23 Underfollowed Seeking Alpha Authors Prove Doubters Wrong

| About: SPDR S&P (SPY)

Summary

I conducted an overview of my Spring stock contest as well as an interview with the winner of the contest.

As a group, the contest selections had a median return of 7.23% vs. 1.95% for the S&P 500.

Both long and short selections as groups outperformed the S&P 500.

The following is an overview of my three-month Spring Showdown stock competition and an interview I conducted with Brian Harper, CFA, who was the winner of the contest. I looked for underfollowed authors here on Seeking Alpha to submit a selection from the S&P 500 (NYSEARCA:SPY) that they thought would perform the best from the beginning of April until the end of June. Before I get into the interview with Brian, I would like to provide some statistics and observations from the contest.

Statistics & Observations

Table #1 below is the most important table because it shows that this group of underfollowed authors crushed the S&P 500 over the three months of this contest. The second table below shows each contributor along with their entry, direction and data on returns. It is great to see fellow authors prove users wrong who wrote comments like:

"No wonder they're under followed, terrible picks."

"Sadly, they appear to be under followed for a reason."

Observation #1: The median return of all contest entries was 7.23% compared to 1.95% for the S&P 500, which shows the significant outperformance by the contestants.

Observation #2: Both long entrants and short entrants outperformed the S&P 500. The median return for long entrants was 7.48% and the median return for short entrants was 4.25%.

Observation #3: Two contestants selected Micron (NASDAQ:MU) as their selection and that proved to be a wise choice as Micron's share price increased over 30% during the contest.

Observation #4: On the other end of the spectrum, GreenGrowthGeek and Matt R O'Connor had opposing views on Freeport-McMoRan (NYSE:FCX) and the winner of that battle went to GreenGrowthGeek with a 7.74% gain in the stock.

Table #1

Statistics

S&P 500 Return

1.95%

Median of All Entries

7.23%

Median of Long Entries

7.48%

Median of Short Entries

4.25%

Click to enlarge

Table #2

Contributor

Company

Symbol

Direction

Close Price on 3/31

Close Price on 6/30

Return

1

Actionable Conclusion

Tesla

(NASDAQ:TSLA)

Short

229.77

212.28

7.61%

2

Alex Gennaro

Northrop Grumman

(NYSE:NOC)

Long

197.9

222.28

12.32%

3

Alexander Maxwell

Mallinckrodt

(NYSE:MNK)

Long

61.28

60.78

-0.82%

4

Aurelien Windenberger

First Solar

(NASDAQ:FSLR)

Long

68.47

48.45

-29.24%

5

Brian Harper CFA

Marathon Oil

(NYSE:MRO)

Long

11.14

15.01

34.74%

6

D.M. Martins Research

Facebook

(NASDAQ:FB)

Short

114.1

114.28

-0.16%

7

Dan Stringer

Kellogg

(NYSE:K)

Short

76.55

81.65

-6.66%

8

Daniel Jennings

Kroger

(NYSE:KR)

Long

38.25

36.79

-3.82%

9

Dividend Drive

Honeywell

(NYSE:HON)

Long

112.05

116.32

3.81%

10

GreenGrowthGeek

Freeport-McMoRan

FCX

Long

10.34

11.14

7.74%

11

Greg Wajda

McCormick & Company

(NYSE:MKC)

Long

99.48

106.67

7.23%

12

Illuminati Investments

Netflix

(NASDAQ:NFLX)

Short

102.23

91.48

10.52%

13

Joe Albano

Micron

MU

Long

10.47

13.76

31.42%

14

Laurent Cadotte

Exxon Mobil

(NYSE:XOM)

Long

83.59

93.74

12.14%

15

Matt R O'Connor

Freeport-McMoRan

FCX

Short

10.34

11.14

-7.74%

16

Mike Gorlan

Chipotle Mexican Grill

(NYSE:CMG)

Short

470.97

402.76

14.48%

17

Patrick Gunn

American Express

(NYSE:AXP)

Long

61.4

60.76

-1.04%

18

SevenSeas Investment Research

Broadcom

(NASDAQ:AVGO)

Long

154.5

155.40

0.58%

19

Short/Long Trader

McDonald's

(NYSE:MCD)

Short

125.68

120.34

4.25%

20

Stephen Breezy

Micron

MU

Long

10.47

13.76

31.42%

21

The Catalyst Tree

Kraft Heinz

(NASDAQ:KHC)

Long

78.56

88.48

12.63%

22

VIP Equity Research | U.S & Canada

Disney

(NYSE:DIS)

Long

99.31

97.82

-1.50%

23

Vlae Kershner

Williams Companies

(NYSE:WMB)

Long

16.07

21.63

34.60%

Click to enlarge

Winning Entry

For those who have not seen, the following paragraph is the thesis that Brian submitted with his winning entry of Marathon Oil:

"Marathon continues to trade at one of the lowest multiples to book and cash flow in the S&P 500, and liquidity concerns have eased since an equity raise at the end of February 2016. MRO remains highly sensitive to oil prices, and our expectation is that the supply/demand imbalance will continue to improve in the coming months, pushing oil prices higher.

