November Stock Basket & Stock Portfolio Update: Cash Back to Work By: Christopher Mistal | November 10, 2022 | Email | Print

Evidence had been building that year-over-year CPI likely peaked in June of this year at 9.1% even before today’s CPI release. Energy and numerous commodity prices had eased from their peaks earlier in the year, housing and rents have been slowing, and prices for many items at the local market seemed to be plateauing. The lighter than anticipated headline CPI, 7.7% reported versus 7.9% forecast, was exactly what the market has been looking for and DJIA, S&P 500, NASDAQ and Russell 2000 responded with their best daily moves in over two years.

 

Headline inflation essentially took a rocket ride higher and is now in the process of drifting lower like a feather. Today’s reading is encouraging, but inflation is still running well above the Fed’s official target of 2% and it will likely take much longer to retreat to around the 2% level than it did to rise to it peak. Inflation’s current drift lower is likely to have a few bumps higher which are likely to keep the Fed and the market on edge. We do maintain our bullish outlook for the “Best Months” and the “Sweet Spot” of the four-year cycle but do anticipate volatile trading along the way.

 

 

Today we present a second basket of stocks for your consideration. This basket was compiled with a focus on mid-cap and large-cap stocks as the October basket was mostly small-caps. For us any company with a market value of $50 million to $1 billion is a small-cap. Mid-caps fall in a range from $1 billion to $5 billion. Any market value exceeding $5 billion is a large-cap. Generally, the larger the company’s valuation the less volatile it tends to trade as there is normally broader analyst coverage and thus typically fewer surprises.

 

We will look to add these 16 stocks, in the table below, near current levels or on minor dips. Many of the positions did jump today and could just as quickly retreat or consolidate tomorrow. We will allocate a hypothetical $3000 from the cash position in the Stock Portfolio to each mid-cap position and a hypothetical $4000 to each large-cap position. For tracking purposes, all sixteen will be added to the portfolio using their average trading price tomorrow, November 11.

 

Following in the tradition of the last stock basket, for each company we have provided the ticker, name, sector, general business description, PE, price-to-sales ratio, market value and a suggested buy limit and stop loss. We arrived at this basket using similar selection criteria to the October Stock Basket. 

 

At the end of the screening process this time around, we were left with a reasonably diversified basket of companies. Aside from additional energy sector exposure, there is a handful of technology companies, semiconductors, metals, and healthcare. 

 

 

 

Over the last four weeks since last update through yesterday’s close, S&P 500 advanced 4.8% while Russell 2000 climbed 4.3%. Over the same period the entire stock portfolio was 1.4% higher, excluding dividends and any fees. Overall performance was restrained by the sizable balance of cash in the portfolio even after adding the eleven new positions from October’s Stock Basket.

 

Energy’s recent weakness was also a drag on performance as many of the new additions retreated from recent highs. We see energy’s recent weakness as temporary. OPEC is curtailing supply, China’s Covid-19 lockdowns are most likely going to be a short-term hit to demand while the weakening U.S. dollar is likely to support energy prices. Warmer than usual weather here in the Northeast also appears to be coming to an end with more seasonal temperatures arriving soon. And regardless of the eventual outcome of midterm elections, the current administration is not likely to reverse course on its aggressive support for renewables. All these factors appear to support continued supply constraints while demand remains reasonably firm.

 

New small-cap positions have performed respectably over the last four weeks, up on average 4.3%. NACCO Industries (NC) was initially positive but appears to have succumbed to some portfolio taking and it currently is the poorest performing position in the Small-Cap portfolio. NC did bounce back today, gaining 6.24%. W&T Offshore (WTI) was also down at the start of trading today but finished with a 4.10% gain. Quest Resource Holding (QRHC) was the top performing new small cap at the start of the day, up 11.6%. However, QRHC was one of only two positions to decline modestly today.

 

New mid-cap positions are a mixed bag. At today’s close, Comstock Resources (CRK) and Permian Resources (PR) are positive while CONSOL Energy (CEIX) lags, down around 10% since addition. CEIX can be considered at current levels while CRK and PR can still be considered on dips below their buy limits.

 

Even prior to today, AT&T (T) had finally found some support and was trending higher. The catalyst for the rebound appears to have been better than expected Q3 results which would seem to signal that management may finally be turning the company around. Continue to Hold T. 

 

Positions in the today’s stock basket will be added to the portfolio table in the next update. All positions from the October Basket and today’s basket can be considered on dips or at current levels.