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.