14 for 14 Portfolio Update – February and YTD Performance

gcopley

This year, for better or worse, we have decided to update our portfolio performance on a monthly basis.  As a reminder we began the year by recommending 14 larger cap long ideas and 14 names that we would be more cautious about.  We screened 7 and 7 in the mid cap space and also did a sector specific screen for Chemicals.  These are picks for the year – not for any given month and they are slightly more biased to valuation than they are to fundamentals/revisions.

  • Auto exposed stocks were among the best performers in February – good for CMI as a long, bad for PCAR as a short. Undervalued large cap performance was mixed, with pockets of relative strength (DD, SWK) and weakness (CAT and AA, after both gained strongly in January). For the large caps on average, the long and short screens had nearly identical performance, both above the market by about 1.5%.
  • Our mid caps were the most successful screen in January, but showed the poorest performance in February. KBR guided down significantly, weighing on the longs, and GNRC defied our short, bouncing back after a poor January to post the largest gain of any stock on any of our screens.
  • Long side Chemical picks beat the market handily, by 5%, but again, the short side was up as well. Only one stock on each side trailed the S&P (AXLL short, OLN long).
  • With Q4 2013 earnings all but wrapped up, we include a chart showing the 5 most positive surprises and 5 most negative surprises from our screened groups.  ROC blew out estimates, helped by a one off gain, but the stock has been a strong performer on the year nonetheless. Commodity Chemicals companies AXLL, DOW and LYB strongly beat consensus in Q4, but we remain cautious about their Q1 prospects.
  • We also show a review of revisions over the month (2014 full year) – again looking at the best and worst. Long and short picks are scattered on either end of this chart.
  • Short term we would focus on the companies that we think have high valuations and have real Q1 earnings risk because of the weather. This would include, GNRC, RPM, IP, LPX, SEE and POL, all of which are on one of our “concern” lists for 2014. IP cautioned about the weather related effects in its fourth quarter conference call, expecting a $40-50 million headwind in Q1.

For the full report and tables, please see our published research.

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