After another good month in the stock market in February, just two of the eleven market sectors remain in the red: Utilities & Real Estate – both are down more than 4%. As for sectors in the green, Information Technology has surged into the lead, surpassing Communication Services – both are up more than 9% on the year… not bad work for just a couple of months. The S&P 500 is up close to 7% Year-to-Date (YTD).
Following the markets higher has been my Portfolio. Unfortunately though, my Portfolio lags the market even more now after the performance difference between the two widened in February. The YTD performance difference is already about 3%. My Portfolio being underweight in the Information Technology sector continues to haunt me in these ‘up’ markets.
I mentioned in one of my previous posts that I’m planning to turn off my drips for one or more of my stocks. At this point I’m not entirely sure which ones it will be, but the following two stocks will most likely be included: Altria Group (MO) & Verizon Communications (VZ). Both stocks are slightly under a 1% portfolio weighting and I don’t care to see the two positions get much bigger. I could see directing the MO dividends into fellow Consumer Staples stocks Hershey Co. (HSY) and McCormick & Co. (MKC). As for the VZ dividends, I’d like to keep those in the Communication Services sector, so I’m thinking they go into The Walt Disney Co. (DIS), or to a lesser degree, Comcast (CMCSA). The forward dividend income I get from reinvesting MO & VZ will definitely take a hit, but I like the idea of growing some of those smaller positions I mentioned.
Anyway, let’s get to my standard Portfolio Thoughts. Anticipate the following topics in this post…
- Price Movement – I’ll look at my top advancers and decliners in my Portfolio during the past month.
- Top 10 Review – I’ll update my Top 10 Portfolios stocks and how they changed rank this past month.
- Weightings – I’ll examine the sector weightings within my Portfolio and let you know where I’ve made progress with regard to getting into my preferred weighting ranges.
- Watch List – I’ll share which stocks I’m looking at as I prepare to invest my capital in the coming months.
Here are my Portfolio Thoughts as we close out February…
Price Movement
Note – my price changes cover closing prices from 1/26/24 to 2/23/24.
Even though I was in the green in February (for the 4th consecutive month, by the way), it was a little hard to tell by just comparing my ratio of stock gains to stock declines. The ratio approached 3:2, but didn’t quite make it.
Of my 59 holdings, 35 moved higher in price, while 24 moved lower. The magnitude of stock gainers in the 0% to 5% range seemed to tip the scales in favor of the gainers. I’ll take it!
Here were the stocks with the biggest moves to the upside and downside…
Of my 35 stocks that rose in price, none of them provided a 20% gain. Only 1 stock notched a 10% gain (the usual threshold I monitor for). However, I did have another dozen stocks that managed at least a 5% gain. Not a bunch of big gainers this month, but those gainers I did have kept my Portfolio in the green.
My top gainers in February were:
- The Walt Disney Co. (DIS), surging 12.98%
- Lowe’s Companies (LOW), popping 9.71%
- Cummins (CMI), rising 9.70%
- Automatic Data Processing (ADP), advancing 8.37%
- AbbVie (ABBV), climbing 8.33%
DIS is off to a much better start in 2024 than it saw last year. Make it two months in a row of gains for DIS, leading all my gainers in February.
Trading up and down from month-to-month recently has been LOW. Expect 2024 to bring a decline in earnings for LOW before it offers a double-digit earnings turnaround in 2025.
A pair of Industrials stocks graced my top gainers list this month: CMI and ADP. Neither posted a double-digit gain for February, but they came close. Impressively, both CMI and ADP were in the green for the 4th straight month.
ABBV is another stock gaining for the 4th consecutive month. It’s risen to a new 52-week high. Earnings are expected to be relatively flat this year, so additional gains may be hard to come by.
Note – no sectors in my Portfolio had all their holdings in the green this month.
