A Winning Value Portfolio Update

 | Mar 01, 2012 | 10:30 AM EST  | Comments
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Stock quotes in this article:

aap

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dg

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ibm

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pot

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mos

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bac

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gs

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gs

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prxi

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bip

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strl

Two months into the new year, my Winning Value Portfolio continues to hang in there. At the beginning of 2012, I unveiled an equal-weighted portfolio of 10 stocks that I felt, given the future economic uncertainty, would do very well for investors throughout the year. At the end of January, the portfolio return was 12% compared with 6.5% for the S&P 500 Index. Below are the results as of February:

Thus far, the portfolio is beating the S&P 500 by nearly five percentage points. Again, a two-month period is hardly a satisfactory time frame to judge a portfolio, but it is always good to be heading in the right direction. Another fantastic month for the U.S. stock market in February certainly helped.

Despite favorable tailwinds in 2012, what I like most about this portfolio is that it is built for tough times (save for the volatility that financials will likely experience if the economy turns sour again). For example, Advance Auto Parts (AAP) is a huge winner so far in 2012, thanks to a very strong earnings report and outlook. Had the economy been under duress in 2012, it's likely that AAP would have still delivered solid results because Americans are holding on to cars longer, which bodes well for auto-parts demand. Indeed, what I love most about AAP is that it has a business model that is designed to do well in tough times. Based on future growth prospects, the stock is still cheap and could end the year trading close to $100 per share.

Although the performance in Dollar General (DG) has been disappointing so far in 2012, I actually look at that as a positive for this portfolio. This stock will step up and deliver when the market is declining. Dollar General is in in growth mode as the recent recession has given the discount retailer more middle-class customers. The company estimates that 20% of its business comes from Americans earning $70,000 or more a year. The penchant for saving by Americans today is not a fad, but here to stay. That bodes well for DG and if the market weakens. 

Finally, the portfolio's return of 13.7% is without any assistance from our special-situation investment Premier Exhibitions (PRXI), which is in the process of monetizing its RMS Titanic assets via a private auction, which could fetch a value nearly twice today's market cap of $119 million. The auction is expected to occur in April and PRXI could see a 50% to 100% return in a very short time. 

Despite a nice start to 2012, I would not say it's too late to establish positions in any of these names going forward. For various reasons, this portfolio still has a lot of firepower left in it. Some stocks, like PRXI, have a specific catalyst; others, like the financials, are longer-term holdings, while the other businesses are quality growth at a reasonable price -- businesses that should continue to rack up steady gains over time.

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