Sound Growth And Dividend IRA Q3: Strong Gains

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Includes: AOS, CBRL, CCF, EXCOF, EXPD, FL, GNTX, HAS, LCII, LMAT, MA, MLR, PAYX, RHUHF, SNA, TPL, TSCO, WSM
by: Steven Miller

Summary

Total returns for invested positions were 16.5% for the quarter.

Total returns for new positions opened during the quarter were 8.3%.

A synopsis of portfolio holdings is given.

The Sound Growth And Dividend IRA had an outstanding quarter. Nearly all the stocks have done well, including six new positions I opened during the quarter.

Portfolio Review

The portfolio has been built for my own IRA, using my own funds. Since I am fifteen or more years from retirement, I focus on companies that have solid fundamentals and are growing, both in terms of capital appreciation and in dividend payouts. The resulting portfolio is a blend of growth, value, and income, based on principles I have used for years.

While I did not set out to build a DGI portfolio, it is that, too. All the stocks in the portfolio are part of either the U. S. Dividend Champions or the Canadian Dividend All-Stars list. The exception is LCI Industries (LCII), which started paying a dividend last November.

I do have three REITs: Physicians Realty Trust (DOC), Realty Income (O), and Tanger Factory Outlet Centers (SKT). I also have owned baby bonds, and recently bought a preferred stock. These investments must be assessed differently than the stocks in this portfolio, and I do not consider them here.

Q3 Portfolio Performance

Company

Ticker

Cost

Begin

End

Gain

Return

Weight

MasterCard

(MA)

74.27

121.45

141.20

16%

17 %

18%

82.27

121.45

141.20

17%

Miller Industries

(MLR)

18.53

24.85

27.95

12%

14%

17%

20.29

24.85

27.95

12%

19.33

24.85

27.95

12%

Texas Pacific Land

(TPL)

281.39

293.78

404.10

38%

38%

13%

291.89

293.78

404.10

38%

Tractor Supply

(TSCO)

47.00

54.21

63.29

17%

18%

10%

69.53

54.21

63.29

17%

65.58

54.21

63.29

17%

Expeditors Int'l

(EXPD)

53.61

56.48

59.86

6%

6%

5%

Paychex

(PAYX)

57.44

56.96

59.96

5%

6%

5%

Exco Technologies

(OTCPK:EXCOF)

8.42

8.15

7.77

-5%

-5%

2%

MasterCard continues to set new highs regularly, and it had a total return of 17% for the quarter. It has grown to be 18% of the portfolio, making it quite overweight, but I am perfectly content to keep those shares and watch them grow more. They are on track to double from the opening price I paid for them in 2014-2015.

Miller Industries, a manufacturer of wreckers, finally broke out of the trajectory it has been in since the beginning of the year, giving a total return of 14% for the quarter. That offers some vindication for the article I struggled to publish on the company last August. The company is continuing its upward trajectory in October and remains 17% of the portfolio. I considered trimming the shares, but I paid $18.53-20.29 for them, and there may be more upside potential coming. The company is finishing its plant updates.

I bought Texas Pacific Land Trust twice last April, not really knowing what to expect from it, but I could not be happier with it. The company created a new subsidiary, and the stock price shot up in response. It gained 38% for the quarter and has grown to be 13% of the portfolio in short order. The stock is the best I have found in the energy sector and continues to have vast growth potential.

Tractor Supply Company was my star performer in the summer of 2016. Its stock price hit the mid-$90s then, but it came down that spectacularly in short order and has been a problem for me since. It had a total return of 18% for the quarter, which is no small feat, but it is coming off multi-year lows. I am hoping for it to go to $65-69 before trimming my holdings, but will likely keep the shares I bought at $47.00. Tractor Supply is currently 10% of the portfolio.

Expeditors International of Washington was an excellent addition in May, gaining 6% for the quarter. It has been setting new highs lately and I intend to hold. The company is a logistics provider, focusing on international freight.

I bought payroll processor Paychex as more of a short-term position, and it has already done well. It gained 5% for the quarter, and gapped up October 3rd on the earnings announcement, setting new highs daily. It may well stay in the portfolio longer than expected.

Exco Technologies has been the one disappointment of existing holdings this quarter, at -5% total return. I continue to think the downside risk is limited, and the upside potential is substantial. I will continue to hold the small position. For more information about the company, see my recent article.

New Positions Initiated

Due to restructuring the portfolio last spring, and some sales of larger positions during the quarter, I have had an unusual amount of cash to deploy the past five months. I initiated positions in six stocks during the quarter. All six have far exceeded expectations. I also added to the minor position in Exco Technologies, which did not do as well; but overall, I am quite pleased.

