Friday, May 02, 2008

Thinking Big

Great Big Stocks

Wow. MFI is working in the larger cap arena. I ran an eye-popping analysis against my tracking portfolios. Recall that my monthly tracking portfolios are the 50 top stocks over 100 million in market cap. Overall, (including open and closed portfolios) the monthly tracking portfolios are essentially flat while the Russell 3000 benchmark is tracking along at 4.6% annual returns. Not good for the formula.

But as I have commented before, larger cap stocks in the formula have fared better. Today I decided to quantify how much better. I did not try to “rig” the results. I ran it two ways: (1) picking the top 5 stocks in market cap each month and holding for a year and (2) picking the top 7 stocks in market cap and holding for a year. I picked 5 and 7 as the book recommends picking 5 to 7 stocks from the list several times a year.

If you picked the largest 5 stocks, you would be up a snappy 20.7% which is an annual rate of return of 10.6%. Sliding down and picking the largest 7 would water down your results to +13.1%, a respectable 6.8% per year. If you bought the S&P 500 you’d be up 5.6% per year. Here is the list of stocks you’d have bought in the top 5 version:

Date

Stock

Start

End

Gain

Cap

1/6/2006

HRB

$ 24.22

$ 22.95

-5%

8,327

1/6/2006

KG

$ 17.95

$ 16.20

-10%

4,779

1/6/2006

AEOS

$ 15.90

$ 32.32

103%

3,503

1/6/2006

DLX

$ 29.62

$ 26.21

-12%

1,685

1/6/2006

MVL

$ 16.69

$ 26.75

60%

1,488

2/17/2006

INTC

$ 20.29

$ 21.26

5%

117,016

2/17/2006

MMM

$ 72.04

$ 76.66

6%

53,048

2/17/2006

GIS

$ 47.67

$ 57.92

22%

16,453

2/17/2006

GPS

$ 18.50

$ 19.99

8%

14,996

2/17/2006

PD

$ 70.56

$123.80

75%

14,394

3/29/2006

nue

$ 51.10

$ 65.56

28%

15,438

3/29/2006

gci

$ 58.14

$ 55.97

-4%

13,693

3/29/2006

pcu

$ 37.54

$ 71.15

90%

11,351

3/29/2006

fcx

$ 56.65

$ 64.70

14%

11,161

3/29/2006

hrb

$ 21.70

$ 21.55

-1%

7,036

4/7/2006

UST

$ 39.82

$ 60.07

51%

6,474

4/7/2006

AEO

$ 19.84

$ 29.90

51%

4,423

4/7/2006

KG

$ 17.58

$ 19.99

14%

4,274

4/7/2006

CHKP

$ 18.50

$ 22.69

23%

4,190

4/7/2006

FTO

$ 29.12

$ 33.16

14%

3,213

5/12/2006

DELL

$ 24.02

$ 25.75

7%

53,540

5/12/2006

MOT

$ 21.43

$ 18.19

-15%

51,951

5/12/2006

FCX

$ 62.11

$ 72.60

17%

12,291

5/12/2006

KMG

$ 50.00

$ 70.47

41%

11,370

5/12/2006

UST

$ 40.75

$ 55.50

36%

6,626

5/31/2006

PCU

$ 38.91

$ 86.88

123%

11,964

5/31/2006

AEO

$ 21.60

$ 27.09

25%

4,816

5/31/2006

CHKP

$ 19.30

$ 23.51

22%

4,371

5/31/2006

KG

$ 17.78

$ 21.44

21%

4,323

5/31/2006

BVF

$ 23.43

$ 24.21

3%

3,876

6/30/2006

MOT

$ 20.01

$ 17.83

-11%

48,495

6/30/2006

HRB

$ 23.29

$ 23.29

0%

7,600

6/30/2006

AEO

$ 22.60

$ 25.49

13%

5,039

6/30/2006

FDG

$ 29.02

$ 31.74

9%

4,372

6/30/2006

KG

$ 17.00

$ 20.50

21%

4,133

7/31/2006

PCU

$ 45.02

$111.99

149%

13,480

7/31/2006

FCX

$ 52.93

$ 93.77

77%

10,475

7/31/2006

HRB

$ 22.21

$ 20.10

-10%

7,245

7/31/2006

AEO

$ 21.82

