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Year End Portfolio Review 2013

tonyg34

4 followers
I wrote my first ever year-end portfolio review last year and learned a lot from that writing process, so I’ve decided to repeat it. 2012 was a pretty good year for me. I finally moved out of Russia, and it is much warmer in my new home, Sao Paulo. My portfolio has done well, too. Up about 12% year to date plus dividends, so only slight lagging the 14% return of the S&P 500. I continued my tradition of doing nothing while running my mouth from the sidelines, with the exception of selling my position in Altria (MO).

I could write a book about why I sold Altria and still probably be wrong. I sold it because of valuation, but mostly because I think price increases and falling sales have reached an inflection point where the company can no longer grow revenue simply through hiking prices. This was based on modeling quarterly volumes shipped versus prices and projecting sales declines based on that model (each new increase has accelerated sales declines). Now that a pack costs more than a fast food lunch and you can’t smoke in the bars, where will new customers come from? Not cool. As the smoking community becomes more marginalized, governments will become more aggressive in regulatory actions. However, MO’s stock price would suggest otherwise.

My Current Portfolio

Enterprise Products (EPD)

Still my largest holding, and a textbook-worthy example of a toll bridge industry. At nearly 50% of my portfolio, EPD represents a macro bet on natural gas replacing coal as America’s second favorite fossil fuel. Due to tax incentives, I’m reluctant to sell shares unless something drastic were to occur.

Philip Morris (PM)

Still 30% of my total portfolio. Sales continue to slow for my second largest holding, and new EU regulations are a serious threat if implemented. I said in my year-end review last year that I judge PM by volumes shipped. Well, in the third quarter volume was down 1.3%. I chose to ignore it because year-over-year volume was up very slightly, but this is a real concern. PM’s famous pricing power is showing signs of weakness as counterfeits and discount brands battle for cash-strapped customers throughout Europe.

Mondelez (MDLZ)

A stock I technically didn’t own at the end of last year, MDLZ is the international confectioner-slash-consumer staples giant formerly known as Kraft. The company has great growth opportunities. About 14% of my total stock portfolio, this is still a solid hold for me.

Kraft (KRFT)

The remaining 6% or so of my portfolio is Kraft. The new, well no, old, domestic-only side of Kraft has to battle against improving store brands in the mature U.S. market. The generous yield has convinced me to hold this position, but I’m nervous. Increasing raw material costs on one end and a price war with private labels on the other are a cause for concern for all U.S. consumer staples. Will customers still pay up for brand names when the stuff inside the box is basically the same?

My Year of Giving Bad Advice

Exelon (EXC)

I wrote a lengthy piece extolling the virtues of EXC and I was wrong. I didn’t understand the financial underpinnings of the business. Still a great set of assets. But it is entirely plausible that between cheap natural gas supply and improving alternatives like hydro, wind and solar, that the spot price for electricity once adjusted for inflation will be the same or lower in ten years. And that possibility, whatever odds you care to put on it, makes EXC a potentially dangerous stock to own.

Western Union (WU)

Blindsided. WU’s numbers have been steady, but the stock got crushed after the company had to adjust earnings to account for new compliance regulations. Still looks like a solid investment to me, but WU operates in a world of changing technology and a sluggish outlook for employment in Europe and the U.S.

Charles Schwab (SCHW)

Interest rates were my catalyst for Chuck, and the Fed busted that thesis. I was banking on rising rates by 2015 but with the Fed tying interest rates to employment, my catalyst for this stock is up in the air. At least this recommendation outperformed.

Weyerhauser (WY)

My one huge winner. Too bad I didn’t take my own advice. After a 50% run the margin of safety is not as compelling as it was a year ago.

Carmax (KMX)

A market performer. I still think the company has a great business model for the cyclical auto retail market and room to grow.

The Year Ahead

The end of the year is a great time to stop and think about how you got here, where it is you think you're going and how to get there. If you can't defend your investment thesis for owning a particular stock then it's time to sell and move on. 2013 may well find me sitting on the sidelines again, but I have a close eye on my holdings of PM and KRFT. I’m less worried about EPD and MDLZ, but that’s no excuse for complacency.

My new emphasis for the year is to re-evaluate my stocks as income-generating assets. I recommend reading this blog by the Fundoo Professor about toll operating businesses. With the developed world contemplating austerity measures to deal with debt, markets could slow down, making moats an even more important factor in stock returns. As always, I will be visiting the interwebs daily in hopes of riding someone else's coattails to investment success, so please keep reading and contributing to GuruFocus. Happy New Year and best of luck to everyone.

Rating: 3.8/5 (11 votes)

Comments

cdubey
Cdubey premium member - 1 year ago
Thanks for sharing. You are running a very concentrated portfolio. I hope I can do so in the next few years !

Which one your holdings do you consider the cheapest ? I will probably look into that one :) At the moment, I find no good ideas for new money (except CAF.MC which I wrote about). It is always better to have a few options to choose from.
tonyg34
Tonyg34 - 1 year ago
Honestly, I don't think any of my current holdings are cheap

My watchlist is focused on so-called toll operators, so that list includes V/MA, AMT, EXPD/CHRW, ITC, MCO, maybe PAYX

out of that list nothing jumps out as cheap.

Mstar thinks SCHW and WU are still cheap, for what that's worth.

They only stocks I feel comfortable saying are cheap are Loews and Berkshire Hathaway, I can prove it by adding up the sum of parts. I think its redundant to add L to my portfolio since I'm already over-concentrated in Nat gas, but I might buy it anyway. You might have noticed I have a strong bias towards dividend paying stocks, that's also part of the reason I've held off on those two.

I've enjoyed you're "stocks to add on a pullback" articles, some high quality names in there.

Are you still in TEVA? That one looks cheap on forward P/E, is the company falling apart or is there some profound reason earnings are expected to nosedive?

batbeer2
Batbeer2 premium member - 1 year ago
January: WPO, DJCO and USG

December: WPO, DJCO, SPLS and COCO

I traded RIMM, CHK and OSTK in between.

I'm now settling on COCO (I owned it for a while in 2011).

This means I'm going into 2013 with WPO, DJCO and COCO for 33% portfolio turnover :o).

Dell looks interesting to me. Working on a article for that one.

Turnover used to be much higher. FWIW my returns in recent years have been inversely correlated to turnover.

batbeer2
Batbeer2 premium member - 1 year ago
>> Carmax (KMX)

A market performer. I still think the company has a great business model for the cyclical auto retail market and room to grow.


Yes.

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