Out Fox The $treet

--> This model was up 2.1% in September versus a 2.4% gain for the benchmark S&P 500. The model slightly under performed the market in September, which can happen in solidly positive months. The model is now up over 20% for the year. Trades As mentioned in the last several monthly reports, one goal of this model is to slowly trim the amount of positions back closer to 20 after reaching 26 a few months back due to mergers and partial positions. The position count remained at 24 at month end, but a partial position in Vale S.A. (VALE) was increased in order to fill out the position. The Gap, Inc. (GPS) was sold, as the position became the largest one in the portfolio after an incredible gain by the stock. After a 100% gain for the year, the Net Payout Yields (NPY) declined to the point that Gap was no longer attractive for this model. Read our Seeking Alpha article for more details. With the cash from the Gap sell, Motorola Solutions (MSI) was purchased ...

--> This model was up 4.8% in August versus a 2.0% gain for the benchmark S&P 500. The model rebounded sharply from a weak performance in July. Trades As mentioned previously, one goal of this model is to slowly trim the amount of positions back closer to 20 after reaching 26 a few months back due to mergers and partial positions. Hence, the model only made a sell during August to reduce the position total down to 24. Express Scripts (ESRX) was sold as the merger with Medco Health (MHS) led to the reduction of share buybacks. Considering the company doesn’t pay dividends, it left the Net Payout Yield (NPY) heading towards zero. The stock was sold at $62.49 on the spike higher following strong earnings. This sell further highlights the ability of the model to be opportunistic when a position no longer meets the set criteria. Instead of having a rigid sell point at a quarter end, the model is able to trade positions when the market presents an ideal time. ...

When Seagate Technology (STX) reported earnings back on July 30th, it confirmed that the company had completed a massive buyback of 45M shares for $1.25B. The puzzling part is that the company spent over $27 a share for a stock that traded below $10 for a few days back last October. Why load up now? The company is a worldwide leader in hard disk drives and storage solutions. Seagate actually ended the quarter with sequentially higher cash showing that the buyback was at least from cash generated from operations. A good example that the stock was trading considerably below the ability to generate cash if the company bought back 10% of the outstanding stock in one quarter alone. Read the full article at Seeking Alpha. Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Last Thursday morning, The Gap, Inc. (GPS) reported August 2012 net sales that showed surging comp sales for all of the domestic brands. This news sent the stock surging to a new 52-week high of $36.60 before closing at $36.11. The company is a leading global specialty retailer offering clothing, accessories, and personal care products under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. With the stock now up 100% for the year, many investors wonder when will the rally end and what could've predicted these gains. At Stone Fox Capital, the one predictive reason all year continued to be the huge Net Payout Yields (NPY). The company had consistently been in the top of the monthly NPY list , telling investors to stay invested. Read the full article at Seeking Alpha. Disclosure: Long GPS. Please review the disclaimer page for more details. 

The debate continues to rage, usually to the extremes, of whether Sears Holdings (SHLD) has no value or enormous value due to a vast array of undervalued assets. For example, the owned real estate is mostly valued at cost and not current market values leaving a wide debate on the proper valuations. See my past articles on these subjects here. The company operates as a specialty retailer in the U.S. and Canada. It operates under the Kmart and Sears segments with major brands such as Kenmore, Craftsman, DieHard, Joe Boxer, Lands End, and Jaclyn Smith. This will be the first part of a series intended at discussing the recent Q2 earnings announcement, followed by the Bruce Berkowitz case study, and finally a review of the pending spin offs. Read the full article at Seeking Alpha. Disclosure: Long SHLD, GPS, and KSS. Please review the disclaimer page fore more details. 

This article is a continuation of a series highlighting the top net payout yield stocks that was started in June (see article) and repeated in July (see article). The series is meant to highlight the best stocks for the upcoming month so this report is clearly late. Though with the majority of the month left, it is still worth reviewing last month's results and the updated list as of data from August 10th. Read the full article on Seeking Alpha. Disclosure: Long all positions mentioned. Please review the disclaimer page for more details. 

This model was down 0.5% in July versus a 1.3% gain for the benchmark S&P 500. Oddly the model has fluctuated a lot in recent months with large cap stocks in the model moving up or down 10% on earnings reports. While typical of smaller companies this usually doesn’t happen in companies with market caps exceeding $10B. Trades As mentioned previously, one goal of this model is to slowly trim the amount of positions back closer to 20 after reaching 26   due to mergers and partial positions. Hence, the model sold the remaining holdings in Home Depot (HD) and added to existing small positions in Hartford Financial (HIG) and WellPoint (WLP). Home Depot was unloaded as the stock finished a long run from October last year where the stock went from just over $30 to the selling price over $51. This considerable gain pushed the Net Payout Yield (NPY) down as the company dropped buybacks. Not to mention that competitor Lowes (LOW) remains a Top 5 holding. The two purcha...

Not too surprisingly, the top net payout yield stocks from June (see article ) remained mostly intact as the month ended. Only Motorola Solutions, Inc. (MSI) was confirmed as a new addition to the list. Both Ameriprise Financial, Inc. (AMP) and Time Warner Inc. (TWX) tied for tenth on the July list with a 15.37% yield. So technically, no stock rolled off the list. The Covestor model typically holds over 20 stocks so neither stock would need to be sold, but anybody playing at home with ten stocks could just leave the model alone in order to avoid trading costs. Look to add Motorola Solutions to the model as one of those stocks lowers the yield via more stock gains or the reduction of a buyback. For those not familiar with net payout yields, it is the combination of the dividend yield and the net buyback yield. In essence, it is the percentage paid to investors. A typical fund focuses on dividends while some focus on buybacks, but recent history has shown that the stocks paying the l...

