The Xmas season is upon us and we all know there is not much to cheer about when it comes to the economy, the stock market and our portfolio's. Heck, put some more rum in the egg nog!
With over a half million jobs lost in the United States over the last month it might seem that we are headed for a depression,just remember the U.S. economy is has over 300 million people.Although the jobs lost is not insignificant, what would have been more concerning is if we would have lost one million jobs. We all know we are in a recession, and it will be a sever downturn, but a depression is not likely.
Governments worlwide are pushing through large stimulus packages and central banks are cutting interest rates faster than a teenager pops a pimple right before a date.Large deficits are now fashionable because there is no alternative and cutting spending for healthcare and education is not politically tolerant. Boosting spending for infrastructure projects (bridges, roads etc) will have significant payoffs in the long run but don't expect it to be the immediate cure for our economic ills. It will take time to spend the money and the positive effects from all this spending won't be felt till around 2010-mid 2011.
So with all this turmoil, what are investors to do? You BUY, BUY, BUY BUY. Don't be part of the herd and panic and sell good quality businesses. You are not a hedge fund and you don't have to report your performance in order to get some ludicrious bonus that will pay you more than what some small eastern european country has in its treasury.
As usual you want to be selective of what you purchase, you want to own the diamonds in the rough and avoid th coal. But when you allocate you money, remember this very important tip. You should NEVER look at your investment as buying into a stock, rather you buying into a business. That type of mind set will change what type of businesses that you own in your portfolio. Solid business with good management will always offer superior long term results, and during economic downturns will offer you a level of protection even if the shares fall 50-60% in price. What is that protection? Its longevity and the fact that they are still making a profit and will suruvive the downturn.
So here are some businesses that you want to own.
1) TD Bank $43 (TD-TSX)This is one of the best managed banks in the world. TD did not hold any subprime mortgage or toxic CDO'S, they bought a well run U.S. bank,no major writedowns they increased their dividends in 2008, and they made just over a billion dollars in the last quarter even with a financial credit crisis. No other Canadian bank can match this management team, every other major Canadian bank had exposure to the subprime market but TD. The facts speak for themselves.
2)JP Morgan & Chase Bank $33.75 (JPM-NYSE) Although this bank has had some exposure to the subprime mortage market, it was not a lot and they did not over leverage themselves like the other large U.S. Commercial Banks. They picked up Washington Mutual Bank and former Investment bank Bear Sterns for a song, with the U.S. goverment absorbing much of the losses those institution helds and Morgan has increased their deposit base in U.S. West primarily in California.
The merging of U.S. banks now is creating a situation where years down the road you will have large American Super banks, like we do in Canada with our big 5. JP Morgan with be the biggest one in my opinion. JP morgan as usual is taking advantage by buying weaker banks and consolidating them into their fold and cutting costs. This bank is better run than the other large U.S. banks like Bank of America and Citigroup. they have not cut their dividends, they raised $10 billion without a hitch to buy Washign Mutual Bank (shows the level of investor confidence) and have not cut their dividends like the other two. At this price you also get a 4.75% yield. I think that Bank of America will be cutting heir dividends again and will be reporting huge losses, Citigroup banks has cut their dividend to 1 penny.
3) "I"Shares High yield Corporate Bond Fund $64 (HYG-NYSE) Basically this fund hold close to 3000 junk Bonds and is an index. A lot of time you want to own investments that no one wants right now. Junk bonds are one of those. You spread your risk with an index and the U.S. economy rebounds, junk bonds will one of the first sectors to go on the upside. Junk bonds trade more based on the health of the economy than they do on interest rates. The last time an opportunity like this came around, was in the early 1990's recession when the junk bond market collapsed. When the economy came back, they made a lot of money for people who bought them. This index is down over 35% so the downside potential is alot less for you at this price. The 15% yield is certainly appetizing and even if it is cut, you will still be getting a decent return because the index is spread out so much over different bonds.
4) PEPSI $53 (PEP-NYSE)People are still going to drink their pop no matter what happens. PEPSI had no exposure to the financial sector, they have well diversified food snack division, the majority of their revenues come from abroad, their dividend is safe, and they have an excellent management team. You also get a 3.25% dividend yield.
5) COCA COLA $45 (KO-NYSE) The same rules apply to Coke as they do Pepsi, minus the snack food divsion. If you think that you can never get rich off Coke stock, then ask Warrent buffet how he has made out. This company has a safe dividend, a Triple AAA credit rating, and is a truly a global company with unparellet market share and reach. You get a nice 3.31% yield.
