Stocks To Consider September 2022

Below are some of the stocks we are considering for the new purchases in September 2022.  We may adjust this list but it represents some current focus items of varying industries, geographic locations (US and non-US) and scale (very large and large cap).

US Companies

• Lockheed Martin (LMT) – LockheedMartin is a US company that has a market cap of over $100B and a dividend of 2.7%.  This is an aerospace and defense company that can benefit from global instability and the war in Ukraine
• Devon Energy (DVN) – Devon us a US company that has a $40B market cap and a very high dividend of over 6%.  This company benefits from high oil and gas prices worldwide
• Mosaic (MOS) – Mosaic is a US / Canadian company that mines potash and has other fertilizer and agriculture related products.  It has a market cap of $18B and a modest 1% dividend.  Much of the rest of the worlds’ supply of Potash is in Russia or China so it is an advantage to be in the West in the current global situation
• Docusign (DOCU) – Docusign offers electronic contracting and is a leader in this space.  They had a horrendous last year, having lost over 80% of their value and are now worth $10B.  However, they still have a solid franchise and good position in this important area

Non-US Companies

• Akzo Nobel Inc (AKZOY) – Akzo Nobel is a Dutch company that provides coatings and paints.  It has a market cap of $10B and a dividend of 3.7%.  Many European companies have been hit with the fall of the Euro (when you convert their value into US dollars) and the energy situation in Europe, so this may be a good purchase point
• Subaru Corp (FUJHY) – Subaru Corp is a Japanese company that builds Subaru autos.  They have a market cap of $13B and a dividend of 4%.  This stock too has been declining but may be a good purchase point for a company with solid brand equity and loyalty
• Puma (PUMSY) – Puma is a German company that makes shoes and sportswear.  They are generally well run and have some niche markets.  Their market cap is $8B and they have a modest 1% dividend.

Mega Cap

• Alphabet (GOOGL) has a 1.35T market cap and no dividend.  The revenues grow relentlessly and they are well run and less controversial than other companies in the space.
• United Health (UNH) – United Health is a very large US company that is a health insurer and also large provider.  The market cap is $470B and it has a 1.3% dividend.  The company is well run and positioned in the vast health market

Stocks To Sell September 2022

These portfolios are medium to long term in nature. That means we typically do not make quick sales in response to market conditions. But it is time to re evaluate these stocks given all the changes since covid and these stocks we are going to sell or strongly consider selling as a result.

• Vanguard Total Market Bond Index (BND) – with short term cash returning almost nothing, it seemed to make sense to look at the BND ETF as a chance to get a little more yield (interest) on cash with not a lot of extra risk. However, BND has fallen 15% with the rise in interest rates impacting the value of bonds and this is not a good place to park short term money
• Appian (APPN) – the low code SAAS software company briefly had a price boom with other automation software companies and then fell back to the IPO price. The company is not yet profitable and does not have rapid growth. It is not a bad company and recently won a big lawsuit and damages against the competitor PEGA, but does not seem to have significant upside
• Activision (ATVI) – Activision makes video games and is currently in the process of being acquired by Microsoft, which has stabilized the price. If the acquisition falls through due to regulatory barriers, the stock will likely fall in price. Given the situation it makes sense to sell
• Alibaba (BABA) – Alibaba is a Chinese e-commerce giant that also owns thriving financial firms. But trouble with the Chinese government has led to a crackdown and the market in China is just very difficult for stocks and as a result it results in a sell recommendation, even though this is a powerful and seemingly well run company
• Intel (INTC) – despite a historically good market for chips (the entire supply chain was brought to its knees due to lack of chips), management errors and poor execution have caused this company’s stock to drop significantly. With no near term catalysts on the horizon it makes sense to sell
• Pinduoduo (PDD) – Pinduoduo is another massive and innovative Chinese e-commerce company that has been heavily damaged by government challenges. As such it makes sense to sell
• SAP – SAP has a strong franchise in Enterprise Planning software but has struggled with a migration to the cloud and delayed meaningful integration of its major acquisitions. It is also hurt by the rise of the dollar since it has significant overseas revenues. Until management regains credibility and proves it can execute likely it is time for a sell
• Snap (SNAP) – Snap was seriously impacted by the changes in privacy with do not track driven by Apple and iPhones and the rise of TikTok. The stock is down tremendously and the company is taking aggressive actions including shutting down some products and reducing staff in an attempt to survive. Given this, it is time to strongly consider selling. On the other hand, this also may be a decent price point for entering the stock if you feel that they can survive and / or get acquired by someone who could leverage their large and active user base
• Block (SQ) – formerly Square, Block is the payments company that serves all the small companies with the card readers as well as owning the Cash App, and also having a major bitcoin presence. The stock has cratered as all these businesses hit the wall and it is time to consider moving on
• Rocket (RKT) – Rocket is a company that sells mortgages and is a major player in this space. However, the mortgage business is collapsing as interest rates rise and home values fall and the company is going from large profits to likely a net loss. On the one hand, Rocket is going to be a large player in consumer financing and mortgages for many years to come if they can survive the downturn (they are well capitalized) – on the other hand, the stock price is down and many lean years are likely to come of limited profits and likely losses. This is hard because it is a well run company – the question is, can anyone invest in the mortgage industry or is it just a short term boom / bust sector (that’s been the historical challenge)
• Paypal (PYPL) – Paypal has historically been a great stock, rising with the growth in electronic payments, and also owns Venmo. However it recently crashed with the downturn and faces many challenges, including the rise of Apple Pay. OK to sell even if this is a painful call

Sales by portfolio to consider:

• Portfolio One – Alibaba (BABA), Pinduoduo (PDD), Block (SQ), consider selling Paypal (PYPL) and Rocket (RKT)
• Portfolio Two – Alibaba (BABA), Total Bond Market (BND), Block (SQ) (discussed and decided to keep)
• Portfolio Three – none
• Portfolio Four – Block (SQ)
• Portfolio Five – Appian (APPN), Activision (ATVI), Intel (INTC), Snap (SNAP), Block (SQ), consider Paypal (PYPL) and SAP (SAP)
• Portfolio Six – Intel (INTC), consider Paypal (PYPL)
• Portfolio Seven – Alibaba (BABA), Block (SQ), consider Paypal (PYPL) (kept)
• Portfolio Eight – Block (SQ), consider Paypal (PYPL)

Portfolio Update September 2022

It has been a confusing ride in the markets across all asset classes. We are now going to 1) go through the portfolios and recommend some sales 2) invest for our 2022 incremental funding and match. We also need to move one of the UTMA accounts from the trustee to the beneficiary because they turned 21.

We began the first portfolio right after 9/11/01, when the markets were at a nadir. There have been other difficult periods, especially the 2007-8 period and the long era of basically static markets.

These portfolios are for the medium to long term, and offer the beneficiaries an opportunity to understand markets, the importance of a long-term outlook, and the need to take control of their own finances.

A Look At the Market – July 2022

This post looks at the state of the market in July, 2022. There have been a lot of significant changes in the last 12 or so months:

• Rising interest rates – after the largest bull market in history in bonds (when interest rates fell to negative territory, an unheard of historical level), we now have rising interest rates. These rising rates are meant to quell inflation, but they have many other impacts, including a huge impact to the housing market (30 year loans cost much more) and stocks that are selling on future profits (such as SAAS stocks currently losing money but promising to make it in the future)
• Strong US dollar – a stronger US dollar makes foreign stocks worth less, all else equal, because their value is translated into US dollars for us. The US dollar is now at parity with the Euro, something that hasn’t happened in decades
• China damages its own market, Russia zeroes out its market – China has taken many steps to reign in their tech stocks and bow them down to the state, which has taken hundreds of billions of value from their markets. Russia effectively ceased to exist as a market; companies that used to be worth billions are now worth almost nothing
• Fossil fuels and oil / natural gas stage a huge rebound – until recently fossil fuels and oil / natural gas were seen as relics of the past and a focus of dis-investment. With the war in Ukraine, oil prices have skyrocketed and this is having a huge impact on European and US economies. Since the US is a major producer of oil and gas, we have some offsetting gains, but in Europe it is mainly a significant burden
• SPAC’s fall significantly and the IPO market freezes – SPAC’s offer a less regulated approach to the public markets; almost all the SPAC stocks are trading for less than their issuance prices, often far less. The IPO market is effectively frozen, which generally occurs when markets fall

Let’s look at how this has impacted the S&P 500 first. Using this chart (note – I am reviewing this as of 7/24/22 – if you look at it on other dates, you will see different results since it is updated with the market daily). Note that this doesn’t include the impact of dividends, which is significant on longer multi year time frames.

Top 100 stocks – only the top 100 stocks (out of 500) have gains for the YTD as of late July. Big winners are the oil companies such as Exxon Mobil (XOM) up 42% YTD, and some companies catering to low income consumer staples like Dollar Tree (DLTR) up 22% YTD or Kraft Heinz (KHC) up 7%. Activision Blizzard (ATVI) is up 19%, since it is being purchased by Microsoft (MSFT). Utilities and cigarettes also fall into the small positive percentage category

Stocks 101 – 200 – these stocks are all down YTD, between zero and -10%. You see a lot of less risky stocks here, like Allstate (ALL) – 1% YTD and Berkshire Hathaway (BRK.B) – 4% YTD, and Walmart (WMT) – 9% YTD. One surprise is Twitter (TWTR) down only 8%, due to Elon Musk’s bid which moved the stock up significantly.

Stocks 201 – 300 – these stocks are all down between -10% to -20% YTD. Here you see CME Group (CME) down 10%, Medtronic (MDT) down -12%, Apple (AAPL) down 13%, many of the banks like Goldman Sachs (GS) and Northern Trust (NTRS) and others. This is where the best performing tech stocks ended up (like Apple) and most of the financials.

Stocks 301 – 400 – these stocks are all down 20% – 28%. This is where the “better” performing tech stocks ended up, like Amazon (AMZN) down -27%, Alphabet (GOOG) down 25%, some of the worst performing banks like Bank of America (BAC) down 25%, TESLA (TSLA) down 22%, and a lot of the health care like Baxter (BAX) down 23%.

Stocks 401 – 500 – these stocks are down 27% to 63%. They include some former high flyers like Netflix (NTFX) down 63%, Paypal (PYPL) down 57%, Facebook (META) down 50%, Nvidia (NVDA) down 41%, Moderna (MRNA) down 35%, Nike (down 35%), ServiceNow (NOW) down 31%, Accenture (ACN) down 30%, Dominos (DPZ) down 29%, and some of the worst performing banks like JP Morgan (JPM) down 27%.

Top Foreign Stocks – let’s look at some of the widely held foreign stocks for YTD 2022 performance as of late July. Note that not only are these stocks driven down by many of the same factors (above) that impacted US stocks, they are further impacted by the rising dollar which also makes their value lower when translated back into US dollars (for our purposes). Broadly speaking, the non-US stocks traded similar to US stocks, with the better performing tech stocks down 33% for instance for TSM and SAP, 5o% for Alibaba (BABA) and 75% for Shopify (SHOP). Their oil companies held up well and industrials generally down but not as badly impacted.

• Taiwan Semiconductor Manufacturing (TSM) down 33%
• Shell (RYDAF) up 10%
• Astra Zeneca (AZN) up 17%
• Toyota Motor (TM) down 14%
• Novartis (NVS) down 6%
• Alibaba (BABA) down 50%
• L’Oreal (LRLCY) down 22%
• BHP Billiton (BHP) down 27%
• Royal Bank of Canada (RY) down 5%
• Shopify (SHOP) down 75%
• HSBC Holdings (HSBC) up 10%
• Unilever (UL) down 14%
• LVMH (LVMUY) down 22%
• SAP (SAP) down 33%
• Allianz (ALIZY) down 26%
• Siemens (SIEGY) down 39%
• JD.com (JD) down 10%
• Canadian National Railway (CNI) down 6%
• Airbus (EADSF) down 19%
• UBS Group (UBS) down 11%
• Vodaphone (VOD) flat

Portfolio Performance May 2022

Markets have fallen aggressively during 2022. Our total investment is back to where it was in 2020, after adjusting for contributions.

