The Robot Portfolio chugs on
The Robot Portfolio is a hypothetical collection of 10 stocks I have compiled each year beginning in 1999. In 24 years, it has achieved a cumulative 915% return, compared with 373% for the S&P 500 Index.
The 10 stocks are picked by computer, not by judgment. They are the 10 cheapest stocks in the market among all U.S. stocks with a market value of $500 million or more, positive earnings and debt that doesn’t exceed the companies’ net worth.
By “cheap,” I mean a low price/earnings ratio — the stock’s price divided by its profits per share. A normal P/E ratio most years is about 15. This year’s Robot stocks have ratios of two or less.
The logic behind this approach is simple. Stocks advance by exceeding expectations. Low P/E stocks are unpopular stocks with obvious problems. Investors expect very little from them. Low expectations are easier to exceed than high ones.
Fresh selections
Here are the Robot stocks for 2023.
TPG Inc. (TPG) is the cheapest, with a P/E ratio of one. Based in Fort Worth, Texas, TPG does leveraged buyouts and private equity. It competes with Blackstone, Carlyle Group and KKR among others. The super-low P/E ratio reflects unusual gains from asset sales four quarters ago.
Guild Holdings Co., a mortgage company based in San Diego, is second-cheapest with a P/E below two. Last year was a good one for mortgage issuance, but investors figure 2023 will be worse as rising interest rates discourage home buyers.
Alpha & Omega Semiconductor Ltd. (AOSL) carries a P/E below two times trailing earnings and six times estimated earnings for the current fiscal year, which ends in June. Based in Sunnyvale, California, the company makes power semiconductors used in phone chargers and other applications.
Matson Inc. (MATX), out of Honolulu, is a Pacific Ocean freight carrier. It has a P/E below two. Many shipping stocks are cheap because freight rates are at a low point, but Matson has shown a profit in each of the past 15 years and has a decent balance sheet.
Callon Petroleum Co. (CPE) is a mid-sized oil company based in Houston. Its stock is down 70% in the past five years and sells for less than two times recent earnings. The company has posted losses in three of the past 10 years, including a huge loss in 2020. But profits have been strong in the past year.
Alpha Metallurgical Resources Inc. (AMR) has a strong balance sheet, with 86 times as much cash as debt. It’s a coal mining company with headquarters in Bristol, Tennessee, and mines in West Virginia and Virginia. The stock has more than doubled in the past year yet sells for a P/E below two.
United States Steel Co. (X), out of Pittsburgh, Pennsylvania, appears on this roster for the second year in a row. The stock rose about 5% last year in a down market and sells for two times earnings. The company, once one of the nation’s biggest, has struggled in recent years.
PBF Energy Inc. (PBF) is a refiner based in Parsippany, New Jersey. It produces gasoline, heating oil and jet fuel, but you’ll never see a PBF gas station; its products are unbranded. The stock has surged in the past year but still sells for two times trailing earnings and five times estimated earnings.
Chord Energy Corp. (CHRD, two times earnings) is a mid-sized oil company based in Houston. It was formed by the merger last year of two troubled companies, Whiting Petroleum and Oasis Petroleum. Both had gone bankrupt in the great oil bust of 20142020. It drills in North Dakota and Montana.
Ryerson Holding Corp. (RYI), with headquarters in Chicago, distributes industrial metals in the U.S. and China. It had an excellent year in 2022 but had three losses in the past ten years. Any thaw in U.S.-China relations would probably help this company.
The record
The Robot’s average (mean) return has been 15.8%, versus 8.3% for the S&P Total Return Index. The compound annual return has been 10.1%, compared to 6.7% for the S&P.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Last year’s Robot stocks fell 15.6% while the S&P declined 18.1%. The worst loser was Smith & Wesson Brands Inc. (SWBI), down almost 50%. The best gainer was Genworth Financial Inc. (GNW), up about 31%.
In 24 years, the Robot stocks have showed gains 16 times and beaten the index 12 times. It’s not an infallible “system.” Nothing is. But I do believe that severely out-of-favor stocks deserve a look.