Cisco Systems, ON Semiconductor make 30-30 Club

My 30-30 Club has gotten even more exclusive. This is an honor roll for corporations, named after the 30-30 Club in baseball.

The baseball version is for players who have hit 30 home runs and stolen 30 bases in the same season. Willy Mays, Barry Bonds and Mike Trout leap to mind.

My version is for corporations. To make this roster, a company has to grow its profits at a 30% clip for five years, and achieve a 30% return on stockholders’ equity.

This year, only 27 companies made the cut, down from 38 a year ago and 47 the year before. Pretty soon, the club will need a red velvet rope to keep out the riff-raff.

All these companies deserve to be honored. But some of their stocks are expensive. Others carry more debt than I like. Each year, I recommend only a few of the qualifying stocks. This year, I recommend five of them.

Cisco Systems

Cisco Systems Inc. (CSCO), based in San

Jose, California, is a leading player in the computer-networking market. The stock has fared poorly in the stock market for the past five years, even while the company’s sales and earnings increased. The company has been profitable 22 years in a row.

ON Semiconductor

Specializing in computer chips for cars, ON Semiconductor Corp. (ON) has increased its profits by

44% a year in the past five years. Growth flagged last year, but profits were still impressive. The stock sells for 14 times earnings, while the median large-cap stock sells for a multiple of about 24.

Axcelis

While ON makes chips, Axcelis Technologies Inc. (ACLS) makes equipment used in making chips. One of its main products is ion implantation equipment, which fine-tunes the electrical conductivity properties of parts of the silicon in the chip. This stock can also be had for 14 times earnings.

Atkore

Atkore Inc. (ATKR), based in Harvey, Illinois, is a mid-sized industrial company that makes electric conduit, fittings and cables. It also slits and cuts structural steel sheets.

While the five-year numbers are strong, last year was weak — which is why the stock goes for only 11 times earnings.

Builders FirstSource

I think there is a lot of pent-up demand in the United States for single-family homes. Mortgage rates, recently an obstacle to home ownership, may come down a bit in the second half of this year. So I like Builders FirstSource Inc. (GLDR), which supplies things like wall panels, stairs and frames.

Honor roll

The other 22 members of the 30-30 Club deserve to be honored, whether I happen to like their stocks or not.

The largest are Deere & Co. (DE), Chipotle Mexican Grill Inc. (CMG), Autodesk Inc. (ADSK), Microchip Technology Inc. (MCHP) and First Citizens BancShares Inc. (FCNCA).

Other large companies that qualify are Deckers Outdoor Corp. (DECK), Williams-Sonoma Inc. (WSM), Dick’s Sporting Goods Inc. (DKS), Medpace Holdings Inc. (MEDP), Insulet Corp. (PODD), Kinsale Capital Group Inc. (KNSL) and Lattice Semiconductor Corp. (LSCC).

In the mid-size range we have Murphy USA Inc. (MUSA), AutoNation Inc. (AN), Boyd Gaming Corp. (BYD), Sunoco LP (SUN), Herc Holdings Inc. (HRI), InterDigital Inc. (IDCC) and PJT Partners Inc. (PJT). Only companies with a market value of $2 billion or more were eligible for consideration.

Previous picks

A year ago I recommended five of the 30-30 stocks: Merck & Co.

(MRK), Nucor Corp. (NUE), Encore Wire (WIRE), Super Micro Computer Inc. (SMCI) and Coterra Energy Inc. (CTRA).

Collectively, these five stocks rose 185% from April 10, 2023, through April 5, 2024, thanks to a 789% gain in Super Micro, which rode a wave of investor mania about artificial intelligence.

Encore Wire advanced 67% and Nucor returned 38%, both beating the Standard & Poor’s 500 Total Return Index at 29%. Trailing the index were Merck (up 17%) and Coterra (up 14%).

Of the five stocks I chose last year, only Super Micro returns to the 30-30 list this year. After the stock’s huge gain, it’s too expensive for me at 74 times recent earnings. But my wife, Katharine Davidge, who is a portfolio manager at my firm, owns it personally and

for some clients.

Full record

I’ve written about the 30-30 Club most years since 1999. My 19 sets of recommendations have averaged a 19.1% return (including dividends) over 12 months. The Standard & Poor’s 500 Total Return Index has averaged 8.7% over the same periods.

My picks have beaten the S&P 500 12 years out of 19, with 12 profits and seven losses.

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.

Disclosure: I own Merck personally and for most of my clients. I own Encore Wire and Nucor personally and for some clients.