The stocks that have done well so far in 2022 are energy (oil, gas) and utilities have done OK. Unfortunately, we have few of these stocks in our portfolio (unless you have an index like the S&P 500) because they are viewed as bad for the climate and on ESG measures. Technology stocks have been hit very hard, and a lot of the other stocks that did well earlier in the market like consumer stocks have also fallen quite a bit.

In addition, over the last year the dollar has risen 12% compared to a basket of world wide currencies. This makes our investment in overseas stocks (Europe, Japan, China) worth less as a result (even if their investment performance was flat, they’d be down an average of 12% in our US dollars). This also hurts a lot of multi-national companies who have significant overseas sales, because those revenues are “less” when converted back into US dollars.

As a result, we are at a point where we need to re-look at the construction of our portfolio and decide which stocks we want to continue to hold onto and what to sell. And of what we sell, where do we re-invest that cash, or do we hold it in our portfolio to reduce risk?

Portfolio One Updated April, 2022

Portfolio one is 20 1/2 years old. The beneficiary contributed $10,000 (net of withdrawals) and the trustee $20,000 for a total of $30,000. The current value is $82,037 for a gain of $52,037 or 173%, which is 8.3% / year when adjusted for the timing of cash flows. Go to the link or here to see details.

This portfolio is down with the others and we can look at a few stocks:

• Block (SQ) – this is an interesting stock but was hit hard in recent SAAS / payment stock re-valuations
• Pinduoduo (PDD) – the Chinese tech stocks have been devalued by Chinese government actions, tensions with the USA, and a general re-evaluation of tech stocks
•  Meta (FB) – Meta’s challenges are well documented as they pivot to Augmented reality – but they still make a lot of profits and have great assets worldwide
• Rocket (RKT) – we sold half our rocket when they hit a “meme stock” high which is good in hindsight.  The stock pays a strong dividend but is hit hard by the impending raise in interest rates which chokes mortgage growth and refinancing
• Alibaba (BABA) – like PDD this stock suffered from a triple whammy
• Paypal (PYPL) – one of the most perplexing on the list, PayPal fell instantly out of favor with analysts after stopping guidance the shares cratered without a significant negative event in the business
• OKTA (OKTA) – this software company had an acquisition the market didn’t like and then was hit with the overall re-evaluation of software companies valued by growth not profits

Portfolio Two Updated April 2022

Portfolio Two is 17 1/2 years old.  The trustee contributed $18,200 and the beneficiary $27,000 for a total of $45,200.  The current value is $72,659 for a gain of $27,460 or 60.8%, which is 6.7% / year when adjusted for the timing of cash flows.  Go here or to the link for more details.

This portfolio contains a mix of ETF’s, cash and individual stocks.  The ETF’s mainly track the market and cash is even so let’s talk about some of the stocks, as follows:

• Meta (FB) and Alibaba (BABA) are down significantly.  Meta has been hit with the tech downturn and Apple privacy changes and Alibaba has been hit by regulatory and tech crackdowns in China
• Cloudflare (NET) is an innovative tech company with a high valuation (in terms of price to sales, one of the highest for tech companies) and it has been variable recently, although it has bounced back from recent lows
• Nike (NKE) and L’Oreal (LRLCY) are relatively recent purchases that are in the consumer product space and they are down since we bought them (although not as big as the tech drops)

Portfolio Three Updated April 2022

Portfolio Three is 14 1/2 years old.  The beneficiary contributed $7500 and the trustee $15,200 for a total of $22,700.  The current value is $35,270 for a gain of $12,570 or 55%, which is 5.3% / year adjusted for the timing of cash flows.  Go to the link or here for more details.

This portfolio is invested in ETF’s that contain US stocks only and it has been mostly in line with the US market.

