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.
—- 10% economically sensitive, cyclical
Brunswick - BC - my favorite consumer cyclical, trough earnings should be better, A+
RXO - RKO - truck brokerage spin-off, neat asset-lite approach, A
—- 20% smaller cap, $1 billion and less, economically diverse
Matrix Service - MTRX - my one micro-cap, refinery repair, A+
Argan - AGX - builds power plants, A+
Ruth’s Hospitality - RUTH - well run restaurant, A
Viad - VVI - unique travel idea, maybe to cyclical, A-
—- 30% special situation, weird stocks
Kirby - KEX - barge transport, A+
Red Rock Casinos - RRR - casinos for Vegas locals, A+
Vistra - VST - merchant power producer, A
Azenta - AZTA - just sold Brooks Automation, now only healthcare, B+
Scott’s Miracle-Gro - SMG - lawn fertilizer and marijuana cap ex, A
Elanco Animal Health - ELAN - spin-off of Lily, hurt by avian flu, A+
—- 40% safety, low beta, defensive, not economically sensitive
NovaGold - NG - leveraged to higher gold prices, A+
Royal Gold - RGLD - interesting smaller royalty deals, A+
Roche - RHHBY - heavy R&D yet to pay off, A
Royalty Pharma - RPRX - great exposure to diversified portfolio of drugs, A
Molson Coors - TAP - we will need beer in a recession, A-
Tyson Foods - TSN - meat processing, temporary avian flu problems, A
Verizon Communications - VZ - top network, 7% yield, 8x, A
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.