Portfolio Three Updated January 2017 – Tax Time

Portfolio three is our 3rd longest lived portfolio, at a bit over 9 years.  The beneficiary contributed $5000 and the trustee $10,000 for a total of $15,000.  The current value of the portfolio is $16,551 for a gain of $1551 or 10%, which works out to about 2% / year when adjusted for the timing of cash flows.  You can see the detailed spreadsheet at the link on the right or download it here.

During 2016 we had about $280 in dividends (for a yield of about 1.7%) and had long-term capital losses on our sale of WYNN and Linked In (LNKD) which was bought by Microsoft.  Most of our sales have held up pretty well except for Weibo (WB), typically called “China’s Twitter” which went up significantly from recent lows.

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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

Portfolio Three Updated October 2014

Portfolio three is our third longest lived portfolio, at seven years.  The beneficiary contributed $4000 and the trustee $8000, for a total of $12,000.  The current value is $13,638, for a gain of $1638 or 15%, or 3% / year adjusted over the life of the portfolio.  Go here for the spreadsheet detail or click on the link on the right.

The portfolio has almost half turned over in the last year, as 5 new stocks were added, out of the 11 total.  A recent purchase LinkedIn has had some turmoil with the tech stock issues but is a good longer term play, but we will watch it.  We are also watching Weibo, a Chinese internet stock hit by the same tech turmoil.

From the more traditional stocks, Siemens has been hit as the Euro has fallen vs. the dollar recently.  We will also watch Yahoo to see what happens with the Alibaba stock they own post IPO.

Of the stocks we’ve sold, mostly it is good riddance.  In particular Cliffs’ Resources went off a cliff since we sold it, down from $18 to $7.  The stock perhaps could be a good candidate for a purchase in the future as a value play.  We are trying not to ride stocks like that too far down.

Stock Selections for 2014

It is time to select 2014 stocks.  Generally each fund selects 2 new stocks, although there are some significant cash balances available on the other funds (due to stock sales) and they may need to pick more than 2.  Each year we offer a mix of US and non-US stocks for selection.

US Stocks

Linked In (LKND) – $201 / share, $24B market cap, 52 week range $136-$258, no dividend, no debt.  Linked In is a growing and well run web company for business professionals to make contacts and find new opportunities.  They recently had excellent earnings for Q2 2014

Exxon Mobil (XOM) – $99 / share, $424B market cap, 52 week range $84-$104, 2.7% dividend, $11B long term debt.  Exxon Mobil is viewed as the best run energy company in the world and has a disciplined use of capital with a long term horizon.

General Motors (GM) – $33 / share, $53B market cap, 52 week range $31-$41, 3.3% dividend, $40B debt.  While GM has been in the news recently regarding recall efforts, they have a long term growth story with their presence in China and the growth of vehicles in that market, which passed the US in terms of cars purchased and has larger growth opportunities

eBay (eBay)  – $52 / share, $65B market cap, 52 week range $48-$59, no dividend, $5B debt.  eBay is a well run e-commerce company that also owns the payments company PayPal.  They have moved successfully to mobile and offer many products with “buy it now” and not just auction sales.

Foreign Stocks

Anheuser Busch Inbev (BUD) – $107 / share, $171B market cap, 52 week range $92-$116, 1.9% dividend, $49B debt. The iconic US company that makes Budweiser was bought by hard-charging Brazilians and headquartered in Belgium.  This is the dominant worldwide beer company.

Weibo Corp (WB) – $19 / share, $6B market cap, 52 week range $16-$24, no dividend, little debt.  Weibo runs a Chinese microblogging platform.  It is kind of a Chinese twitter.  They release earnings on August 5 we will also see the market reaction to those results.

Coca-Cola Femsa (KOF) – $108 / share, $22B market cap, 52 week range $92-$149, 1% dividend, $4B debt.  This Mexican company runs the successful Coca-Cola franchise along with beverages in many other latin and Spanish speaking countries.

China Life Insurance (LFC)  – $44 / share, $83B market cap, 52 week range $35-$49, 1.6% dividend, $14B debt.  China Life Insurance is a large insurer in mainland China, where the population is aging and opportunities for insurance will grow as a result.