Stocks: Re-Aligning Portfolio & Year End

I haven’t written about my investment portfolio, though it’s something I passively monitor and make adjustments as needed. This year has been a bipolar but overall positive one with some of my positions experiencing massive gains (e.g. Apple, AMD) while others (e.g. Frontier, Rite Aid) huge losses. Given the end of 2017 is soon upon us, I’ve began reshuffling some positions for both tax purposes as well as trying to capture new trends.

First on the new positions , since it’s always more exciting to speculate. Prices shown are all current as of today, October 19, 2017:

  • Costco (NASDAQ: COST, $159) — I’ve been a fan of the membership warehouse store since a good friend introduced me years ago. Prices are very reasonable, customer service is impeccable and I actually like the limited selection of products. Personal bias aside, I see Costco purely as an acquisition target for a bigger player such as Amazon or Walmart. Amazon makes more sense as Walmart already has Sam’s Club for the same market segment that Costo competes in.
  • Alibaba (NYSE: BABA, $179) — in hindsight I regret not taking a position back in 2014 during the company’s IPO for $68/share. I was hesitant due to the equity structure and on business cross-over from China to U.S. Today they remain a fast growing company and CEO Jack Ma seems like the second coming of Jeff Bezos, but in a better position due to lack of competition in the Alibaba’s China homebase. Jack just announced a $15B investment into AI and moonshot projects. Furthermore, Alibaba also has its own cloud service (dubbed Alibaba Cloud) that is currently smaller and less reputable than Google, Amazon, Microsoft but again, virtually has no competitors in its native China market.

Second are the companies I’d like to take positions in, but hesitant due to not wanting to overexpose or dilute my existing positions. I’ll simply note these are Nvidia (NASDAQ: NVDA, $197) and Netflix (NASDAQ: NFLX, $201).

  • Nvidia would be a growth stock as the future of self-driving cars seems to rest on GPUs and, as much as I like AMD, Nvidia currently is the market leader with no signs of letting up — they just announced the next gen Drive PX Pegasus product and a shoe-in to beat AMD in the release of consumer-grade next gen “Volta” GPU series.
  • Netflix, on the other hand and probably surprising, is what I’d consider an acquisition target. CEO Hastings has shown incredible foresight in the past 2 decades as he led the company to first abandon DVD mailings to streaming and thereafter to owning its own content. But I’m afraid that 2018 is where Netflix will get squeezed out as companies like Apple move into its turf and existing competitors like Amazon and Hulu continue their attack. Subscriber growth is great and raising prices help to offset costs but the reality is that a finite number of blockbuster hits and with new entrants and competitors, it’ll be increasingly difficult for Netflix to win deals. Apple is my prime suspect as the acquirer but I wouldn’t count Google, Microsoft, or even Facebook out as they all seek to diversify their product portfolio.

Last but not least are the positions in companies that I’m closing or already closed down on:

  • Ford (NYSE: F, $12) — I have fond memories of this stock as it was one of my first picks and looked great in the midst of the Great Recession. But the past few years, since the departure of Alan Mullaly, have not been kind to the company and especially in the new age of driverless and electric cars. Ford has recently announced investing in its own “Team Edison” to better compete against the likes of Tesla but I think the writing is on the same. This stock will slow stagnate and falter in the next few years.
  • Frontier Communications (NASDAQ: FTR, $11) — sometimes I make blunders and this was the big one for this year. This looked like a good stock with its high dividend (20% yield) and cheap price, but it turned out to be a catfish. The 15-to-1 reverse split was the culmination of things and I’m exiting while I still can. With the merging of the telecom industry, I also thought the company could be acquired by Comcast or Verizon.
  • Rite Aid (NYSE: RAD, $2) — another bad pick but this one tanked due to unexpected turn of events. As late as last year, Walgreen was primed to acquire (technically a “merger”) Rite Aid with both parties agreeing to the price and there was an arbitrage opportunity at the time. But FTC had to crash the party to nix the deal and even the new Republican administration didn’t help matters.