Hey again, sports fans.
At this time last year, I ran a series of articles during the NCAA Men's Basketball Tournament in tribute to the three major upset teams -- the Virginia Commonwealth Rams, the Winthrop Eagles, and the Nevada-Las Vegas Runnin' Rebels. Those scrappy sleepers inspired me to seek companies that investors were perhaps underestimating in the teams' hometowns.
To uncover the underdogs, I turned to our Motley Fool CAPS community in search of low-rated firms that I thought had the potential to beat the S&P 500 over the next 12 months. In effect, I was betting that our beloved supercomputer wouldn't necessarily pencil in a perfect bracket when it comes to calling the direction of stocks. Now that a year has passed and the "season" has come to a close, let's tally up the final results.
Round 1: Richmond, Va.
In the first installment, I sought a corporate squad with the potential to replicate the strong performance of the hometown Rams. The first company to spring to mind was beleaguered retailer Circuit City
Sure enough, the company's woes persist. Circuit City will be deleted from the S&P 500 at the end of the week, to be replaced with Altria
LandAmerica Financial hasn't fared much better. This wasn't a surprise, as a quick glance at the title insurer's financials revealed deteriorating margins and decade-high leverage. That was enough to put LandAmerica in foul trouble, and its ties to the housing market led me to keep the company on the bench. This crew has seen its share price fade as well.
Finally, I found my Cinderella. There it was, a Richmond-based company comprising two non-complementary security businesses. Brink's
So there you have it: a former two-star stock (now rated four stars) that beat the S&P 500 over the course of the year. The massive, quivering CAPS brain can't catch them all.
Round 2: Rock Hill, S.C.
We won't dwell in Rock Hill too long, for there was only one company under consideration for upset potential. That was 3D Systems, a pioneer in three-dimensional printing.
I marveled at the technology, which enables rapid prototyping of product models. My immediate thought: Rule Breaker! But after assessing the company's foibles over the years, I decided we were more likely looking at an also-ran. Head Breaker David Gardner agrees with me, and he has recommended 3D Systems' better-run rival, Stratasys
Round 3: Las Vegas
I should know better than to gamble in Vegas, but I placed my bet anyway. This town produced some big runs and some blow-ups as well, but would you expect anything less?
No, against my better judgment I was attracted to a startup discount travel operator. Yeah -- I've heard the investment cautionary tales. I was also much more wary about the economy than most investors last spring. And yet, I just couldn't shake the appeal of a small, profitable operator targeting underserved small-city travelers.
Allegiant Travel has grown rapidly. Operating margins widened to double digits in 2007, and the balance sheet is still a beauty. I'm not too surprised that this, my second upset city call, didn't beat the S&P down the stretch, as there were simply too many macro-level headwinds.
It became clear in the course of the season that CAPS tends to call the market's losers pretty well. It's a formidable opponent, but this Fool's game is no fool's game. That's why I'm coming right back with some new upset picks for the '08-'09 season. Stay tuned!
Foolish March Stock Madness: