Quarterly Update: RDC

Rowan (RDC) reported earnings beating analyst expectations and are focusing on continued expansion and operation of their fleet in an environment where new drillships/jack ups are increasingly coming online and oil prices (and dayrates) are dropping.

Their strategy is to use capital to finish building the drillships they commissioned and get those operating around the Middle East and Africa where they have good relations with customers. The Gulf of Mexico and Asia are softer markets with more competition where they are seeing the majority of drops in dayrates so they aren't expecting long term contracts to come from there.

Interestingly Rowan sees their stock price as undervalued and considered initiating a share buyback. As CEO Thomas Burke mentions "we like the idea of doing a share repurchase, and we believe that where our stock price is, it's a good use of capital" but they opted to wait and use the capital for longer term revenue generation. "To just stay the course at the moment is more about getting our drillships out on contract and not borrowing additional funds in these uncertain times" is a smart plan when you consider their current market cap. Rowan is growth focused and once they establish layered long term contracts with deep water drillships they can shift focus on share buybacks and increasing the dividend.

Portfolio Update: Good bye PE and ESV

With cratering oil prices I re-balanced my portfolio to reduce my exposure to the energy sector.

Removed:
Parsley Energy (PE) shale oil producer - When investors return to the energy sector, best of breed companies will benefit first before money trickles down to the smaller operators.

Ensco (ESV) offshore driller -  I was holding two offshore drillers so I choose to sell Ensco and hold Rowan because Rowan has the younger fleet.

Added:
EOG Resources (EOG) shale oil producer - Was able to lower my cost basis. This is a best of breed producer that will benefit first from any energy market turnaround.

Under Armour (UA) active wear retailer - I like the products and management and the stock finally pulled back from all time highs.

Starbucks (SBUX) coffee retailer - I like management and their embrace of technology to stay relevant to a younger generation.

More importantly I consolidated my holdings from 10 to 8 so it will be much easier to re-balance in the future without having to close out positions.

Quarterly Update: RAD

Why the 20% sell off? After reading the latest Q2 2015 earnings call from Rite Aid (RAD) I can understand the frustration of investors and why the massive sell off occurred after guidance was reduced again.

First a primer on the pharmacy business. On one side you have hundreds of drug manufactures and on the other you have hundreds of pharmacy benefits managers (PBM). Rite Aid, like Walgreens sit between the two and negotiate wholesales prices with the manufactures to buy drugs at the cheapest price possible and then negotiate with the PBMs to sell those drugs at maximum profit to their members. For example, on a pill valued at $20 that Rite Aid is purchasing for $18, they would charge the customer $5 and expect a $15 reimbursement from the PBMs which leaves Rite Aid a $2 profit. In our current economic environment, both PBMs and drug manufactures are pricing more competitively which is shrinking the pharmacy's margins.

Remodeled Rite Aid Beverly Hills

The transition to using McKesson, a global wholesale drug distributor, was presented to investors as a way to increase profits by utilizing their larger scale to negotiate prices better than Rite Aid could by itself. While this is helping, PBMs are still reimbursing less so it's a wash. In the latest conference call management now attributed the low earnings to less generics and lower reimbursements. Basically McKesson is just keeping Rite Aid afloat and it will require outside revenue to spur growth which is expected to come from the expansion of RediClinic and Wellness stores, however at this point investors are sick of waiting and annoyed with management.

Remodeled Rite Aid Beverly Hills

As an investor this position has turned from a spec into a long because Rite Aid has lost their tailwind. Now we need to focus on the ROI of their RediClinic and Wellness store remodels since we should assume profits from drug pricing will erode as the industry becomes more efficient.

To quote CEO John Standley, "But I think over time there is only so many dollars we are going to be able to squeeze out of the drug spends, particularly on the generic side. And so, it's really going to come down to then what differentiates you in the marketplace....So at some point, I think the model migrates to something more where maybe there is a reimbursement for the service that you are providing to the patient versus trying to make gross margin on the script. Is that going to happen tomorrow, it's not. But I think if we look over the longer-term, that's really probably the model that our industry needs to begin the migration to over some period of time."  

