This is our monthly performance update and holdings review. We share the continuing strong performance of our three investment strategies, including the performance of every single position in each strategy. We also highlight several particularly attractive investment opportunities, right now. The theme of this report is that the valuations of growth stocks are starting to get scary expensive, whereas a bunch of attractive dividend stocks just sold-off and are now offering increasingly attractive investment prices.
To kick things off, here is a chart showing the “old-school” valuation metric of price-to-earnings ratio, across sectors, and things are looking relatively expensive across the board, with perhaps the exception of the high dividend sectors of Utilities and REITs (which both pulled back over the last month while the overall market sailed higher).
To add some additional numbers to the notion that the market is getting expensive (tech/growth stocks in particular), while REITs and Utilities (big dividend sectors) just sold off, here is a look at some performance data as of the end of November.
And as you can see in the 1-Month column of the above table, REITs and Utilities did not do well, while the technology sector soared higher and is not up a frightening 43.8% year-to-date. To put that in perspective, 43.8% would be a really good 5-year market return, but it’s a scary big number for 11-months.
And this general theme also played out across our three Blue Harbinger portfolios during the month. Specifically, our Income Via Growth strategy was up an eye-popping 8.18% for the month, while our Income Equity portfolio (which offer a 6% dividend yield) was down the small amount of 0.36%. And our Alternative Fixed Income portfolio, designed to have low market exposure (low beta) was up a healthy 3.42% (and it offers a 7.6% yield).
All data as of Friday close (30-Nov-2019). Source: StockRover. “Contenders List” included; access here.
A few noteworthy things about our individual portfolio holdings…
Skyworks (SWKS) and Nvidia (NVDA) are two very different semiconductor chipmakers that we own, and they were both up huge during November (8.0% and 7.7%, respectively, and after being up huge in October too (19.9% and 14.8%, respectively). These are growth stocks, and they are often volatile and momentum-driven (that’s why we own them in our Income Via Growth portfolio). We wrote a lot about these two stocks earlier this year after when they were trading lower, and we encouraged investors to consider buying from a “contrarian” standpoint. Nvidia makes high-end cutting-edge chips whereas Skyworks chips are more high-end commodities (if that makes any sense). Both businesses continue to have a huge long-term runway for growth. Skyworks from a “5G” perspective, and Nvidia from an innovation standpoint (and there will be a lot of innovation as smart data technology continues to grow). We have no intention of selling either one at this point, but know that they will continue to be volatile and momentum-driven as the share prices climb higher (perhaps much, much, higher) in the years ahead.
GrubHub (GRUB) and Zillow (ZG) are two extremely different companies, but they were both up huge in November for largely the same reason: Big rebounds following the market’s overreaction to slightly negative earnings announcements (they’re both growth stocks too, and growth stocks did well indiscriminately). These two are also in our Income Via Growth strategy and require discipline and patience considering volatility is very high as the market comes to grip with the attractive long-term growth strategies.
Real Estate Investment Trusts (REITs) got slammed indiscriminately across the board, and this is creating an increasingly attractive buying opportunity for income-focused investors. Part of the reason they got slammed is because the Fed has been adjusting its future interest rate language and posture. Because REITs are required to pay out most of their income as dividends for tax purposes, they rely heavily on the capital markets to fund their businesses, and as rates rise it gets more expensive for REITs to operate. However, keep in mind that interest rates remain unusually low by historical standards (a good thing for REITs) and rates are unlikely to go much higher from here considering the US is still relatively quite high relative to the rest of the world. And also considering rates cannot go too much higher from here simple because it would become too expensive or the US government to fund its own debts. We plan to write in much more detail about REITs this upcoming week, but REITs that we considering particularly attractive right now include:
Monmouth (MNR) 4.4% Yield
EPR Properties (EPR) 6.3% Yield
Brookfield Property REIT (BPR) 6.9% Yield
WP Carey REIT (WPC) 4.9%
Healthpeak (PEAK) 4.2% Yield
Simon Property Group (SPG) 5.6% Yield
Welltower (WELL) 4.1% Yield
The Bottom Line:
Just as we were positive on Nvidia and Skyworks at the beginning of the year (when they were out of favor, and just before they put up huge returns this year), we are increasingly bullish on select big-dividend REITs right now. These REITs won’t have the same level of volatility as growthy chip stocks, but they will keep paying big growing dividends and experiencing increasing share price appreciation over the long-term. Things could still get worse before they get better, but as long as they keep paying those healthy dividends the ups and downs become more tolerable (and we expect a lot more ups than downs over the long-term). But most importantly, remember it’s your money and your investments. Don’t ever lose sight of your goals. Don’t panic, and don’t fall victim to the market’s hollow narratives. Prudently-diversified, goal-focused, long-term investing has proven to be a winning strategy over and over again throughout history.