Current Holdings and Valuation

I decided to run a quick "health" check of the portfolio.  Here are the results:

The top nine stocks are shown as green, indicating they are currently undervalued.  Today's blended PE ratio (from FAST Graphs) is below the average PE ratio for the past 6 years.  I like to use six years of history vs. anything longer to get a more up to date sense of the what multiple the market give these stocks, independent of the greatness in the distant past.  If any of these are currently underweight in the portfolio, I'll add to them.  If they are overweight, I'll let them be.

The middle 13 stocks are trading at fair value, or a slight overvaluation.  I'll continue to monitor these, especially WMT, WFC, and CVX.  No action yet on any of these in either direction, though I'm ready to trim the ones nearing 20% overvaluation.

The last eight are getting into "dangerous" waters.  They are trading at premium to what the market has been willing to pay for these stocks over the past six years.  I will look at % each makes up of the portfolio, and definitely trim them back to a 2/3 position.  I don't like to sell completely, unless they really get overvalued, say around 50%. I'll keep a close eye on ADM and WAG, and sell these completely if they continue to swell.  (Note:  I've trimmed all of the "red zone" stocks previously except SO).

I always struggle with the decision to sell stocks, especially after a nice long run up in price over years.  I become emotionally attached to these names, like WAG for instance.  Warren Buffet tends to hold his stocks, even through periods of overvaluation.  Take a look a Coke over the past 21 years, Warren has held and added to his KO position throughout this period:

The PE ratio for Coke got up to over 47 in 1998, and then corrected downward for the next 10 years before returning to a more "normal" PE of 15-20.  Wouldn't Warren have been wise to unload his position when the PE got that high?  Seems like a yes to me.  If the historical PE is 28, than at 47, the PE was a whopping 68% above normal.  

Looking at my stocks, WAG at 49% above "normal" looks a little dangerous.  So, do I emulate Buffet and hold, or sell and look for a better value?  Any thoughts?

That's all for now,

Chump

YTD Performance Update

This was a down week in the market, with tech stocks getting hammered pretty hard.  Below is a YTD graph of S&P 500 performance from CNN Money:

The YTD performance of the S&P 500 is 0.87%.  The Chump portfolio over the 

same period, up 4.16% YTD.  

AT&T (T) - Starting a Position Today

AT&T reported decent quarterly financials today, but is off more than 3% as of this writing.  While not a fast grower, they pay better than a 5% dividend, have an S&P credit rating of A-, and are projected to grow between 5% and 6% for the next five years.

This is a high grade, safe stock.  At at today's price, its nicely undervalued.

The stock is trading just above $35 today, which is a bit lower than the black endpoint above.  With a blended PE of around 11.5 today, its well below the average PE over the past five years.

I think of ATT as a utility, offering a product that everyone "needs" and uses daily.  Regarding the dividend, they've been raising it reliably for 30 years, and over the last 10 its averaging around a 4% increase every year, much like a utility.

There are dozens of articles on SA about T, here are a few recent ones:

http://seekingalpha.com/article/2157123-at-and-t-a-much-needed-pullback

http://seekingalpha.com/article/2156463-at-and-t-5-percent-yield-and-17-percent-upside-despite-recent-surge-in-stock-price

Limit order executed at $35.17, for a 1/3 size position in the portfolio.

Best,

Chump

Don't Buy These Excellent Companies

I don't read too many articles telling us the stocks we should avoid, so here it is.  I created a watch list of great dividend stocks back in 2012, and have been adding to it since.  There are some GREAT companies on this list that I'd love to own, but they are TOO expensive.  Buying stocks when they are undervalued works - so the converse of this must also work.  Sell these stocks when they are grossly overvalued, or short them, but for heavens sake, don't buy them!  My entire watch list is overpriced, some more than others.  For your information, here is my current watch list:

Symbol	Name
MMM	3M COMPANY
ADP	AUTOMATIC DATA PROCCESSING INC
BLL	BALL CORP
BDX	BECTON DICKINSON AND COMPANY
CHD	CHURCH AND DWIGHT CO INC
CLX	CLOROX CO
CL	COLGATE PALMOLIVE CO
COST	COSTCO WHOLESALE CORP
CMI	CUMMINS INC
D	DOMINION RESOURCES INC
GIS	GENERAL MILLS INC
HD	HOME DEPOT INC
HRL	HORMEL FOODS CORPORATION
SJM	JM SMUCKER COMPANY
MA	MASTERCARD INCORPORATED
MKC	MCCORMICK AND CO
MCK	MCKESSON CORP
NKE	NIKE INC
PEP	PEPSICO  INC
PX	PRAXAIR INC
PG	PROCTER AND GAMBLE CO
ROST	ROSS STORES INC
SO	SOUTHERN CO
SYK	STRYKER CORP
SYY	SYSCO CORP
UTX	UNITED TECHNOLOGIES CORPORATION
DIS	WALT DISNEY CO
WM	WASTE MANAGEMENT
YUM	YUM BRANDS INC

I've been watching these stocks for a couple of years, waiting.  I have buy prices set for all of them, well below where they trade today.  That said, I wouldn't buy any of these today, and if I owned any of them, I'd definitely trim them down to a 2/3 position in the portfolio.  Here are a couple of examples:

P&G:  This chart shows the PE ratio over the past 15 years.  It's nearing its six year high point today.  Time to sell.

Costco:  The PE today is getting close to 25.  It's only been higher in the past 15 years in 2001.  Sell, sell, sell.

Colgate Palmolive:  The PE now reaching levels not seen since 2001.  Great company, time to sell.

In summary, I can take a pretty dispassionate view of these stocks because I don't own them.  I'm just watching (that sounds weird).  I haven't fallen "in love" with these names like many do after owning them over long periods.  For example, I have a strong affection for Walgreens because its up over 85% since I bought it, but it too is getting into sell territory, and in fact, I've trimmed it back to a full position in the portfolio.

If you own any of the stocks on the watch list above, take a close look at their current valuation, and consider trimming them down.  Use the proceed to buy something cheaper!

Chump

Valmont Industries (VMI)

From a recent Dr. Paul Price article.  I built a position in VMI back in October, 2013.  The position is up around 11.5% since then, and stock still looks to be undervalued today.   I'll continue to hold.

Better than Berkshire? by Dr. Paul Price Valmont Industries could be the Greatest Growth Stock You’ve Never Heard Of. You would think that a stock that turned $10,000 into $64,415 over the most recent decade would attract a lot of ink. In reality, very few investors even have Valmont Industries (VMI) on their radar screens. Valmont is too small and illiquid to interest many mutual fund managers. It is not held widely enough for many financial journalists to waste time on. Most readers now click only on stories concerning stocks they already own. The $3.3 billion (2013 revenues) company had less than 27 million shares outstanding at the end of last year, giving it a market cap of about $4 billion. Average trading volume is only about 270,000 a day. Yahoo Finance shows only five analysts with current year estimates. Just four were willing to venture guesses for 2015. Value Line’s April 18, 2014 write up calls for $10.50 in EPS this year rising to $11.40 next year. Both numbers would represent all-time highs. Valmont gave shareholders a volatile ride over the decade but performed well in everything that counted in terms of value creation. Earnings per share swelled by almost 900%. Dividends more than tripled and could easily have shown even gaudier growth.Valmont’s payout ratio (the dividends paid to net profits ratio) fell from 29.2% to 9.5% over the past decade as management reinvested more of the company’s profits into organic growth, a strategy that paid off brilliantly.  Money not paid out in cash is not taxable along the way. Capital gains from reinvestment will only be subject to lower LTCG (long term capital gain) rates, and then only when sold. Those who say that ‘buy and hold’ no longer makes sense might get an argument from long-term owners of Valmont. Valmont’s holders earned almost five times the total return of the better-known and much revered Berkshire Hathaway’s class B (BRK.B) shares over the same period. Both stocks showed remarkably similar patterns in terms of market action over the years. Continue reading the full article by clicking herehttp://www.gurufocus.com/news/255808/the-greatest-growth-stock-youve-probably-never-heard-of Dr. Paul Price | April 18, 2014 at 11:51 am | Categories: Value Investing | URL: http://wp.me/p2soa2-sr5o

Good News from HAL

Halliburton reported quarterly financials:

The full press release can be read here:

http://seekingalpha.com/pr/9622603-halliburton-announces-first-quarter-income-from-continuing-operations-of-0_73-per-diluted-share

I have a pretty large allocation in the portfolio to HAL.  They pay a very small dividend, but the CEO has committed to increasing it rapidly (+46% in 2013).  In addition, they are still undervalued, with very good growth prospects globally.   Great company, I'll continue to hold.  Here is a snapshot of the valuation (note the black price line):

If you don't own HAL, add it.  It's still a good value.  I'm comfortable until the price approaches $95.

Best,

Chump

KSS Sale

As discussed in an earlier post, I planned to sell my position in KSS - decent return, but the story is no longer exciting...not undervalued, and declining eps.  I sold all shares today at $55.  I'll use the cash to bolster other holdings in the portfolio when I see opportunity.

Best,

Chump

Everyone Uses Tupperware

Chuck wrote up a nice analysis of TUP today on Seeking Alpha, here is the link:

http://seekingalpha.com/article/2126123-is-tupperware-brands-the-perfect-dividend-growth-stock-for-retirement-portfolios?v=1396627780

Not much for me to add.  Looks like a decent investment at today's price (around $83 or less), not a great value buy, but close to fair value.  In today's market its difficult to find stocks trading even at fair value, especially if they are high quality.  As I mentioned previously, I'm planning to close my KSS position.  I'll consider TUP my swap - I'll be getting a better brand with less competition, more growth potential in emerging markets, and higher yield.  Tupperware is not subject to fashion trends, aging stores, and fickle consumer tastes.  Their products are vital for keeping storing food - a worldwide market with lots of growth potential.  Further, I much prefer to own companies with rising earnings vs. falling earnings.

Here is a one year price chart:

The price took a little tumble after their last earnings report, and has been climbing since.  They report earnings again on April 23.  I'm going to attempt to start a 1/4 size position today with a limit order.  If earnings disappoint, I'll add on additional weakness.  If not, I'll just let it ride.

Best,

Chump

Altria (MO)

MO in the news today:

Altria Completes Acquisition of Green Smoke

Tue April 1, 2014 4:15 PM|Business Wire  | About: MO

   

RICHMOND, Va.--(BUSINESS WIRE)--

Altria Group, Inc. (MO) (Altria) (NYSE:MO) today announced that its subsidiary, Nu Mark LLC (Nu Mark), has completed the acquisition of the e-vapor business of Green Smoke, Inc. and its affiliates. The transaction is valued at approximately $110 million in cash and up to $20 million in incentive payments.

Additional information regarding the transaction is available atwww.altria.com.

Altrias Profile

Altria directly or indirectly owns 100% of each of Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Nu Mark, Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation. Altria holds a continuing economic and voting interest in SABMiller plc.

The brand portfolios of Altrias tobacco operating companies include Marlboro®, Black & Mild®, Copenhagen®, Skoal® and MarkTen". Ste. Michelle produces and markets premium wines sold under various labels, including Chateau Ste. Michelle®, Columbia Crest®, 14 Hands® and StagsLeap Wine Cellars®, and it imports and markets Antinori®, Champagne Nicolas Feuillatte" and Villa Maria Estate" products in the United States. Trademarks and service marks related to Altria referenced in this release are the property of Altria or its subsidiaries or are used with permission. More information about Altria is available at altria.com.

Altria was one of the first individual stocks in the portfolio, dating back to September, 2010.  My average cost is $24 and change, and today's close was $37 and change.  MO pays a very nice dividend, and has an amazing portfolio of U.S. brands, as mentioned above.  Here is a FASTGraph of MO today:

A nice steady grower, large dividend, diverse brands, very shareholder friendly.  I'll continue to hold and let the position grow.  In fact, I added MO's brother PM earlier this year on some weakness to get some international exposure.  I consider both to be good core dividend growth stocks until the lawyers put tobacco companies out of business....

TAFN,

Chump

1st Quarter Performance, 2014

The stock market has had a slow start to 2014.  Here are the various index performance numbers for the 1st quarter of this year:

The Chump IRA is beating the S&P, the benchmark I follow most closely, with a 1st quarter performance of 2.54%.  Not a huge difference, but over years, a few % better than the S&P will add up nicely.  Further, we've yet to see a real extended downturn.  I believe the Chump IRA, with so many high quality companies, will fare much better in a downturn than the broader indices.  We shall see!

Best,

Chump