Stock Portfolio & Free Lunch Updates: Awaiting A Dip and Looking for Exit
By: Christopher Mistal
February 08, 2024
February has gotten off to a solid start and the market continues to track seasonal patterns quite well. As of today’s close, NASDAQ is up 4.15% thus far this month. S&P 500 and Russell 1000 are not far behind, up 3.14% and 3.15% respectively. And with today’s gain, Russell 2000 is no longer the laggard, up 1.66% versus DJIA’s 1.51% advance. At this point in February the market is comfortably above its average performance in February over the last 21 years and may have pulled some of the typical mid-February strength ahead.
[February Seasonal Chart]
Looking at the above February seasonal pattern chart, the second half of the month has historically been weaker. Potential reasons for this weakness include vacations around Presidents’ Day, a winding down of earnings season, and consolidation of gains following the best three months, November through January. In election years, this weak period can extend into mid-March.
[S&P 500 Election Year Seasonal Pattern Chart]
This usually mild (and healthy) retreat (around 4% on average by S&P 500) from mid-February to mid-March in election years with a sitting president running for reelection could be a good opportunity to establish new or add to existing positions as each seasonal pattern in play this year in the above chart suggests respectable full-year gains. The “Open Field” pattern above is not in play this year and is for comparison only as there currently is a sitting president running.
Free Lunch Update
With mid-February quickly approaching Free Lunch stocks continue to struggle. NRT, ZTO, and LGO were all stopped out on January 16 when they closed below their respective stop losses. Of the original 13 positions, just five remain with an average gain of 7.4%. The entire basket’s performance, which includes closed positions, as of February 7 close was basically unchanged, off –0.02% since mid-December excluding any dividends and trading fees compared to a 3.6% gain by NYSE Comp and 6.4% by NASDAQ Comp over the same period. This lackluster performance reinforces the point that Free Lunch stocks should be actively traded and not just bought and held.
We are going to officially pull the plug on the Free Lunch stocks. Sell HSY, ASYS, IEP, QIPT, and TH. For tracking purposes these positions will be closed out using their average prices on February 9.
Stock Portfolio Updates
Over the past four weeks through yesterday’s close (February 7), S&P 500 climbed 4.4% higher while Russell 2000 retreated 1.0%. Over the same period the entire stock portfolio advanced 5.8% excluding dividends, any interest on cash and any trading fees. Mid-caps were responsible for the bulk of overall portfolio gain, up 18.8%. Large caps were second best, advancing 5.2%. Small caps were the only drag, down 5.6%.
Although technically no longer a mid-cap, Super Micro Computer (SMCI) was the hands down star over the last four weeks slightly more than doubling in price in that time. From our original entry price through its close on February 7, SMCI was up 734.4%. When our standard policy rule of selling half when a position first doubles is applied, SMCI had a net gain of 417.2%. Stellar earnings and blowout revenue guidance were the primary catalysts for the move higher. SMCI is on Hold. Shares have come a long way in a brief amount of time and momentum does appear to be slowing. There will likely be a better opportunity to add to an existing position or establish a new position down the road.
Other notable bright spots in the portfolio over the last few weeks include Reliance Steel & Aluminum (RS) and nVent Electric (NVT). RS was at a new 52-week high on February 7 and up 50.5% since addition to the portfolio. RS is expected to report earnings on February 15. Expectations are somewhat low, making for what should be an easy bar for RS to clear. NVT also made a new 52-week high, but on February 6 and was up slightly more than 13% since the last update. RS and NVT can be considered on dips.
At the opposite end of the performance spectrum, two positions were stopped out. Small-cap Daktronics (DAKT) was first on January 22. DAKT had a banner year last year, but that run appears to have ended in November of last year. Shares have struggled since that November pop and appear to still be searching for support. Mid-cap Thermon Group (THR) was the other position stopped out. Earnings were essentially in line with estimates, but it appears there was some uncertainty about future earnings that sparked the brisk selloff.
Excluding Free Lunch stocks, SMCI, and AT&T, all other positions in the portfolio can be considered on dips below their respective suggested buy limits. Should some broad market weakness materialize in late-February or early-March, it could be the opportunity to establish new or add to existing stock positions.
[Almanac Investor Stock Portfolio – February 7, 2024 Closes]