Lots to talk about this month as we deal with all the changes in our lives due to the presence of COVID-19. I’m currently sheltering in place at home, and I’m sure many of you might be doing the same. I’m hoping the spread of the virus is soon contained, but it seems we’ve got much longer to go than we might have originally thought.
It’s amazing to see the impact the pandemic has had on health around the world, not to mention the impact on the world economy. So many businesses are now in need of financial assistance as they’ve been forced to shut down in an effort to slow the spread of the virus. Unfortunately, this has already led to plenty of job layoffs, with many more to come in the coming weeks/months. The economic distress just compounds the problems.
It certainly feels strange to be discussing my Portfolio given the environment, but it brings a small piece of normalcy to my current existence. So… here’s my latest monthly edition of Portfolio Thoughts.
My summary this month seems eerily similar to last month…
Portfolio transactions within my Portfolio stayed active and there was plenty of price movement (nearly all to the downside). In addition, a cornucopia of stocks hit my watchlist with their lower prices. Many watchlist stocks blew right through my price targets, too. Just like last month, I even had a couple of stocks moving in and out of my top 10. As usual, there’s plenty to discuss.
After a month of destruction in the stock market, I expected to see a shake up within my top 10 holdings, and that’s exactly what I saw. It wasn’t just the top spot that saw movement. There were positional changes up and down the top 10, including 2 stocks making a new appearance in the list.
During the course of the month, I had at least 3 different stocks temporarily claim the top spot in my Portfolio, but of course, only one can be there in the end.
RPM International (RPM) sits atop my Portfolio this month after rising one spot. RPM has been a frequent holder of the #1 spot, usually jockeying with Qualcomm (QCOM) each month.
Holding the #2 spot this month is Procter & Gamble (PG). This is two spots higher than last month. Being a defensive stock, PG held up pretty well during the sharp market pullback. Thus, PG was holding relatively steady while other stocks around it fell at a faster clip.
QCOM is now holding down the #3 spot after falling from the top, while Visa (V) has slipped a spot to the #4 position.
At the #5 position is Pepsico (PEP). another defensive stock that performed well amidst the stock price wreckage. PEP was my only top 10 stock to start and end in the same position. However, despite holding the same position it has come closer to creeping up the list.
The stock price for Union Pacific (UNP) has been volatile recently, yet it managed to move up a spot to #6. Transportation of goods is expected to slow down with the lessened business activity so we’ll see if UNP can hold this spot by the time next month rolls around.
Johnson & Johnson (JNJ) was another defensive name that fell less than other stocks. That allowed JNJ to rise two spots in my top 10 to the #7 position.
Falling a couple of spots to #8 was T. Rowe Price Group (TROW). Financials have been hit hard in the market downturn, so I’d say TROW is doing OK. The fact that TROW doesn’t have any debt leaves the company in a more flexible position in the current environment.
This brings me to the two stocks that managed to work their way into my top 10, Nike (NKE) and Blackrock (BLK). NKE debuts in the #9 spot. A good earnings report this past week surprised many and helped give the stock a lift. Meanwhile BLK debuted in the #10 spot. BLK has been volatile, too, but rose quickly this past week during the 3-day mini rally, and that helped catapult the stock into my top 10.
With two new stocks in my top 10, that means two stocks had to drop out. Those two stocks were Air Lease (AL) and Nexstar Media Group (NXST). Both stocks had their prices hammered during the month. Given that AL leases airplanes, you can imagine what happened to it. While AL did recover some from its massive dip (into the $9 range!), it still fell from my #8 spot last month to #21 this month. Meanwhile, I haven’t heard much of anything on why NXST plunged so much, but I do know it has a significant debt load after a recent purchase, and that’s most likely not helping its situation. NXST was holding down the #10 spot last month, but now stands at #22 this month.
