My top 10 stock picks for 2013
As 2013 gets under way, here are my top 10 stock picks for the new year.
I have high hopes for this list. But, as a bug for full disclosure, I must tell you not all of my top-10 lists in the past burned up the track.
I've done eight such lists, for the years 2001-2006, and for 2011 and 2012. Six of the eight lists have been profitable. Only three of them have beaten the Standard & Poor's 500 Index. The average gain has been 1.2 percent, compared to 5.8 percent for the index.
Last year's list returned 5.7 percent, versus 15.6 percent for the S&P 500. Two gold stocks, Newmont Mining Corp. (NEM) and Barrick Gold Corp. (ABX), each down 25 percent, dragged down my performance.
I frequently cite my record on columns that have been successful, such as the Casualty List, Robot Portfolio and Bunny Portfolio. It would detract from credibility if I didn't give results when they're not as good.
Good or bad, results of my column recommendations should not be confused with those of portfolios I manage for clients. Column results are theoretical and don't reflect trading costs or taxes. Also, past performance doesn't predict future results.
For 2013, I am going with an all-new lineup of stocks, many of which are smaller than the stocks I picked for 2012.
I'll start with Cooper Tire & Rubber Co. (CTB) of Findlay, Ohio. With the average car on the road now 11 years old, a lot of people need replacement tires. At the same time, the cost of rubber and some other materials used in making tires has come down.
Next I pick a pair of home-related stocks, a homebuilder and a furniture company. With a couple of million people living in the basements of friends and relatives, there is pent-up demand for housing.
The homebuilder is NVR Inc. (NVR), based in Reston, Va. Despite five terrible years for its industry, it has whittled its long-term debt down to near zero.
The furniture company is Flexsteel Industries Inc. (FLXS) of Dubuque, Iowa. Flexsteel is so called because decades ago, its original product was springs. Today it makes a variety of furniture for homes and offices. The company is debt-free and the stock sells only moderately above book value.
Cubic Corp. (CUB) of San Diego, Calif., makes public-transit toll collection systems, battle simulators, and defense electronics. The stock is cheaper than usual — 14 times earnings, as opposed to a 10-year average of 18 — because of the risk that the defense budget will be slashed.
The semiconductor industry is in a rough patch, but at six times earnings, I think Kulicke & Soffa Industries Inc. (KLIC) is a bargain. The Fort Washington, Pa., company makes semiconductor equipment including bonding systems, wafer saws and other items.
Also in the technology realm, I like AOL Inc. (AOL). The New York City-based Internet portal company seems to be successfully making the transition from a subscription-based business model to an advertising-based one. It diversified by buying the Huffington Post last year, and also owns a few other specialized web sites.
Deckers Outdoor Corp. (DECK) shares tanked in October when the company announced a decline in sales for its trademark UGG boots. I attribute the stumble to high sheepskin prices, a problem that has already eased. Shares in the Goleta, Calif., company normally trade at about 18 times earnings; they fetch only nine times earnings now.
A controversial choice is RPC Inc. (RES) of Atlanta. It is best known for hydraulic fracturing, or fracking. Environmentalists object to the practice; drillers say it greatly increases the amount of hydrocarbons they can extract.
There used to be a shortage of fracking providers. That is no longer true, but at nine times earnings, I think RPC is a good value.
My only large-capitalization pick this year is Jardine Matheson Ltd. (JMHLY), a Hong Kong conglomerate that is involved in financial services, hotels, engineering and construction, grocery stores, automobile dealerships and other fields. It provides diversified exposure to the growing economies of Asia.
Rounding out my list, I pick Ballantyne Strong Inc. (BTN), a tiny company in Omaha, Neb. It sells and services projectors and other equipment for movie theatres. One feature attraction is its business in China, where the movie business is growing rapidly and where Ballantyne Strong gets about 14 percent of its revenue.
I own all 10 of these stocks for clients and personally.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist; firstname.lastname@example.org.