Welcome to the fourth installment of the Santa Claus Stock Portfolio review. In 2013, Santa assembled a portfolio of dividend paying stocks based on his unique perspective on Christmas and the holiday shopping season. Every year since we’ve compared the performance of his portfolio to the S&P 500 Index.
After elf-sized returns last year, Santa’s portfolio bounced back in 2016, beating the S&P 500 by more than two percentage points. So to challenge him a little more, we’re adding a new challenger to face Santa in a jolly showdown…
Santa Claus vs. Warren Buffett! Which jolly investor will prevail?
Before getting into the numbers, let’s sleigh through each industry in which Santa Claus has invested his money and highlight the naughty and nice stocks of the year. I’ll reveal the companies that deserve a wonderful bounty of gifts under the Christmas tree, and which one will find reindeer poop in its stocking.
The Santa Claus portfolio (SNTA.NP) started as 25 stocks. Each year we add new holdings based on valuations and relevancy and remove stocks due to acquisitions or Grinch-like underperformance. This year, the portfolio consisted of 28 stocks. Being the prolific giver that he is, Santa does not invest in dividend scrooge companies.
Each year I record the Adjusted Close price (sourced from Yahoo Finance) on December 4th and the calculate the annual return of each stock individually and for the equally weighted portfolio. Then I look at the performance since inception. The numbers are compared to the S&P 500 Index ETF (SPY).
As a stocking stuffer this year, we’ll match Santa’s performance up against the jolliest investor of them all, Warren Buffett and his Berkshire Hathaway (BRK-B) stock.
If you like what you see in Santa’s portfolio, you can create your own mini-ETF containing all 28 stocks using Motif Investing and buy them for one low price. Or design your own custom portfolio. Learn more about creating your own mini-ETF here.
Keep in mind, since Mr. Kringle is NOT required to disclose his holdings to the SEC (being a resident of the North Pole), we can only speculate on what stocks he owns in his portfolio.
Last year, Santa’s portfolio trailed the S&P 500 index by 0.32%, gaining 2.66% vs. 2.98% for the period December 4th, 2014 through December 4th, 2015.
This year Santa Claus was a big winner vs. the S&P 500. But how’d he do against Buffett?
Santa’s Portfolio Industries
The last three years have been quite a lead reversal for toy giants Mattel (MAT) and Hasbro (HAS). Mattel has finally reversed its own course and locked in a positive year in 2016. The stock was up 17%.
Hasbro, on the other hand, was up 22% over the past 12 months and is up 71% since the start of Santa’s portfolio. Mattel is still down 27% over that time period.
When my kids met Santa Claus this year, he asked my son two questions: How old are you? and Do you like Paw Patrol? Santa said HE likes Paw Patrol, that’s how popular this TV show is.
If you’re not familiar, it’s a cartoon about rescue puppies. But really, the entire show was designed around the toys. There’s so much crap to buy based on this show it’s unbelievable. The company behind it all, Spin Master, is Canadian. So the Canadian readers out there check might want to check out TOY.TO. They are raking it in.
You can watch Paw Patrol on Nickelodeon, a property of Viacom (VIA). Base on personally hearing Santa say he’s a fan of Paw Patrol himself (his favorites are Chase and Marshall, Viacom is added to the portfolio for 2016.
But let’s not forget the all-powerful Disney (DIS). Ask any parent, the company is still dominant when it comes to magically turning grandparents’ money into junk in your house. But the dramatic loss of ESPN subscribers has institutional investors nervous.
Disney’s stock was down 14% over the year. But the movie hits keep coming. Moana, Rogue One, and the next installment of the Frozen franchise is on the horizon. Do not fear the dark side.
Nobody believes the whole “elves make the toys” shtick. We all know Santa buys toys from the stores just like the rest of us. With his intimate knowledge of the industry, retail makes up the largest part of Santa’s portfolio.