6) Johnson and Jonnson $58 (JNJ-NYSE) Another global drug and consumer medical care company. JNJ has gone on a recent buying spree and they realize that downturns creates opportunities in buying other companies to expand their market share. This company has the money, the credit rating to do it. I like companies that seize on weakness and buy for the long term. With a 3.3% yield, you get paid a nice dividend.
7) "I" Shares $34 (IYR U.S. Real Estate Index Fund)This fund index is a composite of Commercial REIT, and this fund has fallen in the last 52 weeks from $74 to $34. This index has fallen as investoras are concerned about the prospects of Commercial real estate companies and there ability to keep up there current payouts, as the economy slows some tenants go bankrupt increasing the vacancy rates. However, this index is an excellent way to diversify risk within the sector and the price has fallen so far that it now represents good value. Further downside risk is now a lot less than it was even 3 or 4 months ago. The yield is 7.47%.
These companies and index mentioned in this column and previous ones are all good buys, the common startegy among the companies that I recommend are that they have good cash flows, no subprime exposure (or minimal in the case of JP Morgan), no major leverage, good management, and the ability to expand their business even during bad times. If a company takes an earnings hit because of a slowdown, that is just a natural reaction to a recession. But if they exposed themselves to investments that cause them to hold a lot of risk, then you want to stay away from those firms.
As I told my bright broker once, "Why buy risk when you don't have to?" There are many solid companies how whose share prices have taken almost as large hits as the ones who are exposed to excessive risk. But when the bear market turns around, who who are the ones going to be standing and profitable?
There are many more companies,that you can buy at great prices.Just remember that buying what no one wants and staying away from the herd is the way too make money in the long term. This bear market will pass, not for a while, but it will. You can position yourself to make a lot of money by making the right purchases now.
Sunday, December 7, 2008
Wednesday, October 8, 2008
The Street is sure Bloodied and Gutted
Well its been a long time since I wrote anything, but given the state of the markets and now that I have a social life again, I thought this would be a perfect time to comment on what has been going on.
Well very few people out there who thought the market conditions would get this bad! We have a complete credit freeze in the commercial bond markets, commodity prices have collapased from being overvalued, a recession beginning in North America and Europe, slower growth in Asia and major U.S. and European banks needing government assistance because some math egg heads concocted financial instruments that no one can understand, but all the major pension/stock brokers managers bought alot of them for their client's portfolio (not my stock broker). Since we all know the obvious since its on every headline on every major newspaper, lets not re-state it anymore and focus on what to do.
The are only a few things to do, sit tight on your stock positions (I am assuming they are solid companies with good cash flows and credit ratings) and start buying!.Yes folks, if Warren Buffet, the worlds largest investor thinks it a good time to deploy cash, then so should you. No one every made any money when they purchase stocks when the market is going higher, and then sell when a Bear market hits. Unfortunately, so many people are doing that right now, and that is called Herd mentality. Its never easy going against the grain, but those that do coupled with making smart investment decisions always are ahead of the game.
So what is it that that everyone seems to be avoiding the most? Well commercial bonds, preferred shares, and financial companies. This is the stuff you should be BUYING!! Like most people, I have taken a hit on my bank and financial stocks, but neverthless, you should be good quality firms in this sector. Because eventually, markets world wide will stabilize. This part of the economic cycle is normal after a period having being in an excessive and speculative growth phase. Ignore all this depression talk. In the 1930's, we had unemployment at 25%, trade barriers, no type of welfare system as a back up and a no regulation. We will have a recession, but depression?? I wouldn't bet on it.
I just bought some shares in Ishares U.S Preferred Index (symbol PFF-NYSE) at around $26 and it yielded at the time 10%. Now its even lower at $25. The reason I like this stock is because it owns a lot of different preferred shares isssued by mainly financial companies and so the risk is spread out. (Preferred shares are stocks issued by firms that pay higher dividends than the common stock)Right now this index is down close to 50% from its highs and you are getting a nice fat yield while you wait.
I bought some shares of American Express (AXP-NYSE). This 52 week of this company is $63 and I bought it at $35, now its around $27 and it is paying a 3% dividend yield. This company is also partly owned by Warren Buffet. American Express has been hit by the financial crisis like everyone else, but the difference with them is they have more conservative lending standards, a wealthier client base, a global brand name and very good management. Could this stock go lower? Sure it could, but your downside risk is a lot less at these levels and they are still making money.
