Portfolio Update End of July

Back from the mud

Hello everybody, I am back from the muddy Wacken Open Air, ready to share my current portfolio. I made quite a lot of changes in mid-July, so let’s get straight to it.

In my last update, I talked about reaching the limits of my portfolio based on the number of positions (24/25). With that in mind, I analyzed all my holdings based on conviction and risk/reward (inverse DCF compared to realistic growth expectations). Below you can see my current portfolio after I sold out of four holdings.

• I sold Veeva Systems (3% position) VEEV 0.00%↑, the leading healthcare SaaS company. The stock has been in a drawdown for a long time now and still is pretty expensive. Although it is a very good business, I dislike its lack of capital allocation: The company has 10% of its market cap in cash and keeps piling cash on. The company doesn’t do buybacks or dividends and has been very conservative with M&A. With a very asset-light business model like Veeva has, they should at least distribute the cash instead of letting it rot away. On top of that the stock based compensation is getting out of control. This is especially frustrating if one looks at the increasing cash pile. I like the business a lot, but the stock doesn’t look too appealing to me here. The proceeds went into Danaher DHR 0.00%↑ and Constellation Software CSU 0.00%↑.

• I sold Zebra Technologies (3% position) ZBRA 0.00%↑, a leading hardware automation company. Part of my investment thesis was the shift from hardware to more recurring software/services revenue. This isn’t really materializing and the business is a lot more cyclical than I initially thought. The company also lacks transparency as it only reports in two segments with buzzword titles and doesn’t break up how their past M&A is actually contributing. I put the cash into Napco NSSC 0.00%↑, a similar investment thesis that is working out a lot better. Check out my previous Napco Article.

• I sold Sartorius Stedim (<1% position) DIM 0.00%↑. I wasn’t really impressed with management the past quarters and M&A and I never had too much of a conviction to begin with. It was my smallest position by far, so I just rolled it into a peer where I have much higher conviction, Danaher DHR 0.00%↑.

• I also sold the remaining Microsoft (3% position) MSFT 0.00%↑. The reasoning is in line with my initial sale of 70% of my stake. You can read up on it here.

• I intend to sell out of Sonova (2% position) $SOON, but it is on another broker than the other stocks. Sonova is a good business, but I don’t think it is on par with the remaining companies I am invested in.

• I also bought a new company, Ashtead AHT 0.00%↑: The #2 player in the US equipment rental market. Equipment rental enjoys several secular tailwinds, like US reshoring, companies going asset-light and ESG tailwinds. The company is in a duopoly with United Rentals URI 0.00%↑ in an industry where the big are getting bigger.

Overall I am now more confident in my portfolio. It is a good practise to go through each holding periodically, once a year or so, and see which investment is not working as planned. I like to start positions small and grow them as conviction rises. If this doesn’t happen then I am happy to kick them out again. Don’t marry your stocks.

As always I’ll share the articles I published on Seeking Alpha in the last month:

• Old Dominion ODFL 0.00%↑: Outperforming its peers, but the market knows it

• Ulta Beauty ULTA 0.00%↑: Buy this long-term winner during theft worries

• Does the new Napco NSSC 0.00%↑ dividend policy make sense?

• Rollins ROL 0.00%↑: A good business priced for perfection

• RCI Hospitality RICK 0.00%↑: Short term pain, long term winner

• Medpace MEDP 0.00%↑: Resilience during the down cycle