Comtech Telecommunications [CMTL] become Overvalued and Left the Portfolio Model
The U.S. Stock Only portfolio model had one stock become overvalued in March, Comtech Telecommunications [CMTL]. The stock reached 160.0% Fv (Fair Value). Contech Telecommunications was a strong contributor to the portfolio gaining 164% growing to represent 2.3% of the portfolio. Figure 1 graphically demonstrates the price history for the stock showing the rise from well undervalued to an overvalued position. The company designs, develops and produces innovative systems and services for advanced communications.
With the stock removed from the portfolio the current asset allocation has a slight underweight to Core stocks (17.4% vs. 19.1%), Market stocks (65.8% vs. 66.7%) and a corresponding overweight to Aspirational stocks (16.7% vs. 14.3%).
In terms of market capitalization, the allocation favors SmallCap stocks at 20.1% versus a market weight of 3.1%. Large Cap stocks are underweight at 71.2% versus 90.0% as are MidCap stocks at 8.8% vs. 6.9% target%.
Within sector allocations the portfolio is currently overweight in Consumer Staples (9.2% vs. 7.9%), Financials (26.9% vs. 14.5%), and Materials (4.3% vs. 3.2%). It is underweight in Consumer Discretionary (11.6% vs. 13.3%), Health Care (10.4% vs. 13.1%), Industrials (8.2% vs. 10.9%), and Information Technology (21.0% vs. 24.0%). Allocations are within 1% of target for Energy, Telecom and Utilities.
Ideally, at this point we wish to add stocks that have either Core or Market characteristics, within the Large Cap capitalization category and located in Information Technology, Industrials or Health Care.
There are 17 stocks that are considered BUYs within the three sectors, that are Large Cap and have either Market or Core characteristics. The list was narrowed down to two stocks, one Industrial, Johnson Controls [JCI] and one Health Care, Allergan [ALGN].
Johnson Controls is already in the portfolio. The plan is to add approximately $30,000 to the current holding raising the stock weight to 3.05%. The stock pays a nice 3.07% dividend, and is at 73.8% Fv.
The second stock is Allergan, plc.; it was just recently added to the portfolio. It is a Market stock at 66.2% Fv with a $245 Fv price. It is solidly within the pharmaceutical industry. The plan is to add $30,000 to the portfolio raising the portfolio weight to 2.03%.
Adding the two stocks to the portfolio increased the allocation to LargeCap market capitalization category and reduce the allocation to SmallCap moving closer toward our target asset allocation.
Sector weights also improved with almost a full point being added to both Industrials and to Health Care.
