Hello!  I’m glad you are here and able to check out the latest edition of Portfolio Thoughts.

Let’s focus on something positive to begin.  My biggest gainer for the month surged into my top 10 after moving to within striking distance last month.  Any guesses on which stock this might be?

On the transaction front it was fairly quiet, with one cluster of moves 10 days into September.  Just like in August, I ended up eliminating another Portfolio position in September.  This stock was one of the smaller ones in my Portfolio, but I wasn’t looking to add to it any longer after a recent dividend cut.  So, I moved on… and like my Portfolio better without the stock.  If you don’t already know which stock that was from previous posts, I’ll let you know shortly.

Following the market, the majority of my Portfolio stocks retreated a bit in September.  However, that shouldn’t be too much of a surprise considering that both the market and my Portfolio moved up in value each of the previous 5 months.  A pause was probably overdue.

With the market pullback, several stocks look a little more attractive this month.  I’ll share what’s on my watchlist, both inside and outside my Portfolio.

Here are my Portfolio Thoughts for September…

 

Value Movement

September saw a couple of new stocks settle into the bottom half my top 10.  Both stocks have notched impressive price gains in recent months.

However, let’s start at the top.  Interestingly, there was no change within the top 3.  This hasn’t been the case in recent months.

Qualcomm (QCOM) remained perched in my #1 spot after a surge in August.  The gap was so big between QCOM and my #2 that despite QCOM drifting a bit lower in price in September, it easily kept the top spot.

RPM International (RPM) easily secures the #2 ranking.   This Materials stock has been part of my Portfolio for over 2 decades and is poised to make it 3 with the steady performance it provides.

Holding down the #3 position is Procter & Gamble (PG).  PG is another long-time holding that has been performing better the past couple of years after nearly a decade of flat EPS growth.

In my #4 through #6 spots, in a tight bunch, I have the same 3 companies as last month, with a couple switching positions, and the other remaining in place.

Rising two spots again this month, but this time to #4 was Union Pacific (UNP).  The stock price for UNP held up the best of the three in September, effectively allowing it to move higher in my rankings.

Skyworks Solutions (SWKS) was the stock that didn’t move, holding #5 for a 2nd straight month.  SWKS has been taking a breather the past 2 months after a strong price run up prior to that.

Falling a couple of slots to #6 was Visa (V).  Nothing to worry about here… just some normal price action from month-to-month.

Debuting this month at the #7 spot was Nike (NKE).  An impressive earnings report was an additional catalyst to what was already a nice run up in price.  NKE had actually reached #4 in my rankings shortly after the earnings release, but couldn’t hold the spot in the following days.

T. Rowe Price (TROW) slipped a spot to #8.  Financials haven’t been a sector in favor recently, and TROW couldn’t buck the sector trend this past month, as it ended as one of my poorer performers.

Stopping its recent slide, Pepsico (PEP) managed to retain my #9 spot this month.  I don’t foresee PEP falling out of my top 10, but the company does have an earnings release this week, and if the outlook isn’t favorable, perhaps it could fall enough.

My other newcomer this month is Lowe’s Companies (LOW) which finished the month in the #10 position.  Last month, LOW was just outside the top 10, at #12.  LOW actually had a negative month in terms of price movement, but it was noticeably less than that of the two companies that it passed, Fastenal (FAST) and BlackRock (BLK).

FAST, Johnson & Johnson (JNJ) and BLK are now lurking outside my top 10, but are close enough to move into the top 10 by the end of next month.

 

 

Looking at the totals in my table above, my top 10 holdings comprise 39.77% of my Portfolio value.  This is a rise of 0.37% compared to last month.  This increase was due to decent price performance during September, as well as the departure of one of my stocks from the Portfolio (lifting the weights of all the remaining stocks).

With the top 10 getting close to 40% value weighting, I will look to add to some of my smaller Portfolio holdings, or add a new stock to the Portfolio.

As for the dividend weighting of my top 10, this dropped significantly.  It was a 3.05% fall to 27.95%.  This was primarily a function of the heavier dividend weighting of FAST (2.76% in Aug.) and BLK (3.16% in Aug.) being replaced in my top 10 by the lower dividend weightings of NKE (1.13%) and LOW (1.88%).

 

Transactions

As I noted earlier, I executed a trio of trades all on the same day.  That was the extent of my transactions for the month.

After Wells Fargo & Co. (WFC) cut their dividend over 80%, my desire to keep the stock in my Portfolio fell by about the same percentage.  While I did hold the stock for a bit, I eventually sold all shares.

