Update: My “A” List Technology Portfolio Cruises Higher

After talking to some of my friends who were hesitant to invest in high-priced and high-flying tech stocks, I wrote a Seeking Alpha article last November on how to take a $20,000 allocation and divvy it up among three technology stocks all starting with the letter "A": Apple (AAPL), Amazon (AMZN), and Avago (AVGO) - more accurately known as Broadcom (see: "A" List Investment Trifecta). At the beginning, the portfolio looked like this:

The total initial outlay was $20,488.77 and at that time the annual income based dividend declarations was $302.68 for a 1.5% yield. Yet as I noted, the yield was inconsequential because the portfolio was designed for capital appreciation - not income. That said, Broadcom does pay a decent dividend so I tacked on the yield information.

On December 31 of last year, I updated the portfolio to include another tech stock starting with the letter "A": Alphabet (GOOG), better known as Google (see: My "A" List Tech Portfolio - Risks Are Rising Heading Into 2020). I recommended adding 5 shares of GOOG at a price of $1,351.89/share (total cost $6759.45). That raised the portfolio's total cost basis to $27,248.22.

I expected to get criticism in the comment section and I was not disappointed. Many readers felt the high valuation of not only these particular stocks, but the overall market in general, was a reason to go short the names, not long. However, I made the point that all these stocks had very strong balance sheets, leading market shares, and excellent growth potential moving forward. And when it comes to the market risks, that turned out to be COVID-19. But the bigger risk was not owning stock in these companies.

Now it's time to see how the portfolio has performed. I have redesigned the table (adding cost basis and current value) and removed the dividend information:

NOTE: current prices as of mid-day 8/3/2020

Clearly Apple and Amazon have been absolute monster stocks and have consistently delivered on both the top and bottom lines. I generally covered these two EPS reports in my recent Seeking Alpha piece IGM: A FAANG Dominated ETF For Those Ready To Own Big Tech.

Broadcom has been somewhat of a disappointment, but I am not ready to throw in the towel just yet. It remains to be seen how the Symantec Enterprise software acquisition will turn out, but I remain positive due to the higher margin software business as compared to many of Broadcom's hardware widgets. Their Q3 results will be announced on September 3, 2020 and I will give them a close look to see if I want to keep the stock in the portfolio or make a move. AVGO is in a great position to benefit from the rollout of 5G and its diversification into software.

Alphabet (it will always be Google to me...) has also been a bit of laggard - especially when compared to Apple and Amazon. It's recent quarterly EPS report was the most unimpressive of all the big-tech companies and was the first quarterly revenue decline in the history of the company. That said, Google posted $10.13/share in net income and on July 27, 2020, the Board of Directors authorized the company to repurchase up to an additional $28.0 billion of its Class C capital stock. Also, note the company ended the quarter with a massive $121 billion cash hoard (cash, cash equivalents, and marketable securities). With only ~$4 billion in debt, that works out to a whopping estimated $171/share of net cash (based on the 684.1 million shares outstanding at the end-of-quarter). As a result, Google will stay in the portfolio.

Observation

As I mentioned, the idea for this portfolio came out of discussions with friends who were used to buying stock in 100 share increments. Some of you may be old enough to remember the days when buying stocks in any increments other than 100 share "round lots" caused an increase in commission. This is what kept some of my friends out of high-flying stocks like Amazon. But I reminded them that commissions are free these days (or next to free) and there is no reason to buy shares in 100 round increments. Now, of course, everyone is doing - RobinHood, and even Charles Schwab (SCHW) is now selling shares by the "slice". And perhaps that is a better avenue for many investors than doing it on their own as I have.

Summary & Conclusion

In the 9-months this portfolio has been in existence, it has returned 40.5%, not counting dividends. Not too shabby, despite the relative drag of Broadcom. I wish I could say that I participated fully in that return, but truth is I sold Apple (in two lots) after it ran up so much. As a result, I didn't own it for the recent blowout quarterly report, and sadly won't be on the receiving end of the 4:1 split that was announced (other than the shares I indirectly own in funds). Regardless, the fund has performed very well. But I am getting increasingly nervous with respect to the big disconnect between the US stock market and the US economy, which is suffering mightily due to the out-of-control COVID-19 epidemic. The economy seems totally dependent on revving up the printing presses at the US Treasury Department. That is, obviously, not sustainable. Which is why I own gold. Consider that gold is up 36% since the inception of my "A" list portfolio. My personal view is that gold has a much better chance of having a better return come December 31, 2020 as compared to the portfolio. High-tech investors who don't own any gold, should consider adding some as part of a well diversified portfolio.

Source: APMEX

Disclosure: I am/we are long AMZN, AVGO, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for the investment decisions you make.

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