Porter's Journal

An Activist Jumps In

Posted onAuthorPorter & Co.

The Munger Screen Highlights A Turnaround Opportunity

Welcome to Porter & Co.’s Saturday Stock Screen… a new service in which we’ll pull back the curtains to show you some of the tools we use to find the best investment opportunities in the market. (See last week’s issue here.)

This includes stock screens, which apply a list of criteria – relating to different financial, accounting, and performance parameters – to comb through the more than 3,000 publicly traded stocks on U.S. markets. Our screening criteria will typically narrow this initial list to a tiny fraction of the universe of U.S. listed stocks.

We often use the results from these screens as a starting point for more in-depth analysis for possible inclusion in the The Big Secret on Wall Street portfolio. This week, we’re applying a modification of a screen inspired by Warren Buffett’s late partner Charlie Munger to look for opportunities for a future recommendation. And we’re also including the names of significant stocks hitting 52-week highs and lows – a helpful list that we also use to guide our analysis.

For Partner Pass members, in the Saturday Stock Screen we’ll sometimes highlight an opportunity from the screen, or elsewhere, that appears particularly compelling (see below) – not as an official recommendation, but as a stock that’s on our radar.

We’ve received some great feedback on our first issue of the Saturday Stock Screen, including the following note from M.L. who wrote in to say,

Thank you for including us Partner Pass members in yet another valuable service! 

Porter & Co. has proven to be a GREAT service for me just as being an Alliance member at Stansberry Research is.

I am amazed and very impressed with your prolific writing and service as I read everything you publish every day. Even though I don’t always agree, I love the historical  basis of your conclusions and very relevant thoughts. Your writeup on tariffs was timely and an important opinion piece.

See you in Baltimore this September.

And this letter from J.W., who writes: 

Thank you for today’s Daily Journal on the Modified Munger Screen and 52-week highs and lows. I’m a small-business owner but manage a bit of money. This makes my investing much much better. Especially helps keeping my eye on P&C companies. My subscription to Porter & Co. is well worth the cost. Thanks again and love this kind of work you do. 

As well as this letter from M.V., who writes: 

This is great! More overdelivery by Porter and team.

Questions or feedback about our Saturday Stock Screen?… drop us an email at [email protected].

This screen is inspired by the late Charlie Munger, Warren Buffett’s partner, who once described a dead-simple strategy for beating the market:

If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is, few human beings have that kind of discipline.

Our Modified Munger screen applies the following criteria, based on this original idea: 

  1. Return on equity exceeding 20% as a filter for high-quality businesses
  2. Insider purchases within the last three months, to screen for businesses where top executives see enough value in their own shares to make an open-market purchase
  3. Market capitalization over $1 billion to exclude micro-cap, low-liquidity stocks
  4. Stocks trading below the 200-week moving average, as well as those trading up to 5% above the 200-week moving average (this extra 5% lets us capture an additional set of stocks that are within 5% of trading below their 200-week moving average – a trend line that shows that average price of a stock over the last 200 weeks). 

We also display each stock’s price-to-earnings (P/E) ratio, as well as its beta (a measure of volatility versus the overall market). These are not used in the screening criteria, but rather to provide a reference point for noting the valuation and volatility of the stocks on the list.

As of Thursday’s close, this screen produced the following 31 stocks: 

Highs And Lows 

Each week, we also monitor any stocks in the market making new 52-week highs. We do this because any stock on its way to generating 2x, 3x, or 10x returns will spend a lot of time making new 52-week highs along the way. Thus the new 52-week-high list provides an opportunity to flag these potential high performers before they really break out, with a particular emphasis on lower profile, less widely-followed stocks that might have otherwise gone unnoticed. 

Notable stocks making new 52-week highs this week: 

  • Abbott Labs (ABL)
  • Autozone (AZO) 
  • Becton Dickinson (BDX)
  • Boston Scientific (BSX) 
  • CBRE Group (CBRE) 
  • Cencora (COR) 
  • Corteva (CTVA) 
  • Curbline Properties (CURB)
  • Darden Restaurants (DRI) 
  • Dutch Bros (BROS)
  • HubSpot (HUBS) 
  • Klaviyo (KVYO)
  • La-Z-Boy (LZB) 
  • Sharkninja (SN)
  • Similarweb (SMWB)  
  • Stryker (SYK) 
  • Twilio (TWLO) 
  • Warby Parker (WRBY) 
  • Waters (WAT) 

We also monitor stocks on the new 52-week-low list. In many cases, the names on this list are there for good reason – the market is often correctly pricing in their weak fundamentals. However, once in a while, a great business with excellent long-term prospects finds itself on this list due to a temporary setback. This can create the rare opportunity to buy top-shelf merchandise at bargain-basement prices. 

Notable stocks making new 52-week lows last week: 

  • Brown-Forman (BF) 
  • Danaher (DHR) 
  • The Hershey Company (HSY) 
  • United Parcel Service (UPS) 

In this issue, we’ll take a closer look at one of the stocks that showed up on the Modified Munger screen this week. This business is the dominant player in a tightly controlled, oligopolistic market that has historically generated reliable growth, robust profit margins, and market-beating returns. More recently, a series of setbacks have sent the shares down by nearly 50%. But now, with a high-profile activist investor pushing for operational improvements, and insiders buying shares, we analyze the potential opportunity for Partner Pass members below. 

(To become a Partner Pass member, contact Lance James, our Director of Customer Care, at 888-610-8895, internationally at +1 443-815-4447, or via email at [email protected].)

A Turnaround Situation With Potential Returns Of 17% Annualized