I expect the stock to continue to drop for at least two more quarters where I may try to reduce my cost basis but a return to over $8 is out of reach as of now.

Portfolio Update: EOG

My target entry price for EOG Resources (EOG) came in so I took the opportunity to purchase some shares around $100. Looking at the daily chart it's nearing its 200 moving average of $98 and if it drops below I'll pick up some more. Considering I am a little heavy on the energy sector in my portfolio it would have to be at a good discount.

It's a love hate feeling that oil is around $92 bucks a barrel. The money I'm saving in filling up my car I'm losing in holding capital intensive sea drillers like Ensco, but now is a great opportunity to load up on oil stocks while they are cheap and I'm looking at a price point in the low $40s before adding more ESV.

Stock Research: USB

With returning talks of the Fed raising interest rates I thought I'd start looking into financial stocks so I'm ready whenever it happens. U.S. Bancorp (USB) is of interest because it's one of Buffets new favorite banks and it has a reasonable market cap of 74 billion compared with my other favorite bank Wells Fargo (WFC) at 261 billion.

From Barclays Conference 2014 Presentation

Interest rates are still low so banks are finding ways to boost their non-interest income through expansions of investment management and fee-based services with U.S. Bancorp having a good 50/50 split. When evaluating financial companies ROA and ROE are the important metrics to check. Basically you want to see how well the company uses its assets to generate money and compared to its peers US Bank is one of the best.

Company	ROA	ROE
U.S. Bancorp	1.60	15.10
Wells Fargo	1.43	14
J.P. Morgan	0.6	7.29
PNC	1.26	9.42

U.S. Bancorp is first and foremost a bank with a clean balance sheet of high quality loans, excellent operating margins at 40%, and consistent EPS. When interest rates rise they will benefit from increased profits but currently everything is status quo and I don't see any drivers of short-term growth or expansion that would cause the stock to jump. US Bank would be a good place to park some money for long term appreciation and would qualify for me as a core financial holding.

Portfolio Update: PE and CNI

There are two strategies to picking stocks: studying the fundamentals or the technicals. Fundamental analysis involves researching a company's balance sheet and management plans to make an investment decision. You are betting on the company's ability to grow and generate more income. Technical analysis involves looking at past metrics of the stock price's performance to model a future trajection. You are betting on other investor's ability to recognize the company's potential and drive the price up (or failures and down if shorting).

As an investor you want to do both by creating a buy list of stocks that satisfy the fundamentals but hold out on trading until it meets the technicals. This is the boat I'm in with a list of stocks that are great fundamentally but priced far from my technical entry point.

With that in mind I have doubled my Parsley Energy position (PE) based on the technicals and news of their expanded field purchases. Looking at the daily chart Parsley has reached a bottom on its MACD indicator (I bought right as the black line crossed the red line) and trading volume is below 50 on the RSI indicator.

For Canadian National Rail (CNI) I'm paying attention daily for the sign to lock in my profits. It's my only stock in the oversold territory (note the RSI around 80) but the MACD isn't leveling off for a crossover yet. As soon as it does and turns downward I'll put in my sell order.

Stock Research: WYNN

I was recently in a conversation about Las Vegas so I decided to do some research on the casinos stocks and of all the resorts Wynn Resorts (WYNN) and really Steve Wynn has impressed me the most.

I first read the conference call of Las Vegas Sands (LVS) and found they have the largest presence in table and room space in Macau. In contrast, Wynn is operating on a scale one tenth of Sands but are seeing a better rate of return. To quote Steve Wynn from his 2014 Q2 call, "...we are approximately half as profitable in Macau as The Sands, with only 10% of the rooms." Wynn is careful in deploying capital for expansions and does not under estimate his competition. Wynn Palace is a new property under construction in Macau scheduled to be open in 2016 with the focus being on not cannibalizing their existing properties consistent 98% occupancy rate.

On the finance side Wynn has operating margins above 20% and excellent EPS of 8.11. Looking at their chart the stock price is close to the 50 day moving average, RSI is below 50 and MACD is tracking close for a crossover. The casino stocks have all come down from fear of Chinese government intervention and tourist exhaustion from the World Cup which makes now a good buying opportunity.

