Here's a great way to start. Here are my previous 2 articles:
This is Part 3 of 3 where I explain why I have certain stocks in my portfolio by telling you the stories in my skull.
The funny thing is that the stories do not reflect the blood, sweat and tears required to find high quality securities. Instead, stories make me sound emotional and illogical.
In any event, you can review my stories for a good laugh, or to better understand your own stock stories, or maybe even to get an investment idea or two.
Stock Story Time
(NYSE:KO) -- What's not to like about Coca-Cola? Although there's a war against sugar right now, Coke is a compounding machine supported by Warren Buffet and many others. Tim McAleenan summed up many of my thoughts really well right here. KO's moat is insane, they are a Dividend Champion and they provide a slightly addictive product at a fair price. It's sugar water! The core brand is insanely powerful. And, there are 500 brands in total. Also, if you're thinking about investing in Coke you must read: Turning $2 Million Into $2 Trillion. When I think about that, my brain starts to melt. Sidebar: Charlie Munger is a hero of mine. When I invested at $39.30 back in 2013 I thought I overpaid a little. Hogwash! Now I believe I got a good price, and I'll likely add more under $40. I'll never sell what I've got.
(NYSE:NOV) -- This is in the Berkshire Hathaway portfolio. Based on the size of the holding, I'm guessing that either Todd Combs or Ted Weschler made the purchase. I paid $68.75 and I thought it was a real bargain. In any event, they are an old company (founded in 1862) and they are in the business of helping oil companies get gas and oil out of the ground. This is another energy play. I also like that this is a dull and boring business. It's just not sexy and that keeps a lot of people away. Management is great based on everything I've read. I think the spinoff of the distribution business will generate a lot of value. it reminds me a little of the (NYSE:COP) spinoff of (NYSE:PSX). I'm excited about it and I'll be holding NOV for a while, maybe forever. By the way, NOV is also a Dividend Challenger; growing dividends for 5 years now.
(NYSE:PM) -- Cigarettes. Pretty nasty, right? But, that's actually a big reason that I started looking at Philip Morris International. I'm always interested in companies that people hate (e.g., Big Oil) because that keeps prices down and I can more easily find value. A big reason that PM got my attention is that Jeremy Siegel basically said that best performing stock of all time was Philip Morris which is now the Altria Group (NYSE:MO) and PM if you track things. I bought PM at $84.98 recently because I believe it's a better bargain now than MO, although not by much. I'm a little embarrassed that I chased the 4.4% yield on this one. I doubt that I'll ever sell this stock and I'll almost certainly add. Ultimately, I feel that electronic cigarettes are an opportunity and I also feel that increasing regulations will only make PM stronger. It's second level thinking; because regulations are horrible, I love them.
(NYSE:TGT) -- This one is easy. Target is a super dividend champion with a growing dividend and healthy yield. They've paid out over 45 years! Furthermore, Target's facing pain with credit cards, gift card activations and growing in Canada. There's blood in the streets and fear in the air but this company is strong. In the medium term these issues will wash away. Although I feel that (NYSE:WMT) is slightly better when you look at the margins, I think TGT is a better deal right now. Don't worry, I'll add Wal-Mart later. I got mine at about $64 and should have picked up more recently around $61-62 but (NYSE:DLR) and (NYSE:KMI) caught my fancy. I'm watching margins and owner earnings growth right now. Unless there's a serious deterioration over the next 12-18 months, I'll very likely hold TGT forever.
(NYSE:UVV) -- Universal Corp. has been around since 1888, give or take. They've paid out growing dividends for over 40 years. My yield on cost is about 4.1% because I bought at $49.22 and current yield is about 3.8% now. Did I mention that they are a tobacco company? They trade at a normal P/E of just over 10 and now they are just over 11. So, I won't be adding more, especially ahead of PM or MO. In fact, if price moves up to $60 in the short run, I'll likely move the cash over to PM or MO, or some other business. I made a few errors on this one related to growth prospects. That said, as a tobacco grower they have a unique opportunity to wedge into the e-cigarette business because they can provide liquid nicotine and more; here's the press release. That part of the business a wild card and it gives me another reason to hold on and see how it plays out, while I collect the dividend which I admit I was chasing a little bit.
(NYSE:WFC) -- The recent financial crisis punished Wells Fargo despite the fact that they were not much involved in the mortgage shenanigans. Furthermore, Buffett owns a huge chunk of WFC. And, he's added to the position again and again over the years. It's Buffett's largest public holding. In 2013 Buffett reinforced his convinction about the health of U.S. banks and I agreed. I bought at an average price of $30.90 with a 3.88% yield on cost and it's a huge part of my portfolio. Given it's size, I'm shocked that it's a rather plain vanilla bank. I like management, a lot. I understand what they are saying and the bench is strong. My gut says that WFC is still undervalued but I have no intention of buying more. Instead, I'll continue to hold, probably forever. I might be tempted to trim down just a bit if it shoots the moon although I don't see that happening any time soon.
(NYSE:WU) -- Western Union gets punished from time to time. This stock is all over the place. It's kind of a mess but the fluctuations don't bother me much. I planned to buy at $14 but that price got away from me. Instead, I got my shares for $16.18 which I'm happy with. WU is old, which I love. WU has been paying growing dividends for 5 years now, so it's a Dividend Challenger. What really got my attention was their #1 market position. I like WU much more than (NYSE:MGI) and (NASDAQ:XOOM), although I do think eBay's PayPal business is a dark horse competitor. Many people seem to think that the internet will kill WU, but I disagree. In fact, about 80% of the folks using WU's electronic channels are totally new to WU (see: Q3 2013 earnings transcript). Also, they increase their footprint all the time, e.g., 8,000 new locations by co-location with Walgreens. And, like I said with Philip Morris above, regulations will only make WU stronger in the long run. Hint: Think about their moat, barriers to entry and difficulty replicating the business.
I covered the final 7 stocks in my portfolio. Here are three more things I noticed in these stories.
First, I have no problem investing in businesses that people "hate" because they offer value to investors. There are a million things I could say about these businesses but I don't wish to start a holy war.
Second, I have a preference for old companies. That's not surprising since they are the ones that provide the most reliability and predictability. Furthermore, that maps to my long term orientation and outlook on life.
Third, I like to employ Second Level Thinking because it forces me to see true opportunity just as people are freaking out the most. For example, I often see regulation as an opportunity. See my comments above for Western Union and Philip Morris. Similarly, I often see bad news as good news, as long as it is short term pain. Target's a good example of this.
So, that's it!
Keep in mind that nothing I've said should be taken as a BUY, SELL or HOLD recommendation. You really need to do your own due diligence, especially since a lot of what I've said above is driven by emotion not logic. Mileage will vary from reader to reader.
Disclosure: I am long KO, NOV, PM, TGT, UVV, WFC, WU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.