If you joined with me and invested in some (or all) of my “13 for ’13” recommendations at the start of the new year, you may be interested to see how we have faired so far in 2013. The ride has been exciting … because it’s always more fun to ride investments up than to watch them crash down!
In my opinion, the equities market really has nowhere to go but up for the foreseeable future. For this, we can thank Ben Bernanke and the Fed, as they continue to pump billions and billions of dollars into our sputtering, debt-laden economy. I am certain this will not end well, but in the meantime, you and I should be heavily invested in stocks so that our gains can keep up with (and surpass) real life inflation.
The 13 for ’13 first-quarter portfolio results follow. To evaluate our performance, I placed hypothetical investments of $1,000 into each of the 13 stocks below and reinvested the dividends.
| Stock | Buy-in Price | Current Price | 3-Month % Return |
| MCD | $88.21 | $99.69 | 13.89 |
| TWO | $11.08 | $12.61 | 25.40 |
| SBY | $18.83 | $20.70 | 9.98 |
| CAT | $94.88 | $86.97 | -2.94 |
| SBUX | $55.70 | $56.95 | 6.58 |
| CSCO | $20.50 | $20.90 | 6.34 |
| PSEC | $11.23 | $10.91 | 3.41 |
| HCSG | $23.50 | $25.63 | 11.05 |
| BP | $43.40 | $42.35 | 3.00 |
| BX | $16.76 | $19.78 | 29.57 |
| AAPL | $523.90 | $442.66 | -16.32 |
| VFC | $149.38 | $167.75 | 11.69 |
| TGP | $39.69 | $41.43 | 11.45 |
| 13 for ’13 | 9.68 | ||
| S&P 500 | 10.03 |
As you can see from the table above, our 13 for ’13 portfolio is neck-and-neck with its closest index marker: the S&P 500. The results are slightly misleading as I used the publication dates of my three different 13 for ’13 articles as starting points for our stocks. This means that several of the later stock picks missed many days of gains in early January, which were included in the S&P 500 index fund.
Even with those missed days, we are still returning 10%. This is a very strong start for risk-averse, value-oriented investors like ourselves, as compounding of our reinvested dividends will lead to market-crushing results over the mid- and long-term!
Our biggest winners have been The Blackstone Group (NYSE: BX) and Two Harbors Investment (NYSE: TWO), rising 29.6% and 25.4%, respectively.
Blackstone is coming off a record year in 2012 with annual revenues of greater than $4 billion and net income of $2 billion. Its assets under management have reached more than $210 billion, up 26% from 2011. It remains one of the best ways to play the recovering housing market, boasting $57 billion of real estate private equity assets. Its purchases of undervalued properties across the distressed U.S. housing market will pay big dividends to them–and to us, the shareholders–for many years to come. Even after a nearly 30% rise, BX remains a great mid- to long-term investment for us.
Two Harbors has undergone an unusual, but anticipated stock-split. In doing so, it dropped its most recent quarterly dividend to $0.32, but also spun-off shares of Silver Bay Realty Trust (NYSE: SBY) to current Two Harbors shareholders. This is fantastic news, as we should receive our bonus Silver Bay shares in the second quarter of 2013. If you already own Two Harbors, you don’t need to do anything other than look for your new Silver Bay shares in your brokerage account in the next month or two.
Both stocks remain smart, income-producing ways to play the recovering housing market, which should last for several years. While Two Harbors is now more streamlined as a high-yielding play on recovering property prices, Silver Bay is a pure rental-income entity. I expect good things to come from both companies.
Silver Bay’s $0.04-per-share net loss appears unsettling, but this is directly related to their massive up-front deployment of capital, which will provide sustained income over the ensuing years. It started the ball rolling by initiating a dividend of $0.01 per share, which represents the humble beginnings of large, steady and lucrative future yields. A shrewd investor might take some profits on Two Harbors and invest some of them on Silver Bay.
Our biggest dud is the infamous Apple (NASDAQ: AAPL), which has fallen 16.3%. While it is currently in every investor’s doghouse, I recommend holding onto your shares. It is the least-shareholder-friendly stock of our bunch, yet it still remains a cash-gushing value play. With current earnings per share of $44.11 and a forward price-to-earnings of 8.6, I believe most of the downside risk has been priced into AAPL shares. Though Steve Jobs is gone, his incredible legacy remains, and Apple still is good for more than a few pleasant surprises in the future. Hold your nose, enter the doghouse, and consider picking up a few more shares of Apple.
Conclusion
Our 13 for ’13 value-based portfolio is off to a fantastic start. While I don’t expect similar returns over the remainder of the year, I do think that share prices will steadily rise. The savvy investor should be aware of the Fed’s loose monetary policies and, therefore, remain heavily positioned in equities (and minimally positioned in bonds). All 13 of our stocks yet provide relatively low-risk ways to play the emerging asset bubble, with healthy capital gains and/or dividends over the mid- and long-term.
Invest wisely and accordingly.
Jeffrey W. Ross, MD is a Motley Fool investment freelancer.
*Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Hypothetical performance results presented herein are unaudited and do not reflect actual investments held by a fund managed by Vailshire. Hypothetical performance results are for illustrative purposes only and are not necessarily indicative of performance that would have actually been achieved if an investment had been made pursuant to the recommendations set forth above during the relevant periods, nor are they necessarily indicative of future performance of any strategy. There is no guarantee, express or implied, that any account will or is likely to achieve profits or losses similar to those shown.
References to market or composite indices, benchmarks, or other measures of relative market performance over a specified period of time are provided for information only. Indices are unmanaged, include the reinvestment of dividends and do not reflect transaction costs or any performance fees. Comparisons with the performance of the Standard & Poor’s 500 Index (the “S&P 500”) is for informational purposes only. The S&P 500 is an unmanaged market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Vailshire’s investment program does not mirror this index and the volatility may be materially different than the volatility of the S&P 500.
An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal.