Model Portfolio

US-Large Portfolio Transactions

By December 6, 2016 No Comments

Sells :

– Robert Half International (RHI) – Market Trend. Reduction of the Industrials sector weight from 17% to 12%. We had to decrease our number of positions from 4 to 3, and RHI was the one with the lowest SPscore (66%) and the highest premiums when compared to CHRW, LMT and AZO.

– Cisco Systems (CSCO) and Intel Corp (INTC) – Market Trend. Reduction of the Information Technology sector weight from 19% to 10%; we had to go from 5 to 3 positions in the portfolio. CSCO and INTC were our two holdings with the lowest SPscores, 61% and 65% respectively, and showed signs of weakness when looking at the intrinsic value and EVA trends. CSCO was also trading at a steep premium while its overall economic performance was decreasing.

– Southern Co (SO) – Market Trend. Reduction of the Utilities sector weight from 2% to 1%. We had to go down from 1 position to 0, so SO’s sale was mandatory. Southern Co is still one of the best options available within the Utilities sector, so we might buy it again if the Utilities sector weight increases above 2% next time we review the portfolio.

– Skechers (SKX) – SPscore. SKX’s SPscore decreased from 72% to 65% in the last 3 months. We replaced it by Foot Locker (FL) with an SPscore of 69%, up by 1% over the last 3 months.

– Ross Stores (ROST) – SPscore. ROST’s SPscore also decreased a lot over the past year. Even though the company’s economic performance is still very good, the risk has increased a lot due to the high premium at which the stock is currently trading. The P/IV ratio is of 1.7 and the Future Growth Value is of 54%.

– Kimberly-Clark (KMB) – SPscore. KMB’s return on capital decreased for the 3rd consecutive year. The P/IV ratio of 0.93 doesn’t reflect a very attractive upside potential, especially when considering that the intrinsic value has decreased in the past 2 quarters. The 27% FGV premium is hard to justify given that the EVA hasn’t increased at all, and revenues also fell in each of the last 4 years.

– Gilead Sciences (GILD) – SPscore. After many consecutive quarters of strong growth in the return on capital, intrinsic value, current operating value and EVA, this growth has disappeared in December 2015, date at which we can clearly see the total EVA generated for shareholders topped out. For now, the company hasn’t been able to turn this situation around and the EVA continues to decrease at a quite high pace.

Buys :

– Scripps Network Interactive (SNI) – Market Trend. Increase of the Consumer Discretionary sector from 22% to 27%. We had to go from 5 to 7 positions in the portfolio, and SNI is in 3rd position within its sector on the S&P500 with an SPscore of 71%. We already own the 2nd position, AZO. SNI shows a positive intrinsic value trend, a stable EVA, good free cash-flows and has aggressively increased its dividend over the past 5 years.

– Cracker Barrel Old Country (CBRL) – Market Trend. This is the 2nd addition in the Consumer Discretionary sector. CBRL, with an SPscore of 67%, has a growth profile. The stock is trading at a slight premium but the company offers high growth rates in its economic performance indicators since early 2014. The EVA is currently at its highest level in 5 years.

– Wal-Mart Stores (WMT) – Market Trend. Increase of the Consumer Staples sector weight from 7% to 10%. We had to go from 2 to 3 positions in the portfolio and WMT is ranked #1 within its sector in the U.S., with an SPscore of 71%. Even though WMT doesn’t show high growth rates, the indicators are extremely stable and the stock, which is undervalued, could benefit from the holiday season.

– HCA Holdings (HCA) – Market Trend. Increase in the Health Care sector weight from 9% to 12%. We had to go from 2 to 3 positions in the portfolio, and HCA is ranked #1 within its sector on the S&P500 with an SPscore of 70%. HCA offers a growing return on capital, intrinsic value and EVA while trading at a discount both when compared to its intrinsic value and future growth value (FGV).

– Foot Locker (FL) – SPscore. Replacement for Skechers (SKX). For more details on FL, please refer to the November 24th blog post.

– Kroger (KR) – SPscore. Replacement for Kimberly-Clark (KMB). Kroger has a higher SPscore than KMB, but more importantly, it trades at a discount to its intrinsic value, which continually increases, and to its future growth value. KR’s return on capital and EVA also continually increase very linearly, especially since last year. Kroger does share buybacks and regularly increases its dividend while generating positive free cash-flows.

– Johnson & Johnson (JNJ) – SPscore. Replacement for Gilead Sciences (GILD). Just like WMT, JNJ has a stability profile. The intrinsic value, EVA, return on capital and free cash-flows have been very stable over the past 5 years while being at very acceptable levels.

– Target (TGT) – SPscore. Replacement for Ross Stores (ROST). TGT’s SPscore (66%) is slightly better than ROST’s (63%) and it also offers as-high intrinsic value and EVA growth rates. More importantly, by switching from ROST to TGT, we go from owning an overvalued stock with a P/IV ratio of 1.7 and a FGV of 54% to a fairly valued stock, with a P/IV ratio of 1.0 and a FGV premium of only 5%.

* All new positions entered the portfolio with a 4.1% weight.