I’ve made the following portfolio changes today:
- AFG Cloud 9 Technology portfolio – Selling half of our Amazon.com position due to a very high earnings multiple at 624 trailing and 192 forward PE. Love the company, but the valuation seems exorbitant. We’ve made a nice return of 165% in this holding since purchasing the stock in January of 2010.
- AFG Cloud 9 Technology portfolio – Selling our position in Netflix due to a very high trailing earnings multiple of 241 and a forward earnings multiple of 110. We’ve made a return of 46% on this stock since it’s purchase in May of 2013. That’s 57% on an annualized basis!
- We are replacing these holdings with two new additions to the model, Soufun Holdings, Ltd., a Chinese internet company that provides real estate listings, home improvement sources, and related services to the Chinese real estate market. According to Reuters, the ROE is 111.2%, Trailing PE is 22.5 and Forward PE is 19.1. This looks like an interesting international opportunity, and one that several successful hedge fund managers are also investing in. We are also buying shares of Open Text Corporation, which is an idea from one of our clients. Open Text is an information management software company. Earnings per share have increased roughly 30% per year since 2009, Return on Equity is roughly 11.5%, and the Trailing and Forward PE ratios are 39.7 and 14.7, respectively.
You can review research reports on these companies here: https://drive.google.com/folderview?id=0B7EYB7o_yK9jb0J0TE91MnBUNGM&usp=sharing
- AFG Prudent Value Equity portfolio – Selling our position in RR Donnelley & Sons, a printing company that purchased one of our existing holdings, Consolidated Graphics (CGX) on February 3, 2014. We purchased CGX in September 16, 2013 at $54 and our shares were purchased by RRD for $62, so we made a nice gain of 15% over the 5 month period, or 40% on an annualized basis. In place of RRD we are adding shares of Middleby Corporation, a manufacturer and distributor of kitchen equipment, including the Viking line of equipment for commercial and residential use. The Trailing and Forward PE on MIDD is 36 and 30, respectively. Middleby is appealing given the high ROE at 20%, the quality brands that they are known for, and the fact that the company is not a household name, but has been around for over 100 years. I get very interested in high quality companies that make great products, good profits, and are not momentum stocks.
You can review the research reports on these companies here: https://drive.google.com/folderview?id=0B7EYB7o_yK9jZEViWkxHWWkzUWs&usp=sharing
