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5 days ago
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Why I'll Continue to Invest in Gold, at Least for Another Year
June 2, 2025 (Maple Hill Syndicate) - About 14 months ago, I wrote a column about gold. I don't think gold is an investment for all seasons, I wrote, but right now, I think it's sensible to hold some. That turned out to be right. Gold is up about 51% since I made that recommendation, including a 25% gain this year through May 30. So, what now? Take your golden profits and run? I don't think so. Most of my clients have about 6% of their portfolio assets in gold, and I'm considering increasing that. Gold doesn't have profits or pay dividends, so evaluating it is harder than evaluating a stock. However, I think there are four major factors that move the price of gold: inflation, real interest rates, the dollar and geopolitics. Inflation Gold is traditionally considered a hedge against inflation, because it tends to hold its purchasing power. Today a Big Mac sandwich costs about $6 and an ounce of gold sells for about $3,300. So, one ounce of gold could buy 555 Big Macs. If inflation worsens and a Big Mac three years from now costs $8, it would not be surprising for gold to command a price of $4,400. Then an ounce of the previous metal would still pay for 555 Big Macs. Will inflation worsen? After all, a few days ago President Trump said that he had solved inflation. In support of that assertion, he has said repeatedly that the price of gasoline is under $2 a gallon. I hate to break it to the President, but when I bought gas last week it cost $2.99 a gallon. Meanwhile, Congress appears likely to pass a budget that features a gigantic budget deficit. To finance deficits, the U.S. Treasury may be forced to issue more bonds. Many economists view that as inflationary. In addition, the tariffs that President Trump has proposed would add to inflation, in my view, by making a variety of goods more expensive. Real Rates For gold, low real interest rates are good and high real interest rates are bad. The real interest rate is the rate paid on fixed-income instruments like bonds, minus the inflation rate. An old rule of thumb was that bond investors want to earn three percentage points more than inflation for example, a 6% interest rate if inflation is running 3%. That rule turned out to be too simplistic, but the general point behind it is valid. Gold and bonds are competitors: They compete for the dollars of risk-averse investors. If bonds are more attractive, gold is less so. Ten-year Treasury bonds currently pay about 4.4% interest. Inflation for the year through April was about 2.3%. So, the real interest rate is somewhere in the neighborhood of 2.1%. That's not terrible but it's below the historical average. The Dollar The strength of the dollar is partly a gauge of how much faith people in other countries have in the United States. Less faith equals more jitters. More jitters may inspire a flight to gold. One thing people need dollars for is to buy U.S. goods and services. If trade barriers are erected, people and businesses in other countries have less need for dollars, so the dollar might decline in price relative to the Euro, the yen and other currencies. What would a weak dollar mean for gold? Historically, gold has generally done well when the dollar was weak, and poorly when the dollar is strong. There are exceptions, notably 2023-2024, when the dollar was strong and gold rose nevertheless. Ned David Research, an outfit for which I have considerable respect, is predicting a weak dollar and strength in gold for 2025. Geopolitics The more stress there is in the world, the better for gold. In the U.S., people worried about geopolitical tensions may buy gold as a defensive holding. That's even more true in China, India and Europe. Despite sporadic efforts at peace talks, there are two hot wars in progress between Russia and Ukraine, and between Israel and Gaza. In addition, there are at least two notable cold wars, between the U.S. and China, and between the U.S. and Iran. To me, that geopolitical backdrop most likely signals continued strength in gold. Bear in mind that most performance information in my column is hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future. Disclosure: Personally, and for most of my clients, I own shares in SPDR Gold Shares (GLD), an exchange traded fund that represents ownership of a fraction of a large store of physical gold. John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts. He or his clients may own or trade securities discussed in this column. He can be reached at jdorfman@ This article first appeared on GuruFocus.
