Today, I am selling three stocks to make room for additional purchases in September and October.
The three stocks are; Coca-Cola (KO- Current Price $44.03), Anheuser Busch (BUD- Current Price $48.12), and the GMAC 7.25% preferreds (GKM- Current Price $22.36).
Two of the stocks we are selling are in the Consumer Staples sector, and I realized I may be a tad early on exiting these stocks. During an economic downturn, the Staples area is a good place to be, but also during a downturn, many bargains appear that could provide gains of 40% or more. If I thought that we had a 40% upside remaining in each of our sells, I would not sell them. I don't think this will be the case.
Coca-Cola (KO) has been in the IA portfolio since 2004. Despite a softening economy, investors have not rushed in to buy shares of the soft drink giant.
Since I want to post some more impressive gains in the portfolio, I cannot hold a value stock like KO since it does weigh down the performance of the portfolio.
For longer term value investors, I would hang on to the stock. I say this because of the large insider purchase made by Herb Allen, who annually puts together a quiet gathering of top elites to discuss mergers in Sun Valley, Idaho. At this meeting each year is Coke's largest shareholder Warren Buffett.
Back in May of this year, Allen bought 500,000 shares of KO around $42. This is enough evidence to keep long term value investors in the stock.
For our purposes, and what we are trying to achieve, Coke does not fit so we are removing it immediately at $44.03. Our gain in the stock is 10.86% including the dividend.
Anheuser Busch (BUD) has been in the IA portfolio since October 2005, and our cost basis is $42.20/ share. We are selling BUD based in some recent but heavy insider selling we have seen recently. Here is a look at some of the selling over the past week;
Hoffmeister James F (Strategy Committee Member) Sold 45,086 @47.83= $2,156,313
SANTEL THOMAS W (VP - Corporate Development) Sold 48,500 @47.97 =$2,326,706
KELLY JOHN F (Vice President and Controller) Sold 4,914 @48.00 =$235,872
MUHLEMAN DOUGLAS J (Strategy Committee Member) Sold 40,486 @47.95= $1,941,344
BAKER W RANDOLPH (VP and CFO) Sold 41,696 @48.05= $2,003,622
BAKER W RANDOLPH (VP and CFO) Sold 29,717 @48.08 =$1,428,763
BURROWS STEPHEN J (VP - International Operations) Sold 25,000 @48.00 =$1,200,000
BUSCH AUGUST A III (Chairman of the Board) Sold 300,000 @47.92 =$14,376,666
Castellano Joseph P (VP - Corporate Human Resources) Sold 70,390 @47.89 =$3,371,153
If shares of BUD are still a bargain, then we question why so many insiders have lined up to sell the stock. BUD is a wonderful company, and for longer term value investors, waiting another year or two would may be worth it. But for our purposes, it is time to take our 17.00% gain and move on.
GMAC 7.25% preferreds (GKM) have appreciated 11.75% in value, and has yielded 7.25% to boot. I feel that is time for us to take our 20% total return, and move on.
Many mutual funds take unnessary risks, lose sleep, and charge you an arm and a leg in hopes of achieve these kinds of gains. We did it calmly, and with no stress at all.
