It's been nearly nine months since the inception of my Profitable Small Caps with Cash Portfolio, and while it' hanging tough, its level of outperformance has narrowed since the end of the second quarter. Since its Jan. 22 inception, the portfolio, comprised primarily of under-the-radar names, is up about 26.2% vs. +25.3% for the Russell 2000 Index and 24.8% for the Russell Microcap Index.
For perspective, while the S&P 500 is up about 13% over the same timeframe, I don't believe it is a valid benchmark for this portfolio, and sometimes see others opportunistically use benchmarks that juice their results.
Nine months in, I am neither disappointed, nor thrilled with the performance of this tracking portfolio. It represents yet another value-related experiment, and I plan to track it over the longer-term. One year or two are not a sufficient timeframe in which to test the theory that stocks with the attributes below can outperform.
By way of reminder, here are the specific screening criteria utilized for the portfolio:
- Market capitalization between $100 million and $3 billion;
- Price-to-earnings ratio of less than 15;
- Long-term debt-to-equity ratio of less than 50%;
- Profitable during the trailing 12 months and in the latest fiscal year;
- Cash in excess of 20% of market cap;
- Price-to-book ratio of less than 1;
- Quick ratio greater than 1;
- Any sector except for the financial space.
Nine of the 10 stocks in the portfolio are currently in positive territory; the only one in negative territory, TravelCenters of America (TA) , is down less than one percent. It's also a name in which I've recently taken a position. I am anxious to see if TA can turn around the Quaker Steak and Lube Chain that it acquired out of bankruptcy in April.
The big winner continues to be Sanmina Corp (SANM) , which, while up more than 71%, still trades at less than 11x next year's consensus earnings estimate. The company ended its latest quarter with $410 million, or about $5.50 per share in cash, although it also has $518 million in debt.
The second best performer is still Multi-Fineline Electronix (MFLX) , which is up 57%; the company is being acquired by China's Suzhou Dongshan Precision Manufacturing for $23.95/share, which accounts for the stocks solid performance.
Tropicana Entertainment (TPCA) (+52%) has enjoyed 26% run-up over the past month, on little in the way of news, but it has had a few higher volume days over the past several weeks.
Here's how the rest of the portfolio has fared:
