Dividend Stars Portfolio: November Update

BOSTON ( TheStreet Ratings)-- The Dividend Stars portfolio returned 1.97% in a shortened November (the portfolio was launched November 10th), exceeding the total returns for the S&P 500 Index over the same period by approximately 1.22%.

US Investors, spooked by the lingering uncertainty surrounding the state of European affairs, ran for the exits in mid-November, driving the S&P down by over 9% from Nov 8th to Nov 25th. News that the major central banks would provide lending assistance to Europe helped the market regain some steam, as the Index clawed back over the final week of November. There were no changes to the portfolio during the month.

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Highlights:

Deere & Co ( DE) , the portfolio's best performer in the month, returned 7.7%, fueled by an impressive quarterly earnings report. The company announced strong results across the board, with Agriculture and Turf equipment sales up 20% year/year, and Construction and Forestry sales up 34% Deere forecast slightly lower farm cash receipts and commodity prices for 2012, yet issued net income guidance of $3.2 Billion, higher than previous forecasts. This equates to $7.88 in EPS for 2012, leaving the stock trading at just 10x EPS for next year. I think a continued supply/demand imbalance for global grain inventories will favor Deere into 2012 and beyond. I apply a conservative P/E of 13 (historical levels range between 14x and 16x) to next year's earnings, putting the stock at $102/share by the end of 2012.

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Lowlights:

Microsoft ( MSFT) , was the worst performer in the month at -1.94%. The stock has come under pressure of late, based on rumors swirling that the company is one of the suitors in line to acquire Yahoo. At this point, it looks like an outright acquisition of Yahoo for Microsoft is unlikely, but they may be part of a larger group which takes a minority position in the company. With over $40 Billion in net cash on the balance sheet, Microsoft certainly has the money to acquire Yahoo, but I'd much rather see them involved in a smaller type deal. Assuming that Microsoft is only involved as a minority type partner in any Yahoo deal, I'd expect the shares to get some relief once any transaction is finalized. In other news for Microsoft, the company announced its best week of Xbox sales in history, driven by price cuts on consoles, leading to sales of 960,000 units over Black Friday.

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Other Notable News:

Target ( TGT) announced a somewhat disappointing increase in November same store sales of 1.8%, falling short of expectations of 2.8%. The good news is that competitor Kohl's ( KSS) looked even worse, with sales dropping 6.2% versus expectations of +2%. While Black Friday sales were reported to be brisk, the remainder of November was somewhat sluggish. Food and household sales increases hit the mid-teens, while apparel, toys, music, movies and book sales were flat. All signs point to the retailer likely getting squeezed by Wal-Mart ( WMT) , who was the most aggressive of all the retailers over Black Friday. Initiatives such as P-Fresh (Target's grocery concept) and its 5% Red Card Rewards should help to offset other weakness in sales. Maintaining position, but will be watching closely to see how the remainder of the year unfolds.

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Portfolio Returns (Nov 10th to Nov 30th):


Deere (DE): +7.71%
Intel Corp (INTC): +3.53%
PepsiCo (PEP): +2.47%
Target (TGT): +2.38%
Norfolk Southern (NSC): +2.37%
Exxon Mobil (XOM): +2.21%
Procter & Gamble (PG): +2.10%
Mattel (MAT): +1.89%
Honeywell (HON): +1.81%
McGraw Hill (MHP): +1.57%
Chubb (CB): +0.55%
Novartis (NVS): -0.95%
Microsoft (MSFT): -1.94%

If you have any questions, comments or suggestions, feel free to message me on Twitter at @bostoncfa
Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.

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