Take a bow, Frank Jolley! The veteran Rocky Mount investor pulled off an amazing feat, selecting three stocks that paid off during a bloody year in the markets. Shares of Jolley’s picks — Novartis, Nutrien and Honeywell — have each increased over the last year, through mid-December. The S&P 500 Index tumbled 17% in the same period.
It continues a history of success for Jolley, who has participated in Business North Carolina’s annual feature for many years. His typical approach is to favor well-capitalized companies that are out of favor and avoid the more speculative names.
Our other stock pickers hope that no one paid attention to last year’s story. Only one of last year’s 12 other stock picks showed a gain: Walmart, which increased 1%. Ten companies declined more than the S&P Index, including nine that lost more than 25%.
But these folks are gamers, willing to share their thoughts again because investing is a long-term activity. The companies have to be based in North Carolina or have major operations here.
BANK OF AMERICA (BAC)
Market cap: $254 billion
Dividend yield: 2.8%
Higher interest rates and client-centered technology and digital offerings position Charlotte-based Bank of America well for the coming year. BofA trades at 10 times earnings. We believe fears of recession and credit fears are priced in the shares, which are down more than 35% from the 52-week high.
TARGET (TGT)
Market cap: $68 billion
Dividend yield 2.9%
The general-merchandise retail company’s shares have suffered in 2022 as bloated inventories, due to supply chain issues, resulted in huge markdowns. We believe the bad news is largely priced in and sets the company up for easy year-over-year comparisons in the coming year. Target shares trade at about 16 times forward earnings estimates.
ADVANCE AUTO PARTS (AAP)
Market cap: $8.4 billion
Dividend yield 4.2%
Raleigh-based Advance Auto Parts is a leading retailer of aftermarket auto parts and accessories. The most recent quarter was disappointing, and the shares are trading more than 40% below their January 2022 highs. The shares trade at a large discount to peers AutoZone and O’Reilly Automotive and we would expect shares to recover in 2023. With a strong dividend, investors get paid to wait.
THERMO FISHER SCIENTIFIC (TMO)
Market cap: $218 billion
Dividend yield 0.2%
TMO, which already has major N.C. operations, bought Wilmington-based PPD in December 2021, adding a clinical research organization to its life sciences and analytics businesses. The company has high levels of recurring revenue due to the consumables used in its testing and diagnostic equipment. During the pandemic, increased testing benefited TMO, but investors have underestimated the staying power of some of that business. COVID testing and treatments have declined, but not nearly as much as some anticipated. Demand for TMO’s non-COVID business should continue to rebound.
DOLLAR GENERAL (DG)
Market cap: $55 billion
Dividend yield 0.9%
DG is a retailer with defensive characteristics allowing it to grow in both good and bad economic times. High gasoline prices and elevated inflation set DG up to outperform many retail peers because customers tend to stay closer to home for fill-in grocery trips. Also, in high-inflation periods, DG’s low-price offerings attract higher income customers who normally don’t shop there regularly. With plans to add more than 1,000 stores in 2023, DG has room to grow even if sales per store is
more muted.
Raytheon
Technologies (RTX)
Market cap: $144 billion
Dividend yield: 2.2%
RTX’s commercial aerospace and defense businesses provide the company with a rare combination of short-term stability and longer-
term secular growth opportunities. In commercial aerospace, RTX should continue to benefit from a recovery in consumer and business air travel, both in its aftermarket parts sales and with new installations of its Pratt & Whitney Geared Turbofan engine. The defense segment has dealt with myriad supply chain and labor issues in 2022, but RTX is poised to capitalize on significant increases in global defense budgets and strong bookings thanks to its technologically advanced capabilities in air and missile defense systems and electronic warfare.
INSTEEL INDUSTRIES (IIIN)
Market cap: $500 million
Dividend yield: 0.5%
The Mount Airy-based company is the largest maker of steel-wire reinforcing products used for concrete construction. It has $50 million in cash, property and equipment valued at $250 million and virtually no debt. CEO H.O. Woltz III learned the pitfalls of debt in 2007, having borrowed $140 to enhance growth. A tough economy and a lot of debt is something he probably wants to avoid. The company paid a $2 special dividend in December.
AMAZON (AMZN)
Market cap: $897 billion
Dividend yield: N.A.
Duke Energy signed a three-year deal with Amazon’s cloud computing unit to advance power grid and clean energy goals, showing the power of the e-commerce giant. The stock trades for less than $90 after peaking at more than $170, creating a bargain price. Cash is $58 billion, while debt is $164 billion. Andy Jassey is a hyper-competitive CEO. The acquisition of One Medical makes expansion into health care look promising. Don’t ever bet against founder Jeff Bezos.
EDWARDS LIFESCIENCES (EW)
Market cap: $46 billion
Dividend yield: N.A.
Edwards, with its heart-valve products in major hospitals, is a phenomenal health care company. It has $1.5 billion in cash and $500 million in debt. CEO Michael Mussallem is a super-smart CEO who cares about peoples’ health. Demand for heart-disease products will increase, including in other nations. Revenue and profit should grow by double digits in 2023, though a strong dollar hurts.
RXO (RXO)
Market cap: $1.9 billion
Dividend yield: N.A.
The Charlotte-based truck brokerage company was spun off in November from Greenwich, Conn.-based XPO. Its connections to a network of independent carriers provides shippers access to capacity for truckload, less-than-truckload and other transportation services. The company’s proprietary technology and highly variable cost structure helps optimize productivity, profit and volume. Shares declined from about $20 at the IPO to $16 in mid-December.
LABCORP (LH)
Market cap: $20 billion
Dividend yield: 1.2%
The Burlington-based company offers nearly 5,000 different tests and operates about 2,000 patient service centers. It has invested in greater automation and information technology to increase efficiency for physicians and patients, which should also lead to improved profit. Shares declined by more than 20% in the last year.
Sealed Air (SEE)
Market cap: $7.5 billion
Dividend yield: 1.6%
The Charlotte-based company owns food-packaging brands such as Cryovac, Darfresh, and OptiDure, while other products include Bubble Wrap, Instapak and various shrink-film packaging systems. In November Sealed Air bought Liquibox for $1.15 billion. It expects earnings growth from the fast-growing Cryovac fluids business. Shares are off more than 25% from previous highs.
LESSONS LEARNED
Panelist Ann Zuraw made three picks for BNC in 2021 that bombed this year. Don’t beat her up: She’s had success in previous years. But the experience prompted her to share these key investing principles.
- Diversify. Do not have a portfolio of only three stocks.
- Enforce stop-loss rules. While I worked for Bank of America, the trading
desk sold a stock if it declined 20%. It was no longer my decision. - There are always market cycles. When everything has been too good to
be true — then it is. - Know your risk tolerance. It is better to go for base hits and not a home run.
- Keep investing in public stocks and bonds. Real estate and private equity have
done well, but both are illiquid and entail long-term risk. - Define honestly what long term means to you. My definition is five-plus years.
- Never give up. Keep studying opportunities. We can figure it out together. ■