$ 24.85

14%

4,865

7/31/2006

KG

$ 17.02

$ 17.02

0%

4,138

8/31/2006

TCK

$ 33.07

$ 41.15

24%

14,422

8/31/2006

FCX

$ 56.28

$ 85.10

51%

11,176

8/31/2006

HRB

$ 20.50

$ 19.50

-5%

6,688

8/31/2006

FDG

$ 27.11

$ 32.80

21%

4,165

8/31/2006

KG

$ 16.22

$ 15.61

-4%

3,944

9/28/2006

TCK

$ 31.81

$ 47.56

50%

13,871

9/28/2006

FCX

$ 52.46

$106.80

104%

10,416

9/28/2006

KG

$ 16.86

$ 11.81

-30%

4,099

9/28/2006

FDG

$ 24.33

$ 38.38

58%

3,738

9/28/2006

FTO

$ 26.32

$ 42.05

60%

2,910

10/27/2006

ACN

$ 32.49

$ 38.90

20%

19,142

10/27/2006

NUE

$ 56.02

$ 62.64

12%

17,362

10/27/2006

TCK

$ 38.06

$ 49.32

30%

16,597

10/27/2006

FCX

$ 58.24

$115.95

99%

11,564

10/27/2006

LRCX

$ 48.74

$ 48.75

0%

6,910

11/29/2006

MOT

$ 21.71

$ 15.54

-28%

52,943

11/29/2006

ACN

$ 32.85

$ 34.84

6%

19,561

11/29/2006

NUE

$ 57.60

$ 54.76

-5%

17,852

11/29/2006

TCK

$ 37.12

$ 36.43

-2%

16,185

11/29/2006

PCU

$ 51.22

$106.99

109%

15,586

12/28/2006

mot

$ 20.38

$ 16.11

-21%

49,679

12/28/2006

nue

$ 53.64

$ 59.97

12%

16,625

12/28/2006

lrcx

$ 51.22

$ 43.79

-15%

7,262

12/28/2006

brl

$ 50.58

$ 53.31

5%

5,381

12/28/2006

kg

$ 16.10

$ 10.21

-37%

3,914

1/26/2007

MOT

$ 18.17

$ 10.73

-41%

44,433

1/26/2007

NUE

$ 59.07

$ 54.97

-7%

18,490

1/26/2007

PCU

$ 55.60

$ 87.28

57%

17,179

1/26/2007

TCK

$ 35.56

$ 32.51

-9%

15,742

1/26/2007

FCX

$ 57.87

$ 84.22

46%

11,523

2/27/2007

MOT

$ 18.39

$ 11.01

-40%

44,965.50

2/27/2007

PCU

$ 64.49

$113.44

76%

19,923.16

2/27/2007

NUE

$ 57.67

$ 67.91

18%

18,136.02

2/27/2007

TCK

$ 34.42

$ 39.03

13%

15,233.32

2/27/2007

FCX

$ 54.91

$100.32

83%

10,982.75

3/26/2007

MOT

$ 17.75

$ 9.76

-45%

42,553.85

3/26/2007

ACN

$ 36.37

$ 35.38

-3%

21,422.05

3/26/2007

PCU

$ 66.79

$104.02

56%

20,824.28

3/26/2007

NUE

$ 62.98

$ 72.89

16%

19,609.84

3/26/2007

TCK

$ 34.91

$ 39.60

13%

14,892.36

4/27/2007

PCU

$ 77.22

$121.25

57%

24,225.31

4/27/2007

TCK

$ 37.27

$ 45.47

22%

16,360.30

4/27/2007

AEO

$ 29.39

$ 17.96

-39%

6,623.03

4/27/2007

KG

$ 20.80

$ 9.17

-56%

5,057.54

4/27/2007

ENDP

$ 31.40

$ 24.80

-21%

4,195.07

5/29/2007

AMAT

$ 19.03

$ 19.51

3%

26,833.95

5/29/2007

PCU

$ 82.78

$109.97

33%

25,535.66

5/29/2007

NUE

$ 63.54

$ 73.82

16%

19,909.45

5/29/2007

TCK

$ 39.69

$ 42.65

7%

17,419.60

5/29/2007

DGX

$ 47.93

$ 50.49

5%

9,301.52

7/3/2007

TCK

$ 42.42

$ 42.65

1%

18,429.68

7/3/2007

NUE

$ 57.61

$ 73.82

28%

17,863.89

7/3/2007

LRCX

$ 51.69

$ 42.69

-17%

7,091.14

7/3/2007

AEO

$ 25.39

$ 18.99

-25%

5,656.32

7/3/2007

FTO

$ 45.99

$ 26.09

-43%

5,088.53

7/30/2007

TCK

$ 42.99

$ 42.65

-1%

18,677.92

7/30/2007

NUE

$ 51.07

$ 73.82

45%

15,836.44

7/30/2007

AEO

$ 24.50

$ 18.99

-22%

5,458.62

7/30/2007

FTO

$ 38.44

$ 26.09

-32%

4,253.30

7/30/2007

KG

$ 17.02

$ 9.65

-43%

4,144.42

8/30/2007

PCU

$100.15

$109.97

10%

30,403.62

8/30/2007

TCK

$ 40.42

$ 42.65

