Why I sold Apple, Yum Brands and Qualcomm

Author: James Roberts

Covestor models: Fortune’s Most Admired, StockDiagnostics, Best Ideas

The turnover rate on this portfolio has accelerated. That is not a particular problem for me because the portfolio in this case is in my IRA, and does not have to list the buys and sells on a tax form.

One area of concern is that the portfolio does not have the ability to make same-day switches at this time. Accordingly, a stock that is sold can be replaced only after three trading days have elapsed.

On July 31, the model liquidated YUM Brands (YUM), Apple (AAPL), and Qualcomm (QCOM), while purchasing some American Express (AXP) with some cash that was already available in the account. Nevertheless, the net sales resulted in the portfolio ending the month with a 17% cash position.

The primary motivation for selling those particular stocks was that all had their earnings estimates reduced by some Wall Street analysts. I have added a new service to my arsenal of tools that alerts me on a weekly basis of positive and negative revisions of Wall Street analysts’ earnings estimates, coupled with sentiment indicators drawn from the performance of the stock in question relative to the market.

This service is a tool for me in managing the account, but it is just one of a dozen tools. Fortune Magazine is another of those tools. Not only does Fortune provide the annual list of “Most Admired” companies from which this portfolio is selected, but the magazine provides valuable insight into business, as well as specific content related to some of the companies in the portfolio.

Another valuable resource is the British publication The Economist. An article on the demand for Apple’s products in China made interesting reading for me today in The Economist.  Although the article was a net positive for Apple, the declining growth prospects of China also play a major role in the future of YUM Brands through its ownership of KFC outlets in China.

StockDiagnostics is another valuable resource in managing this portfolio. In fact, one of my models is named for the service. Another business publication that I enjoy reading is Forbes.  In addition to the magazine, I subscribe to the Forbes Special Situation Survey (FSSS).  “What gets you in, gets you out” is an aphorism that I try to live by in managing this portfolio.

If I get an idea from FSSS, I won’t let a negative earnings revision from an analyst cloud my conviction.  Most of the companies currently favored by FSSS are not among Fortune’s Most Admired companies, but their most recent new recommendation seemed appropriate for the model.  Incidentally, the editor of FSSS wrote a good book about Warren Buffett’s investment strategy:  Even Buffett isn’t Perfect.

While I don’t read the Wall Street Journal on a regular basis, I do read their competitor, Investor’s Business Daily. I like IBD better than the Journal because it is less general in focus and more directed to the needs of a full-time stock market investor. The distinction of IBD is the inclusion of relative strength data, plus proprietary ratings based on earnings and institutional accumulation and distribution.