I am cleaning my portfolio and closing these positions 💔
I need to increase my cash position to be true to my investing plan and better prepare if the dreaded crash comes.
It is sound to clean your portfolio once a year with that objective in mind. I don't like to sell, and my favorite holding period is, as Waren Buffet, "forever". But I also believe in the risk of a long inflation period and a coming crash. As I explained in this post, I don't pretend to time the market, but not taking part in a rally waiting for a crash that may never come is not an option. This is why I have been more thorough lately regarding companies' fundamentals and valuation, giving it greater weight in my scorecard.
Disney - too many uncertainties
I have 261 companies on the watchlist; Disney (DIS) is in the lower quintile in terms of fundamentals. What do I mean by fundamentals?
Return on Invested Capital (ROIC) has been historically lower than 14%, and plummeted to negative territories since the beginning of the pandemic, in sync with operating margins, while its stock price soared. Debt vs. assets has also been on the upward curve in the past 10 years. Disney has been hit too hard, whether in cinema royalties or tourism activities, operating margins. Disney is badly beat by the pandemic, and even if Disney+ is a hit, it will take years to recover. The apparition of new Covid variants spells too many uncertainties over how much more time the pandemic affects Disney's business. Still, it is 28% higher than pre-pandemic. It scores 8 on the Rookie Investor scorecard, I am out.
The Rookie investor conducts this kind of scoring every day for a shortlist of 262 promising stocks. If you want to find the score for other stocks just search here.
Docusign - growth story at its limit
Docu sure knows about growth, revenues, and free cash flow soared since 2020, but it still has a long way to profitability. Even if its operating margin improves a bit every year, it would still take 2 to 3 years before it is profitable. I still believe in its moat and potential, but at what price? Whether you look at analysts' mean target or traditional valuation methods, too much optimism is baked into it (its valuation soared about 300% since the pandemic). Any misstep will be punished, more so with its growing level of debt. It scores only 8 on the Rookie Investor scorecard, I am closing my position.
Hasbro - just not enough
Hasbro is not necessarily a bad investment, but it's just not good enough. It has decent profitability, but not outstanding, and it has been declining. It has a bit of moat with its patents, brands and distribution network, but brands with better direct-to-consumer strategies can easily challenge it. It has produced profits in the past 10 years, which shows resilience, but returns on invested capital have been diminishing and are now less than 7%. In the end, I am closing this position for being too mediocre, it scores only 7.5 on the Rookie Investor scorecard.
IIVI - too risky
I first invested in it for its leadership in VCSEL technology, which is the future of augmented reality lenses. The fact that Apple has a stake in it makes it the best candidate to benefit from the rumored AR lens to be launched by AAPL. This makes it too risky, its sales are already too concentrated on Apple, and its financial strength is not that outstanding to weather a possible setback from its biggest customer. Its debts vs. assets have been increasing, and the return on invested capital is stable but lower than 10%. It scores very low on the Rookie Investor scorecard (6.5), I am closing this position.
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The Rookie Investor has a disclosure policy. This article by The Rookie Investor is not a financial advice as it does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets. Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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