Two “Best of the Best” Value and Yield Picks

for 2015

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Two “Best of the Best” Value and Yield Picks

for 2015Dear Reader,

Thank you for joining Engineered Investing Daily.

In this report, we reveal what we call “the best of the best” value and yield stock picks for 2015. The truth is these recommendations aren’t just for 2015. These are long-term picks and we think they should be in our portfolio as soon as possible.

What do we mean by “best of the best”? These recommendations come from what we call our “lab,” equipped with powerful tools we use to uncover highly profitable, yet safe stock recommendations.

Those tools include a proprietary stock screener developed by our team of mathematicians, financial engineers, and Ph.D. scholars. The computer-driven screener goes through several years’ worth and hundreds if not thousands of data points on stocks on all of the major exchanges using 17 key proven indicators, qualified and tested to find only those companies that can help you build extraordinary wealth.

But that’s just one step in the process.

The list of companies is then thoroughly screened and vetted by our full-time staff of financialanalysts and researchers who by the way, have a combined 25 years of experience helping readers make consistent and steady returns.

The result is what we call “the best of the best” companies in the world. The process is a mix of science and art.

Science because we believe that price is truth, a mirror to the markets to which all other data iscompared. Price is undistorted. It’s a precise snapshot of value, an investor places on a company in that one moment in time … and then it’s gone.

String trillions of dollars’ worth of trades together, however, and you’ve captured the mind of the whole market. Because everything – geopolitical winds, economic fears, the hopes of management and the whims of the consumer – is in how price moves.

It’s all there, in dollars and cents.3

And art… well, that’s the where we balance the mountains of data with the human touch. Computer generated stock recommendations is one thing … In the end, it’s simply a list of exactly that: computer generated picks.

The computer doesn’t know that perhaps a new management team has been put in place… and it can’t “read between the lines” to know if accounting numbers have been “fudged” to make thingsappear better. That’s something only a human can do.

In the end, we narrow down our recommendations to: Value, Growth and Yield. They tap into the core tenet of real wealth: sustainable forward movement.

Our portfolio is stocked with investments that are designed to generate strong, stable returns. Our growth stocks are geared toward consistent long-term profit potential, while our value investments target high-quality opportunities underrated by the markets. Our yield stocks supercharge ourportfolio with the stability of quality dividends.

By pursuing growth, value and yield, Engineered Investing offers a powerful strategy to build lasting wealth.

To help you get started, in this report, we offer two of the best of the best companies for value and yield.

To your long term wealth,

Sara Nunnally and Costas BocelliEditors, Engineered Investing

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Part I: A Value Stock That Even Warren Buffett Could Love Who doesn’t love a bargain?

When we talk about finding value investments, we’re really speaking about identifying securities that appear underpriced by some form of fundamental analysis.

Benjamin Graham, a professor at Columbia Business School, first introduced the concept of valueinvesting. He went on to write two of the most influential books on the subject, Security Analysis (1934) and The Intelligent Investor (1949).

While the books we’re first published decades ago, the investment approach remain as relevant as ever in today’s world of finance.

The essence of value investing is buying stocks at less than their intrinsic value or the discountedvalue of all future distributions.

But the thing about measuring intrinsic value is that it can be interpreted in many different ways so all the various assumptions doesn’t exactly make it a black or white determination.

Some of the traditional metrics to identify value include low price-to-earnings multiples, discounts to book value or low tangible book value and high dividend yields.

However, the concept of value has significantly evolved through the years as business models have become increasingly complex and disruptively innovative.

Intangible assets such as patents, brands and goodwill are difficult to quantify, which makes thedetermination of intrinsic value that much more subjective.

In fact, the U.S. government recently overhauled how it measures gross domestic product (GDP) and now includes intellectual property, research, development, and ownership rights when measuring the value of goods and services produced by the economy.

This means measuring intrinsic value isn’t exactly black or white; it’s more like 50 shades of grey.

Yet that hasn’t stopped the concept of value investing as being a highly successful investment strategy because frankly, it is.

In fact, one of the most successful investors of all time is a value investor. Of course we’re talking about Warren Buffett, who is not only a living legend in the finance industry but is also one the wealthiest individuals in the world.

He built his massive fortune by following the principles of value investing.

A disciplined approach... one that demands patience. It’s also proven a highly effective investment strategy.

