Some readers of this column want to know what I own “in real life,” not just on paper. So, once a year I list my firm’s holdings in this column.
Currently I own 20 stocks for most of my clients. I own most of them personally as well.
I hold two stocks that depend on consumer discretionary spending – NVR Inc. (NVR, Financial), a homebuilder, and Sony Corp. (SNE, Financial), a Japanese consumer electronics company. NVR is my longest-standing holding, going back to 2012. I’ve owned Sony for two years; it went nowhere for a while but is up 32% this year.
Consumer-staples stocks are popular these days, but I deem most of them overpriced. I own only Sanderson Farms Inc. (SAFM), a Mississippi-based chicken producer and processor. It’s a longstanding trend for Americans to eat less beef and more chicken each year.
In the energy sector, I own nothing. There will be big gains to be made by piling back into energy at the right time – but in my opinion that time hasn’t yet come.
I hold four financial stocks. Two of them are big banks, JPMorgan Chase & Co. (JPM, Financial) and Bank of America Corp. (BAC, Financial). They are likely to earn better lending spreads if interest rates rise over the next two to three years. They might also benefit from looser regulation, if the Trump administration gets its way.
Two from Tom
My other two financial holdings are stocks that my colleague Tom Macpherson is sweet on – Mastercard Inc. (MA) and T. Rowe Price Inc. (TROW, Financial). Mastercard has earned a return on stockholders’ equity of more than 40% in nine of the past ten years.
T. Rowe Price, which runs mutual funds, has also been unusually profitable but is fighting the increasing popularity of “passive” or index investing.
Up for Grabs
I am light in health care, because the rules for financing health care in the U.S. are up for grabs. However, I like Fonar Corp. (FONR, Financial) of Melville, New York, which makes magnetic resonance imaging (MRI) machines in which patients can stand up, allowing doctors to see a weight-bearing image. We also own Novo Nordisk A/S (NVO), a Danish company that is a world leader in diabetes treatments.
In the industrial sector, I hold a pair of defense stocks, General Dynamics Corp. (GD) and Leonardo SA (FINMY). General Dynamics is a broad-stream defense contractor that I have liked for many years. Leonardo is an Italian defense contractor.
I figure that European defense companies will do more business as Europe reacts on the east to the threat of Vladimir Putin’s Russia, and on the west to President Trump’s insistence that it pay more of its own defense cost.
What Glitters?
The only security I own in the materials sector is SPDR Gold Shares (GLD, Financial), which represents holdings of physical gold. Gold frequently (not always) does well during periods of inflation or international turmoil. Both conditions seem reasonably likely to me in the next two to three years.
In technology, my firm has several holdings, mostly picked by my colleague Katharine Davidge. We have two semiconductor equipment stocks, Lam Research Corp. (LRCX, Financial) and Applied Materials Inc. (AMAT, Financial).
From Israel comes Check Point Software Technologies Ltd. (CHKP, Financial), a leader in loss prevention and cybersecurity. And from Canada comes Computer Modelling Group Ltd. (CMDXF, Financial), which makes software used to more efficiently drill for oil and gas.
The uber-popular big tech stocks such as Microsoft and Facebook are represented by Technology Select Sector SPDR ETF (XLK).
Naked
In telecommunications, utilities and real estate, we are naked, with no positions at all for most clients.
To me, the utilities are way too expensive considering what slow-growth companies they are. I have nothing against telecom in the abstract, but find little to excite me there.
As for real estate, I’m troubled that the “cap rate” (rents as a percentage of the price to purchase a building) are now ranging mostly between 5.5%-7%. So buyers of buildings are counting on capital appreciation, which may or may not come.
Foreign Exposure
Rounding out our model portfolio, we own three exchange-traded funds (ETFs) in addition to XLK, mentioned above. They are iShares MSCI Germany ETF (EWG), SPDR S&P Emerging Markets Dividend ETF (EDIV), and Index IQ Australia Small Cap ETF (KROO).
As you can surmise from these holdings, I’m specifically looking for equity exposure outside the U.S. I think the American economy is OK and strengthening but stock prices here are on the high side, about 25 earnings compared to a normal multiple of about 15.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column.