I took the proceeds and fortified a couple of existing positions in UnitedHealth Group (UNH) and TCF Financial (TCF).  The latter trade allowed me to keep some of the proceeds in the Financial sector.

Peruse the following post for details on these three transactions…

 

Recent Transactions – WFC, UNH, TCF

 

As noted, my lone sale resulted in another stock exiting my Portfolio, while the two purchases were to existing positions.  Therefore, the number of Portfolio holdings was reduced by one to 47.

 

Price Movement

Note – my price changes cover closing prices from 8/28/20 to 9/25/20.

Sadly, the streak of 5 consecutive months of overall price gains in my Portfolio came to an end in September.  This month I saw roughly a 4:1 ratio of stocks with price declines compared to price gains.  This was essentially a flip of the ratio seen in August.  Of the 47 holdings, 38 moved lower and only 9 moved higher.  In addition, the average decline was quite negative relative to the average advance.

 

Of the 9 stocks that rose in price, only one finished up over 10% (the usual threshold I monitor).  NKE rose 10.63% to claim that honor.

After that, no Portfolio stock could even muster a 5% gain.  In fact, the next best gainers were:

• Eastman Chemical (EMN), which rose 3.87%
• VF Corp (VFC), with a rise of 3.83%
• Comcast (CMCSA), with an advance of 3.57%, and
• Broadcom (AVGO), with a 3.47% move higher

Overall, my stocks in the Consumer Discretionary sector appeared to do the best in September.

 

Of my 38 stocks that fell in price, four fell more than 10%.  Leading the decliners was TCF, with a retreat of 16.11%.  Not far behind were a 13.34% decline from Air Lease (AL), a 12.88% drop from Altria (MO), and a slide of 12.56% from REIT Iron Mountain (IRM).

In that pack of decliners, I saw 18 other stocks fall at least 5%.  So, there was plenty of red to go around.  Here are the worst of this group:

• TROW, which fell 9.98%
• W.P. Carey (WPC), which sank 9.29%
• General Dynamics (GD), which sagged 9.23%
• Microsoft (MSFT), which regressed 9.21%, and
• JPMorgan Chase & Co. (JPM), which pulled back 9.05%

Financials and REITs appeared to lag the most in September for me.

Note – I still don’t hold any stocks from the Energy or Utilities sectors.

 

Watch List

With the market’s decline came stock prices that are a bit more enticing.

Underweight sectors for me include Information Technology, Communication Services and Healthcare.  Thus, I’ll probably look to boost my holdings in those sectors if I can.

Within my Portfolio, here are some stocks that I’m watching for possible additions…

While I added to UNH this month, I’m interested in adding again should it dip below $300.

CVS Health (CVS) is rather interesting to me at current levels, and it falls within the Healthcare sector I’m looking to boost.  I was surprised when it fell below $62, but then continued to decline almost another 10%.  The company is working the Aetna acquisition debt levels down per plan, so I’m thinking dividend growth may resume by the start of 2022.

Shares of Automatic Data Processing (ADP) and GD are still high on my watchlist.  I missed a nice opportunity to add ADP under $130 last week, so I’ll look for that again.  GD looks tempting in the mid $130s as well, but I probably won’t focus on it right now.

In the Tech sector, Cisco Systems (CSCO) has reached the $38-$39 range and could be an addition for me.  CSCO is one of my smaller positions, and adding at this price would bolster my position and lower my cost basis all at once.

As for non-Portfolio stocks that I’m watching…

I had it as a bonus goal this year to add a Utility stock to my Portfolio.  My first choice is NextEra Energy (NEE), but I want to see the valuation come down more before initiating a position there.  Last month I noted an interest in utility Pinnacle West Capital (PNW), an electric utility primarily operating in Arizona.  The price of PNW came quite close to dropping below my $70 target before advancing again.  However, it’s much closer to becoming a part of my Portfolio at current prices than NEE.

Along the same lines as CVS, I’m watching Walgreens Boots Alliance (WBA) for a possible Healthcare addition.  While I like the prospects for CVS more, the valuation on WBA seems exceedingly low (P/E ratio just north of 7.5).  In addition, WBA does offer a significantly higher yield of 5.21% compared to the 3.42% offered by CVS.

 

Thoughts?

Have you been recently adding to your portfolio despite the market gains over the past 6 months?  Are you being selective about what/when to add?  Are you making small purchases on clockwork-like intervals?  Please share your thoughts!