Portfolio Thoughts (Feb. 2022)

The stock market downtrend continued in February.  Volatility ramped up, too.  Unfortunately, the rumor of a Russian invasion of Ukraine turned into a reality and the stock market darted in different directions as investors tried to figure out the financial impact.

After a couple of months in 2022, all but one sector of the market (Energy) is down for the year.  Overall, the S&P 500 has given up 8.00% in price since the beginning of the year.  However, Financials (-0.12%) and Consumer Staples (-1.70%) aren’t down too much.

Four sectors have been hit the hardest in 2022 with each being down over 10%: Consumer Discretionary (-13.89%), Communication Services (-12.92%), Real Estate (-11.62%) and Information Technology (-11.45%).

While my Portfolio fared better in February than in January, it still posted a negative month.  I’d estimate losses were about half as bad as those in January.

On the bright side, stock values are looking more appealing as the pull backs continue.  However, I’ve been pretty conservative with new investment during these first two months of the year.  It seems to me that better bargains may be coming so I’m trying to be patient.

Movement within my Top 10 Portfolio stocks remained active in February.  You’ll see later that I had 6 stocks move up/down in those rankings, and that 3 new stocks entered the Top 10.

I made some headway on adding to my most underweight Portfolio sector via my lone February purchase.  I’ll cover the stock/sector that saw the action and how much it might have moved my sector weighting.

My watchlist still contains most of the usual suspects for purchase.  I’m primary focused on stocks within my Portfolio right now.  I’ll share a few stocks in my Portfolio that are on the chopping block, too.  These stocks have been lacking in performance, dividend growth or dividend safety in recent years and so I’ll be looking for an exit point if improvement doesn’t come fairly soon.

Let’s get to it… here are my Portfolio Thoughts for February 2022.

 

Price Movement

Note – my price changes cover closing prices from 1/28/22 to 2/25/22.

As noted earlier, stock prices continued to retreat in February.  Thankfully, declines weren’t as bad as in January, but seeing red for two straight months is never pleasant – unless of course you’ve got money you need to invest (which I don’t).

My ratio of stocks with price declines compared to price gains finished at 3:2.  Of my 55 holdings, 33 moved lower in price, while 22 moved higher.  So, this was a decent improvement from January, but not enough to put my Portfolio in the green for February.

Here were the top movers in each direction in February…

 

Of my 22 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%.  Strangely, these numbers exactly match those from last month.

The top gainers in February were:

  • Omnicom Group (OMC), launching 12.90%
  • Nexstar Media Group (NXST), surging 9.92%
  • AbbVie (ABBV), popping 8.43%
  • The Walt Disney Co. (DIS), rising 7.86%
  • General Dynamics (GD), climbing 7.12%

What stands out here is that 3 of my 5 best February performers are from the Communication Services sector:  OMC, NXST and DIS.  This is even more interesting given that this sector has the worst 1-month performance in the S&P 500.  Apparently, my stock holdings in that sector bucked the trend!  Well, not all of them… Comcast (CMCSA) didn’t fare too well (down over 5%)

ABBV had a nice month again, continuing what’s now a 4-month climb.  Another Healthcare name in my Portfolio that advanced nicely in February was Bristol-Myers Squibb (BMY).

It’s no surprise that GD was one of my top gainers this month.  Global instability has led investors to believe that defense stocks will see a boost in revenue in the coming months/years.  Lockheed Martin (LMT) showed a nice gain (4.16%) in February, too.

 

Of my 33 stocks that dropped in price, 2 declined more than 10%, and another dozen dropped more than 5%.  While I’m not happy seeing the red, at least the losses are starting to abate.

My worst decliners this month were…

  • Air Products & Chemicals (APD), sinking 13.42%
  • Gilead Sciences (GILD), retreating 11.24%
  • Walgreens Boots Alliance (WBA), dropping 8.44%
  • Fastenal (FAST), declining 8.15%
  • 3M Co. (MMM), falling 7.72%

This is a new batch of stocks on my top decliner list compared to January.  Thus, the pain is getting spread throughout my Portfolio.

