We present this basket to take advantage of the “Best Months” of the year (November through April/June) for stocks. We will look to add these 11 stocks, in the table below, near current levels or on minor dips. Many of the positions did jump today and could just as quickly retreat or consolidate tomorrow. We will allocate a hypothetical $2000 from the cash position in the Stock Portfolio to each position. For each stock we have provided the ticker, name, sector, general business description, PE, price-to-sales ratio, market value and a suggested buy limit and stop loss.
These 11 stocks all have reasonably solid valuations, plus revenue and earnings growth. Most also exhibit positive price and volume action as well as other constructive technical and chart pattern indications. The group of 11 is heavily connected to the energy sector. For this basket we elected to focus on revenue growth and stocks that have outperformed the S&P 500 over the last six months. Stocks selected today are a mix of small caps ranging from $50 million to $1 billion in market cap, mid-caps in the $1 to 5 billion range, and a single large cap pick over $5 billion.
To arrive at this list, we first sifted through the entire universe of U.S. traded stocks for those with a market cap of at least $50 million and average daily volume of 20,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios with a few exceptions. A special nod was given to stocks with a below average number of analysts following them. Revenue growth and outperformance relative to the S&P 500 over the past six months were also key considerations.
We then dug into numerous individual company charts and historical earnings reports before settling on these final 11 stocks. Our underlying theme was to find reasonably priced stocks that appear to be quietly growing sales while flying somewhat under the radar with only a limited number on The Street paying close attention to them. As market cap goes higher, this becomes increasingly challenging, and a history of earnings surprises and trend of future estimates becomes even more important.
At the end of the screening process, we were left with an outsized number of companies in the energy sector. We did not search specifically for top-performing stocks within any specific sector, this just happens to be what remained after our process. Once earnings season gets rolling in earnest, we anticipate another, possibly larger basket of stocks. Late-October and November has historically been a good time to buy small-cap and technology stocks.
Stock Portfolio Updates
Over the last five weeks since last update through yesterday’s close, S&P 500 retreated 10.7% while Russell 2000 fell 8.6%. Over the same time period the entire stock portfolio slipped 1.8% lower, excluding dividends and any fees. The portfolio’s cash balance has climbed to nearly 94% of the total hypothetical value. As it has done for much of this year, this cash has mitigated the impacts of broad market declines.
When the major indexes took out June’s lows, damage was widespread with four of the seven remaining positions closing before their respective stop losses. Atlantic Union Bankshares (AUB), Black Hills (BKH), Southern Company (SO), and Canadian Pacific Railway (CP) have all been closed out of the portfolio. Of these four only CP recorded a minor loss.
Of the three remaining positions, AT&T (T) is the single position in the red. T did bounce higher today with the broader market which is encouraging. T also paid it quarterly dividend earlier this month. We will continue to hold T in anticipation of an eventual turn around.
Even after recent weakness, Amdocs (DOX) and MGP Ingredients (MGPI) are still positive year-to-date. DOX and MGPI are on Hold.
Positions in the above stock basket will be added to the portfolio table in the next update.