EOY Portfolio Analysis #1

Over Thanksgiving holiday i start my “End of Year Portfolio Analysis” … it takes thru Christmas holiday to complete and then in January I write my annual report … that i send to my wife (my toughest customer).

This year, I am executing to an idea that i had about structuring and managing my portfolio as i would a business of the same size.  This means business segments (functional areas), strategic planning, operationalized objectives and analytics to monitor and adjust progress to those objectives.  While others may do this as a matter of basic business operations, it has taken me some time to get it straight in my brain.  My business operations skills and experiences within large technology organizations will be heavily drawn upon to make this work.

While i am working on this, my typical observations and sharing of others’ work will be a minimum.

In parallel, there are a few investment analysis deep dives in process that support my business cycle narratives:  a) healthcare REITs – when do i sell my OHI and where does that capital go? (e.g., HCN, REIT preferreds, 10yr bonds, etc); b) within the IOT ‘connectivity’ space which is the better long term play, SWKS or CY (or other); and c) where are the opportunities to watch for in financials and healthcare products / services (i recently commented in a SA post on CAH that this business seems to be undergoing a structural change ala Amazon and retail, yet many analysts are reviewing the opportunity from a cyclical lens – i think this distinction is paramount to identifying value and avoiding value-traps).

 

OHI – My Problem Child REIT

OHI is in trouble both, i believe, as a business and as a stock.  My total position is small relative to my historical holdings at <350 shares.  Two posts in the last 24-48 hours suggest that i am not the only one with this problem child.

Both of these articles are well researched and detailed about OHI and the market segment challenges and opportunities.  I have NOT changed my mind, however.  LTC will remain my REIT in this segment.  WRT OHI, i am just trying to figure out the right exit … and how much risk i will assume to minimize the loss to the exit.  The political, labor and ‘old people preferences’ headwinds even out into 2020-25 are just too strong in my opinion to carry OHI risk / reward.

I will look to exit by EOY ’17.

Weekly Update, Nov 19, 2017

The standard updates / shares for the week

    • The whipsaw from Wednesday to Thursday was fun to watch and then Friday just seemed to run out of gas completely
    • What i notice, however, is that even on up or down days, the market is not uniform … rotations are happening, and an open question for me remains what is the new upward cycle in early ’18
    • Notice the q-to-q change in 10yr, but lower w-to-w or m-to-m
    • Anticipated inflation flat
    • S&P forward earnings unchanged even after this last q earnings updates
    • This is one of the graphs that i posted earlier in the week hoping for more discussion from Jeff Miller, but nothing there beyond the earlier post
  • Here is a pretty good summary of a bucket of data https://seekingalpha.com/article/4126172-s-and-p-500-weekly-update-new-highs-loom-still-look-gloom-doom
    • Based on all this data, the summary (my paraphrase) remains:  these valuations cannot self-sustain long term so a decline is immenent, when?  who knows.  Ride the wave and keep your finger on the ‘eject button’.
  • Another weekly summary that carries a bit more risk https://seekingalpha.com/article/4126240-tracking-bear 
    • My bias is fairly aligned w/ Lance here
  • Here is a contrarian view on interest rates … my bias based on the authors that i mostly follow is that long term higher rates are going against structural and demographic changes – upside is limited (higher rates).  This author argues the opposite and his points are all valid; i think the directional bias comes down to how are you looking at rates – cyclical or structural dynamics.  I am in the structural camp.  https://seekingalpha.com/article/4126193-fat-lady-singing-bond-market

What topics am i poking at?

  1.  Healthcare REIT
    • I have a bad position in OHI and am working to replace it and exit with limited capital loss.  I have given up on the company after this quarter’s earnings update – a) there were comments made asserting that HHS Secretary resignation negatively impacted the company’s future; b) OHI is suffering poor performing operators and coupled with Medicaid funding risk long term this just tips the risk basket over
    • I will continue to hold LTC in both taxed and non-taxed accounts … but will not add to positions at current levels
    • HCN is the other option, but growth forecasts on HCN are not that strong so building position <$63-65 would be more interesting (current small position in non-taxed basis is ~$61.)
  2.  Small cap IOT stocks
    1. CY – looking at this a EOY trade but would surely build position with 3% dividend
    2. IOTS – this is an interesting little company that just surfaced into profitability and seems to have a good product portfolio.  I see two positive scenarios:  a) IOTS just keeps executing and makes money, b) somebody swoops down and buys it.

Doug Short & Recession Leading Indicators

this is data thick and i believe Jeff Miller will comment on this over the weekend – few comment more concisely so i am looking forward to Jeff’s update.

