This article is part of our Rising Stars Portfolios series.
With each of us still having to remind ourselves to write "2011," I figured it still wasn't too late to look at the performance of the Messed-Up Expectations Portfolio through the end of 2010. With no further ado, here we go.
The review
|
Position
|
Purchase Price
|
12/31/10 Price
|
Gain/Loss
|
SPY on Buy Date
|
12/31/10 Gain/Loss*
|
Difference
(% points)
|
Transocean
(NYSE: RIG ) |
$63.94 |
$69.51 |
8.71% |
$118.85 |
5.81% |
2.91 |
Power-One
(Nasdaq: PWER ) |
$8.82 |
$10.20 |
15.65% |
$117.54 |
6.98% |
8.66 |
GameStop
(NYSE: GME ) |
$20.06 |
$22.88 |
14.06% |
$117.87 |
6.68% |
7.38 |
Oshkosh
(NYSE: OSK ) |
$34.84 |
$35.24 |
1.15% |
$122.64 |
2.54% |
(1.39) |
Transocean
(2nd position) |
$70.76 |
$69.51 |
(1.77%) |
$123.11 |
2.14% |
(3.91) |
Dean Foods
(NYSE: DF ) |
$8.35 |
$8.84 |
5.87% |
$125.78 |
(0.02%) |
5.89 |
| |
|
|
|
|
Average: |
3.26 |
Source: Author calculations. SPY prices are dividend-adjusted. Difference is in percentage points.
* SPY closed 12/31/10 at $125.75.
That's the blow-by-blow result. Not too bad, considering the first purchase was on Nov. 2. Using the format of our newsletters, such as Stock Advisor, the service I work for, my average position has beaten the alternative of investing in the S&P 500 (as measured by SPY) by 3.26 percentage points.
However, since this is a real-money portfolio, beginning with $5,000 with an additional $1,000 added at the beginning of December, in order to determine how the portfolio including cash performed, we have to calculate the returns using Net Asset Value (NAV), just as a mutual fund does.
Following the instructions outlined here and here, the portfolio had returned 2.68% as of the end of the year, versus the SPY's return of 5.81%. The shortfall of about 3.13 percentage points is a reflection of the drag produced by a bunch of non-deployed cash, some $3,790, well over half of what I had available to invest. Hey! It takes time to find companies where the market has messed-up expectations!
Today's look
| Company |
Last Close
|
Priced-in Expectations*
|
| Transocean |
$73.25
|
7.1% / 3.5% / 0%
|
| Power-One |
$10.44
|
0.9% / 0.4% / 0%
|
| GameStop |
$21.89
|
2% / 1% / 0%
|
| Oshkosh |
$35.26
|
(2.1%) / (1%) / 0%
|
| Dean Foods |
$8.87
|
(2%) / (1%) / 0%
|
*Displayed as priced-in expected growth of free cash flow for next five years, following five years, and terminal; calculated with 15% discount rate hurdle.
At the moment, I'm not even close to selling any of these positions. Except for Transocean, the market still expects very little of any of them today. And Transocean hasn't gotten to the point of having a "too-much growth" messed-up expectation, which would be a sell signal.
Reviewing each quickly:
- Transocean still faces dislike from its role in the Gulf spill, taking a hit when the federal government sued it and others in civil court.
- The alternative energy market is still expected to grow, which will benefit Power-One.
- GameStop just reported really good holiday sales, though it didn't raise guidance.
- Oshkosh has the defense-friendly Republican party in Congress.
- Dean Foods is expecting lower input costs and expenses to help it expand margins.
What's next
So far, I've made seven purchases of six companies -- the latest was Western Digital (NYSE: WDC ) , the stronger of the two major players in the still-expanding world of hard disk drives. I'm planning to add new holdings and expand existing holdings throughout the upcoming year, so follow along both here and at my discussion board.
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