I’ve recently become more serious about investing. As an intern at Stock Rover, I had some mishaps in our portfolio performance contest , which began in the first week of my internship. But having become an expert in Stock Rover over the last few months, I’ve committed to improving my investment strategies. Recently, I started researching stocks in Stock Rover with the goal of building my own investing portfolio.
Before I started researching, I had to settle on an investment thesis. That meant answering key questions, such as: what type of portfolio do I want? Growth? Income? How much risk am I willing to tolerate? High? Low? How long is my time horizon? Several years? Just a few months?
After some reflection, I formed my thesis: I’m a long-term income investor and my portfolio would consist of stable, well-established companies that pay high dividends.
The rationale for this thesis was born out of my concerns about the future of the US and global economies. With the Eurozone’s never-ending financial woes and the US’s lackluster recovery, the stock market had the look of Humpty Dumpty: High up, but poised for a great fall. This prognosis of the market leads me to believe that the smart move is in safer stocks providing a steady stream of dividend income.
Stock screening is one of the most powerful research tools for discovering new stocks, so to find companies that suit my investment thesis, I ran the screener below:
The criteria of my screen limited the results to companies that fit my thesis. That meant including market cap to find well-established companies; dividend yield to find companies paying a sufficiently high dividend; price earnings ratio to find cheap companies relative to their earnings; and excluding particular industries, such as energy, financial services, and tech, which I deemed too volatile to suit my safer investment strategy.
The video demonstrates my workflow in finding companies that met my criteria.
For those who have watched the video, I thought I would update you on the research I’ve done since the video.
On July 23rd, McDonald’s published its second-quarter earnings. Eager to determine how its second-quarter performance will affect my investment decision, I opened up the report through Stock Rover’s company reports feature.
I learned from the report that McDonald’s had a disappointing second quarter. Net Income was down 4.5% from last year’s quarter and earnings per share fell short of analysts’ expectations by six cents. Unfavorable exchange rates are mostly to blame for the wobbly quarter. A recently-strong US dollar, made McDonald’s sales in Europe (40% of its sales) much weaker after currency conversion.
The next few quarters may also spell trouble for McDonald’s. The heat wave and drought that hit the US this summer have led McDonald’s to predict a 3.5% to 4.5% increase in commodity prices this year, which will negatively impact profitability.
All in all, McDonald’s doesn’t seem as attractive as I once thought. Its size and geographic diversity haven’t kept it immune from global economic sluggishness. That sluggishness doesn’t appear to be vanishing anytime soon either. Most concerning is how susceptible McDonald’s profits are to exchange-rate fluctuations. With the Western world’s political gridlock over its debt problems, exchange-rate fluctuations are difficult to predict.
I’m tabling McDonald’s from my research. In today’s environment, currency conversion is too uncertain. So, in the next stage of my research I’ll examine companies that do business in the good old US greenback and therefore insulate my portfolio from currency risk. Even though I won’t buy shares in McDonald’s, I’ve added McDonald’s to one of my Stock Rover virtual portfolios; that way, I’ll be able to track it against the stocks I do select.
It’s tempting to get discouraged when discovering a stock isn’t all that you thought it to be. But actually this is good progress–finding the bad apples clears the way to find the ripe picks.