Small adjustment – RY to T

based on two factors:  a) canada real estate bubble anxiety and b) T yielding 5%.  I own two of the 5 Big Canada Banks (BMO and RY), but today i reduced my RY by 30%.  Took those funds and a bit more and purchased more T for the 5% dividend, and lower capital risk.  I may also add to VZ position above 5%.  Everybody seems to hate VZ and T these days, and that usually means the floor is close – and i have a hard time seeing their businesses going away or even declining materially any time soon.  Of course, they (VZ / T) need to figure out a higher ARPU and avoid being commodity digital conduits.

Sunday Reads & Weekly Commentary – 4-30-17

Commentary -> I did follow thru and removed a bit of INTC from taxable account and sold the remaning CAH.  I also took profits on the UMPQ trade position that i took – gross return was ~7% for a <30 day hold; this could be a repeating pattern between $16 and 18.  As much as i wanted to take a couple of new positions (expanding current ones too); the prices just did not hit my trigger target so i held off … of interest right now:  T, VZ, VNQ, O, FPI, and TSCO (on the latter, i have yet to convine myself that a) rural US will avoid further declines and b) TSCO can hold sales against the others, e.g., WMT, AMZN, HD …  i am also watching ETFs carrying China, India and other emerging markets.  I have yet to find the best way to invest there.

Watching ahead next week … mostly irrational moves and reactions to macro and political perceptions.  One observation is that since the US election, the market has reacted to perceived / anticipated events more than to fundamental facts.  I will stay focused on the facts, and react when others ignore them and create opportunities.

 

GDP fog

a post today shows how the fog of GDP forecasting is rolling in for this Friday’s expected report on Q1.  https://seekingalpha.com/article/4065188-u-s-q1-gdp-estimates-run-gamut-ahead-fridays-report

If there is clarity to either high or low side of the estimates, i can predict too much talking and a bit of emotional response (especially on the low side).  Regardless, the report will be worth paying attention to for support or challenge to one’s thesis wrt growth and reflation.

Sunday Reads April 23, 2017

  • Agree or disagree, this thesis is very similar to mine and why i have CSCO in mutliple accounts https://seekingalpha.com/article/4064344-3-reasons-bullish-cisco-systems 
  • More confusion in the CAH narrative, though this article reflects my thinking … i had a small position at $69, sold half of it at >$82, and now am leaning toward eliminating the remaining at a small gain rather than add more.  https://seekingalpha.com/article/4064312-dividend-aristocrat-cardinal-health-drops-12-percent-buying-opportunity-value-trap  It may not be a value trap, but i regret not selling my full position above $82.
  • Housing costs rising 2x income growth (without factoring inflation) https://seekingalpha.com/article/4064318-americas-real-estate-booming-bubble – one would think that an opportunity exists to provide more supply at lower prices if land and construction costs work out favorably.
  • From Jeff Miller’s weekly post
    • i think this ratio between earnings (GAPP i like better) and revenue is material in either a micro or macro analysis.  I could entertain a socratic discussion on if the delta between the two or their trends (and the corrleation between them) is the more important metric – i am not sure if i have an opinion yet.   <quote> “To date, 6% of the companies in the S&P 500 have reported actual results for Q1 2017. In terms of earnings, more companies (76%) are reporting actual EPS above estimates compared to the 5-year average. In aggregate, companies are reporting earnings that are 6.7% above the estimates, which is also above the 5-year average. In terms of sales, more companies (59%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 0.2% above estimates, which is also above the 5-year average.”
    • Jeff also pointed here, and i echo his comments – sad that this was not more widely discussed and we each should read –  http://www.imf.org/en/Publications/GFSR/Issues/2017/03/30/global-financial-stability-report-april-2017
  • Blackrock opines about favorable market segments for investors … i tend to agree with most of it but i am not a fan of Japan (i just cannot get my head around the growth potential and interest rate return for the risk)  https://www.blackrockblog.com/2017/04/20/investing-opportunities-2
  • Overweight into Tech and Financials http://fundamentalis.com/?p=6860 – i agree but add a  third:  healthcare
  • Not associated with a specific reading but plotting the plan over next 7 days.
    • Two reductions planned:
      •  INTC allocation is too high at 9.5% of taxable account – reviewed selling near term calls, but the prices do not justify holding the capital risk captive – i will sell 50% of the targeted reduction before earnings and accept the risk with the remainder
      • CAH as indicated earlier i think its time to exit 100% – just wish i had done it when i sold 50% above $82.
      • I can easily re-acquire the income (dividend) from both with adding to PFE or starting new position in BMY (or both)

Is there an issue with growing divergence between GAAP and pro-forma?

