Portfolio Thoughts (July 2018)

As the end of the month is near, it’s time for another Portfolio Thoughts post.

As usual, I’ll go over my purchases & sales from this past month, see what price movement there’s been for my Portfolio holdings, and take a look at the stocks I’ve got on my watchlist.

Mixed in can be changes I’m contemplating to improve the Portfolio.  This might be thoughts about stocks I want to overweight or underweight, or stocks I wish to add or remove.

 

Transactions

I was not as busy this month on the transaction front.  I made one purchase, in the healthcare sector, adding shares to an existing Portfolio holding.

The addition I made was to drug distributor Cardinal Health (CAH).  It’s not been a good year for CAH, but the shares were so beaten down that I wanted to add some shares.

Check out my Recent Buy – CAH (#2) post for my purchase price and thoughts behind the addition.

I don’t foresee a bunch of activity for me in the second half of the year, as a good deal of capital was deployed in the first half.  However, there is always the possibility of a stock swap.  This is where I exit or reduce the position of a Portfolio holding, using the sale proceeds to either add to an existing position or initiate a new one.

Currently, I’m comfortable with the 41 stocks I have in the Portfolio, as well as the sector allocation I have.

 

Price Movement

Once again, I’d say most of my stocks trended up this past month, along with the market.  However, I had 4 companies that truly stood out, with gains topping 10% – RPM International (RPM), Fastenal (FAST), V.F. Corp (VFC), and Gilead Sciences (GILD).

RPM entered into an agreement with Elliott Management to help drive operational improvements in RPM’s business.  Elliott added a couple of directors to the RPM Board as part of the pact.  This was all well-received by the market, as RPM moved from $52 to $63 this past month, despite a less-than-stellar earnings release along the way.  RPM was already one of my larger holdings, but it’s move this month vaulted it to the largest position in my Portfolio.

FAST delivered a nice quarter, and offered up a surprise dividend raise, too.  The good news was flowing, and the stock moved up from $50 to $57.

VFC also had a strong quarter to report, helping move the stock from $82 to $92 over the course of the month.  This continued a strong move up for VFC from about $50, where it bottomed out about 19 months ago.

Finally, there’s GILD, which has had a nice run up from $71 to $79 prior to its earnings release.  The feeling seems to be that the worst may be over for GILD now that HCV sales declines are becoming less important, to the point where sales advances from its other drugs can lead the way.

As for Portfolio stocks on the decline, I had only one fall more than 10%.

That stock was newly named Bank OZK (OZK), formerly Bank of the Ozarks (OZRK).  The stock fell from $46 to $41, with most of it coming this past week in conjunction with the quarterly earnings release.  I didn’t think the quarter looked too bad, but apparently the market didn’t agree.

CVS Health (CVS) was another stock of mine that had a notable drop (from $72 to $66), but it didn’t quite reach the -10% level.

All-in-all, more stocks moved up than down, and those that were down, didn’t fall too much.

 

Watch List

Quite a few stocks seem to be moving onto my watchlist.

Let me start with possible additions to my existing Portfolio positions…

I’m looking to add to some of my smaller positions in order to bring them up to a more desirable Portfolio weighting.  I’ve mentioned Comcast (CMCSA) and Texas Instruments (TXN) in previous months, and have now added Starbucks (SBUX), Hershey (HSY), Abbvie (ABBV) and Illinois Tool Works (ITW) to the watchlist.

I keep writing put options on CMCSA instead of buying the stock outright.  These puts have expired in each of the last 3 months, so no assignment was made.  Maybe this is the month I just directly add to my CMCSA position.  We’ll see.

As for TXN, I’m still looking for it to trade below $100 before I consider adding some.  At this point, a purchase isn’t imminent.

SBUX dropped below $48 earlier in the month, and that’s about the spot I’d look to add.  However, I wasn’t prepared to purchase at the time, so I’ll wait and see if I get another opportunity, and if I’ll have the $$$ lined up to act.

HSY is a tough one, as I’ve contemplated selling my position and investing elsewhere due to its recent growth and outlook.  However, I’ve also considered sticking with it and adding to my position.  For now, I’ll just watch it.  The stock continues to drift around in the lower $90s.  I could see adding some in the $87-$88 range.

I like the combination of growth and yield that ABBV provides.  I’ve done well with my initial purchase of ABBV and would like to add more.  I can’t say I’ve identified a price at which I’ll add more ABBV, but it reaches a point of interest for me in the high $80s.

Finally, there’s ITW, which pulled back after its earnings report earlier this week.  ITW has been on the decline since late January, when market volatility ratcheted up.  No price point has been selected for adding just yet, but it’s on my radar.

Now let me discuss the non-Portfolio stocks that I’m watching…

All of them are large, well-established companies.

