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Why I'm Holding On To Apple

What a quarter!  Nothing like what any of the pundits predicted. The S&P 500 Index (SPX) was up about 10%, the Dow Jones Industrial Average (INDU) was up over 8%, and the Nasdaq was the laggard at around 5%, during the first quarter.  And all despite the “sequester” coming into force during the quarter.

It was a good quarter for passive investors who were 100% invested in a Dow ETF.  But that’s not the way I manage my money. I typically seek to have a cash cushion even in bull markets. It’s currently about 17% in the PWP Growth and Income model and about 37% on the Global Growth Brands model. Given those cushions, I’m happy with Q1 returns of approximately 4% and 2% respectively.

Apple (AAPL) continues to be a disappointment recently. Not the company, which still makes some of the best and most in demand products on planet, but the stock. I suspect that many, if not all, of the momentum traders are now out of the stock and it has become more of a value play than anything.

AAPL Chart

AAPL data by YCharts

For that reason I’m in no hurry to dump the stock.

On a positive note, I had a good run with Shutterfly (SFLY) in the first quarter. It seems that creating custom Christmas cards and family photo albums were in vogue at the end of last year! Other stocks that I sold in the first quarter: Hess (HES), MetLife (MET) and Dell (DELL).

I continue to look for good value and believe I found it last quarter in Coach (COH), Dick’s Sporting Goods (DKS), Gannett (GCI), Honda (HMC), PNC Financial Services (PNC), Statoil (STO), and TravelCenters of America (TA), all of which had been under pressure. I believe these are all good companies with good brands and good management which are positioned to do well in a healthy economy.

Also added in the first quarter were AerCap Holdings (AER), Aircastle (AYR), Broadcom (BRCM), and Hospitality Properties (HPT), each for different reasons. In my opinion, AER and AYR are conservative ways to play a growth in air travel.

I believe that BRCM is a play on the mobile revolution. And HPT is a way to benefit from the pickup in economic activity while collecting a healthy dividend in my opinion.

I have no idea if the market will continue to grow the rest of the year. On the positive side economic growth should continue to provide a tailwind for the market. On the negative (or flat) side the market may have already factored in economic growth for all of 2013 with its Q1 performance.

Regardless, I will continue to look for companies which I believe represent both value and growth relative to the broader market and the economy as a whole. And I will continue to do so until I feel the bull market is getting long in the tooth, which is not the case today.

Until next time many happy returns!

The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Leif Eriksen

Leif Eriksen

I am a long term investor with experience in both good and bad markets. My success is the result of

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