The Daily Workshop
Report
by Robert Sheard
(TMF Sheard)
LEXINGTON, KY. (Aug. 28, 1997) -- It's time once more to update my three "unofficial" workshop portfolios that I've tracked in this column in recent months: the Blue Chip Portfolio, the Technology Portfolio, and the Thoroughbred Portfolio.
The oldest of the three is my Blue Chip Portfolio, a collection of 15 large-cap stocks I chose at the beginning of July 1996 for a friend of mine. I have no idea whether he's still holding these stocks (or for that matter, whether he even bought them to begin with). But I've tracked them here as if he did so in equal-dollar amounts and simply held. (Returns don't include trading costs or dividends.)
The stocks were chosen with some rough guidelines in mind. They had to be large-caps with strong historical earnings growth, solid financial strength, good brand-name equity, and leaders in their industries. You shouldn't be surprised by any of the names on the list.
Since July 1, 1996, here are the returns:
152% Intel (INTC)
120% Microsoft (MSFT)
77% BankAmerica (BAC)
54% Citicorp (CCI)
53% Pfizer (PFE)
48% Amer. Int'l. Group (AIG)
44% Merck & Co. (MRK)
34% Home Depot (HD)
33% Gillette (G)
29% Philip Morris (MO)
23% Hewlett-Packard (HWP)
19% Coca-Cola (KO)
15% Johnson & Johnson (JNJ)
4% PepsiCo (PEP)
0% McDonald's (MCD)
The total return for the portfolio is 47% versus 35% for the S&P 500 Index. That equates to an annualized return of 39%. Despite the talk about a market rotation out of large-cap stocks, the group is holding up reasonably well, even with the somewhat heavy concentration of drug stocks, which have given back about twice what the indices have in the current correction.
The Technology Portfolio is the unchallenged champion for 1997. The criteria for the 15 stocks in this group are simple. I took the stocks from a handful of high-tech industry groups out of the S&P 500 listings (available on its website) and simply chose the 15 largest companies (measured by market capitalization). This is not terribly dissimilar from the Douglas Theory making the Wall Street circuit, where one chooses the five largest stocks from the Nasdaq 100. I extended it to all exchanges, but focused solely on technology issues.
Here are the results since January 1, 1997:
208% Dell Computer (DELL)
168% Applied Materials (AMAT)
117% Compaq Computer (CPQ)
87% Sun Microsystems (SUNW)
82% Texas Instruments (TXN)
71% Lucent Technologies (LU)
60% Microsoft (MSFT)
41% Intel (INTC)
34% Int'l Business Machines (IBM)
31% Computer Associates (CA)
31% Oracle (ORCL)
23% Motorola (MOT)
22% Hewlett-Packard (HWP)
18% Cisco Systems (CSCO)
-4% Seagate Technology (SEG)
The total return for the portfolio is 66% versus 22% for the S&P 500 Index. Even better is a sub-set of the 15. Choosing the five stocks in January with the highest Relative Strength scores gives us Microsoft, Intel, Dell Computer, Compaq Computer, and Seagate Technology. Even with Seagate's loss (the only one of the 15 stocks in the red this year), the group of five has posted a return of 85%.
The Thoroughbred Portfolio is another non-mechanical group I've been watching, in the tradition of our old Port Folly game where one chooses a new group of stocks every month. The 15 stocks I include are chosen with an eye first to solid fundamental growth characteristics (estimated and past earnings growth), but the primary test is recent price strength. So while I give a nod to fundamental growth with these stocks, the short-term nature of the experiment lends itself to a momentum approach.
The portfolio began this July, so the history is short. In July, the model returned 7.81%, tying the S&P 500 Index precisely. In August, the model has shown a modest gain of 2.02% while the S&P 500 has slipped 5.31%. For the two months, then, the model is up 9.99% versus the S&P 500's gain of 2.09%. The two-month gain for the model equates to an annualized return of 77%, not that such a short history really means anything. Tomorrow closes out the second month for the model and I'll list the 15 stocks for September in tomorrow's column.
30% Titan (TTN)
22% Navistar (NAV)
14% Arkansas Best (ABFS)
13% Nabors Inds (NBR)
7% Michael Foods (MIKL)
6% Varco Int'l (VRC)
0% Parker Drilling (PKD)
-1% Cerner (CERN)
-2% Sequent Computer (SQNT)
-4% Dell Computer (DELL)
-7% Rowan Cos (RDC)
-8% CKE Restaurants (CKR)
-9% Quicksilver (QUIK)
-13% Advest Group (ADV)
-18% Money Store (MONE)
FYI: I don't recommend that you or anyone else use one or another of these approaches. They're strictly for experimental and informational purposes. I personally am invested in a group of 15 stocks very much like the Blue Chip portfolio.
Monthly Growth Screens (Jan. 3 to present) 71.93% Relative Strength 30.51% Investing for Growth 22.85% YPEG Potential 20.81% S&P 500 Index 20.47% Low Price/Sales 18.70% EPS Plus RS 11.19% Unemotional Growth 8.95% Formula 90 Annual Value Screens (Jan. 1 to present) 20.96% Dogs of the Dow 19.33% Dow Jones Ind Avg 17.36% Beating the S&P 16.93% Dow Combo 16.33% Unemotional Value 16.33% Beating the Dow 8.72% Foolish Four