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It’s so important that the value category constitutes a third of our Engineered Investing portfolio.

That brings us to our opportunity today. The investment opportunity that we’re about to reveal is the highest rated stock in our value strategy.

In “The Lab,” we use our proprietary screeners and filters to identify the highest quality stocks that possess the best characteristics that we believe deliver the best intrinsic value at today’s market prices.

The stock that vaulted to the top of the list that best matches our value strategy is Sanderson Farms Inc. (SAFM)

Sanderson Farms is in the chicken business.

A poultry processing company that engages in the production, processing, marketing and distribution of fresh, frozen, processed and partially cooked chicken products.

The computer tools we use in “the lab” tell us the company’s stock price is underpriced and under-loved, making it a compelling investment opportunity as a long-term investment.

Looking at the traditional fundamentals, the stock is trading at 7 times 2015 earningsestimates.

In 2016, the multiple rises to 12 times estimates, but drops to 9 times 2017’s estimates.

The volatility in the price-to-earnings multiple—though still discounted well below the broad market’s valuation—is actually a good thing because Sanderson Farms is spending to grow its business.

Here’s a recent statement from Chairman and chief executive officer Joe F. Sanderson, Jr.:

Construction of our new Palestine, Texas, complex is complete and production at the new complex began February 9, 2015. We look forward to the opportunities the new facility will create as we move to full production over the next year. We continue our due diligence on sites in North Caroli-na for our next poultry complex, and hope to complete that process soon.

Aside from the low earnings multiple, the company has a very favorable enterprise value-to-sales (EV/Sales) ratio. The enterprise value takes into account market capitalization and the net debt of the company, which is omitted from traditional price-to-earnings calculations.

That’s often overlooked by many investors but it gives a more accurate picture of the overall financial health of the company because debt must be serviced and has to eventually be paid back to creditors.

When you divide the enterprise value by annual sales, the ratio is favorably low which means it’s more attractive or believed to be undervalued. The EV/Sales ratio is 0.58, one of the lowest ratios among its peers.

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Turning to the performance and projections in the income statement, the company has been steadily growing revenues and profits, which will actually peak in 2015.

Analysts that cover the stock have also been steadily raising their estimates for revenues and earnings for 2015 and 2016 over the past 12-months—In fact, they’ve doubled from the monthly projections since April 2014.

Analysts that cover the stock have also been steadily raising their estimates for revenues and earnings for 2015 and 2016 over the past 12-months—In fact, they’ve doubled from the monthly projections since April 2014.

Aside from the low fundamental valuation, we see two other potential catalysts that could boost the share price of Sanderson Farms going forward.

1) While Sanderson Farms could meet all the criteria as an attractive “value investment” for War-ren Buffett to acquire and add to his conglomerate, Berkshire Hathaway (BRK-A), the issue for him really comes down to size. You see, Buffett is a big game elephant hunter and Sanderson Farms is relatively small for his 12-gauge shotgun. The company has a market capitalization of just under $2 billion, which hardly moves the needle for a massive company like Berkshire.

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But that doesn’t mean it couldn’t be an attractive takeover target by one of its larger peers that may be looking to grow through mergers and acquisition. Some of Sanderson Farms competitors that could show interest are Tyson Foods (TSN), Pilgrim’s Pride (PPC) and Hormel Foods (HRL).

2) The second catalyst really has to do with sentiment. Right now, sentiment is negative for the entire industry because of an outbreak of the avian influenza (bird flu), discovered in a wild bird in the Pacific Northwest. In fact, on January 8, 2015, China announced a ban on the import of United States poultry and gave no indication how long it will last.

Sanderson Farms derives 100% of its revenues domestically but does have some exposure to the export ban because some of its customers resell to China. The company projects about a $62 mil-lion hit to sales which is modest considering that total annual sales in 2014 was nearly $2.8 billion.

The point here is that when the ban lifts, the news will likely provide a boost for the entire industry including Sanderson Farms.

Value investing is all about finding companies that are undervalued and in many cases, under-loved. The key to success is the ability to identify companies that believed to have greater intrinsic value than the market currently believes.

Our engineered value strategy is designed specifically to not only meet that goal, but to also find the best of the best companies.

We think that Sanderson Farms is yet another profitable engineered investment.

Now that you have a value stock pick in your hands, let’s move on to a “best of the best” company that offers plenty of yield.

