The rising market we've been seeing for much of this year makes it uncomfortable to buy shares, especially if you have any sort of bent toward value investing. Plus, we almost always end up anchoring to some extent on lower prices and try to wait for a pull-back before buying. Unfortunately, that can lead to waiting month after month as the market continues rising, pulling the prices of our holdings up with it, so we end up caving in and buying at even higher prices than otherwise. Don't forget the old saw that it isn't timing the market that wins, but time in the market.
Toward that end, I'll be buying some more of each of the following companies shortly, expanding their positions in the Messed-Up Expectations portfolio.
We'll keep the lights on
Generac Holdings (GNRC 1.22%) sells backup power generators, both the small portable kind and the larger, permanently installed ones. It also sells portable lighting, such as that used during night-time road construction projects. Sales of generators in Q1 2014 fell year over year thanks to a couple of reasons (more in a moment) and shares have fallen off since then. I first bought shares in March 2013.
The reason for the sales decline was twofold. First, about $100 million of the drop was due to the lack of the boost experienced last year after Superstorm Sandy. Second, the bad weather, especially in the Northeast, where a lot of business is done, slowed down installations.
However, if you back out the boost Sandy gave Q1 2013, sales were actually flat year over year. Further, if you look at regions of the country that didn't experience as much severe weather (the West and South, for instance), sales were up year over year. Now those points might seem to be juggling things to suit an optimistic viewpoint, but I believe they're more indicative of what the company is "normally" capable of. Plus, the recent acquisition of Baldor -- which boosted its commercial and industrial lines -- is helping fuel growth in the C&I business, up 24% year over year in Q1.
Regardless, I think this is a long-term winner because of more severe weather likely putting stress on the electrical grid of the country and its international expansion opportunity (via recent purchases) and will be adding to the portfolio's position.
80% of the atmosphere
Nitrogen may be abundant in the air we breathe, but many plants cannot use it in that form. CF Industries (CF 0.91%) helps farmers provide this vital nutrient to the crops they grow by selling nitrogen in various forms (ammonia, urea, and so on).
It recently sold its relatively small phosphate business (another of the three major ingredients of fertilizer) to Mosaic (MOS -0.69%) for $1.1 billion net cash and raised another $1.5 billion in long-term debt. It's using this money, plus cash it generates, to expand the capacity of its nitrogen production. Once completed, in 2016, it will be able to produce 25% more nitrogen. Thanks to this expansion, it should be able to take away market share from nitrogen imports, which tend to be more expensive. Natural gas (a main input cost) is still relatively cheap, and that should continue to benefit the company. For these reasons, I'll be expanding the portfolio's position.
Going places
Textron (TXT -9.69%) sells business jets (Citation and Beechcraft), civilian and military helicopters, and various items to the military (e.g. drones). The aviation segment (business jets) has been struggling since the heydays of 2008, when annual sales topped $5 billion. I first bought shares almost three and a half years ago, and while that has gained 52%, it trails the S&P 500. My most recent purchase was a year ago (and that one is beating the market).
Near the end of March, Textron closed on its acquisition of Beechcraft, another maker of business aircraft. That should add about $1.5 billion to the aviation segment's revenue. Management is forecasting a segment operating profit of 2.5% to 3.5% this year. On a trailing-12-month basis, it actually had a 1.7% operating loss. So, if management is right and Beechcraft helps in the long term, the company will hopefully be able to finally put its aviation segment difficulties behind it. I'm adding more to the MUE portfolio's position on the expectation that this will come to pass.
If you want to learn more about these companies and the portfolio's history with them, come join the discussion on the MUE portfolio's discussion board.
