For those who have been following my blog and podcast, you'll be quite aware that I've been consistent in the notion that stocks have been quite expensive and that I've had a hard time justifying buying anything and have been somewhat tentative in buying any new stocks or ETF's. That appears to have changed this year as I have been more aggressive in adding new stocks and ETF's to my portfolios. In the past month, I have added several new stocks which I will be sharing with you in this post and in my mind map video format. I also decided to bank some profits in a few stocks the have had nice run up.
Sold all shares in Imperial Oil (Ticker: IMO) for 1.3% gain
This was a tough decision as I do like the company and the stock has rebounded quite nicely in the last few months as oil prices have popped. What concerned me was a couple of things. The first was the direction oil prices and the US dollar. From what I’ve seen over the medium to long-term, oil prices and the US dollar move in the opposite directions. When the US$ is rising, oil prices and other commodities tend to fall and vice versa. The dynamics in the last few months have been a bit different and puzzling. We’ve been seeing oil prices rise quite meaningfully, yet the US$ has also been rising which is not usually the case. I was wondering if perhaps demand is really picking up and this inverse relationship is not very relevant. The reality is US interest rates are tracking to rise this year, which will over time force the US dollar to rise and ultimately put a damper on oil prices. The decision point I faced was do I favour the traditional behaviour of oil and currency or do I believe the demand/supply narrative will drive oil prices? I came to the conclusion that over the medium to long-term, oil prices will follow the currency behaviors which implies higher US dollar and lower oil prices which implies lower stock prices. This is by no means a clear-cut behaviour but it seems based like reasonable outcome. We haven’t factored any geopolitical issues which often get built into the price, so if something were to occur and it’s possible given events in Iran, Venezuela and the Middle East, it could rip up the script.
I’ve been in a losing position for a while on the stock and only until recently has it made back those losses to where I was slightly ahead (I’m not including dividends. Factor that in and my return is much higher as Imperial pays a dividend that yields about 1.85 percent annually). I think the big rise in oil has been done for now. The other factor driving my decision is sentiment. There have been a lot more calls by analysts for oil to hit back to $100/barrel. From my experience when the consensus takes a bullish position on oil, it often signals a peak moment. While I don’t like selling stocks for 1.3 percent gains, I’m thinking this may be a good time to take money off the table and wait for another day to jump back in, hopefully at lower price point.
Disclosure: I held shares in two separate portfolios. One had cost base of $36.78 so I claimed a return of 12.1 percent (not including dividends). The other portfolio had a cost base of $42.17 so I claimed a loss of 2.4 percent. Combining everything led to combined return of 1.3 percent (not including dividends).
Bought more shares of CVS Health (Ticker: CVS)
The stock had been having in a nice run up to $70 from the low $60’s. The big driver I think was Amazon’s decision to pull back from selling medical equipment. There has been a lot of consternation in the last year with Amazon making a push into the health product and pharmacy space that stocks like CVS have been depressed despite posting pretty solid financial performance. In early May the markets were again pushing back down and CVS went along for the ride as the stock went back down to under $64 despite a positive earnings report recently. Nothing appeared to have changed to take the stock back down so I decided to buy some more shares which allowed me to reduce my cost position to $73. I bought my first position in CVS at $80 so I’ve been slowly buying more shares to lower the cost position. Stock went up to almost $71 but fell back down to the low $60’s with no major news. I decided to buy more shares again to further lower cost base to $72.
Bought more shares of Walmart (Ticker: WMT)
Walmart continued to track downwards despite posting a pretty nice rebound in its online platforms. It also announced that it is buying a Indian e-commerce retailer Flipkart for $16 billion. Flipkart is the largest online retailer in India and is considered to be India's version of Amazon. It's a pretty big signal that Walmart is going all in on building its online ecosystem and become the OS for retail but not just for North America. It is really trying to entrench itself as a global retailer and is going pretty hard at responding to Amazon. Instead of building it out itself it has chosen to buy the technology and competency of people that know how to do it right. It did the same with Jet in China. So buying Flipkart immediately gets Walmart into the Indian market and a leg up on Amazon. As always it comes down to execution so we'll see how it goes. It is also getting more embedded in the home as Walmart announced integration with Google Home allowing people to order from Walmart directly via Google Home and waiving the monthly surcharge fee. They are making a lot of investment into building out these online channels and the analysts are worried it may crimp short term profits. Probably but I'm not trading Walmart. I'm happy to hold the stock for a long time. The stock went down into the low $80's so I decided to buy some more shares to lower my cost base down to $89 down from my original entry point of $96.
Bought more shares of Vanguard Consumer Staples (Ticker: VDC)
More stats showing how disconnected and lagging the consumer staples stocks have become relative to the overall stock market. Walmart, weak reports by Tyson Foods have taken down appetite for the sector. Over time I think it will bounce back (no idea when) because these are solid, wealth creating businesses, so I'm happy to add more shares and further lower my cost base.
