Following second quarter earnings and management’s outlook for the near term along with macro-economic, trade and global growth headwinds, I’m tweaking the allocation model for the aggressive portfolio.
I am increasing the pie for Applied Materials on valuation and better prospects ahead for the semiconductor industry. The shares have moved up about 50% from its December lows and while 2019 may be a down year for AMAT, next year appears a bit brighter. Applied Materials moves from 6% of the allocation to 8%. Conversely, ON Semiconductor is showing signs of slower growth over the next twelve months. Shares of the company have fallen some 20% in value since May. However, the decline appears to reflect broader weakness in some of the company’s markets than any fundamental problems taking place at the company. Nonetheless, ON Semi goes from 11% of the pie to 9%. Trade issues are affecting rail volume and CSX is no exception as seen by the company’s recent comments regarding its intermodal operations. CSX drops 2 percentage points to 8%. All-domestic health care information technology provider Cerner Corp. is virtually immune from trade issues and the shares have been showing signs of strength of late. Hedge fund Starboard Value has noticed the company’s under performance over the past few years and has taken an equity position in the company and added four new directors to its board. New leadership plans to embark on a set of operational improvement initiatives and expand its capital-return program through dividends and share buybacks. Cerner initiated its first dividend paid in July. CERN moves up from 7% to 9%.
At this point, all other candidates in the aggressive account remain unchanged.