Avery Dennison Hits MTD Target

Model Portfolio Daily Update:  December 14, 2010

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An Opportunistic Long Model position in Avery Dennison (AVY) closed above its stock price target of $41.52 and will be assumed closed at the end of trading tomorrow.  Aggressive investors may want to use this figure as a new stop price as opposed to selling it outright.  We hold this in our Systematic Long Only model based on real trade data and will monitor the position closely.

Of Note:

TRW Automotive (TRW) was upgraded to Buy from Hold with a $69 price target by KeyBanc today.  This is the eighth major sell side upgrade for our model portfolio stocks that we have noticed for the MTD.

Avnet Inc. (AVT) in a presentation at the Raymond James IT Supply Chain Conference today stated that its market is growing faster than GDP and that the company is growing faster than its market.  Avenet's market is forecast to grow 5% next year and 6% in 2012 to $1.347b.  In comparison its 3yr target for Return on Capital Employed (EBIT/Assets-Liabilities) is 14-16% versus 14.7% in fiscal 2010 and 8.7% in fiscal 2009, and its 3yr goal for operating margin is 4.0-4.5% versus 3.5% in fiscal 2010 and 3.0% for fiscal 2009. This sounds like an implied 14-16% forecast for ROCE for 2011 (excluding restructuring and related charges), which makes sense given the 8 acquisitions it closed in 2010, including 5 for an undisclosed amount and 3 for ~$860m.   We are currently forecasting ROIC to stay in the 17% range for its next fiscal year as it consolidates acquisitions.

RPC, Inc. (RES) was down a numbing 5.93% today, and has given back nearly all its double-digit gains for the month.  This is a strange little $2.9b market cap stock.  It looks great fundamentally but has acted with extreme volatility over the last few weeks.  We think this may be the result of a surge and subsequent decline in day trader interest driven by an anything-goes junk rally in Energy stocks and its 3-for-2 stock split, which was announced on October 27 and went into effect on December 10.  Nothing has changed fundamentally for this stock that we are aware of so we continue to hold it.

About this report
This daily update is a supplement to a monthly report dated November 30, 2010 that details the model portfolio strategies of Ascendere Associates LLC (“Ascendere”).  For more information, please see our list of frequently asked questions, suggested tips on using our newsletter or an interview with us on Covestor Live.  See also our long-only model based on actual trade data. Please see our disclosures and disclaimers at the back of this report.