Widely ignored by the market are the stocks that continuously reduce shares outstanding via buybacks. Buybacks routinely obtain a bad rap due to the focus on high profile failures such as Cisco Systems (CSCO) that have had stock blowups after buying at higher prices. Not focusing on the total population of stocks makes such analysis invalid. On balance, companies that reduce outstanding shares provide for higher earnings per share and stronger rewards to shareholders. Naturally the price paid is crucial, but any company that is actively buying back shares over multiple years will ultimately dollar cost average at attractive prices. When focusing on large, financially strong companies instead of the speculative growth stocks the results are typically better. Investors should look for stocks that year after year reduce the outstanding shares and in essence slowly take the company private. Without lifting a finger, shareholders own a much larger percentage of the earnings of the below st...

After a big selloff, the advantages of Net Payout Yield stocks really comes into focus. These companies benefit from the strategic ability to repurchase shares and issue dividends. The market is currently enamored with dividend stocks, but those stocks don't exactly benefit investors when the stock drops. Investors are stuck with capital losses while collecting dividends, but the company can't do anything with the lower stock price to benefit shareholders. Companies that participate in large buybacks though have the ability to repurchase shares at much cheaper levels now. This benefit has largely been ignored by the markets over the years with the general sentiment that share repurchases aren't effective. The key though is that most investors don't focus on net share repurchases. Companies that greatly reduce the stock float provide more earnings for shareholders. Read the full article at Seeking Alpha. Disclosure: Long AMP, COP, DTV, GPS, GS, KSS, and TWX. Please...

This model gained a solid 4.3% in March versus 3.1% for the benchmark S&P 500. The model remained strong all month even as the SP500 struggled toward the end of the month.   Trade March was a normal trading month for this model with only 1 trade initiated in order to reduce the cash balance. Time Warner (TWX) was bought as the stock flashed one of the highest Net Payout Yields in the over $10B market cap group with a huge buyback. The stock also maintains a strong 2.9% dividend providing for that investor class as well. For more details on why Time Warner was selected, please read this article . Top Performers The largest gains came from Lowes (LOW) , WellPoint (WLP) , Gap (GPS) , and Goldman Sachs (GS) along with several other stocks that had solid gains. Most of those stocks saw gains that exceeded 10%. Typical of a model that allows for trading signals based on an indicator such as the Net Payout Yield, a stock like Goldman Sachs was purchased ...

Investors continue to focus on dividends as the best and in some minds the only way to return capital to shareholders. That remains a big mistake as the population of stocks with a high dividend payout ratio, not to mention ones that even pay dividends has been shrinking just about every decade. Several key factors have influenced these decisions. First, the historical tax disadvantage of dividends versus long term capital gains has worked to weaken the focus on dividends. Second, the SEC instituting rule 10b-18 back in 1982 made it easier for firms to implement buybacks without stock manipulation charges. Third, market participants place such a great emphasis on maintaining steadily increasing dividends that corporate boards prefer the flexibility of buyback programs over the negativity of reducing a dividend. Read the full article on Seeking Alpha. Disclosure: Long COP, GPS, KSS, TRV. Please review the disclaimer page for more details. 

June was a good month for the Net Payout Yields model on a relative basis. The model outperformed the SP500 by 0.67% with a loss of 1.16% versus the 1.83% loss for the benchmark. Naturally on a absolute basis the model had a disappointing month, but it performed as expected by being less volatile than the benchmark and holding up better during the worse parts of the big drop mid month. The model remains fully invested with an average weight of only 2% cash for June. The goal of the model is to let the companies themselves buyback stock at lower to take advantage of any market weakness rather then trying to time the market. Trades Only one trade was made during the month. Wells Fargo (WFC) was sold as the stock failed to keep the Net Payout Yield at acceptable levels. The stock was replaced in July with Travelers (TRV) that has an extremely high NPY of around 20% given its consistent large stock buybacks. Top Performers Even considering the nearly 2% loss in the SP500 for June, ...

March was another solid month for this model, as it beat the benchmark (up 1.95% versus 0.10 loss for the S&P 500). The model also wrapped up a solid first quarter with a 6.57% gain. For a Risk Score 1 model, the goal remains to outpace the benchmark by a slight amount eac month with greatly reduced volatility as opposed to models in higher risk scores. Trades For the month, the model sold Walt Disney (DIS) and United Parcel Service (UPS) as their net payout yields dropped below acceptable levels. Those two stocks were replaced with Gap (GPS) and Entergy (ETR). GPS maintains a modest dividend of 2%, but has made significant buybacks in the last few years. On February 24th, they announced the Board of Directors approved an additional $2 billing share repurchase authorization and a increase in the annual dividend to $.45 for 2011. For Q4 alone, they repurchased $598M of stock or an annualized rate of nearly 18% making them a top 4 net payout yield stock . ETR is another top ...

Most investors continue to focus on high dividend yielding stocks paying very little attention to stock buybacks. Unless you're a retiree living completely on fixed income, it's a mistake to not focus on the complete picture of returns of capital to shareholders. The combination of stock buybacks and dividends or Net Payout Yields (NPY) has offered higher returns in the past. Buybacks can be a more efficient return of capital to shareholders as it reduces the tax burden of investors..... Read the rest of the article at SeekingAlpha .  Disclosure: Long WLP, GPS, and MHS. Please review the disclaimer statement.