All the Rage - Wall Street Trends
What was Cutting-Edge and What was Just a Fad?
Around the dinner table the other night the conversation turned to some things my kids have observed among their peers such as similarities in fashion, music, cars, technology, etc. Back in my youth we called these things “fads,” which I don’t know if that word is still in use or not.
Out of curiosity I turned to a contemporary dictionary and found this: “Fad [fad], noun, a temporary fashion, notion, manner of conduct, etc., especially one followed enthusiastically by a group.” Yep, that sounds right. For laughs and giggles, I turned to the Thesaurus for synonyms and noted among the first several were the words mania and rage, as in “all the rage.”
This led to a discussion of how fads get started in the first place, which I suggested was probably through observation of a thing, whatever that thing might be, that induced a feeling of well-being in the observer, and human nature being what it is wanted other observers to see them with that thing and a member of the “in” crowd. That’s my pop psychology analysis anyway.
When I was a kid the banana seat and “chopper” handlebars became all the rage with the introduction of the Schwinn Stingray bicycle. In a few short years the desire for a Stingray was replaced with the racing style 10-speed. When was the last time you saw a pair of bell-bottomed jeans? The old Chuck Taylor tennis shoes by Converse were abandoned for Puma, Adidas, and eventually Nike, although I have noticed that high-top Chuck Taylor’s are once again “hip” with the kids.
I’m not going to try to list all of the fads that have come and gone, but you get my point. The character Hannibal Lector in the movie
Silence of the Lambs tells Agent Starling, “We covet what we see.” Indeed.
Wall Street and the investment world are no different. The Good Lord knows there has been fads in investing since the Dutch Tulip Mania. Jonathan Martin writes a spectacular piece about “belief anchoring,” which contributes to “Psychonomic breakdown,” in an article titled Investment Manias and Speculative Bubbles (http://www.psychonomics. com/research/a&s/specbubb.htm)
Here is a short excerpt:
“It is the investment bubble that speculators rise on. Bubbles form because of crowd behavior and the snowball effect. As investors place more and more money into one particular investment, the price rises sharply. There is no relationship to fundamental valuation and as a result, the bubble can burst just as quickly as it formed.
Once a bubble exists in the market it can cause ripples that do more than just inflate investor perception, where one investor causes others to act in concert towards Psychonomic breakdown. As over-investment increases, companies themselves begin to perceive their financial situation differently; believing, for example, that they’re making more efficient use of their capital than if they chose an investment
InvestmentOutlook
elsewhere with equal or less risk or indeed, their high market price reflects their asset value.”
The above could be written about “The Nifty Fifty,” high-yield “junk” bonds, Japanese real estate, the dot-com era, bandwidth, Y2K, the mortgage and housing bubble, the cloud, the internet of things, and I will go on record now predicting that AI will join that list at some point.
Look, I get it, everyone wants to get in on the next Amazon.com, Apple, Google or whatever it’s called, Microsoft, etc. When a company is connected to exciting, cutting edge research in any sector of the economy, but especially in biotech and medicine, electronics or just technology in general, the crowd goes wild.
I would also suggest that mania and group delusions extend into other areas of investing beyond individual securities. Take the Fed for example, and what they will or will not do in terms of interest rate policy. Since October of last year, the media, pundits, and Joe and Jane Investor has been fixated on the prospect of a Fed “pause then a pivot.” Maybe I’m weird, but I tend to catalogue various pieces of market history in my memory bank. By example, the Fed eased consis-
tently, and quite frankly pretty aggressively throughout the 2000–2002 and 2007-2009 market meltdowns.
Now, some would argue that see, those markets eventually bottomed out. As such, it is repeated ad nauseum in the media and pretty much everywhere else that investors should buy, buy, buy ahead of a pivot by the Fed to lower interest rates. What everyone is forgetting is that yes, there was a 5% jump in the S&P following the Fed pivot in January of 2001, but over the next few weeks there was only another 2% increase, followed by a 43% dive. Similarly, an increase of 3% in the S&P following the Fed pivot in September of 2007 dwindled to an additional 3% over the next several weeks, and then crashed and burned by 55%. Oh, and by the way, the Fed eased the entire time the S&P was headed down.
Why those markets bottomed out was because of valuations (dividend yields!) became too attractive to ignore, and bada boom, bada bing the markets stopped declining and reversed direction. You see Virginia, when investors become risk adverse they sell until the excesses are removed and valuations become attractive again.
