The Purloined Portfolio: Five ideas stolen from five managers
Theft sometimes pays. It sounds much nicer to call it competition research.
Once a year in this column, I take a look at the holdings of a few investment managers I respect. Choosing one stock from each of their holdings, I call the result the Purloined Portfolio.
Jabil
From Scott Black, the head of Delphi Management in Boston, I select Jabil Inc. (JBL), which provides contract manufacturing services to technology companies. Among its customers are Apple Inc. (AAPL), Cisco Systems Inc. (CSCO), Dell Technologies Inc. DELL) and HP Inc. (HPQ).
In the past five years, Jabil has grown its sales by more than 14% a year, and earnings faster than sales. The company’s profit margin, traditionally slender, has been expanding. The stock sells for 22 times recent earnings and 14 times the earnings analysts predict for 2024.
FedEx
From Randall Eley, chief investment officer of Edgar Lomax Co. in Alexandria, Virginia, I choose FedEx
Corp. (FDX). The big delivery company has increased its sales by an average of 10% a year the past decade and earnings by almost 8% a year.
In the past year, sales were down a smidge, but profits were up. The stock sells for 15 times earnings, while the 10-year median has been 21.
Pandemic or no pandemic, I think the trend to online shopping will continue. That should keep FedEx and its rival United Parcel Service Inc. (UPS) pleasantly busy.
Chenierre
Ken Heebner is chief investment officer at CGM Trust in Boston and runs mutual funds including the CGM Focus Fund. From his portfolio, I draw Cheniere Energy Inc. (LNG), a leading builder of liquefied natural gas terminals.
The U.S. is rich in gas and is exporting increasing amounts. Chenierre was a pioneer in this business and had to endure several years of losses and high capital expenditures to build out its terminals.
Beginning in 2017, it has usually been profitable and has eased off a bit on capital expenditures.
The stock is up about 26% this year. It sells for 14 times the earnings that analysts predict for next year, and only five times recent earnings. Russia’s choking off gas shipments to Europe helped Chenierre’s business this year, but geopolitics aside, I think U.S. gas exports will stay strong.
JPMorgan
David Katz is chief investment officer for Matrix Asset Advisors in White Plains, New York, and manages the Matrix Advisors Value Fund. From his holdings, I recommend JP Morgan Chase & Co. (JPM), the parent of JPMorgan Securities and Chase Bank.
It is the largest bank in the U.S. by a considerable margin. It is also the largest in the world by market value, but a few banks in China are larger by loan volume. Jamie Dimon has been its chief executive officer since 2006 and holds the admiration of many financial professionals, including me.
Arcosa
Charles “Chuck” Royce runs Royce Investment Partners and is the longtime manager of the Pennsylvania Mutual Fund. He’s known as a champion of smallstock investing.
From his portfolio, I’d pluck Arcosa Inc., a Dallas company whose three segments all are tied to infrastructure. The construction segments make aggregates, trench shields and shoring products. The transportation segment makes products for inland waterway and rail transport.
The engineered structures segments makes wind towers, mobile phone towers and electrical transmission towers. Arcosa was spun off from Trinity Industries Inc. (TRN) in 2018 and has been profitable each year since. The stock sells for 12 times recent earnings.
Past record
The Purloined Portfolio you’ve just read about is the 20th one I’ve compiled. The average one-year return on the previous 19 has been 12.4%, compared to 10.3% for the Standard & Poor’s 500 Total Return Index.
Of the 19 sets of recommendations, 15 were profitable and 10 beat the index.
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.
My Purloined Portfolio from a year ago was nearly flat, eking out a 0.66% gain. Four of my picks were up by single digits – Cleveland-Cliffs Inc. (CLF), Chevron Corp. (CVX), TD Connectivity Ltd. (TEL) and Air Lease Corp. (AL).
But Antero Resources Corp. (AR) put a damper on the whole thing, falling 18%. By contrast, the Standard & Poor’s Total Return Index advanced 20.8%.
Disclosure: I own Jabil and Apple personally and for most of my clients. One or more of my clients owns Chevron, HP and United Parcel.
My information on the managers’ holdings came from public filings. It’s possible that a manager might have sold one of the stocks highlighted here.