Portfolio Five Updated April 2022

Portfolio five is 12 1/2 years old.  The beneficiary contributed $6500 and the trustee $13,000 for a total of $19,500.  The current value is $35,277 for a gain of $15,766 or 80%, which is 8.2% / year adjusted for the timing of cash flows.  Go here or to the link on the right for more details.

Portfolio five has been impacted by the market decline, as follows:

• We made some purchases earlier in the year of Appian (APPN), Intel (INTC), Block (SQ) and SNAP (SNAP) that fell 30% – 50% after the purchase.  We will look again these stocks
• We bought Activision (ATVI) which did well (up 20%) with an acquisition offer from Microsoft; we should sell at this point
• Cloudflare (NET), OKTA (OKTA) and PayPal (PYPL) have all been impacted recently.  Cloudflare fell far but came back.  OKTA made an acquisition that the market did not like and was hit by a hack and the general decline in software valuations.  PayPal stopped giving forward guidance and was hit hard by the market.  We will re-look at these stocks

Portfolio Four Updated April 2022

Portfolio four is 12 1/2 years old.  The beneficiary contributed $6500 and the trustee $13,000 for a total of $19,500.  The current value is $45,993 for a gain of $26,494 or 136%, which is 11.7% / year adjusted for the timing of cash flows.  See the details here or at the link on the right.

Some of the stocks have declined based on recent market events and are being reviewed including:

• Block (SQ) is a new holding that declined since we bought it
• Cloudflare (NET) is an innovative software company that went up a lot and then lost significant value
• OKTA (OKTA) is a software company that had been a great performer for a long time but recently was hit by the re-valuation of software growth companies, an acquisition the market didn’t like, and a hack

Portfolio Eight updated April 2022

Portfolio 8 is 6 1/2 years old. The beneficiary contributed $3500 and the trustee $7000 for a total of $10,500. The current value is $15,449 for a gain of $4949 or 47% which is 9.7% / year. See details here or in the link on the right.

Like the market as a whole our stocks have gone down recently.  Some items under review:

• New purchases Block (SQ) and Nike (NKE) have gone down since we purchased them
• OKTA (OKTA) had been a great performing stock but they went down with the high growth software stocks as well as an acquisition the market did not agree with and a recent hack
• Paypal (PYPL) was another well performing stock that fell significantly when they had an earnings call and offered cautions on future growth

Portfolio Seven Updated April 2022

Portfolio Seven is 6 1/2 years old.  The beneficiary contributed $3500 and the trustee $7000 for a total of $10,500.  The current value is $12,542 for a gain of $2,042 or 19%, which is 4% / year adjusted for the timing of cash flows.  See here or the link on the right for the details.

This portfolio was hit by some recent stock drops.

• PayPal (PYPL) had a bad earnings call and limited forward guidance of profits and the stock dropped a lot.  We will be re-evaluating this stock.
• Recent acquisitions Block (SQ) and Nike (NKE) fell with the market after we bought them
• Alibaba (BABA) the massive Chinese e-commerce company has been buffeted by the deteriorating relationship between China & the USA and a crack down on tech companies in that country as well

We will look at what to do about these stocks.

Portfolio Six Updated March 2022

Portfolio Six is 9 1/2 years old.  The trustee contributed $10,000 and the beneficiary $5000 for a total of $15,000.  The current value is $25,192 for a gain of $10,192 or 68%, which is 9.2% / year adjusted for the timing of cash flows.  You can see performance here or on the link on the right.

Some stocks are on watch.  Paypal (PYPL) had a huge price crash based on forward guidance (not a change in their business model), dropping more than 60% from its highs.  OKTA (OKTA) is down about 40% off its highs, along with more of the speculative tech stocks (those that trade at a multiple of revenues not earnings).  Some other stocks have gone off their recent highs but still trade at significant increases from where we’ve bought them (TSM and NVDA).

Portfolio Performance as of March 2022

Our portfolios have gone down with the market since the highs in November 2021.  We had an aggregate decline of 16% and the market has gone down about 8-10% during that time, depending on which benchmarks you use (US / Europe).  We had some stocks that were hit particularly hard, so let’s go through them.

