Question:
I’ve been steering clear of retailers, I’m skeptical, but open minded…do you have a case for it?
Answer:
The trend in retail sales dictates the action in retail stocks. From a big picture perspective, payrolls, home prices and fuel costs remain the key variables for retail sales this year. Consumer confidence plays a roll as well. Generally, retailers do well recovering from a recession, as employment improves. From 2009 through today, the retailers index is up more than 148%. Even this year alone, retailers are up 25%. We still see some value in retail stocks, as employment and payrolls are still expected to improve. With the housing market improving, retailers like The Lowes Companies (NYSE: LOW), The Home Depot Inc. (NYSE: HD) and Target Corp. (NYSE: TGT) should do well.
As for the types of retail companies, we look for certain characteristics. We like companies that control the quality of the product they sell like Ralph Lauren Corp. (NYSE: RL) or Costco Wholesale Corp. (NASDAQ: COST). We look for companies that control their inventory and ones that do not use a credit card division to manage their business. We also like retailers that own real estate.
We believe that real estate is an undervalued aspect of a retail business. Consider the Walgreens (NYSE: WAG) or McDonald’s (NYSE: MCD) on the corner. They own the land, so what is the rent factor?
We also like stores with free cash flow, but you shouldbe selective. Online retailers like Amazon are definitely hurting some of the brick and mortar stores. We like secular and structure stores like Advance Auto Parts (NYSE: AAP), Target, and Kohl’s Corp. (NYSE: KSS). You can get many of the strong retail names at or below a price to earnings to growth ratio of 1. Additionally, many pay a healthy dividend.
Question:
What is your current position on Google? I didn’t sell it when you did in 2010. I think I’d like to sell some and take some profits this year before capital gains increase. I’m just unsure how much to sell. It is about 5% of my portfolio.
Answer:
We recommend holding about 3% of your portfolio in Google, Inc. (NASDAQ: GOOG). We thought another company would develop a better search engine as competition, but Google has surprised us by becoming more entrenched in our lives with more applications and services. Their recent deal with Motorola could prove to be a good competition for Apple’s iPhone.
Question:
I have around $7,000 in AT&T (NYSE: T) shares. It’s approaching 5% of my portfolio. I know you’re OK with a position being up to 10%, but I wanted to know if this is worth holding or should I trim it before the end of the year?
Answer:
We believe the telecommunication stock has had a good run. They may have gotten ahead of themselves with the anticipation and excitement behind the iPhone 5. However, telecoms are the No. 1 sector in price increases this year, as the sector is up more than 21% year-to-date. We recommend taking some profits, up to half of your holdings. However, with a dividend of more than 4%, it certainly should not hurt you to hold AT&T.
Question:
I own Colgate-Palmolive. From following you, I know you prefer Kimberly Clark or Church & Dwight. Any compelling reason I should switch? I’ve held Colgate since 2009.
Answer:
At this point in the economic recovery, there is no reason to switch. All of the consumer staples names you have mentioned have done well in the last year and a half. The only reason we have been reluctant to own Colgate-Palmolive Co. (NYSE: CL) is that the dividend yield is less than some others. Colgate-Palmolive is a good company that gets a A++ rating for safety by Value Line. The company has a lot of debt, but with a beta of 0.61, the market does not see it as a problem. We recommend holding.
At Henssler Financial we believe you should Live Ready, which includes knowing when it is wise to trim your holdings. If you have questions regarding your investment portfolio, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.