A Bustling Beginning
A Bustling Beginning
Nelson Capital stayed busy in the first quarter, making several adjustments within our core portfolio. In the communication services sector, we sold AT&T (tkr: T). Over the years, AT&T has made several poor acquisitions, especially in the content realm, leaving the company saddled with debt and unable to change directions. We further diversified our communication services sector by replacing AT&T with Comcast Corp (tkr: CMCSA), a media giant. Comcast is the largest cable provider in the U.S. and is the dominant Internet access provider in the markets it serves. Though Comcast will likely see further declines in cable subscriptions due to ongoing cord-cutting, it should be able to offset that lost revenue by growing Internet access customers and instituting higher pricing. The pandemic has increased the importance of a fast Internet connection, with more content streaming to homes at increasingly higher quality. Comcast made significant upgrades early on, allowing it to quickly deploy new technology and increase speeds to meet the evolving needs of its customers.
In the materials sector, we bought Danimer Scientific (tkr: DNMR), a next-generation bioplastics company offering completely biodegradable plastics that break down invirtually any environment.
We made another swap in the industrials sector, selling our position in Stericycle (tkr: SRCL) and replacing it with Xylem (tkr: XYL). Stericycle’s medical waste business was not performing well in the middle of a pandemic, partly because people have put off routine care and elective procedures. Additionally, disruptive new competition emerged with the development of in-office appliances that heat up medical waste using high temperatures that kill pathogens and shred sharps. The remains can be disposed of in regular trash after treatment. Lastly, despite a new management team and the offloading of lagging businesses, Stericycle’s performance still underwhelmed and we decided to seek better opportunities within the industrials sector. Xylem is one of the leading water technology companies in the world, with about half of its revenues derived from outside the U.S. Its portfolio spans a wide range of equipment and solutions for the water industry, including the transport, treatment, testing and efficient use of water for public utilities as well as industrial, commercial, and residential customers.
In the energy sector, we bought a position in Chevron (tkr: CVX). As interest rates have increased, we have witnessed a rotation out of growth and momentum stocks and into value stocks. We think this trend could continue, which would be advantageous for Chevron. Additionally, we anticipate an uptick in oil and gas demand as more people get vaccinated and air travel picks up. Higher oil prices coupled with increased demand should lead to better earnings results for Chevron, which will enable it to support (or perhaps grow) its large 5% dividend.
Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.