What I Watch in My Stocks, Part 1

Now that I’ve covered how I personally invest, and even disclosed the holdings in the portfolio I manage, I thought I would breakdown why I chose the particular investments that I hold mentioned in my disclosure statement. All but Berkshire Hathaway (NYSE: BRK-A; NYSE: BRK-B) will be releasing quarterly earnings over the next two weeks. While the earnings releases probably won’t be the only trigger to sell any of these holdings, they are the first thing that I would examine if I think the company is no longer meeting my personal expectations.

For each of the 11 individual stocks* that I have purchased, I will provide a one word “driver” that I look at nearly anytime I see results from the company. There is obviously more than this one thing for each company, but as I was making a quick list, I realized that these were the things that jumped out for both reasons I will keep holding and why I would decide to sell. I am also going to include the earnings date, as applicable, for each company, and I intend to write a quick earnings review for each company after those earnings are released.

*I have decided to break this into two posts sense 1,500 words is just way too many for one, so be sure to check out Part 2 tomorrow.

Activision Blizzard, Inc. (Nasdaq: ATVI) [Earnings – May 3 After Market Close (AMC)] – The word with Activision Blizzard is SUBSCRIBERS. The company, famous for video game franchises like Call of Duty, Warcraft, and StarCraft (among many others), is driven by its subscription base. Even though they generally drop the latest version of Call of Duty every year, the real driver for their success is the transactions beyond spend $60+ on the latest version of their tent pole games. Warcraft is still charging along, with a few million people paying $15/month to stay immersed in that world. But Activision Blizzard also acquired King Digital Entertainment, allowing it to tap into more than 500 million users of mobile games like Candy Crush. In some sense, they are now a “diversified” gaming company, able to garner gaming revenue from multiple distribution streams.

Amazon.com, Inc. (Nasdaq: AMZN) [Earnings – April 26 AMC] – Amazon doesn’t see much margin from its retail business, so the word for Amazon is CLOUD. The growth of the company’s Amazon Web Services (AWS) has been what analysts pay the most attention to, and I don’t blame them. AWS revenue jumped 45% during the fourth quarter of last year, accounting for 64% of Amazon’s total operating income. The acquisition of Whole Foods will help Amazon get a place at the grocery table, but AWS is the true driver of success with the company. I would expect AWS’s growth to start to slow, but if it continues growing rapidly, I’m not going to complain.

Berkshire Hathaway [does not report quarterly earnings] – As I covered last week, the word with Berkshire Hathaway is BUFFETT. As Uncle Warren goes, Berkshire goes. Even though they don’t participate in the quarterly earnings game with most other companies, the Berkshire Hathaway annual meeting is happening next weekend. In lieu of earnings, I will be reading what Buffett says about the company and the state of the economy, but I also don’t think I will even consider selling Berkshire Hathaway until he is no longer running it.

Miller Industries, Inc. (NYSE: MLR) [reported annual earnings March 7] – This is another company that a located through another source, this time from the students at University of Illinois’ Real Client Managed Portfolio. I participated in this class the spring of 2014 when I was working on my MSF at the school, and I keep an eye on the research that they do for the real money portfolio that is central to the course. Professor Waspi teaches the student how to evaluate companies, they build financial models to examine the company, and then present their findings to the class. During my tenure in the class, we didn’t manage to find anything worth buying, but the class during the spring semester of 2016 found Miller Industries. The word for this company is TRUCKS, as they are currently the world’s largest manufacturer of towing and recovery equipment. As long as they continue to sell these trucks, they should remain in my portfolio.

PepsiCo, Inc. (NYSE: PEP) [Earnings – April 26 BMO] – The word with Pepsi is SNACKS. I purchased Pepsi because my mother is a lifelong drinker of their signature product, but also because it is diversified into snacks through its ownership of Frito Lay. Coca-Cola (NYSE: KO) is the leader in its sector, but with people trading in sugary sodas for other beverages, it’s nice to own a company that dabbles in snacks as well. Maybe the trend towards healthier snacks will start to hurt Pepsi in the long run, but for now, I’ll monitor the performance of Frito Lay when determining whether to hold onto the shares.

Be sure to check in tomorrow for four stocks I plan on holding nearly indefinitely… and two stocks that might be the next to leave the portfolio.

Until next time…

I have purchased shares of Activision Blizzard, Amazon.com, Berkshire Hathaway (B-class shares), Miller Industries, and PepsiCo in a portfolio that I manage and continue to hold these shares. I do not intend to sell or purchase any shares during the next 30 days. Feel free to read my full disclosure here.