Almost nothing in life should be automatic.
Some investors automatically sell half of any stock that’s doubled. But the decision should be made on a case-by-case basis.
To illustrate this point, I’ve written eight columns, beginning in 2001, on stocks that have doubled in the previous 52 weeks and that still look like buys to me. Six of these lists have been profitable and five have beaten the Standard & Poor’s 500 Index.
The average gain on these recommendations has been 15.1%, compared to 10.8% for the index in the 12 months after each column was published.
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.
Last Year
Last year my picks declined 1.6% while the S&P 500 advanced 1.6%. (The figures are total returns including dividends.)
MGP Ingredients Inc. (MGPI, Financial), which makes alcohol and food ingredients, advanced 78.9%. I wouldn’t put new money into it now that the stock has risen and is selling for 21 times earnings.
MGP’s gain was largely offset by a 73.9% drop in NewLink Genetics Corp. (NLNK). NewLink announced about three weeks ago that its drug to treat pancreatic cancer failed in phase-three clinical trials. It has other drugs in the pipeline, but is a total speculation at this point.
My third pick, JetBlue Airways Crop. (JBLU, Financial) fell 9.6%. I think airline stocks, including JetBlue, are still good buys, but I wouldn’t expect another big advance like that of mid-2014 to mid-2015. That spurt was caused by a rapid drop in oil (and hence jet fuel) prices.
Global Brass
I have to change the rules of the game for this year’s column. Very few stocks have doubled in the past 52 weeks, as the market meandered. Among those that did double, I can’t find any that I liked.
So, this year I will recommend three stocks that are up 50% or more and that I think are still good buys.
One is Global Brass & Copper Holdings Inc. (BRSS) of Schaumberg, Illinois, which fabricates and distributes metal sheets, strips, tubes and similar products.
Global Brass, a relatively small company, is followed by only four analysts. Only one of them currently recommends it. I think competition from cheap imports (due to the strong dollar) is one thing that has analysts worried.
Yet the company has a star-studded roster of money managers who hold the stock or have recently held it, including Paul Tudor Jones (Trades, Portfolio), David Dreman (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Jim Simons (Trades, Portfolio). At 14 times earnings and 0.4 times revenue, it still seems reasonably priced, even after rising 55% in the past 52 weeks.
Career Education
Next I recommend Career Education Corp. (CECO, Financial), one of the much-maligned for-profit education companies. Its 53% up move in the past 12 months should be put into perspective.
CECO shares got as high as $68 a share in 2004, fell all the way to below $3 in 2013 and has bounced around in single digits since then. Currently it is below $6.
For-profit education companies have been harshly criticized by federal officials for low graduation rates, inferior earnings power of graduates, and high student-loan default rates.
Like several of its competitors, Career Education is at some risk of losing access to federal student loan money. It has signed consent orders with state authorities, and has paid fines.
Absent a bankruptcy, every stock has a price at which it’s attractive. At today’s price of a little below $6 a share, Career Education trades for only five times earnings. The company is debt-free, and I believe it has the potential to make a comeback.
Eldorado Resorts
Up 76% in the past 52 weeks is Eldorado Resorts Inc. (ERI, Financial). Based in Reno, Nevada, the company operates three casinos there, plus more in Louisiana, Ohio, Pennsylvania and West Virginia. In all, its casinos resorts have close to 5,000 rooms, more than 10,000 slot machines, and some 45 restaurants.
Profits have been erratic, but generally high. In the past four quarters, Eldorado earned about $124 million on sales of about $766 million.
The company has been publicly traded only since 2014 and the stock hasn’t had a serious setback yet. Because it doesn’t have a long operating history and casino companies’ earnings tend to fluctuate widely, the stock trades for only six times earnings.
Disclosure: I own MGP Ingredients and JetBlue for one client. I have no positions, personally or for clients, in the other stocks mentioned in today’s column.
