Covestor manager Walter Lu is a value investor who believes that there are two keys to successful investing: an edge and proper risk management. His edge?
Walter has chosen to follow the value investing philosophy because it benefits from the positive-sum game of long-term investment returns, is fundamental to the stock market and therefore does not change over time (as opposed to higher-level strategies that can suffer “system death”), fits well with his personality, and has been proven to be very successful time and again.
Walter manages risk by:
being adequately diversified and having a humble attitude. Unlike some value investors, he is wary of “averaging down” in deteriorating situations. The primary goal of any long-term investor should be to avoid blowing up, and Walter is willing to sacrifice potential returns in order to insure against disaster.
Walter manages Covestor’s Flexible Value model which
Aims to maximize total returns over the long term using a deep value investing approach, focusing on net-net stocks, liquidations, arbitrage opportunities, and special situations. The central principles of the investment framework are: a scientific process, an independent mindset, a risk-centric perspective, and a humble attitude.
Current top holdings include Hollywood Media Corp (Nasdaq: HOLL), Apple (Nasdaq: AAPL) and Aeropostale (NYSE: ARO). On 4/4, Lu added Tractor Supply Co (Nasdaq: TSCO) to the portfolio, which is an operator of retail farm and ranch stores in the United States.
Zacks Equity Research recently upgraded TSCO:
The company’s stores are strategically positioned in small towns, close to its target customers, which provide it with a competitive edge over its rivals.
Moreover, Tractor Supply has successfully tweaked merchandise collection across its stores, in line with the long-drawn-out economic downturn. The company has increased the proportion of less discretionary items such as animal and pet-related products, while reducing shelf space for certain big-ticket merchandise such as outdoor power equipment.
Furthermore, in an effort to boost margins, Tractor Supply is expanding its portfolio of private label brands and is focusing on direct sourcing. The company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing. This provides a strong upside potential for the company.
In addition, Tractor Supply’s concerted efforts, even in a constrained economy, have yielded positive results. The company recorded strong operating performance in the fourth quarter of 2010 with earnings per share accelerating by an impressive 28.8% to 67 cents from 52 cents per share in the year-ago period. The upside was driven by higher sales, favorable merchandise mix, improved inventory management and initiatives to control costs. Management expects earnings in fiscal 2011 to continue to benefit from the above factors.
Jim Van Meerten at Seeking Alpha recently had this to say about the company:
One of the things that keep customers returning is animal feed. The average feed customer revisits the store 13 times a year while other repeat customers only visit 7 times a year. The stores sell not only a private label line of feed but also sell Purina and Nutrena national brands at over 970 location in 44 states.
Technical Factors:
- 100% Barchart technical buy signalTrend Spotter buy signal
- 8 new highs and up 10.01% in the last month
- Relative Strength Index 70.55% and climbing
- Trades around 57.19 with a 50 day moving average of 51.98
Fundamental Factors:
- Wide Wall Street analysts following with 11 buy and 9 hold reports published by brokerage firms
- Sales are projected to increase by 11.80% this year and 9.50% next year
- Earnings are estimated to increase by 16.90% this year, 14.40% next year and 16.27% annually for the next 5 years
- Both Zacks and Deutsche Securities have published very positive recommendations recently
General Investor Sentiment:
- CAPS members on Motley Fool voted 251 to 25 that the stock will beat the market
- The more experienced All Stars agree 91 to 8
Sources:
“Tractor Supply Still Outperforms” Zacks Equity Research, 3/31. https://finance.yahoo.com/news/Tractor-Supply-Still-zacks-1816108854.html
“Recreational Farmers and Ranchers Help Tractor Supply Grow” Jim Van Meerten. Seeking Alpha, 3/25. https://seekingalpha.com/article/260223-recreational-farmers-and-ranchers-help-tractor-supply-grow?source=yahoo
