Introduction to the Portfolio Plan
I work within a framework of study and decision making for investing. You need to have a plan, philosophy, and a certain mindset. Your investing philosophy and mindset then meets with your priorities and your plan is now in place.
Philosophy = generally conservative long term income and dividend growth investing.
Mindset = patient research and study open to value investing and capital appreciation in short term.
Plan = Equity plan for 3% yield or higher within low risk high ranking organizations.
Re-balancing the portfolio can sometimes be an ongoing process as new opportunities present themselves. This week's exercise illustrates the screening process for developing the watch list and defining those equities that warrant further investigation. And finally, the consideration for portfolio balance in the decision process.
After reading a number of sources for investing and company research, i.e. Seeking Alpha, Morningstar, S & P, Stock Advisors, and Zack's, daily notes are translated into a weekly watch list for further study.
Here is this week's study using a stock screener and the variables used:
- Dividend Yield
- Performance vs. Industry (last 12 months)
- Cash Flow per Share
- 5 Year Dividend Growth Rate
- Analyst Ratings
Nine investing ideas resulted from the screen; Applied Materials (NASDAQ:AMAT), Helmerich & Payne (NYSE:HP), Johnson & Johnson (NYSE:JNJ), Ryder System (NYSE:R), Sanofi ADS (NYSE:SNY), Texas Instruments (NASDAQ:TXN), UGI Corp (NYSE:UGI), Wynn Resorts (NASDAQ:WYNN), and Xillinx, Inc (NASDAQ:XLNX).
Valero (NYSE:VLO) which is already in my portfolio was removed. And, AMAT and JNJ are also currently in my portfolio and not considered for adding to my positions. For the purposes of this screen I also eliminated the Oil and Gas MLP and LP organizations.
After the raw numbers are reviewed, the top performers in each of the variables are noted (see below). If we stay with our basic equity income and dividend investment philosophy, the first four choices would be those paying 3.0% yield - HP, SNY, WYNN, TXN.
A brief summary of each company business model describing the core business brings added forethought to their position in the portfolio going forward.
Helmerich & Payne Inc. is engaged in contract drilling of oil and gas wells for others. The company's contract drilling business is composed of three reportable business segments: US Land, Offshore and International Land. I am particularly interesting in oil and gas, and will expect continued growth in the segment particularly with the current projections for natural gas opportunities. And, we want to stay in front of this development as we keep an eye on oil and gas prices.
Sanofi SA, formerly Sanofi-Aventis, is a global and diversified healthcare company based in France. The company discovers, develops, and distributes therapeutic solutions focused on patients needs. As I have a career in health care the potential in the pharmaceutical industry in particular with the research, development, and clinical testing of advancing sciences in genetic and biological medicine is a clear winning formula in the future.
Texas Instruments Inc. designs and makes semiconductors that the company sells to electronics designers and manufacturers all over the world. The company has four segments: Analog, Embedded Processing, Wireless and Other. More on this later, but we understand the opportunity for growth in information technology and the demand for smaller and faster processing.
Wynn Resorts Limited is a developer, owner and operator of destination casino resorts. A handful of companies in the gaming category are starting to comeback with the economy slowly. Wynn in particular with the great exposure in the Asian area would be a good choice to consider for future position in the portfolio.
Each of these, in my thinking this week, is well deserving to remain in contention for investment, and will remain on my watch list.
And often from my research I use the value approach (i.e. position within industry, industry position within the current economy, opportunity for capital appreciation and current price performance).
Finally, where does my portfolio percentage currently stand within each investing or industry category. As a result during this quarter, my current portfolio would benefit from adding a percentage of investment in IT (information technology), and is currently over-weighted in Oil and Gas, and Consumer. IT is currently weighted at 4% of the portfolio while Consumer and Oil and Gas are weighted 12% and 11% respectively.
So the focus for this investment cycle is Texas Instruments, based on the stock screening criteria and value to the investment goals and portfolio. And I am intrigued enough by Xillinx, Inc (company designs, develops and markets programmable platforms) that further consideration is also given.
As a result then the likely candidates to be added to my portfolio are Texas Instruments and Xillinx. I must admit that I have very limited background or experience with information technology so I must depend on the opinions of others in my information and research. Sometimes those gut feeling factors will come into play.
Texas Instruments is a worldwide leader and has a 17% market share in the growing analog market. Texas Instruments has been able to capitalize not only on the commodity of analog but also accommodate the specific applications of their customers with faster processing. Gross margins of over 50% are expected and will produce greater cash flow and shareholder value. And, not everyone can say this, but I like the idea of investing in a Texas company (living in Texas).
Xillinx is projected to see significant percentage growth in their leading edge manufacturing and continued innovation which will produce projected gross margins above 65%.
TXN provides a higher yield within the portfolio goal range and better cash flow per share percentage. And TXN and XLNX both sport a good performance vs. industry for the previous 12 months and 5 year dividend growth rate.
If I were to choose only one it would be TXN.
And I will keep others on watch list for future consideration when the timing is right.
S&P Capital IQ
5 Year Dividend
Disclaimer: These are only personal opinions and all readers should do their own research. Readers are accountable for investment decisions and trades.
Securities prices and yields quoted are current as of July 20, 2013.
I do not know the circumstances, risk tolerance or investment objectives of the readers. There is no guarantee that any investment mentioned in this article will be profitable or appropriate for readers.
Additional disclosure: May initiate a long position in TXN, XLNX