Two Dozen Star Companies Make My 30-30 Club
Posted: April 27, 2018
Verizon Communications Inc. (VZ) and Southwest Airlines Co. (LUV) make my 30-30 Club this year.
Nvidia Corp. (NVDA), Starbucks Corp. (SBUX) and 20 other companies are also in the Club.
What’s that you say? The 30-30 Club is for baseball? Well yes, the well-known 30-30 Club is for major league ballplayers who whack 30 home runs and steal 30 bases in a season – the likes of Willie Mays and Mike Trout.
But my 30-30 club is for corporations. To make it a company has to post a 30 percent return on equity and flaunt a 30 percent earnings growth rate for the past five years. It must also have a market value of at least $2 billion.
This year, only 24 stocks made the Club. That is 1.6 percent of all stocks with the requisite market value.
I salute these companies but I don’t necessarily recommend their stocks. Often, their excellence is well recognized, so the stocks sell for sky-high prices. That’s why, each year, I recommend only a few of the 30-30 Club members as stocks to buy. This year I recommend three.
In many years of writing this column, I can’t remember ever before recommending Verizon Communications Inc. (VZ). Verizon was once a sleepy landline carrier. But waves of increasingly profitable business have come its way – mobile-phone service, texting, then video streaming and other Internet applications.
In the past three years, Verizon’s profitability has been remarkable, never less than a 60 percent return on stockholders’ equity. I still don’t like its rather heavy debt load, but with the stock at less than seven times earnings, I think it’s a good buy.
Southwest Airlines Co. (LUV) seems to me to be the class of an often-troubled industry. The stock sells for only about 10 times earnings, which seems remarkable considering that earnings have grown roughly 54 percent annually the past five years.
Investors obviously feel that the good times are ending. The decline in oil (and jet fuel) prices that helped airlines so much seems to be over. Likewise, the wave of consolidation among U.S. airlines is probably done. I feel that today’s price for Southwest adequately discounts the risks and problems.
Hologic Inc. (HOLX), of Bedford, Mass., makes products for women’s health. Among its specialties are diagnostic equipment to detect breast cancer, aesthetic lasers, various test kits, and instruments for gynecological exams.
Profits have been rising nicely of late, and the stock sells for only about ten times recent earnings. Three directors bought shares in March.
Here is the complete 2018 roster of the 30-30 Club.
Back for a seventh time is NVR Inc. (NVR), a homebuilder based in Reston, Va. I owned the stock for more than five years but sold in January because it’s starting to look a little pricey to me (at this writing, 25 times earnings).
Returning to the list a fifth time is Tempur Sealy International Inc. (TPX), a mattress maker. In for a fourth time is United Rentals Inc. (URI).
Two-time winners are Applied Materials Inc. (AMAT), Hawaiian Holdings Inc. (HA), Altria Group Inc. (MO), Nvidia Corp. (NCDA), Ryman Hospitality Properties Inc. (RHP) and Verizon Communications Inc. (VA).
First timers: AmerisourceBergen Corp. (ABC), Berry Global Group Inc. (BERY), Burlington Stores Inc. (BURL), CDW Corp. (CDW), Hologic Inc. (HOLX), Insperity Inc. (NSP), McKesson Corp. (MCK), Paycom Software Inc. (PAYC), Southwest Airlines Co. (LUV), Starbucks Corp. (SBUX), ServiceMaster Global Holdings Inc. (SERV), TriNet Group Inc. (TNET), Trex Co. (TREX), United Rentals Inc. (URI), Verizon Communications Inc. (VZ), Wendy’s Co. (WEN) and Waste Management Inc. (WM).
Last year was a good year for my 30-30 Club stock picks. I recommended three stocks, and they all beat the Standard & Poor’s 500 Index. Mastercard Inc. (MA) returned 52 percent, NVR Inc. (NVR) 48 percent and Gilead Sciences Inc. (GILD) 14 percent. Collectively the trio made 38.2 percent, versus 12.8 percent for the S&P 500.
I confess that Mastercard was a stock I wouldn’t normally have picked. It was selling for 30 times earnings, an uncomfortably high multiple for me. But my colleague Tom Macpherson loved it, and I went with his judgment.
I’ve written about the 30-30 Club 15 times before, and the average one-year gain on my picks over the years has been 12.1 percent. The average for the S&P 500 was 9.5 percent.
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.
Disclosure: I own Mastercard personally and for most of my clients. Some of my family members own Nvidia. One of my clients owns Gilead.
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 at firstname.lastname@example.org.