Thursday, March 7, 2013

Portfolio Performance Review

It’s the start of a new month and time to review quarterly performance and more importantly whether the process of writing investment thoughts out here and on my blog is helping performance or not. It was a decent performance in the quarter, up 12.3% vs. 6.9% for the S&P 500. For the sake of brevity I’m not going into my strategy, but you can find out more in the last write-up linked here.

In truth this month was a titanic struggle to make a positive return and I eked out a positive .5% leading to a 73% year on year return. It was tough because so many stocks hit price targets and most of the cheap stuff (or rather what I found) was in technology. For risk management reasons I don’t like to be overweight any one sector or theme. I’ll update the current portfolio on my blog in the next few days.

As usual I will assess the stocks written about in November with the performance since the article, a link to the article and then some commentary. The stocks I took positions in are in bold.

Company View+Link Performance Since Article (%)
Nice Systems Buy 5.2
Wabtec Buy 18.2
Covidien Buy 12
Allergan Buy 18.2
Home Depot Buy 9.7
TJX Companies Buy 5.6
Intuit Buy 7.7
Williams-Sonoma Buy 3.2
Cree Positive 32.5
Autodesk Positive 13.8
Lowe's CompaniesPositive 7.8
PerrigoEvaluation 10.1
Colgate-Palmolive Evaluation 8.3
Sirona Dental Systems Evaluation 11.5
Beacon Roofing Supply Evaluation 16.6
Coach Caution -17.3
ADP Caution 10.5
CognexCaution 17.8
Rackspace Caution -12
Agilent Caution 10.3
Whole Foods Caution -9
Heinz Caution 20.1
Campbell SoupCaution 12.4
Dover CorpCaution 13.5
Pall CorpCaution 12.6
Yum BrandsCaution -2.3

The 'buy' stocks performance averaged 10% with the 'positive' stocks hit 18.1%. Meanwhile, the 'evaluation'stocks returned 11.7% while the 'caution' stocks returned 5.1%. Of course the index was up 6.9% so we should expect good returns. In general I'm pleased with the results. I avoided some underperformance with caution but missed on some returns by being overly strict on evaluation. As for the outperformance of the positive stocks (things I liked but was trying to be a smart arse and get a better entry point for) this a lesson I never seem to learn!

Stocks Commentary, Those I Liked

Wabtec, Covidien (NYSE: COV) and Allergan were all part of the complex of stocks sold off after they hit their price targets. All three are great companies, and their recent results confirmed their strong long term growth prospects. Covidien is probably the most interesting. It raised guidance recently, and with GE and others reporting good growth in health care within emerging markets I think Covidien is well placed. Its Minimally Invasive Surgery (MIS) solutions help clinics reduce costs and its key Energy, Endomechanical and Vascualar products are reporting high single digit growth. It has a nice mix of near and long term growth drivers.

I've discussed Intuit, TJX Companies, Home Depot and Nice Systems in write-ups recently, and things appear to be going well for all of them. Williams-Sonoma will give results soon. Furthermore, I've recently taken a position in Lowe's Companies. Autodesk was discussed recently as well but Cree (NASDAQ: CREE) seems to have fallen below my radar. In truth I was trying to get an entry point here. Cree is a stock that traders love to play with, but it is also set to ride a cyclical upturn in LEDs driven by increased demand for LED based lighting. Indeed Cree has its own lighting solutions. Its gross margins have turned up, and with the increase in the Architectural Billings Index plus a feeling of optimism around housing and construction, it could continue to surprise on the upside.

...And Those I Didn't

The evaluation stocks consisted of Perrigo, Sirona Dental Systems, Beacon Roofing Supply, Colgate-Palmoilive (NYSE: CL). I like the first three companies very much and am keen to try find an entry point because on evaluation grounds they no longer look cheap. As for Colgate-Palmolive, I have become a bit more concerned here. Much of its growth has been due to successful product innovation in developed markets as well as expansion in emerging markets. It strikes me that both areas are getting tougher as PG, JNJ and others are starting to respond. In other words, will CL always have it this good? There is a lot of pressure on the company to continue innovating, and it's not as if the stock is cheap enough to carry any disappointments.

Probably the most interesting stocks will be found in the 'caution' sector. I want to highlight Cognex (NASDAQ: CGNX) and Whole Foods Market. The former is subject to the uncertainty of the manufacturing cycle and in particular has been weak this year thanks to poor demand from solar and consumer electronics. However, if you think the semiconductor cycle will turn this year then this could be the time to look at Cognex. Longer term, I like the idea of being invested in the trend towards increased factory automation, and the company is trying to diversify end demand.

As for Whole Foods, the stock still doesn't look cheap, and the market was a bit disappointed by its numbers recently. I'm sure Kroger and Safeway will try -and succeed- in encroaching on its market, but this doesn't mean that WFM doesn't have good long term prospects. This company needs to be looked at in a different way. Let me put it this way, normally with supermarkets you assume it tailors to the mass market and its prospects are guided by general movements in consumer spending, but this is not really the case with WFM. Its stores have a dedicated and wealthy customer base that contributes inordinately to its sales. Given that I dont think the trend towards organic food (much of it promulgated by silly scare stories over GM foods) or the trend towards 'healthy lifestyles' is going away anytime soon, I think WFM will have growth for many years to come.

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