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Following the recent release of my FFJ Portfolio - May 2022 Report, I have decided to exit 4 small positions to increase portfolio concentration and quality. The value of my exposure to each is insignificant.
The first 3 companies are companies in which I received shares because of spinoffs.
Embecta Corp. (EMBC)
In early April 2022, Becton Dickinson (BDX) completed the spinoff of EMBC. This newly formed company holds BDX's former Diabetes Care business.
While EMBC might have long-term potential, the company is saddled with debt and its domestic unsecured long-term debt credit ratings reflect the risk. The current ratings are:
- Moody's: The Ba3 rating is the lowest tier in the non-investment grade speculative category.
- S&P Global: The B+ rating is the top tier in the highly speculative category. This rating is one tier below that assigned by Moody's.
Neither 'junk' rating is suitable for my investor profile.
I sold 85 shares @ ~$28.71 held in one of the 'Side' accounts in the FFJ Portfolio. In addition, I also sold an undisclosed number of shares held in a retirement account at a similar price.
Warner Bros. Discovery (WBD)
In early April 2022, AT&T (T) closed the transaction to combine the WarnerMedia business with Discovery.
Although WBD's domestic unsecured long-term debt credit ratings are investment grade, they are very close to non-investment grade.
The current ratings are:
- Moody's: Following the closing of the merger, WBD was originally named Magallanes, Inc.; Moody's still reports the credit rating under Magallanes. A Baa3 rating is currently assigned. This is the lowest tier in the lower medium-grade investment-grade category. It is one tier above 'junk'.
- S&P Global: The BBB- rating is the same as that assigned by Moody's.
- Fitch: The BBB- rating is the same as that assigned by Moody's.
Now is a good time to dial back risk. I am confident I can deploy the sale proceeds toward the purchase of shares in a far superior company.
I sold 154 shares @ ~$17.40 in one of the 'Core' accounts in the FFJ Portfolio and an undisclosed number of shares held in a retirement account at a similar price.
Organon (OGN)
In February and May 2021, I acquired shares in Merck (MRK). In early June 2021, MRK completed the spinoff of OGN resulting in my receipt of 40 shares in this new publicly traded company.
While OGN might have long-term potential, the company is saddled with debt and its domestic unsecured long-term debt credit ratings reflect the risk. The current ratings are:
- Moody's: The Ba2 rating is the middle tier in the non-investment grade speculative category.
- S&P Global: The BB rating is the same as that assigned by Moody's.
Neither 'junk' rating is suitable for my investor profile.
I am scheduled to receive OGN dividends on June 16 after which time the few shares I hold in one of the 'Side' accounts in the FFJ Portfolio will be sold.
Viatris (VTRS)
In early June 2021, I acquired 400 VTRS shares in one of the 'Core' accounts in the FFJ Portfolio; VTRS is the combination of Pfizer's (PFE) Upjohn business with Mylan N.V.
I was not a PFE shareholder but in a momentary lapse of good judgement, I elected to initiate a small position in this company.
The current ratings are:
- Moody's: The Baa3 rating is the lowest tier in the lower medium-grade investment-grade category. It is one tier above 'junk'.
- S&P Global: The BBB- rating is the same as that assigned by Moody's.
- Fitch: The BBB rating is one tier above that assigned by Moody's and S&P Global.
I can deploy the sale proceeds toward the purchase of shares in a superior company.
I am scheduled to receive VTRS dividends on June 16; these dividends will be automatically reinvested. Following the receipt of these new shares, I intend to sell all shares that are held in one of the 'Core' accounts in the FFJ Portfolio.
Final Thoughts
In early January 2022, I completed an Investment Holdings Review. At that time, the value of the top 10 holdings comprised 42.82% of all holdings (FFJ Portfolio and undisclosed accounts). The 11 - 20 largest holdings comprised 21.64% and the 21 - 30 largest holdings were 15.03%. In total, 30 holdings made up 79.49% of the total value of all holdings.
I plan to have over 85% of my portfolio in 30 companies; the elimination of the 4 small positions reflected above is a very small step in this direction.
The rankings now differ from early January as I have been adding to my exposure in some of the top holdings and share prices have changed.
While I intend to undertake a similar review in July, I readily know that Visa (V) and Mastercard (MA) are still #1 and #2. Chevron, however, has risen from #4 to #3.
I wish you much success on your journey to financial freedom.
Note: Please send any feedback, corrections, or questions to [email protected].
Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decisions without conducting your research and due diligence. You should also consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.
