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Summary The KeyCorp position was reduced, but a small position in this regional bank is still held. Kroger is the newest addition to the R.I.P. portfolio, and I plan to build a larger position in this company in 2016. Additional Disney shares and AIG warrants were purchased, and I believe that Disney is still undervalued at the current price level. The Retire In Peace portfolio, or the R.I.P. portfolio for short, was first introduced to the SA community in December 2015. In the first article, I explained that monthly updates were going to be provided due to the fact that these holdings are the companies that I write about here on SA. This portfolio is being shared to allow my followers to track the performance of the stocks that I write about in addition to allowing everyone to see what adjustments are made on a monthly basis. At the end of the day, I hope that allowing the SA community to see the monthly adjustments made to the portfolio (specifically the purchases and sales) will lead to constructive discussion about the companies that are considered my “core holdings”. I learn on a daily basis from others on SA so these updates will also be a benefit to me. This is a real portfolio with real money, and it is being built with retirement in mind so I have 30+ years to make adjustments. As such, the monthly volatility is not a concern. Lastly, this is not my family’s main retirement portfolio, but it is a portfolio that will greatly contribute to a stress free and relaxing retirement. Full Disclosure: The core holdings (please see linked article for a listing of the core holdings along with the short-term and long-term catalysts that have been identified for each holding) are not necessarily the shares that I plan to hold for the next 30 years, but instead the shares that I would like to hold for that period of time. I will closely monitor these holdings and will trim, add to, or eliminate positions if the company’s story drastically changes. Below you will find the portfolio and its performance, the December 2015 activity, as well as my thoughts on each sale and purchase that occurred in the month. Price at Beg Value Activity Realized Unrealized Current Portfolio Yield Current Annual Company Stock # of shares 12/31/2015 12/4/2015 Purchases (Sales) Gain (Loss) Gain (loss) Value Weighting On Cost Yield Income General Electric (NYSE: GE ) 374.98 $31.15 $11,433.14 – – $247 $11,680.63 22% 3.9% 3.0% $345 AT&T (NYSE: T ) 152.69 34.41 5,208.09 – – 46 5,253.89 10% 6.0% 5.6% 293 Franklin Income (MUTF: FKINX ) 2,236.65 2.10 4,786.75 – – (90) 4,696.97 9% 5.6% 5.7% 268 Walt Disney (NYSE: DIS ) 38.46 105.08 3,022.79 $1,279 – (260) 4,041.38 8% 1.7% 1.4% 55 Bank of America (NYSE: BAC ) 517.21 16.83 9,180.71 – – (476) 8,704.59 16% 1.2% 1.2% 103 Bank of America Warrants (BACWSA) 303.00 5.82 1,917.99 – – (155) 1,763.46 3% 0.0% 0.0% – Citigroup (NYSE: C ) 48.09 51.75 2,646.80 – – (158) 2,488.61 5% 0.4% 0.4% 10 KeyCorp (NYSE: KEY ) 61.92 13.19 2,159.01 (1,323) $(3) (16) 816.78 2% 0.9% 2.3% 19 Synchrony Financial (NYSE: SYF ) 77.00 30.41 2,466.31 – – (125) 2,341.57 4% 0.0% 0.0% – Kroger (NYSE: KR ) 22.00 41.83 – 934 – (13) 920.26 2% 1.0% 1.0% 9 Johnson & Johnson (NYSE: JNJ ) 23.17 102.72 2,367.85 – – 12 2,379.94 4% 3.2% 2.9% 70 American International Group (NYSE: AIG ) 87.09 61.97 5,546.65 – – (150) 5,396.92 10% 2.0% 1.8% 98 AIG warrants AIGWS 60.00 23.95 625.50 811 – 1 1,437.00 3% 0.0% 0.0% – Xinyuan Real Estate (NYSE: XIN ) 191.99 3.69 660.74 – – 48 708.44 1% 5.2% 5.4% 38 BP p.l.c (NYSE: BP ) 18.00 $31.26 588.06 – – (25) 562.68 1% 7.2% 7.7% 43 $52,610.39 $1,700.36 $(3) $(1,115) $53,193.11 100% 2.7% 2.5% $1,351 December 2015 Activity Sales Company Amount Shares Price per share Realized G/L KeyCorp $1,323.02 100 $13.23 (2.90) Purchases Company Amount Invested* Shares Price per share The Kroger Co. $933.66 22 $42.44 AIG Warrants (AIGWS) 810.66 35 23.16 Walt Disney 1,279.06 12 $106.59 $3,023.38 Dividends Company Dividend amount Reinvested? XIN $8.98 Yes JNJ 17.25 Yes KEY 12.08 Yes FKINX 22.26 Yes AIG 24.27 Yes BAC 25.78 Yes $110.62 * Contributions for the month were $1,700.99 Sales – The KeyCorp stake was reduced simply to add Disney shares at an attractive price, as DIS shares were down ~9% in the month of December 2015 (see more about my thoughts on Disney in the Purchases section). (click to enlarge) (Source: Nasdaq.com) I still believe that KeyCorp is attractively priced [especially if the First Niagara (NASDAQ: FNFG ) acquisition is approved] at the current price level. Furthermore, I plan to rebuild the KeyCorp position back to 3-4% of the portfolio if the share price remains around the $13.15-$13.30 range. Purchases – (1) Kroger is the newest addition to the R.I.P. portfolio, and it is a position that I plan to add to in the months/quarters ahead. Kroger is richly valued from an earnings perspective (P/E ratio of ~20), but the company has many levers available to pull in order to create shareholder value. Kroger recently reported Q3 2015 EPS of $0.43 compared to the consensus estimate of $0.39, which made this the fifth consecutive quarter for the company beating the consensus earnings estimate (per fidelity.com). Additionally, the company also raised the full-year 2015 EPS guidance from the range of $1.92-$1.98 to $2.02-$2.04. Kroger is currently rated a buy with a median price target of $45/share, which would translate into an ~8% gain based on today’s stock price. However, the Kroger position is being built for the long term as I believe shares will outperform both its competitors and the market over the next three-to-five years. I will be writing more about this company in the first quarter of 2016, but simply put there is a lot to like about Kroger and its long-term growth potential. (2) The