ROWer Example – Woodword Governer (WGOV)

On the MadMoney show, you will often hear the term “ROWer” associated with a company that is being discussed. ROW stands for Rest of World and provides us an easy way to diversify in the company with exposure to many parts or the world, not just dependent on the US for business. You will hear Jim say “The US is just not where the action is, the whole world is growing…..and leaving the US behind.”

Some folks have emailed me asking where can they find the info to determine the ROW piece of the business…It is actually pretty easy…Let’s take Woodword Governer as an example:

Step 1: Go to the SEC website to get the latest 10-K (annual report) for the company. Here is the link….


Step 2. Look for the “Segment Information” section in the report, Note 19 or starting on page 52 for WGOV.

Step 3. Find the Net Sales data by geographical region by year and calculate the % to total for each geography listed. Here is what it should look like…


Confirming the message in the show, WGOV is a great ROWer play with over 40% of the sales coming from regions outside the US. WGOV also highlights that the ROW section of the business is growing at a faster clip than the US segment, continuing to support Jim’s arguments.

Please feel free to email me letting me know which other items I should include on the education corner section of the blog.

The "ARG" term defined

As you hear vocalized by Jim Cramer on "Mad Money", you are looking for stocks that have accelerating revenue growth, or better known as ARG. As the name implies, the revenue growth rate will continue to improve vs. the prior period resulting in a sales growth chart that looks like a hockey stick.

To illustrate ARG, I would like to introduce you to Nutrisystems Inc. (NTRI)

NutriSystem, Inc. provides weight management and fitness products and services in the United States. Its weight management program consists of a pre-packaged food program and counseling.

Exhibit 1.


In Exhibit 2, you will find two lines

- Red Line denotes revenue % growth vs. prior year

- Blue Line denotes stock price

During Q3 2004, NTRI reported a 57% increase vs. PY. In the next quarter, the company followed up with an 88% increase vs. PY starting the acceleration phase lasting for 6 quarters. If you were to purchase the stock when the firm published results on March 30th, 2005 at a price of $10.10 per share, you would be sitting on a stock valued at $71.25 or a 605% increase. To put this into context, an initial $10,000 would have been worth $70,544 today.

Exhibit 2.


Please keep in mind, companies have 90 days to file annual results and 45 days to file quarterly results.

One last note….. Please keep in mind if there is any seasonality to the company’s revenue:

- If seasonality exists calculate revenue growth vs. prior year.
- If no seasonality exists, calculate vs. prior quarter.

In terms of NTRI, weight loss and dieting are centered on New Years resolutions of individuals. If you were to chart the revenue growth rate vs. prior quarter (refer Exhibit 3.) you might have missed this mad money opportunity.

Exhibit 3.

PEG - What is it and how do I calculate it?

In an effort to continue to assist investors with their homework, I will publish posts for education purposes.

Occasionally on the show "Mad Money" hosted by Jim Cramer, you will hear about the "PEG Ratio". The PEG stands for Price to Earnings to Growth Rate Ratio....

Let's walk through the below as an example:

Current Price per Share = $20.00

Current Earnings per share on a twelve month basis = $1.20

So, the PE ratio is equal to 16 or $20 divided by $1.20

Next, you want to find the expected next year earnings growth rate. You can find this in the Yahoo Finance website under the analyst estimates section....Here is a link to the analyst estimates page for Given Imaging Analysts Estimates.

For this example, let's assume that the earnings growth rate is expected to be 10%.

Therefore, the PEG ratio is equal to 1.6x or 16(P/E ratio) divided by 10 (earnings growth rate)....

So how to use it.....PEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. A rule of thumb for the show is for a stock to have a PEG lower than 2.

Feel free to email me questions or any other topics you would like me to write about....Enjoy and happy investing

Traditional 401K vs. Roth 401K

As the new year approaches, my employer has updated their benefits package to include the option of contributing to a Roth 401K. Ever since I have been working, I have always contributed pre-tax dollars in the Traditional 401K to take advantage of (i) starting to save early and (ii) of the healthy company match.

Since I have been contributing to my 401k, I never felt the need to start a Roth IRA. With that said, I never took the time to understand the benefits of the Roth. So with this available option, I need to ensure I am making the right choice for the long-term....

So here is what I have learned so far, using a simple analysis that I have created to help me understand the differences...

Assumptions:
Initial Contribution of $1000
Assuming 7% growth for 30 years
Effective Tax of 28%
Withdrawal rate of 10% after year 30

Traditional 401k Results:
After 30 years at 7%, the balance would be $7,612
At the same tax rate of 28%, you will receive post-tax amounts of $5,481

Roth 401k Results:
After 30 years at 7%, the balance would be $5,418 with no tax liability.

Neutral at the same tax rate pre and post retirement.
Advantage Trad. 401k when you assume your tax rate in retirement will be lower.
Advantage Roth 401k when you assume your tax rate in retirement will be higher.

In summary, one of the most critical assumptions is your tax bracket differential now vs. retirement. To provide you some more data for your analysis, here are the historical income tax rates in the US.

After looking at the variability of the tax rates among other assumptions about potential career success or not, I am not going to try and guess and put all of my funds in one type of account. I am deciding to employ a hedged strategy and will plan on having both a Traditional and a Roth 401k. I will need to assess what percentage of my retirement accounts I would like in each account, but my initial reaction is a 50/50 split.


Here are some additional website and articles that have helped me in this analysis:
Fidelity.com
Dinkytown.com
Fool Article

Hopefully this simple analysis helps you in your financial quest. Please feel free to comment if you feel I am missing some significant advantages and disadvantages between the two.

Author Disclosure: I am not a Certified Financial Planner. Please read the disclaimer and consult your financial advisor.