One of my more favored SA authors published a piece this week that had a very interesting graphic on the growing delta between aggregate GAAP and pro-forma corporate earnings.  This analysis aligns with my thesis that economic growth is not accelerating as people want to believe and the recent FED moves are more about putting bullets back into their weapon, than really slowing down inflation.  The negative element to this article and many of the comments is the political overtones that sound more like opinions and beliefs.   Just the facts and an analysis of the facts, please?

https://seekingalpha.com/article/4064161-brick-wall-front-trump-agenda-rally-2_0

Just a reminder

In a SA article this morning, https://seekingalpha.com/article/4063767-stock-bond-markets-alpha-coming-back, there is a very interesting reminder buried in the discsussion … traditional bond houses do not make money without volitility.  Their greatest profits come from other people’s mistakes.  While the new world of passive algorithmic trading is making some people very rich, many of the traditional vultures are hurting.  Makes it also very hard for small investors to find obscure values that the market will discover afterwards.

JNJ – thought about it

My cost basis for JNJ is about $88.  Today’s drop got my interest as i could take on another slice of JNJ.  I looked quickly and even with my lower cost basis on 2/3 of a full position, i could not buy at $121.  I think somewhere closer to $118 gets interesting.  I would really like all purchases close to or below a 3.% dividend.

I also looked at the ETFs – FHLC and VHT given the impact of JNJ, CAH, MRK etc … not there yet.  The ETFs i think are still 8-10% too expensive.

Patience, patience, patience … the mantra

CAH guidance and follow up actions

CAH announced a purchase from Medtronic and some guidance this morning. https://seekingalpha.com/symbol/CAH

At first read, i thought that this would be a ‘buy the dip’ scenario and i would add to my very small current position.  Then i dug a bit deeper into the report.  Their earnings forecast just doomed the stock for the near term.  If i piece it together using basic rounding … 2017 = $5.35, 2018 = $5.00-5.25, and 2019 = $5.40-5.60 … analysts have not jumped in yet … but this changes my fondness for the dip … my relative risk algorithm tipped to the negative through same time period.  My earlier plan is reversed … i now need to sit and wait if i want more CAH … interesting level is in the $65-68 space given both its earnings growth view and dividend though i give the company credit for increasing its product portfolio.

Sunday Reads April 16

  • a good SA article  from Dr H on interest rates and USD … his view aligns with mine on the hard data not fully supporting increasing rates, as well as the unsupported view that FED has to increase rates somewhat else they have too few tools to battle any slowdown.  For me, it’s not perfect clear which way the balance is tipping and by how much, but i certainly cannot buy (and invest in) the thesis that rates are bound to climb steeply over near term.
  • State by state largest employer map … i saw a different version of this recently and it nearly took  my breath away – walmart.  i am not sure how this really influences local / state politics, but it has to somehow
  • The weekly S&P performance charts … struck by the greater than 1% decline on 20% less volume.  Seems the conceptual speculator could argue that the sell off was not enthusiastically executed and it will either continue down or bounce … i really dislike such speculation.
  • Great small comment in Jeff Miller’s Weighing the Week <copy> “Weekly jobless claims remained low at 234K. This half of the picture remains solid. We also need new hires.”  Not losing jobs = good/necessary, but creating jobs = sufficient.
  • Two interesting take-aways from this week’s blog from Brian Gilmartin http://fundamentalis.com/
    • Old technology is oversold going into earnings … this could be short term speculation opportunity
    • The comparison between S&P (and some specific companies) Q1 2017 and last year will be favorable due to lower 2016 performance (see the table)
  • A great batch of data from JP Morgan – i got lost here for about an hour and plan to revisthttps://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_2Q17-Linked.pdf
    • the chart on slide 9 showing forward PE by sector is WAY cool – look at technology, health care and telecom
    • Slide 17 on correlations is also interesting
    • Slide 37 was a surprise showing US rates higher than all the others … how does that translate to destination in ‘flight to safety’?
  • Good perspective in this section Power of inflections that debunks a correlation between presidential hopefulness and market pricing … looking to fundamentals is way more important (another ‘hard’ and ‘soft’ data argument?)
  • <later add> a good perspective on interest rates with some good simple data – Blackrock

