Background

On November 18, 2019, I posted an article titled “Arguably The Ultimate Retirement Stock Investment Portfolio”. The proposed portfolio includes a list of low-risk, dividend-paying stocks that I believe can outperform the S&P 500 over the longer term. It’s coming up on 12 months since I posted the article, so I wanted to evaluate the performance over what can be considered one of the most volatile periods that I’ve experienced over my 30 years of investment experience.

As a reminder and as described in the referenced article, the intent is to accumulate the chosen stocks at equal weighting when their prices fall below the average drops and summarized in the following table.

Ticker

Company Name

Avg Stock Price Drop (1)

HRL

Hormel Foods Corp.

-10%

TROW

T. Rowe Price Group Inc.

-20%

BA

Boeing Co.

-25%

HD

Home Depot Inc.

-20%

MCD

McDonald’s Corp.

-15%

WDFC

WD-40 Company

-25%

ADP

Automatic Data Processing

-15%

ITW

Illinois Tool Works Inc.

-15%

GD

General Dynamics Corporation

-25%

Notes:

(1) Avg Stock Price Drop = Average drop of the stock price when it dipped below 0% since 1973. Source: YCharts

Portfolio Performance

From November 18, 2019, through October 12, 2020, the S&P 500 index total return has been 15 ½ %.

Source: YCharts

The Boeing stock price reached its accumulation point of $330 on December 16, 2019. Since then, it’s gone down another almost 50%.

Source: YCharts

Reasons for this poor performance have been discussed in several other Seeking Alpha posts. As a business owner, experience has taught me that it’s all about cash flow, and the following chart clearly illustrates that cash flow is a huge issue for Boeing currently.

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Source: YCharts

Automatic Data Processing stock was bought on March 9, 2020, and the price is about back to where I accumulated it.

Source: YCharts

As illustrated in the following chart, ADP’s free cash flow yield is still a healthy 3.7% and has actually increased during the pandemic from just under 3%.

Source: YCharts

Stock in Illinois Tool Works (ITW) was bought on March 9, 2020, and has since appreciated almost 35%.

Source: YCharts

Although ITW’s cash flow yield increased significantly from about 4.3% to almost 7%, it has been trending downward since then to a current level of 4.2%.

Source: YCharts

Hormel Foods has performed admirably over the last year with the stock price increasing by 19% after we bought it on February 27, 2020. It is noticeable that during the 33% market crash in March 2020, HRL’s price decreased by only 17%.

Source: YCharts

HRL’s free cash flow yield has been solid, rising to about 3.2%.

Source: YCharts

Given the market lagging performance of the financial sector, T. Rowe Price has done extremely well with a total return of 42½% since March 9, 2020.

Source: YCharts

TROW’s cash flow yield has also improved from around 4% at the time of the market crash to about 6% now.

Source: YCharts

The McDonald’s stock price has also performed well, increasing by 22½% since we accumulated it on March 9, 2020.

Source: YCharts

It is concerning, though, that MCD’s free cash flow yield is trending downwards and is currently at 2%, the lowest it’s been since 2003.

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Source: YCharts

The WD-40 Company stock price performed better than the S&P 500 index during the market crash, decreasing by about 26% versus 33% for the index. The stock price is up by almost 31% since I bought it on April 13, 2020.

Source: YCharts

WDFC’s cash flow yield has been trending lower since 2005 and is now around 1.7%.

Source: YCharts

One of my favorite stocks, The Home Depot, has performed the best of the stocks in the portfolio, rising by more than 50% since March 12, 2020.

Source: YCharts

HD’s free cash flow yield has also improved over the evaluation period and is now at 5.7%.

Source: YCharts

The trend downwards in the General Dynamics stock price from a high in March 2018 continued with the stock losing another 20% since November 18, 2019. It has gone up by 12%, though, since I bought it on March 12, 2020.

Source: YCharts

Although the stock price is not doing well, its cash flow yield is improving and is up to 6.3%.

Source: YCharts

Conclusions

This article evaluates the performance of stocks proposed in a post on Seeking Alpha last year after their prices dropped to their so-called accumulation points. Except for Boeing, all the other stocks are up between 2% and 52% with an average total return for the portfolio of 18.4% through October 12, 2020, compared to 15½% for the S&P 500 since November 18, 2019.

In future articles, I will discuss additional stocks that I consider buys for the longer term when bought at their proposed accumulations points.

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Disclosure: I am/we are long BA, ADP, ITW, HRL, TROW, MCD, WDFC, HD, GD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



Via SeekingAlpha.com