February Was A Rough Month For The Big Ticket Portfolio

Summary

• The S&P was down 3.6% for the month of February with our Stock Picks down 2.6%.
• February was a roller coaster to say the least with Tax Reform buzz sailing off as investors turned their attention to fears of rising interest rates.
• Technology and Banks continue to lead while REITs continue their fall from grace.

In early January, I published my top picks for 2018, see article here. As a reminder for readers not familiar with my strategy, I am a dividend growth investor in my mid 30s with a long-term horizon (hopefully), and my plan is to invest in well-rounded companies with a quality track record, superb management team, and strong dividend growth potential.

Towards the end of last year, numerous followers asked that I put out a list of stock picks for the year. As such, I constructed the list below with the goal to beat the performance of the SPY. The portfolio started with investable funds of $100,000 that were allocated amongst the stocks listed below. This portfolio will not be actively managed; however, I will provide commentary around any ideas or changes I would look into making. This piece will focus on our progress through the month of February, which many of you know, contained the single largest point drop in the market ever.

February 2018 Results

Since the turn of the new year, the S&P 500 has decreased about 0.6% through the month of February. The month of February was a bit of a roller coaster to say the least. The SPY saw a high of $280, which was at the beginning of the month, and went as low as $257 all within the first week of trading. Much of the tailwind around Tax Reform that ran into the beginning of 2018 has departed, and investors have turn their attention to the rise of interest rates. Just this past week, investors ran for the doors when new Fed Chair Jerome Powell hinted at the idea of four interest rate hikes in 2018.

Photo Credit

In my opinion, considering we do not have the first rate hike yet, I do not see the Fed raising rates four times in the next ten months. Now, that does not mean they won't, since a recent Fed survey stated they may need to raise rates more rapidly than anticipated due to accelerating economic conditions. I am going to stick with my prediction of three rate hikes.

As I mentioned, February was a rough month for the market as a whole being down 3.6%, so many of my stocks took it on the chin, but as I always mentioned, I will be transparent in the good times and bad. Remember the old saying from Mr. Buffett himself,

Be greedy when others are fearful." - Warren Buffet

So without further ado, here are the February results for the Big Ticket 2018 stock picks.

Source: Chart created by author

Through the month of February, the portfolio has slightly outperformed the SPY by a mere 23 basis points. As of last month we were trailing the SPY, but still not satisfied since we are in the red for the year. With 10 months remaining, I am confident we will turn things around.

Laggards

For the month of February, the largest laggards were Lowe's (LOW), Ventas (VTR), Tanger Factory Outlets (SKT), Wells Fargo (WFC), and Air Lease (AL). All these companies were down more than 10% for the month. LOW issued Q4 earnings on the last day of the month that seemed to catch investors off guard, which sent the stock falling 8%. The company saw revenue, operating income, and net income fall from the same period in 2016, but an item being overlooked is the fact that 2016 contained an additional week in the quarter. Decreases in margin, EPS, and customer transactions were what caught my eye. The company has a recently announced buyback plan, so hopefully they are taking advantage of this drop and buying back aggressively. I expect this stock to turn things around rather quickly.

Due to the recent focus being on rising interest rates, REITs have continued their downward spiral into 2018. Ventas and Tanger both reported solid earnings with SKT having one of their highest occupancy outputs. Areas of concern for them is the amount of short-term deals they are entering into, which can sway the occupancy numbers a lot, and it can be looked at as if the company is entering cheap short-term deals to keep their occupancy up, which is not in the best interest of long-term growth. Listening to the company's earnings call though management seemed to have a plan as they mentioned things in the retail sector seem to be turning around. Let's hope they are correct. Some investors believe the rise in rates equals the demise in REITs, but looking back at history, the opposite is actually true, as REITs have actually performed quite well in times of rising rates as this usually coincides with a strong economy, which is great for REITs. I think we are close to the bottom for REITs.

Wells Fargo was dealt a strong blow early in the month when the Fed issued restrictions on the company, refraining them from growing their assets. The Fed would like to see improvements made at the company in light of the countless scandals they encountered during 2017. The company responded by stating they will replace three directors in April and a fourth by the end of the year. This was the last major action performed by Janet Yellen as Fed Chairwoman. Subsequent to this announcement, WFC stock traded down 13.5%. Based on these restrictions, I am deeply concerned with this stock pick. Rising rates will help many of the big banks going forward, but it seems that WFC is under a microscope now, with good reason, and will have to find ways to outperform with the assets they have. If I had the opportunity, which I do not since my picks are stagnant, I would look to exit any position in this stock. BAC is my bank of choice and I would allocate my WFC position to grow the BAC position.

Bright Spots

With 21 of the 29 positions being in the red for the month of February, there is not much to discuss in terms of bright spots. The two biggest gainers for the year continue to be technology names Amazon (AMZN) and Cisco (CSCO). The major bright spot for the month of February was the 11.6% gain in Micron. Early in the month, the chipmaker reported solid Q1 earnings and also reported a stronger than expected outlook for the company, which sent shares surging. Technology and chips continue to lead the market, and I will look for this to continue throughout the remainder of 2018.

The idea of the updates is to be completely transparent with my followers. Many contributors today will make stocks picks, but only follow up on those if they are positive, but I feel that readers respect you more when you are transparent regardless of the outcome. With that being said, here is to a solid March. Best of luck to all our followers!

Now that you have had a chance to digest the portfolio results to date, I look forward to hearing your thoughts on the portfolio and hearing some of your ideas for any changes to be made. Good luck to everyone and happy investing!

Note: I hope you all enjoyed the article and found it informative. If you do not currently follow us and would like to be notified of future articles, please hit the "Follow" button above. As always, I look forward to reading your comments below and feel free to leave any feedback. Happy Investing!

Analyst’s Disclosure: I am/we are long AAPL, DIS, AVGO, LOW, GOOGL, SBUX, JNJ, SKT, NKE. 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.