Portfolio Balance

Since the Chump IRA has had a nice run over the past year (1 year performance through May stands at 24.28%), I thought it was time to take a look at balance and diversification.  Here is the portfolio sorted by size of holding, with some additional metrics for consideration:

The number of positions is now at 32, the average size of position is 3.13%, and the current yield for the entire portfolio is 2.87%.  I sorted the holding by position size, coloring all holding above the average size as yellow, and all holding below average green.  17 positions are above average size, 15 are below, with 8 positions above 4%, and four positions below 2%.

I don't feel obligated to keep all my positions the same size.  I tend to add to undervalued positions, and NOT add to overvalued positions.  Sometimes positions get large (AAPL, INTC, AFL) simply because I see a good stock at significant undervaluation.  I see no reason to reduce these positions while the under/or slightly over valuation persists.  Conversely, I also have some small positions that won't grow until they become a better value; KO has been a small holding for the entire last year, it's just too expensive.  Similarly, O is overpriced at these levels, but remains small in the portfolio, so I'll keep it and add to it down the road (perhaps WAY down the road).

Next, I calculated today's "blended" PE and compared it to the PE for the stock over the past 5 years, or the 5 year average PE.   This is a nice simple look at valuation.  A negative number indicates under fair value, a positive is above fair value.  I colored everything 15% or more above fair value yellow (caution), and every stock with a negative/under valuation green.

Using just position size and valuation, I see a couple of large positions that are overvalued;  MDT, JNJ, EMR, MO, ADM.  Next I looked at current yield, and rate of dividend growth for the past 5 years.

MO is okay due to it's nice yield and low beta, I leave it alone for now.  EMR is okay for now with a yield of 2.8%, but I'll keep an eye on valuation.  JNJ and MDT are also worth keeping an eye on, especially JNJ due to valuation.  ADM will also be one I watch closely for continued overvaluation.  I'm hesitant to cut any of these back for two reasons:  1) I like each of these excellent companies, and all are dividend Champions (MO not actually due to spin off of PM, but they have an incredible dividend philosophy).  2)  I don't have any great alternatives for investment at this time.

Looking at this list, HAL jumps out as a stock I'm not crazy about for the long haul.  They have a stingy 1.1% yield, and have very low growth in the dividend.  If it runs further in value, I'll likely trim or sell this name, and use the proceeds to reinvest into my smaller positions that are still at or below fair value.  My target names for additional investment within the portfolio are:

• BBL
• DE
• KSS
• PM (on dips)
• KO (on big dip)

That's all for now,

Chump

Portfolio Update July 10, 2013 - Valuation

Here are the current holdings in the Chump IRA:

I was revisiting one of my first posts for this blog, my "rules" for the portfolio.  They still seem pretty sound after about a year, but I'm not sticking to them rigidly.  One of the rules I wanted to check is about reducing a position once it gets 15% over what I deem to be fair value.  The summary above shows each of my holdings PE today and the average PE for the past 5 years.  

Going through the list, I'm looking for holdings that violate the 15% overvaluation rule:

• ADM is 36% over fair value PE
• GD is 20.6% over fair value PE
• MO is 22.2% over fair value PE
• COP is 19% over fair value PE
• EMR is 16.3% over fair value PE
• JNJ is 25.6% over fair value PE

And of course, O is way over fair value FFO, but was when I bought a small entry position, so I'll ignore that one.

My rule states that once a holding hits these levels of overvaluation, I'll put in a stop loss for the excess $ over my purchase price, or write covered calls, or just trim.  

So, now the big question, do I trim these down?  If so, do I sit on the cash and wait for a correction? For how long?  If I don't have a good replacement for each, then why do it?  Or perhaps I could build the positions of the other holdings that are still slightly undervalued?

I may need another rule about what to do with the funds generated from the liquidation or trimming of a holding.  I'm going to think about this for a few days before I make a decision.

That's all for now, 

Chump

Good Newsletter by Paul Price and Associates

I found this very thoughtful, and well worth the read:

http://marketshadows.com/wp-content/uploads/2013/07/Market-Shadows-Newsletter-7-9-13-final.pdf

Best regards,

Chump

Chump Portfolio Update

Here is the Chump IRA on May 24, 2013.  The last three days saw a decline of around 2% in the portfolio, but since inception late last summer, the portfolio is up 17.47%.

My one year return for the IRA account now stands at 18.36% through the end of April 2013 vs. an S&P one year return over the same period of 16.89%.

Here is a summary of the holdings in the portfolio, with some useful FASTGraphs metrics:

Contrary to the statement in my previous post, I did do "something."  I can't resist.  I sold off 1/3 of my CMI (Cummins) position, or profits, and started a position in DE (Deere).  DE is more undervalued, is growing earnings, and has a better dividend yield.  DE competes with CMI in some segments, but both are good companies.  It seemed cool to start a new position in a great company with profits from CMI, and continue to hold a position in CMI.  

That's all for now,

Chump

Planned Portfolio Actions...None!

The Chump IRA has a had a nice run these past 4 or 5 months.  The portfolio is up over 14.5% since construction in the fall of 2012.  I've recently read a lot of articles about the coming market correction, or that it's time to lock in gains, or that we should re-size our holdings and take profits off the table.

Every time I read one of these articles, I get tempted to do....something.  Trim, or sell, or resize, or set a stop loss, or write some covered calls, something.

But then I think about Ben Graham (The Intelligent Investor), and his opinion that mastering our emotions is the most important aspect of investing.  I think this is right.

I'm not doing nothing, I'm holding and monitoring.  I continue to read about the Chump holdings in the portfolio;  I run a FAST Graph on all of the holdings each week looking for signs of "dangerous" levels of overvaluation, but so far, most of the holding haven't fallen into the danger zone.  Or if they have, there is more to the story (my REITs O and OHI come to mind).  Here is a summary of the holdings:

The holdings are sorted by EYE ratio, or estimated earnings yield.  As I state in my rules for the portfolio, I start thinking about trimming when the EYE ratio dips below 6:1.  The only holdings in this category are MO, CVX, WMT, MCD, JNJ, KO, and our two REITs OHI and O.  All still pay a nice yield above 3% except WMT.  And I consider all of these companies solid, core holdings for the portfolio.  I'm not adding to any of these at these prices, but I'm not trimming or selling either.  

The rest of the portfolio looks really healthy, fairly or undervalued, and poised for more growth!

Best,

Chump

Chump Portfolio Update 4-26-13

I started using Morningstar near the end of 2012, and have been tracking the Chump IRA there in addition to my normal Fidelity account views.  Morningstar has some useful metrics and tracking, so this week's update will be screen shots from my M* view.

Here are the holdings as of today in the Chump IRA:

I've put a red circle around metrics of interest.  Overvaluation, low dividend (below 2.5%), or over allocation (above 4% of the portfolio) for possible action in the coming weeks.  

I've sorted the portfolio based on total return since purchase, most having been bought last summer or fall.  BBL, AAPL, and INTC are my losers.  BBL is recent add, replacing CLF, and INTC and AAPL have been in the portfolio since the beginning.  INTC has had a bit of positive movement lately, and pays a nice 3.85% dividend.  AAPL pays a decent dividend near 3%, but only because the price has dropped so much this year.  I wish they'd announce a large dividend increase in the coming months.  I still believe AAPL is severely undervalued, and will continue to hold the stock.

Recent changes to the portfolio include the sale of TEVA (I'm worried about their long term prospects), and the additions of O and BBL.

That's all for now,

Chump

General Dynamics (GD) Update

A few blurbs on General Dynamics in the news today driving the stock price up over 5.5% this morning.  1st regarding earnings:

Dividends, sharebuys "important," CEO says

* Continued focus on cost-cutting

* CEO happy with portfolio mix (Adds details from analyst call)

By Andrea Shalal-Esa

April 24 (Reuters) - General Dynamics Corp (GD

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) reported slightly higher first-quarter earnings on Wednesday, far exceeding analysts' forecasts, but revenue fell short of expectations.

The maker of tanks, ships and Gulfstream jets reported net earnings of $571 million, or $1.62per share, up from $564 million or $1.57 per share, a year earlier.

The largely upbeat report drove the company's shares nearly 5 percent higher in morning trading, with the stock trading $3.23 higher at $70.38.

Joe Nadol at JP Morgan said the market's concerns ahead of the results now appeared to have been "overdone" and the sales miss was more than offset by better operating margins.

Revenues dipped to $7.4 billion from $7.58 billion.

Analysts polled by Thomson Reuters I/B/E/S had forecast earnings of $528 million, or $1.50per share, on revenue of $7.55 billion.

Operating margins edged up to 11.4 percent from 11.3 percent a year earlier, the company said.

Chief Executive Phebe Novakovic, who has carried out a series of management changes since taking over on Jan. 1, said the company was focused on operations, cost improvement and cash generation.

"Going after overhead is critical to margin expansion in the down environment," Novakovic told an analysts call, noting that cost-cutting efforts would also make the company's products more competitive.

"So you ... better believe that we're going to be very, very focused on taking costs out and we've done it. And we'll continue to do it," she said.

She said General Dynamics (GD) would continue to reduce its workforce as needed in the current budget environment but declined to forecast any specific areas targeted for layoffs.

Novakovic also underscored the company's commitment to dividend increases and "shareholder-friendly" share buybacks.

General Dynamics (GD

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) increased its quarterly dividend payment by 10 percent to 56 cents a share in March, a trend she called "important." It repurchased 1 million shares in the first quarter and still had authorization to buy back over 9 million more shares, she said.

Novakovic said the company also needed to strengthen its balance sheet "a touch" after charges in the fourth quarter, with no acquisitions on the near-term horizon.

Novakovic called the first-quarter results "a strong start toward achieving our objectives for the year."

She said the Gulfstream business was expected to grow significantly over the longer term, while the company's marine group would see expanded submarine sales. Margins would remain a key focus area for the information services sector, while international orders should help combat systems bridge to more robust U.S. Army spending in future years.

"In general, I like ... the offsetting cyclicality we have embedded and in all respects, we see a clear way forward," she said.

General Dynamics' (GD

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) backlog at the end of the quarter was $48.5 billion, down from $55.2 billion a year earlier.

The company said the estimated value of various unfunded contracts and options that have not been exercised was $25.2 billion. (Reporting By Andrea Shalal-Esa; Editing by John Wallace and Andrea Ricci)

And second, regarding the dividend and share repurchases:

General Dynamics sees consistent dividends, more share buybacks

BY Reuters
— 9:35 AM ET 04/24/2013

WASHINGTON, April 24 (Reuters) - General Dynamics Corp (GD

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) Chief Executive Phebe Novakovic said investors could expect consistency in dividend payments and more "shareholder-friendly" share buybacks in 2013.

Novakovic said General Dynamics (GD

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) had increased its quarterly dividend payment by 10 percent to 56 cents a share in March, a trend she called "important."

"With respect to dividends what you need to expect from us is consistency, predictability, and sustainability," she said, adding that General Dynamics (GD
) also planned to act "in shareholder-friendly ways with respect to shareholder repurchases."

General Dynamics (GD

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) repurchased 1 million shares in the first quarter.

Novakovic said the company also needed to strengthen its balance sheet "a touch" after charges in the fourth quarter, with no acquisitions on the near-term horizon. (Reporting ByAndrea Shalal-Esa; Editing by Gerald E. McCormick)

The Chump portfolio remains long GD, with roughly a 2.5% position.