the best 26 stocks for 2014

8/13/2019 The Best 26 Stocks for 2014

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Ascendere Associates LLC December 31, 2013J. Stephen Castellano Page 1 [email protected]

Ascendere Associates LLC Innovative Long/Short Equity Research

Model Portfolio Monthly Update: December 31, 2013There are limitations inherent in our backtested theoretical model results, particularly with the fact that such results do not represent actual

trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually

managing client money. Please see additional disclaimers and disclosures at the back of this report.

We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highlyfor the following metrics, with an emphasis on proxies for cash flow growth and ROIC:

Relative Value Operating Momentum Analyst Revision Momentum Fundamental Quality

Page 2 contains rebalancing actions for our long-only model portfolio.

Page 3 contains rebalancing actions for our short-only model portfolio.

Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.
http://www.ascenderellc.com/ascendere-associates-llc/


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Commentary

We are very optimistic about the return potential of stocks in 2014. Short ideas are increasingly

difficult to find as thousands of of U.S.-centric public companies appear likely to report drastically

improving returns on capital and cash flow growth in the new year. A continued economic

resurgence could cause small cap and high-beta stocks to drastically outperform the more maturelarger-cap stocks.

Nearly every stock position we are closing in our long-model portfolio still look attractive; we are

instead trading up to as-attractivehigher-beta names. All else being equal, high-beta stocks

should out-perform in a rising market and drastically underperform in a declining market.

These model portfolio strategies rebalance each month. But many stocks tend to do well over

extended periods as well. At the back of this report are 12-month returns for the 12/31/2012 long

model. The best-performing stock was Herbalife Ltd. (HLF) with a 12-month return of 139%; the

worst performing was Telecom Italia S.p.A. (TI) with 1.65% decline. This portfolio of 25 stocks rose

on average 43.3% in 2013 versus the S&P 500 return of 29.6% (compounded, excluding

dividends).


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Long Model Portfolio -- Rebalancing Actions

12/31/2013 Rebalancing

Core and Opportunistic Long Portfolio:

26 stocks in the model portfolio = 3.85% weight per position

Close Position Hold/Rebalance Open Position

GameStop Corp. GME Foot Locker, Inc. FL Dillard's Inc. DDS

Williams-Sonoma Inc. WSM Hanesbrands Inc. HBI Lumber Liquidators Holdings, Inc. LL

The Home Depot, Inc. HD Bally Technologies, Inc. BYI Signet Jewelers Limited SIG

Lowe's Companies Inc. LOW Nu Skin Enterprises Inc. NUS Oceaneering International, Inc. OII

Oasis Petroleum Inc. OAS Western Refining, Inc. WNR Omega Healthcare Investors Inc. OHI

XL Group plc XL SEI Investments Co. SEIC PAREXEL International Corporation PRXLHEALTHSOUTH Corp. HLS EPR Properties EPR Grifols, S.A. GRFS

Northrop Grumman Corporation NOC Old Republic International Corp ORI VCA Antech Inc. WOOF

MasterCard Incorporated MA United Therapeutics Corporatio UTHR American Airlines Group Inc. AAL

Skyworks Solutions Inc. SWKS Flowserve Corp. FLS Lennox International, Inc. LII

SanDisk Corp. SNDK Huntington Ingalls Industries, Inc. HII

NXP Semiconductors NV NXPI Paychex, Inc. PAYX

Source: Ascendere Associates LLC Packaging Corporation of AmerPKG FleetCor Technologies, Inc. FLT


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Short Model Portfolio -- Rebalancing ActionsWhen the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the

improvements are discounted from a more depressed base.

