Recent Buy – KSU

ksu

Usually I don’t announce my incremental purchases, preferring instead to report in bulk as part of my monthly recap.  There are occasions when an exception is warranted so I figured I’d share my thought process with this week’s post – and the subsequent events.

Kansas City Southern is the smallest of the Class I railroads in the US and operates in Mexico through a wholly owned subsidiary.  Since the election, it has been beaten down as Mexico is reviewing its’ concession, concerns over NAFTA trade and a weakened peso (impacting earnings).

While reviewing my holdings last weekend, I noticed:

  1. The price appeared to have hit bottom and began moving higher
  2. The current price was significantly lower than my $115.07 cost basis
  3. The ex-dividend date was around the corner (Jun 12th)
  4. The Mexican peso has risen over 5% (now 6%) against the USD since October

Figuring there was minimal downside left, on Monday (June 5th) I bought enough (at $95.87) to average down my cost basis to $98.69 – though it’s still less than 1% of my portfolio.

Where it gets interesting is:

  • June 6th – US and Mexico reach agreement on sugar trade – KSU closes at $96.57
  • June 7th – US appears to seek resolution in lumber spat with Canada ($97.46 close)
  • June 8th – Guy Adami (CNBC’s Fast Money) announces position ($98.86 close)
  • June 9th – Pete Najarian (Fast Money) announces position ($99.59 close)

I certainly did not expect this level of activity but sure am glad I chose to average down when I did.  Also not sure what option activity got Fast Money’s attention but suspect we’ll see a little pullback as we go ex-dividend.  Still, 3.7% price improvement in a week and now I’m no longer underwater plus the dividend (small though it may be) – have to say it was a good week!

Now to attempt an encore …

A Sea of Change

There are events that present opportunities through chaos and the US election – as Brexit was – appears to be one.   During these times as the sands are shifting I find it prudent to attempt to handicap the situation identifying strengths and weaknesses primarily using my portfolio as a lens.  Many questions currently have no answers and some stock gains appear to be based on assumptions more than facts.  I do reserve the right to modify my thoughts as more data is obtained.

REITs have generally taken a beating primarily on interest rate fears.  but the same could be said for Telecoms and Utilities.  Telecoms appear to have been spared due to M&A activity.

Financials appear to be a tale of diverging paths.  Pundits are bullish on the big banks but not so much on the little guys.  My guess is M&A will slow among the small banks as Dodd-Frank is tweaked but will accelerate as the reality of profitability through synergy is identified.  Multinational banks will continue to have to deal with Basel III to remain competitive globally tempering some of potential gains.

Healthcare is a wildcard.  To repeal a dysfunctional new scheme to implement an old dysfunctional scheme without morphing it into a newly dysfunctional scheme is ludicrous and where this sector’s profits will be found (until Congress gets wise).

Discretionary will depend on the economy – is the new plan recessionary?

And Mexico?  Strangely silent have been F, UTX, KO, DE and a host of others with operations there.  Then there is the NAFTA treaty which requires Senate action to modify.  It’s difficult to see many California or Texas senators supporting an action that would raise unemployment and reduce tax receipts by shuttering logistics centers.

Basically I see no immediate strategic portfolio change but additional diligence will be required.  A possible watch list might include UMBF, WBS and ONB for exposure to Health Spending Accounts (HSAs); KSU (Mexican trade); and KOF.  Other then the peso valuation and the ADR trade, I know of no other US exposure for KOF (Coca-Cola Femsa).

And how are you surviving?

2015: What Went Wrong

This is the final segment to the best and worst of 2015. This series was inspired Bespoke Investment Group’s article tailored to actual holdings in DGI portfolios. The first post, 2015: What Went Right can be found here.

Again I need to address the caveats:

  • Only publicly disclosed data culled from portfolios in my Blog Directory were used. If your blog is not listed, your data was not included.
  • My data only reflects a snapshot in time. Once entered in my database I generally make no updates.
  • I make no guaranty as to the accuracy of the data either through input errors, processing errors, or the legitimacy of the source data. Meaning, use at your own risk – or you get what you pay for.

Bespoke’s article raised a number of questions in my mind. Although not specifically targeted to the DGI community, I found it to be timely none-the-less. So the question today is why were so many ‘losers’ contained in DGI portfolios?

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