Well folks, its been a month since my last newsletter. What has happened since then? Well for one the Oil market is sinking, althought not crashing, but it is down to $51-$52 a barrel, which is quite a drop from $78 that it was in the summer time. Why? Well the U.S. economy is definetly slowing down, oil inventories are down, warmer weather and China and India are trying to slow their economies. But even a bigger reason, is simply the big hedge funds and speculators are pulling out of the oil market futures.
OIL MARKET
These traders who control billions of dollars, bet on the way up when oil was climbing in 2006. Now a lot of them have taken profits and are getting out. This in turn is causing oil prices to recede. So will we see oil stability in 2007? Personally I don't think oil is going to going down much further than $45 a barrel, but I don't think we will see $78 a barrel anytime soon, barring any major political events. Shares of companies involved in the oil industry are still going to correct, and earnings of these companies are already being downgraded by many analysts. But remember, these companies made money at $20 a barrel, and there still going to make a ton at $45-$55. I would stick with blue chips names like Exxon Oil, Chevorn, and Connocco Philiips, all of which trade on the New York Stock Exchange.
U.S. ECONOMY
The U.S. economy is still holding up well, considering the housing market is is continuing to lose steam. Just a few weeks, I was reading that a lot of "financial experts" had thought that U.S. housing market was close to a bottom. I wonder what planet they live on? Mortgage bankruptcies are up considerably and a lot of these loans that were given by lenders who did no background checks on the buyers are now coming home to roost. Alot of loans were "interest only "and others were "partial interest payments". Too many people bought houses they could only afford when interest rates were super low, now with rates having gone up, they simply just walk away. Every homebuilder that I have seen so far, has been reporting lower earnings or losses and they can't move their inventory. Believe me, were still a long way from the bottom. Everything is cyclical, but the housing industry has a lot against it right now. An aging population, low immigrations levels, high inventories and less buyers than before. When House building stocks go down another 30%-50% from present levels, there will be some good opportunies to buy.
Having said all that, I think the U.S. economy will continue to do well. Employment is low, consumers are still spending money, interest rates are still low by historical standards, and there is a lot of liquidity out there. Notice all the private equity buyouts of late? Well that will continue, and as these companies get bought out, there will be less stock out there, There is actually 5% less stock on the market than there was last year. But the S&P 500 is trading at 16 times earnings, which is right in line with its historical average, eventually it will start to trade at a premium, so there is still good buying opportunites. Lower Oil prices will also help the economy, as consumers will have more discretionary money to spend.
Alot of the money managers like technology stocks and the large caps. I like them too, but only select ones. I would still stick with the names that I mentioned in my December column. This month I am adding MICROSOFT (MSFT-NASDAQ) to the list at $31.50 a share as of January 15/2007. That stock was a steal at $25,, and its still a good buy at $31. Why? I like companies that dominate in their industry, and they lead the pack. They have no debt, great management and a ton of cash. There is pent up demand for their new VISTA operating system and with capital spending likely to be up this year, MICROSOFT should do well, My pick of ORACLE (ORCL-NASDAQ) has seemed to have taken a pause at around the $17,but longer term, this company offers a lot of potential for share appreciation.
As for Value stocks, well I just bought 1 share of BERKSHIRE HATHAWAY (BRK.B-NYSE) today at around $3625 U.S., well now I am officiall broke! It was either that or a Jeep Grand Cherokee that has 420 horsepower that I wanted to buy that is around $52,000. But my common law just about had a heart attack when I mentioned it, so I bought BERKSHIRE instead. Retierment! Retierement! Retierment! That is what I keep thinking. A nice house on the beach, well more likely a condo. But I better get something with a view of the ocean for all this delayed gratification lol.
STOCK UPDATE
Well since I put together that portfolio last month, one of the names (PFIZER) in it has gone up and had some positive news too boot. PFIZER announced that they are going to spend $10 billion on buying back there stock in 2007, and they also had raised there dividend from $0.96 U.S. a share to $1.16 a share. The stock reacted nicely by moving to the upside, and I think we could see $30 ouf this stock by year end. Right now its giving a dividend yield of around 4.5%. Although its bond rating got downgraded one notch, it is not going to have a huge impact.
