Are you able to be faithful to your portfolio over a long period of time?
I can’t.
I own 5 stocks which I owned 5 years ago.
I own 7 stocks which I owned one year ago, in a portfolio of 22 stocks.
There’s
constantly something more interesting in sight. You own Mohawk
Industries? Yes, it’s a good company, but it’s cyclical, the ROE is OK
but not great and earnings haven’t been that good lately.
Why keeping it
while there’s another great company which is not cyclical, doesn’t have
debt, has a lot of cash and has better ROE and growth? Plus, it’s
selling for 14 times next year’s earnings.
That’s
how I think. You may own good businesses, sometimes, a greater business
crosses your path and you’re not in love anymore. That’s how it should
work, for everything in our lives.
One
of my biggest convictions of the moment is Cognizant Technology (CTSH).
A company that helps smaller companies to transit to E-business. They
operate in various sectors (healthcare, products and resources,
communications and medias).
Among all my holdings, it’s probably the best combination price/potential. Here’s some numbers :
Forward PE : 14
Average PE last 5 years : 23
Annual sales growth last 5 years : 15%
Annual EPS growth last 5 years : 16%
Average ROE last 5 years : 19
Current ROE : 20
Earnings growth next year (estimated) : 13%
Debt : Close to 0
Cash position + receivables: About 25% of the market cap
Earnings predictability according to Value Line : 100%
Dividend and payout : 1% and 18% (they keep most of their cash, but we get a little something).
There’s
obviously some challenges, otherwise the stock would be selling for a
PE around 23 like it’s been the case for the last 5 years. Many
employees are located overseas (in India mostly), and probably that the
commercial war has some impact here. Plus, even though the last results
were good, they seem to have worried some investors about a slowing
growth. Well, to me, a 13% growth (which could be smaller but Value Line
qualifies this company as 100% predictable) with a lot of cash on hand
and no debt doesn’t worry me. Very few businesses are in a similar
position.
Feel free to add some negative points in the comment section. I can’t see too much of them for now.
They are a good, stable business. The challenge is that the faster growing digital part that i think you are describing is only about a third of their overall revenues so they will need M&A to keep up with Accentures, CGIs and whomever they compete with
RépondreSupprimerLook at EPAM. Also in Information Technology Services sector. They have a lot of brain power (most of it out of eastern Europe in places like Ukraine). They have a sexier five year graph and more room to grow.
RépondreSupprimerFor myself, I buy and hold everything, losers along with winners. After 3 years I re-evaluate and try to decide whether to cut bait or continue to hold. And yes, I have held on to some stocks far too long only to watch them drop into oblivion. And yes, I have held onto other stocks that shot way up over their long term moving average only to watch them come back to earth, never rise to those heights again. Perhaps some day in the future I will handle these situations differently. Conversely I have held onto all of my winners and I continue to hold them long after the three year time horizon has been met and passed.
RépondreSupprimerGranted I find with experience, I’m becoming a lot picky about what I buy. And fortunately I have put most of my money into my best investing ideas…I really prefer to keep the decisions I have to make about my investments to a minimum. I guess that’s my way of dealing with the shenanigans of Mr. Market.
In my opinion, Cognizant is a good company but maybe not a great company. In the past five years, I see margins that are decreasing, a decreasing ROE and a growth that is OK, but not that great. What I like to look for is a company which I think the share price can double in the next five years. For CTSH, I personally don't think it can be worth 150$ a share in five years.
RépondreSupprimerJe suis entièrement d'accord avec Frédéric.
SupprimerI just cannot see CTSH as a $90 Billion market cap company in five years.