Winning Value Portfolio Remains Ahead

 | Nov 14, 2012 | 1:00 PM EST  | Comments
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Stock quotes in this article:

bac

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gs

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gs

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prxi

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strl

At the beginning of this year, I unveiled what is now dubbed a  Winning Value Portfolio for 2012 , which consists of 10 stocks making up an equally-weighted portfolio that I believed would outperform the S&P 500. As of the end of the second quarter, the last time I checked the performance standings, the portfolio was up 13.3% compared with an 8% return for the S&P 500.

Since then, I have waited to provide an update because I wanted the market to experience a pullback in order to see how the portfolio would hold up. After all, a rising market creates a nice tailwind for outperformance but it's against market declines that an investor earns his spurs. To be sure, these numbers only represent an 11-month holding period. While that's a reasonable amount of time to start judging performance numbers, this portfolio was created for a multi-year holding period.

As of Tuesday, the Winning Value Portfolio for 2012 is up by 1.4% against the S&P 500. My benchmark was an outperformance by at least 3 percentage points. Sterling Construction (STRL) continues to significantly underperform. After reporting earnings last week, its shares have declined by another 15%  and now change hands for around $7.80. The last time the shares traded at this level was back in 2005. At the height of the recession, the shares didn't breach $9. Gross margins have declined significantly and, if that continues, STRL will have generated increasing revenue growth to ensure profitability. But what keeps me interested is the balance sheet, which shows a net cash balance of more than $40 million or almost $3 per share and tangible book value of more than $14 a share. Given the market's current disdain for Sterling, it bears keeping a close watch on this one -- especially if shares fall below $6.

My top pick for 2012, Bank of America (BAC), is clearly the security that is carrying the portfolio. But both BAC and Goldman Sachs (GS) are doing exceptionally well after a huge decline in 2011 made their valuations very compelling going into 2012. A couple of weeks ago, Premier Exhibitions (PRXI) announced that it had entered into a non-binding letter or intent to sell its Titanic assets for $189 million. Today, the company has a market cap of less than $130 million. It's simply a matter of patience at this point although there are no certainties with respect to a non-binding Letter of Interest (LOI).

The next six weeks will certainly be an interesting period for the U.S. stock market. I will follow up with a final year-end update to the Winning Portfolio, after which I will unveil my 2013 Winning Value Portfolio.

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