Portfolio Three Updated March, 2015 – and It’s Tax Time

Portfolio Three is our third longest portfolio, at 7 1/2 years. The beneficiary contributed $4000 and the trustee $8000 for a total of $12,000. The current value is $13,363 for a gain of $1,363 or 11% or 2.4% / year over the life of the fund. You can see the details at the link on the right or download the file here.

Portfolio Three had $213 in dividends in 2014, for a yield of approximately 1.8%. This is a reasonable return given that cash has essentially a zero return in an era of low interest rates. We sold 4 stocks in 2014 and 2 fell much further (Cliffs and CNOOC) while Splunk is mostly the same and Urban Outfitters gained about 20%.

We also sold 2 stocks in early 2015 (Weibo and Anadarko) so we have about $2200 to re-invest and will buy a couple of stocks in the spring.

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Stop Orders Entered

After the recent analysis, the following stop orders have been entered.

Each of these stop loss orders is good until 2/20/15 (60 days from now).

Portfolio One

Sasol – SSL at 35 (now at $38.95) SOLD AT $35

Transalta – TAC at 8 (now at $9.18)

Portfolio Two

Anadarko – APC at $75 (now at $84.86) SOLD AT $74.97

Transalta – TAC at 8 (now at $9.18)

Portfolio Three

Anadarko – APC at $75 (now at $84.86) SOLD AT $74.97

Weibo – WB at $13 (at $15.78) SOLD AT $13.06

Portfolio Four

Coca Cola Femsa – KOF at $80 (now at $89.14)

Seaspan – SSW at $17 (now at $18.80)

Portfolio Five

Sasol – SSL at $35 (now at $38.95) SOLD AT $35

Seaspan – SSW at $17 (now at $18.80)

Portfolio Six

Coca Cola Femsa – KOF at $80 (now at $89.14)

Seaspan – SSW at $17 (now at $18.80)

Stocks to Review – December 2014

In order to decide what we should sell or keep, we need to review the stocks that have been hit across the six portfolios.  There are 12 stocks listed and grouped across the various industries and regions.

We will look by group to determine what we recommend to do next based on the specific circumstances of that stock and the factors that caused their valuation to change.  If it is a dividend related stock, we will also start to think if their dividend is “at risk”, because that would likely trigger another price drop.  Many of these stocks have rebounded off their lows, which makes this task easier.

Of the stocks reviewed, the ones we will watch closely will be Anadarko (APC), Sasol (SSL), TransAlta (TAC), Weibo (WB), Seaspan (SSW), and Coca-Cola Femsa (KOF).  We will consider stop losses on these stocks.

US Energy

  • Exxon Mobil (XOM)
  • Devon (DVN)
  • Anadarko (APC)

Of the 3 US energy companies, Exxon Mobil is a long term keeper because it is so well and ruthlessly run.  They have a reasonable dividend of about 3% that doesn’t seem to be at risk.  XOM may even be a candidate for further purchases if it keeps declining in the short term.

Devon is much smaller than XOM.  Their dividend is not as good, under 2%, but that also means that they aren’t being forced to support an unmanageable dividend burden.  From what I’ve read they seem to have hedged against falling oil prices which should insulate them a bit in the short term.  Devon also could be an acquisition candidate at some point although their market cap is $24B so only a giant like XOM could take them out.

Anadarko (APC) (like XOM and DVN) hit a 52 week low, but bounced back recently.  Their dividend at 1.4% is low and doesn’t seem to be at risk.  The company also has financial flexibility.  We are on the edge with APC if the oil rout is extended this may not be a stock to hold.  For now we are holding on with the rebound in energy prices off their lows, but this is on watch.

Global Energy (ADR)

  • Royal Dutch Shell (RDS.B)
  • Sasol (SSL)
  • Statoil (STO)

These global energy companies not only are hit by the drop in crude (see above), but also the decline in foreign currencies vs. the rising US dollar.