12/31/2013 Rebalancing

Core and Opportunistic Short Portfolio:

21 stocks in the model portfolio = 4.76% weight per position

Close Position Hold/Rebalance Open Short Sale

FMC Technologies, Inc. FTI Sinclair Broadcast Group Inc. SBGI Liberty Media Corporation LMCA

CONSOL Energy Inc. CNX General Motors Company GM Deutsche Bank AG DB

Waste Connections Inc. WCN Forum Energy Technologies, InFET Woodward, Inc. WWD

China Eastern Airlines Corp. Ltd. CEA Cheniere Energy, Inc. LNG Genesee & Wyoming Inc. GWR

Telephone & Data Systems Inc. TDS Allscripts Healthcare Solut ions MDRX KBR, Inc. KBR

BioMarin Pharmaceutical Inc. BMRN IHS Inc. IHS

Clean Harbors, Inc. CLH TIBCO Software Inc. TIBX

Eaton Corporation plc ETN VeriFone Systems, Inc. PAY

Pentair Ltd. PNR

JDS Uniphase Corporation JDSU

Concur Technologies, Inc. CNQR

Chemtura Corporation CHMT

Allegheny Technologies Inc. ATI Source: Ascendere Associates LLC


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Return Data December 2013

Core & Opportunistic Long Model MTD d Out on 8/4/2011 close for a -12.33% loss11/30/2013 to 12/31/2013

Target/ Date+1Sector Company Ticker 11/30/2013 12/31/2013 Performance Stop Date Sell Price Return

Health Care United Therapeutics Corp. UTHR 92.31 113.08 22.50%

Industrials Flowserve Corp. FLS 71.38 78.83 10.44%

Information Technology Mastercard Incorporated MA 760.81 835.46 9.81% 12/26/2013 827.87$ 8.81%

Energy Western Refining Inc. WNR 39.07 42.41 8.55%

Consumer Staples Nu Skin Enterprises Inc. NUS 127.84 138.22 8.12%

Information Technology NXP Semiconductors NV NXPI 42.50 45.93 8.07%

Information Technology Skyworks Solutions Inc. SWKS 26.59 28.56 7.41%

Consumer Discretionary Foot Locker Inc. FL 38.89 41.44 6.56%

Consumer Discretionary Bally Technologies, Inc. BYI 74.57 78.45 5.20%

Consumer Discretionary Lowe's Companies Inc. LOW 47.48 49.55 4.36%Information Technology SanDisk Corp. SNDK 68.15 70.54 3.51%

Financials SEI Investments Co. SEIC 33.58 34.73 3.42%

Materials Packaging Corp. of America PKG 61.26 63.28 3.30%

Consumer Discretionary GameStop Corp. GME 48.25 49.26 2.09%

Consumer Discretionary The Home Depot, Inc HD 80.67 82.34 2.07%

Energy Oasis Petroleum Inc. OAS 46.13 46.97 1.82%

Industrials Northrop Grumman Corp. NOC 112.68 114.61 1.71%

Financials Old Republic International Corp. ORI 17.20 17.27 0.41%

Consumer Discretionary Hanesbrands Inc. HBI 70.10 70.27 0.24%

Financials XL Capital Ltd. XL 31.99 31.84 -0.47%

Consumer Discretionary Williams-Sonoma Inc. WSM 59.12 58.28 -1.42%Financials Entertainment Properties Trust EPR 50.29 49.16 -2.25%

Health Care HEALTHSOUTH Corp. HLS 35.79 33.32 -6.90%


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Core & Opportunistic Short Model MTD l shorts hit target 8/4/2011 for 14.84% gain11/30/2013 to 12/31/2013

Target/ Date+1

Sector Company Ticker 11/30/2013 12/31/2013 Performance Stop Date Sell Price Return

Telecommunication Services Telephone & Data Systems Inc. TDS 27.81 25.78 -7.30% 12/9/2013 25.07$ -9.85%

Industrials China Eastern Airlines Corp. Ltd. CEA 20.00 19.24 -3.80%

Industrials Waste Connections Inc. WCN 43.94 43.63 -0.71%

Materials Chemtura Corporation CEM 27.35 27.22 -0.48% 12/9/2013 25.86$ -5.45%

Health Care BioMarin Pharmaceutical Inc. BMRN 70.43 70.35 -0.11%

Healthcare Allscripts Healthcare Solutions, Inc. MDRX 14.94 15.46 3.48%

Energy Forum Energy Technologies, Inc. FET 27.01 28.26 4.63%

Industrials Eaton Corp. ETN 72.66 76.12 4.76%

Consumer Discretionary General Motors Company GM 38.73 40.87 5.53% 12/16/2013 41.53$ 7.23%

