John Schwinghamer spoke in a Friday, September 20, 2019 afternoon session. His talk was called “Why You Need to Own Purple-Chip Stocks: The Best of the Blue-Chip Stocks”. He is Managing Director of Purple Chips. His company’s site is here.
What are purple chips? These are stocks with stable and predictable earnings for 7 years and rising profitability. They have market capitalization of greater than $1B. These are companies with consistent growth. They are the best 4% of stocks. These stocks have low risk and low volatility and good returns. They also have no commodity exposure.
You want the management to have control over growth and cash flow. The problem with a stock like Cenovus Energy Inc (TSX-CVE) is volatile earnings. Harley-Davidson Inc (NYSE-HOG) used to be a PC but had an earnings breakdown. Dollarama (TSX-DOL) has smooth and predictable earnings and so is a PC stock. If earnings keep rising, then a stock will do better.
Amgen Inc (NASDAQ-AMGN) had a credit crisis, but earnings kept going up and so was fine. FactSet Research Systems Inc (NYSE-FDS) also had a credit crisis but earnings kept going up so eventually did the stock price. It also had a consistently rising dividend. Buy a stock with 7 years of consistent growth in EPS.
In their Purple Chip universe, they have 20 US stocks (but I did not get the last 2) and 8 Canadian Stocks.
Ecolab Inc (NYSE-ECL)
Fiserv Inc (NASDAQ-FISV)
Euronet Worldwide Inc (NASDAQ-EEFT)
AutoZone, Inc (NYSE-AZO)
Church & Dwight Co Inc (NYSE- CHD)
Mastercard Inc (NYSE-MA)
Medtronic PLC (NYSE-MDT)
Amgen Inc (NASDAQ-AMGN)
McCormick & Co (NYSE-MKC)
FactSet Research Systems Inc (NYSE-FDS)
Stryker Corporation (NYSE-SYK)
TJX Companies Inc (NYSE-TJX)
Mettler-Toledo International Inc (NYSE-MTD)
Rollins Inc (NYSE-ROL)
Globe Life Inc (NYSE-GL)
Johnson & Johnson (NYSE-JNJ)
Henry Schein Inc (NASDAQ- HSIC)
Alphabet Cl A (NASDAQ-GOOGL)
CGI Group (TSX-GIB.A)
Constellation Software Inc (TSX-CSU)
National Bank (TSX-NA
TD Bank (TSX-TD)
Royal Bank (TX-RY)
Alimentation Couche-Tard Inc Cl B (TSX- ATD-B)
Dollarama Inc (TSX-DOL)
Richelieu Hardware Ltd (TSX-RCH)
For these stocks, they go from underweight (when price is high) to regular-weight to overweight when price is low. They do better than the Dow Jones Index. The TSX is not good to use as a base comparison because it is a resource index and it has volatility. It is better to make money on high quality stocks.
The benefits of a PC subscription are alerts when they buy or sell, they let everyone know. They produce a video. They have educational webinars. They focus on the best stocks. It is a disciplined process. They sell on strength and buy on weakness. Their money is in PC stocks.
Some factors they look at are P/E, Enterprise Value, Intangibles to total assets Return on Capital (ROC), Return on Invested Capital (ROIC), earnings yield, Free Cash Flow, Net Operating Cash Flow per Share, and FCF to Sales. When FedEx misses the earnings consensus, it is a bad sign for the economy.
All the Canadian Banks are good, but they did not want to have a Canadian List with 6 banks. CGI has been expensive for years. So has Constellation. They never completely sell a stock, but they do sell and go to an underweight position on a stock. They go between regular-weight, underweight and overweight positions. They trade 2 to 3 times a month, but some opportunities lend to clusters. They compare the P/E with the growth rate.
Their companies must have little debt. Down the road, companies with big debt are going to get killed. They look at the pedigree of their companies (history). They know that estimates are not assured. They follow 40 Canadian stocks and 240 US Stocks, but their 8 Canadian and 20 US stocks are the best.
He looks for predictability in earnings and cash flow. They do forensic accounting and watch out for skeletons in the closet for a lot of companies.
On my other blog I wrote yesterday about Quarterhill Inc (TSX-QTRH, NASDAQ-QTRH) ... learn more. Next, I will write about Chesswood Group Ltd (TSX-CHW, OTC-CHWWF) ... learn more on Friday, November 29, 2019 around 5 pm
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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