The Robot Portfolio scored a 45% gain in 2023
Maybe someday every household will have a robot.
But I’ll never be as fond of them as I am of the fictional robot that runs my annual Robot Portfolio.
The Robot Portfolio is a naïve computer-driven stock-picking paradigm that I started in 1999. It just hit its 25th anniversary, and has compiled a theoretical return of 1,374%, compared to 598% for the Standard & Poor’s 500 Total Return 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.
Each year, the robot (theoretically) buys the 10 cheapest stocks among all U.S. stocks with a market value of $500 million or more, positive earnings and debt less than equity. My measure of cheapness is the stock’s price/ earnings (P/E) ratio — stock price divided by the past four quarters’ earnings.
You can think of the P/E ratio as a popularity index. Popular stocks sport high ratios, while unpopular stocks have low ones. Basically, the Robot Portfolio contains the stocks that nobody wants.
The 10 stocks are picked by computer, not by judgment. The rationale behind this approach is that stocks advance by exceeding expectations, and low expectations are easier to beat.
The Robot Portfolio often skews toward a particular industry or sector — this year more than ever. Eight of the 10 2024 Robot selections are energy companies.
Fresh selections
Here is the 2024 Robot Portfolio. All 10 of these stocks sell for 3 times earnings or less. Southwestern Energy Co. (SWN), a natural-gas producer based in Spring, Texas, is the cheapest stock in the group, selling for only 1.4 times recent earnings. This stock has been a terrible laggard, losing 83% of its value in the past decade. However, it rose more than 20% in 2023.
Gulfport Energy Corp. (GPOR), with headquarters in Oklahoma City, produces oil and gas in the Appalachian Basin and in Oklahoma. It went bankrupt during the great energy bust of 20142020, and emerged from bankruptcy in April 2021. Since then, the stock is up 83%.
CNX Resources Corp. (CNX), formerly known as Consol
Energy Inc., produces natural gas from shale formations and coalbeds in the Appalachian basin. During the past decade, the stock price has fallen 36%, while revenue has grown at a snail’s pace, just under 1% a year. The stock pepped up in 2023, though.
Spectrum Brands Holdings Inc. (SPB) is a conglomerate based in Middleton, Wisconsin. It sells Remington shavers, Cutter insect repellant, Spectracide weed killer, DreamBone pet food, and other household products. Its revenue peaked in fiscal 2013 at $5.5 billion and is about $2.9 billion now.
Sphere Entertainment Co. (SPHR) was carved out of the old Madison Square Garden Entertainment. It owns the Sphere, an entertainment venue in Las Vegas, and the TV network that broadcasts New York Knicks and Rangers games.
The five aforementioned stocks have a P/E of less than two. PBF Energy Inc. (PBF) is next, with a P/E multiple of two. It’s a refiner based in Parsippany, New Jersey, selling unbranded gasoline, heating oil and other petroleum derivatives.
Chesapeake Energy Corp. (CHK) is another company coming back from bankruptcy; it emerged in 2021. Mainly a natural-gas producer, it was an aggressive acquirer in years past.
SilverBow Resources Inc. (SBOW), based in Houston, is a small oil and gas company with wells primarily in south Texas.
Its sales and earnings vary wildly from one year to another, which may be why investors award it a measly P/E of 2.3.
SandRidge Energy Inc. (SD), with a P/E of 3.1, is also based in Oklahoma City. It drills for oil and gas, mainly in Oklahoma and Kansas. It, too, went bankrupt during the oil bust — filing Chapter 11 in May 2016 and emerging the same year.
Rounding out the 10-stock list is Peabody Energy Corp. (BTU) with a P/E of 3.3. It’s the largest U.S. coal company by tonnage produced. It has posted losses in seven of the past 10 years. No one thinks coal is the energy source of the future. Nonetheless, I think it’s tempting at this price.
The record
The Robot’s average (mean) return has been 17%, versus 8% for the Standard & Poor’s Total Return Index. The compound annual return has been 11.41%, compared to 7.6% for the S&P.
In 25 years, the Robot stocks have showed gains 17 times and beaten the index 13 times.
Last year’s Robot stocks soared 45.2% while the S&P gained 26.3%. The best gainer was Alpha Metallurgical Resources Inc. (AMR), up 133.8%. Next best was the venerable U.S. Steel Co. (X), up 96%.
In the losing column were Callon Petroleum Co. (CPE), down 13%, and Alpha & Omega Semiconductor Ltd. (AOSL), down 9%.
Disclosure: I own Alpha & Omega for one client.
John Dorfman is chairman of Dorfman Value Investments
LLC in Boston, 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.