Capital One and 4 other “Old Faithful” stock purchases

0

Here are some new stocks to consider, spawned by my Old Faithful stock-picking paradigm. Old Faithful is a simple stock-picking tool, but my picks in this column have averaged a 21% return over 19 years.

To appear on this screen, an action must:

Have a return on equity of 15% or more

Have less debt than equity

Sell ​​for 15 times earnings or less

Sell ​​for 2 times revenue or less

Sell ​​for 2 times book value (company’s net worth per share) or less

Show average earnings growth of 10% or more over the past five years

The largest stock that jumps these statistical hurdles is Intel

INTC
, the largest US semiconductor company by revenue. Intel has many of its factories here in the United States. It’s been a disadvantage over the past decade, but in today’s political and business climate, I think it’s an advantage.

Intel doesn’t have too much debt, lots of cash and good profitability. Some Intel insiders, including CEO Patrick Gelsinger, bought the stock this year, but to be fair, some sold it as well. At less than 10 times recent earnings, I think Intel is a solid value.

Homebuilders have been hit with a two-by-four for the past four months. Dr Horton (DHI), the largest homebuilder in the United States, sold for more than $100 a share in December and fell to around $71.

High house prices and rising mortgage rates have raised questions about whether people can still afford to buy a new home. Today, mortgage rates are just over 4%. That’s high compared to a year or two ago. But rates were in the high 5% and low 6% range in 2005 and 2006, which were boom years for homebuilders.

Based in Medford, Oregon, Lithium engines

BOY
is one of the largest car dealership chains in the United States, with some 278 locations. Lithia has made profits in 26 of the last 27 years, the only exception being the infamous 2008. Lately its return on invested capital has exceeded the 10% level – the level I want to see – and the return on shareholders’ equity investment was about 29%, which is quite high.

Ball bearings, anyone? Timken

TKR
is the main American producer of these industrial gadgets. Timken is a battered stock, down 30% in the last 12 months. I think investors are spooked by cyclical and industrial stocks because they know the Federal Reserve intends to raise interest rates multiple times this year.

For an industry stock, Timken has been remarkably stable. Over the past 30 years, it has recorded 27 times profits. And I expect the economy to run hot for a while. The bad-tasting medicine from the Fed may slow it down eventually, but the medicine takes a while to work.

Banks want long-term interest rates to stay well above short-term rates. They “borrow short and lend long,” paying short-term rates on savings and checking accounts, and collecting long-term rates on mortgages and business loans. Investors are worried about whether the yield curve will be satisfactory. This is one of the reasons why Capital One Finance

COF
the stock has barely budged from a year ago.

I assume that the yield curve will remain correct. Either way, this bank stock looks attractive to me at five times earnings and less than book value (company’s net worth per share).

The record

Over the years, Old Faithful has proven to be a useful source of action ideas for my business and our clients. Once a year, I’ve highlighted some Old Faithful stocks in this column. Over 19 years, my Old Faithful picks in the column have averaged a gain of 21.0%, compared to 7.7% for the Standard & Poor’s 500 Total Return Index. The picks have shown a profit over the course of 14 of 19 years and have also beaten the index 14 times.

Keep in mind that the results in my column are hypothetical and should not be confused with the results I get for clients. Also, past performance does not predict the future.

My Old Faithful picks from a year ago posted an 8.7% return, while the S&P 500 only managed a 3.4% gain. It was a mixed bag. English markets

IMKTA
performed well, up 60% including dividends, while Green Brick Partners (GRBK) is doing very poorly, down 24%.

My other three picks have single-digit returns. Allstate

EVERYTHING
increased by 8% (including dividends), Cigna

CI
returned 4% and America’s first financial (FAF) lost 5%.

Disclosure: I own DR Horton personally and for most clients. I own Intel personally and for some customers.

Share.

About Author

Comments are closed.