What a rough January!  The market pulled back significantly to start the new year.

All but one S&P 500 sector is down for 2022, with the index down 7% overall.  Eight of eleven sectors have declined by at least 5%.

Consumer Discretionary stocks have been hit the hardest.  This sector is down 13% so far this year.  The Real Estate and Information Technology sectors are not too far behind, each down over 9% thus far.

On the bright side, the Energy sector is up big time… over 18%.  Of course, this is the one sector not represented in my Portfolio, so I didn’t benefit from this at all.  Wouldn’t you know it?!

So, it’s been a slow start to 2022, but we have a long way to go before declaring defeat.  There’s plenty of time to make a wonderful comeback.  If that doesn’t happen, there should be some bargains to be found in the market.  In addition, all my reinvested dividends will wind up purchasing more shares at lower prices.

One small change for my Portfolio Thoughts posts moving forward… I’m removing the review of the monthly Portfolio Transactions.  I usually cover those in the Monthly Dividend Income post as well, which normally follows this post.  So, rather than cover this twice in the span of a week, I’ll address it with my Monthly Dividend Income post.

With that out of the way, we can now focus on this month’s Portfolio Thoughts content…

The ratio of my Portfolio stocks with losses compared to gains was not as negatively tilted as I expected it to be.  However, as you’ll see, the winners I did have weren’t up a lot, while the losers tanked quite a bit.  Three stocks with 20%+ declines in January didn’t make for a nice start to 2022.

It was a big shake up in my Top 10 Portfolio stocks this month.  Only one stock remained in the same position as last month.  In addition, three stocks fell out of the Top 10, which means three new ones moved in.  Stay tuned to find out which stocks made their way into my Top 10.

We’ll examine the sector weightings within my Portfolio, too.  Energy stocks had such a good January that my Energy sector weighting is now underweight.  As the month came to a close, I have 3 overweight sectors in my Portfolio and 3 underweight sectors.  Spoiler alert… I’m still most overweight in Industrials and most underweight in Information Technology.  I’m looking to improve upon this in 2022, which is why these sectors were part of the bonus goals I set in my 2022 Portfolio Goals.

I’ll finish with a check of my watchlist.  After a month of some hefty declines, I’ve got some strong candidates for new purchases, especially within my Portfolio.

Here we go… my first Portfolio Thoughts of the year… hello January 2022.

 

Price Movement

Note – my price changes cover closing prices from 12/29/21 to 1/28/22.

So much for last month’s Santa Claus rally.  Things got ugly in the markets soon after we turned the calendar to 2022.  Then, it didn’t stop.  In the end there was a lot of red in my monthly returns.  Let’s check out the damage.

My ratio of stocks with price declines compared to price gains finished at 2.67:1.  Of my 55 holdings, 40 moved lower in price, while 15 moved higher.  Unfortunately, that ratio belies the actual damage inflicted on my Portfolio.  The losses were much higher in percentage terms compared to any gains.

Here were the top movers in each direction in January…

 

Of my 15 stocks that rose in price, only 1 of them gained over 10% (the usual threshold I monitor for), and only 6 more managed to post gains of at least 5%.  While I did have a little more green in my Portfolio, the gains were small, and thus they couldn’t counter all the losses.

The top gainers in December were:

• Lockheed Martin (LMT), popping 10.97%
• Nexstar Media Group (NXST), advancing 9.74%
• Altria Group (MO), climbing 6.50%
• Aflac (AFL), rising 6.06%
• CVS Health (CVS), moving up 5.37%

Somewhat surprisingly, my 5 best performers came from 5 different sectors.  Considering all sectors represented in my Portfolio posted negative months, it was strange that I had at least one solid gainer in several sectors.

I had several Healthcare stocks besides CVS in the green in January, including AbbVie (ABBV), Amgen (AMGN), Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ) and Merck & Co. (MRK).  Thus, this was easily my best-performing sector.