So, the froth in the market that was removed that brought
valuations “down” to only where they were in the 1929 and 2000 peaks has been restored, and inflation still remains well above the Fed’s target rate of 2.0%. Oh, hell yes, that’s a market I want to bet the ranch on. Give me that pause and pivot all day long and twice on Sundays!
I have a friend who is a psychiatrist who shared an opinion with me that a delusion shared by a crowd, or a group is every bit as powerful as the delusions of psychotics. He furthered opined we are all vulnerable to accepting beliefs simply because they are accepted in our social circle, which he called “social proof.”
I have a lot of respect for Mr. Market, and I wouldn’t be surprised if the entire move up since last October was a buy the rumor and sell the news set up. Or, maybe, investors have finally lost their minds completely. Why not, a whole segment of society has already.
That is all, now soldier on.
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Blue Chip Stocks
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The IQ Trends register of Select Blue Chips is an elite representation of the highest quality and most prosperous corporations in the country. According to our method, a stock will achieve the designation of Select Blue Chip after it has met at least 5 of the 6 following qualifications and may remain with 4 criterions:
1. 2. 3. Dividend increases 5 times in the last 12 years
S&P Quality Ranking in the “A” category
At least 5,000,000 shares outstanding 4. 5. 6. At least 80 institutional investors At least 25 years of uninterrupted dividends
Earnings improved in at least 7 of the last 12 years
Blue Chip Info Notes:
Downgrades to Faded Blue Chips:
Downgrades to Faded Blue Chips due to Quality Ranking decreases to B from B+:
Barnes Group (B). Cincinnati Financial (CINF); Dominion Energy (D); Elme Communities (ELME); Gap Inc (GPS); Gorman Rupp (GRC); Kimco Realty Corp (KIM); Lincoln National Corp (LNC); Mercury General Corp (MCY); Welltower Inc (WELL) Walmart Inc (WMT); Weyerhaeuser Company (WY)
New Additions to Baby Blue Chips:
New Additions to Baby Blue Chips: Taiwan Semiconductor (TSM)
And now round two of “Justify It”. We’ll start with you.
Commerce Bancshares, Inc. (CBSH)
Commerce Bancshares Inc (CBSH)
CBSH operates as the bank holding company for Commerce Bank, which provides retail, mortgage banking, corporate, investment, trust, and asset management products and services to individuals and businesses in the United States. CBSH operates through three segments: Consumer; Commercial; and Wealth. The Consumer segment provides traditional banking products and services, which include all the traditional deposit and loan accounts. The Commercial segment provides corporate lending, leasing, international, merchant and commercial bank card, and securities safekeeping and bond accounting services; and business products, government deposits, and related commercial cash management services, as well as sells fixed income securities to correspondent banks, corporations, public institutions, municipalities, and individuals. The
Wealth segment provides traditional trust and estate planning, advisory and discretionary investment portfolio management, and brokerage services, as well as private banking accounts. The company also offers private equity investment, securities brokerage, insurance agency, specialty lending, and leasing services, as well as online and mobile banking services. Commerce Bancshares, Inc. was founded in 1865, is headquartered in Kansas City, Missouri, and has paid dividends since 1936.
C.H. Robinson Worldwide (CHRW)
CHRW is a third-party logistics company that contracts truck, air, ocean, and rail carriers to transport its customers’ freight around the world. The company serves customers of all sizes in a wide variety of industries. During 2022, CHRW handled around 20 million shipments for approximately 100,000 customers, and contracted globally with about 85,000 carriers. Depending on the needs of customers and their supply chain requirements, CHRW selects and hires the appropriate carriers for each shipment, and provides freight consolidation, supply chain consulting and analysis, optimization, and reporting. As a third-party logistics provider, CHRW differs from transportation companies that own their own trucks, rail equipment, or aircraft, and employ their own operators for this equipment, which places CHRW in the asset-light subset of transportation companies. Profits are the spread between its pricing to customers and its payments to carriers. These spreads typically
widen with demand and contract when demand declines. About 85% of operating expenses are for purchasing carrier services, and carriers are only contracted when CHRW has customer orders. which makes the majority of its expenses variable as expenses rise or fall in line with demand levels. CHRW can experience earnings declines during downturns in freight demand, however, it generally avoids operating losses due to the high variable/low fixed cost nature of its operations. Conversely, asset-heavy transportation companies must continue to pay for their truck fleets and driver workforces even when utilization materially declines during recessions. This makes asset-heavy operators much more likely to generate losses and burn cash during recessions. Over the five years ending 2022, CHRW averaged return on capital of 17.4%, including 20.5% in 2022. Between 2017 and 2022, revenues grew at a CAGR of 11%, and EPS grew by 18%.
