IBD 100 'New Names': Using Sir John Templeton's Approach

IBD 100 ‘NEW NAMES.’  Only three new names hit the latest weekly (September 14th, 2009), computer-generated IBD 100 list of “leading growth companies,” those companies showing good fundamentals, having some institutional sponsorship, producing solid earnings growth and outperforming the average stock.  Three new names is about the norm.  And Investor’s Business Daily(IBD) in its commentary, is pretty calmed down and happy now that its list is acting normally, leading the general stock market, writing this week that:  “Whenever leading stocks post the best gains, it’s a sign of health for the market and its leaders.”   When this list lags, it worries IBD and until recently it had been lagging for many months now.


New Names                                                           Mkt         IBD         Industry

                                                                Price       Cap         Rank       Rank       Business Line

ECPG      Encore Capital                        16.47       378m       72            45            Resale of unsecured, discounted loans

CNSL      Consolidated Comm.              15.26       451m       88            152          Local phone service in TX/IL

WLT       Walter Energy                         61.86       3240m     99            48            Goal miner/degasifies coal beds


Schwartz View:  My continuing strong suggestion for growth investors searching for big winners is to research in depth all ‘new name’ companies when they first show up on the IBD 100 list.  I believe this one approach alone could pretty consistently make you handsome profits.  (My opinion is arrived at after trying out as many stock market approaches as I could unearth searching full time for over 20 years.)  Many of these companies go on to become ‘ten baggers’ over time and you’re finding them, when they first appear on this list, before the crowd, and thus if you do follow through and finding out exactly why they are in fashion, you can be a ‘first mover’ in buying them.  Plus your research -- so easy in today’s world of the Internet -- clues you in to many, not so incidental, trends in the economy providing you insight into the Big Picture as well.  Again, because companies appear on this list for some reason, “your mission, if you decide to accept it,” is to find out EXACTLY why.  One way to manage this approach, once you satisfy yourself about just why a company hit this list, is to use the Sir John Templeton approach, buy a small amount of each stock and put it away for some time.  Remember Mr. Templeton bought 100 shares of all NYSE traded depressed stocks trading under $1 a share during WWII.  A few years later he had quadrupled his money.  His missive to us future generations is that some won’t work out, some will trade sideways but the big winners will provide you with a handsome overall profit.  Thanks Sir John Templeton!


Let’s see, this week a cursory look tells me that Encore Capital seems to be in a sweet spot.  There’s a ton of bad loans floating around today so business is there for the company which comes up with a way to profit.  As for Consolidated Communications, I’m not sure why a company in a very low ranked sector (IBD rank 157 of 197) and a local phone service provider made the list.  Maybe a takeover?  Your job, again, is to find out why and if you’re satisfied there’s big potential, buy a few shares.  Finally Walter Energy, a coal coking company, maybe made the list as coal companies surge as natural gas rebounds on speculation of increased steel output from China.  I’m not sure I buy into that as a good enough reason but again there may be some hidden, deeper reason which in depth research will unearth.  Net, net, if you find solid reasons for these and/or any ‘new name’ stocks, one fundamentally solid market approach would be to buy a small equal dollar amount of each.  Then put ‘em away.  Yes, ‘buy & hold,’ exactly the approach most advisors today are saying doesn’t work anymore.  Remember, take the road less traveled in your stock market approaches and you’ll generally come out on top.  Ask Mr. Buffett and others of his ilk.

Posted 09-15-2009 8:17 AM by Richard Schwartz