 

Of my 40 stocks that dropped in price, 3 declined more than 20% (ouch!), and another 13 dropped more than 10%.  That wasn’t all though, as another 11 stocks sagged more than 5%.  There wasn’t any shelter to be found… unless I was in the Energy sector… which I wasn’t.  We’ve already been down that road.

My worst decliners this month were…

• T. Rowe Price Group (TROW), plummeting 24.16%
• NextEra Energy (NEE), freefalling 21.19%
• Quest Diagnostics (DGX), decending 20.73%
• Automatic Data Processing (ADP), sinking 19.65%
• Broadcom (AVGO), dropping 16.73%

That’s two months in a row that TROW has made this list.  January returns were about 10x worse than December though.

One Healthcare stock of mine that didn’t come close to being in the green was DGX… it stuck out like a sore thumb.

AVGO was my best performer in December, but found itself on my worst performer list this month.  It’s too bad AVGO couldn’t hold those previous gains.

 

Top 10 Review

Lots of movement in my Top 10 this month.  It was more movement than I can recall in any single month.

Not only did 9 of the 10 stocks change ranking, but I even had a trio of new stocks crack the Top 10.  All three stocks have been in the Top 10 before, so it was nice to see them display their strength again.

The only constant when comparing this month to last month was that Qualcomm (QCOM) remained in the #1 spot.  Its weighting is so large relative to the other Top 10 stocks that it would take a major decline from QCOM, or a major pop from a competitor, to change that.  QCOM declined about 10% in January but that wasn’t nearly enough to threaten its place at the top.

 

 

Switching places in the weighting rankings were my next two stocks.  Lowe’s Companies (LOW) climbed a spot to #2 while RPM International (RPM) slipped back to #3.  Both stocks retreated in price during the month, but LOW held up better than RPM, allowing it to move up in the rankings.

Rising four spots to #4 was defensive stock Procter & Gamble (PG).  PG shines when times get rough in the market and that was the case in January.  PG was slightly negative for the month, but that looked like strong performance relative to my other Top 10 stocks.

Also climbing four spots as well, all the way up to #5, was Union Pacific (UNP).  UNP had similar performance to PG in January which allowed the stock to climb the ranks.

Slipping one spot to #6 was BlackRock (BLK).  BLK was down double-digits during January, but managed to prevent any precipitous drop in the rankings.  The stock got a $100/share haircut in January.

The top six stocks in my weighting rankings come from six different sectors.  I like seeing that kind of diversification.

Debuting at the #7 spot was Aflac (AFL).  My 4th best performer in January used that strength to power its way into my Top 10.  AFL had a nice year in 2021 and it appears ready to tack onto those gains in 2022.

Just this week, Visa (V) released a nice earnings report, with favorable guidance, too.  The market reaction was to drive up the price of V by 10%.  This pushed V into positive territory for January and into the #8 spot in my Top 10.  This was the 2nd new stock to move into my Top 10 this month.

The last stock to debut in my Top 10 this month was Pepsico (PEP).  The stock settled in at the #9 spot.  PEP was essentially flat in January, but that made the stock a winner given the market decline.

So, spots #7, #8 & #9 are being held by newcomers this month.  All 3 stocks were sitting just outside the Top 10 last month,  We’ll see if their out-performance can continue next month, allowing them to retain their favorable rankings.

Sinking four spots to #10 was Nike (NKE).  NKE was another double-digit decliner in January.

Which stocks departed the Top 10?  Well, TROW fell from #4 to #12 thanks to that nearly 25% price drop it had.  One month after finally making its way into the Top 10, AVGO stumbled from #7 to #11 in the rankings.  Lastly, Fastenal (FAST) slipped from #10 to #14 after a 13%+ decline in January.

 

From the table above, my Top 10 holdings now comprise 36.53% of my Portfolio value.  This is 1.34% lower compared to last month.  Most of my Top 10 struggled to hold up in January, and this was reflected in their reduced collective weighting within my Portfolio.

