John Dorfman: Baseball has 30-30 club; here’s 1 for companies
To join the 30-30 club in baseball, you have to hit 30 home runs and steal 30 bases in a season. Only 40 players have ever done it — stars such as Mookie Betts and Mike Trout. I have a 30-30 club for companies. It’s not as exclusive as baseball’s 30-30 club, but it’s tough to get in.
To make my 30-30 roster, a company has to achieve a return on stockholders’ equity of 30% or better in the latest year, and 30%-a-year earnings growth over the past five years. U.S. companies with a market value of $2 billion or more are eligible. Out of 1,438 eligible companies, 28 made the club this year.
Big and fast
The biggest companies in the club this year are Nvidia Corp. (NVDA), which makes chips for gaming and cybercurrency mining (among other applications), Starbucks Corp. (SBUX), the coffee chain, and Regeneron Pharmaceuticals Inc. (REGN), a biotech firm.
The most profitable were Aspen Technology Inc. (AZPN), which makes software for manufacturers; Texas Pacific Land Trust (TPL), which owns land in Texas and also has some water, oil and gas rights; and Insperity Inc. (NSP), which offers software and services to human-resources departments.
Growing profits the fastest? That would be Paycom Software Inc., which makes software for human resources departments, followed by Starbucks and Apartment Investment & Management Co. (AIV), a real estate investment trust.
The companies on this list are exciting companies — but not necessarily good stocks. Their fast growth could be fueled by excessive debt. Or their stocks may sell for sky-high valuations. Each year, I choose a small number of the 30-30 honorees as stocks to recommend. This year, I pick three.
I’ll start with Lam Research, a leader in the “etch” part of the semiconductor industry. It makes machinery that allows companies to lay down complex miniature circuits on chips. Lam stock sells for only 13 times the earnings analysts expect for the coming 12 months. It was hurt by the tariff battle between the U.S. and China, since it imports a lot of components from China. As investors have grown more optimistic about the resolution of trade talks between the two countries, Lam shares have moved up smartly.
Berry Global Group, based in Evansville, Indiana, makes non-woven fabrics used in products from surgical gowns to baby wipes, as well as a variety of other products from garbage bags to screw-top caps. Until 2017, it was known as Berry Plastics Group.
Berry has been trying to acquire RPC Group, a British packaging company. Investors, often skeptical about acquisitions, have kept a lid on the stock in recent months. At less than 14 times expected earnings, and 0.9 times sales, I think Berry is priced attractively.
Evercore Inc. (EVR) is an investment-banking advisory firm based in New York. It helps companies with stock and bond issues, mergers and acquisitions, defense against unwanted takeover overtures, and other matters. Evercore has been growing its revenue at better than a 10%-per-year clip for the past decade, and the pace has accelerated lately. Most analysts rank it as merely a “hold,” so there’s room for the stock to become more popular. At the current multiple, 11 times earnings, I think it’s a bargain.
In 16 years, the average 12-month gain on my recommendations of 30-30 Club stocks has been 12.65%, versus 9.67% for the Standard & Poor’s 500 Index. My picks have shown a profit nine times out of 16, and have beaten the S&P 500 nine times. Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results. Last year I picked three stocks, two of which did very nicely. Verizon Communications Inc. (VZ) returned 31.5%, and Hologic Inc. (HOLX) 30.3%. Southwest Airlines Co. (LUV), however, declined 1.6%. My average return from April 9, 2018 through April 5, 2019 was 20.1% compared to 12.6% for the index.
In addition to the stocks discussed above, the 30-30 list for 2019 includes Abiomed Inc. (ABMD), Align Technology Inc. (ALGN), Allison Transmission Holdings Inc. (ALSN), Applied Materials Inc. (AMAT), Avis Budget Group (CAR), Brookfield Property REIT Inc. (APR) and CDW Corp. (CDW).
Also: Churchill Downs Inc. (CHDN), Energy Transfer LP (ET), Fortinet Inc. (FTNT), Sabre Corp (SABR), Tegna Inc. (TGNA), Trinet Group Inc. (TNET), Trex Co. (TREX), United Rentals Inc. (URI), Wendy’s Co. (WEN) and Waste Management Co. (WM). Disclosure: Some of my family members and a few of my firm’s clients own shares in Nvidia.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached via email.