Believe it or not, 2013 is already half over. And that means one thing for us: it’s time to check in on the performance of our Dick Davis Digest Top Picks for 2013.
At the beginning of every year, we ask our Dick Davis Digest contributing experts to send us their single favorite investment idea for the coming 12 months, and we publish all their ideas in a special Top Picks issue. This year, we partnered with thestockadvisors.com so we could include the best ideas of even more investing experts.
Then, in July, we ask the experts for updates on their Top Picks: what has the stock done so far, and is it still a good buy? Many recommend holding or buying more, and a few always recommend taking profits or cutting losses. Some choose new Top Picks for the second half of the year, because their original Top Pick has become overvalued, or because it hasn’t lived up to their expectations.
We share all their updates with our subscribers, but we also like to add a competitive element. I calculate the total return of all the Top Picks, from the date the Top Picks issue was published (January 16 this year) to the date of the mid-year update issue. Then I do the same thing at year-end. The analysts who chose the best-performing Top Picks get recognition and public acclaim.
So, without further ado, here are your mid-year leaders for the title of best performing Dividend Digest Top Pick of 2013:
In third place, with a total return (price appreciation plus dividends) of 37%, is regional bank stock C&F Financial Corp. (CFFI). CFFI was chosen by Douglas Hughes of Hughes Investment Management, for the second year in a row. As his Top Pick for 2012, CFFI racked up the third-largest gain of the year, soaring from $28 to $40. Hughes chose it again for 2013, and it has rewarded his loyalty by pressing onward to $57.
However, Hughes thinks CFFI is now “fully priced,” and recommends taking your profits here. As a replacement, he recommends Teche Holding Company (TSH), another regional bank stock that looks a lot like CFFI 18 months ago (and yields 3.3%). Here’s his recommendation:
“[CFFI was] just a homerun the past year and a half, and with so many other banks still not moving, we can deploy funds into much better risk/reward ratios today. Teche Holding Company (TSH), while near an all-time high, just reported another great quarter. Their markets [in Louisiana] are all doing very, very well. It is really a great part of the U.S. to work in: oil and gas is booming down there, as well as many other sectors. The bank has bought back 56% of its stock since going public and has another 3% buyback in place. Strong loan growth and deposit growth [and the] net charge off at 0.05%, we can live with that. Net interest margins have been dropping but are still strong at 3.78%.
“[TSH is currently] trading at book value, it has to be worth $70 in a sale and you get paid 3.5% to wait. They are opening new locations and will be a billion-dollar bank next year, when they might sell out! If there are any shares left then, earnings power is there to add another $1.00+ a share in earnings if they do sell out, and since growth is hard to find, someone will come after them sooner than later. Banks getting sold for good prices have a few things in common: great asset quality, strong growth, and shareholder-friendly management that is smart. [The bank is] 80 years old, insiders own a ton of its shares and the ESOP (Employee Stock Ownership Plan) owns a ton also. Solid bank working for shareholders and employees, good guys. Trades enough, but use limits.”—Douglas Hughes, Hughes Investment Management, 6/13/2013
I look forward to seeing what TSH does between now and year-end.
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The second-best performing Dividend Digest Top Pick was also originally selected for its value. With a six-month total return of 38%, Gannett Co. Inc. (GCI) earns the silver medal at mid-year.
GCI was chosen as a Top Pick by Shortex Market Letter Editor Joseph Parnes. At the beginning of the year, he pointed out that the stock’s P/E of 10.91 was way below its past P/E of 25, and that the short interest of 24.85 million shares (10.6% of the float) reflected a high level of skepticism surrounding the stock. Winning over the skeptics, he theorized, would drive the stock’s ascent. He set a near-term objective of 22 and an intermediate-term objective of 28.
GCI took quite some time to overcome his near-term objective—the 22 level acted as resistance for several months. But then in June GCI announced that it was acquiring Belo Corp., making it one of the country’s largest broadcast companies. The stock soared to 26, where it is consolidating today. Here’s Parnes’ mid-year update:
“The publisher/owner of USA Today rocketed to new highs with doubling its broadcast portfolio by acquiring Belo. Trading at a P/E of 12.79, [GCI] warrants P/E ratio expansion. Break out through secondary resistance at 21-22; the upped-gap at 22-24 may not be filled due to accumulation/short covering.”—Joseph Parnes, Shortex Market Letter, July 2013
Finally, we have the best-performing Top Pick so far—which was also a value stock!
The (mid-year) gold medal goes to J. Royden Ward, chief analyst of Cabot Benjamin Graham Value Letter.
In the first six months of the year, his pick, The Kroger Co. (KR) delivered a total return (price appreciation plus dividend payments) of 47%.
However, KR is no longer undervalued, according to Ward. In fact, the stock just hit his minimum sell price this week, and he now recommends taking profits.
But, he did just recommend a replacement. With a P/E of only 11.1, Ward says his new Top Pick is “clearly undervalued” and has lots of potential upside. Dividend Digest subscribers will be learning the name of this stock early next week, and you can too, if you subscribe now.
And, if you subscribe today, we’ll also send you the Top Picks update issue we just published, with all the mid-year updates and the new second-half Top Picks I mentioned above. Just click here to learn more.
Next time, I’ll take a look at the best-performing Investment Digest Top Picks thus far. There were some great performances there too.
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Editor of Investment of the Week
P.S. It’s not too late to profit from the high-yielding stocks featured in the Top Dividend Picks for 2013 Mid-year update as our experts are continuing to hold their 2013 picks for more dividends and more upside potential and many of their picks are at excellent buying points.
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