IMF October Buys: The 15 Stocks Added To My Fund by Ian Bezek

Summary

I added to 15 stocks in the IMF portfolio for October.
That included additional capital into 14 holdings and a new position: Estee Lauder.
Tech, banks, and a few foreign stocks have my attention this month. Here's why.
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Ian's Million Fund "IMF" is a real-money portfolio that I've written about monthly since January 2016 here at Seeking Alpha. The portfolio is a largely buy-and-hold group of ~130 stocks. Each month, I buy 10-30 of the most compelling stocks available at then-current prices, deploying $1,000 of my capital plus accumulated dividends. If things go according to plan, this portfolio, began when I was 27, will hit one million dollars in equity in 2041 at age 52. I intend it to serve as a model for other younger investors.

I made the portfolio's October buys a week ago Tuesday. October may be the most frightful month of the year for investors, but it brought no significant pullbacks to buy into this time around. Regardless, there was still some decent value to be had in this month's selections. There were no portfolio sales in October, so the fund had its usual $1,000 monthly capital addition to work with plus $231 of dividends received in September. Here's what I bought:

First things first, I reinvested dividends for the month into Hormel Foods (HRL). With that purchase, Hormel became the second-largest holding in the overall portfolio, and it was all paid for with dividends received from various companies over the years, rather than any of my own earned capital.

In any case, I see Hormel as the compelling high-quality consumer staple play at a fine price in a field where many of the others have already run up:

Data by YCharts

I'd argue that Hormel has diverged from its peers since early 2019 because of fears around the African swine fever. So far these haven't had a major impact on Hormel's operations, and the company offered upbeat guidance recently. Regardless, Hormel stock has stalled out for the time being while it continues its long-term trajectory of compounded 5% annual revenue growth and 10% annual earnings growth.

With the fantastic debt-free balance sheet, the Dividend Aristocrat-seeking investors will come back to Hormel stock soon enough as swine fever fears fade. There's a clear path to ~30% upside over the next year as that happens.

In the meantime, Hormel, with its 50+ year track record of annual dividend hikes, is offering a highly attractive yield compared to its historical average:

Data by YCharts

When Hormel returns to yielding 1.5%, as it did for most of 2014-16, the stock price will be $56 share (it's at $41 now) assuming no additional dividend hikes between now and then. Don't forget that Hormel's dividend and share price have both quadrupled over the past decade so while the current yield may look modest, the yield-on-cost becomes large rather quickly.

Also in consumer staples, I added to the position in Molson Coors (TAP). Here's what I wrote about TAP stock in the Ian's Insider Corner Member chat in response to the most recent quarterly numbers. To be clear, the earnings report hasn't changed my fundamental view:

Management certainly hasn't done much to earn the market's confidence. That said, alcohol is such a great business that you can keep putting up lousy numbers and the stock just goes sideways. They're generating tons of cash flow and paying down debt. Hard to lose money with a high profit margin/cash flow business at 12x earnings as long as management doesn't blow up your balance sheet. I worry about them doing something stupid like buying a marijuana company but unless they do that, collect the dividend and eventually it goes back to 18x earnings $80-$90 when they report a couple of good quarters.

I'm reminded of late 2016 when people were downgrading Diageo (DEO) on Brexit fears, claims that the CEO was not competent, and that there was emerging market weakness. If you consider that comparison too optimistic, I find Robert Mondavi wine an instructive case. Their stock was public for 11 years and Constellation acquired it in 2004 for 4x its IPO price despite being terribly run for most of that time and having the controlling family war with each other and actively undermine the firm's operations. Again, as long as the balance sheet is okay, it's really hard to lose money long-term buying an alcohol business at 12x earnings (8% earnings yield).

Also on the topic of beer, I added to the position in Compañia Cervecerias Unidas (CCU), the Chilean brewer. It's been hammered (down 30%) on the combination of the political change in Argentina and protests in Chile, its #2 and #1 markets, respectively. Regardless, CCU sells beer, wine, and Pepsi (PEP) bottled products - we're not talking about economically sensitive goods here. I think it's fair to say that much of the selling in CCU stock is due to it being part of index funds that people are dumping due to political worries. If you want to sell a Chile ETF, that will cause CCU stock to get dumped as part of the basket. Regardless, CCU is now down to 15-16x forward earnings and offering its highest dividend yield (3.5%) in years. That's fantastic for a high profit-margin monopoly (more than half of Chilean beer market share) firm.

...Originally Posted On Seeking Alpha

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