A Moneyball Portfolio for 2012
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So I watched ‘Moneyball’ and loved it. Now, I like baseball and used to shoot Cincinnati Reds games almost every Sunday from the dugout but I never saw the game the way Peter Brand (real name Paul DePodesta), Harvard econ grad (It's Yale in the movie), saw it. In the following quote, Peter explains to Oakland Athletics general manager Billy Beane how to take the team with the least amount of money in the league to buy players and leverage them to a historic 20 game winning streak:
“It's about getting things down to one number. Using the stats the way we read them, we'll find value in players that no one else can see. People are overlooked for a variety of biased reasons and perceived flaws. Age, appearance, personality. Bill James and mathematics cut straight through that. Billy, of the 20,000 notable players for us to consider, I believe that there is a championship team of twenty-five people that we can afford, because everyone else in baseball undervalues them.”
There are thousands of stocks and using various themes I came up with five, all with dividends, steady players, none too flashy with PEGs as close to 1.0 as possible. All are big boys with over $7 billion market caps. Some of these are also held by the Vanguard Dividend Appreciation ETF (VIG) or the Horizon Kinetics ISE Wealth Index (RCH); these funds buy stocks whose CEO’s have strong holds of their stocks and that have made most of their wealth and continue to make it from the stock. In other words, the CEOs have skin in the game. (Not like the way Pete Rose had skin in the game).
And the roster is… Blackrock, Las Vegas Sands, Family Dollar and United Technologies and Coach. All with yield, all with PEG’s close to 1.0 and none at 52 week highs or lows. All playing a separate position in the portfolio; finance, gaming, low end retail, aerospace and high end retail.
Who’s On First
First up is BlackRock Inc (NYSE: BLK) an investment manager headed by famed investor, Larry Fink. The company has a 1.06 PEG and a 3.50% yield. The ex-dividend date is coming up on August 30. BlackRock has an operating margin of 37.22% and a better than the industry net profit margin of 24.90%. Shareholders were pleased to hear on August 1 that CEO Larry Fink has no intentions to leave and that the business has been divided into five segments, Alpha Strategy, Beta Strategy, Multi-Asset Strategy, Alternative Strategies and Trading and Liquidity Strategies.
BlackRock is only up 7.22% in the last year and is trading in the middle of its 52 week range of $137.00-$209.37. Mr. Fink owns 1,335,432 shares and institutions hold 85% of shares, 5% are held by insiders and the short share of the float is 1.10%.
Next up is Las Vegas Sands Corp (NYSE: LVS), whose CEO and founder Sheldon Adelson, along with his wife, owns over 88 million shares, and trusts in Adelson’s name own about 100 million more. This is one held by the aforementioned Horizon Kinetics ISE Wealth Index. Las Vegas Sands is trading near the lower end of its 52 week range and seems to have gotten in another bit of legal trouble holding money in a high roller account for two people whose gains were found to be ill-gotten. Again, “I am shocked..shocked,” but this is really par for the course for casinos. And there is the continuing saga of the former Sands China CEO suing and accusing Las Vegas Sands of corruption, but this suit has been going on for over a year.
Las Vegas Sands has a PEG of .84 and a yield of 2.50%. The company is the biggest US based player in Macau and Singapore has US properties in Las Vegas and Bethlehem PA; it is planning on a Vegas-like property in Spain as well. I would actually consider this the most speculative name of this group as growth in Macau has slowed from its torrid 2011 level and the company has debt but this is a name that is always growing and expanding. I think Adelson is a name you can bank on. This is like David Justice in Moneyball. Adelson’s getting on and you are paying less for Las Vegas Sands but you are paying for a truly seasoned player.
Family Dollar Stores, Inc. (NYSE: FDO) is the smallest of these but it is also held by the Wealth Index because CEO Howard Levine owns 4,246,305 shares. Its PEG is 1.21 and it has a yield of 1.30%, the only one of the three dollar store chain that does. It is also a low beta name at .41. The company runs 7,200 stores in 45 states.
Institutions hold 93% of the shares and insiders hold 9%. This one is up 33% over the last year but is still trading below its 52 week high of $74.73. While it too has more debt than one would like it has been a solid performer and with plans to add tobacco and more refrigerated and frozen products to the stores that should drive traffic. The company also plans on doubling the number of Family Dollar private branded products.
Up at bat is United Technologies Corp (NYSE: UTX) which is held by the VICEX, the vice fund, as well as Vanguard’s dividend fund (VIG). It is the largest ($70.23 billion market cap) and oldest of all these companies, founded in 1934, is the most diversified and closest to an actual conglomerate with Carrier HVAC, Otis elevators, UTC Fire and Security for the building industries and the rest, Pratt and Whitney, Hamilton Sundstrand, Sikorsky all pertaining to aerospace and military aerospace manufacturing.
CEO Louis Chenevert holds 376,788 shares and of note, fellow Billy Beane Portfolio team player BlackRock owns close to $2 billion worth of United Technologies. 84% of shares are held by institutions. United Technologies yields 2.80%, has a PEG of 1.41 and is up 10.45% for the last year and is also trading below its 52 week high of $87.50. The company also acquired Goodrich Corporation, and this is another bonus for stockholders as it strengthens the deep bench United technologies has in aerospace. More good news was announced on August 9 that the company just won an order for 19 Sikorsky helicopters to Milestone Aviation Group, Inc. for use on offshore drilling work. As oil, gas and the housing industries recover this one will be a very dependable player.
And playing clean up is Coach, Inc (NYSE: COH), maker of men’s and women’s accessories and considered a high end retail name. Coach is paying a 2.20% yield with a PEG of 1.04 and trading at $55.06, well below its 52 week high of $79.70. CEO Lew Frankfort holds 2,070,849 shares and institutions hold 91% of shares .
Coach has little debt of $23.36 million compared to its total cash of $917.22 million. While this is a fashion name, it is not a faddish name as women continue to covet their accessories year after year.
Coach has a strong international presence especially in Asia and news on that front will move the stock, but this is a compelling hold for the long term.
I hope to add four more players soon to my Billy Beane Moneyball portfolio but you can’t build a team overnight and I think this is a solid start for a portfolio you can hold for more than a single season. All are good team players and all add different strengths, but they all have one thing in common: Their CEO's believe in them. This is just the beginning of building a championship portfolio.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach. Motley Fool newsletter services recommend BlackRock and Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.