Workers are holding a conference on a lane construction project in California. Photo by Liz Hafalia / The Sun. A [+]
For bidders, each stock market has a silver lining in the cloud. Roughly after the first quarter, dozens of stocks have come down which I think is an interesting level.
I have five of them on my casualty list, a quarterly list of stocks that have been hit, and I believe there is a good chance of a return.
To accept LENER For example. Homeowners fell 30% in the first quarter, as investors began to worry about rising mortgage rates and home prices that were beyond the reach of some buyers.
Are things bad? Lener’s profit for the fiscal year ended November was $ 14.27 per share, close to double the previous year’s best. For the last four quarters (ending in February), the figure was $ 12.77. Is the mortgage rate climbing? They are sure, but they are still below the level that prevailed for most of my life. I think millennials, when they start having children, probably want a single-family home.
Next, consider Stanley Black and Decker (SWK), Which probably created the sander and drill used in your last home-improvement project. It fell 26% in the first quarter.
Dividend King
Many investors know the term “dividend elite” to describe companies that have increased their dividends for 25 years in a row. Stanley Black & Decker is not only a dividend elite, it is the king of a dividend, better than a 50-year-old streak. Less than 40 companies can claim that difference.
Operating results were weak in the fourth quarter, but management is fairly optimistic about this year. I don’t know the management team (including James Laurie as president and Donald Allan as chief financial officer) as a hype artist.
In my view, there was another bargain Quest Diagnostics (DGX), Which decreased by 21% from January to March. Many investors believe that medical testing companies will lose business once the epidemic is over.
It could be, but I think the drop-off, when it comes down to it, could be less serious than expected. I believe we have entered a world where more and more people are taking medical exams.
Quest’s return on invested capital has been over 16% in the last four quarters. I consider 10% better.
Then there are Western Digital (WDC), Which creates data storage products. It lost 24% of its market value in the last quarter.
One problem is that computer makers are moving to solid state drives instead of hard disk drives which were the bread and butter of Western Digital. On hard disk drives, Western Seagate Technology enjoys worldwide duplication with PLC, but on solid state drives it is one of the many competitors.
But this is not a new problem. Nevertheless, Western Digital has been able to post a return on capital of over 10% in each of the last three reported quarters.
Finally, I call your attention LKQ (LKQ), Which deals in car janking and selling their parts. The Chicago-based company has seen its stock fall 24% in the last quarter, despite strong operating results.
Corey Kramer, author of the Cyclical Investors Club, posted an article on Seeking Alpha in January stating that he sold the stock because he saw the danger of a “boom / bust cycle”. Among other things, he noted that the government stimulated the economy last year, and is removing stimulus this year.
Boom or bust? In my opinion, LKQ has a steady business. It has gained 21 consecutive years, will soon be 22.
Past results
This is the 76th casualty list I have compiled. I counted one year’s return on 72 lists, because others are too new to do it. The average one-year return is 17.5%, which is very good compared to 11.5% for the Standard & Poor’s 500 Total Return Index. Both figures include dividends.
Remember that the results in my column are predictable and should not be confused with the results I get for clients. Also, past performance does not predict the future.
Forty-seven on the list have been profitable and have beaten 38 indicators. My casualty list from a year ago, however, was an uninterrupted disaster. I only picked three stocks, and they all declined. The worst loss was in 53% Sage Therapeutics (SAGE). LL Flooring Holdings Decreased 47% and Purdosio Education (PRDO) Decreased by 7%.
What goes down does not come up again. But in general, my to-do list choices have done better than sitting down and taking nutrition. Many have not only recovered, they have improved.
Disclosure: Some of my clients own Western Digital.
