The Gad Winning Value Portfolio is not winning at all so far in 2015. Given the global headwinds involving Greece along with the Federal Reserve increasing interest rates here in the U.S., it does not appear that 2015 will be a successful year for it.
We define success in terms of absolute returns, period. Relative performance has no meaning here. Up or down market, the idea behind value investing is that you are buying assets for less than they are worth and therefore, over time, the return will be positive.
To be sure, I think it is far more telling of investors' skill how they perform in down markets as opposed to up markets. A 5% decline when the market is down 20% is far superior, in my view, to a 30% gain when the market is up 20%.
That being said, right now none of the above is holding true for the 2015 Winning Value Portfolio. As of July 2, 2015, the portfolio was down 13% versus a near 1% advance for the S&P 500 and a 2.8% advance for the Wilshire 5000 index, respectively.
Chesapeake Energy (CHK) continues to be hated in the market and is now down almost 50% year to date. Here's the thing, though: as Chesapeake declines, the opportunity is even more compelling. Late last year, the company sold nearly 8% of its reserves for nearly $5 billion -- or 40% of the company's market cap at the time. Last week, the company sold some additional assets for $840 million. Two years ago, Chesapeake had nearly $13 billion in debt and less than $1 billion in cash. At the time, the company's market cap was over $15 billion. Today, the balance sheet has over $3 billion in cash and $10 billion in debt, yet the market cap is less than $8 billion.
Carl Icahn and Mason Hawkins, an activist investor and a passive value investor, each own over 10% of CHK and continue to be very bullish on the company's prospects; 2015 will probably be a year to forget for CHK in terms of stock price performance, but I suspect that two-three years from now, the stock return will be an easy double or triple from here.
Other names like Murphy Oil (MUR) and Cheniere Energy (LNG) are getting pounded by the continued selloff in energy stocks, while POSCO Steel (PKX) is suffering from a historically weak steel market.
The Value Portfolio is an annual selection of 10 stocks to hold for a year. As I look to 2016, many of the Class of 2015 are likely to be selected again, because they are becoming more and more undervalued in 2015.