Portfolio Allocation – Conservative

 200220764-001  As we approach the fourth quarter of 2015, I am making some minor adjustments to the conservative portfolio allocation since I last posted my view back in February. I am leaving the following positions unchanged: 3M Co. (a 7% slice of the pie); ABB (9%); Danaher (10%); Deere & Co. (7%); FMI International Fund (8%); iShares Gold Trust (5%); and Oracle (9%). I am lowering the allocation for Verizon Communications from 9% to 7%, as the company believes that 2016 will be a transformational year and earnings will probably be no better than 2015. Verizon has completed its acquisition of AOL and sold off a large portion of its slower growing wireline assets to Frontier. The company is moving aggressively into unknown territory in an effort to provide more content to subscribers and attract advertisers to its network offerings, as competition in the commodity-based wireless business heats up. Verizon also is changing its pricing plans for phone upgrades, another wild-card. Nonetheless, I will continue to maintain a position in VZ, albeit less enthusiastically, as the shares are reasonably valued and the growing dividend, yielding 4.8%, is safe and offers a degree of downside risk. I am taking down oil service provider Schlumberger two percentage points to 7%, as I do not see any immediate catalysts to drive shares higher with the price of oil hovering around $46/bbl. and the outlook for a rebound far from imminent. The company’s pending takeover of Cameron International is a plus over the longer term, but the shares will probably meander at current levels until energy prices start to rise. Moving up on the list is CVS Health from 11% to 13%, as I see nothing but positives for the company over the next year. CVS is in a sweet spot right now, reaping the rewards of additional prescription coverage for individuals and an aging population. I am also bumping up Colgate-Palmolive a notch to 9%, as the company is likely to achieve worthwhile total returns if it continues its historically consistent 4% to 7% annual sales growth pattern along with steadily rising gross margins. Despite Colgate’s dependence on foreign (especially developing) markets, the shares are of high quality and deserve a more respectable slice of the pie. Finally, I am moving United Parcel Service up from 8% to 9%, as the company should do well this holiday season with lessons learned from 2013’s delivery disasters and last year’s cost overruns. If I am correct and UPS avoids any end-of-year missteps, earnings for the fourth quarter can settle at $1.43 per share vs. last year’s $1.25. Here is the current conservative account allocation: 

Cons Pie

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