CWS Market Review – January 1, 2019
Happy New Year! The 2018 trading year has come to a close. First, let’s take a look at the Buy List for 2019. Here are the 25 stocks for the 2019 Buy List. It’s locked and sealed, and I can’t make any changes for 12 months.
The 2019 Buy List
For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 25 stocks. Below are all 25 positions with the number of shares for each and the closing price for 2018. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to.
| Company | Ticker | Price | Shares | Balance |
| AFLAC | AFL | $45.56 | 877.96313 | $40,000.00 |
| Becton, Dickinson | BDX | $225.32 | 177.52530 | $40,000.00 |
| Broadridge Financial Solutions | BR | $96.25 | 415.58442 | $40,000.00 |
| Cerner | CERN | $52.44 | 762.77651 | $40,000.00 |
| Check Point Software | CHKP | $102.65 | 389.67365 | $40,000.00 |
| Church & Dwight | CHD | $65.76 | 608.27251 | $40,000.00 |
| Cognizant Technology Solutions | CTSH | $63.48 | 630.11972 | $40,000.00 |
| Continental Building Products | CBPX | $25.45 | 1571.70923 | $40,000.00 |
| Danaher | DHR | $103.12 | 387.89760 | $40,000.00 |
| Disney | DIS | $109.65 | 364.79708 | $40,000.00 |
| Eagle Bancorp | EGBN | $48.71 | 821.18661 | $40,000.00 |
| FactSet Research Systems | FDS | $200.13 | 199.87008 | $40,000.00 |
| Fiserv | FISV | $73.49 | 544.29174 | $40,000.00 |
| Hershey | HSY | $107.18 | 373.20396 | $40,000.00 |
| Hormel Foods | HRL | $42.68 | 937.20712 | $40,000.00 |
| Intercontinental Exchange | ICE | $75.33 | 530.99695 | $40,000.00 |
| JM Smucker | SJM | $93.49 | 427.85325 | $40,000.00 |
| Moody’s | MCO | $140.04 | 285.63268 | $40,000.00 |
| Raytheon | RTN | $153.35 | 260.84121 | $40,000.00 |
| Ross Stores | ROST | $83.20 | 480.76923 | $40,000.00 |
| RPM International | RPM | $58.78 | 680.50357 | $40,000.00 |
| Sherwin-Williams | SHW | $393.46 | 101.66218 | $40,000.00 |
| Singnature Bank | SBNY | $102.81 | 389.06721 | $40,000.00 |
| Stryker | SYK | $156.75 | 255.18341 | $40,000.00 |
| Torchmark | TMK | $74.53 | 536.69663 | $40,000.00 |
| Total | $1,000,000.00 |
The five new stocks are Broadridge Financial Solutions, Disney, Eagle Bancorp, Hershey and Raytheon. We’ll also gain a 26th stock when Danaher spins off its dental business.
The five sells are Alliance Data Systems, Carriage Services, Ingredion, Snap-on and Wabtec.
Disney is now our largest stock, with a market cap of $163 billion. The Buy List is mostly large- and mid-cap stocks. Only two are smaller than $5 billion. Eagle Bancorp is $1.7 billion, and Continental Building Products is about $937 million.
Only AFLAC and Fiserv have been on the Buy List all 14 years. This is Stryker’s 12th year.
Here’s a brief description (via Hoovers) of our five new stocks along with my starting Buy Below price:
Broadridge Financial Solutions (BR) does business by proxy. The company provides technology-based investor communications, trade processing, and related services – the back-office infrastructure that facilitates operations – to financial services companies around the world. Clients include banks, broker-dealers, mutual funds, and institutional investors. Through its proprietary ProxyEdge system, Broadridge processes and distributes proxy materials, voting instructions, and other information to investors, processing more than 2 billion investor communications per year. It also offers related services, such as marketing communications and online shareholder meetings. Broadridge operates offices in more than a dozen countries in North America, Europe, Africa, Asia and Australia. Buy below $102 per share.
