22 Stocks for February 2014

8/13/2019 22 Stocks for February 2014

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Ascendere Associates LLC January 31, 2014J. Stephen Castellano Page 1 [email protected]

Ascendere Associates LLC Innovative Long/Short Equity Research

Model Portfolio Monthly Update: January 31, 2014There 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 highlyfor 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.
http://www.ascenderellc.com/ascendere-associates-llc/


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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 opportunisticmodel 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

estimatesbut 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 fromDilliards (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.


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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 thatrule 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 3/31/15 12/31/14 9/30/14 6/30/14 3/31/14 12/31/13 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12 3/31/12 12/31/11

NOPLAT (279) (303) (284) (268) (258) (232) (402) 4,160 4,036 4,016 6,283 1,736 1,817 1,762

Economic Charge 1,433 1,444 1,453 1,460 1,466 1,467 1,430 1,433 1,300 1,221 1,152 1,213 1,315 1,230

Economic Profit (1,711) (1,747) (1,737) (1,727) (1,724) (1,699) (1,832) 2,727 2,736 2,796 5,132 523 503 533

Sequential growth -2% 1% 1% 0% 1% -7% -167% 0% -2% -46% 881% 4% -6% 30%

NOPLAT (279) (303) (284) (268) (258) (232) (402) 4,160 4,036 4,016 6,283 1,736 1,817 1,762

Operating Capital 19,209 19,362 19,480 19,569 19,653 19,665 19,506 19,928 19,773 18,905 18,131 19,034 18,973 18,673

ROIC (NOPLAT / Operating Capital) -1.4% -1.5% -1.4% -1.4% -1.3% -1.2% -2.1% 21.7% 21.3% 21.4% 33.7% 9.3% 9.8% 9.7%

Sequential growth -8% 7% 6% 4% 10% -43% -110% 2% -1% -36% 262% -5% 2% 6%

Source: S&P Capital IQ data and estimates, and Ascendere A ssociat es data and estimates.


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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 Hold/Rebalance Open Position

Dillard's Inc. DDS Foot Locker, Inc. FL DIRECTV DTV

Hanesbrands Inc. HBI Lumber Liquidators Holdings, I LL Macy's, Inc. M

Signet Jewelers Limited SIG Bally Technologies, Inc. BYI Pilgrim's Pride Corporation PPC

Nu Skin Enterprises Inc. NUS Western Refining, Inc. WNR Fifth Third Bancorp FITB

Oceaneering International, Inc. OII Omega Healthcare Investors In OHI Raymond James Financial, Inc. RJF

Old Republic International Corpor ORI SEI Investments Co. SEIC ICON Public Limited Company ICLRPAREXEL International Corporati PRXL EPR Properties EPR Align Technology Inc. ALGN

Lennox International, Inc. LII United Therapeutics Corporatio UTHR Broadridge Financial Solutions, Inc. BR

Flowserve Corp. FLS Grifols, S.A. GRFS Great Plains Energy Incorporated GXP

Huntington Ingalls Industries, Inc. HII VCA Antech Inc. WOOF

SanDisk Corp. SNDK American Airlines Group Inc. AAL

NXP Semiconductors NV NXPI Paychex, Inc. PAYX

FleetCor Technologies, Inc . FLT Packaging Corporat ion of AmerPKG Source: Ascendere Associates LLC


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Short Model Portfolio -- Rebalancing ActionsWhen 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 Hold/Rebalance Open Short Sale

Forum Energy Technologies, Inc. FET Sinclair Broadcast Group Inc. SBGI Peabody Energy Corp. BTU

Cheniere Energy, Inc. LNG General Motors Company GM Plum Creek Timber Co. Inc. PCL

BioMarin Pharmaceutical Inc. BMRN Liberty Media Corporation LMCA Radian Group Inc. RDN

Genesee & Wyoming Inc. GWR Deutsche Bank AG DB Equity One Inc. EQY

Eaton Corporation plc ETN Allscripts Healthcare Solutions MDRX The Hart ford Financ ial Services Group, HIG

IHS Inc. IHS Woodward, Inc. WWD Kennametal Inc. KMT

Pentair Ltd. PNR Clean Harbors, Inc. CLH Yahoo! Inc. YHOO

JDS Uniphase Corporation JDSU KBR, Inc. KBR Nimble Storage, Inc. NMBL

VeriFone Systems, Inc. PAY TIBCO Software Inc. TIBX Air Products & Chemicals Inc. APD

Chemtura Corporation CHMT Concur Technologies, Inc. CNQR Carpenter Technology Corp. CRS

