In April, I took the coffee-can portfolio created by Morningstar in June 2005 and made a new version, removing three of Morningstar’s picks and replacing them with three of my own. As promised, I’m updating both portfolios’ performance from April 9 through July 25.(NYSE:FII), Fifth Third Bancorp (NASDAQ:FITB) and IAC/Interactive (NASDAQ:IACI) is down 0.45%.
While I’m disappointed my replacements weren’t able to better Morningstar’s original picks, it’s encouraging to see they at least distanced themselves from the benchmark index.
The star performer from Morningstar’s original portfolio in the last three months is Iron Mountain (NYSE:IRM), up 9.3%. The information management company has been the fourth-best-performing stock since June 14, 2005, up 78.2% compared to 27.8% for the SPY.
Things are looking good for its future as well. Iron Mountain announced second-quarter earnings on Friday that were four cents better than the analyst consensus estimate of 35 cents per share. In addition, it reaffirmed 2012 guidance for both revenues and earnings. The news sent its stock up 2% in midday trading.
The worst performer since April was CarMax (NYSE:KMX), the Virginia-based retailer of used and new cars. Its stock is down 19.5% since April, with its Q1 earnings and revenue miss the main reason for the retreat. Those interested in its stock have a much better entry point now. Overall, CarMax is the third-best-performing company in the 10-stock portfolio, up 114.5% since June 2005. It’s a keeper.
Of the three stocks I inserted into the lineup in April, U.S. Bancorp has been the big winner, up 6.9%. Only Iron Mountain is performing better. Unfortunately, the same can’t be said for Franklin Resources, which is down 15.5%, delivering the second-worst performance next to CarMax.
I wouldn’t be concerned. The PowerShares KBW Capital Markets Portfolio Holdings (NYSE:KBWC) is down 9% in the last three months, indicating general industry weakness with asset managers. Franklin is a good company. It will bounce back.
The cumulative total return of my revised portfolio since June 2005 is up 62.6%, 1,890 basis points higher than Morningstar’s original. Although past performance doesn’t predict future returns, I do like the composition of the revised portfolio.
Some might view these changes as unnecessary and contradicting the original idea put forth by the late Bob Kirby. You might be right. Kirby’s intent was to buy quality companies and stick the share certificates in a drawer somewhere.
However, I see these moves as a defensive measure to counter an economy that continues to flat-line. Franklin Resources, U.S. Bank and Liberty Media are arguably stronger, superior businesses to Federated Investors, Fifth Third Bank and IAC/Interactive. Over time, what’s happened in the past will manifest itself in the future.
Oh, in case you were wondering … the best performer of all 13 stocks since April 2005 is Colgate-Palmolive (NYSE:CL), up 144.4%. It pays in more ways than one to brush your teeth.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.