The month of September was not especially kind to the Gad Winning Value Portfolio -- in fact, its year-to-date gains have been basically eliminated. The portfolio, which had been up more than 6% for the year at my last update a month ago, was basically flat for the year as of the end of the third quarter.
September's market volatility, in short, has certainly impacted particular portfolio positions. For instance, shares of zinc producer Horsehead (ZINC) declined by nearly 20% during the past month, suffering from a selloff due to macroeconomic concerns relating to China and that country's shrinking appetite for commodities.
However, Zinc is a very unique commodity -- its uses are versatile, and there is no substitute for it. Horsehead is a unique business, as well, because the company is essentially a recycler of zinc dust, meaning the company gets its raw materials for virtually nothing. All this continues to make Horsehead a very attractive long-term play.
In any case, as of Sept. 30 the Winning Value Portfolio was up approximately 0.1% -- essentially flat -- as compared with the S&P 500's rise of 7.7% and the Wilshire 5000's climb of 6.3%.
Speaking of commodities, natural gas giant Chesapeake Energy (CHK) also suffered a volatile September, sliding 14%. Natural-gas prices dipped a bit, and this has affected the shares of nat-gas-related names across the board. Yet volatility is the friend of the patient investor, and I believe the intrinsic value of Chesapeake still remains significantly higher than what the current stock price reflects.
My objective with this portfolio is always to select a group of 10 businesses at the beginning of each year, and to let those stocks ride until the following year. That there are now three months left in 2014, so it's quite possible that the portfolio will underperform the S&P 500 for the first time since I initiated it four years ago.
That said, names such as Chesapeake, General Motors (GM-WTB) and Bank of America (BAC) could be among the 2015 picks if their share prices remain where they are, or if they continue to experience selling pressure. In fact, Bank of America has been part of the portfolio for the past three years.
So, even if the portfolio fails to outperform the market for this one-year period, next year's class could include many of these names, depending on where the prices are at the end of December.