8 Must-Own Stocks to Complete Your 'Sweet 16' Portfolio

NEW YORK (TheStreet) -- Need more stock-picking inspiration? Last month, Jim Collins, a contributor to Real Money (a sister-site to TheStreet), created a Sweet 16 list of long-only stocks for an international client. Collins, who runs Portfolio Guru, noted the list does not include any preferred shares, ETFs, call options, etc.

"I certainly don't see much near-term upside for this market, so I leaned heavily on my income-investing principles in the construction of his portfolio," Collins wrote in a July 23 column naming the first eight stocks. "We'll beat a flat market because of the portfolio's yield of about 5%, and we should substantially outperform a declining market due to the portfolio's low risk profile."

But since then, he has already switched out one name -- replacing Argentinian energy company, YPF Sociedad Anonima (YPF) , with Exxon Mobil (XOM) .

"Putting Exxon in the mix increases his [client's] current yield above 5% and I expect to ride the portfolio's dividend payments to a relative performance victory over a broad stock market that is overvalued, overhyped and, quite frankly, scares the hell out of me," Collins wrote in his Aug. 1 column naming the second eight stocks in the portfolio.

Here are the second eight stocks in Collins' list. We've included assessments from TheStreet Ratings for added perspective.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on Aug. 10, 2015 closing prices.

ACU Chart ACU data by YCharts

1. Acme United Corp. (ACU)
Industry: Industrials/Office Services & Supplies
Market Cap: $60 million
Year-to-date return: -9.7%

Acme United Corporation, together with its subsidiaries, supplies cutting, measuring, and first aid products to the school, home, office, hardware, sporting goods, and industrial markets in the United States, Canada, Europe, and Asia.

Collins said: Extremely steady consumer-products company with a great stable of brands and further opportunities for operational efficiency. The safest stock I own, bar none. Yield: 2.01%.

TheStreet Ratings: Buy, B
TheStreet said: "We rate ACME UNITED CORP (ACU) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year, attractive valuation levels and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ACU's revenue growth has slightly outpaced the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 1.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.71, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, ACU has a quick ratio of 1.78, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 36.92% is the gross profit margin for ACME UNITED CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 7.97% is above that of the industry average.

 

 

ARR Chart ARR data by YCharts

2. Armour Residential REIT Inc. (ARR)
Industry: Financial Services/Mortgage REITs
Market Cap: $987 million
Year-to-date return: -23.6%

ARMOUR Residential REIT, Inc. invests in and manages a portfolio of residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

Collins said: After years of mistiming the agency mortgage REIT market, ARR management finally reported an expectations-exceeding quarter this week. And after 4½ years of steadily decreasing payouts, ARR's August dividend will reflect a sequential increase. I believe an inflection has been reached, and the stock's 1-for-8 split (effective Monday) should increase liquidity. Yield: 17.4%.

TheStreet Ratings: Sell, D
TheStreet said: "We rate ARMOUR RESIDENTIAL REIT INC (ARR) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly decreased to $37.84 million or 57.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ARR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 32.93%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ARR, with its decline in revenue, underperformed when compared the industry average of 7.1%. Since the same quarter one year prior, revenues fell by 20.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • ARMOUR RESIDENTIAL REIT INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ARMOUR RESIDENTIAL REIT INC reported poor results of -$4.40 versus -$4.24 in the prior year. This year, the market expects an improvement in earnings ($3.58 versus -$4.40).

 

 

ASTC Chart ASTC data by YCharts

3. Astrotech Corp. (ASTC)
Industry: Industrials/Aerospace & Defense
Market Cap: $49.6 million
Year-to-date return: -1.6%

Astrotech Corporation develops, manufactures, and sells ultra-small mass spectrometers and related equipment for government agencies, research organizations, and universities. The company through utilizing microgravity as a research platform also develops novel therapeutic products.

Collins said: Commercializing NASA technology for mass industrial markets. I believe ASTC's 1st Detect division's mass spectrometry technology will become a "killer app" on the chemical detection and analysis market with applications in many industry verticals.

TheStreet Ratings: Sell, D+
TheStreet said: "We rate ASTROTECH CORP (ASTC) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market, ASTROTECH CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • ASTC has underperformed the S&P 500 Index, declining 11.67% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • ASTROTECH CORP has improved earnings per share by 36.4% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ASTROTECH CORP reported poor results of -$0.28 versus -$0.01 in the prior year.
  • ASTC, with its very weak revenue results, has greatly underperformed against the industry average of 4.4%. Since the same quarter one year prior, revenues plummeted by 75.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • ASTC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 12.94, which clearly demonstrates the ability to cover short-term cash needs.

 

 

CUBI Chart CUBI data by YCharts

4. Customers Bancorp Inc. (CUBI)
Industry: Financial Services/Regional Banks
Market Cap: $677 million
Year-to-date return: 29.3%

Customers Bancorp, Inc. operates as the bank holding company for the Customers Bank that provides financial products and services to small businesses, not-for-profits, and consumers.

Collins said: Customers' shares plunged after its second-quarter earnings report and I had the opportunity to sit down privately with CFO Bob Wahlman in New York this week to discuss the quarter and CUBI's outlook. I'll cover CUBI in much more detail in my next post, but suffice it to say, I do not believe one (potentially) bad loan representing 0.13% of CUBI's loan book should tarnish an otherwise great regional banking story.

