I have been watching TSCO for quite a few months now and remember the stores from my growing up in the mid-west. the price passed thru my ‘buy target’, so i took another look through my ‘relative growth’ model tool that looks at future capital and dividends with a blend of historical and forecasted numbers. two reasons i just cannot pull trigger … first, the dividend yield 3 years out remains below 3.5% which is my favorable 3 year floor. second, even though the capital appreciation on the low side should be somewhere close to 9% annual appreciation, i fail to see how rural america and small town america which is the heart of TSCO customer base will stay even with where it is now … a cyclical decline based on a) international competition for commodities, b) demographics behind the aging populations, and c) the further exodus to urban centers for jobs, education and promise
i took the target down $2 from today’s close to $59, and i am still frozen on same two rationale. there has to be some new sign of growth in the customer base and the business before i can pull the trigger … more waiting, though TSCO now moves from a radar slot #4 to a #6 (just watching).
If you want a blank Google Sheet w/ the relative growth model, email me @ firstname.lastname@example.org
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.
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.
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.
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?
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.
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 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.
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?
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
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.
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.