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Happy Monday and the week ahead! Welcome to this 21st post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management.
A quick recap of this series so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI IMI. Typically, there are two posts a week (Mondays and Fridays). The Amazon adverts you see are the source of revenue for this free blog (subject to purchases or subscriptions). There is no remuneration received to evaluate specific companies or add to the portfolio or the watch-list.
From posts 2 to 20: I have evaluated 67 stocks and 4 potential bond additions. The portfolio is long 15 stocks, 1 Bond and short 1 stock. You can read all about it in the previous posts here: https://www.claritech.app/blog
Today, we look at a short summary of last week in the financial markets, a portfolio review and an update on the Q1 2023 earnings announcements, in particular for the stocks in this portfolio and on the watch-list.
Financial Markets:
Equities closed in the positive last week. For the S&P500 Index, gains were led by the Financial Sector (+2.9% for the week) after earnings reports from JPM, Citi and BlackRock had a positive impact on stock prices in the sector. CPI data for March’23 was lower than expected at 5% YoY (a reading last seen in June 2021). Gains were likely capped since
Core CPI (Mar’23) rose to 5.6% from 5.5% in Feb’23 and the FOMC Minutes showed the Fed is expected to raise interest rates in the next meeting (May 2023) as well. The Euro Stoxx 50 and the Dax40 Indices are near their all time highs after CPI data (March) came in lower than expected and indicated that inflation in Europe has likely peaked in October 2022 as well. In addition to this, Industrial Production data for Feb’23 was better than expected. Bond Yields rose, the Dollar Index fell -0.5%, Gold near its all time highs and WTI Crude rose 2% in the week that was.
US Economic Data:
· CPI (Mar’23) at 5.0% YoY (expectation of 5.2%) from 6.0% YoY in Feb’23
· Core CPI (Mar’23) at 5.6% from 5.5% in Feb’23
· PPI and Core PPI (Mar’23) at 2.7% and 3.4% YoY, from 4.9% and 4.8% YoY in Feb’23
· Retail Sales (Mar’23) at 2.94% YoY from 5.88% YoY in Feb’23
· Industrial Production (Mar’23) at 0.53% YoY, lower than 0.95% in Feb’23
U.K and Europe Economic Data:
· Industrial Production (Feb’23) in the Eurozone at +2% YoY (Expectation of +1.5% YoY)
· German CPI (Mar’23) at 7.4% YoY (from 8.7% in Feb’23 and a peak of 10.4% in Oct’22)
· Eurozone Retail Sales (Feb’23) at -3% YoY (9th consecutive negative reading since Jun’22)
· UK Industrial Production (Feb’23) at -3.1% YoY (8th consecutive negative reading since Aug’22)
Economic Data This Week: Industrial Production and GDP data from China, CPI & PPI data from UK, Housing data from US, Projections for Manufacturing and Services PMI (APR) from the Euro Area
Portfolio Update:
· Since Inception, the portfolio is up +5.11% while the benchmark is up +0.54%
· All Asset Classes: Equities, Bonds, Real Estate and Cash have contributed to positive performance in the portfolio.
· Biggest gainers: Google, Glencore, Maersk, Infineon, BMW and US Steel.
Among the financials, Citi is -1.86% away from cost price while Deutsche Bank continues to remain the biggest drag on the portfolio at -12%. These two stocks were initially purchased in the beginning of March. Towards the end of March, post the Silicon Valley Bank closure and turbulence that followed in the financial sector, I re-looked at these two and increased exposure to them by 1%. You can read about it in post 16 here.
· Risk Measurements:
Sharpe ratio: 4.21, Sortino: 6.94 and Standard Deviation: 0.38% (Risk measures are looking good!)
· At the current rate, this portfolio is expected to meet its objective of beating inflation and outperforming an equity index.
Details of Portfolio Allocation are in the below graphs.
Earnings Q1 2023
A couple of reminders before we go into todays evaluation:
· The term Shareholder Yield refers to a ratio that measures the total amount of money the company is returning back to shareholders in the form of cash dividends, net stock repurchases, and debt pay down.
· You can expand the graphs by clicking on them.
Citigroup posted earnings of US$ 1.86 per share and Revenues of US$ 20.73B, beating analyst expectations on both. Citi is seeing improvements on financial metrices (last 12 months data) that I usually look at while evaluating stocks. Revenue growth has improved from -5.9% in the last quarter to -1.9% in this quarter, operating income margin from 26.7% to 27.6% and unlevered free cash flow margin has improved from 91.7% to 108.3%. Shareholder yield has fallen slightly from -10.2% to -11.6%. The stock was up 4.7% on Friday.
JPMorgan posted earnings of US$ 4.1 per share and revenues of US$ 38.3B, beating analyst expectations on both. Changes in last 12 months data from last quarter to this quarter: Operating income margin has improved from 38% to 40.6% and revenue growth has improved from -6.6% to +4.4%. Shareholder Yield has fallen from 12.4% to 5.5% and Free cash flow margin has fallen from -38.6% to -132.7%. The stock was up +7.4% on Friday.
HDFC bank posted earnings of US$ 0.79 per share and revenues of US$ 3.92B, falling short of expectations on earnings and beating expectations on revenues. Changes in last 12 months data from last quarter to this quarter: Revenue growth has improved from 21.5% to 24%, shareholder yield has improved from -5.4% to -2.6%. Operating income margin has fallen from 55.8% to 54.4% and free cash flow margin has +248% to -1183%. The ADR is down -2.7% in pre-open, the stock closed lower today by -1.6% on the National Stock Exchange (India).
In other results, United Health posted earnings of US$ 6.26 per share and revenues of US$ 91.9B, beating expectations on both. Trends in financials continue to improve for the company. However, the stock closed lower by -2.7% on concerns about changes in Medicare.
Blackrock posted earnings of US$ 7.93 per share and revenues of US$ 4.24B, falling short of expectations on the earnings and beating expectations on revenues. Trends in financials continue to fall for the company. The stock closed up +3.1% on Friday.
Wells Fargo and PNC Financial also announced results last week. Wells Fargo posted an earnings of US$1.23 per share and revenue of US$ 20.7B, beating expectations on both. PNC Financial posted earnings of US$3.98 per share and revenue of US$ 5.6B, beating analyst expectations on EPS. Both stocks closed flat on Friday.
Summary of this evaluation:
Q1-2023 Earnings announcements have begun. I continue to track results of stocks in the portfolio and on the watch-list, while I look for opportunities on both the long side and hedges (short positions). After a quick evaluation of results from Citi, JPM and HDFC; there are no changes to the portfolio.
Earnings announcements this week:
Netflix, Goldman Sachs, Bank of America, Legal&General, Rio Tinto Group, Morgan Stanley, Tesla, ASML Holding and BHP Group.
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This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner (whether explicit or implicit). We recommend that you are familiar with the terms of use.
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