Back On the Horse
Sorry for not writing for two months. I love teaching, but I really do not like writing.
I got a lot done done during my “writing avoidance mode” period. I spent a few weeks studying the NFL draft. I had never gone down this road before, and it was fun to enter into the crazy world of draft “experts”. I have spent way too much time watching European football (soccer to you silly Americans). The Wrexham story got me interested the “small cap teams” like Leyton Orient FC, and Carlisle United. My fantasy baseball teams are off to a good start. It was nice to see the “little guys”, Mage and Arcangelo, win two of the Triple Crown races.
I have a lot to say about the SVB debacle, but that is a rant for another day.
Obviously stock picking is a worthless pursuit. All you have to do is pick the MAATMAN stocks (Microsoft, Apple, Alphabet, Tesla, Meta, Amazon, and NVIDIA).
Years ago I spent some time studying the “Nifty Fifty” stocks of the early 1970’s. It was never clear why it happened, or why it stopped. Why did investors pay 50+ times earnings for Simplicity Patterns (yes, sewing patterns) or Avon?. You can’t blame it on Jim Cramer or the internet, it just happened.
Let’s go back to picking stocks and building a model portfolio.
I still love my gold stocks Royal Gold and Novagold. They have been miserable stocks to own, and it would be easy to give up. As long as there is a chance of a “financial accident”, I cannot imagine waking up in the morning without being 10% precious metals. I know to many it seems like a cult or a religion, but I know these companies better than any other industry. In 2006 to 2008, the Prudent Bear Fund held one of the largest “junior gold” portfolios in the U.S.. I learned my mining stocks from an engineer who spent 3 years living underground in the South African mines.
With short rates over 5% I am now fatally attracted to utility stocks. Evergy and ALLETE are my favorites, but reasonable people could disagree. I think you can make a case for any of 10-20 others.
I have spent the last 10 years telling folks not to buy stocks for yield, but I just cannot ignore the value at Verizon. Wall Street is too excited about the over-promotional T-Mobile (really the old Sprint).
Tyson is a model value stock. I was too early, but now you get a “near monopoly” for 8x average earnings power. Phillips 66 is no monopoly, but like Tyson their earnings variability is just too much for Wall Street to tolerate.
Maybe I am overly optimistic that Philip Morris International can pull off the amazing transition to more smokeless products. It is rare for a 5.5% yielder too have such and interesting story. PM is a top idea for the guys I like at Barrow Hanley.
I love my energy stocks Pioneer and Helmerich & Payne at these depressed levels.
I still like my “agriculture cyclicals”, FMC and Corteva. If I were not a gutless wimp I would rather own Brunswick and Williams-Sonoma, but recession fear still keeps me hiding in a corner like a spineless $%#%%$#&.
I still like my creative ideas like Azenta, Red Rock Resorts, Kirby, and Ingredion, but they have outperformed this year and maybe I can find better.
It just makes my teeth hurt to recommend stocks like Merck, Roche, Sysco, and Arthur Gallagher. In a perfect world I could find four smaller ideas to replace these “placeholders”. Maybe I should just own four more utilities. When SVB happened, I panicked into these stocks.
Those are the 20 stocks in my current model portfolio, by June 30 I would like to have at least four new ideas.
Let’s try to find some better small cap names.
The small cap portfolio I admire the most is First Eagle Small Cap Opportunity (FESCX). The manager does a magnificent job of sticking with his underperforming ideas. Let’s consider a few:
Patterson Companies - PDCO - I have always preferred Henry Schein - HSIC , in the dental business. PDCO has a new management team and their fiscal year ended in April. The way the stock is acting, I am hoping for a bad report next week. Let’s watch carefully.
Pacira Biosciences - PCRX - The First Eagle guy has a good sense for these health care ideas. Another big holding Amedisys just got a nice buyout offer. PCRX is a non-opioid painkiller story. I hate messing with Medicare rules, but maybe I should learn more.
The Chefs’ Warehouse - CHEF - This is a neat “growthy” story. I have no negatives other than macro concerns. They sells unique foods for high end restaurants.
Unifi - UFI - They make yarn out of recycled material. This is a real value stock I have followed for 30+ years. We should hold a parade for anyone with the guts to own this stock. There is no Wall Street coverage. The big brands all say they want “carbon free polyester'‘, will they buy it from UFI?. This is a stock where the credit crunch could be an issue.
John Bean Technologies - These are smart guys that make great machines for food processing. It was a spinout years ago from FMC. They just got a nice price for their aerospace business. The stock bounced from 90 to 120, and I hate to chase.
Ameresco - AMRC - AMRC is an interesting name a the “clean” energy industry. I like Bloom Energy a little better, but maybe AMRC is a little lower risk. First Eagle also owns Generac - GNRC. I had an interesting conversation at a random Holiday Inn Express with a Generac engineer. He thought the company’s only problem was a large acquisition they made with unexpected quality control issues. Again, I have macro issues.
His energy names are Callon and Matador, neither of which I understand
He likes JetBlue and Alaska Air
He owns Coherent and MKS Instruments, both of which have some merit if the economy were not an issue.
This is a great small cap portfolio. Study it carefully.