6%

17,203.88

8/30/2007

FRX

$ 37.59

$ 34.90

-7%

11,962.90

8/30/2007

AEO

$ 25.04

$ 18.99

-24%

5,579.44

8/30/2007

FTO

$ 39.39

$ 26.09

-34%

4,255.26

9/27/2007

TCK

$ 46.85

$ 42.65

-9%

19,941.91

9/27/2007

FRX

$ 37.46

$ 34.90

-7%

11,921.53

9/27/2007

HOG

$ 45.77

$ 39.53

-14%

11,665.73

9/27/2007

ABC

$ 44.53

$ 41.45

-7%

8,078.37

9/27/2007

AEO

$ 25.95

$ 18.99

-27%

5,678.54

11/2/2007

ACN

$ 38.40

$ 38.38

0%

22,883.37

11/2/2007

TCK

$ 47.82

$ 42.65

-11%

20,352.82

11/2/2007

MHP

$ 45.99

$ 41.75

-9%

15,278.76

11/2/2007

AEO

$ 22.32

$ 18.99

-15%

4,883.72

11/2/2007

FTO

$ 45.17

$ 26.09

-42%

4,874.99

11/28/2007

ACN

$ 34.85

$ 38.38

10%

20,767.85

11/28/2007

FRX

$ 37.88

$ 34.90

-8%

11,874.13

11/28/2007

AEO

$ 21.84

$ 18.99

-13%

4,777.60

11/28/2007

FTO

$ 42.91

$ 26.09

-39%

4,557.85

11/28/2007

RHI

$ 25.51

$ 24.38

-4%

4,125.08

12/28/2007

ACN

$ 36.88

$ 38.38

4%

21,977.57

12/28/2007

MHP

$ 43.63

$ 41.75

-4%

14,429.94

12/28/2007

FRX

$ 37.16

$ 34.90

-6%

11,648.43

12/28/2007

AEO

$ 20.44

$ 18.99

-7%

4,402.84

12/28/2007

FTO

$ 41.03

$ 26.09

-36%

4,352.41

1/25/2008

ACN

$ 33.86

$ 38.38

13%

20,251.02

1/25/2008

AEO

$ 21.35

$ 18.99

-11%

4,597.80

1/25/2008

RHI

$ 23.22

$ 24.38

5%

3,754.75

1/25/2008

FTO

$ 32.88

$ 26.09

-21%

3,488.28

1/25/2008

SAI

$ 18.42

$ 19.48

6%

2,855.10

2/26/2008

ACN

$ 36.36

$ 38.38

6%

21,746.22

2/26/2008

AEO

$ 23.15

$ 18.99

-18%

4,985.60

2/26/2008

GIB

$ 11.08

$ 11.48

4%

3,585.31

2/26/2008

KG

$ 11.03

$ 9.65

-13%

2,695.90

2/26/2008

HBMFF.PK

$ 19.90

$ 18.51

-7%

2,532.86

3/24/2008

MHP

$ 38.77

$ 41.75

8%

12498.21

3/24/2008

AEO

$ 18.38

$ 18.99

3%

3959.34

3/24/2008

ENDP

$ 23.46

$ 24.00

2%

3147.04

3/24/2008

KG

$ 9.09

$ 9.65

6%

2235.58

3/24/2008

LNCR

$ 28.12

$ 24.41

-13%

2086.34

4/25/2008

MHP

$ 40.04

$ 41.75

4%

12,907.61

4/25/2008

TRA

$ 42.00

$ 38.66

-8%

3,762.65

4/25/2008

AEO

$ 17.96

$ 18.99

6%

3,672.46

4/25/2008

ENDP

$ 24.80

$ 24.00

-3%

3,326.80

4/25/2008

FTO

$ 26.14

$ 26.09

0%

2,743.55

Now I don’t think you can conclude from this that you should go out and only buy large cap stocks. I think you can conclude that the recent 12 months has been disproportionately hard on small caps.

So what would be on today’s list? Here are the Top 7:

American Eagle Outfitters Inc.

AEO

3,883.08

Terra Industries Inc.

TRA

3,463.43

Frontier Oil Corp.

FTO

2,738.30

King Pharmaceuticals Inc.

KG

2,373.30

Holly Corp

HOC

2,194.09

Sotheby's

BID

1,901.73

Biovail Corp

BVF

1,866.27

I own 5 of the 7, I suppose I should be proud. It is interesting that the largest current right now is $3.9b. That really suggests that MFI is saying there are many more smaller cap stocks undervalued. So again, the conclusion is not to only buy large cap stocks, but to be aware of how smaller cap stocks have been treated by the markets recently.

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