Investment Activity Review - April 2015

In April I decided to bank some profits in a few ETF’s as well building up positions in other companies.

OPENED position in Visa (V)

Visa was a stock that I held last year. I had bought it at the pre-split price of $200 an sold it at about $242, so I made enough to cover my minimum 20 percent threshold that I strive to obtain on every position I hold plus a little extra on the currency appreciation. When I sold it, I really had no issues with the company. It’s a fantastic business that generates significant returns on invested capital. Unlike other financial companies, Visa has carries no debt, so it is able to fund itself internally which is a great quality to have. Despite threats by alternative payment sources and services, the brand recognition and the fact it can immerse itself within any payment system positions the company to generate consistent and durable cash flow over the long term. After I sold the stock last year, the stock split 4:1 and just recently closed at an all-time high. It’s not a cheap stock and often is a type of stock I would avoid. What attracted me to buy back in was the news that China was going to open up its credit card system to foreign companies starting in June. Up until now, there was only the state owned UnionPay  that was authorised to sell credit cards in China. The opening up of the market represents to me a positive game changer moment for Visa and other credit card companies in that it can compete for hundreds of millions of new customers, so there is great upside potential for the company. Given the brand awareness of Visa, it should be able to capture a significant share. It reminds me very much when Apple signed with China Mobile to sell their iPhones, which has been a boon to the company. To me Visa is a type of stock that I would buy and hold for a long period of time. I decided to open a small position in my kids’ RESP as a core long term holding.

ADDED to position in General Electric (GE)

Despite the fact that GE’s industrial businesses are firing on all cylinders and hold dominant positions within their respective industry sectors, the stock has been a dog mainly because of its Financial Services segment which has held back its earnings potential. The company finally decided to address this and announced it intends to spin off GE Capital and issue a share buyback to position the company as a true industrial products company. To me this move represented a positive game changer moment for stock. GE Capital has been an albatross hanging over the company.  I decided to add to my current position. I think the market hasn’t recognized the true long term earnings potential. It’s hard to ignore. I’m thinking of also building a position again in my kid’s RESP portfolios as the stock appears to be trading at a discount.

SOLD position in iShares Emerging Markets ETF (EEM) and Vanguard Emerging Markets ETF (VWO) for 25.14% and 24.1% returns

I’ve been holding ETF’s in the Emerging Market segment for many years. The main reason is that I just don’t have time to research the companies and also their financial reporting standards are not necessarily the most transparent.  It has been a net benefactor in the large wealth and capital transfer that has been underway the past 15-20 years as an emerging middle class has created a new generation of consumers and they are not going away.  It hasn’t been a horrible investment but it hasn’t been great either.  Slowly the returns of the ETF’s edged up thanks in part to a stronger US$ and in April both ETF’s crossed my 20 percent return threshold.  They have had a good little run, but I fear that they will be due for a pullback once interest rates start to rise in the US. One of the big benefactors of excess money printing by the Federal Reserve is all that extra capital has been slowly finding its way into Emerging Market assets. Low interest rates have forced many investors to move up the risk food chain and into assets in Emerging Markets. The big fear is that when interest rates rise, investors will pull capital out of the Emerging Markets and repatriate back to the US. We had a brief taste of that transaction when the Fed first mused about tapering it’s balance sheet which caused Emerging Market stocks to have a hissy feat and correct violently. At some point it is going to happen again (no idea when), so I’d rather bank some profits and wait to go back in another day. I think having some Emerging Market exposure is a good thing and so I look to go back again.

SOLD position in Freeport MacMoran (FCX) for 22.9% gain

I bought Freeport in January as commodity prices, specifically copper and oil were tanking. I viewed it as a contrarian play as I felt that the rapid fall of commodities was a stretch and that there would be some value plays. I view Freeport as a best in breed company when it comes to copper production and I’m always looking for strong companies that can demonstrate that they can operate in a weak market. Chances are those stocks will be on sale. I opened a small position thinking to average down if the price continued to fall back. I didn’t think there would be any value coming out of the stock in the short term given how out of favour commodities had become. What happened. On a macro level, oil prices stabilized and moved back up to the high $50’s. What gave the company some more juice was the company was evaluating options for spinning out the MacMoran oil asset side of the company. Spinoffs are always good for stock prices because, when companies intend to spin-off part of their business, they will make sure the division is well capitalized and dressed up so that investors will find it more appealing. Much to my surprise the stock took off a bit and sure enough it had passed my 20 percent personal return threshold.  I still liked the company, but  I felt the quick move may be short lived so I decided to bank the profit. It is still very realistic that the stock could pull back into the teens, especially if commodities resume their descent and I have no problem buying back in on any weakness, assuming the fundamentals of the business remain intact.