Well folks, that's it for now. Buy SMART, Buy what you UNDERSTAND, Buy with CONFIDENCE, Buy with PATIENCE, and Buy based on quality RESEARCH that YOU DO. Remember that, and you will do well.
Tuesday, January 16, 2007
Thursday, December 14, 2006
Well folks. the U.S. stock market has certainly been on a roll, the Dow Jones Industrial Average hit record highs this week, Mergers and Acquisitions are happening at a torrid pace, Companies have lots of cash, interest rates are still relatively low, the Bond market is very strong and there is more liquidity out there that investment bankers are drowning in it. So will the good times keep on rolling? Well there is certainly a strong case for it, but there are some warning clouds and if you have stocks, bonds, RRSP (excluding GIC's) and/or real estate holdings, you should be aware of them.
Cloud #1; THE U.S. BOND MARKET
Right now, short term U.S. rates such as the 2yr U.S. Treasury notes are yielding more than the 30yr U.S. notes. When investors start seeing an inverted yield curve, a recession usually happens. If we get an economic slowown, corporate earnings will get hit and the stock market suffers. Bonds right now are pricing in two interest rate cuts from the U.S. Federal Reserve, and I am not sure why.
Although the Housing and Auto sector are weak, the rest of the economy is not exactly cooling off like a teenage boy in a cold shower after his first date. The Consumer sector is going strong, Oil is still above $60 a barrel, the Services sector is chugging ahead like a steam train and other commodity prices are holding steady.
If the U.S. Bond Market is wrong, and the U.S. Federal Reserve does not cut interest rates in 2007, the Bond market will take a hit sending a ripple throught the U.S. and Canadian economies. If inflation stays strong, then the Federal Reserve wil raise interest rates and the Bond Market will COLLAPSE. That will cause all these Mergers and Acquisitions to come to a halt, U.S. Companies will be forced to pay higher interest rates to finance any takeovers and liquidity will soon start to disappear. This will really hurt both Investment banks who are driven by Mergers and Acquistions and Retail banks who do a lot of mortgages.
Cloud #2 THE U.S. CONSUMER
Although I did note above that Consumer spending is strong, thats also a cause for concern. The U.S. consumer is now more in debt than ever have been, especially with mortgage debt. With all these Sub-Prime lenders giving mortgages to people who can't afford them, those poor lending practises will come home to roost. It will be a lot sooner if the U.S. Federal Reserve starts to raise rates. Over the past few months, it has been a rising tide of homeowners have gone into mortgage defaults and this has caused home prices to drop and debt levels to rise. Remember, the U.S. consumer represents 2/3 thirds of the U.S. economy, if they go, so do U.S. domestic corporate earnings.
Cloud #3 TOO MANY HAPPY INVESTMENT STRATEGISTS AND BANKERS
I start to get concerened when all these Money Managers are to think alike. You ever hear the saying "When the future looks brightest, its time to SELL!!!" Right now all these Mutual Fund and Hedge Fund Managers think that the market is in a Goldilocks scenario and are ignoring some big warning signs. These people move the markets, and I would hate to think what would happen if they start getting panicked at the same time, lets just say it would not be pretty, and if a lot of these Hedge Funds have larger positions that go against them, we would see an easy 20-25% off the market highs.
CONCLUSION
I am not saying that the market is going to crash tommorow folks, or that you should run out and sell all your mutual funds, bonds and stocks. You should always be invested in good companies, but one should be careful nowadays and stay away from risky investments.
I personally think that U.S. Federal Reserve will not cut interest rates for the first 6 months of 2007, and the Bond market will take a hit. Inflation will probably not rise dramatically from here, but it won't be coming down either. I bet there is a stong chance that the Federal Reserve does not raise or lower interest rates. Which would hurt the bond market, and a correction would occur somewhere in the 10-15% range in bonds. The Stock market might intially go down, but would recover.Large Cap stocks would hold up unless the U.S. economy ends up in a tail spin. The U.S. dollar would take a hit on the downside too, but thats time to be in Companies who generate a lot of revenues from abroad. Stocks like Mcdonalds, Altria (aka Phillp Morris, which I own shares in), General Electric and Coca Cola. Any correction or bear market year, would provide a GREAT opportunity to purchase excellent blue chips.
