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Here’s My Favorite 25 Stocks by John Dorfman, Dorfman Value Investments
“Get long and then get loud.”
That old Wall Street saying refers to talking up one’s own holdings. The practice is common, if a little crass. I try to refrain from touting my own holdings too much. Still, readers often ask, “Well, what do you hold?”
So I devote one column per year to the stocks in my model portfolio. Many of my clients own the model exactly. Others own a modified version, while others have portfolios that are completely customized.
Here are my 25 favorite stocks. Five of them have headquarters outside the United States, since I think the U.S. market is fairly fully priced.
For the third straight year, I am fond of transportation stocks. I figure these are helped by fuel prices that are much lower than they were two years ago, by an improving economy, and (in the case of airlines) by industry consolidation.
The airlines in my model portfolio are Delta Air Lines Inc. (DAL) and Alaska Air Group Inc. (ALK). I also own an airplane parts maker, Spirit AeroSystems Holdings Inc. (SPR).
Lear Corp. (LEA), which makes electrical systems and seats for cars, benefits from rising auto sales. Yet the average car on U.S. roads is still 11 years old, hence my liking for Cooper Tire & Rubber Co. (CTB), which makes replacement tires.
Housing boomed in the U.S. in 2005-06, then busted. In the good times, American builders constructed about 2 million houses a year. In the recession of 2007-09 housing starts plunged to about a quarter of that peak.
Today housing starts are running about a million per year, and I think they have further to go. Therefore I am bullish on homebuilders, especially NVR Inc. (NVR) and PulteGroup Inc. (PHM). I also own shares in a furniture maker, Flexsteel Industries Inc. (FLXS).
An aging population means more aches, pains and doctor visits. (I should know.) And Obamacare means that more people are covered by health insurance than were covered before 2010.
That’s why my model portfolio includes Aetna Inc. (AET), the big health insurer; Fonar Corp. (FONR), a maker of magnetic resonance imaging scanners; and Quest Diagnostics Inc. (DGX), which does medical tests.
My technology holdings have completely changed since a year ago. Tessera Technologies Inc. (TSRA) makes semiconductors and software used in mobile computing and imaging. Syntel Inc. (SYNT) makes database software, especially for the finance and medical industries.
The last tech holding is Leidos Holdings Inc. (LDOS), which makes military electronics including cyber security products and intelligence analysis tools. I think this niche is an extremely important part of the Defense Department budget, in a world where our enemies are often shadowy.
In a world in which ISIS beheads people, Russia acts peremptory, China seeks to expand its military power, and the Mideast is in turmoil, I don’t see how Congress can avoid increasing the Defense budget. In addition to Leidos, my favorite Defense stocks include General Dynamics Corp. (GD) and Northrop Grumman Corp. (NOC).
I like a pair of exchange-traded funds (ETFs). One is the SPDR S&P Emerging Markets Dividend ETF (EDIV), which owns high-dividend-yield stocks in countries such as Taiwan, South Africa, Brazil and China. The other is an Australian ETF that I will name two weeks from now. (I’m still buying it for clients.)
Chickens and eggs
To give some stability to the portfolio, I own Sanderson Farms Inc. (SAFM), a chicken producer, and Cal-Maine Foods Inc. (CALM), the largest U.S. egg producer. For the same reason, I hold Public Service Enterprise Group Inc. (PEG), an electric utility with headquarters in Newark, N.J.
I own a pair of European banks because I like deeply out-of-favor stocks that I believe have rebound potential. Banco Bilbao Vizcaya Argentaria S.A. (BBVA) is based in Spain; Intesa Sanpaolo SpA is based in Italy with headquarters in Newark.
In the energy sphere, I am content for now with a single holding, Valero Energy Corp. (VLO), a refiner.
Outside the U.S., I also hold Sony Corp. (SNE), the Japanese electronics giant.
On an equal-weighted buy-and-hold basis, my holdings from a year ago were down 6.8 percent. Western Digital Corp. and ICICI Bank Ltd. were among my poorest performers. By comparison, the Standard & Poor’s 500 Index was up 4.0 percent.
Previously, my June holdings, as reported here, had beaten the S&P 500 three years in a row. The bad return in the latest 12 months dragged my four-year average down to 15.5 percent, compared to 15.7 percent for the index.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.