Thor and KB Home are on the Casualty List

John Dorfman

July 5, 2021 — (Maple Hill Syndicate) – You might think that only a bumbling company could see its stock decline in the second quarter. After all, the Standard & Poor’s 500 Index returned 8.55% for the three months through June.

But it isn’t so.

About a third of all stocks were down in the quarter. Some are good companies in my opinion, banged up by temporary bad news.

So, here is my latest Casualty List, devoted to stocks that have been wounded in the latest quarter and that I think can recover and thrive.

Thor

Thor Industries Inc. (THO), based in Elkhart, Indiana, makes recreational vehicles under the trade names Airstream, Jayco, Thor and others. A strengthening economy is its friend. Rising gasoline prices are its enemy.

The enemy had the upper hand in the second quarter, as Thor shares fell 16%. But step back a moment from the fuel price problem. Thor has increased its revenue by more than 16% a year in the past ten years, and increased its profits by more than 10% a year.

During that decade, fuel prices waxed and waned – and they will continue to do so. Surveys (admittedly by the industry) show a growing number of younger people want to own an RV.

From 2014 through 2018, Thor earned better than 20% on invested capital each year. It had weaker, but still profitable, years in 2019-2020. Lately, profitability is on the increase again.

KB Home

After roaring during the pandemic, new home sales have declined in three of the four months through May. That took the wind out of the sails for most homebuilding stocks. KB Home (KBH), for example, was down 12%.

Meanwhile, the average price of a home has soared. The median home sale in May was for $374,400, a record and well above the 2019 average of $321,500.

To me, the picture painted by these numbers is that there is a shortage of homes. Until their recent swoon, homebuilding stocks had been rising smartly. KB Home, despite its second-quarter decline, is up 39% for the 12 months through July 1. I think demand is strong and the group will resume its advance.

Schneider

Schneider National Inc. (SNDR), with headquarters in Green Bay, Wisconsin, is the eighth largest trucking company in the U.S. by revenue. Its stock fell 19% in the third quarter.

Schneider stock sells for close to 18 times recent earnings, but only 13 times the earnings analysts expect in the next four quarters.

Debt is only 15% of the company’s net worth, which I consider a strong ratio.

The company made a wrenching decision in 2019 to shut down its “last mile” service, which used to deliver appliances and other goods to people’s homes. It is concentrating instead on full-truckload industrial and commercial shipments.

I think that was the right decision.

Worthington

My final recommendation today is Worthington Industries Inc. (WOR), a Columbus, Ohio, company that makes steel products such as gas cylinders and oil storage tanks.

Worthington shares were nicked for an 8% loss in the second quarter. Like the other stocks I’m recommending today, it’s a cyclical stock that rises and falls with the tides of the economy. Investors loved cyclicals in the first quarter, but in the second quarter they favored momentum and growth stocks.

I view cyclical stocks favorably. I think the U.S. is in for a boom the likes of which we haven’t seen for more than a decade.

Worthington’s return on invested capital had been mostly mediocre for the past decade, but it improved in fiscal 2021 and has been very good the past two quarters.

The Record

Today’s is the 73rd Casualty List I’ve compiled over a period of two decades. I can calculate 12-month returns for the first 69 lists.

The average 12-month return has been 17.6%, far outdistancing the S&P 500 Index, which averaged 11.0%.

Forty-five of the 69 columns have been profitable, and 36 have beaten the index.

Bear in mind that my column results are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.

My list from a year ago returned 43.4%, edging out the S&P at 42.8%. The returns are high, reflecting the nation’s recovery from the Covid-19 pandemic.

My best performer from a year ago was Moog Inc. (MOG.A), which returned 59%. The worst was Barnes Group (B), up 31%.

Disclosure: I don’t personally own the stocks discussed today. I own Worthington Industries for one client.

John Dorfman is chairman of Dorfman Value Investments LLC in Boston, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.

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