The Shortlist

Edit: I thought I'd update this post with a chart source that better illustrates what I'm seeing.

Under Armour (UA):
At $70 a share and a P/E of over 90 UA is very expensive. Analyst estimates are at $70 a share so there needs to be a major pull back before I can buy some and it won't be until UA reports less then stellar growth numbers for the stock to return to realistic valuations. I'm waiting for under 60.

Church & Dwight (CHD):
It's P/E is at 24 which is higher than the average for this sector at 20. Low 60s would be my starting position.

EOG Resources (EOG):
The low barrel price of oil is hitting the energy sector and with a P/E of 24 and price of around $106 I could pick up half a position now but I'm waiting patiently for a down day.

Portfolio Highlight: FB

You would think for one of my most profitable holdings I would have written a post about it by now but I didn't buy Facebook (FB) based on its balance sheet or future revenue. I bought Facebook because it has no competition and is being run by its founder.

In order for a competitor to overtake Facebook they would need to provide added value, expand their user base extremely fast, have solid reliability, and hope their founders can resist the urge of selling out to a larger corporation. Back in the days when Facebook started standards were low. Personally I know many people who moved from Myspace to Facebook simply because HTML was too confusing. Facebook has brand recognition and it's impossible to make all your friends/family move onto a new service. A new rival competitor would have to start out with small groups of "technology-savy" users who vet the service and slowly convince friends/family to migrate; giving plenty of lead time to cash out of the stock. Today it's more profitable to create tech demo disrupt services that get bought out.

Facebook's biggest risk is itself. Just a few years ago there were so many new features being added that it drove people away but lately they seem to have their act together and are streamlining and simplifying the experience. I'm a holder of the stock until Mark leaves the company. These types of high value companies are just vehicles for their founder's ideas and their high valuations live and die by them. As with Amazon and Bezos, Apple and Jobs, Google and Page/Brin I would expect growth to slow without them.

Portfolio Updates

The latest change to my portfolio has been to dump The TJX Companies (TJX) for a few reasons. To begin with the retail industry has been performing terribly these past few months with same store sales being relatively flat. TJX's growth is suppose to come from its European expansion, especially for the HomeGoods brand, but with Russian sanctions and poor exchange rates as seen affecting other company earnings I'm not optimistic. Also I bought TJX with the impression that it could be a stable grower but after more research I found the retail sector to be too competitive and unpredictable. I made the mistake of focusing only on the individual company performance and not the industry as a whole.

On the opposite side I more than doubled down on my Rite-Aid (RAD) position when it was at $6 which helped bring down my cost basis. With the remodels, McKesson distribution deal, and health management acquisitions there is a lot of potential that has yet to be realized.

Finally, now that it makes up a considerable percentage of my portfolio I've included my cash position with my holdings. I have a shopping list of stocks but at these valuations everything is too expensive so I plan on holding a sizable chunk in cash in preparation for any sell-offs toward the end of the year.

Stock Research: APC

Anadarko Petroleum Corporation (APC) is another oil exploration company that attracted my interest because they have contracts with ENSCO and Rowan for ultra deepwater drillships and are still considered a growth company.

Oil production is split between US and International for 2014 but if you compare with last year's numbers it's interesting to see US production alone went from 96 to 146 million barrels of oil per day (MBOPD) versus International growth of 62 to 92 MBOPD. Further almost all capital investment for 2014 is allocated to the lower 48 states with large chucks dedicated to expanding the profitable Wattenberg field in Colorado and Delaware basin/Eagleford fields in Texas where wells counts have doubled since last year.

Capital expenditure paints the picture of where you get the most bang for your buck and right now that's in the US. The bulk of the capital will be used to expand operations in the Rockies and Texas so I'll be paying attention to their success in those regions. Considering Anadarko is only a few points off it's 52 week high I won't be buying any stock unless it drops low enough to justify the higher P/E and recent lackluster ROA/ROE track record. At the moment I don't see any advantage Anadarko has over their competition so I'm not willing to pay up for it.