Retail gave us the best and worst performers of the year. The worst stock in Santa’s portfolio, worthy of a stocking full of reindeer poop, an elegant lump of coal and an ousting from the portfolio, is GameStop (GME). Who buys videos games at a single store anymore? Down 27% and saddled with gigabytes of debt, Santa’s dumping this one.
One the positive side, 2016’s best performer was nonother than Best Buy (BBY). Best Buy was left out in the cold by Wall Street investors last year, but the stock rose 47% in 2016, making it the holliest, jolliest of them all.
Another rebound stock for the year was Walmart (WMT). I no longer go to Walmart ever since they stopped selling All-Bran Bran Buds at our location (now I buy them on Amazon). But dividend investors love the company. After a difficult 2015, Walmart is up 18%.
One other reason I never go to Walmart is because it’s next to Costco (COST). The customer experience is superior, by a long-shot. But Costco’s stock is down 8% this year.
Newcomers to the list The Gap (GPS) and Kohl’s (KSS) had split success in 2016. The Gap was down 7% and Kohl’s was up 14%. Kohl’s has been a staple near the top of the Loyal3 best value rankings page and I added some to my own no-fee dividend portfolio.
The Gap has its hits and misses with fashion. But a strong balance sheet never goes out of style.
Santa is expected to come a little early for Mr. and Mrs. RBD. Both of us have the four-year-old iPhone 5. And both of us not only feel married to each other, but to our iPhone chargers.Those iPhone 5’s can’t handle the onslaught of iOS software upgrades. Not to mention the lack of storage.
So this year we’ll be purchasing the Apple iPhone 7. I know what you’re thinking, we should probably wait for the iPhone 8. We would wait, I suppose if our phones weren’t so unreliable now. But apparently, a lot of Apple (AAPL) nerds are waiting another year. Because the media keeps getting our hopes up for spectacular iPhone 8.
We won’t be buying a new iPad this year even though our iPad 2 is a sloth. Instead, we went with the Kindle Fire for Kids from Amazon (AMZN). On Black Friday they were on sale for $75. We’re taking a five-hour flight next summer with three kids under age five and need the screens.
More of an impact on Apple stock is the potential for US tax reform. If the new administration lowers taxation on the repatriation of funds held outside of the US, Apple shareholders may receive a windfall of cash in the form of dividends or buybacks.
Microsoft (MSFT) logged another decent year with the stock rising 6%. The Surface Pro 4 is starting to gain some market share, while the cloud business has driven the stock toward all-time highs. Windows 10 was a savior after the mess that was Windows 8.
TV glass maker Corning (GLW) was the second biggest gainer this year, up 30%. That’s no surprise, seeing all the beautifully curved screens on display at Costco. Our family is still sporting a 37-inch 720 LG, which is fine since we ditched cable TV.
Lighting the Way
Utilities, on the whole, outperformed the S&P 500 Index this year, up 12% in 2016 (as measured by the Vanguard Utilities ETF, VPU). The Christmas season is always a boost to the bottom line with all the ridiculously lit houses (our included). Perhaps the rise of LEDs is keeping some of our bills under control.
A former newcomer in 2014, ITC Holdings (ITC) will be saying “and to all a good night” this year, leaving the portfolio after being bought out by Fortis (FTS). The sale price of $45.50 helped Santa lock in a 17% gain.
East Coast electric Utility Dominion Power (DOM), slightly underperformed the utility index, but handily beat the S&P 500.
To backfill the departure of ITC, I’m adding Southern Company (SO) to the portfolio. Southern Company has a 16-year dividend increase streak and currently yields north of 4.5%.
Santa Claus knows holiday indulgence more than anyone. How he manages to deliver all those toys, AND, stop so frequently to use the bathroom… all in a single evening is still a baffling Christmas mystery.
The top performing stock since the inception of Santa’s portfolio is Tyson Foods (TSN), up 74% since December 2013. Tyson posted another 9.5% increase in 2016. Not bad for a turkey… producer.
