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Nov 1, 2023

A Harvest Of Ten Stingy Stocks

by Norm Rothery

It was a good year for the Stingy Stocks, which advanced 37.6% since last time. The big gains came as the U.S. market recovered from its lows while battling headwinds from a string of interest rate hikes by the U.S. Federal Reserve.

Despite the gains, bargains still abound in less glamorous segments of the market. Value stocks are trading at discounts last seen near the turn of the century when they went on to enjoy a strong multi-year run. With a little luck, history is starting to repeat itself.

I’m pleased to harvest a new crop of Stingy Stocks today as part of an annual Canadian MoneySaver tradition that spans more than two decades. But, before looking at this year’s top stocks and how they’re selected, it’s worth reviewing how the portfolio has fared so far.

The Stingy Stocks outperformed the market with a 37.6% gain since my last update, which is its sixth-best showing on record. The market trailed for the third year in a row, with an advance of 22.3% for the S&P 500 since last year’s update (as represented by the Exchange-Traded Fund (ETF) SPDR S&P 500 ETF Trust (SPY.)) 

Over the long term, the Stingy Stocks climbed by an average of 13.2% per year since the portfolio began at the end of 2001. In comparison, the SPY ETF lagged the Stingy Stocks by an average of 4.8 percentage points annually over the same period with average annual gains of 8.4%.

To put that into perspective, if you had split $100,000 equally among the original Stingy Stocks at the end of 2001 and moved into the new stocks each year, your portfolio would be worth about $1,480,000. An investment in the index ETF would be worth about $570,000, which is less than half as much.

(The returns herein are expressed in U.S. dollars and do not include taxes, commissions, or other trading costs. They do include dividends, which are reinvested roughly annually when each year’s stocks are selected.)

The Stingy Stock method starts its search for good value stocks with the 500 large companies that make up the S&P 500 Index because they tend to be more financially stable than many smaller companies.

To be conservative, it sticks to firms with some earnings and some cash flows over the last year. After all, a business is less likely to go bust when it is both profitable and has some cash coming in the door.

Finally, it focuses on the top ten bargains with price-to-sales ratios of less than one while favouring those with modest price-to-earnings ratios. (I’ve also added a few more subtle touches along the way.)

The ten Stingy Stocks for the year are:

  • AIG (AIG) 
  • American Airlines (AAL) 
  • BorgWarner (BWA) 
  • Delta Air Lines (DAL) 
  • Lennar (LEN) 
  • Marathon Petroleum (MPC) 
  • Phillips 66 (PSX) 
  • Steel Dynamics (STLD) 
  • United Airlines (UAL) 
  • Viatris (VTRS) 

(By way of disclosure, I’ve owned AT&T and Phillips 66 since well before the selection of this year’s list on 15 September 15 2023.)

The portfolio sports an average price-to-sales ratio of 0.4, an average price-to-earnings ratio of 6.2, and an average dividend yield of 1.8%. All the stocks in the portfolio have price-to-earnings ratios of less than 11, based on earnings over the last 12 months. They also have price-to-forward-earnings ratios of less than 12, based on analyst earnings estimates for the next 12 months. Statistically speaking, they’re cheap.

I hope this year’s Stingy Stocks will do well, but investors must expect ups and downs along the way. After all, the portfolio declined seven times in its last 22 outings. Even worse, it fell by more than 10% on four occasions and by more than 20% two times. Unfortunately, an investor who stays in the market long enough will encounter hard times. Owning stocks is risky, and there are no guarantees of success.

As always, before buying any stock, do your own due diligence. Read the latest press releases and regulatory filings. Scan news stories for any important developments and make sure it’s a good fit for your portfolio. We live in uncertain times, but I hope the Stingy Stock portfolio will continue to fare well over the long-term.

Norman Rothery, PhD, CFA, Founder of StingyInvestor.com,Toronto, ON (416)243-9580

 stingyinvestor@bell.net, www.stingyinvestor.com