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Dorfman's trick !


Pogo Producing Co. (PPP) -      loss $9906 (bankrupt)
United Online Inc. (UNTD)-      loss $1766.97
New York Times (NYT)-           loss $3102.71
Mercury General Corp. (MCY)-  loss $1424.6

LOSS                                 $16200.28


Sanderson Farms (SAFM)-                profit $4300.8
Alliant Techsystems (ATK)-               profit $4392.7
Commercial Metals Co. (CMC)-          profit $8119.2

Lincoln Electric Holdings Inc. (LECO)-  profit $9757.5
Devon Energy (DVN)-                        profit $9828.8
Schnitzer Steel (SCHN)-                    profit $22006.4 

PROFIT                                                   $58405.4


TOTAL PROFIT  (PROFIT-LOSS)                  $42205


60% successfull picks
40% unsuccessfull picks
Average profit= 97.73% (44.01%+81.81%+97.62%...)/6
Average loss=40.75% (-14.31%-31.04%-100%-17.68%)/4
Average profit/Average loss =2.39

DORFMAN'S EQUATION is (probability of profit)*(profit) - (probability of loss)*loss= Average profit

0.6*0.9773 - 0.4*0.4073= 0.4233

Dorfman should end up in 40 months on average with 42% profit if his average profit will be 2.39x higher than his loss and at least 60% of his picks will be winners.

It makes on average 12.3%/year  + dividends = roughly 14%

Here are arguments behind his picks from his article:


10 New Picks


I will start with two energy stocks. In my view, the U.S. has a direct shortage of natural gas and an indirect shortage of oil (depending on Middle East imports).


I again recommend Devon Energy. Since Devon has returned 227 percent since the end of 2001, you may think that I am being a pig. I plead not guilty. Even after those big gains, Devon sells for only 11 times earnings.


For investors who like higher risk, I recommend Pogo Producing Co. (PPP) of Houston at 13 times recent earnings and only six times analysts' estimates for 2006. Pogo doubled its debt to $1.7 billion to acquire the Canadian unit of Unocal Corp. this year. Some of Pogo's debt is now rated at ``junk'' levels.


Next I'll recommend a pair of metals stocks, partly because I think the U.S. economy is hotter than many investors suppose.


I am sweet on Commercial Metals Co. (CMC), an Irving, Texas, company that manufactures, trades and recycles steel and other metals. Commercial Metals has been profitable for at least 19 fiscal years in a row. The shares trade for eight times earnings and 0.33 times revenue.


Steel and Chickens


I am also fond of Schnitzer Steel (SCHN), based in Portland, Oregon. Schnitzer deals in scrap steel, makes steel, and operates auto junkyards. It has reported a profit every year since it went public in 1993. At six times earnings it looks very cheap.


Sanderson Farms makes the list for a third-straight year. After a 65 percent gain in 2004, Sanderson shares declined 27 percent this year through Dec. 23, due mostly to flat chicken prices and worries about avian influenza. I see those as temporary problems.


I'll also bring back Alliant Techsystems of Edina, Minnesota, a maker of rocket motors, rocket fuel and munitions. I believe the U.S. must continue to spend money on defense and homeland security. Rocketry seems to me to be an intelligent use of defense dollars.


A stock I've tuned into fairly recently is New York Times (NYT), which publishes the New York Times, Boston Globe, and 15 other daily newspapers. It also owns eight television stations, two radio stations, 35 Web sites, and an interest in the International Herald Tribune.


In the past seven years, shares of the New York-based company have sold for an average of 23 times earnings. Today, thanks to three recent soggy quarters, they sell for only 15 times earnings and yield 2.5 percent in dividends.


Juicy Yield


Want an Internet stock with a high dividend yield? It sounds improbable, yet there is such a creature -- United Online Inc. (UNTD) of Woodland Hills, California. Investors dislike it because much of its business is old-fashioned dial-up service. Yet revenues are growing, and the 5.6 percent yield is juicy.


Mercury General Corp. (MCY) is an automobile insurance company based in Los Angeles. The stock has gone nowhere this year and all five analysts who cover it give it a kissing-your- sister rating of ``hold'' or ``neutral.'' I like it for several reasons, one of which is a 3 percent dividend yield.

Hurricane Force


To round out the list, I choose Lincoln Electric Holdings Inc. (LECO) of Cleveland. The world's largest maker of welding equipment, Lincoln should benefit from post-hurricane rebuilding work in the Gulf states.


Lincoln's big risk is lawsuits from people who believe exposure to manganese from welding equipment caused them to develop Parkinson's Disease. So far, the industry has won 10 cases and lost one. Thousands of other cases are pending.

By pelcmarek at 2008-05-20 18:21 | Stocks | pelcmarek's blog


RE:Dorfman's trick


10 picks

4 picks:  loss    40%
6 picks:  profit   98%

After 40 months your return will be 42% thats roughly 13%/year.

By pelcmarek at Tue, 2008-05-20 18:35 | login or register to post comments