Could a Tyrannosaurus see its prey if the prey held still?
I believe that is an unresolved question in paleontology. But let’s suppose the answer is no. I think there’s a parallel in the stock market.
Momentum investors will be all over a stock that’s making new highs. Value investors will avidly scrutinize stocks that have plunged. But stocks that haven’t moved? They attract far less attention.
Once a year, I write about my Do-Nothing Club, consisting of stocks that are within 5 percentage points of where they were a month ago and a year ago. Here are five Do-Nothing stocks that I think show promise of better days ahead.
Raymond James
In the past year, Raymond James Financial Inc. (RJF) generated no return for its stockholders. That’s a departure from the past decade, when the stock climbed more than 300%.
Originally known as a securities brokerage, Raymond James now gets most of its revenue from investment management. It has notched a profit in each of the past 30 years, and profits have been impressive in the past five years.
Yet analysts aren’t keen on Raymond James. Of 14 analysts who publish opinions, only five recommend it. I think the analysts are missing the boat on this one. As usual, they are putting too much emphasis on recent performance.
Gentex
Gentex Corp. (GNTX), based in Zeeland, Mich., makes car mirrors that dim automatically when headlights glare and that warn drivers of traffic in their blind spot. It also still makes smoke detectors, which were its original product. According to Wikipedia, the company owns more than 1,700 patents.
Earnings at Gentex rose more than 13% in the past four quarters. So, I think it’s a little surprising that the stock hasn’t budged. What’s more, Gentex is very close to debt free, a quality that’s rare these days.
EQT
EQT Corp. (EQT), with headquarters in Pittsburgh, is the largest natural-gas producer in the Appalachian Basin. Founded in 1884 as Equitable Gas Co., it took its present name in 2009.
The Iran war has affected oil more than natural gas. With the destruction of some refineries and pipelines in the Middle East, I expect the price of oil to remain elevated for at least two years.
That means that natural gas may gain some market share from oil in residential heating, as truck-fleet fuel and even for power generation. EQT shares go for 11 times earnings, an attractive valuation in today’s market.
Banner
Banner Corp. is the parent to Banner Bank, which has about 76 branches in Washington, 34 in Oregon, 31 in California and nine in Idaho. The stock trades for less than 11 times earnings, and I think that’s because investors are concerned about two issues.
First, the bank makes a lot of commercial real estate loans, including construction loans. People see those as relatively high-risk. Second, growth has been slow.
On the plus side, Banner has been profitable in 23 of the past 25 years (the exceptions were in the Great Recession of 2008-09). And it has very little debt, only 6% of equity.
Korn Ferry
Based in Los Angeles, Korn Ferry is a business consulting and executive-search firm. Over the past decade, it has grown its profits at better than a 10%-a-year clip. (Last year, it was about 8%.)
The stock sells for 1.2 times revenue and 13 times earnings, both attractive multiples in my opinion. The company has a 16-year profit streak going.
Performance
Beginning in 1999, I’ve written 22 columns about the Do-Nothing Club. (Today’s is the 23rd.) The average one-year return on my Do-Nothing Club recommendations has been 16.6%, compared with 10.4% for the Standard & Poor’s 500 Total Return Index.
My picks have been profitable in 19 of the 22 years and have beaten the index 13 times.
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.
Last year’s results pulled up the long-term average. My selections returned 65%, propelled by a 249% return in Century Aluminum Co. (CENX). Preformed Line Products Co. (PLPC) chalked up a 151% return.
My other three picks from a year ago were duds. LKQ Corp. (LKQ) fell 40%, Molson Coors Beverage Co. (TAP) 25% and Cigna Corp. (CI) close to 10%.
For comparison, the S&P 500 total return was 15.7%.
Correction: In my column a week ago, I mistakenly referred to Green Plains Inc. (GPRE) as Great Plain Inc.
Disclosure: One of my clients owns EQT shares.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.