This model gained a solid 4.9% in February versus 4.1% for the benchmark S&P 500. As typical of this conservative model it tends to gain alongside the market on the way up and outperform during periods of weakness.
February was a slightly more active month for this model with 4 trades mainly switching out of two positions with reduced yields for two positions with attractive yields.
Gilead Sciences (GILD) and Banco Itau (ITUB) were both sold during the month.
Gilead Sciences is a leading biotech firm that greatly reduced their stock buyback program in order in purchase Pharmasset. This virtually eliminated the net payout yield as the company confirmed on the Q4’11 earnings call leading us to selling the stock as it surged on earnings. See blog post for more details.
This was very fortunate for the model as either luck or the reduction of the buyback foretelling weakness ahead, the company announced disappointing drug information just a couple of weeks later leading to a big drop in the stock price.
Banco Itau is a leading bank in Brazil that has failed to keep the yield at an attractive level. In addition, the model decided to reduce the risk of being exposed to a emerging market bank, even though, the total beta of this model was below that of the benchmark S&P 500.
ConocoPhillips (COP) and Kohl’s (KSS) were both bought during February to replace the previously mentioned low yielding stocks sold during the month. Remember that the goal is this model is to stay virtually fully invested (no more than 5% cash) at all times.
ConocoPhillips was purchased with a yield consistently hitting the 14-15% range anchored by a solid 3.4% dividend yield. It was also the top yielding basic materials stock providing for diversification and reduced volatility in the model.
Kohl’s as a leading discount retailer has one of the highest yields topping out over 20% recently. As with ConocoPhillips, most of the yield comes from a large buyback program, but the stock has an attractive 2.7% dividend yield as well.
The market in general remains in a uptrend that likely will lead to multi year highs and possibly eventually to all time highs in the S&P 500. This model will remain fully invested to capture as much upside as possible while protecting against any major downside from owning solid large cap stocks with high yields.
Disclosure: Long COP and KSS. Please review the disclaimer page for more details.