I’ve been a lot more active over the past few weeks as fewer and fewer stocks are participating in the rally to new highs. Small caps in particular have been showing signs of weakness so I’ve been reducing exposure there quite a bit. We’ve had signs all summer that the rally is losing steam. We may still be on the verge of your more typical 8% – 10% pullback that lasts a few weeks. However, capital continues to pour into the US so I wouldn’t be surprised to see the consolidation play out like the others over the last year and a half (more of a shallow-to-sideways drop/pause). Because of this, I haven’t been reducing exposure to stocks overall, just shifting money out of stocks that could be susceptible to a larger drop, like expensive small caps, and into ones that I feel would hold up well in the event of sustained market weakness.
Stock Changes
- I wasn’t happy with Neogen’s last quarter (or the trend over the past few quarters) so I dropped our investment in the company completely once small caps came under pressure. I still like the business model in the long run but I don’t feel good about the valuation right now. I’ll be happy to revisit this one if the financials stabilize or if the stock drops to a more appropriate valuation.
- Recent additions include O’Reilly’s Automotive (ORLY), Precision Castparts (PCP), and Wabco (WBC). O’Reilly’s is a nationwide auto-parts retailer, Precision Castparts makes industrial components and metal castings primarily for airplanes, and Wabco produces braking and safety systems for heavy-duty vehicles. More importantly, we’re investing in them because they display all of the qualities I look for in growth-oriented stocks: good valuation, strong free cash flow, strong market positioning, and smart capital allocation policies.
- I’ve also been adding to our positions in Generac and Mastercard on the recent weakness.
O’Reilly’s Automotive (ORLY) – 1 year
Precision Castparts (PCP) – 1 year
Wabco (WBC) – 1 year
Thanks for following!
-Nick
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