Hope for Bunny Portfolio to hop next year

WHEN will my Bunny Portfolio show some energy? This is a theoretical portfolio that I compile each December. To be eligible, a stock must have an average earnings growth rate of 25 percent or better the past five years, and yet sell for 12 times earnings or less.

That’s anomalous, of course. Stocks with fine growth don’t usually sell cheap. It means that investors think the stock has hit a wall, or soon will.

The “Bunny” in the name comes from the advertising mascot for Energizer batteries, which was “still going” long after you might expect it to run out of juice.

Because people are very imperfect forecasters of the future, I figure that a good percentage of the Bunny stocks will continue their winning ways, defying investors’ diminished expectations.

Most years, about three dozen stocks meet the statistical criteria for the Bunny Portfolio. From these, I take the five with the fastest historical growth rates, and the five with the lowest P/E ratios (price divided by the past four quarters’ earnings per share).

Bunny’s record

In the early years, the Bunny hopped with great success. Lately, it’s been dragging its cottontail.

In 18 years, my Bunny stocks have achieved an average 12-month gain of 13.6 percent, which compares favorably with a 9.1 percent average for the S&P 500.

That good result owes much to a few excellent years. Only eight of my 18 Bunny Portfolios have beaten the index. Eleven of the 18 have been profitable.

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.

Last year, the Bunny suffered a 5.8 percent loss, and it would have been even worse except for a big gain in William Lyon Homes (WLH). The S&P 500 climbed 19.3 percent.

Do I think this portfolio will revive and hop again? I do, as I believe in the contrarian logic behind this paradigm.

The new stocks

Here are the 10 stocks that will propel the Bunny Portfolio from now through next December.

Four are bank stocks. Right now, short-term interest rates are nearly as high as long-term rates. That’s bad for banks, which generally “borrow short and lend long.” They profit when long-term rates (such as on mortgages) are higher than the short-term rates they must pay on deposits.

■ Bank OZK (OZK), based in Little Rock, Arkansas, is a leader in construction lending. I admire its CEO, George Gleason, but don’t currently own the stock.

■ Electronic Arts Inc. (EA), from Redwood City, California, makes video games, including the “Battlefield” series, the “Sims” series and the “Need for Speed” series. Its fiveyear earnings growth rate has been as astounding 98 percent; last year was even better. But the game field is competitive and can change fast.

■ E*Trade Financial Corp. (ETFC), with headquarters in New York City, is an online brokerage house. Lately, led by Charles Schwab & Co., the discount brokerage industry has moved to a model with zero commissions. That’s a hostile environment.

■ Hooker Furniture Corp. (HOFT), out of Martinsville, Virginia, is a medium-sized furniture manufacturer. Its five-year earnings growth rate is better than 30 percent, but it went into reverse last year.

■ IberiaBank Corp. (IBKC) of Lafayette, Louisiana, is merging into First Horizon National Corp. (FHN). The transaction was announced last month and will conclude soon, unless something happens to derail it.

■ Penny Mac Financial Services (PFSI), out of Westlake Village, California, is primarily a mortgage lender. Its stock has advanced more than 50 percent in the past 12 months, but revenue and earnings slowed sharply this year.

■ RMR Group Inc. (RMR) of Newton, Massachusetts, invests in real estate and manages real estate properties. Sales and profits have been remarkably good for the past five years but have deteriorated rapidly in 2019.

■ Simmons First National Corp. (SFNC) is the second Arkansas bank on the Bunny list this year. Based in Pine Bluff, it has been consistently profitable, but profits have never been spectacular. CEO George Makris bought $239,900 of Simmons stock recently.

■ Sterling Bancorp (STL) is a banking company in the New York metropolitan area, specializing in commercial loans. Earnings are growing rapidly, and lately the bank has been beating the benchmark of a 1 percent return on assets.

■ Toll Brothers Inc. (TOL), a high-end homebuilder based in Horsham, Pennsylvania, operates in all 50 states. I like the salty, straight-shooting style of chairman emeritus Robert Toll.

Disclosure: A couple of my firm’s clients and a member of my family own shares in Electronic Arts. One client owns Bank OZK.

The Nevada State Public Health Laboratory has a new director. Mark Pandori will lead the lab and be a full-time faculty member at UNR Med, teaching medical students, fellows and residents in the field of microbiology.

“The NSPHL does very important work for Nevada, as it operates as a first line of defense to protect the public against diseases and other health hazards,” Pandori said in a news release.

The lab is the state’s centralized lab for the health and safety of Nevada citizens and visitors through the rapid detection of public health threats.

Most recently, Pandori was the director of the Alameda County Public Health Laboratory in Oakland, California, and was an associate clinical professor in the Department of Laboratory Medicine at the University of California San Francisco School of Medicine.

Holley Driggs Walch Fine Puzey Stein & Thompson law firm announced Dustin L. Clark joined the firm as an associate attorney. His areas of focus will include employment law, commercial litigation, estate planning and intellectual property and technology.