John Dorfman: Robot Portfolio gained 22% in 2024

The Robot Portfolio returned more than 22% last year but was edged out by the surging Standard & Poor’s 500.

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Each year, the Robot — a naive stock-picking paradigm — generates a theoretical portfolio of 10 very unpopular stocks. The idea is that stocks advance by exceeding expectations, and low expectations are easier to exceed.

Over the past 26 years, this hypothetical portfolio has returned 1,710%, compared with 673% for the Standard & Poor’s 500 Index.

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.

How it works

I designed the selection criteria, but a computer program picks the stocks that comprise the Robot Portfolio. Some of them I wouldn’t touch with a 10-foot pole; others I like. They are the 10 stocks selling for the lowest multiple of the company’s earnings, with three provisos:

• The company must show a profit for the past four quarters.

• The market value of the stock must be at least $500 million.

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• The company’s debt must be less than its equity (net worth).

11.8% per year

In 26 years, the Robot has beaten the S&P only 13 times. But when it does well, it tends to do very well. In four years, the Robot’s return has exceeded 50%. In six years, it has been between 25% and 50%.

The paradigm has also generated some big losses, most notably a 60.8% loss in the recession-scarred year of 2008. The S&P 500 Total Return Index declined 37% that year.

The compound average return for the Robot has been 11.8% per year, compared with 8.2%% for the S&P 500.

Last year, the Robot returned 22.7% but couldn’t beat the S&P 500’s total return, which was 25.0%. The portfolio’s best performer was CNX Resources Corp., a natural gas producer, up 83%. The worst was PBF Energy Inc. (PBF), a refiner, which fell almost 40%.

New slate

As we enter 2025, there’s an entirely new slate of Robot stocks. They are listed with the cheapest (lowest price/earnings ratios) first.

Site Centers Corp. (SITC), sells for 1.1 times the past four quarters’ earnings. Future earnings for this shopping-center real estate investment trust may be less because it has spun off some of its properties.

Selling for 2.2 times earnings is Vital Energy (VTLE), an oil-and-gas company from Tulsa, Okla. Revenue and earnings have fallen in the past year, and the company has posted four losses in the past 10 years.

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Weighing in at 2.8 times earnings is Agios Pharmaceuticals Inc. (AGIO), which seeks to find treatments for cancer and rare diseases. The company has lost money most years, and the stock has fallen 71% over the past decade. Still, most analysts like its prospects.

Shenandoah Telecommunications Co. (SHEN) sells for 3.2 times earnings. It’s a broadband provider based in Edinburg, Va., that also leases out cell tower space. The stock is down 50% in the past three years as earnings have collapsed.

International Seaways Inc. (INSW) sells for 3.4 times earnings. With a fleet of 83 vessels, primarily carrying crude oil, it has earned handsome profits the past three years. But it lost money in seven of the previous eight years.

Ball Corp. (BALL), at 4.1 times earnings, is the world’s largest maker of aluminum cans. It has grown its earnings at a 6% annual clip for the past 10 years, and is consistently profitable (no loss years since 2001).

FMC Corp. (FMC) makes herbicides, fungicides and insecticides. One of its major markets is Brazil, which has been suffering from drought, reducing demand for FMC’s products. The stock now fetches 4.2 times earnings.

Based in Stamford, Conn., Dorian LPG Ltd. (LPG) carries liquefied petroleum gas (a mixture of propane and butane) on 22 ships. The stock is at about $25, and most analysts think it could hit $41 in a year. The P/E ratio is 4.2.

One publicly traded limited partnership makes the roster: Steel Partners Holdings LP (SPLP). Based in New York, it’s a small conglomerate, with interests in industrial products, defense, energy, banking and youth sports. The P/E ratio is 4.4.

Rounding out the Robot Portfolio is Northern Oil & Gas Inc., with a P/E of 4.6. It explores for and drills for oil and gas in Montana, New Mexico, North Dakota, Ohio, Pennsylvania and Texas. It’s turned a profit in five of the past 10 years.

Does this seem like a ragtag collection of stocks to you? That is exactly what it is, but such ragamuffins have often done well in the past.

Disclosure: I own none of the stocks discussed today, personally or for clients.