CWS Market Review – December 31, 2016

CWS Market Review

December 31, 2016
“Don’t you see what’s happening? Potter isn’t selling;
Potter’s buying! And why? Because we’re panicking and he’s not.”

The 2016 trading year has come to a close. For the year, the S&P 500 gained 9.5%, but a lot of that came late in the year. As late as November 4th, the index was up a measly 2% on the year.

This was a very unusual year for Wall Street—and the world. I would guess that if I had told the average professional investor the outcomes of the Brexit vote and the U.S. election beforehand, having that info probably would have harmed his or her portfolio. Here’s an amazing stat: 295 stocks in the S&P 500 beat the index this year.

Not only did the unexpected happen, but those unexpected events drew unexpected responses. In this week’s CWS Market Review, I’ll go through all the numbers on our Buy List’s performance. I’ll also list the details on the 2017 Buy List.

The Final Numbers for 2016

Now let’s get to the numbers. For 2016, the S&P 500 gained 9.54%, while our Buy List gained 0.99%. Although we did make a profit, we trailed the broader market. This was only the second time in the last decade in which we lost to the market.

Including dividends, the S&P 500 gained 11.96% this year, while our Buy List gained 2.17%.

Over the long haul, we’re still doing quite well. Over the last 11 years, the total compounded gain for the Buy List is 169.39%, compared with 126.63% for the S&P 500.

With the Buy List, I always try to be as transparent as possible. The table below details the Buy List’s performance for 2016. I’ve listed each stock, along with the number of shares and the starting and ending prices. For tracking purposes, I assume the Buy List is a $1 million portfolio that starts out equally divided among the 20 stocks.

Stock Shares 12/31/15 Beginning 12/30/16 Ending Profit/Loss
ADS 180.7861 $276.57 $50,000.00 $228.50 $41,309.62 -17.38%
AFL 834.7245 $59.90 $50,000.00 $69.60 $58,096.83 16.19%
BBBY 1,036.2694 $48.25 $50,000.00 $40.64 $42,113.99 -15.77%
BCR 263.9358 $189.44 $50,000.00 $224.66 $59,295.82 18.59%
BIIB 163.2120 $306.35 $50,000.00 $283.58 $46,283.66 -7.43%
CERN 830.9789 $60.17 $50,000.00 $47.37 $39,363.47 -21.27%
CTSH 833.0556 $60.02 $50,000.00 $56.03 $46,676.11 -6.65%
ESRX 572.0169 $87.41 $50,000.00 $68.79 $39,349.04 -21.30%
F 3,548.6160 $14.09 $50,000.00 $12.13 $43,044.71 -13.91%
FISV 546.6871 $91.46 $50,000.00 $106.28 $58,101.90 16.20%
HEI 919.7940 $54.36 $50,000.00 $77.15 $70,962.11 41.92%
HRL 1,264.5422 $39.54 $50,000.00 $34.81 $44,018.71 -11.96%
MSFT 901.2257 $55.48 $50,000.00 $62.14 $56,002.16 12.00%
ROST 929.1953 $53.81 $50,000.00 $65.60 $60,955.21 21.91%
SBNY 326.0090 $153.37 $50,000.00 $150.20 $48,966.55 -2.07%
SNA 291.6642 $171.43 $50,000.00 $171.27 $49,953.33 -0.09%
SRCL 414.5937 $120.60 $50,000.00 $77.04 $31,940.30 -36.12%
SYK 537.9815 $92.94 $50,000.00 $119.81 $64,455.56 28.91%
WAB 703.0371 $71.12 $50,000.00 $83.02 $58,366.14 16.73%
WFC 919.7940 $54.36 $50,000.00 $55.11 $50,689.85 1.38%
Total     $1,000,000.00   $1,009,945.07 0.99%

Note that Hormel Foods (HRL) split 2-for-1 in February.

The 2017 Buy List

Now let’s turn our attention to the new Buy List. We’re expanding the Buy List to 25 names. Here again are the 25 stocks for 2017:

Alliance Data Systems (ADS)
Axalta Coating Systems (AXTA)
Cerner (CERN)
Cinemark Holdings (CNK)
Continental Building Products (CBPX)
Cognizant Technology Solutions (CTSH)
CR Bard (BCR)
Danaher (DHR)
Express Scripts (ESRX)
Fiserv (FISV)
Hormel Foods (HRL)
Ingredion (INGR)
Intercontinental Exchange (ICE)
Microsoft (MSFT)
Moody’s (MCO)
Ross Stores (ROST)
RPM International (RPM)
Sherwin-Williams (SHW)
Signature Bank (SBNY)
JM Smucker (SJM)
Snap-on (SNA)
Stryker (SYK)
Wabtec (WAB)

Here’s the new $1 million portfolio, now divided equally among 25 stocks. Below are all 25 positions, with the number of shares for each and the closing price for 2016. Whenever I discuss how well the Buy List is doing, the list below is what I’m referring to. The Buy List is now locked and sealed, and I can’t make any changes for 12 months.