Statoil (STO) is denominated in Norwegian Kroner.  Over the last year the Kroner has declined 20% vs. the US dollar.  This means that our ADR has fallen 20% additional beyond the impact of other (negative) factors on the STO stock.  On the other hand, in the past the rising Kroner has boosted returns compared against US equivalent stocks, and provides diversification should the US dollar fall.  Statoil is likely going to defer some major deep water projects since those are not economical at the current oil price.  The dividend is now over 6% with the stock price decline; in general when dividends go much beyond 5% they often turn out to be unsustainable, or in any case should be watched closely.  The Norwegian government also holds a significant stake in this company, which allows them to impact behavior, but they seem to be a prudent steward (compared to partially public or state owned oil companies in Mexico or Brazil, for instance).

Shell (RDS.B) are denominated in UK pounds, which has fallen 5% this year vs. the US dollar.  Shell seems to be in relatively good shape, but the stock (like virtually all energy stocks) is near its 52 week low.  Their dividend is at almost 6% which seems sustainable for now but may not be in the long term.  They seem to be taking steps with their asset portfolio by country to sell components to optimize the company, which seems prudent.

Sasol (SSL) is denominated in South African Rand, which has fallen 11% vs. the US dollar.  SSL is a large energy company for Africa, but is much smaller than the other global majors.  The dividend is near 6%, a level to watch closely.  The stock at one point lost almost 50% of its value and may be a buy at this point or for consideration.  This stock seems more speculative than Statoil and Shell up above (which makes sense because each of the other companies are much larger) which means it is on watch (like APC, above).  On the other hand, since it is smaller, it has more room to grow on the high end in terms of stock price.

Canadian Energy (ADR)

  • TransAlta (TAC) – TransAlta is a Canadian energy company primarily operating in the electricity business.  They also have substantial and growing interests in Australia.  The company has been hit with a big fall in electricity prices in its main provence, Alberta, which means it earns substantially less revenue on the power it generates (most of the company’s costs are fixed in the short and medium term, so this goes straight to the bottom line).  The long term bet on why power use is growing in Alberta, however, is the oil industry so this stock is significantly impacted by the same forces (low oil prices) as the other stocks listed above, in a medium or longer term horizon.  The stock has a large dividend, at 7%, which means it definitely is on watch.  If the company decided to cut the dividend (for whatever reason), it is likely that the price of the stock would fall.  Many investors likely own this stock for income purposes.  As an ADR, they also are driven by the fall in the Canadian dollar, which has dropped about 8% vs. the US dollar over the last year

Chinese Internet (ADR)

  • Weibo (WB) – Weibo is a Chinese internet company, sometimes called their version of Twitter.  Alibaba, the giant of Chinese e-commerce (their Amazon), owns a 14% stake in WB, and in September the stock shot up because of speculation that Alibaba might buy the company or increase their ownership.  Chinese stocks are generally volatile and the tech industry is particularly so.  The stock has gone up recently, but is near a 52 week low.  This one is also on watch but seems to have a reasonable upside, especially if it was swallowed up.

US Technology

  • Amazon (AMZN) – Amazon is, to (partially) quote Winston Churchill, “a riddle wrapped in an enigma”.  The company is a powerhouse, altering whole industries and taking a giant role in e-commerce.  The founder is famously frugal and uses old doors as desks for employees.  Also – the company doesn’t make profits or focus on short term profits.  They continue to invest and to move into new markets.  This company is probably the hardest company in the world to analyze as a result and I personally have had more arguments about Amazon than any other stock.  To be clear, we had it at $14, and I sold at over $100, taking almost an 8x gain, but then it marched all the way to $400 / share, and now has lost about 25% off its peak and is near $300 (we bought most recently at $337).  The market seems to generally believe in Amazon so this is a keeper, even though as an accountant I am often perplexed.

Chinese Shipping (ADR)

  • Seaspan (SSW) – Seaspan is a smaller company that ships goods back and forth primarily to China.  They now have a very high dividend, near 7%, so that is something to watch.  If they ever cut this dividend I would expect that the stock price would be significantly impacted.  The stock price fell on SSW, but bounced back from its 52 week lows.  Even if China itself is slowing in terms of growth the demand for Chinese goods worldwide is still rapacious.  The company is also looking to upgrade their fleet continually to make it more fuel efficient in terms of scale.  On the other hand, shipping is a difficult business in a downturn, as shippers cut rates to near the marginal costs of running their fleet, just to keep afloat (bad pun).  If SSW has a more fuel efficient fleet than most, it should be able to withstand a downturn longer than competitors.  This is a stock on watch.