50.16 Yield: 3.0%
186.25 Pts Up: 136.09 Yield: 0.80% % Up: 271.3%
Price: 66.22 Pts Dn: -16.06
2.25% Dn: -32.0%
Imperial Oil Limited (IMO)
Imperial Oil Limited (IMO)
IMO is Canada’s third-largest integrated oil company by market cap, and Canada’s largest petroleum refiner. Majority-owned by Exxon Mobil Corporation (XOM), IMO is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. IMO is also a major producer of petrochemicals. IMO’s operations are conducted in three main segments: Upstream; Downstream; and Chemicals. Upstream assets are all oil sands extracted through mining. Major projects are located in Alberta and include two key bitumen sources, Cold Lake, and Kearl. IMO also produces synthetic crude oil, conventional crude oil, condensate & NGLs. Prices for most of the company’s crude oil sold are referenced to Western Canada Select (WCS) and West Texas Intermediate (WTI) oil markets. The Downstream segment owns and operates three refineries. Refin-
ing margins are largely driven by differences in commodity prices, specifically the difference between what a refinery pays for crude oil and the market prices for gasoline, heating oil, diesel oil, jet fuel, and fuel oil. IMO’s Chemicals segment produced 635,000 tons of polymers and basic chemicals in 2022, up 6% from 2021 levels. IMO has paid dividends every year for over a century and has increased its annual dividend payment for 23 consecutive years. The recent turnaround in U.S. crude oil prices and a fairly stable differential for Western Canadian crude has lifted prospects for IMO. The U.S. EIA projects WTI crude oil averaging $74 USD per barrel in 2023 and at $69 USD per barrel in 2024, and at these levels it is projected that the dividend is safe.
MDU Resources Group, Inc. (MDU)
MDU Resources Group, Inc (MDU)
MDU is in the regulated energy delivery, and construction materials and services businesses in the United States. It operates through five segments: Electric, Natural Gas Distribution, Pipeline, Construction Materials and Contracting, and Construction Services. The Electric segment generates, transmits, and distributes electricity for residential, commercial, industrial, and municipal customers in Montana, North Dakota, South Dakota, and Wyoming; and operates 3,400 miles of transmission lines, 4,800 miles of distribution lines, and 84 transmission and 294 distribution substations. The Natural Gas Distribution segment distributes natural gas for residential, commercial, and industrial customers in Idaho, Minnesota, Montana, North Dakota, Oregon, South Dakota, Washington, and Wyoming. The Pipeline segment provides natural gas transportation and underground storage services through a regulated pipeline system primarily in the Rocky Mountain and northern Great Plains regions. The Construction Materials and Contracting segment mines, pro-
Quality Rank: A-
Shares Outstg (M): 20364
Inst Own: 74%
Div Paid Since: 1937
Profit Margin: 5.13%
TTM Earnings: $1.84
P/E Ratio: 11.15
Book Value: 17.62
Div Payout: 48%
cesses, and sells construction aggregates; produces and sells asphalt; supplies ready-mixed concrete; and sells cement, finished concrete products, merchandise and other building materials, and related contracting services. The Construction Services segment constructs and maintains electrical and communication wiring and infrastructure, fire suppression systems, mechanical piping, and services; overhead and underground electrical, gas, and communication infrastructure construction and maintenance services; and manufactures and distributes transmission lines construction equipment and tools. It serves manufacturing, commercial, industrial, transportation, institutional, and renewable and government customers, as well as utilities. MDU was founded in 1924, is headquartered in Bismarck, North Dakota, and has paid dividends since 1937.
Dividend Increases
Dow Jones Industrial Average
An Illuminating Concept
When all other factors which rate analytical consideration have been digested, the underlying value of dividends, which determines yield, will in the long run also determine price. The key to value, therefore, lies in yield as reflected by the dividend trend. Individual stock prices fluctuate between repetitive extremes of high dividend yield and low dividend yield. These recurring extremes of yield establish Undervalue and Overvalue price levels. When a dividend is raised, the Undervalue and Overvalue price levels are raised automatically so they will continue to reflect the historically established yield extremes.
Each stock has its own distinctive high and low yield characteristics and must be evaluated individually.