Allegheny Technologies Inc. ATI

Source: Ascendere Associates LLC


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Return DataDecember 2013

Core & Opportunistic Long Model MTD d Out on 8/4/2011 close for a -12.33% loss12/31/2013 to 1/31/2014

Target/ Date+1

Sector Company Ticker 12/31/2013 1/31/2014 Performance Stop Date Sell Price ReturnIndustrials American Airlines Group Inc. AAL 25.25 33.55 32.87% 1/29/2014 33.80$ 33.86%

Healthcare Grifols, S.A. GRFS 36.12 39.61 9.66%

Health Care Parexel International Corp. PRXL 45.18 48.81 8.03%

Financials Omega Healthcare Investors Inc. OHI 29.80 31.94 7.18%

Industrials Huntington Ingalls Industries, Inc. HII 90.01 95.02 5.57% 1/22/2014 97.20$ 7.99%

Information Technology NXP Semiconductors NV NXPI 45.93 48.35 5.27%

Financials Entertainment Properties Trust EPR 49.16 51.08 3.91%

Materials Packaging Corp. of America PKG 63.28 64.60 2.09%

Health Care VCA Antech Inc. WOOF 31.36 31.94 1.85%

Industrials Lennox International Inc. LII 85.06 86.56 1.76%

Consumer Discretionary Hanesbrands Inc. HBI 70.27 71.14 1.24%Consumer Discretionary Signet Jewelers Limited SIG 78.70 79.55 1.08%

Information Technology SanDisk Corp. SNDK 70.54 69.55 -1.40%

Financials SEI Investments Co. SEIC 34.73 34.06 -1.93%

Consumer Discretionary Bally Technologies, Inc. BYI 78.45 73.32 -6.54%

Consumer Discretionary Foot Locker Inc. FL 41.44 38.60 -6.85%

Energy Western Refining Inc. WNR 42.41 39.11 -7.78%

Information Technology Paychex Inc. PAYX 45.53 41.82 -8.15%

Industrials Flowserve Corp. FLS 78.83 72.33 -8.25%

Health Care United Therapeutics Corp. UTHR 113.08 102.62 -9.25%

Information Technology FleetCor Technologies, Inc. FLT 117.17 106.32 -9.26%

Financials Old Republic International Corp. ORI 17.27 15.62 -9.55%

Consumer Discretionary Dillard's Inc. DDS 97.21 87.30 -10.19%

Consumer Discretionary Lumber Liquidators, Inc. LL 102.89 88.99 -13.51%

Energy Oceaneering International, Inc. OII 78.88 68.15 -13.60%

Consumer Staples Nu Skin Enterprises Inc. NUS 138.22 85.15 -38.40%


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Core & Opportunistic Short Model MTD l shorts hit target 8/4/2011 for 14.84% gain12/31/2013 to 1/31/2014

Target/ Date+1

Sector Company Ticker 12/31/2013 1/31/2014 Performance Stop Date Sell Price Return

Consumer Discretionary Sinclair Broadcast Group Inc. SBGI 35.73 31.42 -12.06% 1/15/2014 31.89$ -10.75%

Materials Allegheny Technologies Inc. ATI 35.63 31.44 -11.76% 1/22/2014 33.02$ -7.33%

Consumer Discretionary General Motors Company GM 40.87 36.08 -11.72% 1/24/2014 36.76$ -10.06%

Energy Forum Energy Technologies, Inc. FET 28.26 25.12 -11.11% 1/16/2014 25.90$ -8.35%

Consumer Discretionary Liberty Media Corporation LMCA 146.29 131.63 -10.03% 1/13/2014 136.70$ -6.56%

Industrials Clean Harbors Inc. CLH 59.96 56.08 -6.47% 1/22/2014 56.43$ -5.89%

Industrials Woodward Governor Co. WGOV 45.61 42.85 -6.05% 1/29/2014 43.31$ -5.04%

Industrials Genesee & Wyoming Inc. GWR 96.05 90.34 -5.94% 1/13/2014 93.14$ -3.03%

Information Technology Tibco Software Inc. TIBX 22.48 21.29 -5.29%

Industrials IHS Inc. IHS 119.70 113.41 -5.25% 1/28/2014 112.01$ -6.42%

Industrials Pentair, Inc. PNR 77.67 74.33 -4.30% 1/24/2014 72.01$ -7.29%

Industrials Eaton Corp. ETN 76.12 73.09 -3.98%

Materials Chemtura Corporation CEM 27.22 26.14 -3.97% 1/8/2014 25.92$ -4.78%

Health Care BioMarin Pharmaceutical Inc. BMRN 70.35 68.88 -2.09%Industrials KBR, Inc. KBR 31.89 31.30 -1.85%