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28-05-2025
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5 Companies That Consistently Buy Back Their Own Shares
May 26, 2024 -- (Maple Hill Syndicate) When a company buys back its own shares, shareholders often benefit. With fewer shares outstanding, each share is likely to be worth more. In the past 20 years, buybacks have become increasingly popular. Many companies prefer them to dividends because they have a softer tax impact. Dividends stick shareholders with taxes on their next tax return, while buybacks don't. Of course, companies can also do both dividends plus buybacks. Warning! GuruFocus has detected 6 Warning Signs with BOM:542905. Buybacks can be a sign that a company's board of directors considers the company's stock undervalued. To be sure, buybacks are a bad idea if a company takes on excessive debt to fund them, or if the buyback siphons off cash that would be better used to beef up the company's core business. On the whole, though, I view buybacks as a good sign. Standard & Poor's has a Buyback Index (basically the 100 stocks in the S&P 500 with the highest percentage of buybacks). In the past five years, it has beaten the S&P 500 Total Return Index by about seven percentage points cumulatively, returning 16.29% a year versus 15.61% for the S&P 500. Over the past 25 years, the Buyback Index has outperformed the benchmark S&P 500 18 times out of 25. Here are five companies that stand out for their consistent use of buybacks. Each has bought back more than 4% of its shares per year over the past one, three and five years. MetLife MetLife Inc. (NYSE:MET), based in New York City, is one of the largest insurance companies in the U.S. It specializes in group benefit packages. Last year it took in about $45 billion in premiums, and another $18 billion or so in investment income. It paid out roughly $43 billion in claims. In the past five years, MetLife has bought back, on average, 5.8% of its stock each year. During that time, the stock has risen about 114%. The stock seems reasonable priced to me, selling for less than 13 times earnings and about 0.75 times revenue per share. Pulte Nobody wants homebuilding stocks these days. Mortgage rates are unpleasantly high, and home prices are steep (a mixed blessing for homebuilders). New home sales this year have been weak, bordering on terrible. Several homebuilding companies have been buying back their own stock. One that I like is PulteGroup Inc. (NYSE:PHM), whose average home sells for about $570,000. That's a few notches higher than the U.S. average (about $504,000) and median price (about $438,000). Who knows when industry conditions will improve? It's not clear, but if you're a patient investor, you can take heart from the fact that homebuilders have enjoyed periodic booms in the past. Pulte stock, like that of other homebuilders, is cheap at present, selling for about seven times earnings. Pulte has bought back about 6% of its stock annually in the past five years. Academy Sports Also at seven times earnings is Academy Sports and Outdoors Inc. (NASDAQ:ASO), which has its headquarters in Katy, Texas. It has averaged a 4% buyback in the past five years, and picked up the pace to 8% last year. Wall Street analysts are split on Academy. Of 20 analysts who cover it, half rate it a buy or outperform and half don't. But the average one-year price target for all analysts is more than $55, well above the current market price of less than $41. Employers Holdings A nearly debt-free choice is Employers Holdings Inc. (NYSE:EIG), out of Reno, Nevada. It's a workers' compensation insurer, concentrating on small and mid-sized businesses engaged in low-to-medium hazard industries. Growth has been slow here, but profitability has been consistent: No losses in the past 23 years. The company has only a speck of debt, and more than $26 in cash for each dollar of debt. Williams-Sonoma Known for high-end cookware and home goods, Williams-Sonoma Inc. (NYSE:WSM) has seen its stock quadruple in the past decade. It has been astonishingly profitable, with a return on equity recently of 52%. Analysts obviously think the party's over: Our of 25 analysts who cover the stock, only five recommend it. The reason for analysts' gloom is obvious: The company imports about 23% of its merchandise from China, the target of the harshest tariffs proposed (though currently paused) by the Trump administration. The stock is down more than 15% year to date (through May 23). It sells for about 18 times earnings, which I think is not bad considering that Williams-Sonoma has grown earnings at better than a 22% annual clip for the past ten years. John Dorfman is chairman of Dorfman Value Investments LLC in Boston, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@ This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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06-05-2025
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Why Low-Debt Stocks Are the Way to Go
