Author: Robert Freedland
Covestor model: Buy and Hold Value
Disclosure: Long CHD, CL, MCD, MDT, SYY, T, TJX
The month of January did not produce any trades for the Buy and Hold model.
Reviewing some of the news affecting the holdings, Church & Dwight (CHD) traded in a narrow range during the month and did not release any news that appeared to change my overall impression of this investment.
Colgate Palmolive (CL) traded weaker during the month of January, 2011. During the month, Colgate reported disappointing sales figures for the prior quarter, with sales dipping 2.5% to $3.98 billion, under the expected $4.06 billion. Earnings similarly disappointed at $1.21/share, under the $1.23/share expected by analysts. While the brand and the products are quite impressive, this report led me to place Colgate on a close watch as I considered moving these funds into something more promising for the short-term. (Earnings data: http://www.foxbusiness.com/markets/2011/01/27/colgate-palmolive-q-profit-slides-revenue-misses-views/)
The recession, economic weakness and pressure on margins brought about by food price inflation began to wear on the previously stellar performance of my Golden Arches favorite, McDonald’s (MCD). Unlike Colgate, which actually saw a contraction in sales, McDonald’s (MCD) reported 4th quarter results which showed a 4% increase in revenue to $6.21 billion, which came in slightly below analysts’ expectations of $6.22 billion. Similarly, earnings increased 1.6% to $1.16/share or adjusted earnings of $1.15/share – also just under analysts’ expectations of $1.16. Since the company, which disappointed slightly, is still growing, I remain cautious on the stock but not as concerned as I am from the reports from Colgate, as noted above. (Earnings data: https://www.thestreet.com/_yahoo/story/10982672/1/mcdonalds-grows-profits-misses-on-sales.html)
Medtronic (MDT) finished 2010 at $37.09 and finished January, 2011 at $38.22 – a nice gain for the month. (Data: http://yhoo.it/flInp4). During the month Medtronic (MDT) was featured in several articles like this one which described Medtronic as a “high quality” stock deserving of ownership (Vitaliy Katsenelson, “Why Now’s the Time to Own High Quality Stocks Like Pfizer, Medtronic” Minyanville 1/26/11). I agree and feel the stock has a nice place at this time in this model.
Sysco (SYY) appeared to be holding out against the pressures that food price inflation are causing for McDonald’s. On January 12, 2011, an article on Forbes.com accurately observed the challenge of being a food supplier to restaurants undergoing price inflation in a recessionary environment that didn’t allow for much ‘passing on’ of costs to customers. (“Rising Food Costs Could Threaten Sysco’s Rebound” YCharts, Forbes.com, 1/12/11)
During the month, AT&T (T) reported 4th quarter results which demonstrated growth in revenue, but showed a 60% decline in net income (http://www.bizjournals.com/sanantonio/news/2011/01/27/att-posts-60-percent-drop-in-4q-net.html). In addition, in the midst of dealing with the loss of the exclusive Apple (AAPL) iPhone representative to Verizon (VZ), the company reduced guidance for the rest of this year to approximately $2.33, under the $2.50 estimates held by analysts. (https://www.bloomberg.com/news/2011-01-27/at-t-profit-tops-estimates-on-iphone-in-final-exclusive-quarter.html) With this earnings shortfall and reduced guidance, I grew uncomfortable with just ‘buying and holding’ this stock over the short-term, although like Colgate (CL) the distant future remained bright.
TJX Companies (TJX) had a good month for the model. Early in the month, TJX reported 2% December same-store sales growth and raised guidance for the 4th quarter ). This reported 2% figure widely exceeded analysts’ expectations for a fall of 2.5% in same-store sales and this ‘beat’ moved the stock higher for the month https://www.reuters.com/article/usa-retail-sales/factbox-big-hits-and-misses-from-us-december-retail-sales-idUSN068252220110106).
The month of January was a soft month for this portfolio with the stalwarts like Colgate (CL), and AT&T (T) experiencing difficulties in their market. Sysco (SYY) also was under pressure with food price inflation challenging its results along with fast-food king McDonald’s (MCD) (http://www.csmonitor.com/Business/The-Reformed-Broker/2010/1108/Food-price-inflation-isn-t-theoretical-anymore). TJX and Medtronic, as well as Church & Dwight appeared to be maintaining their business momentum.
I began February with these concerns for the model in mind as I looked hard at whether it was time to juggle the holdings a little and find new opportunities for long-term value.