From the table below, my top 10 holdings comprise ~37.7% of my Portfolio value, which is about 1.7% higher than last month. So, the top 10 carry a little more weight after so many stocks fell in price this past month. The top 10 dividend weighting held fairly steady at ~28.8%. Dividend freezes and cuts have become a greater possibility in the near-term, but I’m hoping my strongest stocks can continue to grow their dividend this year.
Transactions
My number of Portfolio transactions remained elevated in March, as the re-shaping of my Portfolio that I started earlier this year continued.
All the recent stock price declines led to several watchlist stocks coming into a buy territory for me. Rather than investing new cash into the market, I instead trimmed a few stock positions and used the proceeds to help initiate positions in a few stocks that I’d been watching for months/years. So, it was more of a re-allocation of capital, as opposed to an investment of capital. However, some cash was put to work, too.
To free up some capital, I continued trimming my REITs. I trimmed W.P. Carey (WPC) for the first time in a while, and trimmed Realty Income (O) for the third time this year. I also sold the last of my Crown Castle International (CCI) shares, eliminating the position altogether. My REIT weighting is now in-line with the S&P 500.
I also trimmed a couple of my Portfolio positions that were actually gainers for me in March (my only two, no less). These two stocks were Gilead Sciences (GILD) and Hormel Foods (HRL).
On the buying side, I bought Broadcom (AVGO) three separate times, Automatic Data Processing (ADP) on two occasions, added to four existing positions, and initiated three new positions.
The new positions were Sysco (SYY), The Walt Disney Co. (DIS) and Microsoft (MSFT).
All totaled, there were 18 transactions in March… twice as many as in February! All the details on those transactions can be found in these two posts…
Due to all my transactions, I’m glad that most of the brokerage world has moved to commission free trades, as otherwise I would have paid a decent chunk for all the moves.
With CCI leaving my Portfolio, and SYY, DIS & MSFT entering my Portfolio, the number of stocks in my Portfolio rose to 51.
Price Movement
Note – my price changes cover closing prices from 2/28/20 to 3/27/20.
And I thought February was a bad month! March brought some even greater Portfolio pain. Let’s take a look at all the red…
This month my Portfolio saw a duplicate onslaught of red. Once again, it was a 23:1 ratio of stocks with price declines compared to price gains. Of the 48 holdings, 2 moved higher and 46 moved lower. The 48 stocks doesn’t account for new additions SYY, DIS & MSFT (which I’ll pick up next month).
Of the 2 stocks that rose in price, neither was able to move up over 10% (the usual threshold I’m monitoring), however both were able to rise by more than 5%.
Leading the lone pair of gainers this month was HRL, advancing 8.08%. HRL actually spiked as high as $50/share before retreating. That was followed by my only other gainer, GILD, which rose 5.03%. GILD has now managed to climb in price for two consecutive months… definitely swimming against the stream. Once again, a very short list of gainers this month.
The next best stocks in terms of performance were CVS Health (CVS) with a loss of 0.98%, PG which fell 2.70%, and Cisco Systems (CSCO) which slipped 2.78%. This was not too shabby given the current state of affairs in the stock market.
Of my 46 stocks that fell in price, 1 plummeted more than 50%, 2 plunged over 40%, 3 dropped over 30%, 8 declined over 20%, and yet another 21 stocks sagged over 10%. And that doesn’t even account for the remaining 11 that retreated between 0 and 10%. Holy smokes, that was an ugly month!
My biggest loser this month was The Cheesecake Factory (CAKE), which fell an amazing 54.59%. CAKE has had to close the majority of their restaurants as the country fights the spread of the virus. Another pair of big losers for me in March were NXST and AL, which I mentioned earlier. Their losses knocked them out of my top 10 holdings – actually out of my top 20 holdings. NXST and AL lost 45.63% and 45.44%, respectively.
One of the three 30% decliners was Kontoor Brands (KTB), which dropped 39.83%. Luckily, KTB is my smallest Portfolio holding, so the impact of its loss on my Portfolio value was minimal.
