Analysis: LH

In today's Daily Rundown, Action Alerts PLUS' Chris Versace answers your top questions on his aging population theme, the U.S. dollar, the club's timeline for price targets and much more.
 
 
Transcript:
 
J.D. DURKIN: Good morning once again, subscribers. Chris Versace and I are now back with some answers to your biggest questions of the week. Chris, good morning. Thank you for being here, as always.

I do want to kick things off a little differently with a question that I-- yes, I-- of all people had when taking a look at the portfolio holdings. Chris, how do you determine the weight that any given name in the portfolio has?

CHRIS VERSACE: So rule of thumb for us, J.D. , is we'd like to have a position size when we're full that's around 3.5%, 4%. And as members have seen, when we get much above 4%-- call it 4.2%, 4.3%-- that usually means that a position is performing rather well and we want to call back some of those profits, lock in those gains as it were, kind of redistribute the proceeds either into other positions or potentially have it help build up our cash for a more opportune time. But let's talk about building towards that 3.5%, 4%.

Typically when we start a new position, we're going to nibble, if you will, half a percent, maybe three-quarters of a percent, and look to build up to that larger position size over time preferably using either pullbacks in the share price or data that confirms our thesis and has us getting a little more bullish on the shares, potentially even raising our price target as we do so.

J.D. DURKIN: All right, thank you for answering that. Now on a similar note, Chris, we have a member who is wondering what kind of timeline AAP's price targets are actually based on?

CHRIS VERSACE: So again, a big rule of thumb for us is a rolling 12 to 18 months. So when we start a position, we're taking a look at where we think the share price could be roughly somewhere between 12 and 18 months. But as we know, this is not exactly Crock-Pot investing.

And what I mean by that, members, is that new data emerges. As that happens, we can become, as I just mentioned, perhaps incrementally more bullish, or there might be signs that our thesis that powers that price target may take a little longer to play out. So we're always readjusting our thought process behind those price targets. And you're seeing those really as we update our conversations with you about each position in the portfolio, whether it's in the rundown or other alerts.

J.D. DURKIN: Chris, the recent decline of the dollar on the back of a potentially more dovish central bank has resurfaced a few worries out there on the future of the currency, as well as its place overall in the US economy. What's your latest take on the dollar, Chris? And how does it impact how you go about managing the portfolio?

CHRIS VERSACE: So there's a number of different things that we watch. You know, whether it's economic data, industry forecasts for the end markets that our position serve. There is interest rates as well, metrics about the consumer. But of course, we have to think about the dollar for a variety of reasons, mostly because of the international exposure that we might have in exchange rates.

So with the dollar falling, that means that companies based in the US that sell goods overseas, well, their products perhaps might be a little more cost-competitive. Not a bad thing, but we also have to think about what those ramifications for what their costs of goods sold might be. So there's a number of puts and takes that we have to watch all the time regarding the dollar, J.D. . But in terms of the dollar in and of itself, there is some concern on again, off again about its position on the global stage might fade.

I don't really see any reason to think about that right now. Again, we'll continue to see how that plays out in the rise of digital currencies. But in the next, again, 12 to 18 months, perhaps even longer, I don't think the dollar as a base currency unit is going anywhere.

J.D. DURKIN: That's good context, especially for those members who see those Brexit related headlines and have a lot of these questions. So I do appreciate that. Now Chris, last week you updated members on your aging population theme when you added Labcorp (LH) to the bullpen. We have a member who's wondering how long-term care, namely things like assisted living, nursing homes, could play into that theme in the future?

CHRIS VERSACE: It plays 100% into that theme, J.D. Because if we think about aging in a population, it's one thing as we talked about in that note with Labcorp about the shift in the demographic cohort, again, favoring people over 65 years of age. It's really the only growth cohort that we're expected to see over the next decade or so. There's a lot of shifting and evolving needs that this group of people have.

And of course assisted living, nursing homes fit right into that. Nursing homes has us thinking about certain REITs that might serve that end market. Great, because we know the end market's going to continue to grow, driving demand for nursing homes. The REIT structure, remember, it has to pay out at least 90% of its profits in the form of dividends. That probably speaks to a rising dividend policy.

So that is something that we're looking at. In terms of long-term care, my dad's 92 years old and he's in a nursing home, memory care unit. So it's something that's very near and dear to me, something I deal with more weeks than not in any given month because I'm also his guardian. So I would love to find a way to play that.

The chore there is finding an insurance company that is predominantly exposed through its revenue mix towards that type of insurance. And I have yet to find one. Doesn't mean we're going to stop looking.

J.D. DURKIN: All right, shout-out to your father, by the way. I appreciate the mention there. Now speaking of the bullpen, Chris, we have a member who is wondering -- yeah, go ahead?

CHRIS VERSACE: No, no. If you want to shout-out my old man, he was 18 years old -- won the Golden Gloves Featherweight in New York City.

J.D. DURKIN: OK, now we're talking a major shout-out. I'm sure I don't know how many of our members knew that. But the more you know, that's awesome. All right, well, really shout-out your father then. All right, speaking of the bullpen, Chris, we have a member who is wondering where that person can find the current bullpen contender-- speaking of contenders-- on the website. Where do we go about finding this information, Chris?

CHRIS VERSACE: So if you click on the Portfolio tab at the AAP web page, you'll see some tabs across the top, including what positions that have recently been sold, positions that have been recently bought. And then there's the Bullpen tab. And just to be clear, members, I tend to use the term bullpen contenders interchangeably. So when you go to the Bullpen page, you will see the list of contenders that were constantly chewing over, thinking about, looking for a potential right risk reward profile or what is that next piece of data that could lead us to call them up to the bullpen.

I'm sorry, from call up from the bullpen to the active portfolio.

J.D. DURKIN: All right, love that. Well, it's not quite baseball season yet in terms of pitchers and catchers reporting, but we could still have a good conversation about the bullpen. Chris Versace, thank you, as always.

CHRIS VERSACE: J.D. , baseball, boxing, who would have thought?

J.D. DURKIN: Who would have thought. Here we are. Listen, anything that makes the information a bit more digestible or accessible for our members. Especially the sports fans out there-- you and I are always willing to do. Chris, that's a wrap for today. Thanks, man.

CHRIS VERSACE: Thank you.

J.D. DURKIN: Folks at home, please continue sending us any and all of your questions. You could do so by sending those questions on over to us at aapclub@thestreet.com. We will do our very best to bring you answers each and every Wednesday. Until we see you again, thanks for watching, and we'll see you again soon.

AAP has no positions in any security mentioned.