Returns And Earnings Growth Above 30%

Few players—stars such as Willy Mays, Hank Aaron, Mike Trout and Mookie Betts—can make baseball’s 30-30 Club. It’s for players who hit 30 home runs and steal 30 basis in the same season.

I have a 30-30 Club for companies. To make it, a company must post a return on stockholders’ equity of 30% or better, and boast earnings growth averaging 30% or more for the past five years. (It must also have a market value of $2 billion or more.)

Forty-seven companies made the roster this year. Each of them deserves a spotlight and a drum roll. I wouldn’t buy all their stocks, however, since many are highly priced, and a few are highly indebted.

My Picks

I recommend six 30-30 club members this year.

Southern Copper
SCCO
mines copper and other metals in Peru and Mexico. I think the economy and inflation will both be running hot for the next year or so—a good environment for metals producers. The stock sells for 17 times earnings.

Medifast
MED
sells weight loss products, and I figure that a lot of people have a few extra Covid pounds to lose. The stock goes for 13 times earnings.

Williams-Sonoma
WSM
, a housewares retailer, sells for only 10 times earnings, despite its outstanding profitability and growth.

Nexstar Media Group
NXST
looks like a bargain to me at nine times earnings. It owns 197 television stations.

Even more of a bargain at eight times earnings is Dick’s Sporting Goods (DKS).

Cheapest of all, at six times earnings, is Mueller Industries
MLI
, which makes engineered products such as refrigerator coils. It earned a striking return on equity of almost 48% last year. I consider anything over 15% good.

The Honor Roll

The largest stocks that achieved 30-30 status this year are Alphabet
GOOGL
, Nvidia (NVDA), Adobe
ADBE
, Netflix
NFLX
and Regeneron Pharmaceuticals
REGN
.

Boasting the fastest five-year earnings growth are Bio-Rad Laboratories
BIO
, Fortinet
FTNT
, Netflix, Gartner
IT
and Boise Cascade
BCC
.

Standing out for extremely high profitability were Fair Isaac (FICO), Sealed Air
SEE
, Waters
WAT
, NetApp
NTAP
and Artisan Partners Asset Management (APAM).

Missing in Action

You may be wondering about some big-name investor favorites. Where are Amazon
AMZN
, Apple
AAPL
, Meta Platforms
FB
, Microsoft
MSFT
and Tesla
TSLA
on this list? The answer is that they aren’t on it.

Amazon.com came excruciatingly close, missing the return-on-equity cut-off by less than one percentage point. Apple is spectacularly profitable, but its earnings growth rate for the past five years is about 19%. Meta Platforms, formerly called Facebook, missed both criteria by a whisker. Microsoft just missed the cut with 27% earnings growth. Tesla’s return on equity was 22%, and it hasn’t been profitable long enough for a five-year earnings growth rate to be calculated.

Past Record

I’ve been compiling the 30-30 Club roster most years since 1999. In the 17 years in which I made recommendations, my picks have averaged a 10.4% return (including dividends). The Standard & Poor’s Total Return Index has averaged 8.4%.

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.

My selections have been profitable ten times out of 17, and have beaten the S&P ten times.

A year ago, I recommended three stocks. Regeneron Pharmaceuticals posted a 56% return. LGI Homes
LGIH
fizzled, down 44%. Progressive
PGR
returned 25%. Collectively, my picks returned 12.5%, versus 10.3% for the index. LGI Homes and Regeneron are on the list again this year.

Full Roster

In my 30-30 roster this year, but not mentioned above, are 26 other companies, listed below:

Atkore (ATKR), BJ’s Wholesale Club Holdings (BJ), Boot Barn Holdings (BOOT) Builders FirstSource
BLDR
, Citrix Systems
CTXS
, Commercial Metals
CMC
, D.R. Horton (DHI), Encore Wire (WIRE) and Evercore
EVR
.

Also: Generac Holdings (GNRC), Group 1 Automotive
GPI
, Hamilton Lane (HLNE), Lam Research
LRCX
, Matson
MATX
, Moelis
MC
, Moody’s (MCO), OneMain Holdings
OMF
, Pool (POOL), SLM
SLM
and Steel Dynamics
STLD
.

Completing the list: Texas Pacific Land
TPL
, Trinet Group (TNET), UFP Industries
UFPI
, West Pharmaceutical Services
WST
, World Wrestling Entertainment
WWE
and YETI Holdings (YETI).

Disclosure: For clients and personally, I own Alphabet, Apple, D.R. Horton, Encore Wire and Lam Research. One or more of my clients owns Adobe, Amazon.com, Bio-Rad, Microsoft, Nvidia, Progressive, Sealed Air and Tesla.

John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].