Comfortable/Uncomfortable
I am still struggling with the best way to present my investment ideas in an educational format.
A few days ago a friend gave me a clip of Arnold Schwarzenegger discussing politics and current events. One of his points was:
“if you are not uncomfortable, you are not learning anything.”
I strongly agree with Arnold’s sentiment.
Going forward it is my goal to spend 20% of my time on this “comfortable” portfolio, and 80% of my time the “uncomfortable” smaller cap portfolio I will present in a few days.
I cannot ignore the Verizon’s and Tyson’s, but I have to spend more time in the small to mid-cap ideas. I know I can add more value in the smaller names.
Big cap names are easier right now. I have the backup of Morningstar’s research on most of these big stocks. The research is not great, but it is better than nothing.
Right now if you pointed a gun at my head an said, “you must outperform the S&P 500 over the next 24 months”, I would own the “comfortable” portfolio below.
If. you said “I have a 10 year time horizon, invest my money and I will check back with you in 10 years”, I would use the “uncomfortable” portfolio I will discuss in a few days.
While I am calling this portfolio “comfortable”, it is far from traditional. There will have plenty of tracking error vs the S&P 500. Market caps are $10 billion and over.
This portfolio relies on 3 “tricks” that experienced managers use to outperform.
in a market where short rates are suddenly 5%+, higher yielding stocks are on sale
this portfolio has very little exposure to economically sensitive ideas
25% is gold and utilities
The “comfortable” or “defense first” portfolio:
Verizon - VZ - still my favorite idea, will 5% rates hurt too much?
Tyson Foods - TSN - made more than $8.00, three of the last five years
Phillips 66 - PSX - $14.00 in mid-cycle earnings power?
Philip Morris International - PM - risky, can they convert to smokeless?
Pioneer Natural Resources - PSX - 25,000 drill sites in inventory
FMC Corp. - FMC - we need more pesticides, playing the ag cycle
Corteva - CTVA - we need more seeds
Nutrien - NTR - we need more fertilizer
Henry Schein - HSIC - dental business still a growth opportunity
Charles River Labs - CRL - is 20x too much?
Newmont - NEM - safe assets
Franco-Nevada - FNV - neat royalty business
Evergy - EVRG - simple utility, decent wind assets
Entergy - ETR - very complicated utility, natural gas buildout winner?
Williams Co. - WMS - counting on the 6% yield, regulatory issues?
Roche - RHHBY - solid long-term strategy
Merck - MRK - solid long-term strategy
Sysco - SYY - great job managing the pandemic
Corning - GLW - the only tech name I can get close to
Art. Gallagher - AJG - best company, in best industry, insurance brokerage
The top 10 stocks in this portfolio are as good as, or better than, any of my best small-mid cap ideas. Stocks 11-20 are pure “defense”. In a more rational market, without a looming credit crisis, they would be replaced by more aggressive ideas.
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These are potential ideas ranked in order of attractiveness.
There are about 500 companies in the $10 billion and over world. We will focus on 50-60 big cap ideas.
Royalty Pharma - RPRX - is the balance sheet a problem?
Inter. Flavors - IFF - is there any hope of a turnaround?
Celanese - CE - great story, too much economic exposure?
Walgreens - WBA - dividend cut? - Amazon buyout?
Mosaic - MOS - what will the Russians do?
Teradyne - TER - an oligopoly, China issues?
Westlake - WLK - too much housing exposure?
M&T Bank - MTB - who is the best/safest regional?
Vistra - VST - is the balance sheet an issue?
Adidas - ADDYY - lots of European stocks to consider
Masco - MAS - more repair than new home exposure?
Air Products - APD - maybe the best “global warming” play
Baxter - BAX - spinout coming, complex
Disney - DIS - will streaming ever get better?
Paramount - PARA - so many issues, complex, balance sheet?
Kinder Morgan - KMI - not sure I trust these guys
Hologic - HOLX - what is the right price? 20x?
ETSY - ETSY - I think there is a real company here
Agilent - A - need to learn more
Aramark - ARMK - good turnaround, balance sheet?
Ross Stores - ROST - big retail is tough
Archer Danials - ADM - the politics of ethanol?
Trimble - TRMB - my Cathie Wood flyer, bad acquisitions
Borg Warner - BWA - where is the auto cycle?
Freeport McMoran - FCX - China, China, China?
MGM Resorts - MGM - lots of financial engineering
Weyerhauser - WY - housing exposure
Intel - INTC - a long term winner?
Dow - DOW - complex restructuring
Skyworks - SWKS - a cheap semi?
CH Robinson - CHRW - trucking is tough
Pinnacle West - PNW - what is the best utility?
Barrick Gold - GOLD - ok assets
Devon Energy - DVN - still like Pioneer better