Pape’s Growth Portfolio survives market meltdown

05-16-2020
Pape’s Growth Portfolio survives market meltdown

Breaks even and poised for recovery

 

There are times when breaking even looks pretty good. This is one of them.

We created a Growth Portfolio for my Internet Wealth Builder newsletter in August 2012 with an initial value of $10,000. It has performed very well over the years, but I expected to see a sharp decline in the wake of the market crash. I was pleasantly surprised when that did not happen.

I have always stressed that this is a risky portfolio, with 100% exposure to the stock market and a primary (but not exclusive) focus on momentum plays. So it should only be used by readers with higher risk tolerance. The target annual compound rate of return was initially set at 12%.

Here are the stocks that make up the current portfolio, with an update on how they have performed since my last review in late September. Prices are as of mid-day on April 9.

Waste Connections (NYSE: WCN). This stock was added to the portfolio in March 2019. The shares reached a high of US$105.17 before the market collapsed, but we still have a small net positive return. Waste collection is clearly an essential service, so while we may not see much growth for the next several months, this looks like a solid stock to hold on to. We received two dividends totalling US$0.37 per share.

Alimentation Couche-Tard (TSX: ATD.B). The stock split two for one at the end of September, so we now own 140 shares. The stock is down $4.85 (post-split) since the last review in September, a loss of almost 12%. The means it has done better than the overall market. The quarterly dividend was raised slightly, to $0.07, effective with the March payment.

WSP Global Inc. (TSX: WSP). This international engineering and technology firm rather surprisingly saw its share price jump over $6 in the period since our last review. However, it had been as high as $98.12 before pulling back. Because of timing, we received three dividends totaling $1.125 per share.

Shopify (TSX: SHOP). Shopify continues to astound, although its business model – creating eCommerce platforms for small business – is right for the times. The shares actually soared to a high of $786 pre-crash, but even with the pullback, they are up almost $200 from our last review. This stock does not pay a dividend.

CGI Group (TSX: GIB.A). Based in Montreal, CGI is the fifth largest independent information technology and business consulting services firm in the world. However, the COVID-19 crisis has had a detrimental impact on its business and the shares are down more than $20 (19.3%) since the last review. CGI does not pay a dividend.

Nike (NYSE: NKE). Nike is the world’s leading manufacturer of sportswear. We added the stock in September 2018 at US$87.35 after an impressive growth spurt. However, with all the ups and downs in the market, the stock is trading at around its original purchase price. The prospects for growth in the short- to mid-term are poor. We received two quarterly dividends totalling US$0.49.

Apple Inc. (NDQ: AAPL). Apple continues to perform well despite a slowdown in China sales. Since our last review, it is up by US$46.60, although it is down from a 52-week high of $327.85. This is normally not a volatile stock, but these are unusual times. We received two dividends for a total of US$1.54 per share.

United Parcel Service (NYSE: UPS). This is the world’s largest package delivery company (yes, even bigger than FedEx) and is on the leading edge of new delivery technologies, especially in the healthcare sector. We added it to the portfolio in September at US$118.85 and the shares went as high as US$125.31 before pulling back. We have a losing position thus far, but we like the prospects for UPS in a world where eCommerce is growing rapidly, so we will retain this position.

Equitable Group (TSX: EQB). We added this Canadian mortgage lending service last September when the company was showing tremendous growth. It seemed like a good idea at the time but now with the economy effectively shut down, mortgage lending is not the place to be. The shares are down $37.87 since September, and we are not going to ride them down any further.

Cash. We received interest of $13.65 on our cash holdings at Motive Financial.

Here is how the portfolio stood at midday on April 9. Commissions are not considered. The U.S. and Canadian dollars are treated as being at par but obviously gains (or losses) on the American securities are increased due to the significant exchange rate differential.

Comments: Despite the incredible volatility in the markets, I’m pleased to report that the Growth Portfolio broke even over the latest period. The total value last September was $47,558.96. It is now $47,575.64. As of mid-May, it’s doing even better, as prices for most holdings have advanced since my April 9 update.

We had some big losers during the period, notably Equitable Group and CGI. But gains from Shopify, Apple, and, to a lesser extent, WSP Global helped to offset those losses.

The total gain over seven and a half years stands at 375.8%. That’s an average annual compounded rate of return of 23.12%. It’s down slightly from the September number, but given the current state of the markets, I am pleased with the result.

Changes: None of this means we should stand on our laurels, however. In a Growth Portfolio, we need to respond quickly to dump the losers and replace them with stocks that have better potential in the current environment.

Accordingly, we will sell our positions in Equitable Group, CGI Group, and Nike. Including retained earnings, that will give us $10,868.20 to reinvest.

We will buy 180 shares of Pfizer Inc. (NYSE: PFE) for $35.38 for a total investment of $6,368.40. Pfizer is one of the leaders in the search for a treatment for COVID-19. The price/earnings (p/e) ratio is a reasonable 12.34, and the stock pays an annual dividend of $1.52, to yield 4.3%.

We will also buy two shares of Amazon.com Inc. (NSD: AMZN) at $2,042.76 for an investment of $4,085.52.

That’s a total investment of $10,453.92, leaving $414.28, which will be added to our cash reserve.

With retained dividends, our total cash is now $1,623.32. We will keep the money at Motive Financial, which pays 2.2% on its Savvy Savings Account.

Here is the revised portfolio. I will review it again in my Internet Wealth Builder newsletter in August.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. This article originally appeared in The Toronto Star. Used with permission.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.