Financials Deutsche Bank AG DB 48.24 48.18 -0.12% 1/13/2014 53.20$ 10.28%

Energy Cheniere Energy Inc. LNG 43.12 43.94 1.90%

Information Technology JDS Uniphase Corp. JDSU 12.99 13.29 2.35%

Healthcare Allscripts Healthcare Solutions, Inc. MDRX 15.46 16.56 7.12% 1/21/2014 17.27$ 11.71%

Information Technology VeriFone Holdings Inc. PAY 26.82 29.01 8.17% 1/21/2014 29.96$ 11.71%

Information Technology Concur Technologies, Inc. CNQR 103.18 121.34 17.60% 1/16/2014 111.61$ 8.17%


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* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not a ssume 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.

Theoretical Model Portfolio* 01/31/14 MTD YTD

Since

03/31/09 Sharpe

Simple Returns (No Compounding)

Stock Targets Core Model

Long -0.44% -2.62% -2.62% 136.0% 1.05

Short 0.12% -1.98% -1.98% 84.0% 0.75

Core Long/Short -0.56% -0.64% -0.64% 52.0% 0.55

Stock Targets and Opportunistic Model

Portfolio Targets Long -0.44% -3.91% -3.91% 125.9% 1.28

Short 0.00% -1.98% -1.98% 35.5% 0.29

Opportunistic Long/Short -0.44% -1.94% -1.94% 90.4% 1.12

Stock Targets and Opportunistic Model III

Portfolio Targets Long Stocks -0.44% -3.91% -3.91% 125.9% 1.28

Long Inverse ETF ^SH 0.00% -3.56% -3.56% 62.1% 0.74

Opportunistic Long/Short III -0.44% -0.36% -0.36% 63.8% 0.89

S&P 500 Index -0.60% -3.56% -3.56% 87.77% 1.04

S&P 500 Total Return Index #REF! -3.45% -3.45% 98.09% 1.15


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Core Opportunistic

"Dollar

Neutral" 1

"Dollar

Neutral" 2

Inception March 31, 2009

Long , Stock

Targets

Long, Stock and

Portfolio

Targets

Long/Short,

Stock Targets

and Portfolio

Targets

Long, Stock and

Portfolio

Targets / Long

^SH ETF

S&P 500 Total

Return Index

1/31/2014 Theoretical Theoretical Theoretical Theoretical

Simple Returns

Today -0.69% 0.00% -0.02% 0.69% -0.65%

MTD -2.62% -3.91% -1.94% -0.46% -3.45%

YTD 35.00% 18.54% 0.79% -5.93% -3.45%

Cumulative from 12/31/04 136.02% 125.91% 90.42% 63.95% 98.09%

Absolute Risk

Daily Average 0.12% 0.11% 0.08% 0.05% 0.08%

Daily Range 16.86% 15.84% 11.84% 12.00% 11.39%

Daily Standard Deviation 1.62% 1.22% 0.98% 0.88% 1.12%

Daily Return/Standard Deviation 7.11% 8.81% 7.73% 5.73% 7.43%

Average 90-Day T-bill 1.55% 1.55% 1.55% 1.55% 1.55%

Annualized Daily Returns 29.10% 27.17% 19.17% 12.71% 21.03%

Annualized Standard Deviation 25.8% 19.4% 15.6% 14.0% 17.8%Sharpe Ratio 1.07 1.32 1.13 0.80 1.09

Percentage Down Days 44.1% 32.0% 42.3% 42.2% 43.1%

Average Daily Downside Value -1.18% -1.03% -0.65% -0.59% -0.82%

Daily Downside Deviation -1.21% -1.02% -0.63% -0.63% -0.85%

Daily VAR of 1000 at 95% Conf -25 -19 -15 -14 -17

Benchmark Relative Risk

Correlation 0.91 0.69 (0.06) 0.05

R-Squared 0.84 0.47 0.00 0.00

Daily Tracking Error 0.74% 0.92% 1.51% 1.37%

Regression

Beta 1.32 0.75 -0.05 0.04

Daily Alpha 0.031% 0.023% -0.006% -0.028%

Jensen's Daily Alpha 0.041% 0.017% 0.000% -0.001%

Trading Days 1218 1218 1218 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


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J. Stephen Castellanofounded 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 modelsfor 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)
http://www.ascenderellc.com/http://www.ascenderellc.com/http://www.ascenderellc.com/

22 Stocks for February 2014

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