If the market does do well this year, I think Large Cap stocks will outperform the other investment classes, as a lot of money is pouring into this sector, and the S&P 500 will give a return around 10-12%, but I still believe the Bond Market will be in for a correction and would then stabilize.
Which stocks should an investor be in? Here is a list.
1) Altria (MO-NYSE) I have owned this stock for a lot of years, also known as Phillip Morris. I bought it when tobacco litigation was growing concern and I picked these shares up at $25 a share and the dividend yield was 10%. Today they trade just under $85 and you get a smoking 4% yield. Its a still a great buy, the company has diversified into the food sector, they generate a lot of cash and are very shareholder friendly in terms of dividend boosts and share buybacks. A lot of analysts think this stock will hit around $95.
2) General Electric (GE-NYSE). This is probably one of the best run companies in the world. They have a triple AAA credit rating, a juicy 3.1% dividend yield and an excellent management team. This stock is also a good indicator on the U.S. economy and they have a divisified industrial portfolio and they own NBC network. They sell goods to just about every country in the world and a fantastic product line up. This stock trades just over $36.
3) Oracle (ORCL-NASDAQ) I own shares of this company as well. This technology firm is one of the largest commercial software companies, they have a strong balance sheet, good growth prospects due to acquistions, favorable product appeal and the stock is well off its all time high of $46 during the technology bubble in 2000. Earnings are growing at 20% and the stock trades at fair value, if the technology sector starts to rev up again, these shares will trade at a premium as investors will look for growth stocks in a slowing economic environment. They trade around $18. I bought them at $19.
4) PFIZER (PFE-NYSE). I talked about this stock in great length in my last blog, and I will reiterate. They have other experimental drugs coming down the pipeline, lots of cash,a triple AAA credit rating and a juicy 3.8% yield. These shares trade at $25.56 and I purchased them at $24.57. Its a great time to buy this beaten up blue chip drug company.
5) BERKSHIRE HATHAWAY (BRK.B-NYSE) Ok I will admit this company's class B shares are not cheap at $3675.00 a share. But they are worth every penny. This company is the largest shareholder of Coca-Cola and it has larger positions in many other blue chips like American Express and Altria just too name a few. They also own GEICO insurance.The manager is of course Warren Buffet and his return to shareholders is nothing short of spectacular. The next stock I buy is this one. So much for my summer vacation.
Ok, thats it for now. If you want too, you can leave a comment, just click on Comments on the bottom of my blog. I would appreciate it.
Marko
trader7230@hotmail.com
Invest safely.
Cloud #1; THE U.S. BOND MARKET
Right now, short term U.S. rates such as the 2yr U.S. Treasury notes are yielding more than the 30yr U.S. notes. When investors start seeing an inverted yield curve, a recession usually happens. If we get an economic slowown, corporate earnings will get hit and the stock market suffers. Bonds right now are pricing in two interest rate cuts from the U.S. Federal Reserve, and I am not sure why.
Although the Housing and Auto sector are weak, the rest of the economy is not exactly cooling off like a teenage boy in a cold shower after his first date. The Consumer sector is going strong, Oil is still above $60 a barrel, the Services sector is chugging ahead like a steam train and other commodity prices are holding steady.
If the U.S. Bond Market is wrong, and the U.S. Federal Reserve does not cut interest rates in 2007, the Bond market will take a hit sending a ripple throught the U.S. and Canadian economies. If inflation stays strong, then the Federal Reserve wil raise interest rates and the Bond Market will COLLAPSE. That will cause all these Mergers and Acquisitions to come to a halt, U.S. Companies will be forced to pay higher interest rates to finance any takeovers and liquidity will soon start to disappear. This will really hurt both Investment banks who are driven by Mergers and Acquistions and Retail banks who do a lot of mortgages.
Cloud #2 THE U.S. CONSUMER
Although I did note above that Consumer spending is strong, thats also a cause for concern. The U.S. consumer is now more in debt than ever have been, especially with mortgage debt. With all these Sub-Prime lenders giving mortgages to people who can't afford them, those poor lending practises will come home to roost. It will be a lot sooner if the U.S. Federal Reserve starts to raise rates. Over the past few months, it has been a rising tide of homeowners have gone into mortgage defaults and this has caused home prices to drop and debt levels to rise. Remember, the U.S. consumer represents 2/3 thirds of the U.S. economy, if they go, so do U.S. domestic corporate earnings.