The last couple of months have not been kind to APD, with losses accelerating in February.  Despite the drop, I’d probably want to see a further pullback before adding to my position.

A pair of Industrial stocks (FAST & MMM) rounded out the list of top decliners this month.  Additional losses from fellow Industrials Caterpillar (CAT) and Illinois Tool Works (ITW) didn’t help the sector performance in February.

 

Top 10 Review

The shake up in my Top 10 continued in February, even though there was a shade less movement compared to January.  Still, there’s plenty to cover.

I had 6 of the Top 10 stocks change ranking and another new trio of stocks make their way into the Top 10.  Other than last month, I can’t recall ever having 3 stocks enter the Top 10 all in one month.  So, imagine my surprise to see 3 more this month.  Back to back!

Of course my top spot didn’t change.  Qualcomm (QCOM) currently has a death grip on that spot, with a huge gap between itself and any contenders.  So, get used to hearing me tell you about QCOM in the #1 spot for months to come.  Posting a 2.47% gain in February only solidified QCOM’s hold on the top spot.

 

 

The #2 through #5 spots are tightly bunched.  The stocks involved switched places quite a bit over the course of the month.  But how did things settle out?

Well, Procter & Gamble (PG) finished up a couple of spots to finish the month with the #2 rank.  PG had a 1.41% loss during the month, but this allowed it to rise in the ranks while others fell.

RPM International (RPM) maintained its #3 spot after posting a 2.31% loss for the month.  The negative return wasn’t fun to see, but it was remarkably better than the big loss in January.

Falling a couple of spots to #4 was Lowe’s Companies (LOW).  LOW tumbled 6.73% in February.  The stock was red hot in 2021, but has given up some of the gains to start 2022.

Union Pacific (UNP) managed a small gain of 0.20% in February, but this wasn’t enough to move up the rankings and it retained the #5 spot.  However, UNP is just a stone’s throw away from moving up after making up some ground on those stocks ahead of it.

The #6 through #10 spots are also tightly contested.  Amazingly, three new Top 10 stocks populate this group.

One of the new stocks that cracked my Top 10 this month debuted in the #6 spot.  That stock is AbbVie (ABBV).  ABBV has been climbing up my leader board since the start of Q4 last year and its now made itself visible as one of my Top 10.  It’s nice to see a Healthcare name in my Top 10 again.  The sector has been under-represented in my Top 10 since Johnson & Johnson (JNJ) fell out months ago.

Laying claim to the #7 spot for another month is Aflac (AFL).  Keeping the same rank wasn’t too unexpected given a marginal loss of 0.64% during the month.

Back in my Top 10 after a 1-month hiatus is Broadcom (AVGO).  A 4.98% return during February pushed the stock up the ranks and had it settle in the #8 spot.

My last newcomer to the Top 10 has been on the rise for the past two months… just the opposite of the market.  That stock is Nexstar Media Group (NXST).  As my 2nd best performer for the month, NXST had no trouble moving up the ranks and capturing the #9 spot.

Claiming the #10 spot in my Top 10 is Visa (V).  V slipped a couple of spots in the rankings compared to last month.  It suffered a 3.83% price decline in February.

So which stocks fell out of the Top 10?  It was BlackRock (BLK), Pepsico (PEP) and Nike (NKE).  While those 3 names have had a rough go of it to begin 2022 (especially BLK & NKE),  I suspect I won’t have seen the last of them when it comes to appearing in my Top 10.

 

From the table above, my Top 10 holdings now comprise 36.48% of my Portfolio value.  This is just 0.05% lower compared to last month.  I’m happy to see some diversification within my Top 10 as 8 different sectors are represented.  Sectors that don’t have a stock there are REITs, Utilities and Energy.  This is no surprise given that these sectors have the smallest weightings in my Portfolio.

