Utterly Gutless

The model portfolio I presented last week can only be described in one way - “utterly gutless”.

I still feel the new model was absolutely necessary and justified given the current economic circumstances. Just for fun, I wanted to present the portfolio I would recommend if I were completely agnostic on future economic developments. That model portfolio is presented below. This alternative model contains no “safety first” stocks. It is representative of how I would have invested up until about 2005.

First let’s discuss why my economic concerns are so great:

1. I remain concerned we are in a very unusual economic period where it just very difficult to rely on common economic measures. I still think most of the last 9 months of data is strongly effected by a significant amount of “pent-up demand”. When I look at companies on a bottom up basis I feel very nervous using the last 9 months to predict calendar 2023 and 2024 earnings. I cannot quantify that feeling, but I have learned to trust it. Obviously 2020 and 2021 were complete “toss-outs” for pandemic reasons, but I feel that 2022 should be a toss-out as well as being “to good to be true”. Everyone is eager to get back to business as usual, but I am being more cautious.

2. I am very concerned about the effects of the SVB/Signature collapse. I was very worried about commercial real estate loans before this event, and now I am even more worried. When I hear “don’t worry, the big banks are ok” I instinctively get even more worried. A credit crunch is coming.

3. I am very worried about the political turmoil ahead. I think the 2024 election is a 50/50 tossup at this point. I am concerned that the Dems have some very “anti-growth” ideas. For example, when started I analyzing Williams Corp. - WMB, I saw how new regulatory rules at the FERC have limited the company’s opportunities. I think Ms. Khan at the FTC has plenty of “anti-growth” ideas. I have voted a straight Democratic ticket since 1992, but I do fear their economic ideas.

4. I think you can now see a chance for much lower interest rates again as GDP growth turns negative, hence the higher dividend yield stocks like Verizon, Philip Morris International, and the utilities.

I am also embarrassed that my main model has so many big cap stocks. Years ago stocks like Verizon, Tyson, Phillips 66, Philip Morris International, Merck, and Roche, would never have been in my portfolio. I would not have wasted my time even looking at those stocks.

Maybe watching too much CNBC has infected my mind. I hope I am just leaning toward earnings predictability in a time of great economic uncertainty. I still believe in small cap investing, but only at the right time.

Here is what I would buy if I were forecasting smooth 2% GDP growth for the foreseeable future:

1. Brunswick - BC

2. Williams-Sonoma - WSM

3. Scotts Miracle-Gro - SMG

4. Elanco - ELAN

5. Trinity Industries - TRN

6. Ruth’s Hospitality - RUTH

7. Viad - VVI

8. Argan - AGX

9. RXO - RXO

10. Oxford - OXM

11. Noodles - NDLS

12. Nordstrom - JWN

13. Whirlpool - WHR

14. Ziff-Davis - ZD

15. Bloom Energy - BE - my Biden hedge stock

16. Daseke - DSKE - maybe a little too risky

17. Kirby - KEX

18. Red Rock Resorts - RRR

19. Acadia Healthcare - ACHC - my one “growth” stock

20. Helmerich & Payne - HP

I would be proud to present this portfolio if I were not a gutless weasel. Maybe old age has made me overly cautious, or maybe it has made me wise. Transport me back to 1985, 1995, even 2005, and this is is how my portfolio would have looked, lots of names with economic sensitivity.

Right now I remain ‘hiding under the table”, maybe it will be safe to come out some day. I hope so.

The whole idea of this blog is to present my ideas as they roll through my brain. When I started last Fall I did not expect a banking panic, but that is what we have.