Undervalued: Buying Area
These stocks have declined sufficiently in price to reach their individual repetitive area of high dividend yield. A further decline in price is minimized as this would result in an abnormally high dividend yield. Buying consideration should be given to stocks in this area after careful examination of the other statistics listed.
(Continued on page 13)
Undervalued: (continued)
Blue highlight indicates a category change within the past two issues.
Yellow highlight indicates a new arrival to the category.
Symbol indicates Dividend In Danger
Yields To Watch
The dividend-yields indicating the Undervalue area have been established over multiple market-cycles. Although these lowprice / high-yield instances are repetitive, they are neither absolute nor inviolate. In fact, a range of 10% above and below Undervalue is normal behavior. For various reasons though, stocks will occasionally exceed this 10% range.
Typically this is a transitory event as abnormally high-yields will attract sufficient buying interest to return dividend-yields to longestablished norms. On those occasions when a dividendyield deviates 30% or more from Undervalue, however, IQ Trends will highlight those stocks in this space so Subscribers can make note of the abnormal behavior.
Ames National
Arrow Financial AROW
Associated Bancorp
BP plc
Cadence Bancorp
Cracker Barrel
Comerica, Inc
Farmers Nat’l Bancorp
Foot Locker
Fulton Financial
German American Bancorp
Imperial Oil
Declining Trends: Heading Towards Undervalue
Stocks that have moved at least 10% from the Overvalued category are automatically placed into the Declining Trends category. These stocks are moving DOWN toward the Undervalued area. The investor holding these declining stocks should expect shrinking prices until a turnaround takes place, usually in the Undervalued area. The investor looking for investment opportunities should avoid these stocks until their declining trends are concluded.
(Continued on page 17)
Overvalue: Selling Area
Each stock has reached its own distinctive high price with low dividend yield. Unless dividends are raised, it may be anticipated that overpriced stocks will decline toward Undervalue. It is important to recognize the potential downside risk which exists at the Overvalue level. Selling here preserves profits and capital.
Blue highlight indicates a category change within the past two issues.
Yellow highlight indicates a new arrival to the category.
Symbol indicates Dividend In Danger
Rising Trends: Hold Area
Stocks that have moved at least 10% from the Undervalued category are automatically placed into the Rising Trends category. These stocks are moving UP toward the Overvalued area. As long as the upward trends remain intact, the investor should retain these securities. When the uptrends finally end, usually in the Overvalued area, a decision to preserve profits and capital must then be made. Downside risk expands as the Overvalued area is approached.
(Continued on page 17)
Baby Blue Chips
The stocks listed as Baby Blue Chips are working toward Select Blue Chip status as they meet all the Criteria for Select Blue Chips EXCEPT having only fifteen years of uninterrupted dividends. Fifteen years is important as this period includes both the 2008-2009 and Pandemic bear markets. While not yet full-fledged Select Blue Chips, we believe them preferable to non-dividend paying stocks, or stocks with insufficient dividend histories to establish repetitive Undervalue/Overvalue dividend yields.
Blue highlight indicates a category change within the past two issues.
Yellow highlight indicates a new arrival to the category.
Symbol indicates Dividend In Danger
Managing Editor: Kelley Wright
Hey gang. There are three new entrants to the Timely Ten this issue: Imperial Oil Ltd (IMO); C.H. Robinson Worldwide (CHRW); and Commerce Bancshares Inc (CBSH). The three companies they replaced are: Toronto-Dominion Bank (TD); T. Rowe Price (TROW); and Dow Inc (DOW). The latter three are still eligible for investment consideration as they are in the Undervalued category and have fine internal metrics. The three new entrants edged them out because their internals were just a little bit better.
Our four charts consist of the three new entrants to the Timely Ten and MDU Resources Inc (MDU), a stock in the Rising Trends that could become very interesting if it falls back into the Undervalued category. You’ll notice the rest of my commentary with the charts on pages 6-9 in this issue.
One last thing. I keep hearing and reading, “the Fed really wants to do x.” Is that right? I had no idea the Fed was desirous of anything beyond fulfilling their statutory mandates. I can’t believe what passes for analysis and that these people have a platform to spout this foolishness from.
Subscriber Survey
Hey gang. I’m sure you’ve noticed by now that we’ve rearranged a few things in this issue. On pages 6-9 we’ve now added my editorial commentary with each company next to the charts. So what do you think? We’d love to know. Please click on the link below to give us your response. Print subscribers use the link: (https://alainado.wufoo.com/forms/ xgaygn70fbzyi2/). We’ll let you know how subscribers responded in the next issue.
