The hottest stocks of the first half of the year – utilities, telecom, and real estate – have gotten cold and wet along with the rest of us in Portland recently. This has sent our income accounts down approximately -3% since the halfway point in the year, but still retain an approximate 10% return since the beginning of the year. Growth accounts have held up better since July, returning approximately 0.3%, but have lagged the income portfolio year-to-date by about 2% (returns depend on specific portfolio).
This move down in the income accounts is not unforeseen and we don’t view this as a reason to be depressed. In fact, as we’ve written in past letters, we’re celebrating in our office and welcome the pullback as SIGNS of opportunity:
SIGN #1: It’s given us some great opportunities to purchase some stocks and look to become fully
invested once again. We purchased Pfizer PFE in all income focused accounts and Facebook FB for the growth portfolios last week. Both have been recommendations from the smart people at Morningstar.
SIGN #2: Whatever drama’s left to play out before the election has only a few weeks left. This may present uncertainty that could result in lower stock prices. We stand ready to fire off more buys if this theory proves true.
SIGN #3: The last sign of opportunity is the… opportunity to buy SIGNS. More specifically we’re looking to invest in the dominant sign company in the country, a billboard company (structured as real estate) called Lamar Advertising LAMR.
Josh Peters, CFA from Morningstar says that while older forms of media advertising (think newspaper, magazine, and radio) have lost a huge amount of market share to online marketing, billboard’s market share has actually increased modestly. Furthermore, webs of state and local regulation keep the supply of new billboards low, which constrains supply and restrains competition. This will help to protect Lamar’s profit going forward.
The company pays a 4.8% dividend currently and projects a 10% growth of that dividend each of the next two years. We find this very attractive especially at a price of $65/share when Peters thinks it’s worth $72/share. We expect to pick this up at the next pullback for the income accounts.
Next month Brian and I will be out of the office during the week of Thanksgiving as we lead an event called THX16 (outwardchurch.com/thx). This event will provide a meal, Christmas tree, and presents to 200 families (1,000 people) from four elementary schools in the Salem area that have asked for help. If we’re drowning in gravy this time next month we may not have a chance to get a blog posted, but we’ll post one as soon as possible the following week.
Thanks again for reading and please let us know if we can do anything for you.
-Tim Porter, CFP®