Doug has a way of putting data together and really pushing to find the right story … my take away is that we are still muddling our way out of the Great Recession … real economic activity outside capital assets has yet to play out

https://seekingalpha.com/article/4125448-big-4-economic-indicators-october-real-retail-sales 

Weekly Update, Nov 12, 2017

This may be the week we look back and say ‘the bull started to tire here’ … there was a great point made by somebody on a comment area to a Seeking Alpha post … buying the dip and catching falling knives are going to get much more complicated and there will be many people with bloody hands.  i agree and introduced a new mataphor – no more knives, i will be looking to catching balloons after the knives fall all the way and stick into the ground.  Missing the absolute bottoms is not a concern at this phase … watch for baloons

Some highlights from Jeff Miller’s WTWA

  • Weekly S&P snapshot
  • This was an interesting data set … the inferences are difficult to make but one favorite opinion is that middle class folks can no longer afford investing and more and more capital is concentrated (i prefer this); but others are using it as a retort to bull market insanity (i cannot buy this fully)
  • I love this analysis of labor market and i find it skewed to the younger side of the employee base.  this same data (i believe) would look very differently by age groups (<40 and >45)
  • Weekly indicators … look at the 10 yr; higher at same time anticipated inflation is lower … key question is are rates a blip up and opportunity for bond purchases or is this a directional confirmation (higher rates)

Other sources and thoughts

My Actions

  • I filled my position in PEGI across all accounts.  The earnings conference call was compelling to me and especially their strategy and emerging success in Japan.
  • I closed my open trading position in IOTS after earnings report for a decent profit.  I really like this company and will buy more as the price stabilizes … a very small company with a growing design win pipeline in the IOT low power memory segment.  This is another piece of my IOT narrative for which i am thinking of an EOY post on all the components and associated investments.
  • The week ahead will be fully focused on GE and their strategy update

Low cost Toronto Weed Stocks

I bought a couple Toronto weed stocks last month and am looking to expand positions as entry points allow … TWMJF, APHQF and ACBFF were the target set.  I have small positions in TWMJF and APHQF (after reducing both by 50% after >25% gains in last 30 days).

I looked at APHQF and ACBFF as possibles due to the lower prices … i took Yahoo Finance numbers for annual financials … looking at these numbers at face value there is only 1 choice … next step is to verify these numbers with deep dives into different sources … then decision about additional investments (speculation?).

Variable

ACBFF

APHQF

Price

3.14

6.72

Assets

248,463

233,930

Liabilities

79,884

31,170

Tangible

112,995

200,472

Op Cash Flow

-8,090

3,942

Rev

12,363

12,806

Op Income

-8,618

-1,030

Net Income

-9,985

3,108

International Focus

there were a couple of articles today that focused on international data points rather than the US navel gazing in which many of us participate …

First Dr H https://seekingalpha.com/article/4121659-saudi-purge-crude-crash-course-geopolitics

  • a good reminder that events and behaviors we have nothing to do with may change the short term and / or long term value of our investments …
  • Need to keep an eye on geopolitical events (not for the headlines, but how they impact investments which is often greatly obscured for obvious reasons)

Second … https://seekingalpha.com/article/4121577-current-valuations-bond-market-part-ii

  • another vector of rationale as to why the US rates cannot increase without changes internationally … regardless of what power Fed or Administration thinks they have …
  • this author and i are pretty aligned, btw … i too keep buying fixed income assets when 10yr inches above 2.4% … i also have moved cash assets into 2yr ETFs within my non-taxed accounts as those rates spike

DR H is at it again

https://seekingalpha.com/article/4121104-answering-question-why-continue-work

and he has my attention …. quote:  “Because it sows the seeds of its own demise by effectively ensuring that the next crisis is larger than the last.”

…”That might seem far-fetched now, but don’t let the paradox be lost on you here. Central banks are trying to create inflation. The gamble is that when it finally comes calling, it doesn’t spin out of control.”

the key variable it seems to me and i have seen this elsewhere (of course i cannot find the specific pointers) is the labor force … if the influx of global labor (China and EM over the last couple of decades) inverts and we no longer have a labor surplus … BAM!  inflation kicks in globally

While Dr H and others indicate that the Amazon deflationary forces are equally influential … i am skeptical (and Dr H compares Amazon and WalMart impacts)

I do not have specific actions today but WHEW i will be watching global labor and costs very carefully

Ulcer Index

This was an interesting take on ‘what is the level of risk you will tolerate?’  https://portfoliocharts.com/2017/11/01/the-ulcer-index-is-a-helpful-way-to-quantify-portfolio-pain

I know that i have made some really bad decisions at points where the white spaces are really BIG … i have bought more, i have sold, i have gnashed my teeth (like i am doing right now w/ T)

I will be taking a deeper look at this over the next few weeks as i start my EOY portfolio scrub

Weekly Update, Nov 5, 2017

What a week … just a rollar coaster for my portfolio … actions taken and my personal thoughts at the end

