How Much Is My Billion Dollar Portfolio Worth?
Posted: October 23, 2018
I have to confess, I am not a billionaire. I have no yacht, not even a Rolls Royce.
I do, however, write about the Billion-Dollar Portfolio every year.
This is a hypothetical portfolio of ten stocks, each of which has a market value of approximately $1 billion. Under my definition, that’s the line between a small-capitalization stock and a mid-capitalization one.
I like this size because such stocks are small enough that they haven’t been discovered yet by most big mutual funds or pension funds, but they’re big enough to have achieved some stability.
This is my 14th Billion Dollar Portfolio. The previous 13 have averaged a 15.2% return over 12 months. By comparison, the average return for the Standard & Poor’s 500 Index has been 11.8%. Of those 13 columns, ten were profitable and nine beat the S&P 500.
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 warned that my list was “a rather risky collection this year,” because there were only five stocks, two from China. It turned out that was an understatement. My selections bombed, with a loss of 24.0%, versus a gain of 9.8% for the S&P 500.
This year I’ll go back to my usual habit–ten stocks, only one of which is from China. Here are ten new picks in that delightful size between small and medium.
The Andersons (ANDE), which hails from Maumee, Ohio, operates grain elevators, distributes fertilizer and provides other services to farmers. Profits lately have been mediocre, but the company has shown at least some profit in 14 of the past 15 years. The stock sells for only 0.3 times revenue.
Apogee Enterprises (APOG), based in Minneapolis, Minnesota, makes architectural glass, the biggest market for which is in skyscrapers. The stock traded near $50 for quite a while, but lately has fallen to about $38, which is 13 times recent earnings. I like it at this price.
CorVel (CRVL), with headquarters in Irvine, California, helps employers control their workers compensation costs and insurance costs. It has increased its revenue at a 10% annual clip, on average, for the past decade. It earned 24% on stockholders’ equity last year, which is excellent.
From San Juan Capistrano, California, comes Emerald Expositions Events (EEX), which stages trade shows. It’s not a big business but profits are decent and growing nicely. The stock is inexpensive at 11 times earnings.
Hyster-Yale Materials Handling (HY), from Cleveland, Ohio, makes forklifts, pallets and related items. Only three analysts cover this stock, and they are all neutral. In an atmosphere of low expectations, I believe the stock, which is trading at 13 times earnings, might offer a pleasant surprise.
Kemet (KEM), out of Simpsonville, South Carolina, makes tantalum and ceramic capacitors. These are used in computers, communications systems and military electronics. The company showed a big improvement in sales and earnings this year, and analysts expect further improvement in 2019.
Based in East Greenville, Pennsylvania, Knoll (KNL) makes office furniture. That’s a mature market, but Knoll is priced accordingly and offers a 2.8% dividend yield. My main worry: All four analysts who cover the stock recommend it. In my experience, unanimous approbation isn’t usually a good sign.
Let’s throw a stock from Japan into the mix. Makino Milling Machine Co. Ltd. (MKMLF) makes industrial machinery, including milling equipment and die-and-mold systems. Revenue and earnings growth are accelerating lately, and the stock sells for only seven times earnings.
Founded in 1912, Weis Markets (WMK) operates more than 200 supermarkets in Pennsylvania and six surrounding states. The stock was hurt by a critique issued by Spruce Point Capital Management, accusing it of aggressive accounting. Now near $43, ten dollars cheaper than it was in May, I think it may be a buy.
I’ll close with the stock I consider the most speculative in the batch. Yirendai Ltd. (YRD), based in Beijing, China, makes consumer loans online. Revenue this year is expected to hit $6 billion, up from $1.3 billion three years ago. Like many Chinese stocks, it’s cheap: less than six times earnings.
Disclosure: At this writing I have no positions in the stocks mentioned in today’s column, for myself or clients.