Portfolio Updates: October Stock Basket Delivers
By: Christopher Mistal
November 12, 2015
Since the late September bottom, and shortly thereafter our Seasonal MACD Buy Signal on October 5, the market had vaulted higher. DJIA, S&P 500 and NASDAQ all reclaimed their respective 50- and 200-day moving averages. Today’s declines put DJIA and S&P 500 back below their 200-day moving averages (solid red line in charts below). NASDAQ remains around 1% above its 200-day moving average. Stochastic, relative strength and MACD indicators have all plunged in the past few trading sessions, confirming the loss of upward momentum.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
After a brief respite, the usual suspects of headwinds have reemerged. Greece and Puerto Rico are back in the headlines accompanied by the Fed’s desire to raise rates which in turn triggered the dollar to strengthen anew and commodities to stumble again. It still remains to be seen if the Fed will actually raise rates at its December meeting. They have raised rates in past Decembers and even in past election years, but those rate increases were accompanied by firmer growth and inflation, both of which appear to be lacking this time around. The headline unemployment number, currently at 5%, also does not convey the true state of the labor market where the participation rate has sunk to its lowest level in nearly four decades. 
Whether or not the Fed actual has to raise rates is still an open discussion, but if they did, it would remove one large uncertainty that has held the market in check for the better part of a year. At which point, it would not be surprising to see the market make another run at record highs sometime in Q1 or early Q2 2016.   
Stock Portfolio Updates
Since last update on October 22, the Stock Portfolio has gained 0.9% while the S&P 500 and Russell 2000 have climbed 2.8% and 2.9%, respectively, as of yesterday’s close. This performance is respectable considering the sizable cash position that still remains in the portfolio. Our Stock Portfolio produced gains across all three market cap ranges. Large-cap stocks were best up 3.2% while small-caps crept 0.6% higher and mid-caps edged 0.4%.
Of the sixteen new stock ideas presented on October 13 all but Walker & Dunlop (WD) and Scotts Miracle Grow (SMG) have been added to the portfolio. WD and SMG can still be considered on dips below their respective buy limits. Merit Medical (MMSI) was added to the portfolio early in the trading session on October 23 at $22.40 and was stopped out the same day when it closed below $19.04. The wild ride was apparently due to softer than expected earnings. Revenues were up 6% compared to year-ago, but were shy of expectations and the bottom line was also disappointing as lower margins and higher spending took a bit out of profits.
Other stocks in the basket had better earnings to report. Douglas Dynamics (PLOW), LGI Homes (LGIH), D R Horton (DHI), Hanesbrands (HBI) and Tractor Supply (TSCO) all reported positive, market-moving earnings. Some of the initial gains have been given back as broad market weakness dampens traders’ and investors’ spirits. Northern Trust (NTRS) and Team Health (TMH) are the two top performers of the basket thus far, up 12.4% and 12.5% respectively. 
Competing analysts’ views and broader retail sector weakness combined to knock Gildan Activewear (GIL) down to a 52-week low that was several dollars below its stop loss. As a result, GIL was stopped out on October 23 for a 29.5% return.
Recent research suggesting a tepid November is being confirmed by the market this week. Following this year’s big October gain early November strength has faded and the market is likely to stumble along into December. Pre-election Novembers are also historically weak. With this in mind, the majority of positions in the portfolio are on hold for now. The market may provide a more attractive buying opportunity in coming weeks.
See table below for specific stock advice as well as updated stop losses.
[Almanac Investor Stock Portfolio – November 11, 2015 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in CALM, CCS, CNC, CVS, DHI, HBI, LGIH, MMSI, NTRS, PLOW, SUN, TMH, TSCO AND VSR.