Cloud #3 TOO MANY HAPPY INVESTMENT STRATEGISTS AND BANKERS
I start to get concerened when all these Money Managers are to think alike. You ever hear the saying "When the future looks brightest, its time to SELL!!!" Right now all these Mutual Fund and Hedge Fund Managers think that the market is in a Goldilocks scenario and are ignoring some big warning signs. These people move the markets, and I would hate to think what would happen if they start getting panicked at the same time, lets just say it would not be pretty, and if a lot of these Hedge Funds have larger positions that go against them, we would see an easy 20-25% off the market highs.
CONCLUSION
I am not saying that the market is going to crash tommorow folks, or that you should run out and sell all your mutual funds, bonds and stocks. You should always be invested in good companies, but one should be careful nowadays and stay away from risky investments.
I personally think that U.S. Federal Reserve will not cut interest rates for the first 6 months of 2007, and the Bond market will take a hit. Inflation will probably not rise dramatically from here, but it won't be coming down either. I bet there is a stong chance that the Federal Reserve does not raise or lower interest rates. Which would hurt the bond market, and a correction would occur somewhere in the 10-15% range in bonds. The Stock market might intially go down, but would recover.Large Cap stocks would hold up unless the U.S. economy ends up in a tail spin. The U.S. dollar would take a hit on the downside too, but thats time to be in Companies who generate a lot of revenues from abroad. Stocks like Mcdonalds, Altria (aka Phillp Morris, which I own shares in), General Electric and Coca Cola. Any correction or bear market year, would provide a GREAT opportunity to purchase excellent blue chips.
If the market does do well this year, I think Large Cap stocks will outperform the other investment classes, as a lot of money is pouring into this sector, and the S&P 500 will give a return around 10-12%, but I still believe the Bond Market will be in for a correction and would then stabilize.
Which stocks should an investor be in? Here is a list.
1) Altria (MO-NYSE) I have owned this stock for a lot of years, also known as Phillip Morris. I bought it when tobacco litigation was growing concern and I picked these shares up at $25 a share and the dividend yield was 10%. Today they trade just under $85 and you get a smoking 4% yield. Its a still a great buy, the company has diversified into the food sector, they generate a lot of cash and are very shareholder friendly in terms of dividend boosts and share buybacks. A lot of analysts think this stock will hit around $95.
2) General Electric (GE-NYSE). This is probably one of the best run companies in the world. They have a triple AAA credit rating, a juicy 3.1% dividend yield and an excellent management team. This stock is also a good indicator on the U.S. economy and they have a divisified industrial portfolio and they own NBC network. They sell goods to just about every country in the world and a fantastic product line up. This stock trades just over $36.
3) Oracle (ORCL-NASDAQ) I own shares of this company as well. This technology firm is one of the largest commercial software companies, they have a strong balance sheet, good growth prospects due to acquistions, favorable product appeal and the stock is well off its all time high of $46 during the technology bubble in 2000. Earnings are growing at 20% and the stock trades at fair value, if the technology sector starts to rev up again, these shares will trade at a premium as investors will look for growth stocks in a slowing economic environment. They trade around $18. I bought them at $19.
4) PFIZER (PFE-NYSE). I talked about this stock in great length in my last blog, and I will reiterate. They have other experimental drugs coming down the pipeline, lots of cash,a triple AAA credit rating and a juicy 3.8% yield. These shares trade at $25.56 and I purchased them at $24.57. Its a great time to buy this beaten up blue chip drug company.
5) BERKSHIRE HATHAWAY (BRK.B-NYSE) Ok I will admit this company's class B shares are not cheap at $3675.00 a share. But they are worth every penny. This company is the largest shareholder of Coca-Cola and it has larger positions in many other blue chips like American Express and Altria just too name a few. They also own GEICO insurance.The manager is of course Warren Buffet and his return to shareholders is nothing short of spectacular. The next stock I buy is this one. So much for my summer vacation.
Ok, thats it for now. If you want too, you can leave a comment, just click on Comments on the bottom of my blog. I would appreciate it.
Marko
trader7230@hotmail.com
Invest safely.