As for the dividend weighting of my Top 10, it ended the month at 26.94%, which is a decrease of 2.03% compared to last month.  Most of this decline can be explained by the 3 stock replacements that took place in the Top 10.  The combined dividend weightings of AFL, V & PEP are smaller than those of TROW, AVGO & FAST, primarily due to the sub-1% yield from V.

 

Weightings

 

In general, for the Sector Diversification, I target being within +/-3 percentage points of the sector weightings of the S&P 500.  For the SuperSector Diversification, I target being within +/-5 percentage points.

The “Weight Diff.” column shows which sectors sit outside my preferred weighting ranges.  If I’m overweight a sector, it’s shaded green.  If I’m underweight a sector, it’s shaded red.  If I’m within my target weighting range, then no shading exists.

As previously mentioned, I’m now underweight in Energy after that sector had a torrid January.  However, I don’t plan on trying to address that.  I suspect the sectors outside of Energy will have their time to shine in the upcoming months and I’ll be back within my target weighting soon enough.

In recent months I’ve been adding to the Healthcare sector, as that’s where I found value.  You’ll see it’s now my 2nd largest sector by weighting and my first in terms of dividend weighting.  I’ll have to be selective in purchasing Healthcare stocks if I don’t want to get overweight in that sector, too.  Trimming my Gilead Sciences (GILD) position is a possibility if its performance and dividend growth don’t pick up.

In 2022, I expect to work on reducing my Industrials weighting and increasing my Information Technology weighting, as those were a couple of bonus goals I set.  Similar to GILD, 3M Co. (MMM) continues to disappoint me.  Thus, I’m open to trimming/eliminating that position in an effort to decrease my Industrials weighting.

As always, I’ll keep all these weightings in mind as I continue to adjust my Portfolio, and my watchlist.

 

Watch List

With all the stock price declines in January, many more stocks are looking attractive to me now… especially ones already inside my Portfolio.

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

Very high on my list is TROW.  This stock has gotten absolutely trounced in 2022… actually, since early November.  While growth appears to be slowing over the short-term, earnings are still forecasted to be positive.  The stock’s current P/E ratio hasn’t been this low since the pandemic pullback in early 2020.  I suspect I’ll try to add some shares should the stock remain below $150.

With Skyworks Solutions (SWKS) having dropped below $140, I’m tempted to add here, too.  Given that SWKS is part of the Information Technology sector, adding some shares would help me with reaching one of my bonus goals by increasing my Tech sector weighting.

I bought a share of JPMorgan Chase & Co. (JPM) earlier this month when the price dipped to $146.  I’ll look to add more shares should any further price drops occur.

Starting to interest to me again is Starbucks (SBUX).  This is primarily because I want to add to my position here.  Even after a price drop into the mid-$90s, I’d prefer a price in the $85-$92 range as this would bring the P/E ratio to the 25-27 range.  It wouldn’t surprise me if I get a chance to do that if the market pulls back further.

I’m still waiting for Comcast (CMCSA) to dip below $48.  Adding some shares to this name would help address my underweight Communication Services sector.

As mentioned last month, Bristol-Myers Squibb (BMY) is still on my radar.  While adding at the current level of $65 would be fine, a price below $62 would be preferred.

NextEra Energy (NEE) stock has had quite the fall during January.   Due to the fall, NEE has now become the smallest position in my Portfolio.  Some uncertainty arose with respect to NEE earlier this week when the CEO announced he’d be stepping down.  I’ll be looking for the price to dip below $70, at which time I would consider adding a few shares to my position.

As for non-Portfolio stocks that I’m watching…  no real change here.

Still on my radar from last month is Cummins (CMI).  I’m looking for a price below $210.  If I do add some CMI, I’ll probably use it to replace one of my other Industrials.

Medtronic (MDT) is still an option, too.  While trading below $105 attracts my interest, a price south of $100 is more tempting.

 

Thoughts?

Have you already been busy working to improve your portfolio in 2022?  What’s your primary objective in the new year when it comes to your portfolio?  Please share your thoughts!