Q2 2023 Portfolio Update
Dear subscribers,
Before we discuss our performance and actions taken over the quarter we are glad to share with you three changes to our newsletter.
1. Up to now we were publishing two company write-ups per month covering new companies so as to generate ideas. Based on the feedback we received from the vast majority of our readers we came to the conclusion that a change is needed.
This is as follows: In the one report, we will cover an existing portfolio company diving into further details and providing an updated valuation, while the other report of each month will remain as it is. In our opinion, this approach resonates better with our long-term investment view for two reasons, a) constantly reevaluating existing stocks will allow us to fine tune our portfolio components and allocations and b) truly good ideas are hard to find so we better pick the best one for each month.
* As previously, free subscribers will receive a limited preview of each post
2. Investment thesis memos were previously published after initiating a new position. Although we do not provide investment advice, certain subscribers expressed their concerns of disclosing these transactions after their occurrence. Consequently, we will only initiate a new position after the investment thesis memo is released. It shall be noted, that for any additions to existing positions we will update you through our Quarterly Portfolio Updates.
* As previously, free subscribers will receive a limited preview of Quarterly Portfolio Updates but no preview of the Investment Thesis memos
3. Based on the newsletter’s structure, each paid subscriber will receive a valuation estimate of two companies each month (through the company write-ups). To keep things in order, on the last Friday of each month, we will provide to our paid supporters a table comparing price and estimated value of the stocks that were covered over the last 6 months.
Without further ado, here is a quick view on the deep dives we released over the quarter and the summary of our portfolio performance in Q2 2023 and 2023 Year to Date (“YTD”).
Deep dives of Q2 2023:
Riding the HVAC Industry tailwinds: An Investment Analysis of Watsco Inc.
Cutting Through the Competition: Toro Company's Mow-tivating Journey
1. A note on the economy
Per yesterday’s release, US Consumer Price Index (“CPI”) rose 3% in June 2023 compared to June 2022, displaying the lowest rate over the last two years. Consequently, Fed’s tightening policy through interest rate hikes is possibly coming closer to an end, yet few more hikes should be expected until the target of 2% is achieved. Looking at the core measure (excludes food and energy) the increase was 4.8%, the slowest in the last 18 months, yet above the target.
Moving to the global economy here is what the OECD expects as per its June 2023 Economic Outlook:
Source: OECD Economic Outlook, Volume 2023 Issue 1, Clare Lombardelli OECD Chief Economist
Below is a snapshot of OECD forecasts for the key economies.
Source: OECD Economic Outlook, Volume 2023 Issue 1
So what do we make of this? Uncertainty! As previously stated, we do not claim to be economists, however, we observe positive developments over the last months, while GDP forecasts across the globe imply that recession chances have declined. Nonetheless, we remain cautious for the remaining of 2023 as Big US banks are setting aside $7.6 billion for bad loans (per Quartz), double the amount of the prior year, a rather negative indication.
As StockOpine, we acknowledge that economic cycles are inevitable and our job is to select stocks that are aligned with our long term view, exhibiting resilient business models that will endure through tough times and prosper during euphoria times.
2. Performance
Our Q2 2023 and Year to Date (“YTD”) total return as of 30 June 2023 was 6.2% and 23.6%, respectively. This compares favorably to S&P 500 2023 YTD total return of 16.9% yet it is slightly lower than the Q2 2023 return of 8.7%. Since inception (28 January 2022) our cumulative return stands at 11.8% compared to 2.9% of the S&P 500.
Source: S&P Dow Jones Indices, Broker, StockOpine analysis