You Might Want to Do Something with these Do Nothing Stocks
Posted: May 16, 2017
Does springtime make you feel like doing nothing? Then you might like to look at some stocks that have been doing exactly that.
Welcome to my annual Do-Nothing Club, for stocks that have barely moved in the past year, but that I figure might come to life soon.
Standing still has left these stocks behind their peers. The Standard & Poor’s 500 Stock index has been busy making the equity market great again, rising 18.3% in the 12 months through May 12, 2017. My Do-Nothing Club stocks have budged 5% at most.
Is there any real reason to look at these lazy shares? Yes, there is. It’s precisely because many other investors have probably stopped looking at them.
Here are three that I think look intriguing now.
I like Williams-Sonoma Inc. (WSM), a housewares retailer based in San Francisco. Yes, I know that brick-and-mortar retailers are suffering from slowing sales and pinched margins because of internet competition. If you want to buy your plates and platters from Amazon it’s okay with me.
But I think there is some value in looking at, and touching, the merchandise. Despite internet rivals’ inroads, Williams-Sonoma has achieved a return on stockholders’ equity (a measure of profitability) exceeding 20% in each of the past five years.
The company is debt free, which gives it enormous flexibility, as well as reducing risk. The stock yields 3% in dividends, which is above average. And it sells for 15 times earnings – a lower ratio than this stock usually fetches.
Many of my clients are reluctant to invest in China. It’s a natural reluctance given that China has shaky accounting standards, a Communist government, and a slowing economy. All that notwithstanding, China is still the world’s second-largest economy and its growth rate exceeds that of most countries.
One Chinese company that interests me is China Mobile Limited (CHL), a telecom carrier. Like Williams-Sonoma, it has posted a profit in each of the past 15 years. Its level of profitability, however, is not as high. The company, which is based in Hong Kong, is almost debt free, and could pay all its debt out of cash if it chose.
To invest here is to bet that revenue growth – which averaged 10% for the past ten years but has slowed lately – will resume with some force. That seems like a reasonable bet to me, and meanwhile, the stock yields 3.2% in dividends.
Omega Protein Corp. (OME), out of Houston, Texas, provides fish meal for animal feed, omega-3 oil for human dietary supplements, and other fish-based nutritional products. It has its own fishing fleet, and seven processing plants. It does business in about 40 countries.
Like the other two stocks I’m recommending today, it has a very strong balance sheet. Debt is less than 1% of stockholders’ equity, and it could extinguish the debt at will, from available cash.
Omega’s sales and earnings growth slowed in the past year, but book value (corporate net worth) increased, which I regard as a good sign. At 13 times recent earnings, I find this stock attractive.
I’ve written 13 articles about the Do-Nothing Club from 1999 to the present. The average three-year gain on my selections has been 33.4%, or about double the 15.7% average on the Standard & Poor’s 500 Index for the same periods.
On a one-year basis, my lazy stocks have gained an average of 9.67%, compared to 6.95% for the index.
Eleven 11 out of 13 columns have been profitable on a 12-month basis, and eight have beaten the benchmark. On a three-year basis, only five out of 11 sets of recommendations have beaten the index, while nine of 11 have been profitable.
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.
My Do-Nothing selections from one year ago have had a good run, up 28.0%. Unum Group (UNM)led the way with a 36.2% return, and Marin Bancorp (BMRC) chipped in 31.4%. Berkshire Hathaway Inc. (BRK.B) returned 16.4%. For comparison, the S&P 500 returned 19.2%.
The crop from three years ago disappointed a bit, returning 26.5% versus the index’s 34.2%. Chevron Corp. (CVX) fell 4.8%. Agco Corp. (AGCO) gained 19.3%. The best performer was Navigators Group Inc. (NAVG), with a 65% advance.
Disclosure: I own Berkshire Hathaway shares for several clients, and own Chevron and China Mobile for a couple of clients.