Information Technology Concur Technologies, Inc. CNQR 97.09 103.18 6.27%

Energy CONSOL Energy Inc. CNX 35.58 38.04 6.91% 12/19/2013 37.84$ 6.35%

Information Technology JDS Uniphase Corp. JDSU 12.14 12.99 6.96%

Materials Allegheny Technologies Inc. ATI 33.22 35.63 7.25% 12/27/2013 35.47$ 6.77%

Energy FMC Technologies, Inc. FTI 48.10 52.21 8.54% 12/16/2013 53.16$ 10.52%Consumer Discretionary Sinclair Broadcast Group Inc. SBGI 32.82 35.73 8.87%

Energy Cheniere Energy Inc. LNG 39.59 43.12 8.92% 12/5/2013 44.90$ 13.41%

Industrials Pentair, Inc. PNR 70.72 77.67 9.83% 12/18/2013 74.89$ 5.90%

Industrials Clean Harbors Inc. CLH 52.77 59.96 13.63% 12/16/2013 56.20$ 6.50%


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* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not assume any costs. This table is not to

be construed as advertising for any investment service. Real portfolios that attempt to exactly replicate these theoretical strategies will generate lower returns relative to these

models due to slippage, transaction costs, tax expenses and other costs. Theoretical returns in this table are based in part on backtests which may be changed or updated at any

time as refine our strategies. There are limitations inherent in our backtested theoretical model results, particularly with the fact that such results do not represent actual

trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our

best to provide accurate information, but do not guarantee this. Please see additional disclosures and disclaimers.

Theoretical Model Portfolio* 12/31/13 MTD YTD

Since

03/31/09 Sharpe

Simple Returns (No Compounding)

