{"id":2731,"date":"2023-05-01T11:05:15","date_gmt":"2023-05-01T15:05:15","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/old-faithful-stocks-more-than-doubled-sp-500-this-years-picks\/"},"modified":"2023-05-01T11:05:16","modified_gmt":"2023-05-01T15:05:16","slug":"old-faithful-stocks-more-than-doubled-sp-500-this-years-picks","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=2731","title":{"rendered":"\u2018Old Faithful\u2019 Stocks More Than Doubled S&P 500: This Year\u2019s Picks"},"content":{"rendered":"
\n

Walk up to any graduate student in finance. Ask her to design a stock-picking screen. I\u2019ll bet you a milkshake that she will design something more complex than my Old Faithful stock-selection paradigm. Yet my picks in this column drawn from Old Faithful have averaged more than a 19% return per 12 months, more than double the average return for the Standard & Poor\u2019s 500 Total Return Index.<\/p>\n

To qualify as an Old Faithful stock, a stock must be based in the United States and meet six criteria:<\/p>\n

\u00b7 Profitable, with a return on equity 15% or better.<\/p>\n

\u00b7 Debt under control, less than equity.<\/p>\n

\u00b7 Stock price no more than 15 times earnings.<\/p>\n

<\/fbs-ad><\/p>\n

\u00b7 Stock price no more than two times revenue.<\/p>\n

\u00b7 Stock price no more than 2 times book value (corporate net worth).<\/p>\n

\u00b7 Growing, with earnings growth averaging 10% or more over the past five years.<\/p>\n

Here are a few stocks that intrigue me, drawn from the latest Old Faithful screen.<\/p>\n

Westlake (WLK)<\/strong> is a chemical company based in Houston, Texas. Among its products are epoxies, which are important in making blades for wind power stations.<\/p>\n

Even though Westlake has grown its earnings at a 14% annual pace the past five years, its stock price is barely above where it was five years ago.<\/p>\n

A minor concern I have is that Westlake has some production facilities in China. Given the tense relationship between China and the United States, this might pose a problem at some point.<\/p>\n

An ocean shipper based in Hawaii, Matson<\/strong>
\n MATX
\n <\/fbs-ticker> is one of the cheapest stocks I know, selling for three times earnings. Due largely to the pandemic, ocean freight rates have risen as much as tenfold in the past three years on many shipments.<\/p>\n

Investors expect freight rates recede. Reasonable, but I doubt they will back close to 2019 levels. Matson has shown a profit in each of the past 15 years, and profits have been fat lately.<\/p>\n

The collapse of Silicon Valley Bank and Signature Bank
\n SBNY
\n <\/fbs-ticker> led investors to throw a lot of regional bank stocks overboard. I think the selloff was overdone.<\/p>\n

Among the knocked-down bank stocks I like is Farmers & Merchants Bancorp. <\/strong>(FMCB), which based in Lodi, California and serves many towns in southern California. Revenue has grown at a 10% annual clip the past five years, and earnings considerably faster. The stock sells for 10 times earnings.<\/p>\n

I think homebuilders as a group are undervalued now. Mortgage rates have risen and affordability is an issue, so investors are skittish. But there is pent-up demand for houses.<\/p>\n

One homebuilder that I like is KB Home<\/strong>
\n KBH
\n <\/fbs-ticker>, which typically sells homes in the $480,000-to-$500,000 range, an above-average price point. Lately its return on equity has been about 23%, which is quite good. Yet the stock sells for less than book value.<\/p>\n

Hibbett <\/strong>(HIBB), based in Birmingham, Alabama, runs a chain of some 1,100 sporting goods stores in 35 states. The stock price, which hit $90 about two years ago, has receded to about $58, which is only six times recent earnings and less than 0.5 times sales, a bargain in my book.<\/p>\n

Over the past decade, Hibbett has increased its earnings have at an 11% annual clip. Because it concentrates on small and medium-sized cities, Hibbett is often the only sporting goods store in town, which helps keep the profit margin up.<\/p>\n

Track Record<\/h2>\n

I\u2019ve written about Old Faithful almost every year since 1999, with a three-year blackout in 2007-2009. My Old Faithful selections have been profitable in 14 out of 20 years, and have beaten the S&P 500 total return in 15 of those years.<\/p>\n

In 20 outings, the average return has been 19.96%, far above the 7.22% for the S&P 500 over the same periods.<\/p>\n

Bear in mind that my column results are hypothetical and shouldn\u2019t be confused with results I obtain for clients. Also, past performance doesn\u2019t predict the future.<\/p>\n

Last year\u2019s result was nothing to write home about. I beat the S&P\u2019s performance, which was negative 2.11%, but still had a 0.49% loss. Returns for my five picks were all over the place. D.R. Horton (DHI) had a 45% return and Timken
\n TKR
\n <\/fbs-ticker> was up 34%. But Intel
\n INTC
\n <\/fbs-ticker> fell 33%, Capital One
\n COF
\n <\/fbs-ticker> 28% and Lithia Motors
\n LAD
\n <\/fbs-ticker> 22%.<\/p>\n

I hope for better returns on this year\u2019s crop.<\/p>\n

Disclosure: I own Matson personally and for most of my clients. I own Intel personally and for some clients. <\/em><\/p>\n

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

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Walk up to any graduate student in finance. Ask her to design a stock-picking screen. I\u2019ll bet you a milkshake that she will design something more complex than my Old Faithful stock-selection paradigm. Yet my picks in this column drawn from Old Faithful have averaged more than a 19% return per 12 months, more than […]<\/p>\n","protected":false},"author":1,"featured_media":2732,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-2731","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\n\u2018Old Faithful\u2019 Stocks More Than Doubled S&P 500: This Year\u2019s Picks | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Walk up to any graduate student in finance. Ask her to design a stock-picking screen. 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