E Portfolio Review: TD Ameritrade, Fastenal, 3M, MSC Industrial, Ulta Beauty

Gross profit declined 90 basis points to 47.2%, primarily due to increased industrial vending and Onsite location sales, which generate lower gross margins than the company average. During the first nine months of 2019, Fastenal generated $590.3 million in operating cash flow, up 19% year-over-year thanks to effective working capital management. Free cash flow increased 2% to $406 million on a nearly two-fold increase in capital expenditures to expand the
company’s hub capacity, vending devices and hub vehicles. Fastenal paid $126.2 million in dividends to shareholders in the third quarter, up 10% from last year.

With Fastenal’s stock bolting 16% higher during the past quarter and attaining a full value, we decided to fasten in some profits by trimming the position. Fastenal’s stock has risen more than 14-fold over the last 19 years from $2.45 to $35.71 per share.


For investors with taxable accounts, tax-loss harvesting candidates this year may include 3M (MMM), MSC Industrial (MSM) and Ulta Beauty (ULTA).

Given the softening global economy and the impact of tariffs, 3M lowered their 2019 full year sales and earnings guidance. Amid a weakening demand and pricing environment, MSC Industrial expects fiscal first quarter sales and earnings to decline.

Ulta Beauty’s stock price pulled back sharply during the past quarter and appears undervalued even after the company lowered guidance given industry-wide headwinds the company is seeing in the U.S. cosmetics industry with both prestige and mass market makeup trends soft.

With the proceeds from TD Ameritrade and the profits from Fastenal, we plan to buy General Dynamics (GD) (see related article) and add to our positions in Canadian National Railway (CNI) (see related article) and Maximus (MMS) (see related article).

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