Model Portfolio, by Mark Robertson, Managing Partner
Posted on November 1st, 2020
$3,000,000 Moment for Tin Cup. Celebrating gains in companies like BioSpecifics Tech (BSTC) and recording an all-time record for monthly transactions as the portfolio is better balanced and looking forward. All-time rate of return since inception (1994) stands at 14.5%
This demonstration portfolio invests the maximum allowable 401(k) in stocks. In the absence of choices within the portfolio, we shop outside the portfolio using the combination of return forecast and quality rating to identify candidates to be added to the portfolio. Total assets reached $1,000,000 in 17 years. Tin Cup has outperformed the S&P 500 since inception and the rate of return since 1995 is now 14.5% vs. 9.0% for the Wilshire 5000.
Total assets are $2,879,254 (10/31/20) and the net asset value is $587.16. The model portfolio advanced 8.33% during October 2020. The Wilshire 5000 checked in at -2.16% for the month.
Tin Cup: Historical Performance (10/22/2020). Total assets retreated a little in the last week of October, but we noticed that $3,000,000 moment on 10/22/2020. Huzzah!
With MIPAR at 8.9%, our target for the minimum overall portfolio PAR is at least 13.9%. The overall portfolio PAR is 11.0% on 10/31/2020. Quality and financial strength are sufficient at the current levels of 85.1 (Excellent) and 81%. EPS Stability is 76 for the portfolio. Sales growth is in the design target range at 12.4%.
Tin Cup Dashboard: October 31, 2020. Ranked by PAR (last column on the right.) Sell BioSpecifics Technology (BSTC) in accordance with the offer from Endo Pharma. Refer to the accompanying dashboard worksheet for more transactions.
It was an intra-month achievement but it happened and we celebrated. In fact, total assets reached $3,035,000 before the wide slippage in the last week of October as uncertainty chilled a whole bunch of stocks as the presidential pandemonium heated up. Tin Cup managed to outpace the Wilshire 5000 by 10.5 percentage points. Halloween seems more like a treat when Tin Cup soars while the general market stumbles.
All decisions with Tin Cup are fairly mechanical, as we strive to keep the portfolio within certain limits:
(1) Overall average PAR at least 5 percentage points greater than the median return forecast (MIPAR).
(2) Excellent Quality. Overall average quality ranking greater than 80.
(3) Overall average sales growth forecast of at least 10%, but preferably 11% or more. Maybe 12% or more.
BioSpecifics Technology (BSTC) is in the process of being acquired by Endo Pharma for $88.50. We liked the story and outlook on BSTC and it’s also been a component at the Round Table and Best Small Companies (2020). The performance of BSTC has been an important cog in the outperformance over the last few months. We are grateful.
The gains delivered by Urban Outfitters (URBN) have not been as stellar as our recent experience with Wolverine Worldwide (WWW) but still fairly strong. We say “adieu” again and will be vigilant for another buying opportunity in the future.
Speaking of buying opportunity, the new shares of SAP (SAP) are largely based on the relative strength index (RSI) this weekend of 15.2. Our thinking is that the situation with SAP is a poster child version of the economic pressures unfolding in Europe. This will change and improve at some point and much like what we’ve seen with Cognizant, better days are likely ahead. This could be construed as something of a “special situations” purchase but that low RSI is hard to ignore. If the stock price advances, we’d likely sell if the PAR approaches MIPAR.
Axos Financial (AX) is the former Bank of the Internet, was featured by Cy Lynch during the October Round Table and is among the Best Small Companies for 2021. M.D.C. Holdings (MDC) is one of the promising smaller homebuilders on the Best Small Company short list and just missed inclusion. That said, it’s top ranked among this month’s Sweet 16 based on PAR, quality and projected return-on-value (PROVE).
We still think very, very highly of the hot seat companies, Align Technology (ALGN) and Gentex (GNTX), but trimmed their respective positions slightly. ALGN is another formidable contributor to the recent advance of Tin Cup. The sales growth forecast for ALGN strengthens the overall portfolio.
The proceeds from sale left us with a considerably thick wallet for doing some shopping and balancing, so we did. We accumulated a few shares of the companies with the highest return forecasts, Air Lease (AL) and British Tobacco (BTI). The Chinese stocks have been under considerable pressure also — so a few shares of Tencent Holdings (TCEHY) were also sprinkled into the mix.
That’s likely an all-time high for monthly transactions but the overall return forecast is returned close to the target range — the growth rate is bolstered at 12.4% (we’d like more) — and the overall quality is 88.
I’ll close with our advice offered following one of Brian Wesbury’s excellent summaries:
Go shopping for some excellent companies. Assume ownership if the price (return forecast) is right. Maintain stewardship for as long as it makes sense to do so.
Tin Cup Portfolio Worksheet (Dashboard). Selling BioSpecifics Tech (BSTC) and Urban Outfitters (URBN) after solid contributions. Trimming ALGN and GNTX. Accumulating AL, BTI and TCEHY. Adding Axos Financial (AX), SAP (SAP) and M.D.C. Holdings (MDC) raises the overall PAR “close” to the design range. (Minimum: MIPAR+5%.)