August 2015 Performance: 2015 Portfolio 1%, 2014 Portfolio 9%

Continued bad news in the markets has caused a significant downturn for both portfolios this month. Economic slowdown in China was the biggest hit to global markets, specifically their surprise yuan devaluation.  While news about Greece's economy has died down, the financial debt problems still continue to be a concern.  At the same time, it was announced that Canada had slipped into a technical recession (two consecutive quarters of negative growth) during the first half of the year.

Here's the portfolio holdings that we created in May of this year.  Last month, it was up over 6% but at the end of August, the May2015 portfolio was only up 1%. It has shed nearly 5% which is reflective of the overall Toronto stock market.  National Bank (NA), the lone financial stock has taken the biggest hit, now down 12%.  Stella Jones (SJ) down 1%, and Telus (T) just breaking even.  The remainder of the stocks appear to be faring ok for now.

Here's the comparison chart of the May2015 holdings versus the broader TSX, since portfolio inception.  The TSX is down almost 8% mostly due to energy and resource holdings weakness.

The May2015 performance chart shows a wild roller coaster during the month of August.

July 2015 performance

Sorry for not posting at the end of  June 2015, but we are back now.  Let's recap what's affected the Toronto stock market this past month.  All bad news, sorry.

Low oil and commodity prices
Canada's economy on the verge of a recession
Greek debt crisis
China stock market sell-off

Above is the one month graph of the TSX.  The overall market continues to decline. Booo.

Here's the sector map of the Toronto markets for the past 30 days.  There are 8 sectors with similar stocks grouped together.  Clockwise - [top left corner - Materials] , [top centre -Energy], [top-right corner -Consumer Discretionary], [right centre - Industrial], bottom right corner - Healthcare, Telecoms and Utilities], [bottom centre - Consumer staples), [bottom left corner - Financials], [centre - Technology].  Find this map here. Each square represents a company. The colour of the square indicates if the stock price is negative or positive.

It's pretty apparent from the map above, that materials and energy continue to drag the TSX down. Financials have been neutral last month, but the remainder of the market sectors are positive.

Here's a look at performance of the new portfolio I started two months ago back in May2015.  It's up over 6%, so averaging 3% per month.  Pretty good considering that the May2014 portfolio was only up 1.5% per month this time last year.

We find that overall the majority of the stocks are doing well with the exception of National Bank (NA) and Stella Jones (SJ).  The two winners of this portfolio at the moment are ATD.B and WPK, both with double digit gains.

This is how the portfolio looks graphically.  It was flat for the month of June, with momentum building a couple of weeks ago.

When comparing the May2015 portfolio versus the overall TSX, here's what the graph looks like for the past month.  The portfolio is outperforming the markets by 10%.

If we look at last year's stock selections, they aren't performing as well as this years.  The May2014 portfolio is presently down about 6% from May2015.  All the stocks are still doing well but EQB is still the laggard. If this was a real portfolio I'd consider removing it from the portfolio.  Of special note, GIL dropped nearly 8% yesterday, but I think this represents a buying opportunity.

Overall the May2014 portfolio is still outperforming the TSX though.  Above is the 16 month comparison chart.  The TSX has been flat for the entire time.   If you bought an index fund or ETF that mirrored the TSX, you'd be pretty much in the same boat ...not making any money.

FYI, I've decided to remove the past momentum stock posts from the blog this month so as to focus on the model portfolio performance.

Ok, so that's our look at the portfolios this month.  Hope you enjoyed the read.  

Time for a new portfolio - may2015

So it's now the end of May 2015 and as promised in the last blog post, I've made a selection of stocks to track for the 2015-2016 year.

This year's portfolio will be a small one with an initial investment of $15,000.  As with the may 2014 portfolio, I will continue to apply the same principles to this year's may 2015 portfolio.  To summarize,

Market Capitalization:  the company must be worth over 1 billion dollars

Beta:  the volatility of the stock must be less than 1 (any number higher than 1 means that the stock is more volatile).

Earnings Per Share (EPS):  A positive EPS means that there is profit allocated to each share.

Return on Equity (ROE):  the company's profitability must have had double digit ROE for the current and previous year.

