Weekly Update, Oct 22, 2017

This week was filled with a bunch of noise and the real start for the earnings season.  I was also focused on learning more on technical analysis with a bit of real money on the table to really drill in the lessons.  That experience will be a complete post in itself.

  • Some interesting executive quotes from http://avondaleam.com
    • Is consumption really up as much as BoA claims?  … “Consumers are spending, whether it is checks written, cash taken out of the ATM’s, P2P payments, and all the debit and credit cards, 5% more through the first nine months of 2017 than they did in the first nine months of 2016. That’s a faster growth rate than it has been in prior years.” –Bank of America CEO Brian Moynihan (Bank)
    • So i should disregard all those comments about all the ‘cash on the sidelines’ … “we saw more cash go into the markets, particularly the equity markets as those markets rose around the world. And we’ve seen cash in our clients’ accounts at its lowest level.” –Morgan Stanley CEO James Gorman (Broker)
    • this is just straight out marketing spin imho … “The pipeline…is strong also in our conversations with clients on the advisory side. There’s no sense of slowdown. We’re seeing a pickup in client dialogue, particularly I would note in technology, media, telecom, as well as industrials and natural resources. And so, it’s strong for all of the reasons that you would expect that CEOs are confident, equity market support valuations and acquisition currencies, the financing markets are open, the overall levels of financing costs are relatively low by historical standards.” –Goldman Sachs CFO Marty Chavez (Broker)
    • The impact to real estate from rising interest rates (and all of us who make money in that market) … “Rising rates to the real estate market are troublesome. They impact cap rates, they — if — as rates go up in the front end, since most of the borrowings on the projects are floating rate, you expose coverage ratios in those loans…at the margin, I would expect higher rates are going to cause greater delinquencies in real estate, and it’s one of the reasons we have at the margin, dialed back our growth.” –PNC CEO Bill Demchack (Bank)
    • I was one that thought infrastructure investments, especially water, would continue to outpace average demand – not so much? … “Although utility metering sales were relatively flat, we have seen an overall softening in the utility market over the past six months” –Badger Meter CEO Rich Meeusen (Water Meters)
  • Investment dilemnas of the week = FIT, GE and O
    • FIT(will post Monday morning)
    • GE – what a merry-go-round! … i went from wanting to buy more below $23, to watching the drama and deciding to wait until Flannery actually updates the Street on his strategy … my cost basis is<$18.  I am still waffling on the Oil / Gas business expansion in the overall GE footprint, so that may be reason for a complete liquidation if the strategy is not compelling.  a moral/ethical compromise could be made
    • O – Currently, i own O in 3 different portfolios:  core, trading and IRA.  i sold 50% of my medium position in my IRA to free up capital for possible additional investments in PEGI or BEP / BIP.  my confidence in O stock valuation expansion for near term (6-12 months) is low given the current hatred for anything brick / mortar and as well the potential rising interest rates.  I will continue to hold in ‘core’ portfolio which is the largest position, and will look to either exit in trading or continue my practice of writing 60 day out of money calls when the prices are compelling.
  • Euphoria … short post using GE’s Friday experience as the model … it’s compelling narrative and continuation of my bearish bias … but the wall of worry is one of the factors keeping multiple expansion alive  https://seekingalpha.com/article/4115273-friday-ge-fiasco-exposes-fluff-fueled-market
  • Jeff Miller / Doug Short weekly snapshot … one week bull rampage  (Here is Doug’s post)
  • These next two charts show how context and data type can really change the interpretation of the VERY same data … this is a comparison of 1987 and 2017 which has been a popular topic this past week … i was a broker in 1987 and remember that day (week) like it was yesterday … we as consumers of more and more visual data need to be reminded every so often that “how” the data is presented needs to be as evaluated as the data itself … else we risk error, big time.  (thanks to Jeff Miller for pointing this out)
    • non-normalized data
    • normalize data (percentage)
  • Jeff’s weekly indicators
  • A truck-load of treasury data from Doug Short https://seekingalpha.com/article/4115250-treasury-snapshot-10-year-yield-2_39-percent
    • this is probably the key graphic for me as i try to answer:  top 10yr rate will be xx in next 2-3 years?  
    • regardless around the 3.4% 10yr i am back looking at 10yr investment corporates where i can get >3.7% with low / no capital risk … my eTrade screen this morning did not surface any bonds that hit my criteria  … here’s Baird’s commentary (i did not find helpful)
  • Or, just maybe … earnings are really supporting the multiple expansions (in a general sense) https://seekingalpha.com/article/4115248-s-and-p-500-forward-earnings-curve-tells-good-story
    • My own thought here is that index investments will ride this generalization / averages … but the ride will be both directions when the tides turn

Weekly Update, October 15, 2017

For me this week, i have only nibbled at a few small trades that are intentionally shorter term than i would prefer.  I also watched in confusion as T and GE (two of my larger positions) went way south and i was torn with hold ’em, buy more or dump and run …. it ended in a stalemate of hold.

Middle Class Wages / Debt —> Looming Storms?

here is the accompanying quote from the author:  “The U.S. middle class suffers from stagnant wages, and has not seen an increase in their standard of living in nearly 20 years. This is not sustainable in a consumer-based economy. At some point, debt availability will run out and consumers will have to drastically lower their level of consumption, triggering a drop off in economic activity.”

 

Source:  https://seekingalpha.com/article/4111596-ignore-risks

Sage Advice

Lance Roberts posted an article on SA recently that echos most closely how i am approaching things right now …. https://seekingalpha.com/article/4111553-technically-speaking-80-20-rule-investing

How i have translated the conditions into actions

  • watching for irratic / irrational moves in my watch list and snapping them up if appropriate, e.g., PEGI, BEP, IEMG and EFV
    • Note:  either nonUS or interest paying at decent rate (these are also in 401k or IRA)
  • watching for bumps in 10yr treasury yields and snapping up $5k increments of 10yr investment grade corporates, e.g., Nordstrom and Kroger
  • creating a watch list for preferred stock … investment grade cummulative preferreds, e.g., (eTrade symbols for some new issues), DLR.PR.C, AOP.PR.Q, ECF.PR.A …. DLR.PR.C is my favorite but a bit highly priced @$27.70
  • working short term trades for 1-3% gains (both short and long) … to borrow a baseball analogy, i am VERY defensive at the plate looking for a sacrifice or a single (no homerun) … just want to either get on base or advance the runner – no heros
    • Note: for shorts, i have focused on December Puts … i pay a premium, but i have more time to catch a sequence really bad days
  • trimming or liquidating stocks that just have no rational room to inflate further, e.g., CLX and possibly TJX
  • writing covered calls for stocks that i would not mind losing, e.g., TSCO

Weekly Update, Oct 1, 2017

Commentary, maybe’s and decisions

  • personal sentiment is flat to down on US equities
  • took positions in the following:  PEGI (IRA), Kroger 3.7% 8/1/2017 @ $98.96, yield to maturity of 3.805 (taxable), IEMG and EFV ((401k)
  • targeting to reduce or eliminate positions in the following:  CLX, TJX and perhaps UMPQ
  • careful toe-dipping in emerging market / asia equities
  • additional corp 10yr bonds >4.25% yield to call / maturity
  • stocks wanted at lower entry points:  CY, MSFT
  • analysis unclear – cyber security and CPU producers (is it finally time to completely give up on INTC?) – these will be part of the IOT narrative update expected later in Oct

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