Stock Highlight: CVX

My starting position for Energy was going to be one of the big oil companies. Among CVX, BP, XOM, RDS, or COP, I eliminated BP because I already hold them in my Roth and don't want to be further exposed to potential litigation risk. RDS was also eliminated because I didn't want to deal with foreign taxes again (I had owned RDS.B previously).

Between XOM, CVX and COP, Chevron had the most appeal to me and at the time it was trading below its moving averages. (I also only fill up with Chevron or Shell so I was slightly biased).

Reading over their 2012 annual report I found their largest reserves are in the Americas (for liquids) and Asia \Australia (for natural gas). This is important because it means over fifty percent of their operations are in stable environments.

Specifically for the US, I was surprised California outputs more crude (liquids) than the Gulf.



On the downstream business side they are focusing on high margin refining of oils, lubricants, and chemicals while selling off non-performing assets. The goal is to have this be a steady stream of income to supplement the upstream business growth.

I plan on making CVX the largest slice of my portfolio and will later add smaller drilling and exploration companies.

Stock Research: ATSG

To start my search for small cap companies, I set my FINVIZ screener to a P/E below 30 with positive EPS and scanned through each result looking for companies that seemed interesting. One of those companies was Air Transport Services Group (ATSG) whose business model is to buy older aircraft's and lease them out. Currently their main lessee is DHL.

On two reasons this stock interested me. First Boeing is rolling out a lot of 787, 777, and 737s to airlines who are retiring their older planes. This should give Air Transport a buying opportunity to expand its fleet. Second as more people shop online shipping and air freight should grow in demand. This stock seems to be a secondary small-cap play on both the aircraft and shipping industry.

After reading their 2013 Q1 transcript, I'm going to monitor but not add any positions. They indicated demand is flat right now and are focusing profits on paying down debt they took out to acquire new planes (which are expected to enter service later this year). Their chart still shows a positive growth trend since the beginning of the year but is above all moving averages. I'll also be monitoring a competitor (AAWW) who actually has higher EPS.

Source: Finviz.com

Portfolio Highlight: CNI

Following the philosophy of buying into companies that interest you so you will be more likely to do the research, I started with trains, specifically SantaFe since I have a model locomotive. Well it turns out SantaFe and Burlington Northern merged and was bought out by Warren Buffet so there goes that idea.

Jumping on Wikipedia I did a search for other train companies and found maps of their rail tracks. Union Pacific (UNP) focuses on the West coast as does BNSF while CSX, NSC, and KSU are East coast. I decided to rule out the East coast rails because their tracks largely overlapped and investing articles I read mentioned they generate a lot of their profits from coal shipping. Rail is already a very streamlined industry so I didn't want the disruption of coal prices or cannibalizing competition to affect growth. I wanted a monopoly.

During this research I came across Canadian National Railway. The two things I liked about it were their tracks extend from the West to East coast and they even have a corridor down to the Gulf. That's a major plus because they can import from the three major bodies of water surrounding North America all on their own rail. The other part I liked was the exposure to the Canadian market. Since most of my stocks will be US companies this was a plus for diversification.

Both CNI and UNP are highly regarded so either one is a good choice. I'm starting with CNI and will add UNP on my second round of portfolio expansion.

Source: Central Data Bank at en.wikipedia

Sector Focus

My goal is to play the big three sectors Energy, Financials and Technology and bring stocks in and out as market conditions dictate from Consumer Goods and Industrials.

Energy: I was successful with Energy in the past (RDS) so I'm focusing most of my portfolio there (targeting 40% makeup) on oil and exploration. I'll stay away from natural gas and solar because I personally don't believe solar is an efficient alternative and I feel natural gas extraction is riskier since it happens closer to communities (by way of fracking) versus oil which is pumped out in the ocean or on the other side of the globe in the Middle East.

Consumer Goods: I plan on buying large cap non-cyclical for stability and short term holdings of small cap cyclicals for risky growth. This should comprise 20% of my portfolio and be the riskiest sector since these companies are usually affected individually and not averaged over the sector like Energy and Financials.

Financials: This is the other sector I did well on previously by focusing on the banks. The two areas I'm looking at are the investment banks and general banks. Since the stock market isn't completely recovered from fears (waiting until the next presidency), I'm sticking with general banks for now. My target is 20% financials until the country as a whole picks up. I figure there will be enough time to get in since first businesses have to pick up and once they start expanding and hiring more loans will be taken out.

Technology: I'm a techie and this area interest me although it's a risky investment because a lot of people don't understand technology and trade based on headlines or "hot tips." I plan on holding 10% and will focus more on companies that have a large or monopolistic web presence. I'm completely avoiding any chip manufacturing as it's thin margins and I believe speculative. 

Industrials: These are the in between companies similar to consumer goods but their customers are other business and not the public. I feel like these could be undervalued since you have to research both the company and the companies buying the products and most everyday investors would skip over them or trade on incomplete information. I'm only looking at 10% holdings.  

Utilities: I had good runs with regional utilities but my new portfolio will be focused on growth and utilities are more suited for dividend yields. I'd rather store my gains in Energy stocks then Utilities right now.

Healthcare: Avoiding as I find there is too much risk between patents, recalls, disruptive competition, and regulations.

Basic Materials: I'm not too familiar in this sector but I feel it plays more like commodities. Especially with all the gold activity going on. Also there doesn't seem to be much room for growth as these are finite resources and margins are probably very thin.

So Here's the Game Plan

I'm young and fascinated with the stock market so my plan is to be my own fund manager and build a portfolio of stocks that interest me. A lot of online communities stress buying ETFs and mutual funds to maximize consistent growth but that's what my 401K is for. This will be the fun side of investing where I can document the story behind each one of my stock picks. I'm not going to write much about the analysis of the stock (there are hundreds of online resources for this) but more what I took away from all the analysis, the frame of mind I'm in, and any other crazy reasoning I have.

This wouldn't be my first go at creating a portfolio. I previously built up a good set of stocks after the financial crisis that I cashed out of (for another investment). Now that things are settling a bit I'm ready to jump back in longer term focusing on growth with the sectors Energy, Consumer Goods, Financials, Technology, and Industrials.

I plan on buying in rounds. My goal is to have 5 stocks I can just buy and forget (re-evaluate once a year), 5 stocks I re-evaluate each quarter, and 5 stocks I'm doing monthly research on to grow the portfolio. In the end I should have no more than 12 stocks, two-thirds of which are large cap.