18% return on portfolio ho-hum
Is it possible to be dissatisfied with an 18 percent return?
My Sane Portfolio returned 18.6 percent from Aug. 7, 2012, through Aug. 2. But given that the Standard & Poor's 500 Index returned 24.7 percent for the same period, my portfolio's performance was no more exciting than kissing your sister.
The Sane Portfolio is intended as a middle-of-the-road, slightly conservative stock portfolio. I first compiled it in 1999 and have published it annually since then with a three-year hiatus from 2007 to 2009.
Last year's Sane Portfolio had several solid winners, including Western Digital Corp. (WDC), up 59 percent, and Cisco Systems Inc. (CSCO), up 57 percent. But three stocks had only tepid gains, and Cliffs Natural Resources Inc. (CLF), a producer of iron ore and coal, plunged 51 percent as demand from China weakened.
This column launches Sane Portfolio XII.
In 11 previous outings, the Sane Portfolio has produced one-year total returns (including reinvested dividends) averaging 11.4 percent. That compares with 7.2 percent for the S&P 500. The Sane Portfolio has been profitable 10 times out of 11 and has beaten the S&P seven times out of 11.
Bear in mind that past performance doesn't predict future results. The returns on my column recommendations are hypothetical and don't reflect trading costs or taxes. And performance of my column selections shouldn't be confused with that of actual portfolios I run for clients.
To be considered for this portfolio a stock must have:
• A market value exceeding $1 billion.
• Debt less than stockholders' equity
• Earnings growth averaging 5 percent or better the past five years.
• A return on stockholders' equity of 10 percent or more in the latest fiscal year.
• A stock price less than 18 times earnings.
• A stock price less than 3 times revenue.
• A stock price less than 3 times book value.
None of the seven criteria is exceptionally demanding. But meeting all seven of them is hard. Of the 1,968 U.S. stocks with a market value of $1 billion or more, only 90, or 4.6 percent, currently meet all of the criteria.
From the list of qualifying stocks, I initially selected a dozen stocks by judgment. Each year, stocks drop out if they no longer meet one of the seven criteria. Those that still meet the seven standards stay in automatically.
The returnees this year are Exxon Mobil Corp. (XOM, making its fourth appearance), Cubic Corp. (CUM, 4th time), Western Digital Corp. (WDC, 3rd time), Cisco Systems Inc. (CSCO, 2nd time), Dell Inc. (2nd time) and Mosaic Co. (MOS, 2nd time).
I own Cubic and Western Digital personally and for most of my clients.
To the six returnees, I am adding six stocks to Sane Portfolio XII.
Agco Inc. of Duluth, Ga. (AGCO), is a worldwide distributor of agricultural products, from tractors to fertilizer. Its earnings have been growing at about a 16 percent clip. Europe, Africa and the Middle East account for about half its sales, North America about a quarter, and Latin America most of the rest.
Buckeye Technology Inc. (BKI) probably made the cellulose linings of the disposable diapers you used on your baby. It also makes other cellulose and absorbent products. The Memphis company has increased its earnings at a 16 percent rate.
National Oilwell Varco Inc. (NOV) is a leading supplier of equipment for oil and gas drilling. Like many players in the energy industry, it is based in Houston. Unlike most of its rivals, it is consistently profitable, having posted positive earnings in each of the past 10 years, including the recession-ravaged years of 2008-09.
Norfolk Southern Corp. (NSC) of Norfolk is a railroad that carries coal and other goods over 20,000 miles of track in the eastern half of the United States. The stock is cheaper than that of most railroads because coal has been losing market share to natural gas. I own this stock personally and for most clients.
Timken Co. (TKR) makes ball bearings and related industrial equipment. The Canton, Ohio, company has shown good growth and profitability in recent years. Last year, it earned 18 percent on stockholders' equity.
World Fuel Services Corp. (INT), with headquarters in Miami, provides fuel, maps and other services for ships, planes and trucking companies. It posted sales of $42 billion last year but has a stock-market value of only $2.5 billion, giving it a remarkably low price/sales ratio.
We will see whether my Sane Portfolio selections add to readers' sanity — and net worth — in the coming year. I am hoping that this time, they will both make money and beat the overall market.
John Dorfman is chairman of Thunderstorm Capital LLC in Boston. He can be reached at firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Eagle egg breaks, parents abandon nest
- Players respect coach, refuse to blame Johnston
- Pirates notebook: Locke makes bid for final rotation spot, Tabata cut
- Rogue Catholics in Society of St. Pius X to reopen West End church
- Couple taken into custody after 8-hour standoff in Hempfield
- Penguins coach Johnston’s mother dies
- Norwin High School health teacher charged with selling heroin
- Cal U women win Division II national title with 86-69 win
- Pa. woman charged with forging docs to claim she was an attorney
- MLB commissioner: Pirates’ success starts in the front office
- Lombardi leads IUP to brink of men’s basketball national title