AIG warrants were added due to the attractive price (warrant price is down ~7% in the month of December) and the long-term prospects that are in place for this large insurance company. The warrants are held in a taxable investment account and are a long-term play on AIG. The warrants expire January 19, 2021, and they give investors the right to purchase AIG shares at $45 (full disclosure: there are several anti-dilution adjustments incorporated into the warrants – see here for a general understanding of the warrants and for further detail on the anti-dilution adjustments). AIG has reported lackluster earnings results over the last few quarters, and this has resulted in two well-known activists (Mr. Carl Icahn and Mr. John Paulson) calling for management to make significant changes. I believe that shareholders will be rewarded whether the activists get their wishes or not. AIG indeed needs to greatly improve its operating results (specifically its return-on-equity), but this factor is more than priced into the stock as shares are trading at ~1x price-to-adjusted book value (book value excluding AOCI & DTA). AIG has made plenty of shareholder-friendly decisions over the past few years. For example, AIG has been committed to buying back shares year-in-and-year-out since the Financial Crisis, and 2015 was no exception (see the Noteworthy Monthly News section for more detail on the share buybacks). In addition, AIG recently raised the dividend from $0.50/share to $1.12/share (124% increase), and the company still has room to further increase the dividend in 2016 (the current payout ratio below 30%). (3) Have you ever heard of Star Wars? The movie that is doing even better than what even Disney projected ? (click to enlarge) No, Star Wars is not the only reason why I purchased additional shares of Disney but it is a major reason. This franchise will do great things not only for the media division but also for the consumer products division. Lucasfilm was a homerun acquisition for Disney. Disney recently reported full-year 2015 revenue of $52.5b (up 7%) and EPS of $4.90 (up 15%). Both figures were records for Disney, which is an impressive feat for this storied company. The cord cutting is a concern as it relates to the ESPN franchise, but it is not yet a significant concern. Think about it – content is king and Disney is the king of content. It will take time to truly understand the impact of cord cutting to ESPN, but I have full faith in management of Disney to figure things out. ESPN and the other Disney media assets will do well in a bundled format, so the negative impact to the share price related to the cord cutting concerns should be considered a buying opportunity. Shanghai Disney is another 2016 catalyst that will help propel the share price higher. Shares are trading at a TTM P/E Ratio of ~21 but at a more attractive P/E ratio of 18 based on estimated 2016 earnings. Therefore, picking up Disney shares around the $105 range ($106 including commissions) was a no brainer in my opinion. Portfolio Performance f or December 2015 and since the portfolio was first introduced to SA (December 4, 2015) This period Since Introduction Beginning Balance $52,610 $46,042 Contributions 1,701 1,701 Realized Gain (Loss) (3) (3) Unrealized Gain (Loss) (1,115) 5,453 Ending Balance $53,193 $53,193 The portfolio lost ~2% of its value (or $1.1k) for the month of December 2015 with Bank of America being the biggest contributor to the portfolio’s decline. Bank of America shares are down ~5.5% for the month while the S&P 500 is down only ~3% over the same period of time. Bank of America is my second largest position and it is a bank that will do well in the years ahead. Bank of America has greatly reduced its expense base (at Q3 2015 noninterest expenses were down $6.3b or 31% YoY) and the bank is in the position to significantly increase its dividend and amount of share buybacks in the upcoming years (if the bank’s capital plans are approved). In addition, the rising interest rate environment will positively impact the bank’s bottom line. Going forward, I will be including the monthly, the YTD, and the since introduction portfolio performance. Noteworthy Monthly News (1) AT&T recently increased its quarterly dividend from $0.47/share to $0.48/share, which marked the 32nd consecutive year of the company raising the dividend. (2) AIG’s board of directors authorized an additional $3b to be added to the share buyback plan, which brings the total authorized share buyback to $4.3b. In 2015, AIG already repurchased ~$9.7b worth of its shares so it is encouraging to hear that the board is staying committed to rewarding shareholders by buying back shares at attractive prices (shares have been trading below book value for all of 2015). (3) Xinyuan Real Estate announced that its board of directors approved a $40m share buyback program that will expire in December 2017. Thoughts I look forward to reading (and responding to) everyone’s thoughts on this portfolio, as I believe that sometimes the best investment advice is constructive criticism. I try to contribute ~$1,000 a month to this portfolio, but sometimes it is a little more or less. I will attempt to provide monthly updates but I may miss some months. Please let me know if you would like for me to incorporate any additional analysis within these monthly updates. Lastly, I will still write about these companies on a regular basis so stayed tuned. If you found this article to be informative and would like to hear more about this company or any other company that I analyze, please consider hitting the “Follow” button above. Disclaimer : This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. E very investor must do his/her own due diligence before making any investment decision. Scalper1 News
Scalper1 News