Disclaimer: Robert Freedland owns MCD, CL, CHD, MMM, SYY, T, and TJX in his Covestor Buy and Hold Value Model.
August 30, 2010: The month of August has been a challenge for the economy, the financial markets and for my own portfolio. While not yet committed to calling a ‘double dip’ in the economy, clearly the pace of the rebound has diminished threatening an economic drop back into full-blown recession. Latest figures point to a 1.6% growth rate in the U.S. economy the latest quarter down from a 3.7% the first quarter of this year . Meanwhile, the unemployment rate remains mired at the 9.5% range, up from a low of 4.4% in mid-2007. Without the federal home buyer tax credit, home sales slumped in July, again pointing to a weakening rebound.
The Dow, which started August at 10,465, closed down more than 300 points to 10,150 by August 27th, 2010. Similarly, the S&P started the month at 1,101 and had dipped nearly 50 points to 1,064 by August 27th. My own portfolio reflected the bearish month with a decline, albeit somewhat less than that experienced by the S&P.
My only change in the month occurred on August 18, 2010, when my shares of McDonald’s (MCD) reached a 30% appreciation target for me triggering a partial sale of 1/7th of my holding. Being well under my maximum portfolio size of 20 positions, I used this as a signal to be adding a new holding and purchased shares in Colgate Palmolive (CL) at $76.97, a stock which itself has been under some pressure having traded steadily in the $84 range during March and April of this year. CL yields 2.8% (as of August 30, 2010) and has a wide range of consumer products from toothpaste to dish soap that hopefully will remain somewhat recession-resistant. With a position in Church & Dwight (CHD), my portfolio is a little over-weighted in this area and I shall look to a different industry should the opportunity arise. Colgate closed at $74.25 on 8/27 giving me the only ‘paper’ loss in my portfolio.
Speaking of Church & Dwight (CHD), this stock started the month at $67/share and closed at $61.60 by August 27th as it revealed that while its latest earning were ahead of expectations, margins were being pressured by price competition.
As I noted above, my shares in McDonald’s remain a strong performer in the portfolio, hitting a 30% gain for me this month and triggering a small sale as I take a bit of my profit ‘off the table.’ MCD opened at $70.50 on 8/2/10, the first day of August trading, and closed at $73.99 by August 27th. On August 9, 2010, McDonald’s announced that July global same-store sales rose 7%, and U.S. sales increased 5.7% in the States. This was ahead of expectations.
3M (MMM) showed its tie to the economy with a month in which the stock dipped from its opening price of $86.80 on August 2, 2010, to close at $81 on August 27, 2010. The Motley Fool did a nice review on 3M early in August , but J.P. Morgan downgraded 3M (MMM) on August 17, 2010, to “underweight”. In my own account MMM was initially purchased at $43.64 on March 3, 2009, and still has a nice unrealized gain. Anthropomorphically, the stock has been a strong performer and appears to need to consolidate or ‘rest’. Having last sold a portion of MMM last at a 90% appreciation target, without any additional news my sale of MMM on the downside would be a decline to a 45% appreciation level (about $63.28).
Sysco (SYY) has had a difficult month as well. SYY opened the month (8/2) at $31.29 and closed on 8/27/10 at $28.05. Sysco reported 4th quarter earnings on August 19, 2010, and came in at $.53/share, below estimates of $.58/share. Sales for the quarter increased 5.8% to $9.6 billion, but in fiscal 2010 actually slipped 0.9%. Sysco remains one of my recession-resistant favorites and was highlighted in this article in terms of “Dividends for Depression Era Investing.“.
AT&T (T) is my dividend play and my own way of playing the Apple (AAPL) iPhone phenomenon. Probably keeping the AT&T stock price down is the ever-discussed belief that Verizon (VZ) will ‘soon be getting iPhone’. My AT&T shares had a fairly strong month, opening at $26.50 on August 2, 2010, and closing at $26.94 on the 27th of the month.
Finally, my TJX Companies (TJX) has grown a bit ‘tired’ as the phenomenal same store sales growth reported through much of 2009 and into 2010 has slowed to a more sustainable level. On August 17, 2010, TJX reported 2nd quarter results with earnings climbing from $.61/share to an adjusted $.73/share. Revenue increased from $4.75 billion to $5.07 billion. Earnings were slightly ahead of analyst’s expectations while overall revenue numbers lagged. The company boosted its own expectations guidance for earnings for the full year from a range of $3.24 to $3.33, to a new range of $3.28 to $3.38. As I noted above, TJX reported on August 8, 2010, same-store sales growth of 2% for its July results. TJX started the month at $41.93 on August 2nd, and closed on August 27th at $41.13.
Overall, my account remains 40% in cash. I cannot anticipate the upcoming month’s action, but the nearness of the election means that actions to restore economic growth will continue by the Administration while Republican obstruction to stimulus and spending will likely continue. If Republicans do succeed in November, I suspect that the efforts to stimulate the economy will be shelved and that the economy will dip harder before recovering mid-2011. My own actions will not be dictated by my own expectations but as always by the actions of my own holdings. However, my new additions remain dividend-oriented with emphasis on what I believe to be relatively recession-resistant areas of our economy.
