Volatility truly is a friend. Major indexes made some pretty insane moves not to mention individual stocks. Some say that the market is efficient and brutally honest with valuations. That may be true for most of the time but today there were absolutely insane, albeit brief, valuations for some companies. Look at NYSE:JNJ for example. Todays range was 81,79 – 95,21 USD dollars (market was still open when writing this). This for a company that is more stable than majority of the world’s nations.
All this volatility triggered some actions on my part. On August 18th I sold my BBL position for 35,43 USD per share and bought it back for 34,71 USD per share a day later. On August 21st I sold my Fortum position (160 shares) for 14,76 EUR per share and on August 22nd I bought 175 shares back for 14,45 EUR per share. These actions were triggered by emotional panic, taxes played no part on it if you know what I mean.
On August 24th I bought 220 shares of TeliaSonera AB for 4,71 EUR per share, 75 additional shares of Fortum for 13,99 EUR per share and 12 shares of Johnson & Johnson for 92,36 USD per share. That’s unusual amount of activity for such a short period of time. The slide might continue or it might not. Despite the worries in economy, I consider these valuations to be very fair. Next month I hope to add on BBL. Yes, the cyclical ones are taking a beating and that might even continue but eventually fear will pass and greed shall prevail.
This turned out to be yet another red day pretty much everywhere. Volatility is a friend though so I went ahead and bought another 12 shares of Deere & Co (NYSE:DE) for 83,25 USD per share. This puts the yield at 2.88% together with a low payout ratio which provides decent margin of safety on the dividend department. For me the short term guidance doesn’t mean that much as the long term fundamentals are still there. This is a cyclical company operating in a sector which might never be fashionable but I actually prefer (some of) my stocks dull. Eventually they will benefit from major trends such as growing population and increasing demand for efficient food production. This is my second purchase which I was originally planning to do quite some time ago when the share price was around 81 dollars. At the time I didn’t have enough cash to deploy and the price soon started climbing but better late than never. Next purchase will hopefully be done during Q1/2016 but it’s obviously depending on the valuation at the time.
Speaking of cyclical, BBL is starting to look interesting as well. There are some risks involved and it’s very difficult to come up with a solid vision on how the situation in China and world economy will play out during the next months or even years. Long term fundamentals are there but if we are looking into a lengthy bear market and slowing economy, they might not be able to sustain their current dividend or at least it might prove to be difficult.
There was a significant hole in my portfolio which has been waiting to be filled up. Some are expecting a major market correction and the economy is in shaky grounds in many markets. To me it sounds like perfect time to start a position in alcohol sector. Gotta love the vice stocks – there aren’t many better businesses than legalised drugs. So I went ahead and started a position in Diageo (NYSE:DEO) with a purchase of 20 shares for 113,76 USD per share.
Alcohol is a sector which is heavily consolidated for few major players. Diageo is one of the big dogs controlling brands such as Guinness, Smirnoff, Bayley’s, Johnnie Walker and bunch of local brands. They are a global company operating in every geographical region. Together with major trends such as increasing population and middle class, it should provide a natural growth drivers for the years to come. Currently they are paying a dividend in the neighbourhood of 3,45 USD (being a UK based company they report in GBP so the USD dividend depends on the exchange at the time of the payment) which translates to a yield of 3%. That’s quite normal and appears to be sustainable as the payout ratio is below 55%.
At the time purchase the share price was down because of this: http://finance.yahoo.com/news/gpm-announces-investigation-diageo-plc-173200402.html. In long term I view such hiccups, whether or not they are true, as random noise.
After closing position on Baxter International and Baxalta Incorporated, it was time to reallocate those funds. I was playing around with the idea of opening a new position either on Caterpillar or Diageo Plc but decided to finally add on existing positions on AT&T and Aflac Inc. There would have been better valuations for both of these during the past 6 months or so but it doesn’t matter much for the long term.
On August 4th I bought 43 shares of AT&T (NYSE:T) for 34,67 USD per share and 23 shares of Aflac Inc. (NYSE:AFL) for 64,09 per share. For AT&T this translates to a yield of 5,4% and for Aflac Inc. roughly 2,4%.
In my strategy I’ve ruled selling stocks as a mistake done in the past. It’s time to kick myself since today I decided to close my position on Baxter International (NYSE:BAX) and Baxalta Inc. (NYSE:BXLT). This wasn’t an easy decision to make taking into account my general rule about selling. It was however motivated by two factors: slightly unexpected dividend policy going forward and the take-out offer Shire Plc (NASDAQ:SHPG) made for Baxalta today. These two provided what I consider a decent exit point when keeping in mind that my cost basis wasn’t particularly cheap.
In summary: sold 35 shares of Baxter International for 40,91 USD per share and 35 shares of Baxalta Incorporated for 38,25 USD per share. Original cost basis for Baxter position (Baxalta being a recent Baxter spin-off) was 71,57 USD per share which translates into a modest profit of 265 USD not including the dividends received during the ownership.
Links: Shire Plc Offer @ Wall Street Journal