Thinking About the Portfolio
About the only thing I like about Jim Cramer is when he does his “am I diversified” exercise with his viewers.
While we wait for more earnings reports, let’s do some thinking..
Corteva, Darling, HF Sinclair, FirstCash, Nexstar, Nutrien, Tyson, Chart Industries, Red Rock Resorts, Jack in the Box, and Titan International are all special situation stocks that I want own. I do not care about economic forecasts or sector weighting. These are good ideas in any situation.
Royal Gold is a hedge against economic disaster. Everyone should always be at least 5% in gold as long as Congress keeps spending money we do not have.
Royalty Pharma and Revvity are an attempt do limit economic sensitivity and have some healthcare exposure. These companies are more difficult to understand. I would prefer simpler companies. In a less economically fragile world, I might not own these two stocks.
Brunswick is my token Consumer Cyclical idea
Halliburton is my attempt to have some Energy exposure
Treehouse Foods is my Consumer Staple idea, and is also a classic low P/B idea
Middleby is my token industrial, it also borders on being a special situation
Kinder Morgan and Rayonier are my utility/high yield ideas, Rayonier is also kind of a special situation, but also a utility substitute
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This is a conservative, and non-economically sensitive, portfolio. In a different world I would replace Revvity, Treehouse and Kinder Morgan with maybe RXO, Etsy, and Yeti. Is that a Trump world? I am not sure, let’s cross that bridge if we come to it.
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Just for fun let’s think about how the small cap indices are weighted, or more precisely how are they weighted without technology and financials.
Materials - 10% - I am over-weighted and happy with that status
Consumer Cyclical - 20% - I am under-weighted and happy
REIT’s - 10% - I am slightly under-weighted and happy
Energy - 12% - I am under-wighted and concerned I have too little
Industrials - 25% - I am under-weighted and happy
Consumer Staple - 6% - I am over-weighted and happy
Health Care - 10% - I am market weighted and happy
Utilities - 4% - I am over-weighted and happy
Communications - 3% - I am market weighted and happy
This exercise reminds me I am perhaps a little under exposed in energy. The gold/oil ratio is at an all time high. Maybe a good contrarian (I prefer independent thinker) should own more energy.
I am tempted by Peabody (coal), Helmerich & Payne, and Devon. I wish I could find a good smaller cap gas producer. Wow, Magnolia- MGY - $26 has a 15% short interest. I guess all I can do is wait for Civitas - CIVI - to cut its variable dividend. They report 11/7. Let’s also watch the Colorado elections for CIVI haters.
Digging through the smaller energy companies I came across Crescent Energy - CRGY - $13. This is a recent creation of KKR and former Richard Rainwater energy/real estate guy John Goff. They seem to be buying up some unwanted assets in the Eagle Ford. This could be a reasonable strategy. I need to learn more. They are using fairly high cost debt to buy long-lived oil production. I worry about their ability to hedge in these weak markets. CRGY reports on 11/4.
Maybe Antero Resources or EQT are worth thinking about.