Company Ticker Price Shares Balance
AFLAC AFL $69.60 574.7126 $40,000
Alliance Data Systems ADS $228.50 175.0547 $40,000
Axalta Coating Systems AXTA $27.20 1,470.5882 $40,000
Cerner CERN $47.37 844.4163 $40,000
Cinemark CNK $38.36 1,042.7529 $40,000
Continental Building Products CBPX $23.10 1,731.6017 $40,000
Cognizant Technology Solutions CTSH $56.03 713.9033 $40,000
CR Bard BCR $224.66 178.0468 $40,000
Danaher DHR $77.84 513.8746 $40,000
Express Scripts ESRX $68.79 581.4799 $40,000
Fiserv FISV $106.28 376.3643 $40,000
HEICO Corporation HEI $77.15 518.4705 $40,000
Hormel Foods HRL $34.81 1,149.0951 $40,000
Ingredion INGR $124.96 320.1024 $40,000
Intercontinental Exchange ICE $56.42 708.9685 $40,000
Microsoft MSFT $62.14 643.7078 $40,000
Moody’s MCO $94.27 424.3131 $40,000
Ross Stores ROST $65.60 609.7561 $40,000
RPM International RPM $53.83 743.0801 $40,000
Sherwin-Williams SHW $268.74 148.8427 $40,000
Signature Bank SBNY $150.20 266.3116 $40,000
JM Smucker SJM $128.06 312.3536 $40,000
Snap-on SNA $171.27 233.5494 $40,000
Stryker SYK $119.81 333.8619 $40,000
Wabtec WAB $83.02 481.8116 $40,000
Total       $1,000,000

The 25 stocks range from a market cap of $483 billion for Microsoft to $924 million for Continental Building Products. The average market cap is $38 billion, but that’s heavily distorted by Microsoft. Take out MSFT, and the average market cap is just under $20 billion. Fourteen of the 25 stocks fall between $4 billion and $20 billion in market value.

Eighteen of the 25 stocks pay dividends. Currently, the Buy List has a yield of 1.48%.

Only AFLAC and Fiserv have been on the Buy List all 12 years. This is Stryker’s 10th year. Danaher is returning to the Buy List after a seven-year absence.

Our Ten New Members

Here’s a brief look at our ten new stocks, plus their starting Buy Below prices. I’ll have more to say on each stock in upcoming issues.

Axalta Coating Systems (AXTA) is a Philadelphia-based coatings company. The stock had its IPO two years ago. It was previously owned by The Carlyle Group. Buy Below $30 per share.

Cinemark Holdings (CNK) runs a chain of movie theaters in the United States, Taiwan and South America. Buy Below $42 per share.

Continental Building Products (CBPX) is a “leading manufacturer of gypsum wallboard, joint compound and complementary finishing products.” Buy below $26.

Danaher (DHR) is a diversified manufacturer. The stock has been an amazing long-term winner. Buy below $83 per share.

Ingredion (INGR) calls itself “a global ingredient-solutions company.” They turn plants into ingredients for food. Buy below $134.

Intercontinental Exchange (ICE) runs several exchanges, including the New York Stock Exchange. Buy below $61.

Moody’s (MCO) is a credit-rating agency. They also own Moody’s Analytics. Buy below $103.

RPM International (RPM) makes building materials and adhesives. The company has increased its dividend for 43 consecutive years. Buy below $58.

Sherwin-Williams (SHW) is mostly known for its line of paint. The company recently bought Valspar for $9 billion. Buy below $289.

JM Smucker (SJM) makes a lot more than jelly. The company makes a broad line of food products. Of course, with a name like Smucker’s, it has to be good. Buy below $136.

I’m also lifting the Buy Below on CR Bard (BCR) as $230 per share.

That’s all for now. The new trading year begins bright and early on Monday morning. We’ll get some of the key turn-of-the-month econ reports. ISM comes out on Monday. The ADP payroll report is on Wednesday. Then the big jobs report comes out next Friday. Be sure to keep checking the blog for daily updates. I want to wish everyone a happy, healthy and profitable New Year. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 eight times in the last ten years. This email was sent by Eddy Elfenbein through Crossing Wall Street.
2223 Ontario Road NW, Washington, DC 20009, USA


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