I also like a Farmer's & Merchant Bank (FMBL-OTCC. The stock trades around $4550 (yes that's four thousand) and is incredible well run. They have the label of being the safest bank in California where they are based and they are very well capitalized with hard cash. All banks are supposed to have a 4% minimum of cash on their books to deal with potential losses, the FDIC in the U.S. considers any bank that is above 8% to be well protected. Farmer's has 26%!!!! This means they have lots of cash on hand to deal with potential losses and make acquisitions. They have a very good management team and the shares are down a lot less than most other banks. They pay a 2.4% dividend yield, that is very safe and have very conservative lending standards, which has proven to be an excellent strategy. Yes, the stock is expensive, but investing is about what your percentage of return is going to be, not the price of a stock.
I also really like Commercial bonds issued by companies like J.P Morgan, General Electric and any other solid company with an investment grade status. Folks, no one wants to touch these bonds, thats why you should own them. Inflation is coming down which means your real return is going to be higher, the bonds are trading at a discount, solid blue chips companies with good balance sheets are not going to go under and bond holders get paid first before anyone else. You can buy these commerical bonds either through index funds or individually. At the yield these bonds and preferred shares are paying out, are just too tempting to avoid.
Market conditions will not be like this 5 years from now, stock prices barring anything catastophice like nuclear war will more than likely be higher, credit will return as central banks are pumping money into the markets like never before, goverments are under pressure to help out and interest rates are low. We are in a a crisis, but this does not mean the end of capitalism.
All the stocks I have previously reccomended in my other blogs are solid firms, and I have been buying more when I can of the same stocks.
Don't be part of the herd, be a wolf and take advantage of the volatility by pouncing on good names. You will be a lot richer for it.
Well very few people out there who thought the market conditions would get this bad! We have a complete credit freeze in the commercial bond markets, commodity prices have collapased from being overvalued, a recession beginning in North America and Europe, slower growth in Asia and major U.S. and European banks needing government assistance because some math egg heads concocted financial instruments that no one can understand, but all the major pension/stock brokers managers bought alot of them for their client's portfolio (not my stock broker). Since we all know the obvious since its on every headline on every major newspaper, lets not re-state it anymore and focus on what to do.
The are only a few things to do, sit tight on your stock positions (I am assuming they are solid companies with good cash flows and credit ratings) and start buying!.Yes folks, if Warren Buffet, the worlds largest investor thinks it a good time to deploy cash, then so should you. No one every made any money when they purchase stocks when the market is going higher, and then sell when a Bear market hits. Unfortunately, so many people are doing that right now, and that is called Herd mentality. Its never easy going against the grain, but those that do coupled with making smart investment decisions always are ahead of the game.
So what is it that that everyone seems to be avoiding the most? Well commercial bonds, preferred shares, and financial companies. This is the stuff you should be BUYING!! Like most people, I have taken a hit on my bank and financial stocks, but neverthless, you should be good quality firms in this sector. Because eventually, markets world wide will stabilize. This part of the economic cycle is normal after a period having being in an excessive and speculative growth phase. Ignore all this depression talk. In the 1930's, we had unemployment at 25%, trade barriers, no type of welfare system as a back up and a no regulation. We will have a recession, but depression?? I wouldn't bet on it.
I just bought some shares in Ishares U.S Preferred Index (symbol PFF-NYSE) at around $26 and it yielded at the time 10%. Now its even lower at $25. The reason I like this stock is because it owns a lot of different preferred shares isssued by mainly financial companies and so the risk is spread out. (Preferred shares are stocks issued by firms that pay higher dividends than the common stock)Right now this index is down close to 50% from its highs and you are getting a nice fat yield while you wait.
I bought some shares of American Express (AXP-NYSE). This 52 week of this company is $63 and I bought it at $35, now its around $27 and it is paying a 3% dividend yield. This company is also partly owned by Warren Buffet. American Express has been hit by the financial crisis like everyone else, but the difference with them is they have more conservative lending standards, a wealthier client base, a global brand name and very good management. Could this stock go lower? Sure it could, but your downside risk is a lot less at these levels and they are still making money.
I also like a Farmer's & Merchant Bank (FMBL-OTCC. The stock trades around $4550 (yes that's four thousand) and is incredible well run. They have the label of being the safest bank in California where they are based and they are very well capitalized with hard cash. All banks are supposed to have a 4% minimum of cash on their books to deal with potential losses, the FDIC in the U.S. considers any bank that is above 8% to be well protected. Farmer's has 26%!!!! This means they have lots of cash on hand to deal with potential losses and make acquisitions. They have a very good management team and the shares are down a lot less than most other banks. They pay a 2.4% dividend yield, that is very safe and have very conservative lending standards, which has proven to be an excellent strategy. Yes, the stock is expensive, but investing is about what your percentage of return is going to be, not the price of a stock.
