In today’s tumultuous market climate, it’s hard to know what stocks to hold. But the stocks of outstanding companies always deserve a look.
Consider the members of my 30-30 Club. In baseball, the 30-30 Club includes players who hit 30 home runs and steal 30 bases in a year. My 30-30 club is for companies that score a return on equity of 30% or more and grow profits at a 30% annual clip for five years.
This year, 21 stocks made the roster, the fewest in several years. I admire all of these companies, and recommend four of the stocks. Some of the others are too pricey for my taste.
Powell
Powell Industries Inc. (POWL) makes large-scale equipment for the transmission and control of electricity. There is a consensus in the U.S. that the power grid needs improvement, and I figure that bodes well for Powell.
Only three Wall Street analysts follow Powell (two like it, one doesn’t). I love the fact that the company is debt-free and I think the stock is modestly priced at 13 times earnings.
Trade hostilities shouldn’t hurt this stock much. The vast majority of its business is in the United States, with a bit in Canada and a touch in Europe and Africa.
Crocs
Crocs Inc. (CROX), on the other hand, stands to be flattened by the trade wars. It shoes (you know, the ones with holes) are made mostly in China and Vietnam. President Trump has threatened China with a 145% tariff, and Vietnam with a 46% tariff.
That’s why Crocs shares have fallen below $93 from a high near $160 last year. It’s an utter speculation, but if you believe that the U.S. is prepared to strike trade deals, even with China, the gamble could pay off. The stock sells for a paltry six times earnings.
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DocuSign
DocuSign Inc. (DOCU), which allows people to execute documents on the Internet instead of with paper and ink, used to have a lot of debt. I sold this stock short in 2022, betting on a decline.
I made money on that short sale, but I unwound it in early 2024. I felt that DocuSign was providing a needed service, and would grow. And grow it has, increasing revenue 20% a year over the past five years.
It has also cleaned up its balance sheet, and now has hardly any debt. The stock sells for about 15 times earnings.
Sterling Infrastructure
The biggest position in my clients’ portfolios (and my own) in 2023 and 2024 was Sterling Infrastructure, which traditionally built bridges, highways, and airports. In recent years it has started to specialize in data centers.
The stock has gained 428% in the past three years, but is down 18% this year (through April 11). As the stock became expensive in 2024, I trimmed it from a 10% position down to a 4% holding. With the recent market slide, it seems decently valued to me at about 17 times earnings.
Honorees
In addition to the four stocks I recommend, I want to honor the other companies that achieved membership in the 30-30 club. The best known is Netflix Inc. (NFLX). I consider it a wonderful company but the stock is too expensive for me at 46 times earnings.
Other big companies that made the roster are Albertsons Companies Inc. (ACI), Arista Networks Inc. (ANET), Chipotle Mexican Grill Inc. (CMG), Coca-Cola Consolidated Inc. (COKE), Comfort Systems USA Inc. (FIX), Insulet Corp. (PODD), Ross Stores Inc. (ROST), and TJX Companies Inc. (TJX).
Other honorees are Blackline Inc. (BL), Churchill Downs Inc. (CHDN), InterDigital Inc. (IDCC), Kinsale Capital Group Inc. (KNSL), Lantheus Holdings Inc. (LNTH), Medpace Holdings Inc. (MEDP) Murphy USA Inc. (MUSA), Texas Roadhouse Inc. (TXRH).
The Record
Before today’s column, I’ve written 22 columns about the 30-30 Club. The average gain on my recommendations in this series has been 16.01%, almost double the 8.16% average for the Standard & Poor’s 500 Total Return Index.
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.
Of the 22 columns, 12 were profitable and 12 beat the index.
The recommendations I made one year ago were a disaster. Their 42.7% loss was the worst showing in any year since I started this series in 1999. The worst loser was Atkore Inc. (ATKR), which plummeted 71%. My best pick was Cisco Systems Inc. (CSCO), which rose 14%.
Disclosure: I own Sterling Infrastructure personally and for almost all my clients. My wife Katharine Davidge, who is a portfolio manager at my firm, owns Lantheus for some clients.