The Chinese stock market has been hit hard.  We have two stocks in the portfolio, Alibaba (BABA) and Pinduoduo (PDD).  China has cracked down on big tech and foreign listings in particular, although recently these stocks have done better since the government has now reversed and promised to support these companies (likely because they started laying off thousands of workers in China).  Rather than trying to understand the Chinese market, it is time to sell unless you are in it for the long haul (Alibaba in particular is a large and successful company).

There were a number of technology companies whose prices went down a lot.  These include Meta (FB), Snap (SNAP), Cloudflare (NET), and Okta (OKTA).  Meta and Snap were tied to a broader issue on social networking and the fact that Apple changing its tracking made ads less accurate.  Cloudflare is trading for a very high multiple of revenue (not profits) so any bumps along the way in forecasted growth can cause a significant drop in the stock price.  Okta was also hit and tied to an acquisition but the core numbers remain strong.  The story behind these stocks generally remains strong but they will likely continue to face a lot of turbulence.

PayPal (PYPL) was maddening.  This is a well run company whose price went down an unprecedented amount without a significant challenge to their business model (unlike SNAP and FB who were impacted by the Apple tracking change).  They did announce reduced future guidance but I was surprised by the fall. 

We have other stocks that have gone down for various reasons, including Appian (APPN), Rocket Mortgage (RKT), Block (SQ).  Block seems like a long term holding but APPN and RKT may be for those willing to ride out volatility.

We use the Vanguard Total Bond Index ETF (BND) rather than the money market fund which essentially returns almost zero.  But with interest rates rising, we actually lost money on BND – about 3% (after netting out the interest we received) – so perhaps it is better to go back to the money market (VMMXX) instead and get maybe a .5% – 1% return with no risk of loss.

 It wasn’t all bad news.  Many of the portfolio stocks did well, especially the non technology stocks such as manufacturing and commodities.  We had a buyout offer for Activision (ATVI) from Microsoft, so we might as well sell at that price.

Many of the core stocks bounced around and were down but not as significantly, including Mastercard (MA), Nvidia (NVDA), Tesla (TSLA), and Taiwan Semiconductor Manufacturing (TSM).  We likely got in too early for Intel (INTC) but that seems to be a solid long term play at this price.

We are going to update the individual portfolios and as we do we will consider which stocks (if any) to sell per the above logic.

Portfolio Updates for 2021

During 2021 the markets had a lot of ups and downs, but overall it was a great year for stocks.

Our portfolios in aggregate returned about 18% (adjusted for contributions in the fall of 2021 and amounts that were essentially un-invested in cash) during 2021. This compares roughly equivalent to the US markets that returned about 25% in aggregate and foreign markets that returned about 8% (by comparing against Vanguards VEU ETF which is large-cap stocks not including the USA), since our portfolios are a mix of them.

These portfolios are tracked in Google Sheets in two ways:

1. a single consolidated portfolio tracker in google sheets, which has the shares by stock for each portfolio and the cash associated with each portfolio, to get the total value. I take “snapshots” of value at different types of the year, as you can see in the graph above. This google sheets doc is pretty easy to keep up to date and lets me see the markets at a glance; I notice when it seems odd and often it is a stock split which needs to be reflected in the underlying data. Buys and sells only take a few minutes for me to update in the sheet. I then reconcile the portfolios against the records online from our financial records
2. 8 unique google sheets documents, one for each portfolio. These sheets have all the details for each portfolio, including the price of each stock purchase and the sale price for those that have been sold, as well as matching dividends to each stock over time (to get total return). I also have the cash flows over the years to calculate total return (gains / losses) as well as an annual return adjusted for the timing of cash flows

I typically update the individual google sheet documents periodically when we do buys and sells, usually around the fall of each year when we have contributions, but we often sell individual stocks due to unique circumstances throughout the year. All 8 of the google sheets are aligned to the consolidated sheet and the brokerage records as of now.