×

How one expert is up 14% this year

It's been a busy first quarter in the Halftime Report's portfolio competition. Since the beginning of the year—when each trader was given a hypothetical $100,000 to invest — more than 200 trades have been made.

As the market-experts vie for the top spot, one trader has already made a figurative fortune. Jim Lebenthal's portfolio is up 14 percent, securing the coveted first place slot for him at the end of the first quarter.

Selling at the right time is one of the things Lebenthal's focusing on this year. He noted that since he is a value investor, his positions generally do well in the long term, but not necessarily the short term. So he is making a conscious effort to "get out of [stocks] quickly in this game," he said. "That's different from being a long-term investor."

A value investor, Lebenthal's strategy has always been to target stocks that he believes have fundamental strength.

"The stocks in my portfolio will always be cheap relative to earnings, they'll always have strong balance sheets, and they will usually have good dividend yields," he said when unveiling his portfolio picks in January.

This strategy hasn't been foolproof in the portfolio competition, however. He played by the same rules in 2015, and ultimately finished second to last. So what's changed this year?

Catalysts are a big reason. Each stock Lebenthal plans to add to or swap from his portfolio will have meaningful events in the coming months that could potentially reveal untapped value.

Lebenthal began the year with Trinity Industries, J.C. Penney, Marathon Petroleum, Orbcomm, and General Motors in his portfolio.

Less than a month into the competition, he swapped GM and Marathon for Qualcomm and Qorvo. The catalyst for that move was earnings—he wanted to get in the names before quarterly results.

Qualcomm sold off in early 2016 as the company failed to provide clear guidance on its business in China. So when the chip maker announced that it had signed several licensing agreements in China — right before the company's quarterly earnings — Lebenthal seized the opportunity to buy a "high-quality value company that has gotten extraordinarily cheap in the first quarter."

He still holds the stock in his portfolio, and Qualcomm is up 7 percent since his purchase.

Lebenthal bought Apple supplier Qorvo ahead of Apple's earnings. He argued that Qorvo's been a "beaten-down name" but "probably not as bad as everybody expects." He held the position for just shy of three weeks. When he sold out on February 17, his realized gain was $1,664.

By far Lebenthal's best call this quarter was his purchase of satellite-operator Orbcomm. The stock has rallied a whopping 39 percent since the start of the year, and it's showing no signs of slowing down.

"They're well past break-even, the margins are tremendous…they just launched a new set of satellites, which are going to equal better capacity, more sales, more revenue, and capex goes almost to zero. So it's a free cash-flow machine," he said.

Another trend that has helped Lebenthal outperform is volatility. As many investors fled stocks, Lebenthal used the wild swings to his advantage. He sold out of Marathon Petroleum when it was at $42.62, only to buy it back three weeks later for $32.74 per share. It's a stock he's held onto, although the oil giant is down 2 percent since his purchase.

Lebenthal's most profitable trade to date has been J.C. Penney, which he bought at the start of the year. "With each of the last three quarters they've exceeded estimates and raised guidance. They're going to continue to do so," he argued back in January.

When he sold his Penney portfolio position on March 3 he made $9,411 on the trade. He is long the name in real life, arguing that the retailer can "refinance [its] debt and…unlock the value on their balance sheet that's going to drive the equity value higher."

But the portfolio competition is limited to just five stocks, and Penney no longer made the cut.

Interestingly, he's sticking with the stock that is his biggest loser. Trinity Industries is down 12.7 percent on the year. Lebenthal says the stock still fits his catalyst criterion, as it is in the throes of a lawsuit about purportedly faulty guardrails. Howver, Lebenthal believes the suit is "frivolous" and that it will be "overturned."

He doubled down on the stock, picking up an additional 500 shares on March 1.

With one quarter down, it's still the early stages of the competition. And if the years past are any indication, anything can happen from here on out.

But Lebenthal is confident going into the second quarter. He plans to stick to his core strategy—value picks with upcoming catalysts—but also to try and make more trades. He said he needs to "focus less on 30, 40 percent hits like Orbcomm and J.C.Penney, and think of 5-10 percent gainers."

Stay tuned for what happens next.

Stock performance numbers calculated as of the close on March 31, 2016.

On March 31, 2016 Jim Lebenthal owned the following stocks: Long AAPL, BA, C, CSCO, DCO, DIS, EEQ, GAIA, GM, INTC, JCP, KMI, KMY, MPC, OA, ORBC, PFE, QCOM, QRVO, SPLS, TIF, TRN, TWX, WGO.