Company

Ticker

Start Date

Cost / Share

Q3 End

Gain

Return

Weight

LCI Industries

LCII

08/25/17

94.46

115.85

23%

23%

5%

A. O. Smith

AOS

08/01/17

54.03

59.43

10%

10%

5%

LeMaitre Vascular

LMAT

07/31/17

34.55

37.42

8%

8%

5%

Chase

CCF

07/24/17

106.66

111.40

4%

4%

5%

Cracker Barrel

CBRL

09/25/17

147.89

151.62

3%

3%

5%

Williams-Sonoma

WSM

07/14/17

46.14

49.86

8%

10%

4%

Exco Technologies

EXCOF

08/10/17

8.11

7.77

-4%

-4%

2%

I initiated a position in LCI Industries (LCII) as I indicated I might in my August article about the company, and it turned out to be a great decision. The stock price shot up 23% from the time I bought it on August 25th. The RV market shows no sign of slowing down, it may benefit from rebuilding after the hurricanes, and the prospects for further growth in the company are excellent.

A. O. Smith (AOS) was recently added to the S&P 500 and is months away from being a dividend aristocrat, but it is not a stodgy company. The ten-year chart is a thing of beauty. The stock price gained 10% since August 1st when I bought it. Its primary market is water heaters and boilers, but it is expanding into water purification and air filtration outside the U.S. I am considering adding to the holdings if it pulls back.

LeMaitre Vascular (LMAT) is, as the name suggests, a manufacturer and distributor of vascular medical devices. The stock has climbed 8% over the two months I have owned it.

I am not overly fond of conglomerates, nor of growth by acquisition, yet Chase (CCF) seems good at it. Its core products consist of tapes, laminates, sealants, and coatings. The stock price dropped after I bought it, but it rebounded and has since given me 4% over the two months I have owned it.

Restaurant company Cracker Barrel (CBRL) is having some problems with its comps in its stores, and it does not quite have the fundamentals that the other companies in the portfolio have. I bought it as more of a short-term play. The price rose 3% over six days it was part of the portfolio and has continued to climb. I am watching it closely to see if it breaks through its current resistance level to go higher.

Retailer Williams-Sonoma (WSM) got caught in the agony of brick and mortar retail sector this last year, despite half its revenues coming from online purchases. Its stock price was dropping drastically even as its EPS has climbed. The stock price continued to drop after I bought it on July 14th, but has since rebounded and climbed 8% from the purchase price. For more information about the company, see the article I wrote in late August.

Sales

I sold off two long-term holdings. I made nice profits from both, but in retrospect, selling Gentex (GNTX) was a mistake, I believe.

Company

Ticker

Start Date

Cost / Share

End Date

End Date Price

Gain %

Accenture

(NYSE:ACN)

03/28/13

82.00

08/21/17

$126.79

55%

01/23/17

115.45

08/21/17

$126.79

10%

Gentex

[GNTX]

07/11/13

12.13

07/13/17

$17.98

48%

10/06/14

14.10

07/13/17

$17.98

27%

I also bought and sold several stocks during the quarter that broke even. I normally do not do that, and have settled back into taking more time looking at my buys.

The one stock I took a loss on was Foot Locker (FL). I bought it when I thought the stock price had bottomed, only to see more losses following an announcement by Nike (NYSE:NKE). I sold when losses reached 20%. It would have been much worse if I had held. Since the position was 5% of the portfolio, total loss was 1%.

Going Forward

I have already added Richelieu Hardware (OTC:RHUHF) to the portfolio on October 3rd, the second day of the fourth quarter, and will include it in the portfolio’s fourth-quarter results.

I have more cash to deploy. I go through my watch list once a week looking for potential buys. I also look at two other new watch lists I have created over the quarter. Two of the stocks I have been watching for two weeks or more are Hasbro (HAS) and Snap-On (SNA). Hasbro is the more attractive of the two from a growth perspective, but Snap-On has been paying dividends for decades, and the price is the same as an insider bought just last August. I also currently have a limit order on a lightly traded stock as of this writing.

In Summary

One quarter does not a portfolio make. I have no illusions of the portfolio returning 16.5% quarter after quarter. Even 8.3% per quarter would be extraordinary. The portfolio has yet to be tested in a downturn. Proof of the strategy will take time.

Still, it did well this quarter.

I showed that the portfolio had a total return of 13.4% in 2016. All the stocks are fundamentally solid and pay dividends. They should withstand a storm better than most, when the storm does come. I am increasingly convinced the portfolio is sound.

Disclosure: I am/we are long MA, MLR, TPL, TSCO, EXPD, PAYX, EXCOF, LCII, AOS, LMAT, CCF, CBRL, WSM.

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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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