Casino / China

  • Wynn (WYNN) – Wynn at one point lost almost half their value on concerns over Chinese cutbacks in gambling.  China has a huge gambling culture (wagers at Chinese casinos on average are much higher than in the USA) and there is only one place in China where you can gamble, and WYNN has a casino there.  Much of the Chinese gambling is also a method to move money out of the country, a much more complex topic than I could cover here, but it is safe to say that gambling in China is a much more serious business than it is in the USA.  The current Chinese leader is cracking down on “corruption” (I use parenthesis because the whole business culture is corrupt in a mega-sense, but he is talking about specific behavior elements like lavish behavior with official money) and this means gambling.  WYNN does have an attractive dividend and special dividend and in the long term (unless they open casinos on the mainland) they can recapture money as soon as the official glare goes away.

Mexico / Consumer Staples (ADR)

  • Coca Cola FEMSA (KOF) – Like our other ADR’s, the Mexican Peso has been hit by a 10% drop in value vs. the US dollar, which weighs on this ADR.  It is off 52 week lows but has lost 1/3 of its value over the last 12 months.  The stock has a modest dividend so it is looked at as a long term growth play on the Latin American market.  The stock is on watch due to performance and low dividend but, like Chinese gambling, it is a hard market to walk away from since it is hot and bottled drinks of sugar and beer seem like a safer bet in the long term too.

Portfolio Three Quick Update December 2014

Portfolio Three has Anadarko, the US gas / oil company, which has been hit by the crude rout, and also Exxon Mobil the energy giant.  Weibo Corp, one of the two Chinese internet companies we own (the other being Baidu) also has done poorly recently. Finally while Wynn has a positive return it has fallen as the Chinese government cracks down on corruption and gambling.

Portfolio_3_12-12-14

Stocks in the News

I try to check on the portfolios every couple of days and also watch for news stories about our portfolio companies.  Today I saw the following article about our natural gas company Anadarko with the scary title “Anadarko to Pay $5.15 Billion in Largest Ever Environmental Contamination Settlement”.  This sounds like bad news, right?

When I checked on the stock price, it had gone up by almost 15% on news of the settlement.  Apparently the market had already “penciled in” a much bigger cost and this was viewed as “good” news.

On the other hand, Twitter has been going down recently on various negative news and analyses.  Since the stock is so highly valued, as a multiple of revenues and profits, any sort of analytical approach can come up with widely different results (by contrast, a company such as Exxon generally trades within a narrower range). 

Stock Selections – February 2014

Due to recent stop orders being triggered it is time to select additional stocks for all but one of the six portfolios.  My goal is to select stocks and purchase them so that we can update the portfolio information in line with the need to file taxes by April 15, 2014 (although many of the portfolios don’t need to file because the beneficiaries don’t meet minimum income requirements between these funds and other earnings).

As the individual portfolios get larger, we want to keep the number of individual stocks manageable, so these portfolios will generally have larger purchases of a single stock than multiple stocks at smaller quantities.  The goal is to keep the number of stocks in each portfolio between 10 – 15 stocks, so smaller portfolios will buy in smaller quantities until they hit the 10 number, and the larger portfolios will buy larger positions when they hit the 15 number.

Stock Purchases by Portfolio: 

Portfolio 1

– 3 stocks at $2000 / each

Portfolio 2

– 1 stock at $1700

Portfolio 3

– 2 stocks at $1100 / each

Portfolio 4

– No purchases required

Portfolio 5

– 2 stocks at $700 / each

Portfolio 6

– 1 at $800

 Portfolio Selections for February 2014

US Companies

KO – Coca-Cola – $37, 52 week range ($37-$43), 3% yield, $164B market cap, $37B debt.  Coca-Cola is the worlds’ most iconic beverage brand.  They had some recent issues and their stock fell and this could be a buying opportunity for a well-run company with a good dividend.

