As I have done at the beginning of each of the past three years, I am sharing the names in my Top 20 Model Portfolio. When I wrote a year ago, I was coming off an awesome year in which 3 of the 20 prior-year picks had been acquired during the year and the picks had returned 49% (all of them positive). My 2009 picks shared on Seeking Alpha had returned 59%. As I recently described, 2011's picks proved to be highly disappointing. This year's picks have a bit more overlap than those of prior years, as I have stuck with several (but not all) of my poorly performing names (and some winners). Last year, there were only four holdovers from the 2010 list, while there were just three in 2010. This year, there are ten. Here are the picks:
- Akamai (NASDAQ:AKAM)
- Franklin Resources (NYSE:BEN)
- Chico's FAS (NYSE:CHS)
- Comstock Resources (NYSE:CRK)
- Cisco Systems (NASDAQ:CSCO)
- DigitalGlobe (NYSE:DGI)
- Digital River (NASDAQ:DRIV)
- Esterline (NYSE:ESL)
- EZCORP (NASDAQ:EZPW)
- Insteel Industries (NASDAQ:IIIN)
- II-VI (NASDAQ:IIVI)
- Intel (NASDAQ:INTC)
- Kimball International (KBALB)
- Met-Pro (NYSE:MPR)
- Preformed Line Products (NASDAQ:PLPC)
- Shoe Carnival (NASDAQ:SCVL)
- Super Micro Computer (NASDAQ:SMCI)
- St. Jude Medical (NYSE:STJ)
- Tech Data (NASDAQ:TECD)
- Vanguard MSCI EM (NYSEARCA:VWO)
The ten names that are "holdovers" from the 2011 picks are in bold. Note that Chico's (CHS), EZCORP (EZPW) and St. Jude (STJ) were actually added back during 2011 after having been sold out of the model earlier in the year.
I believe that one can characterize this list as having a value-tilt or contrarian perspective once again, but less so than a year ago. The structure is somewhat bullish since I expect stocks to rise 27% in 2012, with a 1.2X 5-year Beta. Here are some characteristics of my picks (using the weightings of the Top 20 Model Portfolio):
- Forward PE: 12.5X (11.7X median)
- P/TB: 1.8X (2.1 median)
- Net Debt to Capital: 7% (15 of 20 have net cash)
- Market Cap: $11.5 billion (median $1.2 billion)
The model itself is rather diverse - no one will accuse me of being a "closet indexer". Our largest exposure remains in Industrials, at about 36%. Technology is the second largest exposure at 26% (compared to zero at year-end 2009). After that, it falls off pretty quickly with Financials at 13% (even with the S&P 500) and Consumer Discretionary at 9% (below market slightly). We have no exposure to the low-Beta Staples and Utilities. We are also diverse by market cap, with the smallest name at $133mm but two names in the mega-cap category (>$100 billion). I like Large-Cap Technology and own 2 large-cap names there. I currently expect that these 20 stocks will have an average price return of 59% if they all hit my one-year out targets (they range from 30% to 107%). With the weightings of the model (ranges from 2.3% to 8.2%), that return is about 62%. I am sure some will do better and several will do worse and caution that last year's picks certainly didn't meet my expectations. Good luck in your investing in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Each of these stocks is part of my Top 20 Model Portfolio at Invest By Model.