John Dorfman: Stocks I own for clients
Each June for the past two years, I have written about the stocks that I own personally and for clients.
I don't do this often, because I don't want this column to be a vehicle for “talking my own book,” as the saying goes. Still, readers often — and legitimately — want to know what I own.
The holdings list from a year ago returned 27.9 percent, including reinvested dividends, compared with 22.4 percent for the Standard & Poor's 500 Index. Figures are total returns from June 11, 2013, through June 6, 2014.
The previous year's list showed a 30.4 percent return, versus 27 percent for the S&P 500.
Of the 23 stocks I recommended a year ago, 22 rose, and 12 beat the index. The best gainer was RPC Inc., a fracking specialist, which advanced 82.7 percent. The biggest loser was EZCorp, a pawn shop chain, which fell 33.8 percent.
Bear in mind that the performance of my column recommendations is hypothetical and doesn't reflect taxes or transaction costs. Past performance doesn't predict future results. And the performance of my column recommendations shouldn't be confused with results I achieve in client accounts.
Stocks I've sold
Since last June, I've sold nine of the 23 stocks on the 2013 list. AOL Inc. (AOL) is now too expensive for me at 39 times earnings. Deckers Outdoor Corp. recovered fully from the bad news on which I bought it (a sheepskin price scare).
Dorman Products Inc. (DORM), an auto parts maker, specializes in replacement parts. I still see a need for those but have shifted my emphasis to original equipment parts makers.
EZCorp (EZPW), the pawn shop chain, was a mistake. I shouldn't have bought it in a recovering economy. Falling gold prices hurt pawn shops, as the value of their inventory declines.
I'd like to say that I anticipated the ignition scandal at General Motors Co. (GM), but I didn't. I sold it because the balance sheet seems to be deteriorating a bit.
I thought that Jardine Matheson Holdings Ltd. (JMHLY), a Hong Kong conglomerate, would be a core holding. But earnings faltered, and I got out. For the same reason, I sold Kulicke & Soffa Industries Inc. (KLIC), a semiconductor equipment company.
Nasdaq OMX Group Inc. (NDAQ) was jettisoned because it is dependent on the stock market, which is getting choppier.
Much as I hated to part with Oceaneering International Inc. (OII) — an undersea robot maker that has been very good to me and my clients — I feel it is fairly valued at 21 times earnings and almost four times book value (corporate net worth per share).
Return engagements
Five stocks make my list of favorites for the third consecutive year:
• Chicago Bridge & Iron (CBI), which makes oil platforms and other big constructs.
• Magna International (MGA), a Toronto-based auto parts maker.
• Olin Corp. (OLN), a chemical company that produces Winchester ammunition.
• Raymond James Financial Inc. (RJF), a brokerage house and money manager.
• Western Digital Corp. (WDC), one of the two biggest disk drive makers and one of only four such companies worldwide.
Nine stocks are back for a second year. They include Carlisle Cos. (CSL), a conglomerate with a roofing specialty; City National Corp. (CYN), a banking company; Cooper Tire & Rubber Co. (CTB); EG Shares Emerging Market Consumer ETF (ECON); and Flexsteel Industries Inc. (FLXS), a furniture maker.
Back are NetEase Inc. (NTES), a Chinese Internet gaming company; NVR Inc. (NVR), a homebuilder; RPC Inc. (RES), the fracking specialist; and United Therapeutics (UTHR), a small drug company.
Newer purchases
I have added eight holdings to most clients' portfolios. Because the portfolios are customized, this list doesn't cover all clients' holdings, but includes the core holdings for most.
I am beginning to tiptoe into Europe, with a small holding in the SPDR Stoxx Europe 50 ETF (FEU) and a small speculative holding in National Bank of Greece (NBG). If Europe's economies begin to recover in 2015, its stock markets could anticipate that as early as this year.
In auto parts, I've added Lear Corp. (LEA) to replace Dorman. Another industrial stock I own is Illinois Tool Works Inc. (ITW), a play on what I believe is a durable economic recovery in the United States.
In the energy industry, I hold HollyFrontier Corp. (HFC), a refiner with special capabilities in dealing with heavy oil.
In transportation, I've added Norfolk Southern Corp. (NSC), a railroad that carries a lot of coal. On a more speculative note, I like Spirit AeroSystems Holdings Inc. (SPR), which makes fuselages and wings for Boeing and Airbus.
To hedge against a possible market decline, I am carrying above-normal cash, and a small position in Market Vectors Junior Gold Miners ETF (GDXJ). The latter should do well in case of inflation or international turmoil.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at jdorfman@thunderstormcapital.com.
