Updating My Winning Value Portfolio

 | Apr 02, 2012 | 2:11 PM EDT
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Now that the first quarter has ended, it is once again time to check in on the 2012 Gad Winning Value Portfolio. At the start of 2012, I created a portfolio of 10 equally-weighted stocks that I felt could collectively outperform the S&P 500. We now have a full quarter of results, which is a short yardstick by which to measure performance, but noteworthy nonetheless.

A month ago when I was reviewing this portfolio's performance, I noted that its return at that time was without any assistance from 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 the market cap. The auction is expected to occur in April and PRXI could see a 50% to 100% return in a very short time."

March finally saw that catalyst hold and PRXI's was a homerun. Regardless of how the market would have performed in March, Premier's return was event driven and not based on any market tailwinds. While PRXI shares are potential worth much more, today's valuation incorporates the fully appraised value for the Titanic artifacts. It will interesting to see what happens. The auction will conclude in April, so we will know when I next report results in May. By then, PRXI could be bought out and no longer be a part of the portfolio.

I give full credit for to the portfolio's outperformance to the 12% market advance. However, given the concentration in holding 10 securities, the portfolio's 8 percentage besting of the S&P was a result of several specific undervalued securities springing back nicely. To be fair, when you include reinvested dividends, the S&P advanced by more than 13% in the quarter. At the same time, our holdings Bank of America (BAC), Advance Auto (AAP), and Premier actually have a more pronounced effect on performance due to their increased weighting in the portfolio.

Poor operating results from Sterling Construction (STRL) have been a big drag on its shares in 2012, but the company is a real gem, and the decline makes the shares that much cheaper. However, until the country can get a true highway spending bill passed, individual states are reluctant to commit to any major infrastructure projects and that situation will affect Sterling. Although the company has a strong balance sheet and exposure to the fastest growing infrastructure markets in the country, the shares will likely lag going forward -- and it may get worse before it gets better. Infrastructure work will eventually come back and when it does, the share price will adjust accordingly.

If the market continues on its blazing path, this portfolio is likely to continue outperforming. This will likely mean I will need to take a close look at closing out some huge winners and looking for other attractive opportunities. Stay tuned.


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