John Linnemeier is the author of How an Average Man Lived an Adventurous Life, which details his life travels through more than 125 countries. He also manages Covestor’s Opportunistic and Adventurous model which places an emphasis on high-tech, Asian ADRs and beaten-down stocks.
John recently bought Dillard’s (NYSE: DDS), the apparel and home furnishing retailer, and sold Illumina (NASDAQ: ILMN), a developer and manufacturer of life science tools for genetic analysis. We asked him to share his reasons for these transactions. His response follows.
***
Here’s my reasoning:
ILMN: As I believe I’ve made it clear earlier, the overall strategy for this portfolio is to let the winners run and cut losses short. I still like ILMN, but the market disagrees with me, so I’ve sold it. I’ve been using a new exit strategy which I will discuss at greater length in my monthly commentary. Without going into too much detail, let’s just say that as a result of ILMN’s “stock personality” I assigned it a “5×28”: When the 5-day moving average crossed the 28-day moving average, it triggered an automatic sell in my system.
In the ILMN chart below, the 5-day moving average is the blue line, while the 28-day moving average is in red:
DDS: There are several things I like about Dillard’s. First, it’s one of only 100 stocks to receive a Value Line ranking of 1, indicating that Value Line believes it will be among the best performers in its universe in the next 6-12 months. The stock price is on a strong uptrend over the past year.
Surprisingly for a stock with this much momentum, it’s trading at a more than reasonable P/E of 16.51 and a forward P/E of 12.77 (as of 5/31, via Yahoo Finance). With its moderate amount of volatility I’ve assigned it a “5×29”: so long as the 5-day moving average stays above the 29-day moving average, I’ll stick with it.
In the DDS chart below, the 5-day moving average is the blue line, while the 29-day moving average is in red:
Sources:
“Value Line’s Ranking System Performance” Value Line. http://www.valueline.com/About/Ranking_System.aspx
DDS share price performance from Google Finance, https://www.google.com/finance
DDS trailing and forward P/E from Yahoo Finance, http://finance.yahoo.com
Stock charts as of 5/31 from Stockcharts.com