Stock Targets Core Model

Long -0.44% 4.39% 37.61% 138.6% 1.09

Short 0.12% 3.96% 19.52% 86.0% 0.78

Core Long/Short -0.56% 0.42% 18.09% 52.7% 0.57

Stock Targets and Opportunistic Model

Portfolio Targets Long -0.44% 4.39% 22.46% 129.8% 1.34

Short 0.00% 3.96% 19.73% 37.5% 0.32

Opportunistic Long/Short -0.44% 0.42% 2.72% 92.4% 1.16

Stock Targets and Opportunistic Model III

Portfolio Targets Long Stocks -0.44% 4.39% 22.46% 129.8% 1.34

Long Inverse ETF ^SH 0.00% 2.37% 29.77% 65.7% 0.80

Opportunistic Long/Short III -0.44% 2.02% -7.32% 64.1% 0.90

S&P 500 Index -0.60% 2.37% 26.55% 91.33% 1.09

S&P 500 Total Return Index #REF! 2.54% 28.68% 101.54% 1.21


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Core Opportunistic

"Dollar

Neutral" 1

"Dollar

Neutral" 2

Inception March 31, 2009

Long , Stock

Targets

Long, Stock and

Portfolio

Targets

Long/Short,

Stock Targets

and Portfolio

Targets

Long, Stock and

Portfolio

Targets / Long

^SH ETF

S&P 500 Total

Return Index

12/31/2013 Theoretical Theoretical Theoretical Theoretical

Simple Returns

Today 0.50% 0.50% 0.07% 0.50% 0.40%

MTD 4.39% 4.39% 0.42% 5.93% 2.54%

YTD 37.61% 22.46% 2.72% -5.47% 28.68%

Cumulative from 12/31/04 138.64% 129.82% 92.36% 64.40% 101.54%

Absolute Risk

Daily Average 0.12% 0.11% 0.08% 0.05% 0.08%

Daily Range 16.86% 15.84% 11.84% 12.00% 11.39%

Daily Standard Deviation 1.62% 1.22% 0.98% 0.88% 1.12%

Daily Return/Standard Deviation 7.11% 8.81% 7.73% 5.73% 7.43%

Average 90-Day T-bill 1.56% 1.56% 1.56% 1.56% 1.56%

Annualized Daily Returns 29.10% 27.17% 19.17% 12.71% 21.03%

Annualized Standard Deviation 25.8% 19.4% 15.6% 14.0% 17.8%

Sharpe Ratio 1.07 1.32 1.13 0.80 1.09

Percentage Down Days 44.1% 32.0% 42.3% 42.2% 43.1%

Average Daily Downside Value -1.18% -1.03% -0.65% -0.59% -0.82%

Daily Downside Deviation -1.21% -1.02% -0.63% -0.63% -0.85%

Daily VAR of 1000 at 95% Conf -25 -19 -15 -14 -17

Benchmark Relative Risk

Correlation 0.91 0.69 (0.06) 0.05

R-Squared 0.84 0.47 0.00 0.00

Daily Tracking Error 0.74% 0.92% 1.52% 1.37%

Regression

Beta 1.32 0.75 -0.05 0.04

Daily Alpha 0.031% 0.024% -0.008% -0.031%

Jensen's Daily Alpha 0.041% 0.018% 0.000% -0.001%

Trading Days 1197 1197 1197 1197

*Returns calculated by the s imple return method (not compounded).

* Portfolio models are theoretical a nd assume no costs.

* Data collected in real time since 3/31/2009

Source: Ascendere Associates LLC


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12-Month Returns Best Stocks for 2013

Ticker2 12/31/2012 1/31/2013 2/28/2013 3/31/2013 4/30/2013 5/31/2013 6/30/2013 7/31/2013 8/31/2013 9/30/2013 10/31/2013 11/30/2013 12/31/2013

FL 32.12$ 6.94% 6.44% 6.60% 8.56% 6.85% 9.37% 12.48% 0.25% 5.67% 8.03% 21.08% 29.02%

LTD 47.06$ 2.04% -3.27% -5.10% 7.12% 6.27% 4.65% 18.51% 21.89% 29.83% 33.04% 38.10% 31.43%

WSM 43.77$ 0.53% 3.72% 17.71% 22.64% 23.28% 27.69% 34.48% 28.88% 28.40% 19.81% 35.07% 33.15%

SIG 53.40$ 17.19% 14.64% 25.47% 28.71% 28.30% 26.27% 36.91% 24.34% 34.18% 39.81% 43.90% 47.38%HSNI 55.08$ 8.21% -2.87% -0.40% -4.54% 3.29% -2.47% 9.04% -2.21% -2.65% -4.87% 4.21% 13.11%

