Portfolio Update End of June

Two new stocks

In June I again paid more attention to the market and researched a few companies. Two of them made their way into my portfolio. I started researching both a few months ago but finished researching in June. Let’s get straight to it.

I am starting to approach the limits of my portfolio. I initially set out to own 15-25 high-quality stocks. I am currently at 23 (24 if we count the Constellation Software Spin-off Lumine Group) and I might add another position next week. The question I am asking myself if I should consolidate a few positions that I deem of lesser quality or less attractively priced. I am currently reevaluating Sartorius Stedim DIM 0.00%↑. The stock fell a lot due to the overall bioprocessing sector but also due to a very aggressive acquisition by management which I didn’t like too much. I have much more confidence in Danaher DHR 0.00%↑, so the thought of consolidating the two positions is out there. In June I added to my existing positions in Alimentation Couche-Tard, Danaher and RCI Hospitality.

I added two positions at 2% weighting each:

• Ulta Beauty ULTA 0.00%↑: A high-quality retailer of beauty products with a large presence in the US. The company has a lot of brand value and a loyal customer base with over 40 million loyalty program members. After weak retail sentiment, the stock sold off and I started a position around $420 per share. I like the valuation here and am happy to hold this compounder, which achieves consistent returns on capital above 25%.

• UFP Industries UFPI 0.00%↑: A high-quality forest products manufacturer. I am not the biggest fan of their retail business, but their packaging and construction businesses are great. The company overearned a bit but trades at double-digit owner earnings and benefits from secular tailwinds. I expect low-mid single-digit growth over a cycle. ROIC is also pretty good and a key metric the company uses. Capital allocation and management compensation are also good.

I also started to track a few metrics for my portfolio holdings. These include:

• FCF yield: To get a grasp of the current valuation

• Owner Earnings Yield: To get a better grasp of the real valuation of the business

• Growth expected: Back of the napkin mid/long-term growth expectations I have

• FCF ROIC ex GW: Return on invested capital on FCF basis excluding Goodwill. This has some drawbacks and I might also consider using Owner Earnings instead here.

• Insider Ownership: To get a quick grasp of the skin in the game.

Tracking fundamental metrics for my companies helps me to disconnect the company from the stock. After all we want to own shares in businesses, not stocks.

Finally, here are my Seeking Alpha articles for the month:

• Parker-Hannifin PH 0.00%↑: Dominating a fragmented $135 billion market

• Is Adobe ADBE 0.00%↑’s AI Rally justified?

• Should we worry about ASML ASML 0.00%↑’s falling orders?

• Danaher DHR 0.00%↑ : Poised to thrive amidst the bioprocessing downturn

• Alimentation Couche-Tard $ATD.TO : Great Earnings to close out the year