Small Trades

Two small trades surfaced this week … one i like and the other is like playing 1 hand of 21.  PEGI is the former and FIT is the latter.

  • PEGI announced that the recent natural disasters would impact their demand but committed to keeping distributions as promised.  The market dumped the stock as if this was some kind of BIG surprise.  Really? … i grabbed a bit in IRA as this is one of my favorite sustainable energy income plays (HASI and BEP the others with positions in both).  If i hold this for longer term, no big deal; if i earn 3-5% in intermediate term, i’ll take it.
  • FIT is just one of those things … Iconic may / may not be the fitness watch to win, but there are just too many people running around w/ Fitbit devices and they built a new R&D center in Romania – i know some of the SW team and they are top-notch … i’ll put 100 share investment bet on that SW team!

Another 10yr Corp Nibble

Given the spike this morning in US rates, i picked up another small lot of 10yr bonds to augement the intermediate income stream.  I am unwilling to extend beyond 10yrs and will stick w/ investment grade.  Today’s add was Kroger 3.7% 2027 with a YTM of 3.804.  My objective is to build maybe 10-20% of my taxable bond position within the 10 yr frame with yields >3.5%.  The other bond i picked up a couple of weeks ago was Nordstrom 4.0% 2027; also purchased just below par.

World Demographics

i read too few scholarly publications wrt investments, but this one caught my attention.  http://www.bis.org/publ/work656.htm 

  • I am not sure that i fully agree (or understand) the authors’ conclusions.  with that said, however, there are some very interesting points
  • the demographic bubble of boomers will have an impact … but perhaps not what most are thinking
  • stop looking at the interest rate dynamic with a domestic lens … must be global
  • India is the next long-term labor source (ala China and Eastern Europe)
  • Policy recommendations focus on moving from debt to equity across the spectrum – governments, corporates and individuals

This transition will be extremely challenging as the authors point out … and retired boomers like me are going to make it harder as we demand social safety nets, above inflation return on low risk investments, and an increasing quality of life as we live longer than generation to date.

 

DSW Update

DSW hit my ‘challenged’ alert on a couple of points

  • my daughter visited a high-traffic store in Portland metro area looking for fall / winter shoes for our wonderful OR winter.  she reported back that the stock levels were terrible and she could not find a thing … selection was very low with empty shelves.  this could be a one-store issue or just a bad day, but i do not think that brick / mortar retailers can afford to not have selection for people when they actually walk in the store … a warning!
  • valuation while fair, seems to be begging for a Nordstrom-like M&A … i struggle to see the valuation too far north of $20/sh until there are a couple of solid quarters of performance
  • the downward risk seems higher than the upward reward over the short / intermediate term

I sold 50% of the position in my daughter’s account, and i sold short a small position in my trading account – which has a ‘way long term’ objective timeline.   If the price retreats below $17 again, it would be an interesting trade or opportunistic to add more to daughter’s account.

Weekly Update, Sept 17, 2017

After a week of psuedo vacation, i’m back in front of screens and devices in the week ahead.  I am embedding more graphics linked from other sources this week … pictures and stories go together … and i truly thank those linked here (i have tried to provide link-back to the original source)

