A company with a market value of about $1 billion is small enough to grow fast, yet large enough so that it can begin to appeal to institutional investors such as pension funds.
I define large-capitalization stocks as those with a market value of $10 billion or more, mid-capitalization stocks as $1 billion to $10 billion and small-capitalization stocks as under $1 billion. So a billion dollars is right on the line between small-cap and mid-cap.
Once a year, I write about 10 stocks that straddle this line. I call it my Billion Dollar Portfolio.
The batch you’re about to read about is my 18th Billion Dollar Portfolio. The previous 17 have averaged a one-year total return (price change and dividends) of 13.5%.
That compares well with the average for the Standard & Poor’s 500 Total Return Index, which has been 11.7%. Of the 17 lists, 12 have been profitable and 11 have beaten the 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.
New picks
Let’s look at some stocks currently near the billion-dollar line.
Apogee Enterprises Inc. (APOG, Financial), with headquarters in Minneapolis, Minnesota, makes architectural glass and metal glass frames. The stock sells for about the same price as eight years ago, and I view the company as a bit of an underachiever. Yet I suspect it may be a good takeover candidate.
Global Industrial Co. (GIC, Financial), based in Port Washington, New York, distributes industrial supplies such as workbenches, pumps, fans, shelves and materials-handling equipment. Its return on stockholders’ equity (a standard measure of profitability) is very high, at 69% in the past four quarters.
Kronos Worldwide Inc. (KRO, Financial), based in Dallas, makes titanium dioxide pigments. The stock has been a dog, losing value over the past year, five years and 10 years. However, it’s down to about $9 a share -- six times earnings -- at which price I think it’s a decent speculation.
La-Z-Boy Inc. (LZB, Financial) makes reclining chairs and other residential furniture. Based in Monroe, Michigan, the company has good 10-year growth and great growth lately. (Probably the pandemic makes people stay home and feather their nests.) The stock sells for only six times recent earnings.
Malibu Boats Inc. (MBUU, Financial) is a stock I used to own and am still intrigued by. Known for performance sports boats, it has expanded through acquisitions and makes a variety of recreational boats. Profitability has been terrific, but the stock is down about 31% this year on recession fears.
Photronics Inc. (PLAB, Financial) has a nicebalance sheet: Debt is only 7% of equity. The Brookfield, Connecticut company makes photomasks, quartz plates containing micro-maps for electronic circuits. With the stock trading 39% off its high, I think it’s a reasonable bet for long-term investors.
Regenxbio Inc. (RGNX, Financial)is a biotechnology company with headquarters in Rockville, Maryland. It is working on gene therapy to correct certain genetic defects. The company has shown losses most years but had a profit in 2021. As of September seven of 10 analysts called it a “buy.”
Standex International Corp. (SXI, Financial) of Salem, New Hampshire, is a diversified manufacturer. Electronic components and engraving are two of its specialties. Over the past decade it’s shown almost no growth, but last year its sales and profits jumped. Several managers I respect have bought shares lately.
Tennant Co. (TNC, Financial) calls Eden Prairie, Minnesota home. It makes wood products, especially flooring, and floor cleaning equipment. Its profitability has waxed and waned over the years, but it’s managed to show a profit in 13 of the past 15 years. At about 1.0 times sales, it might be a takeover candidate.
Usana Health Sciences Inc. (USNA, Financial), is a direct-selling company for nutritional and beauty products. Headquarters are in Salt Lake City, Utah. It has grown sales and earnings at close to a 12% annual clip in the past 10 years. It reported a profit in each of the past 15 years, even during the recession of 2008.
Last year
My selections from a year ago fizzled. Collectively, they were down nearly 21%, while the Standard & Poor’s 500 Total Return Index was down only 16.5%. My worst selection was Johnson Outdoors Inc. (JOUT, Financial), down 55%. My best was PC Connection Inc. (CNXN, Financial), up 14%.
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.
John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at [email protected].