As for the dividend weighting of my Top 10, there was a fairly good-sized change.  My Top 10 dividend weighting ended the month at 30.38%, which is an increase of 3.44% compared to last month.  Most of this increase comes from the 3 stock replacements that took place in the Top 10.  The combined dividend weightings of ABBV, AVGO & NXST are noticeably larger than those of BLK, PEP & NKE, with the sub-1% yield from NKE hurting the most.

 

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.

With the Energy sector continuing to perform well in the S&P 500, this is now my 2nd most underweight sector in my Portfolio.  It trades places with my Communication Services sector.  As noted earlier, my Communication Services holdings performed well during February, even though that sector was the worst-performing S&P 500 sector during the month.  Thus, I was able to significantly reduce how much I was underweight in the sector relative to the S&P 500.  In fact, I’m close to being within my target weighting range.

As for my most underweight sector (Information Technology), I added shares of Skyworks Solutions (SWKS) during the month, which helped bolster my weighting there.  There’s still plenty of work to do to give Tech a more substantial weighting, but I’m headed in the right direction.

There wasn’t much change in the overweight sectors, but if I continue to invest directly in the underweight ones like I did with SWKS, the overweight ones will naturally be reduced.

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

 

Watch List

Prices are getting better with each passing month.  I still see many of the same stocks on my radar, but a few new ones have joined the fray.

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

T. Rowe Price Group (TROW) remains high on my list.  I like the stock here around $145.  This is already one of my bigger positions, but its performance and dividend growth over the years makes it one of my favorite holdings – one that I wouldn’t mind adding to.

While I did add to my SWKS position in February, if the stock can stay in the mid-$130s or drop lower, I could see myself adding another few shares.  The fact that SWKS would help add to my Information Technology weighting is a bonus.

Adding a share or two of JPMorgan Chase & Co. (JPM) is a good possibility in the $140s, but even stronger if it dips into the upper $130s.  I’ve got my eyes peeled.

Starbucks (SBUX) is at the high end of the $85-$92 target range I have.  Below $90 would make it very tempting to at least add a share or two.

Meanwhile, Comcast (CMCSA) has dropped below the $48 target I have.  Adding a handful of CMCSA shares could bring my Communication Services sector weighting into target range.  I’d like that.

Healthcare stocks Amgen (AMGN), Merck & Co. (MRK) and Bristol-Myers Squibb (BMY) are still on my radar.  Although, BMY has climbed a bit above the $65 purchase target I have.

Lastly, Walgreen Boots Alliance (WBA) has retreated enough over the past two months to pique my interest again around the $45 level.

 

Current holdings that are on my chopping block due to poor performance, worse-than-expected dividend growth, poor dividend safety or a combination of those include: 3M Co. (MMM), Gilead Sciences (GILD), Omega Healthcare Investors (OHI) and W.P. Carey (WPC).  VF Corp (VFC) might soon join this list, too.

 

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

I haven’t been too focused on stocks outside my Portfolio with so many internal candidates to look at.

Still, Cummins (CMI) remains a stock that I’m watching.  CMI has dropped below my $210 target, but since I don’t really need another Industrial stock I’m considering dumping my 3M Co. (MMM) shares and using the proceeds to initiate a position in CMI.  CMI should have fewer headwinds than MMM and dividend growth would improve immensely.

Cell tower REITs American Tower REIT (AMT) and Crown Castle International (CCI) have garnered my interest of late.  I haven’t set a price target for AMT yet.  I owned CCI a couple of years ago, but sold it to enter into some new positions at the start of the pandemic.  If CCI dropped below $155 I could see establishing a position again.

 

Thoughts?

Has any stock that you’ve been watching for a while gotten into striking distance for a purchase given market declines these past couple of months?  Do you have any current holdings that you are looking to replace?  Please share your thoughts!