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Costas began his trading career in 1998, hired by Gateway Partners, an Equity Options Trading Specialist Unit, on the Philadelphia Stock Exchange (PHLX). During his time there, Costas gained valuable experience navigating through the financial meltdown that saw the collapse of hedge fund, Long Term Capital, and the Russian Currency Crisis when trading volatility levels reached unprecedented levels.

Costas became a Senior Equity Options Market Maker for the firm, eventually leaving to join a proprietary trading desk where he made markets for large customer and institutional orders.

Costas has more than seven years of experience making options markets. He has also trained and educated junior traders on option theory, risk analysis, and strategy.

Costas shows ordinary investors how to lock in extraordinary gains using the trading techniques and strategies he’s developed in his highly profitable research service, Profit Skimmer.

But that’s not all. In addition to finding powerhouse-trading opportunities for investors, every trading day of the week, Costas turns to the Engineered Investing suite of tools or “the lab” as he likes to call them, to help readers earn safe and consistent returns.

Part II: Yield Growth for All the Right Reasons We think of yield as a stable, reliable thing… a way to generate income just by being a shareholder. The higher the yield, the better.

But this isn’t always the case. Finding a stable company is just as important as finding a high yield. When you find both, you have a great opportunity to really ramp up your profits. That’s what makes an engineered yield strategy so important to your portfolio.

We don’t chase yield, we target it, and each of the companies in our yield strategy portfolio has to meet rigorous criteria that show cases other important financial figures.

In other words, there’s more to a good yield company than just its yield.

Yield most commonly refers to a dividend a company pays out to its shareholders. Usually, it’sexpressed as a percentage, based on the company’s share price. If a company pays its shareholders a dividend of $2.00 per share and the company’s share price is $80.00, the dividend yield is 2.5%.

The company is paying its shareholders for being shareholders, and this extra income can really add up for long-term investors.

But let’s say this company’s share price drops down to $60.00. Its dividend yield shoots up to 3.33%. The only thing that’s changed is the share price. The company didn’t increase its dividend payout… And its share price fell 25%.

Yield chasers might looks at this jump in yield and not dig deeper to find out why the company’s share price tanked.

That’s why our engineered yield strategy targets specific financial data to find the highest quality, most stable stocks with significant yields.

Things like profitability and business predictability are very important to a company’s financial lon-gevity. A good yield is only good as long as the company does well. Consider the financial crisis. Back in 2009, the number of S&P 500 companies that cut or eliminated a dividend climbed to 53… the largest number since the S&P started keeping records in 1956. Payouts fell by the tens of billions.

This is an extreme scenario, but it illustrates the need for companies with strong overall financial per-formance in addition to solid yields.

And that brings us to our opportunity today.

In “The Lab,” we narrowed our filters to target profitable companies with high earnings quality and high yield.

One of the top companies that our strategy targeted is in an industry I happen to be very bullish on over the long-term: Healthcare.

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The numbers make sense. Projections for the population of senior citizens show this demographic is expected to double over the next 35 years. The amount of money U.S. consumers spent on prescrip-tions jumped 13.1% in 2014 to $373.9 billion because of the growth in Medicaid and new big-name drugs entering a high-priced market.

That’s more than the entire GDP of Norway!

In fact, the pharmaceutical sector could be a big money maker over the next five years or more. In 2014, three new-to-market drugs were highlighted as potential blockbusters. Blockbuster drugs are new drugs with the potential to grow sales to more than $1 billion a year within five years.

But Thomson Reuters’ Drugs to Watch report released in late March 2015 targets 11 new names that could achieve blockbuster status by 2019. The top three drugs could grow sales to more than $3 bil-lion each within five years.

Now, you might think that with numbers like these, we’d want to target this industry with our engi-neered growth strategy, not yield. Here’s why we didn’t.

From Business Insider:

Much of the pharmaceutical industry’s growth in the past two decades has been due to the success of mega-blockbuster drugs like Lipitor. “More than half of the revenue of major pharmaceutical companies and above one-third of the total pharmaceutical revenues came from the sales of these blockbuster drugs,” University of Southern California researchers noted in a 2010 analysis. As pat-ents on many of those money-making drugs expire, pharmaceutical companies have been desper-ately trying to find new sources of reliable revenue.

That search for reliability taps right into our yield strategy. As I told you earlier, business predictabili-ty and earnings quality are two main criteria that any yield strategy stock must meet.