Stock Research: EOG

With offshore drillers in a state of softness from the over supply of rigs and reduced number of contracts I need to bring in a different type of sub-industry to my group of energy stocks. EOG Resources (EOG) is one company I started researching because they have a large presence in all of the major US oil fields, primarily the Eagle Ford shale.

Financially EOG is in a good position with low debt, cash on hand, and enough of a backlog in good wells that they can be picky in operating only the most profitable drill sites. They have some international exposure with sites in the Caribbean and United Kingdom which will keep them diversified from the core US locations. Operationally they are primarily an onshore producer using horizontal fracking techniques to extract oil.

What I like about EOG is they are large enough to provide stable earnings but are still a growth company. The dividend is currently at 0.62 and they have a market cap of 59 billion so they are not monolithic yet. While researching other oil companies I found almost all of them started a stake in the US because it's much easier/profitable to extract oil using modern fracking techniques than the more expensive deep water drilling or drilling in unstable regions. Until something changes to cause oil production in the US to cost more then offshore drilling I think EOG would be a good investment. Just a few years ago I remember everyone was drilling in the Gulf of Mexico, then natural gas production exploded in the US, and now crude production is what's hot.

Book Club: One Up On Wall Street

One Up On Wall Street by Peter Lynch is a fantastic read that I would recommend to anyone that finds the stock market exciting. The book is completely opposite from The Intelligent Investor because Lynch is more interested in high growth stocks and is willing to pay up for it. He stresses investing in companies that others are overlooking and his favorites are when a company has a boring name, low number of analyst covering the stock, and it operates in a niche or as a monopoly.

Instead of looking for only value stocks with a low P/B, Lynch categorizes stocks into different classes and evaluates them on a series of characteristics. Slow Growth are your dividend stocks that should show a continued history of dividend growth and a low payout ratio. Stalwarts have a history of steady predictable value growth. Cyclicals are your consumer goods that maintain low inventory and operate in a monopoly. Fast Growers have EPS growth rates above 20% and proven expansion plans and Turnarounds show low debt with increasing revenue.

Lynch's techniques are how I found Rollins (ROL) and Church & Dwight (CHD). When I was reviewing stocks on my screener I just randomly clicked companies that had the most boring names I could find and lo-and-behold I came across these two companies. One operates a worldwide pest extermination monopoly and another owns niche brands with household recognition and both have company names that give no indication of that.

Quarterly Update: CNI

Canadian National Railway (CNI) reported high single to multi digit growth for Q2 as it recovered quickly from the abnormally cold winter weather that caused a slowdown across the industry. With 35% growth, grain snapped back the largest with enough orders to contribute to future quarter earnings. While coal and steel were flat, oil and frac sand picked up the slack in the energy shipments.

I'm happy to see the oil boom in the US is providing a great replacement for an industry that has a large dependence on shipping coal. Coal is on a rapid decline as government policies are restricting new power plants and utilities are transitioning away from coal and into renewables. CNI is seeing the potential for more block trains (a term used to describe when an entire trains is commissioned for one type of cargo) of heavy crude and frac sand to and from large oil drilling sites.

CNI is in my portfolio as a stalwart to balance my high growth tech stocks and it is doing a fantastic job in filling that role. On a pull back I may consider dumping my position in TJX and rolling it over to more CNI.

Stock Research: DPZ

I researched Domino's Pizza (DPZ) because it shares the same qualities that led me to purchase shares in Starbucks. They have a focused brand/product line and embrace technology. Way back when Domino's started the turnaround I was amazed by the online experience in ordering pizza. While I never liked the pizza I was sold on the self-deprecating commercials enough to try it again.

Domino's has good growth momentum. They have expanded overseas in almost all emerging markets while staying aligned with their domestic philosophy to deliver pizza fast. In contrast I found Yum's international plan to promote Pizza Hut as premium dinning experience short-sided. I understand the international desire for Western products allow companies to charge a premium, but paints the brand as a fad that could fall out of favor as new Western trends are adopted.

