John Dorfman: 4 stocks that flaunt both value, momentum
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In a stock market where momentum reigns, what’s a bargain hunter to do?
One answer is to look for stocks that possess both value and momentum. Today, I offer four such stocks for your consideration.
Applied Materials
Let’s start with Applied Materials Inc. (AMAT), up 20 percent this year through Feb. 1. The Santa Clara, Calif., company is a leading supplier of all sorts of equipment to the semiconductor industry.
From late 2015 to early 2018, Applied Materials stock quadrupled, rising from about $15 to more than $60. Then it slid along with its whole industry, dropping to about $31. Today, after its January spurt, it goes for $39 or so.
No doubt, earnings in the semiconductor industry are erratic. And Applied Materials isn’t immune. But it has had only one loss year (2009) in the past 15. Its return on equity last fiscal year was over 40 percent, and analysts think it hit 50 percent in the fiscal year that ended in October.
That’s spectacular profitability. And you don’t pay through the nose for it, as the stock sells for 12 times earnings.
Bank OZK
Bank OZK (OZK), formerly Bank of the Ozarks, is up 18 percent this year. Like Applied Materials, it is recovering from a tumble. In 2018, it fell from over $50 to under $25. Now it’s quoted at about $31.
Bank OZK is one of the leaders in construction lending, behind only its much larger peers, Wells Fargo and US Bancorp. It also has specialties in marine and aviation lending.
I’m drawn to it mainly by admiration for CEO George Gleason, who has achieved a return on assets above 1.5 percent at this bank in eight of the past 10 years.
Investors panicked last year when the bank announced it would write off a couple of loans made about a decade ago. But results for the fourth quarter look healthy, causing many traders in this stock to switch from fear to greed.
Anglo American
Mining is a tough business. As the years pass, notable discoveries of precious metals, diamonds and minerals get harder to reach — buried deeper in the ground or located in more remote areas. Yet in this harsh environment, Anglo American Plc shares have done well.
Anglo American Plc (NGLOY) is a London-based company that mines coal, iron ore, diamonds (through its 85 percent-owned DeBeers subsidiary), gold and other minerals. After a four-year string of losses that ended in 2015, it has been increasingly profitable.
Shares in Anglo American have marched from about $2 a share in early 2016 to above $12. That includes a 17 percent gain this year through Feb. 1.
Kroton
As an extreme speculation, I like Kroton Educacional SA (KROTY), a Brazilian education company that operates schools and offers online courses. The Brazilian economy has been plagued by poor performance and political turmoil brought on by bribery scandals.
All these things dragged down Brazilian stocks, including Kroton, in 2018. Brazil has a new president, Jair Bolsonaro. Critics worry he’s a demagogue; supporters like his pro-business stance compared to his predecessors.
Kroton has shot up 42 percent this year, to $3.11 as of Feb. 1. Its revenue has grown at a 30 percent annual clip for the past five years, and book value (corporate net worth) has grown even faster.
I wouldn’t put much of your capital here, but it’s an interesting flyer.
Past record
This is the 34th column I’ve written about stocks that possess both value and momentum. One-year returns can be calculated for 32 of them.
The average one-year return has been 13.4 percent, which compares favorably to 9.1 percent for the Standard & Poor’s 500 Index over the same 31 periods.
My picks have been profitable 23 times out of 32, and have beaten the S&P 17 times.
In the past year, they did neither. Every stock I picked Feb. 5, 2018, declined, with the biggest loss a 79 percent plunge in Jupai Holdings Ltd, a Chinese investment company. Overall my selections dropped 31.2 percent through Feb. 1, while the S&P 500 managed a 4.2 percent advance.
My other recommendations — Fiat Chrysler Automobiles NV (FCAU), Lincoln National Corp. (LNC), Lyondell Basell Industries NC (LYB) and Piper Jaffray Companies (PJC) — fell 15 percent to 23 percent.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Disclosure: I own Bank OZK shares personally and for most of my clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.