There was no attempt to diversify across industry groups or differentiate by market capitalization though I did eliminate all companies trading Over-The-Counter and companies with market capitalizations of less than $100 million. I note that the market, as measured by the Dow Jones Total Stock Market Index is up about 3% for the first half of the year whereas my list of companies is up an average of 12.08%.

My list includes several well-known names including Apple, Bed Bath & Beyond, Oracle and Starbucks. Among the smaller companies we have Advanced Auto Parts with a market cap of $4.7 billion; Balchem with a market cap of $1.265 billion; FactSet Research $4.863 billion; NVE Corporation $0.275 billion and USANA Health Sciences with a market cap of $0.533 billion.

USANA had the worst performance during this period having lost nearly 23% of its value. The company develops and manufactures nutritional and personal care products. Advanced Auto sees the second largest decrease in vale by falling 10.66%. AAP is a specialty retailer of automotive aftermarket parts and accessories.

By far, our best performer is Hansin Natural, having risen 60% in this period. Hanson is a holding company whose portfolio companies manufacture and distribute non-carbonated beverages. We also saw strong performance from Balchem, Bed Bath and Beyond, Dollar Tree, priceline and Starbucks.

It has been a tough year to stay ahead of the market. These past several months saw major declines across the board. However, there Is some comfort in knowing that investing in companies that consistently perform well over the years by producing earnings and free cash without excessive debt are resilient and adaptive.

Disclosure: The author is long BBBY.

I do not think this is an either/or proposition. Dividends contribute significantly to an investment’s total return. Ibbotson Associates estimates that over the very long term, dividends contribute as much as 40% to total return. However, the largest gains in total return are derived from capital appreciation. To resolve this dichotomy, I try to identify undervalued dividend paying stocks. The income stream provides a certain level of support while I wait for the market to recognize the value in company I select.

I constructed a screen for my database to identify such companies. I looked for companies paying an above market average dividend yield, cash flow return on invested capital greater than 12% and return on equity greater than 18%. These criteria assure me that the company is currently profitable and has meaningful free cash flow. My valuation metrics include Enterprise Value to Sales (EV/sales), Enterprise Value to Invested Capital (EV/IC) and Price to Book Value (PBV). For each metric, I estimate the “correct” multiple using factors such as EPS growth, Return on Invested Capital (ROIC), debt to capital ratios, operating margins, payout, among others. I eliminate companies in the real estate and financial sectors and companied with market capitalizations under $250 million. This screen provided a diverse list of 28 companies.

One unintended consequence of this screen is that six of the 28 companies are takeover targets or potential takeover targets. Lubrizol is being acquired by Berkshire Hathaway. The utility company DPL Inc. is being acquired by AES for $3.5 billion. Reuters Insider analysts identify Parker-Hannifin as a possible target for Berkshire Hathaway. Barron’s Magazine published a list of potential LBO candidates compiled by UBS analysts Randy Udell and Ben Canet. The list includes McGraw-Hill and Ross Stores. Lastly, there are published rumors that Johnson & Johnson is interested in Smith & Nephew.

We always look at the balance sheet. If you buy a stock for the dividend, you want to be sure the company can sustain that dividend. Growth companies need a strong balance sheet to maintain that growth.

Last, but not least, is the income statement. Are earnings projected to grow? Is there free cash flow available to fund the dividends and, perhaps more importantly, growth in dividend payout? Is the dividend payout excessive or is there room to grow here too?

This list provides a selection of companies, from mega-cap XOM to micro-cap AAON. Each company appears to be financial strong with good growth prospects. None have excessive payouts unsupported by free cash flow. Judging from the number of announced buyouts, rumors of takeovers and possible targets, others share our view that these are undervalued in today’s market and offer the possibility of a total return greater than what the market offers.

As with all lists of this sort, this is a starting point for additional thought and research.

Generic drug makers are hopeful that they will thrive over the next four or five years as some $60 billion in annual sales of branded drugs go off patent. Sandoz, the market leader for biosimilar drugs expects this market to grow to $20 billion by 2020, up from a current $250 million. There is also a second class of generic drugs, small molecule chemical drugs. Biological drugs are made of larger molecules than chemical drugs. Since generics of chemical drugs, which are made of small molecules, are relatively simple to copy, the market for generic drugs attracted a flurry of players.

The complete article can be found HERE.

Disclosure: The author has a long position in IPXL.

The design and manufacture of semiconductor devices is a complex and capital-intensive multi-step process. The process involves different types of equipment used to manufacture, assemble and test semiconductor devices. Semiconductor test equipment and services are a critical part of this complex design and manufacturing process and are utilized in each of the key design and manufacturing stages. Each of these ICs has electrical circuitry that requires validation or testing during and after the manufacturing process. The final usability of the IC is determined by testing.

The complete article is here.

The Paperboard Packaging Council has suggested that the packaging segment will continue to see weakness for the remainder of 2011 due to reduced consumer spending but that an uptick will occur in 2012-14. They also identify several end-use markets with growth potential: pharmaceuticals and frozen and take-out foods.

The full article is available at:

http://seekingalpha.com/article/249590-paper-paper-products-industry-two-companies-stand-out

Disclosure: The author has no position in any company mentioned in this article and will not take a position within 72 hours of publication.

http://seekingalpha.com/article/246905-global-telecom-investment-opportunities-and-our-4-favorite-picks

The successful private investor chooses a strategy that works for them. Some folks like the action of momentum investing and others are much more risk averse and stick with large cap, dividend paying names. The market is big enough for everyone.

The approach that works well with us focuses on quantitative measures. We are not too interested in the “story” behind a name or management’s explanations or expectations. We rather let the numbers do the talking.

Our approach emphasizes valuation, cash flow generation, profitability and price momentum. Valuation and cash flow generation appear to be the most important drivers of excess returns.

One of our favorite valuation ratios is enterprise value to EBITDA. In the long run, no company succeeds without strong cash flow generation. The measure we look at is cash return on invested capital. There are several measures of profitability. Many investors are attracted to companies reporting high return on equity. The potential for excess returns is diminished if the market does not recognize the opportunity offered by a particular company. By combining low valuation as measured by EV/EBITDA, successful execution by the subject company (ROE and CFROI), and price momentum, we have the opportunity to generate excellent returns.

The companies listed here satisfy our criteria and are worth a close look.

Disclosure: Author has long positions AGP, NSR, SNDK and TEO.

The thread that binds all these companies is one of consistency. Each of these companies has been profitable in each of the past seven years; each has been free cash flow positive each year. They all have strong balance sheets and demonstrate the ability to grow sales, earnings from continuing operations, and free cash flow. Each company is expected to grow earnings going forward.

We believe each of the listed companies will show strong results in 2011. That being said, it is not a static list. Circumstances change as does our opinion. Readers should do their own due diligence and make up their own minds about each name.

Someone may argue that I missed the boat on this list and they may be right. The average 52 week gain for these stocks is 52%. Gains ranged from a low of 27% for BBBY to 83% for PCLN. These market beating gains are not the result of short-term fads. All of these companies are proven to be consistent winners.

Disclosure: Author has long positions in AAP, BCPC, FDS and NVEC.