A return to $70 oil could support a MRO price in the low 20s, which would provide 100% upside from current levels."

Brad

Brian, thank you for taking the time for this interview and congratulations on winning my Spring Showdown Stock contest with your selection of Marathon Oil.

Over the contest, oil increased 27.00% and your selection of MRO increased 34.74%, which plays into your thesis of MRO being highly levered to the price of oil. In the interview I conducted with you after you won my March stock contest, you noted, "I picked a stock that had the potential for a huge move. I have actually never owned a single share of MRO." Since that time three months ago, have you initiated a position in MRO or considered initiating a position?

Brian

Brad, I still have yet to own any MRO. Besides a sliver of BP (NYSE:BP), I do not own any E&P stocks. All of the big majors have had difficulty replacing reserves over the last 10 years. Capex has risen to where it consumes most or all of operating cash flow for these companies. Therefore, it appears they are using everything they have just to stay in the same place. We think that for the vast majority of E&P companies, they are not creating economic earnings. There are a few exceptions, such as Peyto (OTCPK:PEYUF) in Canada, but that one tends to be priced according to their low cost advantage.

Brad

In your entry, as referenced above, you noted that you were looking for $70 oil, given the run-up in oil since the end of March, is $70 still your price target for oil or has it changed?

Brian

I do not have any particularly special insights, but I think given the market situation that $70 will be a level at which the market will clear within a year or so.

Brad

In our previous interview, we discussed your bearish stance and short position on StoneMor Partners (NASDAQ:STON), can you tell me about any other positions you hold in your portfolio that are intriguing opportunities?

Brian

You had mentioned you would prefer I stick to companies over $100 million in market cap so I will leave out the little companies we hold. We still own Conrad Industries (OTCPK:CNRD). Conrad is a owner-operated ship builder based in Louisiana. Conrad is debt-free, had $7.53/share in cash at the end of last quarter, plus a claim from the BP oil spill potentially worth $2 or so after-tax. Conrad's stock sold off with energy as they were building a lot of barges for shale producers. More recently, they have built their backlog back to record levels, but at the expense of margin. They remain profitable and have aggressively repurchased shares in the past year. We think they are worth around $30 or so and building value. We like management.

Financials have been hammered in the past couple of weeks with Brexit. A name we have owned for a while is National Western Life (NASDAQ:NWLI). NWLI sells at around 40% of book value, most of their portfolio is held to maturity and at market is worth about $100 more per share. This is all theoretical so long as the company is not liquidating or reducing capital to repurchase shares. The latter we have told management we would like to see but they have never done. They pay a small dividend. Otherwise, they have grown book value about 6.5% a year in the past 10 years. In the past, they have sold at a higher multiple to book value, at least 50% and up to 65% in the past 5 years. The company is conservatively run and financed and capital ratios are high. At the current price of $190, the earnings yield is nearly 15%.

Steel Partners (NYSE:SPLP) is also interesting to us. They have been run for years by Warren Lichtenstein, who is a pretty solid capital allocator. Steel sells at around ⅔ of book value, and they have not been shy about repurchasing stock when it dips. Steel has massive NOLs (tax loss carryforwards), which over time they carefully and deliberately have purchased without tripping the IRS rules. They have several divisions including manufacturing, industrial, and financial. At the end of last year, they quietly folded a financial subsidiary with huge NOLs into their very profitable, relatively low risk financial division named Web Bank. Web had been a full taxpayer, so clearly the goal here is to cut their tax bill. Web earned about $1.25 pre-tax per SPLP share last year, so you can see the value there.

Brad

Brian, thank you for sharing your thoughts on your contest entry of Marathon oil as well as some intriguing positions that you currently own. I appreciate you taking the time for the interview and once again, congratulations on winning my Spring Showdown contest.

Brian

Thanks Brad. One closing thing, if any readers own Universal Power Group (OTCPK:UPGI), please get in touch with me, as it is a name we are closely pursuing and are interested in talking to other shareholders.

Closing Thoughts

I encourage readers to check out Brian's profile and articles he has written here on Seeking Alpha as well as follow him going forward. I also encourage readers to check out the other entrants who provided selections for the contest. In addition, I am planning on doing a contest this fall probably starting at the beginning of September or October, it will most likely be open to all contributors and not just underfollowed authors.

Disclaimer: See here.

Disclosure: I am/we are long FB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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