Model Portfolio

US-Large Portfolio Transactions

By March 2, 2017 No Comments

Sells: 

– Sanderson Farms (SAFM) – Market Trend. We reduced our number of positions in the consumer staples sector from 3 to 2. SAFM’s SPscore is high mainly because of the steep discount it offers against its intrinsic value, which seems unreliable considering the inexistent correlation with the stock price. SAFM’s return on capital, even though still good, has constantly decreased over the past 3 years, as did the NOPAT. Sanderson Farms and other top U.S. chicken processors were also sued in late 2016 for alleged price-fixing. Since the outcome of the lawsuit is still uncertain, we preferred to close our position while it was trading close to its 52-week high.

– Aetna (AET) and Johnson & Johnson (JNJ) – Market Trend. We reduced our number of positions in the health care sector from 3 to 1. Even though AET and JNJ are still looking good and have good scores, our 3rd health care position HCA Holdings (HCA) stands out in almost every aspect. AET or JNJ could very well re-enter our US-Large model if the sector’s weight increases in the next couple of months.

– Verizon (VZ) – Market Trend. We reduced our number of positions in the Telecommunications sector from 2 to 1. We decided to keep AT&T (T) mainly due to its slightly better long term EVA trend and higher revenue growth.

– Target (TGT) – SPscore. Target announced disappointing results on February 28. The TTM revenues dropped by almost 6%, which negatively affected the NOPAT, EVA and other important performance indicators. Given this performance decrease and the huge pressure on retailers, the discount of “only” 15% to the intrinsic value is not attractive enough to justify keeping the stock.

Buys:

– Spectra Energy Partners (SEP) – Market Trend. We increased our number of positions in the energy sector from none to 1. SEP is the highest rated U.S. Energy Large Cap company available as of now with an SPscore of 66%. After a big EVA drop in 2014-2015, it is now nicely recovering and increasing steadily. SEP has regularly increased its dividend over the past 5 years, at an average pace of 8% per year.

– Williams-Sonoma (WSM) – Market Trend. We increased our number of positions in the consumer discretionary sector from 7 to 8. We sent a complete write-up on WSM on February 20, please click on the following link to access the blog post. (Link)

– Aflac (AFL) and Chubb (CB) – Market Trend. We increased our number of positions in the financials sector from 3 to 5. AFL and CB are both among the top 5 S&P500 Financials stocks from an SPscore perspective. They both offer attractive growth and quality attributes while trading at reasonable valuation multiples. Since the 3 stocks we already owned were all in the banking industry, AFL and CB will bring additional diversification being in the insurance industry.

– Darden Restaurants (DRI) – SPscore. We bought DRI to replace Target (TGT) in the consumer discretionary sector. The company’s return on capital and EVA are increasing quickly since August 2014. DRI has a low debt/equity ratio of 0.24, and their high free cash flows could allow them to increase the dividend more aggressively in the future. The company is still in growth mode, with plans to open around 25 new restaurants in 2017.