What is the corporate equivalent of baseball’s 30-30 club, the elite group that has bashed 30 home runs and stolen 30 bases in a season?
In baseball, the list contains the likes of Mike Trout, Willy Mays, Barry Bonds and his father Bobby Bonds. Back in 1999, I decided that corporations deserve a 30-30 Club of their own.
To make my 30-30 Club for corporations, a company must show outstanding profitability and growth. It must:
- Have a market value of $2 billion or more.
- Achieve a 30% return on stockholders’ equity in its latest fiscal year.
- Show a 30% earnings growth rate over the past five years.
Those are stiff criteria, and only 17 companies made the roster this year. Every one of them is an excellent company, but that doesn’t mean I like all of their stocks. Sometimes the stock is too pricey in my view, or debt is higher than I prefer.
Over the years, I’ve published 13 articles on the 30-30 Club. (You are reading the 14th.) The number of companies on the roster has ranged from 11 to 30. The number of their stocks I recommend has ranged from zero to eight.
My recommendations have averaged a return of 11.1% in 12 months, versus 8.5% for the Standard & Poor’s 500.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
This year, I have six recommendations, five of which I own for most of my clients.
Up in the Air
The combination of airline mergers and lower fuel costs has many airlines doing well these days. Three airlines made the 30-30 Club this year.
Alaska Air Group Inc. (ALK, Financial) is my favorite. I like its route structure, fairly low fleet age, and still-reasonable stock valuation (12 times earnings).
I also favor Delta Air Lines Inc. (DAL, Financial), which returns to the 30-30 list after a one-year absence. Its fleet is quite old, but its stock sells for a bargain-basement valuation of eight times earnings. It has hedged fuel costs ineptly in the past, but is likely to do better in the future.
United Continental Holdings Inc. (UAL, Financial) makes the 30-30 list this year for the first time. I prefer the other two airlines to United, mostly because their balance sheets seem somewhat stronger.
Biotechs
Four biotech stocks are in the club: Abiomed Inc. (ABMD, Financial), Biogen Inc. (BIIB, Financial), Gilead Sciences Inc. (GILD), and Ligand Pharmaceuticals (LGND, Financial).
My preference goes to Gilead, which has more than two dozen drugs already on the market and a diverse pipeline of drugs in clinical trials. It sells for only eight times earnings, which I believe reflects investors’ fear that regulators and insurers will force it to cut prices on key drugs.
Food Stocks
I recommend both of the food stocks in the club this year. Cal-Maine Foods Inc. (CALM, Financial) made the club for the first time, having only recently passed $2 billion in market value. The largest U.S. egg producer, Cal-Maine sells for seven times earnings and offers a dividend yield of 3.4%.
Pilgrim’s Pride Corp. (PPC), is the second largest U.S. chicken producer (after Tyson Foods). Avian flu has been a headache for this industry, which is probably why Pilgrim’s Pride stock sells for only 10 times earnings. The price/earnings multiple for the market as a whole is about 23.
Repeat Winners
NVR Inc. (NVR), a homebuilder that operates mainly in the greater Washington, D.C. area, made the list this year for a fifth time, following a six-year absence. About a decade ago there was a healthy sprinkling of homebuilders in the club, but today NVR is the only one.
Making the club five times ties the record set by Apple Inc., which turned the trick in five of the past six years. Apple didn’t make the club this year. While it boasted a towering 42% return on equity, its five-year earnings growth rate has fallen to about 19%.
Western Refining Inc. makes the club for a third year. Back for a second year are Biogen, Delta Air Lines, Robert Half International Inc. (RHI), Taubman Centers Inc. (TCO) and United Rentals Inc. (URI).
The Rest
First-time club members not mentioned above are Allegiant Travel Co. (ALGT), Hawaiian Holdings Inc. (HA) and Verizon Communications Inc. (VZ). Verizon, with a market value of $212 billion, is the biggest stock in the club this year. I wouldn’t buy it because the company’s debt is 671% of stockholders’ equity.
Disclosure: For most of my clients, I own Alaska Air, Cal-Maine Foods, Delta Air Lines, Gilead Sciences and NVR. (I also own all of them personally except Delta.) I own Pilgrim’s Pride and Western Refining for one client.
