My allocated portfolio for the Capitalize4Kids competition

In my earlier post, I talked a bit about typical investing/stock market competitions and making an exception for C4K. Continuing with this competition, one week has gone by and I have finished allocating my portfolio.

While I may make some adjustments here and there, I do plan on holding majority of the securities in place all the way to the end. So let’s get started with which trades I placed and why I placed them.

A bit of top-down, a bit of news, a bit of macro

As I’ve mentioned before, I’ve always focused more on trading than investing so there’s a lot I don’t know. I’m not a full blown equity analyst capable of crafting up DCF statements and performing ratio comparables. So instead, I’ll stick to what I know. Let’s see me do my best translating the latest news and macro-economic outlook into executable trades.

Trump, North Korea, and a big game of chicken

I’ve mentioned this in my earlier FX posts and it does warrant bringing it up again. Slapping more sanctions on North Korea is going to change very little. Their nuclear and missile program isn’t going to come to a halt, it’s just not going to happen. North Korea’s state news agency KCNA stated “The US and the South Korean puppet forces are mistaken if they think that sanctions and pressure will keep [North Korea] from attaining the goal of completing the state nuclear force.” North Korea will continue to remain committed to becoming a state nuclear force. While Secretary of State Rex Tillerson has taken a more calculated approach when dealing with North Korea, President Trump is essentially threatening to blow “Little Rocket Man” into smithereens.

Last Thursday, President Trump posed for a photo with US military leaders captioning it as “the calm before the storm”. What storm? If there is a storm coming, the defense sector is probably expected to perform very well. President Trump further suggests military action stating “only one thing will work” referencing previous administrations have been unsuccessful when negotiating with North Korea.

I have loaded up my stake in aerospace and defense stocks as followed:

  • BWX Technologies (NYSE: BWXT)
  • Lockheed Marting Corp. (NYSE: LMT)
  • Northrop Grumman Corp. (NYSE: NOC)
  • United Technologies Corp. (NYSE: UTX)

Since Trump became a serious contender in the presidential race in late 2016, defense stocks have experienced tremendous gains to which I assume investors have been pricing in their profitability for the years to come. It’s no secret that President Trump is pushing for a $700 billion defense budget so I think these four aerospace and defense picks will pay off until the end of December.

Betting on retail, consumer goods and services

Unemployment rate is at 4.2% low, the labor force has a 63.1% participation, and non-farm payrolls have consistently added jobs except for the recent 33k decrease attributed to the severe wether.

With Toys R Us bankruptcy in the spotlight, I would certainly hope retailers are ramping up their Q3 sales to boost profitability before the fiscal period ends. A few retailers in particular have gotten my attention.

The Nordstrom Inc. (NYSE: JWN) family is looking to go private in order to better pursue operations that they are interested in. This stock has had its up and downswings in the past few months as it came close to securing the capital needed with a private equity partner before going back to square one. I believe the sell-off is largely over-dramatized. Nordstrom remains a solid company and I believe any company that is keeping up with the eCommerce trend is worth considering. Regardless of whether they secure the capital necessary to go private, profitability shouldn’t be a problem. Ideally, I would hope they do reach a deal with a private equity partner as investors would buy up the stock hoping the family would pay a healthy premium for the buyout.

Target Corp. (NYSE: TGT) and Costco Wholesale Corp. (NASDAQ: COST) are two other retailers that I believe will continue to demonstrate continuous growth. Both retailers have carried out their own expansion operations. Target slashed prices off thousands of items to offer new permanent low prices as a way to compete on a price level. Additionally, Target’s Restock program is expanding to rival Amazon’s Prime services to offer next day delivery of basic goods. Over on the longer horizon, Target is also revising its store layout to offer an express entrance for convenience shopping. I believe this proactive measures will be reflected in their next earnings release. Costco, on the other hand, is making international expansions recently opening a store on Tmall, owned by China’s e-commerce giant Alibaba. This means that Costco has gained government and regulatory approval to operate in China, which is usually very hard to come by. This could potentially open up Costco to a whole new market. The timing isn’t perfect since I only have a three month holding period, but I am looking to have investors price in this expansion for future profitability.

Tax reform, more profits, ride the wave

The markets are rather optimistic of President Trump’s tax reform. If it passes, corporate tax rate will drop to 20% benefiting the US financial sector drastically. This along with supposed laxing of banking regulations, the six US banks could see net income rise as much as $6.4 billion or 7% according to Bloomberg.

BBG Profits

So guess which banks I bought? Aside from the ones listed in this chart, I also bought Voya Financial Inc. (NYSE: VOYA) mainly because of the technical chart. The technical outlook indicated it broke a key resistance level so I do believe it would share into the overall performance of the financial sector and trend higher.

Investing in Tesla, but not directly?

Having a bit of cash left over, I resorted to reading the news to see if there are any other opportunities I can take advantage of. One of these is Tesla. While I do not want to invest directly into Tesla as I, uhmm, also believe its a bit overvalued, I wanted to targeted inputs. One of the bigger input requirements is aluminum. While it looks like a Japanese firm, UACJ, is supplying the aluminum for the Model 3, I can’t trade stocks on the Nikkei. After all, I don’t even know if UACJ is listed.

Instead, I decided to target the aluminum manufacturers by biggest volume that I can trade on the qualifying exchanges. Two companies come up:

  • Alcoa Aluminum Corp. (NYSE: AA)
  • Century Aluminum Co. (NASDAQ: CENX)

These two stocks I plan on holding for the long run since I do believe timing their successes will be difficult. It could even drag onto past the competition end date, but nevertheless I do have a good chunk of these two companies in my portfolio.


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