CWS Market Review – December 25, 2023

Ladies and Gentlemen:

Drumroll please.

I give you our 2024 Buy List:

Abbott Laboratories (ABT)
AFLAC (AFL)
American Water Works (AWK)
Amphenol (APH)
Broadridge Financial (BR)
Celanese (CE)
Cencora (COR)
FactSet Research (FDS)
Federal Agricultural Mortgage (AGM)
FICO (FICO)
Fiserv (FISV)
HEICO (HEI)
Hershey (HSY)
Intercontinental Exchange (ICE)
Intuit (INTU)
McGrath RentCorp (MGRC)
Miller Industries (MLR)
Moody’s (MCO)
Otis Worldwide (OTIS)
Polaris (PII)
Rollins (ROL)
Science Applications International (SAIC)
Silgan (SLGN)
Stryker (SYK)
Thermo Fisher Scientific (TMO)

The five new buys are:

American Water Works (AWK)
Amphenol (APH)
Federal Agricultural Mortgage (AGM)
McGrath RentCorp (MGRC)
Rollins (ROL)

The six sells are:

Carrier Global (CARR)
Danaher (DHR)
Middleby (MIDD)
Stepan (SCL)
Veralto (VLTO)
Trex (TREX)

We’re selling six this year because we got Veralto as a spinoff from Danaher.

This is our 19th annual Buy List. The new Buy List won’t go into effect until the start of trading on Tuesday, January 2. The 25 stocks will be equally weighted based on the closing price as of December 29.

Our ETF is based on the Buy List, but it’s not always a perfect match. Here’s the performance of CWS (red) versus the S&P 500 ETF (blue) over the last 18 months.

The Five New Buys

I’ll have more to say about the new buys in upcoming issues, but I’ll share some thoughts with you here.

McGrath rents relocatable modular buildings, portable storage containers, electronic test equipment and liquid-containment tanks. This means things like modular classrooms. Or imagine a construction site in the middle of nowhere. McGrath can rent the foremen an instant office. These things are more common than you might expect.

But McGrath does more than that. It also rents test equipment and storage tanks. The company has raised its dividend for 32 years in a row.

The Federal Agricultural Mortgage Corporation is better known as Farmer Mac. The company was chartered by Congress in 1988, and five of the 15 members of the Board of Directors are appointed by the President.

The idea of Farmer Mac was to create a secondary market for agricultural loans such as mortgages in rural areas. While Farmer Mac’s debts are not guaranteed by the federal government, much of the farm sector is protected by the government. In fact, farming may be one of the most state-protected industries in America.

Thanks to its close relationship to the government, Farmer Mac is able to have far lower interest-rate risk than many major banks. AGM has a market value of about $2 billion. The stock is going for about 11 times 2024 estimated earnings.

American Water Works is a public utility that provides water to millions of Americans. Water is a good business to be in. No town wants to be another Flint, Michigan.

AWK provides “safe, clean, reliable and affordable drinking-water and wastewater services to more than 14 million people with regulated operations in 14 states.” AWK also has a 50-year contract to provide water and wastewater utility services at 18 military installations.

Amphenol is a former Buy List stock. The company makes electronic and fiber-optic connectors. I stupidly kicked APH off the Buy List in 2010.

Rollins is in the pest-control biz. It’s amazing how few people know about this stock. Rollins is the parent of Orkin. Years ago, Rollins was a diversified company with lots of holdings. It eventually spun off its oil and gas units into another company. What was left was the pest-control business, which is a very nice business to own.

The Six Sells

Coming up with the sells each year is hard, because you can’t help getting attached to some stocks. In retrospect, I made a mistake in having both Thermo Fisher and Danaher on the Buy List when I really should have had just one of them. I made the decision to keep Thermo, so I’m selling both Danaher and Veralto.

Middleby was another mistake. I added it back after removing it from the Buy List during 2022. Earnings growth hasn’t been as strong as I hoped.

Carrier was a tough choice. The company is undergoing a major transition. If it can pull it off, it will be very profitable. I wish the firm well, but I can’t say this is a low-risk move.

Stepan was an easy choice to make. The company had a terrible year. At least the stock rebounded nicely during Q4. The rally turned a 40% loss this year into a 10% loss.

Trex has been a fun stock to own. It either rallies strongly, or it gets crushed. This year, Trex was in rally mode. The stock nearly doubled for us in 2023. This is a good time for us to exit Trex.

Thank You!

I’ll have all the details of our Buy List’s performance in 2023 in the next newsletter, which comes out on December 31.

This was an amazing year for us. I want to thank everyone for their support. I admit that our long-term buy-and-hold strategy can be a little boring, but it works. We’ve been doing it for 18 years.

I’m pleased to see that our ETF just hit a new all-time high. This year, the ETF had to add more than 700,000 shares to keep up with investor demand.

This year had other unforgettable moments. In April, I got to ring the opening bell of the NYSE. That was so exciting. Equally exciting was following the market with intelligent, engaged readers like the ones here at CWS. Thanks to each and every one of you.

I want to wish you all a Merry Christmas and a happy, healthy and prosperous New Year.

– Eddy

Posted by Eddy Elfenbein on December 25th, 2023 at 7:17 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.