June 2020 Portfolio Update

I am going to individually review my brokerage account, which has some recent speculative positions. I usually want to buy companies that I would hold for an extended period, but unfortunately, some of the market conditions have changed. As a result, I have less confidence in the position.

Hopefully, you enjoy my June 2020 portfolio update. This account of mine only has four stocks: Ally Financial Inc (ALLY), Ford Motor Co. (F), Prudential Financial Inc (PRU), & Royal Caribbean Cruises Ltd. (RCL).

ALLY Financial Inc

My current average cost basis is $14.15, with a close price of $19.40 on Friday; I am currently sitting on a return of 37.07%. So while I am up, let’s determine if it’s worth holding on to or if I should take a nice profit.

The company makes it money through a few different revenue streams:

June 2020 Portfolio Update

Banking

With $122.3 billion in total deposits, Ally Bank is changing the banking marketplace with its online savings accounts. It grew deposits by $1.5 billion in Q1 2020.

Dealer Financial Services

Ally is an independent provider of financing, leasing, commercial insurance, and vehicle protection products for dealers and consumers. Ally Bank services over 18,000 dealers, more than 4 million consumer auto customers, and 2.5 million insurance customers in the U.S. This is the largest revenue generator for Ally.

Investing

Ally Invest offers managed, and self-directed investment products, as well as low fees, to help customers manage their investments. Ally has approximately 373,000 customer brokerage accounts that total $7.5 billion in assets.

Corporate Finance

Ally Corporate Finance provides middle-market companies with credit/loans ranging from $15 million to $250 million. Their portfolio spans 100+ relationships and includes cash flow and asset-based loans.

Home

Ally offers fixed-rate and adjustable-rate home loans at competitive rates to help consumers reach their home financing goals. They provide a direct-to-consumer home loan platform that offers new purchases and refinancing solutions.

Ally Lending

Their lending solutions give consumers the option to pay overtime for healthcare, home improvement, auto servicing, and auto modification services.

Thoughts on Ally

While Ally had a very rough first quarter, it also showed that management was being very proactive in providing 120 days of deferral on auto loans. 1.13 million Auto loans or around 25% of the auto loan portfolio have requested deferral.  The good news is that 45% of the auto loan customers have a credit score of 740+. These customers account for 80% of the money outstanding loans. I would guess that those with excellent credit will work hard to avoid messing it up.

June 2020 Portfolio Update

Ally has not provided what percent of the money that the 1.13 million auto loans requesting deferment is. Still, it is probably a safe assumption that these are likely the lower creditworthy loans, thus have a smaller impact on the overall perspective.

I still believe that this stock will be back to the $30 range in a year or two. Another consideration or risk to consider is that the Fed has announced it will keep rates low for a while.

Regardless of the risks, I am comfortable with my investment and believe long term. This will probably be a good investment. While we wait for the financial market to recover, you can also enjoy a 4% dividend.

What to do?

I rank my investment in Ally as a hold. Too expensive to invest with the current risks but might be willing to buy more if the stock drops more.

Ford Motor Company

I have an average cost of $4.95 and with F closing at $6.28 that has translated into a return of 26.87%. Ford has also suspended their dividend, so no pay while waiting for this one to recover like Ally.

Ford is getting back to production with factory workers ramping up; for example, the Kentucky Truck Plant will be ramping up from 6,000 workers up to 9,000 workers.

June 2020 Portfolio Update

The coronavirus crisis has created a unique situation where Ford has not been able to manufacture new cars, but some dealers have been able to sell cars. This has created some backlog and demand for the vehicles coming right off the manufacturing line.

Another benefit is that the company is in the process of electrifying its fleet, which will make them more competitive. Ford has lost market share over the past few years but still commands 7% of all global auto sales.

Ford also has been in the process of a transformation to refresh the brand and make it more efficient. While there is no guarantee that the transformation will work, the company has been starting to make some progress.

June 2020 Portfolio Update

One risk is the company’s ability to manufacture vehicles without shutting down due to the virus. The other risk is consumers’ ability and desire to buy the vehicles.

I am pretty comfortable with my investment and will probably hold this and see what happens. I would again not advise buying more right now as the risk is high.

  Prudential Financial Inc

I am invested in PRU at $63.50, and even though I am down 1.51% at the moment. The primary bread and butter of PRU is life insurance. This will be a drag as low-interest rates will be a challenge for the next few years. As you can see from the chart below, earnings are down for their different areas of business too. I think the positive is that PRU is still making money.

June 2020 Portfolio Update

The company is working on actions to mitigate low-interest rates, which should prove to be beneficial over the next few years. Also, the earnings are well diversified from different areas. Last but not least, like many other companies, PRU is focusing on reducing expenses.

June 2020 Portfolio Update

I am comfortable with the risks and still believe that with everything considered, PRU is still undervalued. The fair value is around $75. It is yielding a 7% dividend. If it drops some more, I will probably buy more.

 Royal Caribbean Cruises Ltd.

I have a cost basis of $26.88 a share, and as of Friday, I am up 105.62%. Back when I had invested in RCL, I had figured out that they probably had enough capital to last till the end of the year. The stock has rallied based on the hope of the virus going away and start sailing again in August. Then the sailing date was moved to September.

June 2020 Portfolio Update

Issues

The first issue is getting permission to sail. RCL received some bad news from the U.S. Centers for Disease Control and Prevention (CDC) on June 16. It said that it did not know when it would permit for cruise ships to start sailing again. Royal Caribbean planned to sail on Aug. 1. However, the CDC’s latest comments suggest the Q4 2020 is more likely. RCL and the rest of the cruise companies took a hit on the news.  

The second issue is finding a crew to man the ships. After the COVID-19 crisis, the crew got stuck aboard the ships for months without pay and were not able to get home. Many of these crew members were in full revolt. Another crewing issue is their payments to their crew. Wirecard is a company that RCL used to pay some of their crew members admitted that they had lost $2.1 billion somehow.  

June 2020 Portfolio Update

The third issue is money. Ships are not cheap to operate and maintain. Another problem is they cost even more to buy. As all of the cruise operators have maxed out their debt, they will have to resort to extreme measures. To be able to make it through 2020, they have maxed out most credit available to them, and now Carnival has resorted to selling their ships. They had to sell six ships after losing $4.4 billion last quarter.

So as much as I would love to keep owning the stock, I have put a limit order to sell my stock at $52 as I think the fundamentals have changed. My limit order kicked in on 6/22 and sold the shares for 53.53. I am bearish for now on the stocks.

I will research the cruise ships again once we have some more clarity on when they might be able to sail, but right now, I think the risk/reward relationship has inverted, making the stock not investible at this time.   

Conclusion

After selling RCL, I am very comfortable with PRU, ALLY, & F. I believe the market still has a ton of risk setting up for a possible dip in the next few months. While I think a full shutdown is unlikely, as you can see from the chart below that the US new COVID cases are close to the levels back in April when the country was shutdown.

June 2020 Portfolio Update

So what is the game plan now with all the risk in the market? Well, I am building a buy list for when the market dips. I will be sharing a high-level list of stocks that I will be looking to buy in the next dip.

Once I share that list, then I will share some alternate investments that I am going to play around with and let you all know if they are worth investing your hard-earned money or not.

This post is my opinion, which is strictly for information & educational purposes only. The post is not intended to provide any investment advice. Please seek your own duly licensed professional for investment advice as they will be able to consider your situation. Please read my Terms & Conditions Page for a full disclaimer.

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