I have just experienced one of my worst performances ever as a stock-picking columnist.
About twice a year, I recommend a few stocks that I believe display both value and momentum. Mostly, they have worked. But my recommendations from Aug. 26, 2014, were an unmitigated disaster.
I picked two energy stocks, National Oilwell Varco Inc. (NOV, Financial) and Warren Resources Inc. (WRES), not realizing at the time that a historic decline in oil prices was underway.
I recommended Micron Technology (MU, Financial), and subsequently bought it for almost all of my clients. It tanked hideously.
I selected Sanderson Farms Inc. (SAFM, Financial), a major chicken producer, which declined on news of bird flu affecting flocks.
Even my best pick, Visteon Corp. (VC, Financial), an auto parts maker, was down a smidgen.
The net result was a loss of 45.7% on my five selections from a year ago. That compares with a 0.58% gain for the Standard & Poor’s 500 through Aug. 21, 2015. All figures are total returns including dividends.
If I’ve ever done worse, I sure don’t remember it.
The Record
I could plead the cruel unpredictability of exogenous events, but no one wants to hear excuses. I will point out, however, that this series of columns has borne fruit more often than not.
The column you’re reading is my 27th “Value Plus Momentum” column, the first one having appeared in 2000. One-year results can be tabulated for 25 of these columns. In 25 outings, I have beaten the S&P 500 16 times on a one-year total return basis. My picks have been profitable 19 times out of 25.
The average return for my Value-Plus-Momentum selections has been 16.8%. The recent disaster pulled this average down by close to three percentage points. But it is still well above the 7.7% average for the S&P 500 in the same 25 periods.
Bear in mind that results for my column picks are theoretical, not reflecting actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve on actual portfolios for clients. And the overarching truth still applies: Past performance may not predict future results.
Wiping Mud
And now, attempting to wipe the mud off my face, I will try again. Here are four new stocks that combine value (selling for 15 times earnings or less) and momentum (up 10% or more in the past year, in a flat market). Each of them has held up well in the past month, during which the S&P 500 has been down close to 7%.
I like Orbital ATK Inc. (OA, Financial), which has appreciated 23% in the past year. The company was formed earlier this year through the merger of Alliant Techsystems and Orbital Sciences. It make rockets, munitions, and other defense products. I have long liked the company but have shied away in recent years because it either sold for more than 15 times earnings, or had too much debt, or both. Now the debt has been whittled down some, and the stock sells for 13 to 17 times earnings, depending on how you calculate the earnings.
A debt-free choice is Multi Fineline Electronix Inc. (MFLX, Financial), an Irvine, California, company that makes circuit boards. After posting losses in fiscal 2013 and 2014, Multi Fineline has reported a gain four quarters in a row. The stock sells for three times recent earnings and 11 times the earnings analysts expect for next year. It’s a small stock and volatile: This year the price has ranged between about $11 and $26. It’s at about $18 now, up 76% in the past year.
With oil (and hence jet fuel) prices low, airlines are doing well. Consolidation in the airline industry means that carriers are flying fuller planes, which is good for profits. An airline I particularly like, and own for almost all of my clients, is Alaska Air Group Inc. (ALK). Even though it is up about 63% in the past year, it sells for only 14 times earnings.
Another stock I own for clients is Cooper Tire & Rubber Co. (CTB, Financial). The average age of cars on U.S. roads has exceeded 11 years since 2012. That suggests that sales of replacement tires – Cooper’s specialty --- will be robust. In addition, the decline in commodity prices worldwide suggests that Cooper will be able to obtain rubber and steel, the two most important materials for tires, at reasonable cost. Cooper is up 21% in the past twelve months, and fetches nine times earnings.
