John Dorfman: Nasdaq stocks have beaten the pants off Big Board stocks
Over the past five years, Nasdaq stocks have walloped stocks on the Big Board.
The Nasdaq Composite Index has gained 146 percent in the five years through March 16, leaving in the dust the 61 percent return on the New York Stock Exchange Composite Index.
The Nasdaq Stock Exchange is known as the home of small companies and big technology companies. It’s the tech companies, and not the small fry, that have propelled the hefty gains of the past few years.
Out on a limb
I’m going to climb out on a limb here: Nasdaq will not beat the Standard & Poor’s 500 Index or the New York Stock Exchange over the next year, or the next five years.
The Nasdaq has too many companies on it that aren’t turning a profit. And many of the companies that are doing well — the likes of Netflix Inc. (NFLX), Amazon.com Inc. (AMZN), and Facebook Inc. (FB) — are high priced.
For some strange reason, however, I have a good record in predicting the fortunes of the Nasdaq. In December 1999, I wrote a column titled, “Why Nasdaq Won’t Repeat Its Great 1999.” The Nasdaq Composite then slid 39 percent in 2000, 21 percent in 2001, and more than 31 percent in 2002.
In June 2002, I wrote, “Nasdaq’s Days as a Whipping Boy Will End Soon.” The index proceeded to post a 50 percent gain in 2003.
Whether I expect the Nasdaq as a whole to do well or badly, I usually recommend a few Nasdaq stocks every March.
One that I like now is Beasley Broadcast Group Inc. (BBGI) in Naples, Fla. It owns 52 radio stations in about a dozen cities, mostly in Florida, Georgia and North Carolina. It often owns more than one station in a city, allowing the stations to share support staff.
I’m also partial to Monarch Cement Co. (MCEM), based in Humboldt, Kan. No, there is not a more prosaic business than cement and concrete. But Monarch has been profitable every year for at least 15 years. It has more cash than debt. Monarch’s stock is basically undiscovered by analysts; if some begin to cover it, that could help the stock price.
Based in Silver Spring, Md., United Therapeutics Inc. (UTHR) develops medicines to treat pulmonary hypertension and other vascular diseases. It has been profitable in 13 of the past 15 years. Last year was decent, but profits were far off the hot pace of 2015 and 2016.
I have owned this stock twice in the past and am getting interested again. The stock price is only seven times earnings, and the return on stockholders’ equity last year was strong at about 22 percent.
I’ve recommended Michael Kors Holdings Ltd. (KORS) in the past, with poor results. The company has been struggling, but the past two quarters showed a noticeable improvement. Based in London, Kors designs and markets clothing and accessories; it subcontracts the manufacturing.
While it has labored to achieve growth, Kors has been profitable — usually very profitable — every year since it went public in 2011.
Less richly valued than most technology stocks, Cirrus Logic Inc. (CRUS) goes for only 12 times earnings. The company is debt-free, a quality I love. Based in Austin, Texas, Cirrus designs chips used in audio and voice communications.
Of the 11 analysts who cover Cirrus, only five call it a “buy.” A big concern is that the company depends heavily on Apple Inc. (AAPL), which recently accounted for about 86 percent of revenue. That’s a genuine concern, but with Cirrus shares fetching only 12 times earnings, I think it’s a risk worth running.
My Nasdaq stock picks from a year ago returned 33.5 percent, against 19.7 percent for the Standard & Poor’s 500 Index and 30.6 percent for the Nasdaq Composite Index. The best gainer was T. Rowe Price Group Inc. (TROW), originally my colleague Tom Macpherson’s idea, which returned 72.9 percent.
Intel Corp. (INTC) also excelled, with a 50 percent gain. Herman Miller Inc. (MLHR) scored 31.7 percent, AV Homes Inc. (AVHI) 8.3 percent, and Biogen Inc. (BIIB) 4.3 percent.
In 11 outings, my Nasdaq stock picks have averaged an 18.2 percent return. That beats the S&P 500, which returned 11.6 percent on average, and also edges out the Nasdaq Composite at 15.2 percent.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Disclosure: A few of my firm’s clients own T. Rowe Price and Intel. Some of my family members owns Amazon.com.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].