It was a disappointing month for us as the Portfolio declined -3.0%, while the S&P 500 gained +1.5%.
Drivers of Performance
INTC accounted for more than 30% of the Portfolio’s negative performance in January 2024, as the share price retreated over 14% during the month, driven by the company’s fourth-quarter (Q4) 2023 results. While Q4 revenue came in at the high end of management’s guidance, the first quarter (Q1) 2024 guidance let the market down.
Our investment thesis with INTC revolves around efficiencies and cost reduction. Encouragingly, Q4 2023 operating expenses were down almost 10% year-on-year (YoY), and management remains confident they will achieve their long-term cost-cutting goals. Although weak Q1 2024 guidance is disappointing, especially when its peers report strong demand, our investment thesis remains intact.
The Buckle (BKE)
BKE had a challenging month, losing over 20% of its value. Part of the reason is attributed to a weak December 2023 sales report; however, the main driver for the sell-off was the company going ex-dividend for its special dividend of $2.50 per share.
Perhaps we erred in not selling shares at a higher price, considering the sell-off was expected. However, its exceptional dividend yield is central to our investment thesis. At our purchase price, we have locked in a sustainable dividend yield of over 12%; therefore, we will unlikely sell shares until the dividend sustainability is threatened or the company appreciates closer to its fair value of between $55 to $60 per share.
The St. Joe Company (JOE)
JOE sold off by 8% during the month as the market’s confidence in an interest rate cut as early as March diminished. Being a real estate developer, the market assumes that JOE’s success is linked to interest rates. While there is some correlation, we believe JOE’s long-term success is tied to the continued migration to Florida. Based on a report published by the company in late January, there is little to suggest growth is slowing.
The S&P 500 reached record highs in January as AI continued to trend. Stocks such as Nvidia (NVDA), Advanced Micro Devices (AMD), and ASML Holding (ASML) continued their upward momentum as a result.
Economic indicators suggest the US might get its soft landing as data showed the labour market remains hot while consumers remain strong. As such, the economy grew more than expected in Q4 2023. Yet despite this growth, inflation continues to move closer to the Federal Reserve’s target of 2%. The Fed did dampen the mood, but only for a moment, on the last day of the month when it announced it was improbable interest rates would be reduced as early as March.
It is always disappointing to underperform the market, but it is not surprising given our low exposure to the semiconductor industry and the Magnificent Seven. Furthermore, over 27% of the Portfolio is in the real estate sector, which is sensitive to interest rate expectations.
Despite the weak January, we remain optimistic about the potential of our holdings and believe in the long term, we will continue to outperform the indices.