Diversification of the portfolio:  stocks must be chosen from different market sectors (ie, they must be in different lines of business).

Some caveats:

I will still be avoiding energy and resource stocks, but I do think that stocks should in the financial sector should make some gains over the next year.

I won't duplicate any stocks held in the may2014 portfolio.  (really make things hard for myself!).

The initial value of the stocks will be the closing price on Friday May 29th.

If I like a certain stock, I might overlook that it doesn't fulfill all of the characteristics above.

Commissions will not be factored into the portfolio.

Here are the stocks I have selected for the May 2015 portfolio.   There are seven of them:

ATD.B - Alimentation Couche-Tard - A grocery store chain that operates in North America and Europe.  The past one year return (May2014 thru May2015) was 64%.  Dividend yield is inconsequential.

Key stats and ratios

Q1 (Feb '15) 2014

Net profit margin 2.72% 2.14%

Operating margin 4.22% 2.72%

EBITD margin - 4.14%

Return on average assets 8.50% 7.70%

Return on average equity 20.00% 22.60%

Employees 60,000 -

DH - Davis and Henderson - A financial technology provider operating in Canada and the US.  One year return is 24%.   Dividend yield is 3.14%.

Key stats and ratios

Q1 (Mar '15) 2014

Net profit margin 11.52% 9.42%

Operating margin 17.47% 15.66%

EBITD margin - 29.43%

Return on average assets 4.33% 3.59%

Return on average equity 9.41% 8.44%

Employees 4,000 -

EMA - Emera - An energy company operating in North America and the Carribean.  One year return is 21%.   Dividend yield is 3.88%.

Key stats and ratios

Q1 (Mar '15) 2014

Net profit margin 19.34% 15.24%

Operating margin 25.78% 22.45%

EBITD margin - 33.94%

Return on average assets 6.97% 4.84%

Return on average equity 22.64% 17.00%

Employees 3,530

NA - National Bank of Canada - A Canadian financial services provider.  One year return was 4%.  Dividend yield is 4.29%.

Key stats and ratios

Q2 (Apr '15) 2014

Net profit margin 28.43% 28.15%

Operating margin 30.12% 33.55%

EBITD margin - 51.63%

Return on average assets 0.77% 0.78%

Return on average equity 17.18% 17.89%

Employees 20,125

SJ - Stella Jones - A U.S. based manufacturer and marketer of pressure treated wood products.  One year return was 49%.  Dividend yield is inconsequential.

Key stats and ratios

Q1 (Mar '15) 2014

Net profit margin 8.84% 8.31%

Operating margin 13.99% 12.46%

EBITD margin - 13.98%

Return on average assets 8.84% 8.80%

Return on average equity 16.59% 16.43%

Employees 1,560

T- Telus - A Canadian telecommunications provider.  One year return was just under 2%.  Dividend yield is 3.97%.

Key stats and ratios

Q1 (Mar '15) 2014

Net profit margin 13.72% 11.89%

Operating margin 22.45% 19.88%

EBITD margin - 35.48%

Return on average assets 6.86% 6.36%

Return on average equity 22.00% 18.42%

Employees 43,670

WPK - Winpak - A Canadian packaging manufacturer.  One year return was just over 49%.  Dividend yield is inconsequential.

Key stats and ratios

Q1 (Mar '15) 2014

Net profit margin 11.39% 10.12%

Operating margin 16.88% 14.63%

EBITD margin - 19.14%

Return on average assets 12.28% 11.01%

Return on average equity 15.16% 13.50%

Employees 2,157

For this portfolio, I have purchased 50 shares of each company.  Below is the initial cost to buy shares in each of the companies.  The total initial value of the May 2015 portfolio is $15,274.

While there is no guarantee that these stocks will repeat their performance in 2015, it is worth noting that the combined performance of the stocks in the may2015 portfolio in 2014 was 31%, which is even better than the 25% return of the may2014 portfolio.  Hopefully these stocks will continue their performance into the next year.

My next update will be at the end of June.  At that time we will look at the performance of the new may2015 portfolio and also check in on the may2014 portfolio as well.