In the course of writing for The Motley Fool, I've told readers that quite a number of stocks looked attractive to me. That's not all that unusual for a financial commentator -- Jim Cramer makes, what, 600 or so calls every night on Mad Money?
What is unusual is that, like many of my fellow Foolish writers, I try to keep myself accountable for the stocks that I give a thumbs-up by literally giving them a thumbs-up in my Motley Fool CAPS portfolio. As is the nature of stock picking, I've been right a good number of times, but I've also had my share of whiffs.
Today, I'm going to take a look back at five of my past picks to determine whether they're still worthwhile investments today.
Currently the oldest pick in my CAPS portfolio, UnitedHealth is a massive U.S. health insurer. Since my September 2006 thumbs-up on the stock, it's done slightly worse than the S&P 500, posting a 7.8% loss versus the S&P's 6.1% decline. Health insurers face some definite uncertainty from regulatory changes to the U.S. health care system, but UnitedHealth has size, brand, and reach that'd be tough for an up-and-comer to easily match. The stock is trading at roughly 10.5 times trailing earnings and since 2006 the company has gotten much more generous about its dividend -- though a 1.3% yield is nothing to crow about. If the stock weren't already in my portfolio, I'd be down to add it today.
Oh my. My, oh my. I was a believer. I really liked the Eddie Lampert story -- that he was going to leverage Sears' extensive real estate, use his investing expertise, and turn Sears into something that looked like Berkshire Hathaway
Bank of America
The view from today suggests that giving B of A a thumbs-up in 2006 was about as smart as sticking a fork in a socket while standing in a swimming pool. Today, I don't see B of A as a great bank that I'd like to own over the long term, but I do like it as a flier that's valued so low that it could register big gains.
I'm going to deem my previous call on B of A -- based on the idea that it was a good bank -- a miss. So I'll be ending my pick and restarting a new pick under my new thesis.
Verdict: (Speculative) Buy.
When I first picked HollyFrontier in 2008, it was still just Holly Corp., a small refiner that was getting hammered by high and still-rising oil prices. At the time, the fast rising feedstock prices were crushing the margins of refiners around the world. I was bullish on a margin turnaround -- they tend to be cyclical -- and bullish on Holly in particular because it was attractively priced and a well-run company with a history of smart capital allocation. How times have changed. Today, HollyFrontier is a multibillion company -- not the largest refiner, but certainly no small-fry -- and while refining margins aren't at record levels, they've drastically recovered from their low levels.
Where does that leave me with HollyFrontier's stock? Wishing that I had revisited the stock earlier this month. Since early September, the stock has fallen by nearly a third, making it a much less attractive sell candidate. While the company doesn't have the slingshot potential from low refining margins at this point, it does still have Matthew Clifton -- the former Holly CEO -- as executive chairman, so I have comfort that it'll continue to be a well-run company. However, I'm not sure I'd jump to be a new buyer of HollyFrontier today.
Business development companies, or BDCs, like American Capital are investors, and so the thesis for investing in a BDC is almost always going to have a similar theme: Belief in the investment prowess of the team. BDCs make debt and equity investments in small companies and investors benefit through dividends paid by the BDC as well as capital appreciation of the investments. In 2008, I thought the team at American Capital had a good portfolio and would be able to navigate the tough times. I was wrong. Today the shares look cheap based on American Capital's net asset value ($13.16 as of June 30), but without confidence in the investing team, I'd just be hoping that the stock closes the gap to reported NAV. Unfortunately, "hope" is often a four-letter word for investors.
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