“Still going.”
That was the punchline in the Energizer battery commercials, featuring the Energizer Bunny, which kept going long after you would have expected it to stop.
It's also the idea behind my Bunny Portfolio. This hypothetical portfolio contains companies that have averaged 25% profit growth in the past five years, yet have stocks selling for 12 times earnings or less.
That can only happen if investors think the good times are over, or soon to end. My theory is that people are poor predictors of the future, so some of these stocks may be “still going” for another year or more.
The Bunny Portfolio contains 10 stocks, chosen by formula – the five with the fastest-growing profits and the five with the lowest ratio of stock price to per-share earnings.
I compiled my first Bunny Portfolio in 1999, and have done one almost every year since. The average 12-month gain on the Bunny stocks has been 14.99%, compared to 9.83% for the Standard & Poor's 500 Total Return Index over the same periods.
Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future.
Fourteen of the 22 Bunny Portfolios have been profitable, and 11 have beaten the index.
Here are the 10 new selections from the Bunny paradigm, listed in alphabetical order.
Academy Sports
Academy Sports and Outdoors Inc. (ASO, Financial), based in Katy, Texas, sells hunting, fishing and sports equipment, plus related clothing. Earnings have grown fast in the past five years, but dipped a bit in the past year.
Albemarle
The world's largest lithium producer, Albemarle (ALB, Financial) has mines in the U.S., Chile and Australia. It is also a major producer of bromine. Lithium is a key ingredient in electric-car batteries, and bromine is used in flame retardants. The company has posted a profit in 14 of the past 15 years.
Albertsons
The second-largest grocery-store chain in the U.S. with more than 2,200 stores in 34 states, Albertsons Co. Inc. (ACI, Financial)is based in Boise, Idaho. Kroger Co. (KR, Financial) plans to acquire Albertsons, but the plan isn't certain to be approved by regulators, so the stock trades well below the takeover price.
Asbury Automotive
Asbury Automotive Group Inc. (ABG, Financial) is an aggregation of car dealerships. Recently is ran 138 new-car dealerships, seven used-car dealerships and 32 collision center. Based in Duluth, Georgia, it operates in 14 states.
Boise Cascade
Also based in Boise, Idaho is Boise Cascade Co. (BCC, Financial), which supplies engineered wood products, lumber and wood panels. It has an 11-year profit streak going. Profits in 2023 declined, so skeptics think the good times no longer roll.
BrightSphere
BrightSphere Investment Group Inc. (BSIG, Financial), based in Boston, describes itself as a “multi-boutique asset management company.” Paulson & Co, run by the famed hedge fund manager John Paulson (Trades, Portfolio), owns 21.6% of the stock and Paulson sits on BrightSphere's board.
Cal-Maine
Cal-Maine Foods Inc. (CALM, Financial), from Ridgeland, Mississippi, is the largest U.S. egg producer. The egg business is volatile, with avian flu affecting flocks some years and with the price of corn (chicken feed) fluctuating. In good times, the stock offers a high dividend yield, currently 8.3%.
CapStar Financial
Based in Nashville, Tennessee, CapStar Financial Holdings Inc. (CSTR, Financial) owns CapStar Bank, which serves Nashville and several smaller cities in Tennessee. It has few fans on Wall Street. Only five analysts cover it, and none rates it a buy. Earnings have fallen in the past few quarters.
Cheniere Energy
Cheniere Energy Partners LP (CQP, Financial), with headquarters in Houston, operates liquid natural gas (LNG) terminals. Liquefaction allows the export of natural gas, and exports have been growing rapidly. I like many things about Cheniere, but am worried by its long-term debt, which exceeds $15 billion.
Consumer Portfolio
Boasting a 79% earnings growth rate but selling for only five times earnings is Consumer Portfolio Services Inc. (CPSS, Financial). Based in Las Vegas, it specializes in car loans to consumers with credit problems, short credit histories, or low income. Warning: Debt here is high.
Crocs
Back in the early 2000s, Crocs shoes were a craze, and Crocs Inc. (CROX, Financial) stock was a hot item when it went public in 2006. Today, despite a 31.7% earnings growth rate in the past five years, the stock is unpopular, selling for less than 10 times earnings.
Last Year
The past year was a good one for the Bunny Portfolio. From Dec. 12, 2022 through Dec. 8, 2023 it returned 44.35%, compared to 17.31% for the Standard & Poor's 500 Total Return Index.
The best returns came from M/I Homes Inc. (MHO, Financial), up 154%, and Matson Inc. (MATX, Financial), up 65%. The former is a homebuilder, the latter an ocean shipper. The worst performer was Azenta Inc. (AZTA, Financial), a supplier to the biotech industry; it was down 5%.
John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at [email protected].
