I hadn’t really made a large purchase for the month of September but decided to split some funds with two different companies that I already own.
The first company is a 52-billion dollar consumer products behemoth, UL. They yield a very nice 3.7%. I buy UL instead of UN to avoid any withholding taxes due to the treaty the U.S has with the UK. I’ve been consistently adding to UL and decided I’d go ahead and bring it up to at least a full weight in my portfolio. UL is also a little below my cost basis which is even more of a reason I decided to add more shares.
So I bought 100 UL @ $41.85/share.
For my second purchase I turned to the energy sector. This stock is caught up in a perfect storm of bad conditions. These include lower gas prices, smaller CAPEX spending and a larger supply of rigs in the market. These three factors are wreaking havoc on the entire drilling industry. To me, ESV stands out. They have the lowest debt ratio (D/E) among peers and have one of the youngest average fleet ages, just behind Seadrill (SDRL). I see weakness into mid next year at least but this stock is trading at a forward P/E of only 6.8 based on a projected EPS of 5.56 by S&P Capital IQ below. This could be a good value play.
So I bought 76 Shares of ESV @ $38.92/share which reduced my basis down several dollars per share.
My short-term plan is to build up to a 500 share position as long as I can keep averaging down. I do have some puts I sold which are way in the red. I hope to be able to roll at least the Dec. expiration forward before the end of the year. I’ve even thought of possibly buying a put to hedge my bets in case the price keeps going lower. I’ll let you know if I decide on doing that.
Here’s a look at ESV versus some of their competitors. I think they have held up quite well considering how bad the whole sector is getting hit.
At this point, buying any more ESV is considered speculative. They don’t make up a giant part of my portfolio at a 4.55% weight but that’s still well overweight from an average position size of 2.5%. If you look at the dividend weight, it’s even more skewed. ESV now makes up a whopping 9.13% of my dividend income! A cut in their dividend could be a huge hit to my forward income and that’s obviously something I need to consider going forward. I still believe in the management of the company and believe this company will rebound by 2016. I don’t mind collecting the large dividend while I wait and sitting on an unrealized loss.