Sunday, December 10, 2006
Pfizer's Fall
One thing is for sure, no one can ever say that investing in the stock market and guessing where the Global Economy is a boring adventure. Right now, we have an inverted yield curve, a slowing housing market, domestic auto sales are slumping and the U.S. dollar is starting too weaken. You think all is bad and the future is bleak?
Well U.S. corporate earnings are stong, the P/E ratio of the S&P 500 is reasonable, Mergers and Acquisitions are fueling stock price premiums, unemployment is low, companies have lots of cash and credit is still cheap.
So is the market a great buy? Or is it time to hoard one's portfolio in cash? Honestly who knows?? The point of this Blog is too encourage prudent investors to buy great companies and reasonable prices. That's not too say, I won't guess the general direction of the economy or where certain sectors are heading, but the most important factor is owning quality.
I recently purchased shares of PFIZER (PFE-NYSE,$24.80 U.S.), with all the bad press out there, Pfizer is one stock a lot of people have been staying away from. Well sometimes those are the best times to buy. As JP Morgan once said " Buy when there is blood on the streets." Pfizer was knocked down becasuse a drug they were working on was canceled during the development stage. That drug was expected to replace the revenues from their current blockbuster drug Lippitor.
Once news got out, the stock sank in 11% in one day. The major press jumped on the bandwagon, and the rest was negative history. Well the press ignored the fact that Pfizer has other drugs in the pipelne that are not blockbusters, but they will add to revenues, a triple AAA credit rating (highest rating a public company can get), and a solid dividend yield at 3.8%.
Is there a downside? Of course, the Pfizer could have more development disappointments, they might have to acquire other drug companies at premium prices to add those products to their pipeline, and earnings growth will definitly be slower in the short term, causing the share price to stay flat for a while.
Is Pfizer worth the risk right now? You bet it is. Most times, if you can pick up a solid Blue Chip stock because of near term disappointment, you will be rewarded in the long term. In the meantime, you get 3.8% on your money, a depressed stock price that probably won't head much lower and Pfizer might even be a takeover candidate because its low share price might be appealing to another firm.Pfizer didn't change its earnings estimates, and the company still has a solid balance sheet. You might have to own these shares for a few years before you see any serious upside in the share price, but the potential is worth it.
Next blog, I will write more on my thoughts on the economy, the stock market and construct a portfolio.
See ya next time
Well U.S. corporate earnings are stong, the P/E ratio of the S&P 500 is reasonable, Mergers and Acquisitions are fueling stock price premiums, unemployment is low, companies have lots of cash and credit is still cheap.
So is the market a great buy? Or is it time to hoard one's portfolio in cash? Honestly who knows?? The point of this Blog is too encourage prudent investors to buy great companies and reasonable prices. That's not too say, I won't guess the general direction of the economy or where certain sectors are heading, but the most important factor is owning quality.
I recently purchased shares of PFIZER (PFE-NYSE,$24.80 U.S.), with all the bad press out there, Pfizer is one stock a lot of people have been staying away from. Well sometimes those are the best times to buy. As JP Morgan once said " Buy when there is blood on the streets." Pfizer was knocked down becasuse a drug they were working on was canceled during the development stage. That drug was expected to replace the revenues from their current blockbuster drug Lippitor.
Once news got out, the stock sank in 11% in one day. The major press jumped on the bandwagon, and the rest was negative history. Well the press ignored the fact that Pfizer has other drugs in the pipelne that are not blockbusters, but they will add to revenues, a triple AAA credit rating (highest rating a public company can get), and a solid dividend yield at 3.8%.
Is there a downside? Of course, the Pfizer could have more development disappointments, they might have to acquire other drug companies at premium prices to add those products to their pipeline, and earnings growth will definitly be slower in the short term, causing the share price to stay flat for a while.
Is Pfizer worth the risk right now? You bet it is. Most times, if you can pick up a solid Blue Chip stock because of near term disappointment, you will be rewarded in the long term. In the meantime, you get 3.8% on your money, a depressed stock price that probably won't head much lower and Pfizer might even be a takeover candidate because its low share price might be appealing to another firm.Pfizer didn't change its earnings estimates, and the company still has a solid balance sheet. You might have to own these shares for a few years before you see any serious upside in the share price, but the potential is worth it.
Next blog, I will write more on my thoughts on the economy, the stock market and construct a portfolio.
See ya next time
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