Of my 24 stocks that fell in price, none plummeted more than 20%, but one did slip more than 10%. That’s the first time in 4 months one of my stocks dropped 10% or more. I also had 5 stocks that declined at least 5%.
My worst decliners in February were…
- Air Products & Chemicals (APD), dropping 11.11%
- Comcast (CMCSA), sinking 9.42%
- Nexstar Media Group (NXST), falling 9.38%
- Amgen (AMGN), retreating 7.25%
- Cisco Systems (CSCO), giving up 6.29%
Disappointing earnings guidance from APD did the stock in this month. The stock dropped to a 52-week low as a result, but has since recovered fairly well.
The next two stocks in my top decliners list hail from the Communication Services sector: CMCSA and NXST. Both stocks managed to avoid posting a double-digit loss in February, but not by much.
AMGN powered to a new 52-week high (close to $330) just prior to its earnings report. While the report showed top and bottom line results were good, expectations for the company’s obesity drug prospects were cited as overly optimistic by some analysts and the stock price has since been trimmed significantly ($278 recently).
Both NXST and AMGN were on my top gainers list last month, but sit on the top decliners list this time around. As an owner of individual stocks, you’ve often got to plan for a wild ride with some of your portfolio holdings.
CSCO seems stuck in a rut with regard to its earnings growth. Their earnings guidance disappointed the market and a stock price decline ensued. FY24 looks to be the company’s first earnings decline since the Great Recession, and earnings growth is expected to be in the low-to-mid single digits in the two years after that. As a result, expect to see more minimal dividend growth from CSCO over the next 1-2 years.
Note – no sectors in my Portfolio had all their holdings in the red this month (excluding Energy since I only have one stock in that sector).
Top 10 Review
My Top 10 stocks remained the same as last month, but with some shuffling within the ranks.
Four stocks held steady in their rankings (normal enough), but there were 3 pairs of stocks that switched places with each other (an abnormal occurrence to be sure).
Broadcom (AVGO), Qualcomm (QCOM), Visa (V) and AbbVie (ABBV) all secured the same spot they held last month. AVGO, at #1, gained 7.59% in February, almost putting it in my top gainers list for a 3rd consecutive month… that would have been amazing.
My first pair of stocks to switch places in the rankings were RPM International (RPM) and Aflac (AFL), which swapped the #3 and #4 rankings. This is a reversal from last month when these two stocks exchanged the same places. RPM gained 4.94% this month while AFL declined 5.74%.
Lowe’s Companies (LOW) and Fastenal (FAST) switched spots in the rankings, too. However, it was LOW rising three spots to secure #7 and FAST sliding three spots to land at #10. The 9.71% gain by LOW explained its ascent in the rankings, while the 5.53% gain from FAST failed to explain its slide. The reason for the drop by FAST was the roughly 6% trim of my position this month.
The last stock pair to switch places in my Top 10 rankings this month were Union Pacific (UNP) and Procter & Gamble (PG). UNP rose a spot to #8 while PG dropped a spot to #9. UNP posted a nice 6.87% gain during the month, allowing it to leapfrog PG, despite that stock’s 3.13% gain in February.
AVGO kept climbing in Portfolio weight, gaining another 0.3% to reach 6.4%. This weighting is well beyond my preferred 5% maximum, but I’m going to let the stock run. If I do trim my AVGO position, I’ll have to identify another Information Technology stock in which to invest the proceeds, as I don’t want to further reduce my already underweight Tech sector holdings.
BlackRock (BLK) and Pepsico (PEP) are 2 stocks lingering outside my Top 10. They are close enough to possibly crack the Top 10 by next month.
From the table above, my Top 10 holdings now comprise 39.33% of my Portfolio value. This is an increase of 0.71 percentage points compared to last month. Given that 9 of the Top 10 stocks posted price gains in February, it’s no surprise to see a Top 10 weighting increase. It was only AFL that was in the red.
