Ah the Joys of Theft

These seven stocks from seven managers constitute my 'Purloined Portfolio'

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Oct 21, 2015
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Once a year, I have great fun looking in on the portfolios of some of my friends and rivals in the investment management field. I pick one stock from each of seven managers I respect. Together, these seven stocks constitute my “Purloined Portfolio.”

Not only is it fun, it has worked out pretty well. In 11 outings, the Purloined Portfolio has outperformed the Standard & Poor’s 500 seven times. The average one-year return has been 15.4%, which compares favorably to 8.4% for the S&P 500.

Last year’s seven stocks declined an average of 2.46% -- the first loss ever for this portfolio. By contrast, the S&P 500 returned 6.92%. The best performer was NVR Inc. (NVR, Financial), a homebuilder, up 28.4%. The worst was chip-maker Micron Technology Inc. (MU, Financial), down 40.7%. I owned both of those stocks for clients and personally.

Bear in mind that my column results are theoretical and don’t reflect actual trades, trading costs or taxes. Past performance doesn’t predict future results. And the performance of my column picks shouldn’t be confused with returns on actual portfolios I manage for clients.

Now it’s time to continue my thieving ways.

Associated Banc-Corp

The first person from whom I’d like to steal an idea is my mentor in the securities business, David Dreman (Trades, Portfolio). Dreman chairs Dreman Value Management in Jersey City, New Jersey. I’ll go with Associated Banc-Corp (ASB, Financial) of Green Bay, Wis., a regional bank serving parts of Wisconsin, Illinois and Minnesota. Since the financial crisis of 2008-2009, this bank has stumbled some, but recent results are encouraging. The stock sells just below book value (corporate net worth per share).

Leucadia

From Bruce Berkowitz (Trades, Portfolio), who runs the Fairholme Fund (Trades, Portfolio), I select Leucadia National (Trades, Portfolio) Corp. (LUK, Financial), a conglomerate that buys out-of-favor companies and often sells them when they come back into favor. Its biggest unit is Jefferies, the brokerage house, which it owns outright. Wall Street doesn’t much care for Leucadia, partly because it doesn’t talk much to Wall Street. But I like the stock at 0.6 times revenue and 0.7 times book value.

US Bancorp

From the holdings of Scott Black (Trades, Portfolio), a veteran money manager who heads Delphi Management in Boston, I select US Bancorp (USB, Financial) of Minneapolis. When I ran a mutual fund, US Bancorp was my custodian and administrator, and I was for the most part favorably impressed with it. Banks will benefit if the Federal Reserve raises rates next year, making it easier for them to increase the spread between what they must pay for deposits and what they glean from loans.

Exxon Mobil

In Springfield, Va., Randall Eley runs institutional accounts and the Edgar Lomax Fund. From his holdings I draw Exxon Mobil Corp. (XOM, Financial). Yes, it may be early to buy an oil stock. However, Exxon is an industry leader in engineering, in negotiating leases, in geology and in financial strength. The stock has come down from more than $100 a share in mid-2014 to about $82 today. To me it looks like a good three- to five-year holding.

Toll Brothers

Boston money manager Ken Heebner (Trades, Portfolio) takes bold positions and often achieves extreme results, especially in his CGM Focus Fund. That fund was up 80% in 2007, 66% in 2003 and 54% in 2000. It fell 48% in 2008 and 26% in 2011. At the moment three of his top five holdings in the fund are homebuilders. I will select Toll Brothers Inc. (TOL, Financial). It focuses on higher-end homes more than most homebuilders, and has an executive team I like.

Teva Pharmaceutical

From David Katz, a New York money manager of separate accounts and the Matrix Advisors Value Fund, I take Teva Pharmaceutical Industries Ltd. (TEVA, Financial) but with a proviso. The Israel-based generic drug giant is at about $68 a share now. I would buy it if it falls back to $63 or so. I like the company very much but don’t want to pay 20 times earnings for it.

Cal-Maine

Charles Royce administers a family of mutual funds bearing his name, and manages some of the funds personally. From his holdings I select Cal-Maine Foods Inc. (CALM, Financial), the largest U.S. egg producer. With bird flu raging, the stock is on its tail, selling for 11 times the past four quarters earnings. I don’t know how long the bird flu scourge will last, but I suspect it will be measured in months, not years.

Note: My selections were drawn from government filings. It’s possible that in some cases, a manager might already have already sold the stock that I highlighted.