HLF 32.94$ 10.26% 22.31% 13.69% 20.55% 41.68% 37.04% 98.85% 85.22% 111.81% 96.78% 111.54% 138.92%

GMCR 41.34$ 10.14% 15.51% 37.30% 38.85% 76.90% 81.95% 86.74% 108.78% 82.22% 51.94% 62.99% 82.73%

MCO 50.32$ 8.94% -4.49% 5.96% 20.93% 32.03% 21.09% 34.68% 26.31% 39.77% 40.42% 48.31% 55.94%

HBAN 6.39$ 8.92% 10.02% 15.34% 12.21% 21.28% 23.16% 33.80% 28.95% 29.26% 37.72% 43.51% 51.02%

ACAS 12.02$ 11.14% 16.38% 21.42% 25.87% 10.89% 5.40% 14.14% 3.82% 14.39% 16.63% 27.28% 30.11%

FITB 15.20$ 7.17% 4.21% 7.30% 12.04% 19.74% 18.75% 26.58% 20.33% 18.75% 25.23% 33.68% 38.36%

USB 31.94$ 3.63% 6.39% 6.23% 4.20% 9.77% 13.18% 16.84% 13.12% 14.53% 16.97% 22.79% 26.49%

EWBC 21.49$ 9.12% 14.47% 19.45% 13.22% 22.62% 27.97% 43.46% 36.02% 48.67% 56.77% 59.52% 62.73%

CYN 49.52$ 6.95% 14.72% 18.96% 15.57% 26.74% 27.97% 40.41% 32.21% 34.61% 45.62% 54.20% 59.98%

TROW 65.12$ 9.66% 9.33% 14.98% 11.34% 16.57% 12.41% 15.55% 7.71% 10.46% 18.88% 23.56% 28.65%

WPI 86.00$ 0.45% -0.98% 7.10% 22.94% 43.36% 46.77% 56.13% 57.19% 67.44% 79.74% 89.62% 95.35%

TGI 65.30$ 7.76% 12.42% 20.21% 22.36% 18.91% 21.21% 20.15% 10.21% 7.53% 9.72% 13.23% 16.49%

CBI 46.35$ 9.62% 15.62% 33.98% 16.05% 36.57% 28.72% 28.54% 29.08% 46.21% 59.85% 65.44% 79.37%

TRN 35.82$ 10.83% 20.71% 26.55% 17.84% 14.27% 7.31% 9.91% 17.87% 26.61% 41.35% 44.92% 52.21%

VMI 136.55$ 6.72% 15.38% 15.17% 6.72% 11.56% 4.79% 2.26% -1.16% 1.73% 2.89% 5.98% 9.21%

CTSH 73.88$ 5.82% 3.91% 3.71% -12.29% -12.50% -15.22% -2.02% -0.79% 11.15% 17.66% 27.08% 36.68%

WXS 75.37$ 4.30% -0.48% 4.15% 0.54% -1.99% 1.76% 15.35% 6.18% 16.43% 23.86% 31.70% 31.39%

CF 203.16$ 12.80% -1.15% -6.30% -8.20% -6.01% -15.58% -3.52% -6.31% 3.78% 6.12% 7.00% 14.71%

SHW 153.82$ 5.41% 5.05% 9.80% 19.04% 22.57% 14.81% 13.23% 12.08% 18.44% 22.22% 18.99% 19.30%

TI.A 7.90$ 7.09% -18.10% -22.78% -13.42% -22.41% -29.49% -33.80% -31.52% -16.96% -1.14% -3.16% -1.65%

Average Returns 7.67% 7.20% 11.86% 12.35% 18.02% 15.98% 25.15% 21.14% 27.29% 30.60% 37.22% 43.28%

^SPX 1,426.19$ 5.04% 6.20% 10.03% 12.02% 14.34% 12.63% 18.20% 14.50% 17.90% 23.16% 26.62% 29.60%


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DISCLOSURES

Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic

quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients.

Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or

"high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless

otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in

the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a

market cap above $2 billion.

Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by

Ascendere:

1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members

of the analyst's immediate family have a financial interest in one or more of the Companies.

2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies.

3) Ascendere does not make a market in the securities of any of the Companies.

4) Ascendere has not received compensation from the Companies.

5) Ascendere has not managed or co-managed a public offering for any of the Companies.

6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the

Companies.7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies.

DISCLAIMERS

This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The

report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should

be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report

was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of

Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and

opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained fro m third-party sources believed to be reliable

but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views.

This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree

of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a curr ent or past recommendation, investment advice of any kind,

or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are

subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of

future performance, and no representation or warranty, express or implied, is made regarding future performance.

For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. Any dissemination or copying of this commentary is strictly prohibited.


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J. Stephen Castellanofounded Ascendere Associates LLC to provide innovative equity research

and investment advisory services that blends fundamental and quantitative approaches.

In general, our approach is quite simple -- we believe that return on invested capital and long-term

earnings growth are key to stock valuation. More specifically, we use powerful and unique financial

models that combine publicly available data, consensus estimates and our own inputs to generate

consistent and actionable stock recommendations.

Among the services that Ascendere provides are: 1) detailed custom equity research analysis; 2) valuation scenario analysis

studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed fundamental

financial modeling services; and 7) additional analytical consulting services. Additional information is available at

www.ascenderellc.com.

Mr. Castellano has over 15 years of experience in equity research and related consulting work. At PaineWebber, Warburg

Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and conducted in-depth

research on the steel and telecom services industries. At Boston Private Value Investors, he developed quantitative modelsfor stock idea generation and also provided general fundamental equity research coverage. Steve received a MBA from the F.

W. Olin School of Business at Babson College (2005) and a BA from Oberlin College (1993).

Mr. Castellano's career history is highlighted below:

Startup Ecommerce Company (2013-Present) Ascendere Associates, LLC (2009-Present) Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009) Pyramid Research, Contract Consultant, Telecom Services (2002-2003) Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001) Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000) PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)
http://www.ascenderellc.com/http://www.ascenderellc.com/http://www.ascenderellc.com/

the best 26 stocks for 2014

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