This Value Portfolio Is Off to a Flying Start

 | Jan 31, 2013 | 12:30 PM EST
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It's time for the first status update on the 2013 Sham Gad Winning Value Portfolio (corny name I know, but allow me two seconds of self-promotion). In all seriousness, beginning with last year, I created an annual portfolio of 10 stocks, equally weighted, that would be held for that year. No positions would be sold, unless in cases of fraudulent corporate activity.

Last year's portfolio outperformed the S&P 500 by more than 5 percentage points. My ultimate objective is outperformance by 3 percentage points or more, as that effectively would mean we are outperforming 75% to 80% of investment managers.

As of yesterday's market close, here is where the 2013 Gad Value Portfolio stood with respect to the overall stock market:

My overall top pick for 2013, Dell (DELL), made headlines when the company revealed that it was contemplating a private-equity buyout. Shares jumped 30% on the news, although I doubt any of Dell's largest shareholders would support any deal below $15 to $17 a share. Shares now trade around $13. While the Gad Portfolio includes Dell common stock, I actually recommended that instead of buying Dell common stock, investors opt for the January 2015 $7 call options. Those options were trading around $4.10 then, and they now trade for $6.10, up nearly 50%.

Our other big winner, Tecumseh (TECUA), also jumped on news that potential suitors had approached the company about monetizing some of its assets or selling the company outright. Earlier this week, I wrote a column quickly examining why Tecumseh -- via either a piecemeal sale of assets or a buyout -- was worth at least $10 a share.

Two names from last year's portfolio, Goldman Sachs (GS) and Bank of America (BAC), are back on the list again this year. Financials are an integral component of any economic recovery, and the U.S. economic recovery may actually turn out to be more robust than many people expect. Financial companies, assuming they are well capitalized, are excellent plays on that. And when I look at the balance sheets of the big banks today compared with where they were three years ago, it is quite evident that they are much stronger today.

Of course, one month is no valid proxy to judge performance, but I am highly confident that 11 months from now, this 2013 edition will also hold its own and outperform the market. Having said that, many of these names make excellent multi-year investments, and that is why Bank of America and Goldman Sachs are back on the list. Stay tuned for more periodic developments throughout the year as well as up-to-date commentary on all of our holdings.

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