February Performance

Ballpark numbers - YTD model performance +10%, S&P +4%, small cap value +7%, FESCX +12%

February was a breakeven month for relative performance, for the year so far gold and healthcare have been weak, economically sensitive above average, small caps about average, and one stock, Scott’s Miracle - SMG, contributing most of the relative performance.

Given strong January consumer results, I am comfortable keeping economically sensitive to just 10%. Still thinking about Whirlpool, Macy’s, Nordstrom, or smaller retailing oriented stocks. Still trying to find the right definition for small cap. Defensive names have been a drag, but that is ok in a market where ARKK is still up 28% this year. The speculative crap will slow down some day. The stronger dollar is hurting gold, but I still love that hedge.

I still prefer a 5%, 2-year Treasury, to stocks. To me big caps still +20% overvalued, but maybe small cap value is fairly valued. I continue to be in the “hard landing” camp, with a fear of problems in small business and commercial real estate.

MODEL PORTFOLIO

—- 10% economically sensitive, cyclical

1. Brunswick - BC - my favorite consumer cyclical, trough earnings should be better, A+

2. RXO - RKO - truck brokerage spin-off, neat asset-lite approach, A

—- 20% smaller cap, $1 billion and less, economically diverse

1. Matrix Service - MTRX - my one micro-cap, refinery repair, A+

2. Argan - AGX - builds power plants, A+

3. Ruth’s Hospitality - RUTH - well run restaurant, A

4. Viad - VVI - unique travel idea, maybe to cyclical, A-

—- 30% special situation, weird stocks

1. Kirby - KEX - barge transport, A+

2. Red Rock Casinos - RRR - casinos for Vegas locals, A+

3. Vistra - VST - merchant power producer, A

4. Azenta - AZTA - just sold Brooks Automation, now only healthcare, B+

5. Scott’s Miracle-Gro - SMG - lawn fertilizer and marijuana cap ex, A

6. Elanco Animal Health - ELAN - spin-off of Lily, hurt by avian flu, A+

—- 40% safety, low beta, defensive, not economically sensitive

1. NovaGold - NG - leveraged to higher gold prices, A+

2. Royal Gold - RGLD - interesting smaller royalty deals, A+

3. Roche - RHHBY - heavy R&D yet to pay off, A

4. Royalty Pharma - RPRX - great exposure to diversified portfolio of drugs, A

5. Molson Coors - TAP - we will need beer in a recession, A-

6. Tyson Foods - TSN - meat processing, temporary avian flu problems, A

7. Verizon Communications - VZ - top network, 7% yield, 8x, A

8. Phillips 66 - PSX - boring, well managed, refiner at 7x mid-cycle earnings power, B+

I am thrilled with the look of this portfolio. There is plenty of safety, but still some cyclical exposure.

This is the equity portfolio I would own for my 20-25 year old nephews. It might be too aggressive for me at age 65, but maybe too conservative for younger folks. In a world where ARKK is still up 28% ytd, I want to error on the side of caution.