May 5, 2025 -- (Maple Hill Syndicate) When President Trump was a businessman, he was famous for taking on lots of debt. Now that he's the President, I believe that companies would be smart to do the opposite. High-debt companies run at least three risks. Rising interest rates. Tariffs could make some goods scarcer. Tight immigration policy could make labor scarcer. The combination could push up inflation, leading to higher rates that make interest payments more painful. A recession. If the economy turns sour, companies with lots of debt are in danger of falling into the bankruptcy chasm. J.P. Morgan Chase thinks the chance of a recession is 60%. Uncertainty. Frequent policy changes increase uncertainty. When uncertainty reigns, low-debt companies are the safer bet. Even when the economic skies look sunny, I favor low-debt companies. All the more so now. Here are five publicly traded companies that stand out because they have little or no debt. Gentex Down 37% over the past year, Gentex Corp. (NASDAQ:GNTX) of Zeeland, Michigan, seems to me due for a comeback. The company's main product is self-dimming mirrors for cars. Car sales in the U.S. are so-so, and Gentex has stopped shipping to China. The U.S. has imposed a 145% tariff on imports from China, which has retaliated with a 125% tariff. Analysts expect Gentex's profits to fall about 3% this year, but bounce back in 2026 and 2027. Gentex is totally debt-free, and the stock sells for about 13 times earnings. Employers Holdings Employers Holdings Inc. (NYSE:EIG), out of Reno, Nevada, sells workers compensation insurance, mostly in California. It serves mid-sized and small businesses, especially restaurants. Profits haven't grown fast, but have been consistent: No losses in 23 years. The stock is cheap, selling for 1.1 times book value (corporate net worth per share). But it seems to be permanently cheap: the price-to-book ratio is the same as the ten-year average. Monarch Cement Monarch Cement Co. (MCEM), which I mentioned in a recent column on small stocks, has a market value of a little under $1 billion. It hails from Humboldt, Kansas, and does business in that state plus parts of Arkansas, Iowa, Nebraska, and Oklahoma. The company has zero debt, and lately has posted a profit margin of about 22%. Earnings are reasonable consistent: Monarch has been profitable in 14 of the past 15 years. (It had a small loss in 2011.) So far as I can tell, the company is completely neglected by Wall Street. Cal-Maine Foods
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29-04-2025
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Old Faithful Fizzled Last Year, But Watch for a Spurt
April 28, 2024 (Maple Hill Syndicate) One of my favorite tools for picking stocks is a paradigm I call Old Faithful, named after the geyser in Yellowstone Park. This paradigm fizzled last year, but has an outstanding long-term record. To appear on the Old Faithful list, a stock must: Post good profits (15% return on equity). Have debt under control (debt less than stockholders' equity). Be cheap (no more than 15 times earnings and two times book value). Show decent earnings growth (averaging at least 10% a year for the past five years). Drawn from the Old Faithful screen, here are four stocks I feel optimistic about for the coming 12 months. Halliburton Halliburton Co. (NYSE:HAL), with headquarters in Houston, Texas, is one of the Big Three oilfield service companies. The other two are Schlumberger Ltd. (NYSE:SLB) and Baker Hughes Co. (NASDAQ:BKR). I consider a 15% return on stockholders' equity good and 20% excellent. Halliburton notched 20.6% in the past four quarters. Its stock is below $21 as of April 25, and the consensus of Wall Street analysts is that it will rise to $30 in the next 12 months. Of 29 analysts who cover the stock, 22 recommend it. The stock sells for about 9 times earnings, whereas over the past decade, it's usually fetched a multiple of about 17. Cincinnati Financial Based not in Cincinnati but in Fairfield, Ohio, Cincinnati Financial Corp. (NASDAQ:CINF) sells home, auto and life insurance. It does business in all 50 states and has relatively little exposure in Florida, where hurricanes often cause severe losses. Earnings growth has averaged 13% the past five years. It was faster last year, but I don't put much emphasis on that since insurers had recently won big price increases from regulators. That's not a regular occurrence. The company has very little debt only 6% of equity. Oshkosh Fire engines, garbage trucks, military trucks and aerial work platforms are the main products at Oshkosh Corp. (NYSE:OSK), based in Oshkosh, Wisconsin. The stock hasn't gone much of anywhere in three years. It sells for less than nine times earnings, compared with a typical multiple over the past decade of 15. That measure and other valuation measures are at five-year or ten-year lows. Analysts are split, with eight recommending the stock and eight demurring. Recession is a risk. In the pandemic recession of 2020, profits fell almost 50%, but the company stayed profitable. In the Great Recession of 2008-2009, it posted a big loss. I may be prejudiced, since I made a lot of money in this stock many years ago, but Oshkosh looks appealing to me. Investors might want to take a toehold now, and add to it if the shares, now at about $89, fall below $80. Southern Bancshares If you have $8,250 lying around, you can buy one share of Southern Bancshares NC Inc. (SBNC), a community bank based in Mount Olive, North Carolina. It has about 60 branches in North Carolina and Virginia. The stock is thinly traded and, so far as I can tell, completely uncovered by Wall Street. One thing I look for in a bank is a return on assets of 1.0% or better. Southern Bancshares has achieved that in five of the past six years. Ratings agencies don't regard the bank's financial strength highly; its debt gets BBB or BB ratings. That's probably why the stock is so cheap, selling for four times recent earnings and just over book value (corporate net worth per share). This is not a conservative investment, but the risk/reward ratio looks good to me. The Record Starting in 1999, I've written 22 columns featuring picks from the Old Faithful screen. (Today's is the 23rd.) The average 12-month return has been 18.96%, which is more than double the 7.88% return for the Standard & Poor's 500 Total Return Index over the same 22 periods. Be aware that my column results are hypothetical and shouldn't be confused with results I obtain for clients. And past performance doesn't predict the future. My Old Faithful picks have beaten the index 16 times out of 22, and have been profitable 15 times. My selections from a year ago failed to erupt. They fell 13.4%, while the S&P 500 returned 7.0% including dividends. Not a single one of my 2024 picks beat the index. The best performer was Farmers & Merchants Bancorp (FMCB) with a feeble 2.3% gain. Hibbett Inc. (NASDAQ:HIBB) returned only 2.1% even though it was taken over by a British company, JD Sports Fashion. My worst selection was Agco Corp. (NYSE:AGCO), down 28.9%. Disclosure: A hedge fund I run owns call options on Schlumberger. 