3 Stocks I'm Keeping, 5 That Are Getting the Boot
Motley Fool co-founder David Gardner has been pounding the table on a topic he refers to as "Moneyballing the Financial World."
I urge you to read all three parts of David's series, but, in short, the idea is simple: If somebody is writing about stocks, they should be held accountable for what they're saying. His venue of choice for keeping tabs is The Motley Fool's CAPS community, where investors can give a thumbs-up or -down on thousands of stocks (for free!).
For me, a Fool writer who's been following David's philosophy for some time now, his push means continuing to enter new calls in my CAPS portfolio, as well as keeping up on calls that I've previously made. Today, I'm going to do some of the latter.
You don't have to go home, but you can't stay here
My timing on both Ingersoll-Rand (NYS: IR) and Yum! Brands (NYS: YUM) was fantastic. I waded against the angst-filled tide of early 2009 and gave both stocks a thumbs-up -- Ingersoll in late January and Yum! in early February. The market as a whole has done quite well over the three years since I made those calls, but the stocks have done even better. Both have more than doubled, and what's more is that the gains in each case have doubled, or nearly doubled, the gains of the S&P 500.
Needless to say, I'm happy with those two thumbs-ups. However, I'm bidding farewell to both today. Both of these are fine companies and, in particular, I like the very strong presence that Yum! has in the rapidly growing Asian markets. That said, both sport valuations that suggest investors are well-informed about the quality of these two companies. With decidedly less upside, I'd rather cut them loose today and wait to see whether Mr. Market puts them on sale again in the future.
And while I can cheerfully bid adieu to Ingersoll and Yum!, I'm less excited to highlight TBS International. As part of a broader bet that shipping companies were undervalued even as the industry looked bleak, I gave TBS a thumbs-up midway through 2010. It's since been crushed by its debt load and an increasingly difficult dry-bulk market. With the stock down a cool 97% from where I jumped in, it's time to admit that this one was a whiff.
To look at my CAPS scores for ArcelorMittal (NYS: MT) and Corning (NYS: GLW) (-64 and -67, respectively), you might suspect that the stocks have performed horribly. In fact, in the three years since I gave each a thumbs-up, Arcelor has only fallen about 8%, and Corning has added 1.5%. Nothing to cheer about in any case, but at the same time, the S&P has had a big rally, meaning that both underperformed significantly.
Today, both companies are facing challenges. As the world's largest steelmaker, Arcelor doesn't thrive when major developed economies like the U.S. and the European Union are sluggishly growing or stalling out. Meanwhile, in a recent earnings release, Corning badly disappointed investors as it said it's "resetting expectations" for the profitability of the display industry.
That said, I still see both of these as solid businesses that will continue producing products that will be in demand. And with the above concerns very front and center in investors' minds, I believe the valuation on both stocks provides a good deal more room for upside than downside -- particularly in the case of Arcelor.
If you've been keeping count, thus far I've cut loose three stocks and shown continued support for two. And what of the final three stocks I promised in the headline? That brings us to the casino industry.
Going back to 2009 one more time, I gave outperform ratings to Las Vegas Sands (NYS: LVS) , MGM Resorts (NYS: MGM) , and Wynn Resorts (NAS: WYNN) . Being a Las Vegas resident myself, I could see that things looked pretty awful, but in each case I thought that -- as noted above for Arcelor and Corning -- the market was providing more room for upside than downside.
And, oh my, was there upside. Among the three stocks, I racked up a combined 619 points on CAPS.
Today, though, I look at Las Vegas Sands and see a company with a lot of good properties and a voracious appetite for growth, but it's a stock that I don't find especially compelling. With MGM, I see a company with a far less attractive stable of properties and a price that isn't as dirt cheap as it once was. And so I'm ending my outperform calls on both.
As for Wynn, admittedly the valuation isn't much (if any) more attractive than Las Vegas Sands'. However, I think Wynn has great properties, and I appreciate Steve Wynn's conservatism as well as the fact that Wynn is the only one of the three that pays a dividend. So while I may not have especially high hopes for huge returns out of Wynn, it will continue to have a thumbs-up from me.
More stocks, all dividends
As my CAPS loyalty to Wynn suggests, I'm partial to companies that share the wealth with investors through dividends. And though I dig Wynn, there are a lot of companies out there that are even better dividend payers. Eleven such companies can be found in The Motley Fool's special report "Secure Your Future With 11 Rock-Solid Dividend Stocks." You can grab a free copy by clicking here.
And, of course, if you have a view on any of the stocks above, be sure to make your own call on CAPS.
At the time this article was published The Motley Fool owns shares of Corning, Arcelor Mittal, and Yum! Brands. Motley Fool newsletter services have recommended buying shares of Yum! Brands and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer owns shares of ArcelorMittal, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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