Opportunistic

"Dollar Neutral" 1

"Dollar Neutral" 2

Inception March 31, 2009


Long , Stock Targets Theoretical -0.69% -2.62% 35.00% 136.02%

1/31/2014 Simple Returns Today MTD YTD Cumulative from 12/31/04 Absolute Risk Daily Average Daily Range Daily Standard Deviation Daily Return/Standard Deviation Average 90-Day T-bill Annualized Daily Returns Annualized Standard Deviation Sharpe Ratio Percentage Down Days Average Daily Downside Value Daily Downside Deviation Daily VAR of 1000 at 95% Conf Benchmark Relative Risk Correlation R-Squared Daily Tracking Error Regression Beta Daily Alpha Jensen's Daily Alpha Trading Days

Long, Stock and Portfolio Targets Theoretical 0.00% -3.91% 18.54% 125.91%

Long/Short, Stock Targets and Portfolio Targets Theoretical -0.02% -1.94% 0.79% 90.42%

Long, Stock and Portfolio Targets / Long ^SH ETF Theoretical 0.69% -0.46% -5.93% 63.95%

S&P 500 Total Return Index

-0.65% -3.45% -3.45% 98.09%

0.12% 16.86% 1.62% 7.11% 1.55% 29.10% 25.8% 1.07 44.1% -1.18% -1.21% -25

0.11% 15.84% 1.22% 8.81% 1.55% 27.17% 19.4% 1.32 32.0% -1.03% -1.02% -19

0.08% 11.84% 0.98% 7.73% 1.55% 19.17% 15.6% 1.13 42.3% -0.65% -0.63% -15

0.05% 12.00% 0.88% 5.73% 1.55% 12.71% 14.0% 0.80 42.2% -0.59% -0.63% -14

0.08% 11.39% 1.12% 7.43% 1.55% 21.03% 17.8% 1.09 43.1% -0.82% -0.85% -17

0.91 0.84 0.74%

0.69 0.47 0.92%

(0.06) 0.00 1.51%

0.05 0.00 1.37%

1.32 0.031% 0.041% 1218

0.75 0.023% 0.017% 1218

-0.05 -0.006% 0.000% 1218

0.04 -0.028% -0.001% 1218

*Returns calculated by the simple return method (not compounded). * Portfolio models are theoretical and assume no costs. * Data collected in real time since 3/31/2009 Source: Ascendere Associates LLC

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies.

DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained from third-party sources believed to be reliable but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of future performance, and no representation or warranty, express or implied, is made regarding future performance. For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. Any dissemination or copying of this commentary is strictly prohibited.

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com

J. Stephen Castellano founded Ascendere Associates LLC to provide innovative equity research and investment advisory services that blends fundamental and quantitative approaches. In general, our approach is quite simple -- we believe that return on invested capital and long-term earnings growth are key to stock valuation. More specifically, we use powerful and unique financial models that combine publicly available data, consensus estimates and our own inputs to generate consistent and actionable stock recommendations. Among the services that Ascendere provides are: 1) detailed custom equity research analysis; 2) valuation scenario analysis studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed fundamental financial modeling services; and 7) additional analytical consulting services. Additional information is available at www.ascenderellc.com. Mr. Castellano has over 15 years of experience in equity research and related consulting work. At PaineWebber, Warburg Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and conducted in-depth research on the steel and telecom services industries. At Boston Private Value Investors, he developed quantitative models for stock idea generation and also provided general fundamental equity research coverage. Steve received a MBA from the F. W. Olin School of Business at Babson College (2005) and a BA from Oberlin College (1993). Mr. Castellano's career history is highlighted below: Startup Ecommerce Company (2013-Present) Ascendere Associates, LLC (2009-Present) Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009) Pyramid Research, Contract Consultant, Telecom Services (2002-2003) Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001) Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000) PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)

Ascendere Associates LLC J. Stephen Castellano

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January 31, 2014 steve@ascenderellc.com