In addition, in most international countries everything is driven by mobile accessibility. With Domino's superior mobile applications and extensive online order capabilities it is better positioned to become ingrained in the populations daily lives. I find the scenario of young adults ordering pizzas on their phones better for growth than a family's special night out at a Pizza Hut sit-down restaurant. If you look at the trends in technology, online order systems like GrubHub and Eat24 are exploding in popularity (according to the 2013 annual report over 40% of orders in Q4 were digital). Domino's is essentially a restaurant with its own custom GrubHub service and with the expansion into other non-pizza offerings this could be a vertically integrated dinning experience.

Domino's is profitable with growing revenue, earnings per share, and good operating margins but here's the bad. They have a large amount of debt compared to assets. $1.5 billion in long term debt compared to $500 million in assets but the upside is they are still generating free cash flow and have refinanced that debt until 2019. Buying into Domino's is buying into the success of their international expansion and ability to take enough market share from competitors to grow revenue at least 3x in the next 5 years.

Stock Research: AAWW

As fuel becomes the primary cost for airlines and worldwide delivery services expand it's always a good idea to look at the air freight business. Atlas Air Worldwide Holdings (AAWW) is a company that takes the capital expenditure hit by purchasing aircrafts and leasing them out to air cargo companies. Atlas Air gets a consistent income stream and airlines get the flexibility to add/reduce capacity.

When it comes to aircraft leasing there are two specializations. One is cargo aircrafts where Atlas Air operates in and the other is passenger aircrafts through companies such as Fly Leasing. While the customer base is larger for passenger aircrafts the turnover is greater because airlines always want the most fuel efficient planes available. This means higher capital expenses and the ROI would not be as great since the aircrafts become outdated quicker than cargo planes.

Further, businesses can specialize in a particular type of leasing. Wet leasing is a lease that includes the aircraft, crew, maintenance, and insurance (ACMI) while dry leasing is just the aircraft itself. For most of Atlas's history it has been a wet lease operator but is starting to expand its dry leasing operations with six new 777 freighters in order to mitigate reduced demand for ACMI contracts. This is a good strategy if only to expand its customer base and gain more presence, especially since there is large demand for dry leasing.

I like the simplified operations of Atlas. For one they only own Boeing aircrafts which makes maintenance and crew training cost efficient and they have identified three aircraft body styles that are suitable for all their needs while retiring the one-off models. Financially Atlas Air is undervalued. It has a P/B value of 0.7 and a P/E of 10 with healthy operating margins and consistent EPS. The only downside is there is no growth catalyst for the company or in the industry right now.

Book Club: Common Stocks and Uncommon Profits

Common Stocks and Uncommon Profits by Philip A. Fisher was the second investment book I read that Warren Buffet endorses. Instead of listing a series of formulas and metrics that should be researched to gauge a stocks worth he pays attention to the characteristics of the business. What products they make, how efficient management is doing, what is the public's perception of the company? This book is great at getting you to think of the mental questions you should be asking yourself when picking a stock.

My main takeaway is the concept of scuttlebutt (or water-cooler talk). Usually the advice goes that when someone gives you a stock tip there is a high chance that stock is already overvalued and ripe for a pull back. I see it more as a mood gauge for the overall market and can avoid hot sectors or monitor for short term positions on major pull back days. I also like to take note of popular companies and revisit them after the crazy has died down. This is why I started watching Mad Money and reading articles on Seeking Alpha daily.

Parsley Energy (PE) and Rite Aid (RAD) are two speculative stocks I picked up using this logic. Right now there is a gold rush for natural gas in US shale and everyone is throwing money at the large companies like Pioneer and EOG. Instead of buying into companies with years of growth priced in I chose the small Parsley Energy that operates in the same region and could grow or be acquired. Rite Aid was purchased because it's a popular turnaround play that dropped significantly from reduced guidance that chased away unrealistic investors expecting a price pop. If it regains irrational price momentum then I would benefit heavily but if not I still purchased at a discount and can benefit from the company's intended turnaround plan.

Stock Research: CRM

Salesforce.com (CRM) is a product I'm very familiar with considering it's being used in companies I've worked for. While traditional software developers hate the "no software" sand boxed ideology I can see the huge upsides for companies that aren't "in the software" business but want to have a customized platform. Salesforce is a proper cloud solution because it's not just a virtual server you buy time on like AWS or Azure that still requires a huge development team. I would best compare it to a Blogger or Wordpress website. Sure you can write all the fancy php/javascript code to develop an amazing web experience but in some situations a template solution works just as well but saves thousands of dollars.

