Stock Portfolio Updates: Rally Rolls On, Buy Dips
By: Christopher Mistal
February 11, 2021
Halfway through the month of February, DJIA, S&P 500 and NASDAQ have all managed to avoid typical February weakness. As of today’s close, DJIA is the laggard up 4.8%. S&P 500 is up 5.4% so far in February while NASDAQ has leapt 7.3%. Late January weakness did set the stage for the brisk rebound that quickly reclaimed lost ground. Nonetheless the rally that began in early November of last year continues to charge higher as interest rates remain low, stimulus flows and the Fed QE pumps liquidity into the system.
[DJIA Daily Bar chart]
[S&P 500 Daily Bar chart]
[NASDAQ Daily Bar chart]
In the above charts of DJIA, S&P 500 and NASDAQ, daily bars, 50- and 200-day moving averages along with monthly projected pivot points are plotted in the top pane with Stochastic, relative strength and MACD indicators plotted in the lower panes. Aside from the recent and brief bout of weakness in late January, the trend has been higher and technical indicators have remained positive, although somewhat extended. Momentum clearly favors the bulls. It is the “Best Months” of the year for stocks, vaccines are being distributed and estimates for earnings and growth are trending favorably.
There are a few areas for concern. New variants of the virus that cause Covid-19 are spreading and current vaccines appear to be less effective against the new variants. Unemployment is still elevated and promised stimulus still has not been delivered. Valuations in some areas of the market are also rather elevated. These headwinds could cause some market weakness, but it is likely to be brief as the force of the tailwinds driving the market now is far greater. Any market weakness in the near-term is likely to be an opportunity to add to existing positions or perhaps pick up some favorites at better prices.
Portfolio Updates
Over the last four weeks since last update through yesterday’s close, S&P 500 climbed 2.6% while Russell 2000 continued to surge higher gaining another 8.1%. During the same time period the entire portfolio climbed a respectable 4.1% higher excluding dividends and any fees. Overall portfolio performance was held in check by a sizable cash position.  The stock only portion of the portfolio was up 7%. Our Mid-cap stocks were responsible for a major portion of the overall portfolio’s advance, gaining 8.4%. Small-cap stocks rose 3.6% on average including the sizable cash balance held in that portfolio while our Large-cap portfolio lagged advancing just 1.4%.
Large-cap sluggish performance was primarily the result of weakness in defensive positions held. These positions are shaded grey in the portfolio and are a mix of dividend paying utilities, consumer staples and an MLP (Master Limited Partnership) from the energy sector. Not all of these positions were weak. Abbott Labs (ABT) advanced 11.7% since last update through yesterday’s close. ABT reported strong earnings and more importantly issued guidance for 2021 forecasting earnings per share growth of more than 35%. Brookfield Infrastructure Partners (BIP) is another defensive holding that continues to perform, up 35.9%.
Utility sector-based holdings in the Large-cap and Mid-cap portfolios have been the biggest laggards recently. Higher interest rates and tepid demand have weighed on the sector as a whole, but as we noted just last week, utilities seasonal strength typically begins in March after a seasonal low in late-February or early March. Like that ETF trade, we are also going to take advantage of recent weakness in utility stocks to add to existing positions ahead of seasonal strength. BKH, AEE, AEP, CMS, DTE, DUK, EXC and SO can all be considered near current levels or on dips. Please see table below for specific buy limit suggestions. For tracking purposes, we will be adding to these existing positions.
In addition to Utility sector stocks, JinkoSolar Holdings (JKS) is attractive at just below current levels and could be considered up to a buy limit of $64.50. Should JKS trade below its buy limit, we will officially add to the existing position. We have been long-term fans of solar power however, even after decades of development solar’s success still depends heavily on numerous factors outside their control ranging from political to the price of other energy sources. It appears many of these factors are now swinging in favor of solar.
Verizon (VZ) and AT&T (T) are two additional stocks that are attractive near current levels. Dividend yield from either company is quite appealing when compared to most any other interest bearing or dividend paying source. Earnings and revenues at both companies have been uninspiring but expanding 5G coverage and demand for streaming services could provide a lift. For tracking purposes, we will officially add to existing holdings should VZ or T trade below their respective buy limits. T could be considered under $28.95 while VZ could be purchased under $55.65.
Shifting focus to small-cap holdings, KB Home (KBH) and Avid Tech (AVID) both traded above double their original purchase prices during the past four weeks. In accordance with standard trading guidelines (found in the bottom of the portfolio table below), half of each position was closed out and the remaining half position is on Hold. JetBlue Airways (JBLU) is the next closest position to doubling. Should JBLU trade above $17.10, consider taking profits by selling half.
Please see table below for specific buy limits, stop losses and current advice for each position in the portfolio.
[Almanac Investor Stock Portfolio Table]