The other two 30% decliners were a couple of my financial stocks, Main Street Capital (MAIN), which fell 36.15%, and TCF Financial (TCF), which lost 32.44%. MAIN implements debt and equity financing solutions for lower middle market companies. Given that MAIN may have a difficult time receiving payments from smaller companies that have significant debt in this environment, the drop in MAIN is understandable. As for TCF, the company did not fare well during the market decline along with most of the other regional banks in the U.S.
That’s two straight months with hefty stock price declines. I’d like to think the stock market can’t go too much lower from here, but considering that it appears more bad news is coming in the weeks/months ahead, I won’t bet on it.
Watch List
With massive stock price declines nearly the entire month of March, dozens of stocks have hit my radar. In fact, I started acquiring a few of them as noted earlier as part of my Portfolio reallocation.
Plenty of stocks still remain in buy territory for me, but I’m inclined to slowly add over the course of the next few months in lieu to diving into the market now with any cash I have available for investment. As noted last month, I’ll have to be selective with my purchases.
Given all the market uncertainty, right now I’m trying to focus on quality companies with strong financial standings.
Within my Portfolio, here are some stocks that I’m watching for possible additions…
I still want to increase my weighting in UnitedHealth Group (UNH). The stock tumbled under $200/sh. just last Monday, but I wasn’t prepared to buy. The rally that followed shortly thereafter brought UNH back to $242. I’ll see if I can get another opportunity under $215.
General Dynamics (GD) has already declined to a point where I’d buy, so it’s a strong candidate for an addition for me. A buy at the $130 level it’s at now would be nearly $40 cheaper than any previous shares I’ve purchased. Definitely a good chance for me to average down significantly.
I’d like to add to my newly minted MSFT position. A price below the $137 area I initiated at could inspire me to increase my position.
I’ve been building my ADP position fairly regularly over the past month and I’ve still got another buy in me in an effort to further grow the position. ADP’s current price in the $131 range is still well below my best purchase price, however given that the stock touched $109 early last week, maybe I can obtain a price somewhere around $120.
I may have missed a good chance to add shares of Lowe’s Companies (LOW) and Starbucks (SBUX) at extremely low prices, but with them being mid-sized positions in my Portfolio I instead built out smaller positions or initiated new ones. I’ll keep my eyes open to both of these stocks moving forward though. Last month I said I was looking at LOW below $100 and it dropped all the way down to $60! I was interested in SBUX below $75 at the start of last month, and the stock fell to $50 during the past couple of weeks!
As for non-Portfolio stocks that I’m watching…
As you know I’ve been watching Boeing (BA) and FedEx (FDX) for quite some time. At the end of last month, there were trading around $275 and $141, respectively, which was as low as they’d been in quite some time. However, given their recent issues (nothing of which had to do with the markets), I hadn’t purchased. Well, they got way less expensive in the last month as both sank down to $89. Despite the tempting share prices, at this point in time if I’m going to invest it’s going to have to be in something of high quality, and I’m certain neither qualifies right now.
Last month I had MSFT, SYY and DIS on this list of non-Portfolio stocks that I was watching. Well, after initiating positions in all three over the course of the past month, I will remove them from the list. However, that still leaves Waste Management (WM) and NextEra Energy (NEE). I was aiming for WM around $90 and NEE below $200. Both stocks breached those levels but have since risen above them again. At their recent lows, WM got down to around $85, while NEE was trading near $175. At this point, I’ll look for them to re-test those lows and use those prices as potential buy points.
Thoughts?
Has the movement within your portfolio this past month strengthened your feelings about which stocks you’d like to have in your portfolio for the long-term, and which you could do without? Please share your thoughts!