  • this should get you thinking about major consumer brands and how their products are moated https://www.blackrockblog.com/2017/09/14/technology-transforming-economic
    • this has me re-thinking CLX and NWL (taxable portfolio holdings)
    • also re-poses the question around logistic plays, etc., warehouses (STAG), goods in transit monitoring (VZ), and cloud infrastructure (CIBR, QTS, MSFT)
  • this piece does nothing to make things clearer to me … i am left with an inference that if hedge activity picks up (bond demand increases, and prices increase/yields decline) … https://www.blackrockblog.com/2017/08/16/rates-not-moving/  
    • i am watching 10 yr treasury carefully, but am more interested in buying investment grade corps >3% and <8-10yr to call or maturity.  Here are some possibles
      • E M C Corp Mass – Call 03/01/23@ Greater of 100 or Make Whole – Make Whole Call Exp 03/2023
      • Zimmer Biomet Hldgs Inc – Call 01/01/25@ Greater of 100 or Make Whole – Make Whole Call Exp 01/2025 – Conditional Call
      • Kroger Co – Call 07/15/26@ Greater of 100 or Make Whole – Make Whole Call Exp 07/2026
      • Nordstrom Inc – Call 12/15/26@ Greater of 100 or Make Whole – Make Whole Call Exp 12/2026
  • Fundementalis has update on 3rd quarter projections by sector … http://fundamentalis.com/?p=7175
    • technology has room to disappoint imho
    • finance is sweet spot per Brian Gilmartin, and its hard to argue against that position unless your negative scenarios are major recession … and not ‘about flat’
  • not sure i fully agree with the thesis here, but the graphic view of these rates is interesting … gotta ask, “why / how is US rate so high relatively?” … also really like the point about global focus more than a myoptic domestic view of influencers.  http://thereformedbroker.com/2017/09/11/chart-o-the-day-one-big-bond-market/?curator=thereformedbroker&utm_source=thereformedbroker
  • MSFT … i love the company and the future of enterprise hybrid clouds; MSFT could make this easier than anybody else and they could make money throughout the sw and services stack if they play this well; but i have thought too expensive of a near-term entry above $70.  I will be re-assessing MSFT for Q3 reset.
    • http://www.crossingwallstreet.com/ — “Look for Microsoft (MSFT) to raise its dividend next week. The current quarterly payout is 39 cents per share. I’m expecting 42 cents, maybe 43 cents per share. In the last seven years, the software giant has tripled its dividend. Too many investors look past dividends. This is a mistake. Consider this stat: If MSFT goes to 43 cents, that means an investor who got the stock at the start of the bull market would be yielding 11.6% based on their purchase price. Not too bad. I’m keeping my Buy Below for Microsoft at $76 per share.”
  • this is interesting and provokes a couple of investigation tee-ups … both from environmental and company perspective
  • More on S&P risk and investors’ seeming complete disregard for it https://seekingalpha.com/article/4107487-winter-coming
  • Jeff Miller’s weekly indicator

    • look at the move on the 10yr T
    • notice that the ‘anticipated inflation’ also ticked up

This last week –

  • i took a couple of short positions mixing put purchases and straight short sells on:  DSW, BMY, and SPY … Put expirations were all in Dec ’17
  • sold off some profits in HASI in non-taxed portfolio (sold 1/6 of the position to lock profits to invest elsewhere … per above)

Weekly Update, Sept 10, 2017

My bias as tripped over the pivot point and i am now officially in bear land.  This weekly update is a reflection on the reviews required now that the bias has tripped. Just to be clear, the risk side of the equation (downside risk vs upside risk due to tougher macro conditions) has changed, and its time to rachet down capital appreciation expectations and work to preserve capital.  this also means increasing cash for what happens

  • Review all Radar Position 2 holdings for decisions – sell targets (based on valuation and dividend payment schedules)
  • Review all Radar Position 1 holdings for decisions – buying or trimming targets
  • Identify new Radar Position 2 or 3 holdings that may present opportunities with continued negative headwinds and continued low interest rates
  • Re-evaluate all holdings on discretionary / non-discretionary segments – with tripped bias, non-discretionary takes priority
  • Identify short positions in near and mid-term durations (either short sales or puts)

To borrow some catchy phrasing …. Do not be greedy here, and look to take advantage of others exaggerated fear or greed.  My reading this weekend is focusing on targeted deep dives, and opportunity screening:

  • CTWS – sell?
  • T – buy more?
  • TJX – sell?
  • NWL – which direction?
  • BMY – short?
  • MRVL – short?
  • NVDA – short?
  • PGX – buy?
  • PFF – buy more?
  • FIT – which direction?
  • Who is going to benefit from disaster rebuilding?  – electrical equipment, structural materials, etc

Here are some quick pointers

Reviewing the above … note the change in the 10yr note week change.  The yield went down and so did S&P, while not material.  Another interesting comparison, look at the “Anticipated Inflation” values – no change over the quarter.  But look at the yield on 10yr … wow.  What is driving the divergence?

Position Review: HCN

Welltower Inc (HCN)is a small position in my nontaxed account … the position was initiated this year with a modest 3% gain expectation in addition to dividend – my cost basis of $63.37 yields 5.49%, so i am looking for ~8.5% total gain in 2017.  My position is up 16.25%.  Question for this review is:  do i sell 50% as my common trimming practice above annual target gains?

