I’d like to start by apologizing for not posting in a while. Due to a combination of work, life, laziness and a sinking market, I’ve found it hard to muster the energy to type up a new post. That of course is not a great excuse and I’d like to get back into posting regularly. Without further ado, let’s get down to business.
Since I last posted, the market has given us all a roller coaster of emotions. Volatility has been extremely high, with markets moving 1, 2 and sometimes even 3% in a single day. October was a rather brutal month, the S&P 500 fell over 10%. The question is, what should we do about it?
While watching your stocks fall is never fun, you have to take a step back and think rationally. Are your companies executing? That is ultimately what is important. A falling price allows a company to buy back shares at a discount, increasing your overall ownership. A falling market also provides a buying opportunity for you. I took advantage of this opportunity and bought shares of three strong companies.
LUV- Southwest Airlines is a leading low cost travel provider. By focusing on providing value to their customers, Southwest has emerged as a dominant player in their field. They simply offer the best value in the business and over time will continue to grow.
Googl- If there is one no brainer company, it is Google. They dominate the world of digital advertising. Online search is one of the highest margin businesses around and competitors can’t seem to steal market share no matter how hard they try. I simply needed to wait for a reasonable price. Thankfully, the market was gracious enough to present me with such an opening.
MSFT- I wasn’t always a believer in Microsoft during the Steve Ballmer era, but Satya Nadella has proven to be the real deal. Microsoft Azure is the fastest growing product in the cloud infrastructure arena. Microsoft is a free cash flow machine, paying a solid dividend and rapidly buying back shares. They are pushing all the right buttons and I’m happy to be an owner.
3rd Quarter Performance
Reminder I started with $10,000 and bench marked against the SPY at 285.06 which as of the closing on 11/13/18 stands at 272.34
%Return(1) SPY Return(2) Difference(1-2)
Portfolio value- $9,275.89 (7.25%) (4.65) (2.6)
So far pretty terrible, I clearly chose an awful time to start this portfolio and even worse my companies have under performed the benchmark. That being said, 1 quarter doesn’t tell a full story. To get a better idea let’s look into how the companies (not their stock prices) have performed this past quarter.
DG- Reported a great quarter. EPS growth of 40.7% YoY and bought back a significant amount of shares.
FB- Top line growth of 33% and remains debt free. Also bought back a significant amount of stock. DAU and MAU both increased, will be an interesting story to follow given all the adversity surrounding the company.
FND- Continues strong growth, adjusted EPS up 41.2% YoY. Opened 7 new stores during the quarter with plans to open many more.
GOOGL- Google put up another amazing quarter. The company is a behemoth, now sitting on over 100 Billion dollar of cash and cash equivalents. EPS grew over 36% YoY, never ceases to amaze.
HII- EPS grew a whopping 61% from 3.27 to 5.29. This high moat company keeps chugging along.
IPGP- Faced a tough quarter due to the macroeconomic environment. EPS fell 13% YoY. They did however acquire a smaller competitor, growing market share in the robotic welding division.
LEA- Eps grew 3% YoY. Not too wonderful, but the company was able to reduce the share count considerably.
LUV- Southwest produced a steady quarter. EPS was up 22%. The share count continues to fall while paying out a decent dividend.
MSFT- Crushing earning estimates, Microsoft grew EPS by 36%. Continues to be an absolute machine.
ODFL- While last alphabetically, Old Dominion was anything but last performance wise. EPS grew a tremendous 71% YoY, a simply remarkable amount.
Overall, I think their is a lot to be encouraged about with this group of companies. They continue to compound and business continues to improve. IPGP and Lear continue to show weakness, but I remain confident in the long term viability of both companies. All others reported very strong quarters. Although the portfolio has not done well this first quarter, remaining patient will pay off eventually. Remember what Ben Graham said all those years ago, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” It is going to take time for these companies to reach their intrinsic value, but I am happy to wait.
As always, thanks for reading! Questions are encouraged and feel free to comment how your portfolio has performed this past quarter. Remember to follow along on the side.