I also really like Commercial bonds issued by companies like J.P Morgan, General Electric and any other solid company with an investment grade status. Folks, no one wants to touch these bonds, thats why you should own them. Inflation is coming down which means your real return is going to be higher, the bonds are trading at a discount, solid blue chips companies with good balance sheets are not going to go under and bond holders get paid first before anyone else. You can buy these commerical bonds either through index funds or individually. At the yield these bonds and preferred shares are paying out, are just too tempting to avoid.
Market conditions will not be like this 5 years from now, stock prices barring anything catastophice like nuclear war will more than likely be higher, credit will return as central banks are pumping money into the markets like never before, goverments are under pressure to help out and interest rates are low. We are in a a crisis, but this does not mean the end of capitalism.
All the stocks I have previously reccomended in my other blogs are solid firms, and I have been buying more when I can of the same stocks.
Don't be part of the herd, be a wolf and take advantage of the volatility by pouncing on good names. You will be a lot richer for it.
Saturday, January 19, 2008
When there is Blood on the Streets...BUY!BUY!
As Charles Dickens once wrote, there was the best of times and there were the worst of times. Right now, it is not the worst,but most investors are certainly not feeling like its the best either. However moments of distress create windows of buying opportunities. Famous banker, JP Morgan once said "Buy when there is blood on the streets.".
Those words should be written on a plaque and hung on a wall for every investor that wonders when is it a good time to buy when markets are falling. One of the most successful investors of all time, Warren Buffet, stated that the most money he ever made were in stocks that he picked up in bear markets. Bear markets are not a bad thing,they clean the speculative froth, return a sense of normalcy by reminding and by reminding investors that there is always risk when buying equities.
Bear markets can overshoot on the selling side, and they do throw the baby out with the bathwater. You can buy specific, well balanced sheet companies that whose share prices are falling because companies in the same sector made bad decisions and so all the share prices in the same industry get hit, and hit hard.
For example, one bank stock that I recently purchased shares in is City National Bank (CYN-NYSE). City National is called the "bank of the stars". Their clients must have $1 million in assests to open an account and they did specifically with clients who have between $1 million and $250 miilion. They have a long list of Holllywood clients as well as entrepeneurs. They are based in California, Nevada, and New York. They have also acquired numerous smaller banks over the years as well.
This bank, unlike its bigger rivals such as Citigroup, Bank of America, Wells Fargo and other large investment firms, did not participate in any of the subprime mortgage and collaterilazed debt obligations mess. They have not needed any outside cash infusion to improve their cash position and they have had no loan losses for 16 quarters (3.5 years). Yes, zero, nada, nothing. City's share price had hit a 52 week high of $78U.S. and I picked up these shares lst month at $59.84. The shares traded as low as $49.75 during the last downdraft, but have rebounded back to where I bought them.
Sure City Bank might not make as much money as they did in previous years,no bank will as the U.S. economy slows. But financial stocks are in a bear market and they got lumped in with the banks that deserved to get hit. City at this price, pays a 3.0% dividend yield, which is secure, they have no writedowns to make, an excellent management team and a very wealthy customer base that is not affected by the credit crunch as the other banks are. Its a steal at this price, and its definitly on my buy list.
Another stock is TD Bank (TD-TSX), it is another bank that has no subprime exposure, a good balance sheet, a secure dividend and they own 40% of TD Ameritrade (a discount broker) that is reporting stellar earnings.
I am not saying that any of the big investment banks are going to go under, and now might be a good opportunity to pick some of them up. However, why not buy the banks who don't need cash infusions,and most likely will grow their dividends quicker than the banks who have have recently cut them. TD's yield is close to 3.5%
In the insurance field, I would be a buyer of Travelers Group $46.74(TRV-NYSE). This is one of the largest property & casualty insurers in the U.S. They have no subprime exposure,they beat the latest earnings estimates, their commercial debt is on watch by credit agencies to have their debt ratings UPGRADED and they have historically been quite opportunistic in tough financial times and they come out of it making a killing. Travelers pays a 2.4% yield.
As for stocks that I previously recommended. Buy more General Electric $36(GE-NYSE). They are now paying a higher dividend from when I recommended it, they are making more money and their shares are at a slightly lower price when I first put them on the buy list. GE has no cash flow problems, its diversified conglomerate, it has a Triple AAA rating on its bonds (the highest rating you can get)and it all of its divisions are growing.