The list begins with a couple of holdovers from last month in aerospace and defense company General Dynamics (GD), and engine maker Cummins (CMI).  As noted last time, GD would look interesting in the $180-$185 range, while CMI would look intriguing in the $125-$130 range.  CMI is currently closer to being in my target range.

3M (MMM) is still on my radar as well, but it will have to drop into the $185- $190 range to motivate me to initiate a position.

Shipping & Logistics company FedEx (FDX) has garnered my attention of late.  I’d like to see a dip below $230 before taking a closer look.

I’d like to add toolmaker Stanley Black & Decker (SWK) if it approached its 52-week low around $132 again… not too far away.  The price ran up a bit in the past week with an earnings report that exceeded expectations.

Finally, one last idea is chip equipment maker Lam Research (LRCX).  LRCX is a more volatile pick from the tech sector, as evidenced by their move from $165 to $225 in a matter of one month earlier this year.  The stock has seen a subsequent decline to the low $170s.  This stock declared a monster dividend raise this past May, over 100%.

 

Thoughts?

What changes have you been making to your portfolio?  Are you watching any of the same stocks that I am?  Please share your thoughts!

12 thoughts on “Portfolio Thoughts (July 2018)

  1. Hi Paul –
    I liked your post and purchase on CAH. I’d been looking at CAH when considering a healthcare name (ended up with ABBV for the time being).

    Also, a number of good names on your watchlist. Some of them are (and were) on my watchlist after (and before) doing our clean up we just covered. – mike

    1. Hey Mike. I’m hoping CAH can turn things around, but it may be a while before I can reap any rewards. Your choice of ABBV was probably the better one.
      Lots of names I’m watching these days… I just need to be patient and see if any of them offer me the price I’m looking for.

  2. Hi ED,

    Starbucks has been on my watchlist too, and like you I was a bit slow to react when it fell below $50. I’d love to add that to my portfolio if it slips around that level again.

    CAH looks like another good beaten-down opportunity that I’ll also take a closer look at. Thanks for sharing your thoughts and ideas!

    Cheers, Gary

    1. Hey Gary, I’d heard you were on the look out some global names. Hopefully, my watchlist provided some ideas to explore.
      SBUX has had a decent recovery since crossing below $50. I won’t mind if it continues to move higher since I already own some shares, but I’ll look to add a few shares should it re-test the lows.
      It’s been a while since I’ve heard any good news regarding CAH, so there doesn’t appear to be any near term catalyst. However, I’m holding and will wait for further news.

  3. That’s great seeing a handful of positions with nice healthy gains!

    Earlier today I was reviewing my portfolio to target my next purchase, and one that is on my shortlist is on your watchlist as well–Cummins. I’m targeting a slightly higher range than you have, as I think they are attractive and would like to add in the $130-135 range. Another one I am watching right now is Snap-on (SNA). I originally bought them at $149 and despite the move up, I believe they are still undervalued and have had healthy dividend growth rate with a low payout ratio.

    1. I agree… and hopefully, the handful of gains outweigh any losses the portfolio encounters.
      I owned CMI in the past. I sold due to a large run-up in a short period of time, and thought it to be overvalued. The shares have recently traded below that sell level, so I want to start following more closely again, and see if I can start a new position.
      I haven’t followed SNA, but will take a look. It’s always good to hear about what has caught the eye of other DGI investors.

  4. First – great results. I love the pickup of CAH. I didn’t add to my position, but that is because I have a large position in them right now and there are other positions I would like to focus on. But it is a great company nonetheless. I’m also watching ITW and CMI. However, the prices are still a little high for me and I’d like to see a pullback in their price slightly. CMI was close to my range; however, the price jumped back up at the end of the week. I’m also watching TSN and JCI as well.

    Thanks for the summary!
    Bert

    1. I liked my recent CAH add… but I thought that about the previous add above $60, too! Time will tell if CAH can generate some good news to get the price moving upward again.
      I agree on ITW and CMI… would like to see the prices a little lower before adding/initiating. They are some great stocks to be considering.
      A lot the food companies appear to be having a rough go of it lately, TSN included. However, TSN’s price drop since last Dec. has been astounding. I can’t say it’s been a stock I’ve been watching, so thanks for making a note of it here.
      Appreciate you sharing your thoughts, Bert.

  5. TXN is my top of my watch list. 5 year div growth rate of 21.5% with only 56% pay out ratio. TXN will be soon in my portfolio.

    1. Welcome, I4I! I like TXN a great deal. I initiated a small position earlier this year, and have been looking to add to it below $100. I missed my chance earlier, but will wait for another opportunity.

  6. Good call on the SBUX, i picked it up when it dropped to $48 as well, seemed like a fair entry point. Their potential international growth seems solid to me. Thanks for sharing this.

    1. Welcome, Six AM Board Meeting. I like the price you paid for those SBUX shares. I missed my opportunity a few weeks ago, but perhaps I’ll get a 2nd chance to add to my existing share total.
      Hope to see you here again.

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