Do Rocket Stocks Really Deliver?

by: MyPlanIQ

We are drilling down on the stock portfolios we have measured to derive a short list of the best of the best. So far, five portfolios have made it through.

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Street's Growth at a Reasonable Price 2011 Selections 60% 284% 28% 85% 27% 79%
P 10 Dividend Stocks From SeekingAlpha Readers 25% 221% 10% 50% 12% 61%
22 Stocks Good Enough For Buffett And Lynch 25% 145% -2% -8% 13% 42%
P SmartMoney Magazine Where to Invest 2011 12 Stocks 22% 143% 11% 43% 9% 34%
7 Stocks With Exploding Profits 43% 201% 8% 21% 12% 32%

We are examining the different ideas for selecting a portfolio and then measuring which ones are best in class and worth watching. We now move to rocket stocks -- those that have reason for significant growth. First we cover The Street's five rocket stocks for growth potential.

  • Alcoa Inc. (NYSE:AA)
  • Capital One Financial Corp (NYSE:COF)
  • Danaher Corporation Common (NYSE:DHR)
  • Lockheed Martin Corporation (NYSE:LMT)
  • U.S. Bancorp (NYSE:USB)

The Fool's Jim Royal offers four special stocks paying out dividends that, he claims, blow the lid off the average yield of S&P 500 stocks. His selections are:

  • CVR Partners (NYSE:UAN)
  • Annaly Capital (NYSE:NLY)
  • Seaspan (NYSE:SSW)
  • Vodafone (NASDAQ:VOD)

UAN only went public a month ago. All of these are high quality stocks and there is no overlap between the portfolios. All of these selections are likely to provide stable portfolios for the long-term investor. We contrast this with an ETF portfolio that doesn't select a company but selects asset classes.

Jonas Elmerrajifrom searches for companies with short-term gain catalysts and longer-term growth potential for July 2011.

  • Apple (NASDAQ:AAPL)
  • DuPont (DD)
  • Accenture (NYSE:ACN)
  • Airgas (ARG)
  • Bed Bath & Beyond (NASDAQ:BBBY)
Fund in this portfolio
REAL ESTATE [[ICF]] iShares Cohen & Steers Realty Majors
FIXED INCOME TIP iShares Barclays TIPS Bond
Emerging Market VWO Vanguard Emerging Markets Stock ETF
US EQUITY DVY iShares Dow Jones Select Dividend Index
US EQUITY [[VIG]] Vanguard Dividend Appreciation ETF
INTERNATIONAL EQUITY [[IDV]] iShares Dow Jones Intl Select Div Idx
High Yield Bond HYG iShares iBoxx $ High Yield Corporate Bd
INTERNATIONAL BONDS [[EMB]] iShares JPMorgan USD Emerg Markets Bond

This dividend-bearing portfolio has US, international and emerging market equities as well as real estate. Note that while there is a fixed income portion, to make a fairer comparison, we will exclude them for this comparison although we would recommend at least 20% of the portfolio be dedicated to fixed income assets.

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Street's 5 Rocket Stocks to Grab Gains in July 46% 232% 24% 72% 34% 103%
Retirement Income ETFs Tactical Asset Allocation Moderate 14% 155% 12% 93% 11% 79%
Retirement Income ETFs Strategic Asset Allocation Moderate 17% 155% 6% 33% 5% 27%
4 Special Dividend Plays 48% 271% 9% 27%
Street's 5 Rocket Stocks With Growth Potential 24% 96% -2% 1% 1% -2%

This list is sorted in descending order of the five-year Sharpe ratio -- i.e. what has given the best risk-adjusted returns over a five year horizon. We have a clear winner in this round. The Street's 5 Rocket Stocks certainly have grabbed gains in July -- even with choppy conditions and has delivered solid returns over a five-year period. The special dividend play has good short term returns but the history is too short to be considered and the Street's five rocket stocks with growth potential -- has yet to show that potential and so is excluded.

It is to be remembered that five stocks is an inherently volatile portfolio compared to the ETF portfolios which are much more broadly based and still deliver reasonable returns.

Three-Month Chart

[Click all to enlarge]
This is a clear case of getting the call right. If you wanted a portfolio to deliver in July, the rocket portfolio clearly has.

One-Year Chart
The dividend play portfolio has done well over the one-year timeframe but you have to look longer term to get the complete picture.

Three-Year Chart Five-Year Chart Full details

The final graph shows you the rocket portfolio that has grabbed gains ever since the recovery started. This is a very appealing up-and-to-the-right picture.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.