2011 came to a close and it was a killing spree with the 63% return generated from the 4-stock portfolio put together around this time last year.
But last year’s news is last year’s news.
This year I’m bringing back one stock and substituting in three new ones. I fully expect this portfolio to either destroy like Rock’em Sock’em Robots, or get destroyed itself. So, without further ado, here we are:
- Adams Golf (ADGF) – You have to be drunk to think I’m not bringing this back after only a modest 34% return in 2011. Truth is, this company has great management; they’re just sorely overpaid. Luckily, shareholders know what’s up, and they’re taking on the board to toss the chairman. I dig it. Even after a 34% return in 2011, this one is the most undervalued of any of my picks. The company sells for $48 million but has equity worth at least $62 million after a $7 million lawsuit in their favor.
- Ford (F) – I wrote plenty about this before in a post titled “Dear America, I bet you buy more cars soon. It’s undervalued, unfortunately the dividend dunce-cappers shunned at its .05 quarterly dividend announcement. Dividend investors annoy me.
- Transocean (RIG) – This is a longshot. The company’s rigs are older, and in need of serious maintenance next year. Plus, the firm is selling more shares at today’s paltry price because its capital structure sucks. No matter, this is a highly-levered bet – luckily it makes up only 25% of this four-stock portfolio. I like the odds and long-term discount to real value. It just needs to dig itself out of its hole.
- Darling International (DAR) – What’s not to love about a company named Darling? Not only is it named “Darling,” but it’s also in the rendering business. Yep, it turns spent animal carcasses and restaurant grease into usable materials. And I’m all about it. The only investors who aren’t excited about this one are the investors who don’t understand the concept of free cash flow yield, because this one has it. Oh – not to mention, it’s paying down acquisition debt like
a bat out of hellit’s freakin’ Dave Ramsey.
Know the Competition
Since Nelson at FinancialUproar is hosting this year’s contest, we know there’s going to be a lot of Canadians in the mix. TheFinancialBlogger, who hosted last year’s contest, is hosting another 2012 stock picking contest.
There are three things Canadians love:
- Commodity stocks
- Saying “about” like “a boot.”
So we have to mind our exposure. RIG is my substitute for Sandridge, which decided to pop after a big asset sale. Since moving up 25%, I fear it exhausted its short-run potential. I really don’t want to put RIG in there either, but I have to have some oil exposure to keep up with the Canadians. I don’t like industries without value-add—commodities are the very definition of limited value-add – but we gotta’ keep pace lest Canadians win at the game of finance. RIG is going to make me or break me, but it’ll make or break the Canadians too, since they’ll all have AT LEAST one oil stock. (Are they loyal to the team or what?)
Darling is my “private equity” play. Take that company private and reap the cash flow, baby! Besides, investors will probably give it a valuation of $18 per share if it has a repeat of 2011’s cash generation.
Ford is my undervalued but well known play. This is another to keep the pace. I bet a few people have this one in their portfolios. Europe better get its stuff together.
Adams Golf is a play on stupid management. Toss that board and we’re back at $8 per share. If the board hangs around too long then investors get diluted like a nasty batch of Kool-Aid.
So there you have it. My picks for 2012. I feel like I’m playing a whole lotta’ defense.
photo by: ukanda