UMPQ

On Thursday, i increased my UMPQ  position by 50%.  My original position cost basis is just below $13.25, and the new position is at $16.70 … new cost basis = $14.26.  The dividend yield on the full lot is now 4.49%. UMPQ is just a good solid customer oriented bank and local within NW.  I also opened an account last year to make sure the customer experience was not other people’s opinion.

This purchase is also a good example of how my portfolio strategy and radar method can be flexibile.  UMPQ originally (and still does) held only a #2 radar position – a long term holding that will be sold only if value exceeds rationality.  However, the new purchase is a #3 radar position as a special situation where the stock price did not reflect current value (in my opinion).  This recent +50% position may be sold at a 10-15% capital gain depending on a mix of company and market analysis.  The same company works in two different radar positions but each lot is managed differently with specific critieria (buy more / sell).  I limit my universe of analysis by using the same company for different objectives, taking advantage of what the market gives me … gaining some efficiency?

Sunday Reads, April 09, 2017

 

 

Fed’s correlation to S&P

Read a very well articulated article on the correleation between the Fed’s portfolio strategy and the rise of the S&P.  I am not supporting or rejecting the premise and conclusion of the article as i am just not that smart, but the correlation between the two entities is very striking and worth reading.    https://seekingalpha.com/article/4061144-fed-will-push-markets-lower

In another article (also a risk warning of impending market changes), it is not so much the article that i found fascinating, but a specific comment.  Article:  https://seekingalpha.com/article/4061158-i-can-cheezburger-visual-guide-4-market-risks

Comment <copied>

Calendar spreads, e.g. the 2-10 – that, or thereabouts, are the lifeblood of banking. Spreads need to steepen and there are powerful interests behind that – probably the most powerful. How? Timing? We got our hint of that, in an intentionally and characteristically coy fashion, from the release of the FED minutes – although most of us didn’t need that in order to know what the plan is. Like everything else of real importance, they tossed it to us over the transom as if it were a “ohh, by the way…we’re gonna unload some bonds…”

The long end yield has to come up and the FED has some long maturity paper on the books to manage that very nicely for the benefit of the banks, and the FED is ultimately all about the benefit of the banks.

So that’s the priority. The timing, they say, will be later this year and it may take 5 plus years of careful coordination to fluff up and sustain an increasingly erect yield curve. There’s plenty of motivation along those lines – and lots and lots of money to be made. My guess, given the team that will soon be in the FED driver’s seat, is that this process will be thoroughly corrupted and front run by friends and family – which means we’ll be whipsawed in and out of the trade by design.

TJX – I grabbed the falling knife

The other day, TJX fell in price <$78.  It was not exactly at my target price for entry, but i have anxiously waited for an entry point … i grabbed the knife on way down, missed this week’s bottom by about a $1.  My patience evaporated … poor discipline on my part, but i knowingly took the risk and have funds set aside for more TJX.  My longer term “gro analysis” suggests TJX could be a surprise core holding over 5-10 year timeframe.  Analysis will be published shortly as i share my “gro analysis” tool – will use TJX as the example.

Sunday Reads – April 2, 2017

I will get back to the portfolio radar this coming week to walk thru my analysis.  But here is a Sunday read worth sharing

  • https://www.kitces.com/blog/four-pillars-retirement-income-portfolios-interest-dividends-capital-gains-principal/ … this article surfaced in a couple of places, and relevant for folks in my age group (>50).  there were two elements that struck me.  One, the focus on ‘cash flow’ and not income; this is important and changes the way i might approach some investment stepping or structuring.  Two, the notion to break up portfolio return objectives in different segments based on your age and living style.  It’s totally rational and we investors probably do this intuitively, but it was great to see it simply described.