Dorfman: Apple, Gilead and Hibbett display growth, value
In the stock market, growth managers and value managers often see themselves as warring camps. Value managers look for cheap stocks. Growth managers look for rapidly rising earnings.
Yet many of the best picks made by managers in either camp display both value and growth characteristics.
Here are five stocks that I think show both value and growth. For this column, I considered a stock a value if it sells for 15 times earnings or less. I considered it a growth stock if five-year earnings growth was 12 percent a year or better, and five-year revenue growth was at least 10 percent a year.
Apple
Apple Inc. (AAPL), the largest U.S. stock, has achieved sales and earnings growth well over 30 percent a year the past five years. Yet the stock sells for only 14 times earnings. I hate to bet on favorites, but there is very little not to like about Apple. The company has wildly popular products and $14 billion in cash.
True, studies have shown that once a stock becomes the largest in the market, it rarely outperforms the market. Ned Davis Research found that continually owning the market leader (at various times IBM, AT&T, Altria, Cisco, Wal-Mart, Exxon Mobil, General Electric, Microsoft and lately Apple) produced only about a 400 percent return from 1972 through 2013. By contrast, the Standard & Poor's 500 Index returned close to 5,000 percent over the same span.
Nevertheless, I think the odds favor a continuation of Apple's success, at least for the next few years.
Hibbett
Hibbett Sports Inc. (HIBB), based in Birmingham, Ala., operates close to 1,000 sporting goods stores in 31 states, mainly in the South, Southeast and Midwest. Sporting goods retailing is a highly competitive sphere, but Hibbett is partially insulated because it favors smaller communities and strip-mall locations. The company is very close to debt-free.
Of 18 analysts who follow Hibbett, only three recommend it. I think the company's record deserves more respect.
Gilead
A stock I own for almost all my clients is Gilead Sciences Inc. (GILD). It easily tops my growth criteria with a 26 percent revenue growth rate and a 27 percent earnings growth rate for the past five years. Yet it is modestly priced at 13 times earnings.
Gilead has more than 20 drugs on the market. More than half its sales are from two drugs to treat hepatitis C, Sovaldi and Harvoni. It also makes drugs for HIV-AIDS, the heart, liver and respiratory system.
AmTrust Financial
AmTrust Financial Services Inc. (AFSI ) is a property and casualty insurer based in New York City. Workers' compensation insurance was its original specialty, but it has expanded into a variety of lines, primarily serving medium-sized businesses.
On Wall Street, AmTrust is little followed, and then only loosely. Only six analysts follow it, and most of them don't update their reports very often. As it happens, analytical neglect is paradoxically a good sign, some academic studies have found.
Chase
Chase Corp. (CCF) is as unglamorous as the town from which it hails, Bridgewater, Mass. It's hard to build shiny stock market stories around such things as moisture-resistant tape, specialty wire and cable, and coating and lining systems.
For my part, I love stocks that carry no glamour premium, or even carry a non-glamour discount. Chase has increased its earnings at better than a 26 percent clip in the past five years, yet sells for 14 times earnings and is followed by zero — that's right, zero — analysts.
Track record
This column is the 10th in my “Value Plus Growth” series. The first column appeared in July 2001. On average, the previous nine lists returned 21.9 percent in the 12 months following publication, compared with 10.0 percent for the Standard & Poor's 500 Index.
All nine lists have been profitable, and eight of the nine have beaten the S&P 500.
Last year's list notched an 11.9 percent return, versus 7.7 percent for the index.
Exxon Mobil Corp. (XOM) was the only loser on the list, down 20.5 percent. The best performer was Northrop Grumman Corp. (NOC), up 33.0 percent.
My other three picks — Delta Air Lines Inc. (DAL), TRW Automotive Holdings Inc. (now part of a German auto parts maker) and Tyson Foods Inc. (TSN) — returned from 10.5 percent to 18.6 percent. I currently own Delta and Northrop Grumman for most of my clients.
Bear in mind that my column picks are hypothetical and don't reflect actual trades, trading costs or taxes. Past performance does not predict future results. And the performance of my column picks shouldn't be confused with results I obtain on portfolios I manage for clients.
John Dorfman is chairman of Dorfman Value Investments in Boston and a syndicated columnist. His firm or clients may own or trade securities mentioned in this column.
