“Dead Money” is a important concept that has never been discussed in any investment textbook. However, in the real world, portfolio managers constantly worry about dead money.
Brunswick - BC - $80 - became a classic “dead money” stock last week when they guided 2024 earnings to a disappointing $5.00. The boat buying season is done, and orders for the Fall from dealers are already in. Not much will change with BC until they make a 2025 earnings forecast next March. Until then 80% of portfolio managers would consider BC to be “dead money”.
In the real world, in a high percentage of cases portfolio managers will find a reason to “slink away” from their BC holding. The PMs want an idea that is more exciting. Using a term I hate, they would like to find a stock with “more catalysts”.
I will try to take a longer-term view, but it will be tempting to switch from BC.
Let’s first consider how BC fits in our overall portfolio.
Below is a snapshot of the portfolio:
25% - Special Situations
40% - Economically Sensitive - including Brunswick
35% - Defensive/Uncorrelated - including energy
0% - Financial, Technology, REITs
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Special Situations - 25% - Royal Gold, Corteva, First Cash, Unifi, Neogen
Industrials - 15% - Chart, Middleby, Titan
Materials - 5% - Nutrien
Consumer Discretionary - 15% - Brunswick, Jack in the Box, Red Rock
Communications Services - 5% - Cable One
Energy - 10% - Helmerich, Kinder Morgan
Consumer Defensive - 10% - Tyson, Treehouse
Healthcare - 10% - Revvity, Smith Nephew
Utilities - 5% - Northwest Natural
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Right now I could sell BC and buy a utility, healthcare, or defensive name. However, I am happy with the current balance of my portfolio, and do not want change my exposure.
Instead, let’s compare BC to best Consumer Discretionary ideas. The top 25 names on this list are all reasonable ideas. This post is getting too long, so let’s make the comparison another day.
Best Consumer Discretionary ideas ranked in order:
Hasbro - HAS - $63
BorgWarner - BWA - $33
Etsy - ETSY - $62
First Watch - FWRG - $15
Columbia Sports - COLM - $76
Oxford Industries - OXM - $102
Yeti - YETI - $39 -
Vail Resorts - MTN - $175
Choice Hotels - CHH - $128
Harley Davidson - HOG - $37
Polaris - PII - $83
Thor - THO - $103
Bowlero - BOWL - $13
Whirlpool - WHR - $100
Krispy Kreme - DNUT - $11
FIGS - FIGS - $7
Advance Auto Parts - AAP - $61
Ford - F - $11
Subaru - FUJHY - $9
Goodyear - GT - $12 -
Signet Jewelers - SIG -$83
Tempur Sealy - TPX - $52
Carriage Services - CSV - $32
LKQ Corp. - LKQ - $40
Coursera - COUR - $11
Mohawk - MHK - $160
Leggett & Platt - LEG - $13
Carmax - KMX - $83
Nike - NKE - $72
MGM Resorts - MGM - $42
Green Brick Partners - GRBK - $75
Williams - Sonoma - WSM - $155