This year started off with a bang for the stock market. At the end of January, volatility hit nearly all investors with the S&P 500 falling more than 5%. Our 2016 Winning Value Portfolio was down even more at 12%.
A month later, the market began to rebound somewhat, although I could care less what happens in a month. Nevertheless, it is interesting to appreciate the value of owning value.
While the broad market was generally flat over the past month, our "winning" portfolio advanced 4%. That advance hasn't made much of a dent in yearly totals, however, since our year-to-date decline of 8% still trails the drops in the S&P and Wilshire 5000 by a decent margin.
That being said, this group of 10 stocks, in my view, is significantly undervalued when compared to the overall market. Towne Bank (TOWN) is an incredible organization, with attractive return on equity (ROE) and return on assets (ROA) of 9% and 1.2%, respectively, in today's interest rate world. Alcoa (AA) is set to spin off into two distinct businesses later this year and is likely to appreciate significantly. Cheniere Energy (LNG) has finally started to export liquefied natural gas and was recently upgraded by Goldman Sachs.
Sanchez Energy (SN) is a quality producer of oil and gas sporting a very liquid balance sheet with no debt due until 2021. Year-end 2015 production was 20% above 2014 levels. IBM (IBM) is dirt cheap and continues to buy back stock. Kindred Biosciences (KIN) trades at a market cap that is less than net cash.
In short, this portfolio is a collection of businesses, not stocks, that I believe have a business value that far exceeds stock market value today. And there is very little business correlation among the group. Lower energy prices benefit Phillips 66 (PSX) and General Motors (GM) but are not so good for Sanchez. What affects biotech Kindred does not affect a restaurant company or a real estate business.
Absent a vicious emotional selloff, this group should do relatively well over the long run. Learning to ignore the day-to-day market fluctuations and focusing on the underlying business is essential in navigating all market environments.