Sold shares of Cheesecake Factory (Ticker: CAKE) for 20.8% gain (net FX).
CAKE was trudgying along and then in May the stock popped and went over the $50 level. It had crossed my 20% return level and so I decided that I’m happy to sell the stock and bank the profit. On the back of my mind I was wondering if there were rumblings of someone taking a shot and buying the company much like Buffalo Wild Wings when they got bought out late last year. It’s a ripe target. Sold cash flow, no debt and best in breed in a sector that has had a lot of pressure. I bought in at $44.60 and sold at $54 for a 20.3 percent return on US$ basis. I’m keeping it on my watch list in the event it drops back down into the low $40’s, I may jump back in.
In May I made the decision to add some new stocks to my portfolios. One of them I've had on my watchlist for a long time. The other one's were not on my list but certain events made me want to take a closer look and sure enough I thought they warranted being picked up. The prices for all of them had had some serious moves down in the last year and I decided that they were at a decent enough price point to open up a small position and slowly build them up.
In the next few weeks I will post the mind map videos and podcast simulcast that where I walk through my process of evaluating the company and stock using my 8 questions framework that I teach in my Everyday Investing courses.
New Stock: Bought shares in Johnson and Johnson (Ticker: JNJ)
I've had Johnson and Johnson on my watch list for a long time. I've held it in the past and I got a pretty good return on it. After I sold when it was in the $70's the stock kept on moving and literally doubled. I thought I may never get back in but the stock since the start of the year has been falling and it went down into the mid $120's when I thought it would be good to take a look again. Below are my mind map video and podcast version where I walk through my thought process.
New Stock: Bought shares in MGM resorts International (Ticker: MGM)
MGM has not been on my watchlist and I really wasn't thinking about getting into casino stocks but a recent Supreme Court decisions that essentially legalized sports gambling in the US I thought was a game changer movement that could really put gaming companies in a strong position to move. I did a quick scan and MGM appeared to be not the most producing gaming company but what drew me was management's foresight to build out sports betting platforms and services in the anticipation of the legalization of sports betting. Here's my quick deep dive that lead me to the decision to buy some MGM stock.
New Stock: Bought shares in JD.com (Ticker: JD)
Fitting into my theme of investing in companies that can own the OS, JD.com is positioning itself to become a real player in online retailing. It has been one of the big players in the China market and it is looking to branch out to other parts of Asia. It is very aligned with other players like Tencent and Walmart and aggressively building out its retail ecosystem channels. The stock has been falling and some say the US trade tariff sabre rattling has put pressure on China stocks.
UPDATE #1: Since I made the decision, some significant news has come out. It was announced that Alphabet had made a $550 million dollar investment in JD. I think its a big deal in that it validates JD's value proposition. JD has now entered partnerships with Alphabet, TenCent, and Walmart. These are companies that are aggressively trying to build out online ecosystems to own the OS for distribution in retail. Whoever can control that online platform has a good chance at building durable competitive advantage. Whatever happens, JD has connections with all the main players. The Alphabet connection also signals that both parties are looking to take on Amazon.
UPDATE #2: Since the Alphabet announcement, more events have occurred, specifically from the Mad King himself, who pondering restricting Chinese companies from investing in American technology companies. I wonder now if the JD/Alphabet partnership is now in doubt given the Eye of Sauron is now looking upon China quite aggressively. I cite the potential of a tariff tit-for-tat as serious risk factor that could negatively impact JD.com and other China stocks.
UPDATE #3: Sold shares in JD.com (Ticker: JD) for 28.5 percent loss (Net Forex). This was a tough one. I still think the fundamentals of the business are quite solid as they are aggressively positioning themselves being the OS for retail in China and Asia. They have aligned themselves with some heavy weights (Walmart, Tencent, Google) to build out a formidable retail ecosystem.
So what changed my thinking? Math. The stock fell through the $30 level and my loss position was well over 20 percent. Basic math tells me that the stock would have to pop back over 25 percent to just get to break-even, which given the volatile nature of the stock is quite possible.
The other factor comes to governance. Richard Liu the CEO was arrested for alleged assault and then released in the US in August. He since returned to China. The police said the charges could not be substantiated and so he was released. There have been rumblings that this is not the first time this has happened and so there is a serious cloud on the leadership. Adding to this is that the management structure has been setup so that Liu because of his significant ownership of shares can still run the company. This is a big distraction and I think this will stick to the company.
I was down 28.5 percent which means the stock would have to up almost 40 percent for me to break-even which I think will be pretty tough under this current dynamic. Following my playbook on managing with losses, I decided to sell now and move on. It’s a tough one as at one point the stock was trading in the high $40’s and so I was in a good position. That’s the way investing goes sometimes.