We’ve got a great newsletter this week for you. We’ve got a Bull List addition and removal, along with a shift in my strategy regarding my financial stocks here in Canada.
There’s plenty to discuss, so let’s dive right into it first with my moves for the week.
My portfolio moves
I made two moves this week: one cutting ties with a company that had promise but has put up some disappointing results, and another being a core US position I added with the proceeds of selling 1/3 of my Bitcoin position to get it back to allocations.
I sold Illumin Holdings (TSE:ILLM), formerly Acuity Ads, inside my TFSA. The company’s ad tech is top-notch, but it seems like management cannot string together results. The company is struggling to acquire new clients, and revenue has essentially flatlined.
I don’t blame those who wish to hold on to the company, as valuations are certainly discounted. It has a market cap of $76M with over $50M in cash. However, the results and forward guidance are a bit concerning, and the CEO seemed more adamant about mentioning how many shares he has recently purchased instead of speaking on what the company is going to do moving forward to get out of its rut.
I took the proceeds from this sale and added to my position in Constellation Software (TSE:CSU).
The second purchase was a core position in Visa (V), around 2.8% of my portfolio. I’ve wanted to establish a position in the company ever since we built out our Dividend Growth model portfolio that contains Visa, as I feel the company is the best payment processor on the planet.
The decision to purchase Visa over Mastercard simply came down to valuation. Although Visa is still expensive, much like most US stocks, it trades at a relatively large discount to Mastercard despite relatively similar growth.
Mastercard has been the better performer in terms of top and bottom line growth; however, Visa has been closing the gap as of late, and I do feel the relative discounted valuation presents a better opportunity at this time.
As always, you can view my complete portfolio by logging in, going to the “Premium” menu selection, and clicking Dan’s Portfolio.
We’ve added National Bank (TSE:NA) to the Dividend Bull List
If you’ve been a member here for a long period of time, you’ll know that we typically keep a single bank stock on the Bull List and deploy a mean reversion strategy. This means we pick the worst-performing bank stock over the past year, and the thesis is that they will revert back to typical valuations and thus outperform the other institutions.
This has been a profitable investment strategy over the last 15 years. In fact, a mean reversion bank strategy, which would be allocating the most to the previous weakest performing bank, has outperformed a simple equal weight banking strategy by nearly 2% annualized since 2007.
However, this has changed in a post-pandemic world, and the strategy has struggled for some time now. Case in point, look at an institution like the Bank of Nova Scotia. It would have been a prime candidate for a mean reversion strategy for years and simply hasn’t worked out.
For this reason, we will shift to simply highlighting the best institutions in the country, such as Foundational Stock Royal Bank and National Bank.
I won’t speak too much on National inside this email as we have a jam-packed report on the company that you can read by clicking the link below.
Click here to read our full report on National Bank (TSE:NA)
I will be making some moves when it comes to my banks in a week’s time
When we highlight a Bull List stock at Stocktrades, we introduce a 7-day window during which we do not add the position to our portfolios. This is done to maintain the highest levels of transparency on the platform.
However, I plan to add a core position in National Bank once that seven-day window is closed, and I will do so by selling my positions in Toronto Dominion Bank and Bank of Montreal.
This will leave my banking exposure at three companies: Royal Bank, Equitable Bank, and National Bank.
I do want to highlight the fact that I do not believe TD or BMO are weak banks.
However, portfolio consolidation and the fact that National has been posting the best results out of the institutions for quite some time now leads me to head in this direction.
As someone who has deployed a mean reversion strategy with the banks for most of my investing career, National was never really on my radar because it never really was one of the worst performers.
However, it makes sense for my portfolio now that I have shifted out of this strategy and into one that simply plans to buy and hold the best institutions.
As always, if you have any questions, just head to the Q&A on the website and ask.
