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I would rather forget last month. After nine months of gains, I hit a
nasty double digit loss. In truth, this sort of thing was inevitable
and the preceding months were as much a part of the process as last
month was. The previous month’s write-up and links to others can be found here. I do this stuff because I happen to believe that anyone writing about investment should disclose his own performance.
Philosophizing over, I'm going to confess to a certain amount of exasperation at being hit with accounting errors with Ixia, a weaker than expected tax return season at Intuit, the loss of a major customer contract with Regal Beloit, and when even Pfizer disappoints then you know it’s not going to be your month.
The weakness at IBM and Citrix Systems
was a bit more predictable and I topped up on both. I suspected tech
would be weak over earnings and held back buying more before their
earnings.In fact, this approach helped me avoid disasters in companies I like and have held before, such as Fortinet and F5 Networks.
It was definitely a month of dodging bullets! I’ve put some performance
charts at the end of this post for those interested. I will update my
current portfolio on my blog in a few days.
For now, it’s the usual format of reviewing the articles for January
(i.e. three months previously) and picking out some investing ideas that
readers might find useful. The companies in bold are those that I hold
now. Acuity Brands was sold because it hit its price target.F5 Networks was sold because it hit its target and my general tech caution.
Superficially these numbers look good, but let’s recall that the
S&P 500 has put on over 12% in 2013. The ‘buy’ stocks averaged 6.8%,
‘positive’ recorded (0.6)%!, ‘evaluation’ returned 7.7%, and ‘caution’
did 0.4%. The difference between what I bought and didn’t was 6.8% to
1.9%.
Some observations and conclusions
It’s been a relatively tough period for tech stocks like Fortinet, F5 Networks, IBM, and Citrix,and cyclicals like Dover, Fastenal(NASDAQ: FAST) and MSC Industrial.
The defensives are starting to look fully priced with nice gains for Cooper Companies and Perrigo.
Tech ‘value’ ex Intel and Check Point Software(NASDAQ: CHKP) has held up better than the growth tech stocks.
Nothing but nothing seems to stop the market wanting to buy yield with stocks like Johnson & Johnson and McDonald’s.
In conclusion, think it’s time to start thinking about buying some select industrial and/or technology stocks.
Some stocks to consider
With these thoughts in mind, I think Intel(NASDAQ: INTC) and Check Point Software are worth a look.I’ve covered both after their recent results in articles linked here and here.Intel
is a curious beast in the market place. It offers a high yield, good
value, and cyclical exposure to consumer electronics, but it is also
faces long-term challenges from ARM core processors. It also offers a
restructuring story as it adjusts to the shift in computing devices. Gross margin appears to be bottoming and while it hasn’t turned the corner yet ,the potential upside in the stock remains.
As for Check Point, in retrospect, its last results were okay and
there are some signs that its customers are more willing to buy its new
products. Like Intel, it offers a genuine value proposition because of
its high cash conversion and potential to leverage its technology into
expanding its sales. On the other hand, I think the market is tired of
seeing falling product and license growth and a ‘cash harvesting’
approach to its business development.If that should change, I’m sure the stock will go higher.But will it?
The next two stocks are both industrials. I still think Fastenal is
expensive and am concerned with the falling sales growth, but if you are
looking for some short-term upside from the idea that industrials will
come back then, it is a great stock to look at. Its visibility is
limited and it is exposed to short cycle decision making by purchasers,
all of which leaves it susceptible to violent changes in sentiment by
its customers. Bad when it’s bad, good when it’s good.If you like the industrial space and want a near-term play, then Fastenal is worth picking up
Another industrial worth considering is PPG Industries(NYSE: PPG). I like its end market exposure
and its purchase of Akzo Nobel’s U.S. household paints division.
Aerospace and automotive are the two stand out sectors within
industrial, and PPG is well placed in both. Its long-term dividend
record is excellent and it is a very good generator of cash and has the
potential to generate some synergy-based cost savings with the
acquisition.Despite reporting a good quarter -- notably
better than so many other industrials -- the stock has lagged the
overall market and looks decent value. I may pick some up.
The last stock for consideration is Capital One Financial (NYSE: COF).
The stock has underperformed this year and the credit card companies do
face challenges to net interest margins thanks to low interest rates
and the maturing of higher rate loans. Moreover, the weak recovery has
left the yield curve relatively flat and loan demand is not where it
usually is at this stage of an economic recovery. No matter, if you
believe that employment will keep increasing and the recovery is
ongoing, then at some point demand will come back. Meanwhile, asset
quality and delinquency rates carry on improving so Capital One is well
positioned to catch an uptick in end demand.
Additional data
As discussed above, here is how this lousy month affected performance
since inception. The blue line is my portfolio the red line is the
S&P 500.
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