Aggressive · Stocks to Consider and Updates

Allocation Update – Aggressive Portfolio

I am making the following changes to the allocation model for the aggressive portfolio to better reflect some of the current macroeconomic conditions affecting these market sectors as well as stock-specific fundamentals.

       Moving down are Applied Materials from 7% to 6%, as the landscape for semiconductor equipment has softened and may take more time to recover than originally planned. Gilead Sciences is still struggling with declining sales in its Hepatitis C franchise and the pipeline for new drugs has yet to offset the decline. GILD also moves down one notch to 7% of the pie. International Paper is facing some industry headwinds as commented yesterday in the posting: Portfolio Changes: CVS Health and International Paper. Thus, the intermediate outlook for IP reduces my exposure in the portfolio from 12% down to 8%. Financial stocks have been weak this year as the Federal Reserve has put the brakes on interest rates for now. While large money-center banks such as JPMorgan Chase have other revenue sources to take up the slack, it may affect this segment of the group somewhat less. Nonetheless, I am reducing my exposure to JPM from 10% to 8% as the valuation for Chase is not cheap.

       On the plus side, railroad and intermodal carrier CSX Corp. is doing quite well with its two-year reorganization and new business model and it inches up a notch to 10%. Likewise, Delta Air Lines has been immune to the Boeing 737 MAX grounding and conditions are turning more favorable for this high-quality carrier. Delta moves ahead by two percentage points to 11% of the pie. Emerging markets are showing improvements with some exceptions, but on balance the iShares MSCI ETF that tracks these stocks deserves an upgrade and moves up to 9% from 7%. Jabil has been posting some decent numbers of late and I believe that revenue and earnings should continue to outperform its peers and moves up to 9% of the allocation. Likewise, I like the news coming out of ON Semiconductor and although near-term headwinds may keep the stock in check, I believe the news is priced into the shares. Hence, I will give the company the benefit of the doubt and move the slice up from 9% to 11%.

       Health care information technology provider Cerner Corp. and oil refiner and marketer Marathon Petroleum remain unchanged for now at 7% and 9%, respectively. Finally, Newmont Mining is expanding through its pending acquisition of GoldCorp and has entered into a cost-saving joint venture with Canada’s Barrick Gold in a Nevada project. A 5% allocation for NEM remains warranted as a portfolio diversification hedge.

       Here is the current allocation model:

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