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In our quest for long term stocks , we have been reviewing the approaches of Neil Hennessy, Portfolio Manager and Chief Investment Officer of The Hennessy Mutual Funds and has been repeatedly ranked among Baron's Top 100 Mutual Fund Managers,

We recently looked 11 dividend stocks from one of his strategies and today we look at another. Hennessy's Focus 30 Fund uses the following investing criteria.

  • Market cap $1-10 Billion
  • No ADRs
  • Price/Sales of 1.5 or less
  • Higher earnings than prior year
  • Positive relative strength (price appreciation) over 3-6 month period
  • Narrowed down to the 30 companies with the best relative strength over 12 month period in equal dollar amounts. Hold them for approximately 1 year, then rebalance

Based on this Rebecca Lipman came up with

30 stocks that fit that bill:

1. Dr Pepper Snapple Group, Inc. (NYSE:DPS): Soft Drinks.

2. ONEOK Inc. (NYSE:OKE): Operates as a natural gas distributor primarily in the United States.

3. PetSmart, Inc. (NASDAQ:PETM): Pet Stores in North America.

4. Energizer Holdings Inc. (NYSE:ENR): Batteries, portable lighting, and personal care products worldwide.

5. Foot Locker, Inc. (NYSE:FL): Athletic footwear and apparel.

6. The Valspar Corporation (NYSE:VAL): Distributes coatings, paints, and related products worldwide.

7. AutoNation Inc. (NYSE:AN): Automotive retailer in the United States.

8. Cosan Ltd. (NYSE:CZZ): Production of sugar and ethanol products.

9. Patterson Companies Inc. (NASDAQ:PDCO): dental, companion-pet veterinarian, and rehabilitation supply

10. RPM International Inc. (NYSE:RPM): Specialty chemical products

11. WESCO International Inc. (NYSE:WCC): Electrical, industrial and communications maintenance, repair, and operating,

12. Cabela's Inc. (NYSE:CAB): Hunting, fishing, camping, and related outdoor merchandise.

13. Armstrong World Industries, Inc. (NYSE:AWI): Flooring products and ceiling systems in the Americas, Europe, and the Pacific Rim.

14. Diebold, Incorporated (NYSE:DBD): Self-service delivery and security systems and services

15. PriceSmart Inc. (NASDAQ:PSMT): Operates warehouse clubs in the United States, Latin America, and the Caribbean.

16. Vectren Corporation (NYSE:VVC): Provides energy delivery services

17. HSN, Inc. (NASDAQ:HSNI): Markets and sells a range of third party and private label merchandise

18. AO Smith Corp. (NYSE:AOS): Water heating equipment to the residential and commercial markets

19. Coinstar Inc. (CSTR): Provides automated retail in the US, Canada, Puerto Rico, the United Kingdom, and Ireland.

20. Darling International Inc. (NYSE:DAR): Recycling, and recovery solutions to the food industry worldwide.

21. Snyder's-Lance, Inc. (NASDAQ:LNCE): Provides various snack food products.

22. Thor Industries Inc. (NYSE:THO): RV's and small and mid-size buses in the United States and Canada.

23. Mine Safety Appliances Co. (NYSE:MSA): Health and safety products used by workers in the fire service,and others

24. West Pharmaceutical Services, Inc. (NYSE:WST): Components and systems for injectable drug delivery and plastic packaging

25. Cash America International, Inc. (NYSE:CSH): Provides specialty financial services to individuals primarily in the United States

26. Franklin Electric Co. Inc. (NASDAQ:FELE): Groundwater and fuel pumping systems.

27. Elizabeth Arden, Inc. (NASDAQ:RDEN): Fragrances, skin care, and cosmetic products

28. Scholastic Corporation (NASDAQ:SCHL): Children's publishing, education, and media company primarily in the United States.

29. Schweitzer-Mauduit International Inc. (NYSE:SWM): Paper and reconstituted tobacco products to the tobacco industry

30. Euronet Worldwide Inc. (NASDAQ:EEFT): Provides electronic payment services.

Having 30 stocks means that you have diversification. I like the larger stocks with a mix of household names and other companies that are spread across multiple market sectors. I also like the idea of holding them for approximately a year and then reviewing who is doing well and who needs to be swapped out.

It will be interesting to measure them with our dividend bearing ETF portfolio:

Asset Fund in this portfolio
REAL ESTATE (NYSEARCA:ICF) iShares Cohen & Steers Realty Majors
CASH CASH
FIXED INCOME (NYSEARCA:TIP) iShares Barclays TIPS Bond
Emerging Market (NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF
US EQUITY (NYSEARCA:DVY) iShares Dow Jones Select Dividend Index
US EQUITY (NYSEARCA:VIG) Vanguard Dividend Appreciation ETF
INTERNATIONAL EQUITY (NYSEARCA:IDV) iShares Dow Jones Intl Select Div Idx
High Yield Bond (NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd
INTERNATIONAL BONDS (NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond

Portfolio Performance Comparison

Portfolio/Fund Name YTD
Return
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 2% 7% 71% 14% 117% 8% 59%
Retirement Income ETFs Strategic Asset Allocation Moderate 5% 2% 14% 13% 102% 2% 7%
11 Dividend Stocks That Meet Hedge Fund`s Requirement 9% 9% 31% 21% 87%
Neil Hennessy`s No-Nonsense Investing Strategies 10% 16% 56% 34% 137%

In a previous article, we reviewed another of Neil Hennessy's investing strategies based on dividend bearing stocks and this is included for reference. We noted with the previous selection of eleven small cap companies, the volatility (Sharpe) numbers showed the volatility -- i.e. the risk you would be assuming for the returns. This selection with more, larger cap, stocks brings the volatility down and drives the returns up -- both very much appreciated.

Three Month Chart

One Year Chart

Three Year Chart

Five Year Chart

This is certainly an interesting approach. You can swap in the stocks of your choice that meet this criteria but this is is certainly worth considering as a blind filter to provide reasonable returns with acceptable volatility. Note, however, that this is not a dividend portfolio so that needs to be borne in mind.

Source: Neil Hennessy's No-Nonsense Investing Strategy