Beta than the S&P 600 – March Performance

Beta than the S&P 600 – May Performance
Beta than the S&P 600 – June Performance
Beta than the S&P 600 – April Performance

My portfolio lost .28% for the month of March while the S&P 600 lost only .12%. It was a rather volatile month mostly due to failed attempt by Republicans to replace Obamacare. Small-caps ended the month mostly flat while the S&P 500 is up above 6% for the year. I continue to be on the hunt to add to the portfolio and I was able to add two new names this month. Unfortunately, one of them was tied to the Trump trade so it hurt my overall performance.

March Performance

For the first quarter the portfolio returned 2.18% more than the S&P 600 Index. As far as attribution analysis, the performance was driven mostly by the gold investment I had in the RING fund. Otherwise, LGI Homes and and Nautilus have been winners while Argan, Diamond Offshore, and Cliffs Natural Resources have hurt performance.

Portfolio Holdings

Beta Than the S&P 600

I added two new names during the month. Bank of the Ozarks and Cliffs Natural Resources.

Bank of the Ozarks is a company I have been waiting for an opportunity to buy. One of the largest sector allocations in the S&P 600 is to financials and I wanted to find several regional banks to invest in. Bank of the Ozarks is one of the fastest growing banks in the south. After the stock fell below $50 I decided to pull the trigger on a small allocation. The stock has since rallied back some from that level.

Cliffs Natural Resources is a company I have been following since before the current CEO took over. At first, the CEO seemed a bit too bombastic to even consider investing in this company. The guy refused to answer analyst’s questions on the earnings call if they had a “sell” rating on the company. Ridiculous. He also referred to the stock buy back program as his “pistol in the nightstand”. So that kind of talk is something that just made him seem a little crazy but it turns out he is getting results. It also helps that iron ore has been trending higher.

I invested in Cliffs partly because I wanted to add an allocation to the materials sector. The S&P 600 currently has about 5.8% in materials so I am overweight that sector slightly with 7.6% in Cliffs.

Cliffs Q4 2016 was solid as revenue rose 58% over the prior year and 36% over the Q3. EBITDA margins increased to 23% and net income was $109 million.

I completed a free cash flow analysis and estimated between $230-$270 free cash flow to the firm each of the next 5 years. This is assuming demand for iron ore continues to recover and Cliffs benefits from Trump’s trade policies. My estimate had the fair value of the shares closer to $16. So $11 looked like quite a bargain. I went into the trade knowing there could be a lot of volatility around this company given the ties to the Trump trade and commodities.

I averaged down some but my average purchase price of $10.47 is still well above were the shares closed the quarter. At this point, I am not going to cut my losses but will continue to monitor the performance of the company. I am already overweight the stock and the allocation to materials so I won’t be looking to add to the position.

I’ll continue to work on diversifying out of the index fund as I find new names I like in other sectors.

 

 

 

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