Portfolio Changes
The
strong bull market over the past 5 years has driven a
handful of our companies’ valuations to fair or even over-valued in our
statistical models. These stocks have done very well for our clients, however,
there is a time to take profits and we believe that time is now for some of
these companies. As a result, we are in the process of selling a few positions
in favor of stocks with better long-term outlooks.
Reviewing
our companies and rotating out of underperforming stocks into those we feel
have better prospects for our clients is standard operating procedure for us.
However, our plan for when we re-invest the cash raised from these sales is
not.
Holding for Opportunities
Our
investment strategy at Donaldson Capital Management has 3 priorities: security,
income and growth. The most important priority being preserving investment
capital for our clients. As a result, we will be holding onto the cash raised
in sales for a bit longer than we normally would.
We
have identified several quality stocks that our models
currently indicate are undervalued. In the event that the market pulls
back on Government default fears, we will have 10-15% cash available to buy
great companies at more attractive prices if opportunities arise.
Long-Term Market Prices Moving Higher
As
we said in last
week’s Take Aways, we believe any negative market impact from the political stalemate and potential default will
be relatively short-lived. We still believe that to be true. At the end of the
day, the Government shutdown does not eliminate peoples’ need to brush their
teeth or drive their vehicles. People are still going to wake up in the morning
and go about their business. Every day, people all over the world are using the
products our companies make. That is not going to change.
Fundamentals
are still very strong with improving earnings and revenue outlooks for 2014 and
2015. Our regression models show overall stock market prices to be undervalued
relative to historical fundamentals. The uncertainties in Washington D.C. will
drive the Federal Reserve towards continued economic stimulation. All of these
things are positive for stocks. In the long-run, we expect the markets to be
heading higher. Any pause or sell-off in the
market could be a good opportunity to get on board.