The monarch of this magic kingdom is no man but a mouse: Mickey Mouse. The Walt Disney Company (DIS) is the world’s largest media conglomerate, with assets encompassing movies, television, publishing, and theme parks. Its Disney/ABC Television Group includes the ABC television network and 10 broadcast stations, as well as a portfolio of cable networks including ABC Family, Disney Channel, and ESPN (80%-owned). Walt Disney Studios produces films through imprints Walt Disney Pictures, Disney Animation, and Pixar. It also owns Marvel Entertainment and Lucasfilm, two extremely successful film producers. In addition, Walt Disney Parks and Resorts runs its popular theme parks including Walt Disney World and Disneyland. Buy below $118.
For those nest eggs that need a little help hatching, holding company Eagle Bancorp (EGBN) would recommend its community-oriented EagleBank subsidiary. The bank serves businesses and individuals through more than 20 branches in Maryland, Virginia, and Washington, DC, and its suburbs. Deposit products include checking, savings, and money market accounts; certificates of deposit; and IRAs. Commercial real estate loans represent more than 70% of its loan portfolio, while construction loans make up another more than 20%. The bank, which has significant expertise as a Small Business Administration lender, also writes business, consumer, and home equity loans. EagleBank offers insurance products through an agreement with The Meltzer Group. Buy below $54.
The Hershey Company (HSY) works to spread Almond Joy and lots of Kisses. With its portfolio of more than 80 global brands, the #1 chocolate producer in North America has built a big business manufacturing such well-known chocolate and candy brands as Hershey’s, Kisses, Reese’s peanut butter cups, Twizzlers, Mounds and Almond Joy candy bars (under a license), York peppermint patties, and Kit Kat wafer bars. Hershey also makes grocery goods, including baking chocolate, chocolate syrup, cocoa mix, cookies, snack nuts, breath mints, and bubble gum. Beyond candy, Hershey’s has expanded into the snacks category. Products from the chocolate king are sold to a variety of wholesale distributors and retailers throughout North America and exported overseas. Buy below $114.
Raytheon (RTN), “light of the gods,” shines in the upper pantheon of US military contractors; the company regularly places among the Pentagon’s top 10 prime contractors. Its air/land/sea/space/cyber defense offerings include reconnaissance, targeting, and navigation systems, as well as missile systems (Patriot, Sidewinder, and Tomahawk), unmanned ground and aerial systems, sensing technologies, and radars. Additionally, Raytheon makes systems for communications (satellite) and intelligence, radios, cybersecurity, and air traffic control. It also offers commercial electronics products and services, as well as food safety processing technologies. The US government accounts for a large portion of sales. Buy below $163.
The 2018 Buy List
Now let’s look at how the 2018 Buy List did. For 2018, the S&P 500 lost 6.24% while our Buy List lost 6.30%. Including dividends, the S&P 500 lost 4.38% while our Buy List lost 5.11%. So we trailed the overall market, but, to be fair, not by much.
Our Buy List fell 3% behind the market by May, but it performed much better since then. Also, we were weighed down by very big losses in Carriage Services and Alliance Data Systems.
For the long-term, we’ve done quite well. Over the last 13 years, our Buy List has gained 211.32% while the S&P 500 has gained 164.00%. That includes some very difficult years.
Our biggest winner this year was Church & Dwight (CHD) which gained more than 31%. CHD was a new addition to this year’s Buy List. I suppose there will always be a market for baking soda and condoms. Eleven of our stocks finished positive this year, and 14 of our 25 stocks beat the S&P 500 in terms of price. Again, our problem was that the big losers really held us back.
For people who care about such things, the “beta” of our Buy List in 2018 was 0.8085. That’s pretty low for us. The correlation of the daily changes of the Buy List to the changes of the S&P 500 was 93.34%.
The chart below details the Buy List’s performance. I’ve listed each stock along with the number of shares and the starting and ending prices.
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His