The “best of the best” opportunity we found matching our yield criteria is AbbVie, Inc. (ABBV)

This is a massive company with a near $100 billion market cap. According to Thomson Reuters, its Viekira Pak developed to treat hepatitis C could generate $2.5 billion in sales by 2019. That makes it the sixth-best blockbuster in the Drugs to Watch report.

But here’s the thing…

It’s also the maker of the well-known drug Humira, used to treat certain autoimmune diseases like rheumatoid arthritis and Crohn’s disease. Humira is currently in a Phase III trial to test its safety and effectiveness on pediatric Crohn’s disease.

That’s how a company produces steady, reliable results… it extends the use of its approved products into other markets.

So, let’s talk about how ABBV meets our engineered yield strategy criteria.

The company’s dividend yield was 2.81% in 2014. Along with this yield, the company’s revenue jumped 5.79%. ABBV’s net income and earnings per share, however, tanked in 2014. The figures each came in 57% lower than 2013’s figures.

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One of the major reasons why these figures were lower was because of higher research & develop-ment and selling expenses. This makes sense,because its new drug Viekira Pak was going through the very expensive regulatory process,and finally received approval from the FDA on December 19, 2014.

In 2015, these same figures are expected to pop right back up. Net income could climb more than 411% year-over-year, and more importantly, net income will climb 76.9% versus 2013. In other words, 2015’s net income will make up for 2014’s drop—and then some!

EPS will react the same way, climbing a whopping 376% year-over-year, and 61.7% versus 2013.

Figures for 2016 put net income 12.2% higher than 2015, with EPS coming in 25.8% higher.

These figures will allow ABBV to increase itsdividend to shareholders. Analysts predict ABBV’s dividend to jump from $1.75 per share in 2014 to $2.40 in 2016.

That means the company’s yield could climb from a respectable 2.81% in 2014 to a hefty 3.85% in 2016. When you consider that analyst are alsopredicting ABBV’s share price to climb between 12% and 38% to hit price targets, that yield growth becomes even more compelling.

Remember, yields can “climb” as share prices fall… so if both share prices and yields are climbing, you’ve found a great addition to your portfolio.

Back in February 2015, the company increased its quarterly dividend 4%, translating to a total divi-dend increase of 28% since the company started publically trading back in 2013.

But here’s what’s probably more important… When net income and earnings fell in 2014, ABBV still paid out $1.75 per share. And while this dividend payout was less than in 2013, the difference was not as great as the drop in EPS.

In other words, ABBV valued its shareholders enough to maintain a high dividend through anexpensive year.

That kind of stability and reliability is exactly what income and yield investors are looking for. Add to that the fact that revenues still climbed 12.2%, and you have a robust business that’s looking to grow and expand.

Indeed, in early March 2015, the company announced it wanted to acquire Pharmacyclics, partly11

because it wants to diversify its revenue stream. In 2014, Humira accounted for 63% of sales. That’s the double-edged sword of blockbuster drugs—big revenue equals high reliance on said revenue.

Analyst expect the deal to add $0.60 per share by 2019 with the addition of Pharacyclics’ blood cancer drug, Imbruvica. This addition will complement ABBV’s oncology pipeline. Its ABT-199 is currently in Phase II and Phase III clinical trials to treat various blood cancers.

The synergy here could add another $7 billion in sales at the peak. All this translates to stable growth and revenues, which means predictable, solid yields.

That’s the key to generating reliable income from any yield strategy, and our engineered yield strategy has you covered with AbbVie, Inc.

Sara’s diverse resume includes studies in art history, computer science and financial research. Her introduction to the world of investing was from one of the country’s leading charting technicians. She was his understudy and protégée for five years. She gained notoriety of her own, when she took the helm of the very popular, Material Profits research service.

Sara has traveled all over the world in search of the best investment opportunities, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco.

Sara has appeared on news media such as Forbes on Fox, Fox News Live and CNBC’s Squawk Box, as well as numerous radio shows around the country.

Most recently, Sara co-authored two books with Sandy Franks, Barbarians of Wealth and Barbarians of Oil.

She brings her almost 15 years of financial experience to Engineered Investing where she uncovers safe, steady and reliable gains for readers in almost every sector including technology, healthcare, energy, consumer goods, financial, utilities, commodities … the list goes on and on.

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User’s Notes

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