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December, 2016


Two kinds of investments seem to me reliably superior performers, the common stocks of somewhat out of favor, yet still strong, successful companies, and smaller-cap value stocks that have demonstrated positive momentum in recent months. Combining both sets of candidates, I have chosen seventeen for possible purchase for the coming year. Taken together, they have excellent potential to perform better than the major averages.

At Table One are six major corporations that are still a bit beaten down yet have mostly been heading back up of late.

Strong Yet Out of Favor Stocks
DividendMarket-Cap.Last FY
Franklin Resources, Inc.BEN$39.281.83%$22.3 billion8.43%
Canon, Inc. ADRCAJ$28.964.87%$31.6 billion<1.00%>
Goldman Sachs Group, Inc.GS$238.901.09%$95.0 billion35.18%
Infosys, Ltd. ADRINFY$14.902.52%$34.1 billion<9.50%>
Royal Dutch Shell PLC, ADR, Class BRDS-B$57.896.50%$232.2 billion32.93%
Total SA ADRTOT$49.775.44%$119.1 billion14.82%

At Table Two are eleven micro-cap, small-cap, or mid-cap companies whose stocks show good value characteristics and yet have had forward momentum over the prior 26-week period.

Smaller-Cap Value On a Roll
to Sales
Aaron's, Inc.AAN$32.780.31%$2.3 billion0.72
Avnet, Inc.AVT$48.011.42%$6.1 billion0.24
Greenbrier Companies, Inc.GBX$41.851.96%$1.2 billion0.44
P.H. Glatfelter Co.GLT$24.132.05%$1.1 billion0.64
Leucadia National Corp.LUK$23.461.07%$8.4 billion0.80
Miller Industries, Inc.MLR$27.352.49%$310.3 million0.53
RCI Hospitality Holdings, Inc.RICK$16.220.74%$158.0 million1.18
Reliance Steel & Aluminum Co.RS$81.782.02%$5.9 billion0.69
Scholastic Corp.SCHL$48.711.23%$1.7 billion0.95
Trinity Industries, Inc.TRN$28.171.56%$4.3 billion0.85
Universal Corp.UVV$62.653.38%$1.4 billion0.67

Finally, here are the ticker symbols of my ten favorites from the whole bunch: BEN; CAJ; GBX; INFY; MLR; RDS/B; RICK; RS; TOT; and UVV.

Much is made, correctly so, about the dangers of investing using margin, borrowing against one's equity to purchase additional shares of stock. Yet if margin buying is kept at a modest level, it can enhance returns without undue risk to one's portfolio. Suppose one can average 12% a year price appreciation from good stock selections and then add to this source of nest egg growth a 3% per year margin investment.* This result will not occur every year, and one ought never expect it to do so, yet over the long haul it means there could be a total of 15% annual increases in one's holdings. They can thus double about every five years: just $10,000 in stock purchases by a young man or woman in 2017, if left fully invested, can become $100,000 by about 2033, $1,000,000 by roughly 2049. If one can add other investments along the way, so much the better.

When one wishes to invest this way, assets such as those noted above might be good ones from which to choose next year. As always, it is best to do our own research and/or check with trusted monetary consultants before embarking on any new financial plan.

[*In practice, to achieve a net margin-based increase in investments of 3% a year, extra investing will be required to offset the costs of interest on the debt. Thus, depending on the margin rate, a person could for example average a 5% use of margin for net gains in the portfolio of 3% a year.]

The next question after stock selection and purchase is when to sell. I would tend to keep it simple and rebalance the portfolio after a year (a year and a day in taxable accounts), selling off assets then that no longer are either large, out of favor, yet successful companies or smaller-cap value stocks (generally with market-cap $10 billion or below and low price to sales ratios) that are up significantly in price over the past few months. One can use redemption funds to buy more that do qualify in each category.

Best of luck with your own investing approaches in 2017!


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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