Sometimes I get an issue of Value Line and one of the industrial sectors strikes me because there are a lot of companies in that industry that have high Timeliness ratings. (For those who don’t know, Value Line is a company that provides stock research, including the Value Line Investment Survey, which is an invaluable tool for stock picking. Timeliness is a proprietary rating system, where the 100 companies they expect to do the best in the next year are given a 1 for Timeliness.) I like to get the paper version of Value Line, rather than just screen stocks with the online version, because it allows me to see trends like this, as well as flip through pages and look for stocks that have prices that follow a certain pattern — they increase in price in a steady fashion.
An industry that struck me this month is the auto parts industry. There were several companies in that sector with promising Timeliness rankings, including American Axle and Manufacturing, Delphi Automotive PLC, Goodyear Tire, Standard Motor Products, and TRW Automotive. (I once had a friend who worked for TRW. I wonder where he is now….) The fact that so many have good rankings says that the industry is hot at the moment and might be a good place from which to select stocks.
Looking through the individual pages, one interesting pick is Allison Transmission. This stock does not have a Timeliness rank because it is too new. It also does not have enough of a price history to see if it has the nice, steady incline that I look for in a stock. Still, Value Line is projecting total returns of between 6 and 18% per year over the next 3-5 years. Those projections are not certain and the stock carries some risk of being a loser. Still, it might be worth putting some money into Allison Transmission since it would mean a chance of getting into a newer stock that went public just a year ago. The 1.6% dividend is also attractive.
Borgwarner Inc. also has in interesting stock price pattern. It has grown relatively consistently since 2003, with a break in the 2008-2009 bear market. Earnings projections are 14%, which is respectable, and it had a 2-for-1 split about a year ago, which usually happens to stocks that are doing well. Timeliness on Borgwarner is only a 2, however, and the projected return is only predicted to be between 3 and 12%. This means the stock may have already seen most of the gains it will for a while and need some time to cool down.
China Automotive has a Timeliness of 1, but its price pattern is all over the board. This might be a good stock if you are looking for something to buy and sell within a few months or a year. I tend to look for long-term buys, however, since I find it is easier to find stocks that will grow for years than predict when a volatile stock will go up and know then when to sell. The company also has a Safety of 4 (5 is the worst and 1 is the best) and earning’s predictability of 50%, so this would be a speculative stock with a very uncertain return at best.
The main point of this post isn’t to give specific stock suggestions, although the one’s I’ve given might be a good place to start for your research. It is more to show the things I look at and how I evaluate a stock for purchase. I may in fact buy some shares of Allison Transmissions, but it won’t be one of my main positions because of the uncertain nature. I like the ability to get into things “near the ground floor,” however. But this does not always work out.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing