Moving things around

IMG_20140719_134110As stated in the previous “Haircut” post, the first two weeks of this month have been spent reassessing my portfolio, trying to reduce the number of stocks that I hold and cleaning up some positions that were a bit “borderline” in terms of fundamentals. Of course this means that for the first time since I started investing I had to face with the possibility of selling positions that are actually loosing, but as it happens for the medical world, sometimes pain is necessary to get better later. In the end the whole “reducing” task bought a quite mild result, out of 47 holdings I managed to cut down 2, bringing the total PF to 45 positions. I believe that there is more work to be done there, my target now is to reach 40 holdings by the end of the year. It’s a bit like when you go at a local market, lots of things are on offer, sometimes we choose following feelings and we realise later that we bought black cabbage in August (totally out of season)… So, how do you clean a PF of potentially great companies that in a way I have selected myself (was not forced with a gun pointed at my head)? First of all I started looking at those positions that I have bought doing little research: Engie (GDZ) and Orange (ORA) were at the top of the list. I started doing what I should have done before: look into the numbers and the accessible information online, in the end I have decided to let GDZ go and keep ORA for further analysis. GDZ is a very well known company in Europe, they have a dividend “bonus” scheme for investors that stick to them over time. The reality of things is that it’s a company that during difficult times have cut dividends, moreover doesn’t really have a massive dividend history, probably because the main focus is to buy other companies and enlarge through mergers (as the recent “interest” in the atomic energy company Arevas seems to prove). What is also sure is that my PF is already pretty loaded with Energy companies. Orange is pretty much the same, famous name, very strong in France and also in other nations. Telecoms work in a very difficult market, but at the same time they enjoy very high barriers that protect them from potential competitors. They are investing heavily in Israel, and are predicting a very high EPS growth next year. Forward P/E is in touch with other Telecoms, but they have been very inconsistent with dividends in the past. Right now I have decided to keep them in the PF, mostly because the half year dividend in coming up, we’ll see what happens later. Second round of considerations were companies with very high P/E. There are several huge brand incubators like Unilever (UNLV) or Procter & Gamble (PG) in my portfolio that have “above market average” values of P/E, but I am happy to keep them. My attention fell on Starbucks (SBUX). Starbucks is a great company, they have all the right things to grow in the future, they have a very “employee friendly” attitude, the brand is very strong almost everywhere (apart from Italy!!), but they have a 31 P/E and a 1,22% dividend yield. Form the non USA investor point of view, that 1,22% of yield gets taxed twice, in the US and in the country where the investor lives, normally that means loosing between 30 to 40% of the dividend. P/E of 31 did the rest in the decision of letting this company go, compared to other peers in the industry (Dunkin, Krispy Kreme etc etc) it doesn’t seem all that high, but effectively means that you are paying a price for al LOT of future earnings. So back to the “Wishlist”, until prices are more agreeable. I then sold Royal Dutch Shell (R6C) but only because buying it in Amsterdam was a mistake, I sold it at the same price that I bought it, and went back on the same stock but in London (RDSA). Yes I take exchange rate risks, but I also take no taxes on dividends from the UK government (commissions are higher but we are talking 10 euro, so hardly something that breaks the bank). Last movement of the cleanup phase was to let go one of the Aristocrats, Ben Franklin Resources (BEN). Here the issue is the low dividend (again), the apparent exposure to Greek debt that the company has in its assets (I cannot fid the article where I read about it, sorry for quoting news without a source) and in any case I own T.Rowe (TROW) that has more potential in my opinion to do well in the long run (this analysis by DGI gives a more precise and professional insight). From 47 positions to 44, not a huge cut but the target is to reach 40 positions at the end of 2015. I’ll leave to the next post the description of where the money was re-invested! Long: TROW, RDSA, UNLV, PG, ORA

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5 thoughts on “Moving things around

  1. Hey Stalflare,

    Good job on cleaning up your portfolio a bit there! Will definitely be good to have a smaller base off which you’ll need to concentrate and make decisions. I’m a little surprised you let go of SBUX, but you know what’s best – especially if you’re getting the brunt of withholding tax (yuck). Keep it up man.

    Best regards
    DB

    Like

    1. Ciao DB,

      Thanks a lot for posting! The cleaning has just started, as I said the target is to reduce holdings of at least 5 more units, quite hard in the present market but I gave myself till the end of the year to achieve this.
      As of SBUX it was a very hard call but in the end 30 P/E and very low dividend got the stock on the “to go” list. Consider that in Italy we get a 15% tax from the US government and then and hefty 26% tax from Pizzaland too.. 1,22% divident yield becomes less than 1% and despite the fact that the stock price might grow (but here we have no certainties) it’s too low of a yield to keep the stock in. It’s back on the “wishlist”, if P/E changes I will consider adding it again.

      These times (Greece crisis) are pretty hard for someone who started 6 months ago, but I am keeping my bar straight and I hope that this “tempest” will finish soon…

      Thanks for posting again and ciao!

      Stalflare

      Like

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