A Very Busy Quarter

 
Asset Management, Companies and Industries, Investment Themes April 25, 2019

A Very Busy Quarter

We made several adjustments and changes in our portfolios last quarter. First, we sold Mindbody (tkr: MB) following the December 24th announcement that it would be taken private by Vista Equity Partners. The stock rose about 65% on the announcement and we decided to lock in gains early this year, given that we felt it was unlikely that there would be a competing offer. We added to our position in AT&T (tkr: T). AT&T has a 6.5% dividend yield and a P/E of 8.7x. It is a deep value stock that should hold up well in an economic recession given its stable, relatively noncyclical exposure.

In our healthcare sector, we sold Bristol-Meyers Squibb (BMY) following the announcement that the company planned to buy Celgene (tkr: CELG). The deal adds a substantial amount of debt to Bristol-Meyers’ balance sheet and we thought the company’s synergy projections seemed overly optimistic. We added to our position in medical device company Medtronic (tkr: MDT). We believe Medtronic is relatively undervalued given its strong and innovative product portfolio. Furthermore, we like the “value-based” pricing method, where Medtronic takes the risk for non-performance of some new products, as it demonstrates the confidence that the company has in its products’ ability to improve patient outcomes and lower costs.

In our consumer discretionary sector, we sold Capri Holdings (tkr: CPRI), formerly known as Michael Kors. The company was renamed following the $2.1 billion acquisition of Versace. Although we liked the company’s previous acquisition of Jimmy Choo, the Versace acquisition is nearly twice the size and the growth trajectory of this luxury brand is unclear. We purchased a position in Home Depot (tkr: HD, see Featured Equity) given its reliable dividend, its new focus on the maintenance, repair and operations (MRO) business, and the fact that it is relatively insulated from online competitors such as Amazon (tkr: AMZN).

We trimmed our position in Qualcomm (tkr: QCOM) due to uncertainty over the legal battle with Apple, but still maintained a market overweight. The royalty dispute between the two companies was settled last week, sending Qualcomm shares higher.

We trimmed our position in Amazon (tkr: AMZN). Although we still maintain an overweight position, given the outperformance of the stock, the high P/E ratio and the recent uncertainty over its expansion in India, we decided to reduce our exposure slightly.

We purchased a position in Royal Dutch Shell (tkr: RDS/B) and sold our position in Chevron (tkr: CVX). We believe Shell is well-positioned to capitalize on an increase in demand for natural gas, whereas Chevron has less exposure to the cleaner-burning resource.

In our consumer staples sector, we sold Constellation Brands (tkr: STZ) and added to Proctor & Gamble (tkr: PG). We have concerns over the amount of debt Constellation took on to fund its acquisition of a stake in the Canadian-based cannabis company, Canopy. The pace of legalization in the U.S. is uncertain and beer demand has been weakening, raising questions about Constellation Brands’ ability to service its significant debt. We are happy with the turnaround at Proctor & Gamble and we also felt it was prudent to add to this low P/E, high dividend stock given our pivot toward more value-oriented companies.

Finally, we added a position in Visa (tkr: V). Visa is the largest global payment network, accounting for roughly half of all credit card transactions and an even higher percentage of debit card transactions. Visa will benefit from the ongoing conversion of check and cash payments to transaction-based payments. Visa has also demonstrated its ability to stave off competition from large technology disruptors, evidenced by its partnerships with alternative payment methods such as Google Pay, Apple Pay, and PayPal.

 

 

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

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