JP Morgan (JPM-NYSE)is another good one to keep buying, as well as Oracle (ORCL-NASDAQ)and Berkshire Hathaway (BRK.B-NYSE). Berkshire has $40 billion in cash, no debt and has more than enough money to make smart acquisitions.
Folks, markets go up, they go down and they can be very volatile. But what you own is just as important as how your shares are doing. If you own dividend paying stocks, with stable earnings, and a good future ahead of it, you you will always come out ahead in the game. Maybe not right away, but you will in the long term.
Don't get lost in the day to day hype of volatile markets, own solid companies that you understand, and take advantage when everyone is selling. Sometimes your portfolio might take a hit when markets go bad (mine did), but that is no reason to make foolish mistakes. It just represents a potential opportunity to make more money in the long term.
Those words should be written on a plaque and hung on a wall for every investor that wonders when is it a good time to buy when markets are falling. One of the most successful investors of all time, Warren Buffet, stated that the most money he ever made were in stocks that he picked up in bear markets. Bear markets are not a bad thing,they clean the speculative froth, return a sense of normalcy by reminding and by reminding investors that there is always risk when buying equities.
Bear markets can overshoot on the selling side, and they do throw the baby out with the bathwater. You can buy specific, well balanced sheet companies that whose share prices are falling because companies in the same sector made bad decisions and so all the share prices in the same industry get hit, and hit hard.
For example, one bank stock that I recently purchased shares in is City National Bank (CYN-NYSE). City National is called the "bank of the stars". Their clients must have $1 million in assests to open an account and they did specifically with clients who have between $1 million and $250 miilion. They have a long list of Holllywood clients as well as entrepeneurs. They are based in California, Nevada, and New York. They have also acquired numerous smaller banks over the years as well.
This bank, unlike its bigger rivals such as Citigroup, Bank of America, Wells Fargo and other large investment firms, did not participate in any of the subprime mortgage and collaterilazed debt obligations mess. They have not needed any outside cash infusion to improve their cash position and they have had no loan losses for 16 quarters (3.5 years). Yes, zero, nada, nothing. City's share price had hit a 52 week high of $78U.S. and I picked up these shares lst month at $59.84. The shares traded as low as $49.75 during the last downdraft, but have rebounded back to where I bought them.
Sure City Bank might not make as much money as they did in previous years,no bank will as the U.S. economy slows. But financial stocks are in a bear market and they got lumped in with the banks that deserved to get hit. City at this price, pays a 3.0% dividend yield, which is secure, they have no writedowns to make, an excellent management team and a very wealthy customer base that is not affected by the credit crunch as the other banks are. Its a steal at this price, and its definitly on my buy list.
Another stock is TD Bank (TD-TSX), it is another bank that has no subprime exposure, a good balance sheet, a secure dividend and they own 40% of TD Ameritrade (a discount broker) that is reporting stellar earnings.
I am not saying that any of the big investment banks are going to go under, and now might be a good opportunity to pick some of them up. However, why not buy the banks who don't need cash infusions,and most likely will grow their dividends quicker than the banks who have have recently cut them. TD's yield is close to 3.5%
In the insurance field, I would be a buyer of Travelers Group $46.74(TRV-NYSE). This is one of the largest property & casualty insurers in the U.S. They have no subprime exposure,they beat the latest earnings estimates, their commercial debt is on watch by credit agencies to have their debt ratings UPGRADED and they have historically been quite opportunistic in tough financial times and they come out of it making a killing. Travelers pays a 2.4% yield.
As for stocks that I previously recommended. Buy more General Electric $36(GE-NYSE). They are now paying a higher dividend from when I recommended it, they are making more money and their shares are at a slightly lower price when I first put them on the buy list. GE has no cash flow problems, its diversified conglomerate, it has a Triple AAA rating on its bonds (the highest rating you can get)and it all of its divisions are growing.
JP Morgan (JPM-NYSE)is another good one to keep buying, as well as Oracle (ORCL-NASDAQ)and Berkshire Hathaway (BRK.B-NYSE). Berkshire has $40 billion in cash, no debt and has more than enough money to make smart acquisitions.
Folks, markets go up, they go down and they can be very volatile. But what you own is just as important as how your shares are doing. If you own dividend paying stocks, with stable earnings, and a good future ahead of it, you you will always come out ahead in the game. Maybe not right away, but you will in the long term.
Don't get lost in the day to day hype of volatile markets, own solid companies that you understand, and take advantage when everyone is selling. Sometimes your portfolio might take a hit when markets go bad (mine did), but that is no reason to make foolish mistakes. It just represents a potential opportunity to make more money in the long term.
Subscribe to:
Posts (Atom)