Author: James Roberts
Covestor models: Fortune’s Most Admired, StockDiagnostics, Best Ideas
An investor whose opinion I respect asked me on June 10th whether I “sold in May and went away”? The answer is that I did go away and did sell some of the holdings in each account. My StockDiagnostics model that I’ll highlight this month sold three stocks and added one.
Dollar General (DG) was the one stock purchased. The reason that DG was selected is that when I was on vacation for a week in Sandestin, Florida in May, I stopped by a Dollar General store and found out that they were moving down the street to add significantly more square feet and escape a clause in their lease that limited the number of coolers they could have in their current location.
The limitation on refrigerated displays was inconvenient because DG is adding more food items that require cooling throughout their store base, which consists of more outlets than any other discount retailer in America.
I was in the Dollar General Store in Celina, Tennessee twice in the first week of June, and experienced moderate lines at the checkout counter on both occasions. Incidentally, the lady in front of me one day had purchases totaling $120.00. My purchases consisted of a spiral notebook, Clorox cleaner, a paint brush, and a year’s supply of D-Con totaling around $12. Hers included five denim shirts.
On June 5th, DG announced that it sold 30 million shares for selling stockholders at $46.75, allowing underwriters an option to purchase 4.5 million additional shares. Based on subsequent price action the offering must have fared well. Dollar General was purchased by a private equity group a couple of years ago whose management input has helped produce excellent earnings comparisons. KKR & Co. (KKR) was among the managing underwriters.
The StockDiagnostics model is currently 13.4% in cash after the DG purchase. The stocks that were sold off were Autozone (AZO) and O’Reilly Auto Parts (ORLY), both in the retail and professional auto parts sector. I sold them because of the lackluster earnings guidance offered by competitor, Advance Auto Parts (AAP). The other stock sold in the account was United Health (UNH). In an uncertain market, the sector specific uncertainty surrounding the upcoming Supreme Court decision on Obama Care was enough to push me to the sell decision.