APC – Anadarko Petroleum Corporation – $82, 52 week range ($73 – $98), 1% yield, $41B market cap, $14B debt.  Anadarko is a leader in US oil and gas development and there are continuing opportunities with the rising price of natural gas and US oil.

AVA – Avista Energy – $30, 52 week range ($25 – $30), 4% yield, $1.8B market cap, $1.5B debt  Avista is a well run utility in the Pacific northwest.

TWTR – Twitter – $56, 52 week range ($39 – $74), no dividend, $30B market cap, almost no debt.  Twitter is one of the main players in the modern internet.

GRPN – Groupon – $8, 52 week range ($4 – $12), no dividend, $5B market cap, no debt.  Groupon is attempting a comeback from recent issues and has come up substantially from market lows.

CVC – Cablevision – $16, 52 week range ($13 – $20), 4% dividend, $4B market cap, $10B debt.  Cablevision is run by the wily Dolan family and may be part of industry consolidation.

Non-US Companies

BHP – BHP Billiton – $70, 52 week range ($56 – $76), 3% dividend, $188B market cap, $38B debt.  BHP is a well run global commodity company based out of Australia.

TAC – TransAlta Corp – $12, 52 week range ($12 – $16), 4% yield, $3B market cap, $4.5B debt.  TransAlta is a Canadian energy company that recently cut their dividend and plans to spin off some market segments but provides energy to the growing Alberta market so this may be a buying opportunity.

BIDU – Baidu – $172, 52 week range ($82 – $185), no dividend, $60B market cap, $3B debt.  Baidu is an iconic Chinese internet company.  Their price is near the top of the range.

2011 Stock Picks Updated

I gave an earlier update on the 2011 stock selections.  Since then the entire market has swooned a bit, with global markets having their worst quarter since the 2008 Lehman collapse.  Fund one is now about to invest and will have (once the incremental $1500 is added) $4350 for investments, which would be 3 stocks for this fund.

  1. Bancolombia S.A. (ADR: CIB) – $61, down from 52 week high of $69, 2.2% dividend yield.  Colombian company, $12B market cap, banking.  This Colombian bank provides a window into a growing Latin America market.  Now $56, a loss of $6 or 10%
  2. Anadarko (APC) – $69, down from 52 week high of $85, 0.5% dividend yield (low).  US company, $34B market cap, oil & gas exploration.  Anadarko is riding the wave of US oil and gas as well as making many overseas discoveries in markets such as Ghana.  A play on the growing natural gas solution.  Now $63, a loss of $6 or 9%
  3. Statoil (ADR: STO) – $23, down from 52 week high of $29, 4.9% dividend.  Norwegian company, $74B market cap, oil & gas.  Norwegian oil and gas company recently found new fields and is well run and not as subject to Geo-political risk as the other oil “majors”.  At $22, about the same.
  4. Philip Morris International (PM) – $69, not far from 52 week high of $72, 3.7% dividend.  International (non-US) company, $121B market cap, cigarettes.  This company does not cell cigarettes in the US (that is Altria) but sells them overseas (Marlboro) where it is very strong in many markets and growing in China.  At $62, a loss of $7 or 10%
  5. Westpac Banking Corporation (ADR: WBK) – $107, down from 52 week high of $138, 7.2% dividend (very high).  Australian company, $64B market cap, banking.  Westpac is poised to boom along with the Australian economy based on their strong currency, relatively improved financial position (compared to US and Europe), and of course their huge mineral resources which they can sell to all the Asian economies.  At $96, a loss of $11 or 10%
  6. Riverbed Technology (RVBD) – $22, down from 52 week high of $44, no dividend.  US company, $3B market cap, technology.  This company makes products for security and switching for data centers and cloud computing.  Companies of this size are potential acquisition candidates given the large amounts of cash held in Silicon Valley.  At $20, a loss of $2 or 9%

Also others selected Wynn Resorts (WYNN) which funds 2 and 3 bought around $149 which is now around $115, a loss of $34 or 23%.