Getting Your Portfolio in Better Shape, Part 2

The following is the second of a two-part series. In the first part, Mr. Merkel explains the philosophy and criteria he uses when reshaping his portfolio. The following outlines the portfolio additions and subtractions he made based on those criteria.

We left off yesterday with the construction of my final list. (Click "no" for any query boxes that may pop up. The sheet will appear regardless.)

Companies in my portfolio are highlighted in yellow, except for the middle company, Allstate (ALL Quote), which is orange. Why the difference? No company above the middle company can be sold, and no candidate below it can be bought, except in rare circumstances, in which valuation cannot be adequately measured by the ranking model.

Working up from the bottom, I decide what to sell. If I'm not selling something that rates low, I have to have an explanation for why I am keeping it.

What I Did Not Sell

St. Joe (JOE Quote): This didn't score well. The land is considerably more valuable than the share price would indicate.

SPX Corp (SPW Quote), Sara Lee (SLE Quote): These are still in turnaround mode. The metrics don't look good now, but should improve.

Sappi (SPP Quote): The underlying-asset value is not reflected in the metrics. South Africa is out of favor.

Dow Chemical (DOW Quote): It's still cheap, and there are probably transactions that can unlock value.

DTE Energy (DTE Quote): My one U.S. utility. It would benefit from a sale of its energy production arm. I'm close to selling, but not quite there yet.

Premium Standard (PORK Quote): The Smithfield merger will go through, and they will be able to take out costs. I think cost pressures have reached their maximum here, and profits will improve more than Street estimates.

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