First the risk / reward ratio needs to be established loosely …

  • eTrade puts the 1 year target between $68 and $86 with a $75 target.  … so at Friday’s price, that is <2% gain to target, a 7.6% downside risk, and an optimistic upside of 16.7%.
  • A recent SA article from Sure Dividend, stated the following
    • “As a result, future returns will be generated primarily from FFO growth and dividends. A breakdown of potential returns is below:
      • 4%-6% FFO growth
      • ~5% dividend yield

      Under this assumption, investors can reasonably expect 9%-11% total annual returns. Not surprisingly, half of the stock’s total returns will come from dividends, which is fairly typical for a REIT.”

  • Investments within the last 30 days include:  Zacks, Thomson Reuters and Ford Equity
    • Ford = HOLD, a recent downgrade (9-02) from Buy to Hold
    • Thomson Reuters = HOLD (with analysts coming in at Strong Buy 3, Buy 2, Hold 14, Reduce 3, Sell 0)
      • Note … they do not have any buys on comparable REITs … only Hold and Sell
    • Zacks = HOLD
  • I could not review a REIT without Brad Thomas’ insights https://seekingalpha.com/article/4028154-welltower-taking-charge
    • His analysis is a bit old with HCN in the mid $60s
    • He was not overwhelmingly positive at that point
  • Hoya Capital published a review on the healthcare REITs in early August 2017

Conclusion:

  • The probability of higher prices is lower than the risk of lower prices
  • My annual gain targets were surpased 2x
  • Trim the position

Weekly Update, September 1, 2017

  • i actually lost where this was referenced, but i thougth a ‘must read’  https://www.oaktreecapital.com/docs/default-source/memos/there-they-go-again-again.pdf
    • the key take-away for me was 1) a revised look at ETF strategy and 2) a reminder on position trimming to a plan
    • i am looking at trimming HASI as it’s up >25% in nontaxed account (not trimming in taxable, yet)
  • ZBH has been a target watch company for several weeks.  A review in SA this week colored the picture with some more detail … especially on the management effectiveness and competitive landscape.  MDT is also on my watch list and JNJ is a core holding that i would build at right value entry.
    • For now, my focus will be on MDT and JNJ … update forthcoming
  • Jeff Miller’s Week Ahead – https://seekingalpha.com/article/4103791-weighing-week-ahead-time-ask-can-go-wrong
    • Weekly Indicators
      • Surprise with all the gyrations in US debt market this week, the 10yr landed right where it started for the week
  • Currency view of things this past week – US$ and US yields are becoming more interesting (not necessarily reliable or sensitive) indicators of potential capital flow redirection
    • Key question for me once risk is triggered, how do you follow the redirections sufficiently to NOT be damaged by them, and to collect some gains w/ acceptable risk?
  • Europe is looking better and better, but …. i once was inclined / leaning to ETF vehicles, but i am more convinced than ever one needs to pick specific companies https://www.advisorperspectives.com/commentaries/2017/08/30/european-equity-bulls-need-to-be-selective
  • Value investing has been out of favor, or is it that the indexes and other benchmarks are so skewed due to FANG and FANG-like stocks … sooner or later, the reversion to the mean will happen … it has been hard as a value investor to stay true, but whimisical strategy changes are outside of my tolerance https://www.advisorperspectives.com/commentaries/2017/08/30/value-dead-or-just-slumbering
  • Technology Sector continues on and future earnings forecasts promise more of the same … i think that one of the questions people are not asking strongly enough is the following … are these promises of increased revenue best characterized as:  a) organic demand growth, b) repurpose investment (e.g., people to robots), or c) market segment share conquests?  How you answer this changes the way to look at possible investments or trades http://fundamentalis.com/?p=7148
  • this is something that i had not seen … tracking CFO buys.  My experienced with CFO intelligence is way skewed towards the brilliance of Andy Bryant https://www.gurufocus.com/news/561253/weekly-cfo-buys-highlight-
  • this is a fairly outlandish quote; ok, not the quote, but the inference
    • The 10-year inflation-protected bond still yields you a measly 0.4%. A few years ago, I ran some numbers and said that the stock market does well until TIPs yield 2.4%. That shows you how much room we have. Of course, five years ago, 10-year TIPs were yielding -0.90%.
    • source:  http://www.crossingwallstreet.com/
  • i started playing with another portfolio / company analaysis tool … https://simplywall.st/
    • just getting started … more to follow later, but so far i love it and actually purchased a 1yr subscription after an hour of playing around
    • this is my second purchased tool, with the other being the pervasive FAST Graphs – https://www.fastgraphs.com