A good year for the stock market

by admin on December 10, 2013

The Dividend Paying Large Caps portfolio was up 3.63% in November as compared with the 2.8% gain for the benchmark S&P 500 Index (SXP). The portfolio outperformed against the market in November, due to the following positions:

Sprint (S) +24.67%

The stock increase was due to three factors:

  1. Recent announcement that Sprint will leverage its industry leading spectrum position to deliver unmatched network speeds. The carrier intends to leverage its 2.5 GHz spectrum portfolio (120+ MHz) and various technologies (8T8R, MIMO, carrier aggregation, TDD) to deliver industry leading data speeds. In addition to having the most spectrum for LTE, Sprint also has the largest holdings of high frequency spectrum.
  2. Large infusion of cash from Softbank, which acquired 72% of Sprint (S) shares in July. All this cash has been used to accelerate Sprint’s plans to upgrade their network and take advantage of their current spectrum and technology.
  3. Sprint plans to move HQ to California. SoftBank has been trying to move some Japanese executives to the US to help with the Sprint transition, and California is an easier commute for domestic execs than Kansas. SoftBank and Sprint are also planning to open an R&D center in Silicon Valley, employing up to 1,000 workers.

Apple (AAPL) +6.38%

For the majority of this year Apple (AAPL) stock has been in free fall, despite that, Apple has introduced new devices and started paying dividends to stakeholders. I decreased my position in APPL last month because I believe Apple is currently facing too much competition, and phone and tablets prices will start to fall, which will impact Apple margins. I also don’t like the massive “Spaceship” headquarters Apple is planning on building as I believe the cost of this project will be high. The only reason I still own any Apple stock is that the valuation is low PE 14.26 as compared with other tech companies, it pays good dividends, and the Apple TV could be launched at any point (I’m still a believer).

JP Morgan (JPM) +11.02%

The main reason that the stock was up is that on November 18th, the Justice Department and JPMorgan Chase & Co. reached an agreement on a $13 billion settlement for a civil inquiry into the company’s sales of low-quality mortgage-backed securities that collapsed in value during the financial crisis. I decreased my position in JP Morgan as well in November because I believe these and other issues posed by the financial crisis will continue to haunt JPM, making the price a little volatile. I decided not to close JPM because I like the dividend that the stock is paying (2.66%), and the low valuation it currently has at 12.96 PE ratio.

In November, the only stock that went down in my portfolio was Ecopetrol (EC) -13.79%. The stock took a big hit this month due to the presidential elections in Colombia. The government controls 88.5% of Ecopetrol, so any changes to the political environment in the country can impact the performance of the stock. The other outside force impacting the stock’s performance was a bombing attack by leftist guerillas on Cano Limon-Covenas, one of Ecopetrol’s most important oil pipelines. The attack forced the temporary closure of the 780-km (484 mile) pipeline. Despite the bad news of November, I will continue to have Ecopetrol in my portfolio in 2014 because the company is paying the highest dividend among my stocks (6.7%) and they are investing heavily in increasing the production over the next few years.

My portfolio is up 23.07% for the year, as compared to the S&P 500, which is up 25.87%. Since inception (01/19/12), the model is up 35.3%, versus the S&P 500 43%. This year the performance of my portfolio could have been better, but I had a large position in Apple that for the most part underperformed the incredible rise of the S&P 500.

In November, I closed two positions in my portfolio, Banco Macro Argentina (BMA), and Petrobras (PBR), and reduced my positions in Apple (AAPL) and JP Morgan (JPM). Ironically, both Apple (AAPL) and JP Morgan (JPM) had a stellar performance in November that helped my portfolio finish 0.8% ahead of the S&P 500.

My goal for 2014 is to concentrate my portfolio on 12 value stocks. I the performance of the stock market this year was extraordinary, but it isn’t something I think we will see again in 2014. It is true that the economy is in much better shape, but it is also true that stocks are now a lot more expensive than they were in 2012.

I wish you all happy holidays, and a prosperous year of investments in 2014.

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