Getting out of Apple and Intel, Adding Canadian Dividend Fund

As part of my broader portfolio rationalization it’s time to sell my individual stocks and move to index funds.  One of my larger individual stock holdings is Apple (AAPL).  It’s a little heartbreaking to sell anything at a loss, but it’s better to take a loss than a bigger loss.

Apple is currently trading at $445, which is 37% down from recent highs.  It’s very tempting to imagine that Apple will revert to its high if I hold the stock, but that is a mirage.  The basic question I must ask myself is this:

“Would I buy Apple today at $445?”

Or, put another way:

“Today, would I rather have $445 cash, or one share of Apple?”

The answer is that I would rather have the cash than the stock.  So, it’s time to sell.  Ditto for Intel (INTC).

So, how do I deploy these funds?  These stocks are in the account that I plan to use for my  TSX holdings, which will be 20% of my portfolio.  Rather than buying more of the iShares S&P/TSX 60 Index Fund (XIU.TO), I have decided to buy the iShares Dow Jones Canada Select Dividend Index (XDV.TO).  XDV is a three-star rated ETF with high liquidity that  holds thirty* high dividend Canadian equities (similar to the Beating the TSX portfolio).

  • Sell AAPL @ $445
  • Sell INTC @ $20.25
  • BUY XDV.TO @ $22.33

*The thirty stocks in XDV are:

Ticker Name %age
CM CANADIAN IMPERIAL BANK OF COMMERCE 6.76
BNE BONTERRA ENERGY CORP. 6.19
NA NATIONAL BANK OF CANADA 5.85
TD TORONTO-DOMINION BANK/THE 5.60
BMO BANK OF MONTREAL 5.28
T TELUS CORP. 4.65
RY ROYAL BANK OF CANADA 4.55
BNS BANK OF NOVA SCOTIA 4.25
BCE BCE INC 4.19
IGM IGM FINANCIAL INC. 4.10
AFN AG GROWTH INTERNATIONAL INC. 3.70
LB LAURENTIAN BANK OF CANADA 3.46
TRP TRANSCANADA CORPORATION 3.20
RCI.B ROGERS COMMUNICATIONS INC. CL B 2.99
MBT MANITOBA TELECOM SERVICES INC. 2.89
PWF POWER FINANCIAL CORP. 2.67
SLF SUN LIFE FINANCIAL INC 2.64
COS CANADIAN OIL SANDS LTD. 2.58
RUS RUSSEL METALS INC. 2.55
EMA EMERA INC. 2.52
GWO GREAT-WEST LIFECO INC. 2.47
TA TRANSALTA CORPORATION 2.25
HSE HUSKY ENERGY INC. 2.22
POW POWER CORP. OF CANADA 2.22
AGF.B A.G.F. MANAGEMENT LTD. CL B 2.16
FTS FORTIS INC. (CANADA) 2.16
SJR.B SHAW COMMUNICATIONS INC. CL B 1.87
CJR.B CORUS ENTERTAINMENT INC. CL B 1.77
RET.A REITMANS (CANADA) LTD. CL A 1.34
PGF PENGROWTH ENERGY CORP 0.75

POSTMORTEM

The trades described above are part of a broad portfolio rationalization that includes many trades.  I have performed a single postmortem to cover all of these trades.  The postmortem is here.

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The Vancouver Portfolio

The West Coast of North America, and Vancouver in particular, seems to have a certain lifestyle.  This lifestyle – yoga pants, coffee, organic food – seems to lead global trends.  Does this offer an investing opportunity?  Let’s take a look at ten brands that seem to be “Very Vancouver”.

  • Apple.  The ubiquitous iDevice-maker is still king of the smartphone, PC, tablet PC, and MP3 player.  It also has a great content business.  If it can innovate once again (TV please!!) then it will zoom ahead.
  • Starbucks.  OK, so Vancouverites drink a lot of coffee, and the cool kids no longer drink at Starbucks, preferring more “indy” coffee shops.  But Starbucks is the leader and, despite its ubiquity, it still sells a lot of coffee.
  • Whistler-Blackcomb.  No longer just a ski resort, W-B has lead the trend into four season profitability adding golf, hiking, mountain-biking and other tourist activities to its summer roster.
  • Taiga Building Products.  Taiga is the biggest local building products company (decking, siding, lumber, panels, insulation, etc.).  Not sexy, but essential.  Construction should boom as the economy recovers.
  • Lululemon: ’nuff said.
  • ZipCars: Spending $30,000 on a car then driving it only an hour a day is illogical.  Rentin a car for 30mis when you need it is logical.  Logic wins.
  • Hain Celestial: Hain make many of the healthy food brands that we enjoy: Earths’ Best, Yves, Casbah, MaraNatha, Nile, Spectrum.
  • WestJet.  Low cost, standardized fleet, no unions, no frills flying but with leather seats.
  • Amazon.  Once a bookstore, now a retailer.  I have found myself buying lots of things online lately – garbage can, lego, books, batteries, booster seats – and most of it from Amazon.
  • Wholefoods: Healthy food, and their prices are coming down.

So, how would this portfolio have performed in 2012?

Ticker 1/1/2012 12/31/2012 Gain 2012 1/25/2013 Gain YTD
AAPL 411.23 532.1729 29.41% 439.88 -17.34%
SBUX 45.285 53.63 18.43% 56.81 5.93%
WB.TO 10.95 12.3 12.33% 12.38 0.65%
TBL.TO 0.6 0.77 28.33% 0.99 28.57%
LLL.TO 47.6 75.51 58.63% 70.16 -7.09%
ZIP 13.76 8.24 -40.12% 12.24 48.54%
HAIN 36.35 54.22 49.16% 57.51 6.07%
WJA.TO 11.52 19.81 71.96% 22.11 11.61%
AMZN 179.03 250.87 40.13% 283.99 13.20%
WFM 69.64 91.16 30.90% 95.65 4.93%
Average 29.92% 9.51%

Pretty well it seems.  The portfolio is up 29.9% in 2012 and a further 9.5% so far this month.  Not bad!

Portfolio Update – Up 0.09% in December 2012

My portfolio balances at close of trading on 31st December were:

Ticker Price (C$) Price Change Percentage Industry
T.TO $ 65.10 0.40% 4.8% Telecommunications
COS.TO $ 20.17 0.05% 5.5% Energy
PHY-U.TO $ 14.04 -3.13% 5.4% Gold
POW.TO $ 25.38 1.52% 4.9% Financials
BMO.TO $ 60.86 1.99% 6.5% Financials
AAPL $ 524.77 -9.69% 7.0% Information Technology
INTC $ 20.33 4.65% 3.6% Information Technology
IVV $ 141.15 -0.28% 8.6% US Equity Fund
XIU.TO $ 17.92 1.93% 6.2% Canadian Equity Fund
S&P Fund $ 120.06 1.13% 10.0% US Equity Fund
EAFE Fund $ 93.04 3.43% 10.7% Global Equity Fund
Bond Fund $ 224.69 -0.15% 25.1% Bond Fund
Cash 1.9% Cash
Total 100.0%

Overall my portfolio is up 0.09% since last month. For comparison my TI Index is up 0.25%, the DOW is up 0.6% and the TSX is up 1.59%.

My investments have fared poorly compared with most indices. Winners this month include Intel Corp (INTC) up 4.65% after a terrible recent decline and my EAFE fund up 3.43%. Losers include Gold (PHY-U.TO) down 3.13% and Apple (AAPL) down 9.69%.

My bond holdings are at 25.1%, which is acceptably close to my target of 25%. No rebalancing is required this month.

Reducing risk on Intel, increasing risk on Apple

Both of my US tech stocks – Apple (AAPL) and Intel (INTC) – are down significantly in the past two months (see chart).

Image

I wrote last week that Apple seems to be bottoming after its fall.  The stock continues to find support in the mid-$530s.  I also wrote last week in a different post that Apple seems to be setting up for a head and shoulders top that should see it climb to $630 in 2-3 months (a 17% advance from here).  I think this is a good time to buy.

Intel on the other hand looks like it will just continue to grind lower until it flatlines.  However, the stock has a good dividend (4.5%) and I think it is undervalued in the longer-term.

So, I’m going to sell around half of my Intel holdings and use the cash to fund an additional Apple buy.

  • SELL INTC @ 20.12
  • BUY AAPL @ $537.93

POSTMORTEM

Writing today, 14th December, this pair of trades look like a bad call.  Apple (which I bought) is down 5%, and Intel (which I sold) is up 3%.  However, during the intervening month, those results were reversed: Apple was up 9% at one point and Intel was down 3%.  Apple’s stock has become even more volatile than usual.

Screen Shot 2012-12-18 at 1.13.51 PM

UPDATE

Today, 18th December, Apple rose almost 3% to $534 (only 0.7% below the purchase price). As I wrote above, Apple is volatile!

 

Is Apple bottoming?

Yesterday I wrote that Apple (AAPL) might be bottoming and setting up to complete the right shoulder of a head and shoulders top.  If true, then the stock should be bottoming at the neckline, which should be around $530 (the May low).

How do we know that the stock has bottomed: can we infer this from a string of down days and then a single up day? Well, let’s look at the May 2012 bottom (see chart below).

Image
In May the stock saw a string of five down days that saw the stock fall from ~$560 to ~$530 (~5%).  This was followed by a single-day reversal that recovered the previous 5 days’ losses (i.e., the stock went from $530 back to $560).  The stock then held above this support line at $560 for a further four days before moving higher.

Fast forward to this week.  We have seen three days of declines from ~$590 to ~$540 (~8%), which is a more violent decline than we saw in May.  Today we are seeing gains of ~3% (it is 1pm EST right now) but the stock is only at $553; a long way from recovering recent losses.  If the May pattern is repeated the stock will close down (below yesterday’s close of $537), but near the bottom (a buy signal for Monday).  If the stock closes up then we should wait to see if support forms over the next couple of days before buying.

UPDATE

Writing today, 13th November, the stock does appear to be bottoming.  Since it’s 4% fall from $560.63 to $537.75 on 8th November the stock has been stabilizing (see chart below).

The daily lows for the last four days were:

  • 8th November $535.29
  • 9th November $533.72
  • 12th November $538.65
  • 13th November $536.36

The support that we were looking for seems to be forming at $533-$538.

UPDATE

Writing today, 1st April 2013, Apple has continued to fall reaching $428 today.  Clearly my prediction did not come true this time.

Screen Shot 2013-04-01 at 11.33.08 PM

Is Apple setting up a head and shoulders top?

Last week I wrote that Apple might be about to fall through resistance at the 200 day moving average of $590.  Well, did it ever.  The price is currently $546 and falling.

Last week’s post I noted another possibility: that Apple is setting up for a head and shoulders top.  This week’s decline supports this theory.  If true, this would see Apple retreat to it’s 17th May low of $530.12 (down a further 3%) before running up to around $630 (a 19% advance).

Image

If this is true then the trade would be to wait until the stock has put in a bottom around $530 (shown as a black horizontal line in the chart above) and then buy.  Then sell when the price puts in a top around $630.  The top should come two or three months after the bottom.

Taking profit on Power Corporation and topping up on Apple

Power Corp. (POW.TO) is up 8% since I topped up in July at $22.82.  Coincidentally, Apple is down around 9.6% since I took profits at $650.01 in August.  This offers a great opportunity to take profits on Power Corp. and use the funds to top up on Apple.  Normally I would prefer to wait until these stocks has risen/fallen by 10 %, rather than 8 and 9.6%, but this convergence of advance and decline is too useful to ignore and might not last for long.

  • SELL POW.TO @ $24.64
  • BUY AAPL @ $587.49

The main risk to this trade is that Apple will fall further and that I’m buying too high.  I discussed the technical issues that drive this risk yesterday.  I don’t normally do a postmortem when I trade around (I normally do a “one month later” postmortem on core position trades) but this trade is interesting and is worth validating in a week or so.

POSTMORTEM

Wow!  What a week.  Apple closed today, Friday 9th, at $547, down $40 (or 6.8%) since I topped up last week.  There are a few factors:

  • Apple went ex-dividend on 7th November, which should have reduced it’s value by ~0.5%
  • There are doubts about Apple’s product roadmap and the success of the recently introduced iPad mini
  • The re-election of Barack Obama has lead investors to become concerned about a possible increase in capital gains taxes caused by the US’ Fiscal Cliff*, which has caused investors to take their capitals gains now, while taxes are lower

Power Corp closed today at $24.65; basically the same price at which I sold it.  Overall, this was a bad call.  I should have waited for Apple to go lower before buying.  I did identify this as the main risk of the trade, but I failed to be patient.

*The Fiscal Cliff issue relates to the solution to the debt crisis of 2011.  The solution in 2011 was to kick the can down the road until after the 2012 presidential election, and now it raises its ugly head again.

UPDATE

Another wild week!  On Friday 16th, Apple saw an intra-day low of $505.75 (down 14%) before closing at $527.68.  Writing this morning, on Monday 19th, the stock is up to $559 (up 11% since Friday’s low, but still down 5% from this trade).  Buying Apple at $587.49 was premature and expensive, but it might still prove to be a profitable trade.

Power Corp is at $24.30, down 1.4% since I sold it on 2nd November.  So that part of the trade is looking OK.