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Portfolio Ratings Roundup, 2016 Q2

Each quarter I review quality and financial ratings offered by Value Line, S&P Capital IQ, and Morningstar for the companies in my portfolio. No particular rating tells the entire story of a company, but I find that aggregating these ratings helps provide a broad perspective on the quality of each of my holdings.

The ratings I track and their possible ranges:

Value Line safety: 1 to 5, with 1 being safest

Value Line financial strength: A++ (highest) to C (lowest) in 9 steps

S&P quality ranking: A+, A, A-, B+, B, B-, C, D

S&P credit rating: AAA, AA+, AA, AA-, A+, A, BBB+, BBB, BBB-; BB and below is considered not investment grade

Morningstar credit rating: AAA, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC

Morningstar moat rating: wide, narrow, none

Morningstar stewardship rating: exemplary, standard, poor

In a previous instablog, I presented snapshots of the spreadsheet I use to track these ratings, including green shading for top ratings and orange shading for lower-end ratings or those that warrant notice. This time I will only include orange shading, and for the following conditions: VL safety 3 or lower, VL financial strength below B++; S&P quality below B+, S&P credit rating BBB or lower; M* credit rating BBB or lower, M* no-moat rating, M* poor stewardship rating. These images appear below. The orange shading is meant to draw attention both to the weakest ratings and to any company that has several orange-box ratings. In most cases, if you understand the companies you hold, you'll understand why it has the ratings it has (good or bad). However, seeing the aggregated ratings helps me keep a clear eye on the realities of holdings that aren't quite as strong as others.

This quarter's changes

Note that I sold all shares of WPC and PSX this quarter, so I won't be following them closely anymore. Here's a summary of ratings changes for the companies in my portfolio:

COP: S&P credit rating lowered from A to A-

COP: VL lowered financial strength rating from A- to B+

ESRX: M* stewardship changed from Exemplary to Standard

MA: VL upgraded safety rating from 2 to 1

SBUX: M* credit rating improved from A- to A

SYK: S&P credit rating lowered from A+ to A

In my previous quarterly look at ratings, the number of changes to the downside was noteworthy. This time we see far fewer changes overall and a somewhat more balanced tally.

COP has been battered in the ratings as its financials have become shakier. In my previous instablog, I noted that VL had lowered their financial strength from A+ to A; here I note that they lowered it from A- to B+, so at some point during the quarter, there was a further lowering from A to A-. This rapid succession of downgrades reflects the increasingly jaundiced eye being taken toward COP's financial situation both before and following the dividend cut. I don't expect COP will have a place in my portfolio for long.

But let's talk about something positive, shall we? Sometimes it's interesting to assemble what might be considered a "Dream Team" of stocks. Which stocks in my portfolio enjoy a VL 1 for safety and A++ for financial strength, as well as an A+ or better credit rating from S&P? The companies in my portfolio that pass all those screens might not result in your definition of a dream team, but they are:


Eleven stocks representing a diverse array of sectors, including health care, energy, technology, industrials, consumer staples, and financials. If we broaden the screen just a little to include A credit ratings, we get an additional 9 companies: AMGN, DIS, EMR, MA, MDT, PEP, RTN, SYK, and UNP. Those 20 all together might not be such a bad portfolio, eh?

Ratings Tracker Spreadsheet