TheStreet Ratings: Buy, B
TheStreet said: "We rate CUSTOMERS BANCORP INC (CUBI) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, growth in earnings per share, increase in net income and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 27.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.89% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CUBI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • CUSTOMERS BANCORP INC has improved earnings per share by 5.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CUSTOMERS BANCORP INC increased its bottom line by earning $1.55 versus $1.32 in the prior year. This year, the market expects an improvement in earnings ($1.88 versus $1.55).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income increased by 12.9% when compared to the same quarter one year prior, going from $10.23 million to $11.56 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, CUSTOMERS BANCORP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

 

 

NMM Chart NMM data by YCharts

5. Navios Maritime Partners LP (NMM)
Industry: Industrials/Marine
Market Cap: $880 million
Year-to-date return: 1.9%

Navios Maritime Partners L.P. owns and operates dry cargo vessels in Europe, Asia, North America, and Australia.

Collins said: More yield, this time through a mixture of dry-bulk and container ships wrapped into an MLP structure, but taxed as a C-corporation. So, no K-1's and a phenomenal -- and safe, as all NMM's boats are on long-term charters -- yield of 16.57%.

TheStreet Ratings: Hold, C
TheStreet said: "We rate NAVIOS MARITIME PARTNERS LP (NMM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 12.7%. Since the same quarter one year prior, revenues slightly increased by 2.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for NAVIOS MARITIME PARTNERS LP is currently very high, coming in at 96.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.10% is above that of the industry average.
  • NMM's debt-to-equity ratio of 0.79 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.26 is sturdy.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Marine industry. The net income has significantly decreased by 62.1% when compared to the same quarter one year ago, falling from $29.99 million to $11.36 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Marine industry and the overall market, NAVIOS MARITIME PARTNERS LP's return on equity is below that of both the industry average and the S&P 500.

 

 

OHGI Chart OHGI data by YCharts

6. One Horizon Group Inc. (OHGI)
Industry: Telecom/Alternative Carriers
Market Cap: $53 million
Year-to-date return: -23.1%

One Horizon Group, Inc., through its subsidiaries, develops and licenses software solutions to telecommunications operators in Europe, Asia, the Russian Federation, and the United States.

Collins said: The company's VOIP-to-mobile technology is tailor-made for a large emerging market like China. OHGI's Aishuo app already has been downloaded more than 6 million times through Chinese Android app stores including Baidu BIDU, Tencent and Xiaomi and is also supported on iTunes in China. Aishuo now supports all of China's major mobile payment platforms -- UnionPay, Alipay, WeChat, Wallet -- so monetization is a current event, not a pipe dream for the future.

TheStreet Ratings: Sell, D
TheStreet said: "We rate ONE HORIZON GROUP INC (OHGI) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Telecommunication Services industry. The net income has significantly decreased by 140.5% when compared to the same quarter one year ago, falling from -$0.39 million to -$0.93 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, ONE HORIZON GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 63.32%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 50.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • ONE HORIZON GROUP INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ONE HORIZON GROUP INC swung to a loss, reporting -$0.07 versus $0.04 in the prior year. This year, the market expects an improvement in earnings (-$0.05 versus -$0.07).
  • The revenue fell significantly faster than the industry average of 5.9%. Since the same quarter one year prior, revenues fell by 37.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

 

 

PNNT Chart PNNT data by YCharts

7. PennantPark Investment Corp. (PNNT)
Industry: Financial Services/Asset Management & Custody Banks
Market Cap: $580 million
Year-to-date return: -17.8%

PennantPark Investment Corporation is a publicly listed business development firm specializing in direct and mezzanine investments in middle market companies. It invests in the form of mezzanine debt, senior secured loans, and equity investments.

Collins said: A business development/regulated investment company whose shares have been hammered based on portfolio exposure to energy. Oil and gas only represented 8% of PNNT's portfolio as of March 31, and I expect June quarter results (earnings reported Aug. 5) will show solid growth and continued strong profitability. Yield: 13.97%.

TheStreet Ratings: Hold, C+
TheStreet said: "We rate PENNANTPARK INVESTMENT CORP (PNNT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • PNNT's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 12.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for PENNANTPARK INVESTMENT CORP is rather high; currently it is at 67.19%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 17.29% is above that of the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, PENNANTPARK INVESTMENT CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.58%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 83.60% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

 

 

XOM Chart XOM data by YCharts

8. Exxon Mobil Corp. (XOM)
Industry: Energy/Integrated Oil & Gas
Market Cap: $320 billion
Year-to-date return: -14.8%

Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania.

Collins said: I just couldn't resist an AAA-rated company yielding 3.51%, so I added XOM to my client's portfolio on the heels of the stock's swoon Friday (July 31). I like YPF's Vaca Muerta acreage in Argentina, but I love Exxon's ability to produce $8.8 billion in operating cash flow in a quarter that was disastrous for so many E&Ps.

TheStreet Ratings: Hold, C+
TheStreet said: "We rate EXXON MOBIL CORP (XOM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • XOM's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that XOM's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 34.8%. Since the same quarter one year prior, revenues fell by 33.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 52.3% when compared to the same quarter one year ago, falling from $8,780.00 million to $4,190.00 million.
  • The share price of EXXON MOBIL CORP has not done very well: it is down 21.11% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

 

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