Here it is! The new Rayno Report Model portfolio for 2013. We have selected 13 stocks for 2013, in order to fight superstitious numbers with even more superstitious numbers (cheeky, eh?).
What exactly is in this portfolio? It is a collection of attractive stocks based on valuation and growth numbers. Our methodology looks for stocks that have attractive sales & profit growth relative to valuation, using forward P/E, return on equity, and growth calculations. The model likes a low P/E relative to its growth rate or Return on Equity. If the P/E is lower than its growth rate (PEG Is less than 1), excellent. If the P/E is lower than both the growth rate and the Return on Equity, fantastic! Lots of studies shows that stocks selling at a discount to growth and ROE outperform over time.
|First Majestic Silver Corp.||AG||20.48||2.38B||0.79||10.91||1.22||0|
|iShares MSCI Emerging Markets Index||EEM||44.99||18.01||1.33|
|iShares Nasdaq Biotechnology||IBB||142.62||-2.54||0.59|
|Northern Oil and Gas, Inc.||NOG||17.19||1.08B||0.81||13.04||0.48||0|
|Riverbed Technology, Inc.||RVBD||21.14||3.25B||0.42||17.31||0.99||0|
|Royal Gold, Inc.||RGLD||79.31||5.16B||1.62||28.75||4.29||1|
|Titan Machinery, Inc.||TITN||25.75||535.93M||2.12||9.76||0.59||
The bulk of our stocks are you would call "low-PEG" stocks that meet this formula. This could also be known as a "GARP" -- or Growth at a Reasonable Price strategy, though some of these stocks are priced low enought in P/E terms to be considered value investing.
To be clear, not all of the stocks this year fall into this strict valuation criteria. There are two indices -- the iShares Nasdaq Biotechnology index and the iShares MSCI Emerging Markets index -- which is a bet that those sectors will outperform. And I've included two precious metals companies (First Majestic Silver -- AG; and Royal Gold -- RGLD) because I believe that precious metals will reassert their outperformance in 2013. Precious metals companies are typically valued on reserve values, not P/E ratios. I think both these companies are attractively priced and silver seems especially poised for upside in 2013. Precious metals stocks have been unfairly punished by the market in 2013 because of the perceptions that their costs are too high, however I think rising metals prices and profitability in 2013 will show these fears to be overdone.
Overall, in running my screens and analysis for 2013, I was surprised at the number of quality high-growth companies available at reasonable valuations. IACI (Nasdaq: IACI), Priceline.com (Nasdaq: PCLN), and Omnicare (NYSE: OCR) all fall into that category. I like Riverbed (Nasdaq: RVBD) and have been looking forward to the day where it traded at a PEG of 1 or less, and that day is here. On this basis, the market does not appear overpriced. Many high-quality technology names appear quite cheap.
The energy sector is also appealing to me. Drillers have sold off, but Seadrill (Nasdaq: SDRL) has attractive profitability and growth and pays an 8% dividend. Northern Oil and Gas (NOG) is a small, fast-growing oil-shale in the Bakken region -- one of the strongest economic growth stories in the world. Go where things are happening!
In the interest of getting the portfolio out, here it is. I will profile these companies in the coming months.
(Disclosure: At the time of writing, the author and his direct family members owned many of the shares included in this model portfolio. He plans to own all of them by the end of Q1.)