Investing and Economic Commentary

Last week, we added Allergan (AGN) to portfolios, which we view as an inexpensive stock offering an attractive risk/reward profile for patient investors. As a matter of quick background, Allergan is a global pharmaceutical company that focuses on four therapeutic areas, including medical aesthetics, eye care, the central nervous system, and gastroenterology.
At Kays Financial, we believe that fixed income allocations should serve multiple purposes for our clients. Objectives include capital preservation, liquidity, an attractive total return, and diversification from equities, which typically provides a ballast to portfolios during economic downturns (as we all know, downturns are unfortunately inevitable over a long enough time-line).
In our day to day routine of researching a wide variety of investment opportunities, we occasionally run into a great business where it’s difficult to justify the purchase price. These businesses get set aside and put into a metaphorical filing drawer to be revisited at a later date when the price looks more attractive.

Scott Kays, CFA, CFP®

December 7, 2018

This year has been a tough one in a lot of ways for investors. For most of the year, the major indices were showing gains, but this masked a lot of turbulence going on under the surface.

Most people use the S&P 500, which consists primarily of large U.S. companies, as their reference for how the stock market is performing. The S&P 500 is a capitalization-weighted index, meaning the larger the company, the bigger its influence on the index’s return.

With recent market volatility, we are rolling up our sleeves and looking for bargains. Over the last week, we took the opportunity to liquidate both our Honeywell International (HON) and Autozone (AZO) positions, as they had exceeded our estimates of fair value.
Your team at Kays Financial likes to purchase businesses that benefit from long-term structural trends, so long as said businesses can be acquired at attractive prices. We think TE Connectivity (TEL) fits this bill reasonably well, and as such, we have recently added TEL to individual stock portfolios.
As you may have seen in your trade confirmations, we added a small position in Citigroup (C) this morning. Our bullish view on the stock is based on a number of factors including 1) an attractive valuation, 2) expected revenue growth with disciplined cost control, and 3) a significant return of capital to shareholders (i.e., through both share repurchases and dividends).
As you have likely seen in your trade confirmations, we are reducing our over-weight exposure to mid-cap ETFs and raising our exposure to small cap ETFs.
Many value investors like to talk about the concept of ‘time arbitrage’. The idea is that there’s an opportunity to earn outsized returns simply being more patient than the short-term oriented Wall Street crowd.
In an effort to keep clients better informed regarding changes in portfolios, we are continuing to send periodic updates after transactions are completed. As you may have already seen in your trade confirmations, we have recently sold Consumer Staples Select Sector SPDR (XLP),