What happens when a stock is trendless, drifting, flat as a pancake?
Chartists will loathe it. Traders will disdain it. Even long-term investors will neglect it.
In that disdain and neglect, there is sometimes the seed of a profit.
That is the thought that inspired me back in 1999 to start the Do Nothing Club for stocks that have gone nowhere, and that I think may go somewhere, someday.
A study conducted some years back suggests that stocks hitting new highs or new lows tend (as a group) to underperform the market. If that’s the case, the outperformers must be hidden somewhere in the middle.
To be eligible for the Do Nothing Club this year a stock must be within 5% of where it was a year ago, and within 5% of where it was a month ago.
Track Record
This is the 13th Do Nothing Club column I’ve written. The previous ones were in 1999 through 2006, and 2012 through 2015. So we can look at one-year results for 12 columns, and three-year results for 10 columns.
The average three-year return has been 34.1%, versus 13.8% for the Standard & Poor’s 500 Index. Five of the ten columns beat the index on a three-year basis. Eight of the ten were profitable.
On a one-year basis, the average return was 8.1%, compared to 5.9% for the S&P 500. Ten of the 12 columns were profitable, and seven beat the index.
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, my Do Nothing picks fell on their faces with a 20.8% decline. All three of my selections fell, with the biggest loss being 47.2% in Triumph Group Inc. No triumph there. Philips 66 did best, losing only 0.1%. The S&P 500 was up 0.5%.
Berkshire
Now it’s time to visit some somnolent stocks and pick the members of the Do Nothing Club for 2016-2017. I’ll begin with Berkshire Hathaway (BRK.B, Financial), the redoubt of the redoubtable Warren Buffet.
Insurance and railroads are the two biggest businesses at Berkshire. But it resembles a small country in scope and size, owning five dozen businesses outright, and holding significant minority stakes in many others, including Coca-Cola, IBM, Wells Fargo and American Express.
Berkshire Hathaway class B shares traded for $144.26 on May 13, 2015 and $141.50 last Friday, one year later.
Yet the company had a profit margin of more than 18% in the past four quarters, and that may be understated, due to the accounting treatment for those partially-owned subsidiaries.
The stock sells for 14 times reported earnings. That seems little enough to pay for a company run by a man many people (including me) think is the country’s greatest investor.
Unum
Whenever the economy is moribund, a lot of insurance companies lose money on disability insurance. People who are legitimately disabled are more likely to file claims. In addition, fakers come out of the woodwork.
The U.S. economy is in much better shape now than it was in 2007-2009, but the recovery has left a lot to be desired, especially for blue-collar workers and mid-level white-collar workers. So the disability insurance industry has been going through one of its periodic shakeouts.
Unum Group (UNM, Financial) has specialized in disability insurance for a long time, and has shown a profit in each of the past 11 years. With some competition likely to drop out, Unum may be able to improve its profit margins.
Unum shares were at $34.74 a year ago and fetched $33.62 as of May 13.
Bank of Marin
California is doing reasonably well economically. Per-capita income is higher than average, and growing a little faster than the U.S. as a whole. The state doesn’t depend heavily on the energy industry for jobs.
Marin County, home to Bank of Marin Bancorp (BMRC, Financial) ranks as one of the top 20 in the U.S. in per-capita income. Thus, Bank of Marin has some tailwinds going for it, yet the stock on May 13 was at $48.86, compared to $49.95 a year earlier.
The bank has been profitable in each of the past 15 years, and had a respectable return on assets of 1.04% last year. Yet of the five analysts who follow it, not a single one rates it a “buy.”
Disclosure: I own Berkshire Hathaway shares for several of my clients. Currently I have no positions in the other stocks mentioned in today’s column.