Reading over Salesforce's latest fiscal results it's exciting to see the large revenue growth but what's more interesting is the expenses. Salesforce grossed close to 950 million in profits and spent 990 million in operating expenses in the last quarter but 65% of it's expenses were in marketing and sales. Salesforce is still a young company and is wisely spending money to grab as many customers as it can and get them embedded into their proprietary ecosystem. Right now the focus is brand awareness and making customers feel confident in their product. If you remove marketing cost, Salesforce is actually profitable.

I'm a buyer of Salesforce for two reasons. One is the freeing of company data from in-house networks. At one point in time business was conducted on paper, something that you could take anywhere. Then computers came about and chained employees to a desk; however, with the explosion of smartphones/tablets and ubiquitous internet connectivity work can once again be conducted out of the office but the resources/cost needed to securely deliver this experience is out of reach for most companies to do themselves. Second is the continued abstraction of software. At one time developing software meant writing assembly code to modify bits on a computer. Then we moved to higher level natural language syntax and in the future software development can be as simple as drag and drop. Salesforce is just another iteration of this evolution. For the foreseeable future there will always be "software" companies like Microsoft/Salesforce who develop the tools but for any company whose business is not to sell software there really is no need to have a large development team.

Book Club: The Intelligent Investor

The Intelligent Investor by Benjamin Graham is considered the Bible of value investing and if you Google top investing books this one appears on almost every list. It's a long read at over 400 pages but it gives a good foundation to any individual investor. The first half explains the basics of how the stock market works and what expectations you should have when investing. The second half focuses on applying Graham's philosophy to securities analysis.

It's amazing how Graham's methods were derived almost half a century ago but most of his predictions were correct and direct parallels over what he saw during the Great Depression occurred during the tech bubble. Graham goes for reliable growth over long time scales so you'll never pick multi-baggers or hear about your stocks in the news.

My takeaways are to look for stocks that are undervalued (ie having a low Price to Book value) and show consistent growth over a number of years. Investing with Graham's methods would have you avoid high growth (high P/E) stocks like Yelp in exchange for slow growers like Caterpillar. I could only imagine what he'd think of Amazon.

Ensco (ESV) and  Rowan (RDC) are two stocks I picked using Graham's methods. At the time Ensco had a P/B of 0.93 (below 1 is what you're looking for) and a P/E of 8.33 and Rowan had a P/B of 0.79 and a P/E of 15.32 (below 20 is preferable). These stocks have actually turned out to be very profitable in the short time I've held them and I'm only now starting to hear them mentioned in the news.

Portfolio Highlight: RAD

I'll admit I picked Rite-Aid (RAD) because it's been brought up a few times by Jim Cramer. I wasn't seriously considering buying until they updated their guidance to a more conservative .30 per share and the stock sold off 8%. This shook out the short term investors looking for a quick pop and presented a nice discount for starting a long position.

Rite-Aid's turnaround plans are to transition into more of a neighborhood health clinic and away from the low margin drug retail store which is being encroached upon by Wal-Mart/Target who are additionally expanding into pharmacies and clinics. This would bring Rite-Aid inline with how CVS operates with their successful in-store pharmacy and MinuteClinc. Rite-Aid has already started with the acquisitions of RediClinc, a small Texas clinic business that they plan to add as a feature in stores and Health Dialog, a healthcare service business.

While they are still debt heavy I believe management is on the right track to expand into healthcare service, remodel and modernize performing stores and promote their Wellness+ loyalty discount program. Once I see progress toward integrating clinics into stores I next expect to see partnerships with health insurance companies for me to remain invested.

Portfolio Highlight: PE

Now that I have what I think is a pretty stable portfolio going I think it's time to start adding more risk and right now the two hottest sectors are bio-pharmaceuticals and natural gas drillers. Personally I find energy companies more interesting which makes researching them feel less like homework so that's how I ended up on Parsley Energy (PE).

