30-30 club for corporations more exclusive

WHAT do Mike Trout and Microsoft have in common? Both are members of a 30-30 club. In baseball, this club contains those stars who have smashed 30 home runs and stolen 30 bases in the same season. I have a 30-30 club for corporations. To make it, a company must have a 30 percent return on stockholders’ equity and a 30 percent average earnings growth rate over the past five years. It must also have a market value of $2 billion or more.

This year, only 38 corporations made my 30-30 club, down from 47 a year ago. All these companies deserve to be honored, but I recommend only a few of their stocks each year. This year, I recommend five.

Merck

Merck & Co. (MRK) stock sells for nearly 20 times earnings. That’s more than I usually pay but less than Merck’s typical multiple (25) in the past decade. I regard Merck as a research and development powerhouse. It has more than 30 drugs in phase 3 trial. The company’s profit margin last year was 24 percent. Nucor Nucor Corp. (NUE) was a pioneer in recycling steel. It is now the largest U.S. steel company and one of the most profitable. Paradoxically, the stock sells for a dirt-cheap multiple, five times earnings. Sure, steel is a cyclical industry vulnerable to recessions, but that’s awfully cheap.

Encore Wire

Based in Mckinney, Texas, Encore Wire Corp. (WIRE) makes wire and cable used in commercial and residential construction. Because its product is a common one, the company tries to differentiate itself by quality control, service and delivery speed. This company has no debt.

Super Micro

A maker of servers, server-management products and data-storage systems, Super Micro Computer Inc. (SMCI) is based in San Jose, California. It has manufacturing operations in California, Netherlands and Taiwan. The stock sells for less than 10 times earnings, and the balance sheet looks strong to me.

Coterra

Selling for only five times earnings, Coterra Energy Inc. (CTRA) looks like a bargain. Oil prices have come down this year on recession fears, but I feel that the oil-and-gas industry has a good outlook, partly because the drill count has come way down.

Other winners

With the five stocks I recommend above, there are 33 other honorees in the club.

Among the very largest companies, Microsoft Corp. (MSFT), Coca-cola Co. (KO) and Caterpillar Inc. (CAT) grace the list.

Other large-cap winners are Albemarle Corp. (ALB), BJ’S Wholesale Club Holdings Inc. (BJ), Builders Firstsource Inc. (BLDR), Chipotle Mexican Grill Inc. (CMG), Deckers Outdoor Corp. (DECK), Dick’s Sporting Goods Inc. (DKS), D.R. Horton Inc. (DHI), Jabil Inc. (JBL), and Microchip Technology Inc. (MCHP).

Also: Monolithic Power Systems Inc. (MPWR), Pool Corp. (POOL), Pultegroup Inc. (PHM) and Steel Dynamics Inc. (STLF).

Midsized companies on the list are Academy Sports and Outdoors Inc. (ASO), Affiliated Managers Group Inc. (AMG), Asbury Automotive Group Inc. (ABG), Auto Nation Inc. (AN), Boise Cascade Co. (BCC), Brunswick Corp. (BC), Commercial Metals Co. (CMC) and Evercore Inc. (EVR).

Also: Group 1 Automotive Inc. (API), Installed Building Products Inc. (IP), Medpace Holdings Inc. (MEDP), Matson Inc. (MATX), Mueller Industries Inc. (MLI), Topbuild Corp. (BLD), RLI Corp. (RLI), UFP Industries Inc. (UPI) and World Wrestling Entertainment Inc. (WWE),

Record

A year ago, I recommended six of the 30-30 stocks. Dick’s Sporting Goods (DKS) did best, up 33 percent, followed by Mueller Industries Inc. (MLI), up 29 percent. The worst performer was Medifast Inc. (MED), down 45 percent.

Southern Copper Corp. (SCCO) returned 8 percent, and Nexstar Media Group (NXST) inched up 3 percent. Williams-sonoma Inc. (WSM) lost 21 percent.