As for the dividend weighting of my Top 10, it finished the month at 29.29%. This was a decrease of 0.30 percentage points compared to last month. About two-thirds of the decline was a result of my FAST trim.
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.
Once again I started a new month with 3 overweight sectors and 2 underweight sectors. However, I made some progress in 4 of the 5 sectors as the weighting difference required to get into my preferred weighting ranges were reduced. The only sector that went the wrong way was Industrials, which got slightly more overweight in February (from 7.60% to 7.64%). I would have thought my FAST trim this month would have helped me, but I believe most of my Industrials stocks had a good month performance-wise, more than likely offsetting any weighting improvement from the trim.
The sector in which I made the most progress reducing my weighting difference was Information Technology (from -12.23% to -11.72%). My Skyworks Solutions (SWKS) purchase helped in that regard. So did the big gain from Broadcom (AVGO) this month.
I’m getting close to entering my preferred weighting range in the Financials sector. In this case, my under-performance in the sector helped me get a bit less overweight there (from 3.27% to 3.09%). Aflac (AFL) being in the red in February was a contributing factor, no doubt.
Information Technology remained the sector with the largest value weighting in my Portfolio (climbing from 17.59% to 17.92%), pulling away a bit after that SWKS addition. Industrials grabbed 2nd (rising from 16.15% to 16.33%), while Financials slipped into 3rd (falling from 16.25% to 16.08%). Healthcare got a bit closer to the top group, too (increasing from 15.46% to 15.68%)… this sector provides the largest percentage of my dividend income, at 16.93%.
As always, I’ll keep all these weightings in mind as I continue to adjust my Portfolio, and my watchlist.
Watch List
As I noted at the beginning of this post, a couple of market sectors are still in the red for 2024: Utilities and Real Estate. Thus, I expect to find some potential values in those sectors. I’ll be looking.
In February, a couple of the stocks from last month’s watchlist got purchased. Both NextEra Energy (NEE) and Skyworks Solutions (SWKS) hit my price targets and I made a buy.
The $185 price target I had for Hershey (HSY) was briefly reached, too, but I didn’t act quickly enough. Next time!
I’ve got cash at the ready. I just need to find something I want to invest in.
Within my Portfolio, here are a few stocks that I’m watching for possible additions…
NEE remains on my watchlist despite another purchase this month at $56.50. The stock is currently trading below that price level, so don’t be surprised by another purchase moving forward.
McCormick & Co. (MKC) remains on my watchlist, too. It’s still my 2nd smallest holding. I’ve got my eyes on a price below $66. The stock was below $65 a couple of times during February, but I wasn’t focused enough to get the trade done. The stock has risen to a 1-month high now… closing in on $69.
Building out my newest Portfolio position in Hershey Co. (HSY) remains a desire. The $185 price target from last month is still in play for me.
I’ll look to add to some of my other smallest holdings as well, but they’ll be smaller investments if price doesn’t end up driving the purchase.
As for non-Portfolio stocks that I’m watching…
I haven’t been looking much outside my Portfolio since there are plenty of adjustments to make within it. I’d say only one new stock has hit my radar.
Since previous watchlist member Cactus Inc. (WHD) is running away from my target price, I’ve been looking at Chevron (CVX) as another possible add in the Energy sector. The stock is currently trading a bit above the $150 mark and is fresh off a healthy 7.95% dividend raise, too. I’m targeting $145 for a potential entry.
Other stocks running away from my target prices last month were Elevance Health (ELV) and Charles Schwab Co. (SCHW). ELV would have to drop 10% to reach my $450 target and SCHW would need to drop 10% to reach my initial target of $60, and closer to 20% to reach my preferred target price of $55. These seem like longshots to buy, but I’ll let them hang around for another month on the watchlist.
Thoughts?
That’s now 4 consecutive months of gains in the stock market. Do you expect the streak to be broken in March? Are you more cautious with your investment dollars when the market has pushed higher for so many months in a row? Please share your thoughts!