This is actually a recent IPO stock and it did well considering how bad other IPOs were doing. They are a very small and focused natural gas driller in the Permian Basin in Texas which is third to the Bakken and Eagle Ford shales. They already have the land and are using the growing revenue from their existing vertical wells to fund additional wells and expand into more higher yielding horizontal wells. IPO funds will be used to pay down debt and buy more land purchases. As a long term pick I'm expecting to see consistent well expansions and revenue growth.

Stock Research: CHD

I initially assumed Church & Dwight Company (CHD) was a restaurant company based on the name but it's actually a Non-Cyclical goods company with a small portfolio of well-known brands. Among them are Arm & Hammer, Trojan, and Oxi Clean. Based on the revenue from the Arm & Hammer brand I'm actually surprised they haven't changed the company name.

On the metrics side this is one of the few companies I've put into my spreadsheet that turned up almost green for everything. They have consistent operating margins over 15%, EPS growth averaging 12%, and ROE over 15%. Only their PE is at 25 and PEG at 1.79.

I plan on starting a position to add some recession defensive holdings to my portfolio while still benefiting from mid cap growth. While the laundry detergent market has become saturated they are expecting growth from their recent vitamin acquisition.

Stock Research: ROL

In order to balance out my large cap heavy portfolio I started searching for sub-10 billion companies. Rollins (ROL) was one that showed up in my screener that had me curious because it met a lot of the Lynch metrics. For one "Rollins" is a boring name and according to Marketwatch there are only 4 analyst watching it. In fact this company is so boring Google finance didn't even have a link to their website and after reading the description I still didn't know who they were. Once I found the website I realized this is a parent corporation for many pest control companies, one of which is Orkin which I have heard of.

Rollins is a profitable company with good operating margins above 10% and high ROA and ROE with no debt. It's EPS has also consistently grown an average of 10% over the past 10 years. They are a global company and have a strong position in the sector with few competitors and a business that's recession proof.

While most of my Lynch and Graham metrics were met, the stock's high PE ratio of 35 isn't justified by its low growth rate of 10%. This is one I'll revisit when either the growth rate picks up to over 15% or the PE drops to around 25.

Portfolio Highlight: TJX

Adding to my Consumer / Service holdings I picked up The TJX Companies (TJX) because of its consistent performance over the past 10 years and growth potential with the HomeGoods stores and expansion in Europe.

When looking at the balance sheets for the past 5 years I saw operating margins consistently over 10%, EPS growth of at least 15%, growing working capital, ROA over 15% with ROE between 40%-50% and low debt. In comparison with the other stocks I was evaluating, Estee Lauder (EL) had a higher P/E and Home Depot (HD) had lower operating margins so those remain on my watchlist.

In every investment book I've read they always say you can never "time" the market and this is one case where it hurts to follow that advice. I bought a few days before the earnings report around 58. Based on today's conference call sales were flat but they aren't changing their targets for next quarter so I'll await the next report before increasing my position.

Portoflio Highlight: RDC

My purchase of Rowan Companies (RDC) is a direct result of what I've learned from reading "The Intelligent Investor."

Originally I was following Schlumberger (SLB) because that's one of the most popular names in oil equipment. It had a relatively good P/E of under 20 and the call transcript didn't mention any major problems with future earnings. But when I compare the P/B values SLB has a book value of $30.72 per share while costing about $100. RDC has a book value of $39.86 while the stock trades at around $30.

Why the difference? For one there is fear in the offshore drillers right now because of a push for reduced day rates on rigs so all companies are trading lower. Second, Rowan is a major player in shallow water drilling and just sold off their land based business to focus on deepwater rigs which is where the big money is. Their first rig is built (so they've proven they can actually build deepwater rigs) and being deployed so this would be play on their future growth and with the stock being priced at below book value it has the largest amount to gain.

Where Have I Been?

As usual priorities changed and I wasn't paying much attention to the stock market but with a recent infusion of cash I'm ready to get back to investing. Hopefully longer term and with more knowledge now that I've finished reading "The Intelligent Investor." My strategy is also changing as I'm going to take a harder look at picking value stocks over "high flyers" and avoid the financial sector for now.