October 7, 2024 (Maple Hill Syndicate) –- “I can only buy on train wrecks,” famed money manager John Neff
once said.
Neff's lament was that his fund (the Windsor Fund) had grown so large that he normally couldn't buy a stock
without pushing the price up. Accordingly, he felt that he could only buy on bad news.
Most of us don't have the problem that afflicted Neff. But buying good stocks on bad news is a wise investment
technique for almost anyone.
That's the goal of my quarterly Casualty List. It comprises stocks that have been roughed up in the latest
quarterly, and that I think can bounce back strongly.
In the third quarter, the stock market was up but many stocks still took it on the chin. Here are four that I
feel have excellent recovery potential.
Occidental
Occidental Petroleum Corp. (OXY, Financial), based in Houston, Texas, is on investors' radar because Berkshire Hathaway, run by Warren Buffett (Trades, Portfolio), owns about 28% of its stock. Betting with Buffett, often
considered the premiere investor in the U.S., is often a good idea.
But investors went the other way in the third quarter, knocking down a slew of oil stocks as the price of oil fell
from $83 a barrel to $69. OXY fell 18% in the quarter.
I believe that oil and gas will be energy mainstays for the U.S. well into the 2030s. In addition, the war between
Israel and its neighbors poses a risk to world oil supplies – a risk that I don't believe is fully reflected in the price of oil as of early October.
Humana
Humana Inc. (HUM, Financial), with headquarters in Louisville, Kentucky, is one of the country's largest health
insurers. Its strength – and its weakness, too – is that it specializes in insurance for people covered by Medicare, Medicaid, and the U.S. military program called Tricare.
Reliant on the government, Humana was grievously hurt when the Centers for Medicare and Medicaid Services gave many of its health plans low grades in a review in early October. This could cripple future enrollment in Humana's plans. The shares dropped 12% on October 1 after falling 15% in the third quarter.
This is terrible news, but Humana has been profitable for 24 years in a row. Over the past decade, it has grown
its revenue by close to 12% per year. I think that management, led by new CEO Jim Rechtin, can probably right the ship.
Amkor
Amkor Technology Inc. (AMKR, Financial) does semiconductor testing and packaging. Its largest customers are Apple Inc. (AAPL, Financial) and Qualcomm Inc. (QCOM, Financial). Apple alone is nearly 28% of sales.
The word Amkor stems from America and Korea. The company was founded in Korea in 1968 and now has its
headquarters in Tempe, Arizona.
In the past year Amkor's sales fell about 8%, and profits (always more volatile than sales) dropped about 34%.
As a result, Amkor shares fell 23% in the third quarter. Of the 10 analysts who cover it, six rate it a “buy.”
Visteon
Visteon Corp. (VC, Financial), out of Buren Township, Michigan, is an auto-parts maker that Ford Motor Co. spun off in
2000. Today Visteon sells parts to Ford, BMW, Honda, Mazda, Nissan, Renault, and Ford's longtime arch rival General Motors. Instrument clusters and electronics are its specialties.
The stock fell 11% in the third quarter after sales dipped slightly. More than 80% of new cars are financed,
and interest rates in the past year have fairly high. Now the Federal Reserve is moving to reduce rates, which I figure will help car sales.
The Record
This column is the 86th
one in my quarterly Casualty List series. One-year returns can be calculated for 82 columns.
The average 12-month return on my recommendations has been 14.9%, compared to 11.3% for the Standard & Poor's 500 Total Return Index.
That's good news. The bad news is that only 39 of the 82 columns have beaten the S&P 500. So far, fifty-two
have shown a profit, and 30 a loss.
Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients.
Also, past performance doesn't predict the future.
My picks from a year ago racked up a 33.6% return. That makes me happy, but it failed to beat the surging S&P, which came in at 35.1%.
My best pick from a year ago was RTX Corp. (RTX, Financial), up 78% as geopolitical tensions and wars sparked a rise in
defense stocks. My worst pick was United Parks and Resorts Inc. (PRKS, formerly SeaWorld Entertainment Inc.), up 7%.
Disclosure: I own Apple shares personally and for most of my clients. I own Amkor Technology personally and
for some clients. My wife, a portfolio manager, owns Qualcomm personally and for some of her clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts. He or his clients may own or trade securities discussed in this column. He can be reached at [email protected].
