Pulse articles are strategy focused and help me to identify undervalued stocks suitable for further investment. Additionally, if stocks in my portfolio perform poorly, they could be candidates for the chopping block. I use various charts to visualize recent performance.
To prepare for pulse articles, I update the fair value estimates for every stock in my portfolio. This is a process that takes several hours to complete, as I perform a multi-stage Dividend Discount Model analysis, a Gordon Growth Model analysis, and an analysis of dividend safety. My final fair value estimate also considers fair value estimates and price targets available elsewhere, such as those from Morningstar, finbox.io, and S&P Capital IQ.
Last month, I identified one position to close, The Gap, Inc (GPS). Despite the stock's high ranking and 6-star designation, GPS has performed poorly and I decided to harvest some tax losses, so I closed my GPS position in December.
I'm still holding onto a portion of my PennantPark Investment (PNNT) position even though the company cut its dividend. The stock still yields 9.16% and I'm not willing to let it go at the current share price. I'll see if it is possible to sell suitable call options on the shares and perhaps exit my position that way.
From time-to-time, I like to look at the size of my DivGro positions. Stocks that are underweight are good candidates for further investment:
Stocks with weights less than 1% are underweight.
|I prefer to buy stocks when they're discounted by at least 10%. To determine if stocks are available at a discount, I estimate fair values for every stock in my portfolio. As part of the analysis, I also rate stocks and assign a 7-star rating to each stock. In general, stocks rated 5-stars or better are worthy of further consideration.|
Here are the ten DivGro stocks with the largest discounts to fair value, as of 27 January 2017. I, addition to the stock's discount and its 7-star rating, I include the stock's rank out of 43 stocks:
|Gilead Sciences, Inc (GILD)||• discount 29%||• rank #15 • ★★★★★☆☆|
|Qualcomm Inc (QCOM)||• discount 27%||• rank # 1 • ★★★★★★★|
|Target Corporation (TGT)||• discount 24%||• rank # 2 • ★★★★★★★|
|Ford Motor Company (F)||• discount 22%||• rank # 5 • ★★★★★★☆|
|AbbVie Inc (ABBV)||• discount 21%||• rank #29 • ★★★★★☆☆|
|Pfizer Inc (PFE)||• discount 17%||• rank #37 • ★★★★☆☆☆|
|Valero Energy Corporation (VLO)||• discount 15%||• rank #11 • ★★★★★★☆|
|PennantPark Investment (PNNT)||• discount 14%||• rank #43 • ★☆☆☆☆☆☆|
|Wal-Mart Stores, Inc (WMT)||• discount 12%||• rank # 8 • ★★★★★★☆|
|T. Rowe Price Group, Inc (TROW)||• discount 10%||• rank # 3 • ★★★★★★☆|
I won't add to positions of stocks rated 5-stars or less.
The following chart shows the percentage discount to fair value of all the stocks in my portfolio. Green bars represent discounts, while red bars represent premiums (or negative discounts):
Every month, I rank a selection of David Fish's CCC stocks and publish an article of the top ten ranked stocks on Seeking Alpha. January's list contained most of my DivGro stocks!
Here I'm repeating the ranking process on my DivGro stocks. Ranks are out of 43 because there are 43 stocks in my portfolio. (I also own 3 closed-end funds, but I don't rank those):
|Qualcomm Inc (QCOM)|
• discount 27%
|• rank #1 • ★★★★★★★|
|Target Corporation (TGT)|
• discount 24%
|• rank #2 • ★★★★★★★|
|T. Rowe Price Group, Inc (TROW)|
• discount 10%
|• rank #3 • ★★★★★★☆|
|Nike Inc (NKE)|
• premium 3%
|• rank #4 • ★★★★★★☆|
|Ford Motor Company (F)|
• discount 22%
|• rank #5 • ★★★★★★☆|
|General Dynamics Corporation (GD)|
• premium 11%
|• rank #6 • ★★★★★★☆|
|Cisco Systems, Inc (CSCO)|
• discount 9%
|• rank #7 • ★★★★★★☆|
|Wal-Mart Stores, Inc (WMT)|
• discount 12%
|• rank #8 • ★★★★★★☆|
|Johnson & Johnson (JNJ)|
• premium 5%
|• rank #9 • ★★★★★★☆|
|3M Company (MMM)|
• premium 14%
|• rank #10 • ★★★★★★☆|
Except for GD and MMM, all these stocks are candidates for further investment. As for NKE and JNJ, even though they're trading at a premium to fair value, I can consider selling puts to choose an entry price at or below fair value.
One way to assess a stock's recent performance is to plot the current price relative to its 52-week trading range:
Another way to look at recent performance is to compare a stock's recent returns to its annualized returns over a longer time frame. The following chart compares 1-year returns to annualized 5-year returns for all DivGro stocks. The returns exclude dividends:
Positions To Close
As mentioned earlier, I'm still holding onto some of my PNNT shares. If the stock hits a 52-week high, I'll close my position. That's only 5% higher than the closing price on 30 January.
There's another position that I'm thinking of closing:
|STAG Industrial, Inc (STAG)||• premium 4%||• rank #42 • ★☆☆☆☆☆☆|
STAG is rated 1-star and ranked #42 out of 43 stocks. With annualized returns of 26%, it may be good to close this position and capture those gains. I own two lots, one of which is still short-term. If I sell after 2 March, the gain would be long-term.
Here is a 7-year F.A.S.T. Graphs chart showing the stock price correlated with STAG's Adjusted Funds From Operations:
Based on the F.A.S.T. Graphs chart, STAG seems to be trading at about fair value. My own estimate of fair value is slightly lower, though not by much. So selling soon may be opportune.
Positions To Boost
Last month, I mentioned that I would be looking for an opportunity to add shares to TGT. I decided to add 100 shares and to sell two puts for a lower entry point.
This month, I'm focusing on consolidating my DivGro portfolios. When completed, DivGro will be distributed over five different accounts, one trust account at Interactive Brokers and four IRA's (a traditional and a Roth IRA for me, and a traditional and Roth IRA for my wife) at FolioInvesting.
As I take these consolidation steps, I'll be "transferring" stocks and cash into DivGro and recognize past dividend income, just like I did at the beginning of last year when I brought my Scottrade holdings into the DivGro fold.
TXN) is a stock I previously owned but sold to generate cash and to prepare DivGro for options trading. It is quite a bit overvalued right now!
Thanks for reading and take care, everybody!