COMMENTARY | COLUMNISTS | BRENT WILSEY

Managed futures vs. stocks

While many American investors are sitting on the sidelines, waiting for something bad to happen so they can jump in and buy some stocks at great prices, a global survey released Friday by Bloomberg shows that global investors think U.S. stocks are the best place in the world to invest.

Not surprisingly, Europe was at the bottom.

However, some investors might be considering putting their money into a managed futures fund. They are hot, since many investors shy away from stocks as too risky and invest in alternative assets like managed futures, thanks in part to some brokers and financial advisers who are unsure themselves of what to do.

According to Morningstar, the three-year annualized return is minus 5.63 percent, and throughout mid-November are down nearly 8 percent, year-to-date. Through October, inflows have slowed to $652 million, down from last year's $3.2 billion increase.

According to Barron and Morningstar, advisers have ranked the strategy the one they would most likely recommend. It should also be noted the managed future funds have caught on as a legal way to hide fees. The funds can use swap agreements to access CTAs (commodity trading advisors) rather than having the CTAs manage a portion of the fund. A fund by the name of Grant Park Managed Futures Fund (GPFAX) is using this strategy. Investors, be sure you understand what you are investing in.

Jules has been asking about what the details are on a company by the name of Jack Henry & Associates Inc., trading under the symbol JKHY. The company is based in Monet, Mo., where it employs just under 5,000 employees. The company provides technology solutions and payment processing services mainly for financial services organizations. With a market cap of $3.3 billion it is considered a mid-size company. The stock over the last year has been as high as $40.71 and as low as $32.10. It currently trades around $38.

Based on valuations the stock is on the expensive side with a PE of 20.9, much higher than the industry average of 14.4. Price to sales at 3.2 is double the industry average of 1.6. Price to tangible book value is 17.1, which is 300 percent greater than the industry average of 5.4. Price to cash flow also is higher for the company at 13.0, versus 8.7 for the industry. Just as a reminder, investors do want the valuations ratios lower than the industry.

The company does pay a small dividend, using 24.1 percent of the earnings to pay out a 1.2 percent dividend. I was disappointed to see the sales climb only 7.1 percent year over year, below the industry average of 13.9 percent, along with the earnings per share increase of only 13 percent year over year, when the industry average managed to increase 12.1 percent. While the numbers are not bad, keep in mind that the valuations ratios are higher than the industry, so as an investor I would expect to receive better growth rates than industry average.

The balance sheet looks good for the company with a current ratio of 1.3, just under the industry average of 1.4. Debt to equity does favor the company at 13.1, below the industry average of 17.7.

The company has a nice net profit margin of 15.3 percent, which is better than the industry average of 11.3 percent. The company appears to do a nice job with its receivables, turning them over 7.7 times over the last 12 months, slightly higher than the industry at 7.5 times.

Eleven analysts follow the company, coming up with a mean EPS of $2.18 for the fiscal year ending June 2014. With the stock trading around $38.50 per share, that equals an expensive forward PE of 17.7 times, which is above my sell multiple of 16.5 times. Over the last 90 days the mean estimate has increased from $2.12/sh to the current $2.18.

Over the last four quarters, the company has either beaten the estimate of match the estimate like it did in the March 2012 quarter coming in with earnings of 42 cents. The best quarter was the June 2012 quarter when the company beat the estimate by 8.7 percent coming in at 50 cents higher than the expected 46 cents. The company also has a long-term PEG ratio of 1.71, which, while not bad, is not good either.

Jules, while I think this appears to be a fine company, it does seem to be on the expensive side and while I know the stock could climb higher for my portfolio I would rather find a company that was trading with a forward PE of 12 times, not the nearly eight times of Jack Henry.

Email me at brent@wilseyassetmanagement.com.



Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.

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