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 jdorfman@ This article first appeared on GuruFocus. Sign in to access your portfolio
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23-04-2025
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5 Small Stocks That Ring My Bells
April 21, 2025 (Maple Hill Syndicate) Traditionally, large stocks were considered more international, and small stocks more domestic. At a time of trade hostilities, you'd think that small stocks would be doing well. Alas, not. This year through April 18, big stocks (as measured by the Standard & Poor's 500 Total Return Index) are down 9.8%, while small ones (gauged by the Russell 2000 Index) have fallen 15.3%. This is partly because the small fry are more volatile, and partly because in times of stress, people flee to the relative safety of big stocks. Nonetheless, small stocks have advantages. They are less combed over by Wall Street analysts, and offer a better chance of big gains if you choose astutely. Here are five little stocks that look promising to me. Apogee Apogee Enterprises Inc. (NASDAQ:APOG), based in Minneapolis, Minnesota, makes architectural glass and framing, especially for skyscrapers. The stock has been a miserable investment or a great one, depending on your timing. It's down 36% so far this year but up 150% over the past five years. Right now, Apogee stock is out of favor, partly because commercial real estate is suffering in a post-Covid world. It sells for about 10 times the past four quarters' earnings. Over the past decade, that multiple has usually been more like 17. Bank7 Based in Oklahoma City, Oklahoma, Bank7 Corp. (NASDAQ:BSVN) has compiled a strong record of profitability. I like to see banks earn at least 1.0% on assets. Bank7 has done that nine years in a row, including six years where the figure was over 2.0%. Unlike most banks, Bank7 has no corporate debt. It has increased its earnings by 18% a year over the past five years. The stock sells for less than eight times recent earnings. Legacy Housing A small homebuilder based in Bedford, Texas, Legacy Housing Corp. (NASDAQ:LEGH) specializes in very small homes and manufactured homes. If the economy slows down, as seems possible this year, I would guess that the low end of the housing market might be a good place to be. Mortgage rates remain higher than any homebuilder would prefer. But Legacy has very little debt, and so can probably make it through tough times if necessary. The stock sells for 10 times earnings and 1.2 times book value (corporate net worth per share). Monarch Cement Over the past decade, Monarch Cement Co. (MCEM) has increased its annual profits an average of 24% a year coincidentally, the same as Alphabet Inc., the parent of Google. The stock has done extremely well, up 650% in the past ten years. It's up 7% year-to-date, defying the general downtrend. Monarch stock is fairly inexpensive, selling for 13 times recent earnings. And the company is debt-free, a quality I love and rarely see these days. Based in Humboldt, Kansas, the company has little or no Wall Street coverage. Steel Partners Though its name might fool you, Steel Partners Holdings LP (NYSE:SPLP) of New York City is not a steel maker. It's more of a small conglomerate. It makes building materials and tubing, owns WebBank in Utah, and runs a youth sports business in New Jersey. Steel Partners had four losses in the six years through 2019, but has been nicely profitable since, with a return on equity of 25% last year. Since the company is structured as a limited partnership, owning this stock may complicate your tax return. The Record Since the beginning of 2000, I've written 27 columns recommending small-cap stocks. The average one-year return on my recommendations has been 14.1%. That beats both the Standard & Poor's 500 Total Return Index at 8.5% and the Russell 2000 Index (with dividends reinvested) at 9.8%. My picks in this series have been profitable 19 times out of 27. They have beaten the large-cap index 16 times and the small-cap index 15 times. 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. I'd rather not tell you how last year's picks did, but I reluctantly will. All five of my picks from a year ago are down significantly, with an average loss of 40.7%. By comparison the S&P was up 8.5% and the Russell 2000 was down 3.4%. While all my picks did badly, the worst was Quanex Building Products Corp. (NYSE:NX), down 52%. The least disastrous was John B. Sanfilippo & Son Inc. (NASDAQ:JBSS) down 29%. That shows the dangers small-caps can pose. But the long-term results show the benefits. Disclosure: I own Alphabet personally and for almost all of my clients. John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts. His firm or clients may own or trade securities mentioned in this column. He can be reached at jdorfman@ This article first appeared on GuruFocus. Sign in to access your portfolio