For the first time in 2016, we added Hershey (HSY) to the portfolio thanks to a reader suggestion. It gave us sweet returns, rising 12% up to $97. The stock traded as high as $113 in August on talks about a merger with food maker Mondelez (MDLZ).
Makers of sugar, spice and everything nice, McCormick & Company (MKC) was a laggard gaining just 3% for the year. The company is a Dividend Aristocrat, having paid and increased its dividends for the past 31 years without interruption. The 10-year dividend growth rate is a steady 10%. So grab a gingerbread man cookie, put a little nutmeg in your eggnog and raise your glass to McCormick & Company.
Fuel prices remained low in 2016, helping shipping powerhouses FedEx (FDX) and United Parcel Service (UPS). After poor performances last year, the stocks are up 24% and 13% respectively.
Santa Claus has left Amazon off the list each year since it doesn’t pay a dividend. But man, we get so many packages every year and the cardboard boxes are out of control. That’s why I’m adding cardboard box maker, Sonoco (SON) to Santa’s portfolio for 2016.
Sonoco is a consumer packaging company based in Hartsville, SC. It’s a Dividend Champion, having paid and raised its dividend for each of the past 36 years. Thanks, in part, to being a major supplier of boxes to Amazon, the stock is up 33% over the past year, now near 52-week highs. It’s forward PE ratio is a little rich at 19, but the stock yields 2.74% and has a 10-year dividend growth rate of 4%.
Last but not least are the payments companies. The three on our list all had so-so years, despite being the darlings of many stock prognosticators. Visa (V) was actually down more than 5% year-over-year, possibly providing an entrance opportunity for dividend growth investors. It’s newly lucrative deal with Costco hasn’t seemed to move the needle for the company. However, those of us who rely on Visa cards for travel rewards welcome the changeover from AMEX.
Mastercard (MA) and American Express (AXP) (last years winner of the Lump of Coal award for losing the Costco deal), were about as flat as a credit card. Apple Pay, the feared boogie man for the payments companies, doesn’t seem to be taking hold as much as expected.
Santa Claus vs. The S&P 500
Unlike most portfolio managers, Santa beat the S&P 500 in 2016. His portfolio of 28 stocks gained 6.96%, compared the SPY ETF which returned 4.80%, a difference of 2.16%. Since inception, Kris Kringle is up 24.11% but is still trailing the S&P 500 index (up 27.12%) by 3.01%.
Turns out the overweighting of retail stocks was the key to his stellar returns this year, finally catching up to the market. With the stock markets reaching new highs this December, perhaps consumer confidence will help Santa catch up to the index next year.
Santa Claus vs. Warren Buffett
So the numbers you’ve all been waiting for are finally here. Santa beat the S&P 500 Index this year, but how did he perform about the Jolly Oracle?
To calculate Buffett’s performance (and to keep this simple), I’ve taken the stock price of Berkshire Hathaway’s (BRK-B) stock on December 4th for the past four years and made a side-by-side comparison to Santa.
In a head-to-head Jolly Showdown, Buffett EASILY beat Santa. Buffett’s Berkshire Hathaway stock was up 16.79% in 2016 and is up 38.24% since the inception of the Santa Portfolio. Buffett’s numbers easily beat the S&P 500 index too.
This is no surprise, as Buffett is one of the greatest investors of all-time, while Santa is merely an amateur. Though Buffett will end up being one of the greatest philanthropists in history as well, nobody can compare to the joy Santa delivers to millions of children around the world each year. Not even the Oracle.
Santa’s Stock Portfolio
2016: 28 Stocks
Removing: ITC, GME
Adding for 2017: VIA, SON, SO
Merry Christmas and Happy Holidays! Thanks for reading, subscribing to my email list, commenting and sharing. -RBD
Disclosure: The author is long BRK-B, SPY, HAS, DIS, TGT, KSS, GPS, AAPL, MSFT, GIS. See the complete portfolio here.