ED,
it is crazy how much movement there was in your portfolio, in terms of market value. But I’m really not surprised, to be honest. General Dynamics has been high on Lanny’s list and I may start adding a position to the company myself. I love how strong the defensive stocks are doing right now, and it is a reminder for why it is always nice to have some dividend paying defensive companies in your portfolio. I haven’t asked myself once whether or not PG is going to not increase their dividend this year, let alone cut it.
For me, this downturn has made me realized that I have too much oil in my portfolio. The yields are nice, even when things are going poorly. But man, it is hard to stomach some of the twists and turns with how volatile oil is. I think I am good on that sector for a while lol
Thanks for sharing your thoughts!
Bert
Hi Bert! Thankfully, I only have one energy name in my Portfolio, and that’s XOM. XOM is supposed to be one of the best bets to manage a downturn in oil prices, so we’ll see. They are being put to the test now, for sure.
Unfortunately, despite not having many energy names in my Portfolio, I’ve still had plenty of stocks with significant declines. Most of them happen to be in industries directly impacted by business shutdowns due to COVID-19… restaurants, airlines, etc.
As for my defensive stocks, I’m sure glad I have some to balance out my Portfolio. I have 3 that are fairly large holdings for me, and I’ve owned them for decades…. PG, JNJ & PEP. Even RPM has held up well. All 4 stocks dropped less than 10% for me last month.
As always, thanks for dropping by and commenting! I hope you and the family are staying well.
Big congrats on starting your MSFT and DIS positions! MSFT has been one of my top two holdings and performers. Nice timing on picking up DIS as well. I can see a lot of pain in store for DIS, but I can’t imagine a world without them in 20 or 30 years.
WM is solid in my opinion. I went with RSG (their smaller competitor), but would love to build up some WM shares too.
I personally don’t have many entertainment stocks or REITs. My portfolio still took a big hit over the last few months, but I’m happy to go down with the ship with my companies. I like BA for their moat, and while their dividend cut was somewhat expected, I don’t plan on selling. I’m taking these few months as all just part of the process.
Hey Dozer! I was happy to add MSFT and DIS where I did. They’ve held up nicely since my purchase. However, I expect more downside from DIS compared to MSFT in the near-term.
WM is trading around my price target, but then again, so are many other stocks, so I’ll have to be selective.
I agree we just have to ride out the storm. When the weather clears, I’m certain we’ll find plenty of stocks in the bargain bin.
Sorry to hear about the BA dividend cut, but as you said, it was not unexpected. I can’t believe how quickly BA went from $300 to under $100 considering how long the company managed to hold up in the wake of the MAX issues.
Nice and thorough review ED! Even though most of the stocks dropped in value, it’s nice to see that none of them cut their dividend yet. At least we can see some attractive valuations and higher dividend yields. Of course, it’s hard to predict the earnings for the next few months…
I like your new positions! I jumped into Disney too early but I am not worried about them in the long term. I would love to add to MSFT as well, but would like their dividend yield to reach at least 1.9%, but that’s quite a tall order. They have a lot of cash, so they should be more resilient to the recession than competitors. The same goes for Apple, which is also a stock I am following.
I added tiny amounts to JNJ & Altria last month, and also purchased my first bond of a Lithuanian company.
As for my existing holdings, I can see that all of them suffered losses in March, and the average drop is ~15%. I still feel that my portfolio should weather the storm pretty well in the long run, though. I am planning to publish review in a week or two.
Stay safe!
BI
Thanks, BI. I’m keeping my fingers crossed that I can avoid any dividend cuts/suspensions, but that may be a tall order.
I thought there might be more downside to DIS when I bought it, but it’s held up very well since my purchase. However, a drop in price could be coming after we get all the details on how their business is being impacted with all the shutdowns.
I’ve liked your JNJ additions… keep building as you can. I saw your bond purchase, too. It was for 3 years if I remember correctly. The nice thing about the individual bond is that you get all your principal back if you hold it to maturity. The same can’t be said with a bond fund.
Yes, lots of red in my Portfolio, too. Let’s hope the worst is over.