May 12, 2018

Portfolio Update May 2018

With this year’s late blooming spring first warm sunny days comes another update of our DIY Portfolio. As usual, you can expect our following update in about 12 weeks, in August 2018.

You can also access our previous portfolio updates here:

After several quarters of what we have called Trump’s rally, markets finally noticeably stumbled. It may be in part due to somewhat artificial and what can look like improvised measures. Markets sure don’t like trade wars or even talks about them. They also worry when you are always picking a fight, especially with the likes of Russia and Iran. Will it all transform into Trump’s bubble? No one can tell.

To be fair, stock markets cannot go up forever. It’s in their nature and healthy for them to take a pause or even meaningfully correct once in a while as it wouldn’t be sustainable for them to only go up for long periods.   

You know we have been expecting a market decline as we have been talking about it for some time. It’s normal and the long-term trend should still continue on its usual way up. In the end, markets going bad is good news. After all that patient waiting, we will, at last, be buying some more stocks as very interesting deals are coming!

In fact, at this point, we have been a little more active than usual and started doing some buying…after some selling.

Today, we will present some of those movements in our DIY Portfolio. We will also talk about some of the many opportunities we feel are out there in that somewhat struggling market.

For now, despite being seriously hammered down, our long-term return is still holding above our very ambitious objective of 12%. We wouldn’t be completely surprised if it eventually ventured for some time under that psychological mark in the near future. But as usual, we remain confident everything will be just fine in the long haul.  

Once more, I’ll remind you that I am not an investment or tax professional of any kind. The intent of this blog is not to give specific investing advice. Before investing yourself, we suggest you do all necessary research and consult a licensed financial professional if need be. 

Recent Transactions

We have been patiently making adjustments to our portfolio. Our focus always has been to favour solid stocks with steadier long-term results. In that sense, without completely getting rid of them, we are now trying to diminish the proportion of what we consider weaker stocks in our portfolio.

We can accomplish this by selling some portions of these weaker stocks or simply, by not adding supplemental shares to these weaker positions. Buying other stocks will still reduce the relative weight of the weaker ones.

Some of these adjustments included an exchange between KO and JNJ. Although not in a simultaneous operation, we essentially swapped 30 Coca-Cola shares for 10 Johnson & Johnson shares. To some extent, Pepsi (PEP) now has the edge over Coca-Cola (KO) in the beverage industry or at least, as a reliable long-term dividend workhorse. We still like KO and are keeping a reduced position for the moment. Johnson & Johnson (JNJ) is a true dividend king and we feel the swap improved the overall sturdiness of our DIY Portfolio.

As a precaution and especially if they present a volatile history, we will opt to sell even some of our better performers to limit their impact as a single stock on our portfolio. For instance, we just trimmed down our position in Pfizer (PFE) as we were not comfortable with it representing more than 2%-2.5% of our portfolio. We made that preventive move despite PFE being very good for us over the years. In fact, it was one of the first individual stocks we bought back in 2008 and it is a member of our triple-digit return club (stocks that returned more than 100%).
To follow up on our February post talking about Utilities Stocks on Our Radar, our words translated into concrete actions in the last few weeks.

After boosting our Canadian Utilities position (CU Down 16.12% Dip Factor 3.47) back in January, we finally pulled to trigger on one of our favorite prospect, Emera (EMA Down 20.17% Dip Factor 3.55). We acquired Emera shares of two separate occasions. Because the US dollar had been surging, we used US cash converted into Canadian dollars from an RRSP account for one of these acquisitions. In the same spirit, we bought additional shares of Fortis (FTS Down 11.76% Dip Factor 3.07), another strong player in the utilities sector.

Other sectors have been affected because investors worry about these stocks’ future in a rising interest rate context.

Among those touched, we somewhat shied away from pipelines despite very attractive recent price levels. We have concerns not because these well-managed companies appear weak but rather because of all the environment shenanigans surrounding the sector. The oil sector is not dead yet but it’s reasonable to have doubts about its long-term perspective. With all that in mind and as just reported, we prefer utilities corporations predominantly working with electricity and renewable energies considering they have better chances to thrive in the long haul.

So, for now, we will just keep the modest positions we have in pipeline stocks. If the long-term context was different, stocks like Enbridge (ENB Down 31.33% Dip Factor 4.09) and TransCanada (TRP Down 15.62% Dip Factor 3.20) would constitute very appealing bargains at their current value.

Plenty of Opportunities

South of the border, as markets and the economy in general are finally starting to falter, plenty of interesting buying opportunities are also arising. But yet again, we won’t be making a lot of acquisitions because we decided to limit our already important US exposure. We should profit quite enough from what we already have. A strong US dollar versus the Canadian loonie sure influenced our incline.

If we weren’t already exposed that much, we would probably look at buying US stocks with appealing Dip Factor like 3M (MMM Down 24.93% Dip Factor 4.27). Procter & Gamble (PG Down 23.99% Dip Factor 4.18) and Walmart (WMT Down 20.52% Dip Factor 3.87).

As we stated before, Johnson & Johnson (JNJ Down 15.04% Dip Factor 3.50) was our only recent acquisition on the US side. We purchased additional shares of that rock-solid stock to bolster our existing position and improve the robustness of our portfolio.

Speaking of robust stocks, we would be willing to make an exception to our US reserve for Costco (COST Down 1.67% Dip Factor 0.17). But it looks like it will test our patience before we can get our hands on it at an affordable cost.

Meanwhile, we will continue to focus our attention on the Canadian market. After utilities, banks are next on top of our short buying list with Royal Bank (RY Down 10.00% Dip Factor 3.00) as the most probable candidate. We also like Toronto-Dominion Bank (TD Down 5.68% Dip Factor 0.81) a lot, but probably will have to wait much longer for it to become less expensive.

A few other stocks are starting to point out their nose. With its recent short-term difficulties, Canadian National Railway (CNR Down 12.07% Dip Factor 2.42) likely stands out as one of our following acquisitions.

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