I recently unveiled my "Profitable Small-Caps With Cash Portfolio," and to say I'm pleased with its performance so far is an understatement. The portfolio gained 8.5% between its Jan. 22 launch and yesterday's close, while the benchmark Russell 2000 was flat and the Russell Microcap Index lost some 1.2%.
The Profitable Small-Caps with Cash Portfolio is the third value-based pool of stocks that I've set up and plan to follow this year. It's comprised of 10 smaller-cap names with plenty of cash relative to market capitalization, reasonable P/E ratios and other positive attributes.
Now, if you really want to stress-test a model portfolio, there's no better time to do so than in the midst of a volatile, stressed-out market like the one we're currently experiencing. Every day seems like a new adventure.
Of course, this portfolio's early successes come with some caveats:
- It's far too early to declare any sort of victory here. Value investors rarely if ever expect instant gratification (and even more rarely get it).
- Sometimes you just get lucky picking stocks and there's little actual skill involved.
I think that's what's happened with this portfolio so far. The true test will be how it fares after a year or two (or more).
In fact, one stock in the portfolio -- Multi-Fineline Electronix (MFLX) -- has driven much of the group's gains. MFLX soared by more than 40% intraday after management accepted a $23.95-a-share takeover offer on Feb. 4 from China's Suzhou Dongshan Precision Manufacturing. (Talk about luck!)
Several law firms that have announced investigations into the deal since then, so there are apparently shareholders who want an even higher price. MFLX traded as high as $25.44 in late November before falling off a cliff to $12.86 on Jan. 13, so in that context, $23.95 doesn't look quite as compelling.
The portfolio has still risen even if you omit MFLX, but only by 4.4% as of yesterday's close. That's not bad, but demonstrates the effect that a single name can have on a screen's performance.
The group's other big winner has been diversified-electronics firm Sanmina (SANM), which is up by some 20%. While SANM recently reported lower-than-expected first-quarter revenues, investors greeted management's second-quarter revenue and earnings guidance warmly. Citigroup also subsequently upgraded the stock to "Neutral" from a previous "Sell."
On the flipside, the portfolio's biggest loser has been educational company DeVry (DV), which is down some 20% (and that includes yesterday's +7% pop).
Much of the damage was done when the Federal Trade Commission sued DeVry on Jan. 27, claiming the firm misled students about job prospects. And while the company recently beat second-quarter earnings estimates, DV's third-quarter and full-year outlooks appear weak.
Other losing stocks include Tropicana Entertainment (TPCA), which is down by around 1%. But the portfolio's remaining names were all in positive territory as of yesterday's close, including:
- Benchmark Electronics (BHE), up 12.2%
- AVX Corp. (AVX), 9.1% higher
- ArcBest (ARCB), +7.9%
- United States Cellular (USM), ahead by 6.7%
- TravelCenters of America (TA), +5%
- Hurco (HURC), up 0.2%