  • Avondale interesting executive quotes http://avondaleam.com
    • “this is a broad-based growth…We’re really growing across the globe…better than we’ve seen in over five years. Really, really coming out of the recession was the only other time we saw this kind of growth number.” —UPS (Logistics)
    • “the data that we see has the ocean utilization at over 97%. So you have a high, high, demand environment now with capacity really becoming tight…then you get up in the air, this is the fourth consecutive quarter where you really had demand outpacing capacity.” —UPS (Logistics)
    • “The inventory destocking would seem to be behind us, and we’re building against the underlying growth in the categories going forward” —Colgate Palmolive (CPG)
    • “It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)
    • “the kinds of workloads now that are moving to the cloud has qualitatively changed. In the past we participated, but a lot of Tier 1 workloads were not on Microsoft stack, whereas now, a lot of Tier 1 workloads are in fact increasingly on Microsoft cloud.” —Microsoft(Enterprise Tech)
  • This is aligned to some of my observations as i have focused on shorter term trades over a small universe of stocks (<15 names).  https://seekingalpha.com/article/4120041-black-hole-passive-investing-became-new-qe
    • wide (hard to explain) moves occur at market open
    • big money (large trades) determine the final close in the last 15-20 minutes of trading
  • I could not make much sense of this post, but i need to re-read in reference to my passive holdings in VNQI.  I have a good gain without tax consequences, so … open question
  • Doug Short’s weekly S&P chart (via Jeff Miller)  — the week was much more variable than the index based on my observations
  • This came from Bespoke (via Jeff Miller) that is very interesting given the perceived confidence and overheating of capital assets … but confidence is not as high as pre-2007
  • Jeff’s weekly indicators … 10yr notes are up (and a range this week of of 2.387% high to a 2.33% low – CNBC Graph) … also note that anticipated inflation is lower this quarter than last (that’s something to continue watching imho)
  • Another post worth reading, and especially the comments … https://seekingalpha.com/article/4120577-heisenberg-uber-bull
    • the one point that struck me and still has me scratching my head is the rate gap between US and EU

Commentary / Actions

  • Two stocks went irrational this week and I bought both of them:  HASI and NWL.  HASI i bought at $22.42 and sold 50% of that position at $23.50 in my non-taxed account; this increased my HASI position to full allocation with cost basis of $20.37.  NWL i bought on the 25% down day at $30.37 (just an irrational exaggeration) and then sold the full position the next day at $31.68.  I would have kept them if needed to add to my position (cost basis of $11.48) … without that very low cost basis, i would not be a long term holder of NWL.
  • I also sold 50% of one of my speculative weed companies – APHQF which i bought at $5.26 and sold at $6.06.  I have additional shares in APHQF and will add to it if price cycles down again.  I also hold a small position in TWMJF purchased at $10.23 … both are Canada companies.
  • I took small profits in O in my non-taxed account to add capital to HASI and prepared to take on more BEP but it did not get to my price target under $33.00.
  • Cash positions are still uncharacteristically large and i will continue to take advantage of short term moves like HASI and NWL, but will not be looking for new long term positions (unless something really hits the floor)
  • Preferred stocks yielding >5% and investment grade corporate bonds less than 10years are being watched carefully … especially on the days where interest rates spike temporarily
  • My problem children really made the week a pain … T and GE
    • T is just a mess and my position is maxed out and i have written calls against my losing positions to reduce loss – but will most likely sell 1/3 of my position in December for tax purposes
    • GE is a hold until this week’s strategy discussion … the stock could go either direction and i want to know what the business is going to look like before i exit / increase my holding … i have watched this come down from ~$35 but with a cost basis of $17.63 i may need to make a decision as i will not sit in GE w/ loss.

More Q3 Quarterly 2017 Reviews

Last night i read thru 3 earnings conference call transcripts:  HASI, FIT and BEP

  • HASI … debt strategy and their willingness to take on that strategy was positive and well articulated.  No change to my positions (mid-point positions in both taxable and non-taxed portfolios) … will, however, add to positions if entry point lowers
  • FIT … seemed to me there was a bunch of hand waving (old corporate saying for we do not have much positive news to talk about so we’ll wave our hands enough to distract everybody) … the one key thing that surfaced in their prepared remarks was alarming (but maybe this was a transcription error)
    • “G&A spend increased 48% year-over-year to $35 million. Research and development spend was up 1% year-over-year to $71 million, and sales and marketing declined 4% year-over-year to $74 million” …
    • they are spending more on Sales / Marketing than R&D? … way, way, way bizarre imho
    • I have VERY small position in FIT and will exit if price hits $5.50 with a 10% loss
  • BEP … this one is getting way interesting and another executive team that seems like they really know what they are talking about and how to talk to investors.  I will be looking to add to this position in non-taxed account as entry point opportunities surface

UMPQ Q3 2017 Quarterly Review

UMPQ is ~3% of my taxable portfolio, with a cost basis around $12.  Their recent quarterly report, conference call and slides can be found here.

What i liked:

  • less discussion on rearview mirror and more discussion of 3 year strategy and included 2 rate scenarios within the strategy
  • exiting the car loan business and rational reasons for doing so
  • talking about their employees and how the strategy evolution impacts them and what the company is doing about that

What i did not like:

  • no discussion of competition
  • analysts asking questions that focused on their ability to build a revised model rather than really digging into the strategy

Conclusion for me? …. somewhere between $18-19 i would consider adding more to my position … but will watch carefully for now