The holiday season is upon us and that translates to shopping season. Generally speaking, I hate shopping and refrain from getting anywhere near a shopping mall or mingling with all the shop-o-holics. However, shopping for stocks is different and it is always the season for that.
Finding the best stock values for next year would be a great gift for everyone that is paying attention to my ramblings, that is, if I am able to maintain my track record. This mission was first shared in Serious Money: Hot stocks for a cool year -- finding 8 for 2008. The heart of the story, the possible stocks, are posted below again, because this is a running story. I have bolded the new info as the story builds and I examine things more closely. But before we get to that review I am adding two companies.
The first to be added, and a candidate that has a good chance to be included in the final eight is Newcastle Investment Corp (NYSE: NCT). For the detailed review read yesterday's story Chasing Value: Newcastle's 21.9% yield too good to be true?. I will summarize here by letting you know, I did what homework I could as well as check out NCT's recent conference call. This company has averaged an 8.8% yield over the last five years. However, today because the stock is now a third of it's recent price the yield has jumped to 21.9%. Newcastle is standing by this dividend. Actually I think they have to because REITS are required to pay out most of their profits and they have earned 23% over the last fiscal year.
The stock is down because the underlying value of the collateral has gone soft in some cases, but mostly they have fallen victim to the generally poor market for various classes of loan packages, be they Alt-A, sub-prime CDO's, or uncle Joe's handshake. That said, NCT's cash flow seems fine, it only has 10% of its portfolio in residential real estate and of that they claim to have a 60 day delinquency rate of less than 1%. NCT also expects $1 billion of loan repayments over the next year. The PEG ratio is 0.15 and they are trading at a book value of 0.74. At the conference call they claimed a book value after being marked-to-market of $15 to $16 a share. This is a strong value proposition.
Raytheon (NYSE: RTN) is a top shelf defense contractor and that is the place to be whether we are at war or whether we have to replace everything that was destroyed, damaged, or become obsolete. I think the defense sector will be one of the safe havens for 2008. RTN is a tech stock if you look at all the advanced electronic systems they are developing and selling. This is another touted sector lately. I am not happy that 85% of its revenue comes from the federal government, but this revenue is from different agencies. Beside defense RTN makes radios, air traffic control systems and radar, and satellite communications systems, so airports and security are customers too.
The fundamentals do not display a screaming value but its growth potential and "recession-proof" business offer value. No presidential candidates will be soft on defense in an election year. The basic metrics are sound with a PEG ratio of 1.13, a P/B of 2.4 and a P/S of 1.3 the down side does not seem to be a major issue. The P/E and the yield are only average, but like most of my recommendations it does pay a dividend, and that is important.
Before the bell: Stocks ready for a lower open after reaching 13-month highs
Ray of light: U.S. temp worker hiring increased by 34k in October
Goldman Sachs CEO Lloyd Blankfein pulls a Jeff Skilling in an interview
Reader Comments (Page 1 of 1)
11-30-2007 @ 10:39PM
Liz said...
No, I am not "holiday shopping."
I am CHRISTMAS shopping...AND, for the record, I do not shop with retailers who refuse to recognize the "holiday" they are trying to profit from IS Christmas. Also, in lieu of the subject, I won't buy their stocks either!
12-01-2007 @ 6:19AM
Dan Barnett said...
Liz, You can Christmas Shop all you wish, but allow Mr. Liber & me to also speak to those who wish to shop for Hanakha, Kwanza, Festivus, or whatever. You may wish to investigate those mutual funds which only deal with Christian companies, & perhaps Mr. Liber could be persuaded to comment on those, if you ask nicely.
12-02-2007 @ 4:48PM
Mr. noitall said...
Ok Sheldon, I'll comment on these two also.
NCT is one I never would have bought six months ago, a year ago or two years ago, but now I would say it looks like it's worth buying even though I still think the real estate market won't recover anytime soon. (Decades, remember?) A 22% yield might be too good to be true, but it's also too good to pass up. After reading your article on it, I think it is one stock that is worth risking some money on. I'll buy some shares, but won't invest more than I am willing to lose.
RTN I don't like. All these big defense contractors are run like bureaucracies. Like I said in my last comment, they are some of the most inefficient companies around. And as I mentioned once before, the government contracts that they depend on do seem to be cancelled abruptly at times. Most of their projects take years to plan and complete. Something that was planned 6 or 7 years ago is most likely way over budget by now. If a project comes in way over budget, that project is a good candidate for cancellation.
12-03-2007 @ 10:00PM
JD said...
For argument sake, American Home Mortgage was another REIT that offered an "attractive 18-22% yield".. It too was involved in ARMs, Alt-A loans, and Mortgage Backed Securities. That is, until filed for Chapter 11 and got delisted.
Prior to that, AHM was considered "undervalued" with a price/book ratio around 0.7. They also assured that they would maintain their dividend...
AHM had short sales as a percentage of float over 30% for the months preceding its entropy, and this number was steadily increasing. Which means nearly 1 in 3 shares traded were short, or in simpler terms, bets that the stock would go down. And it certainly did.
Now, NCT has short sales equal to 25% of their float, or 12.9 million shares to be exact. This number has increased substantially from 11.25 million last month. I see a striking similarity here.
So two things may happen.. 1) The shorts are right, and the stock tanks, or 2) They're wrong, and there is a short squeeze that sends shares surging.
Considering the overall problems in the credit market and our economy, do you think Newcastle is a great investment? For a holiday gift????
I certainly don't.. I think its a highly speculative bet that you should not take if you're squeamish, faint of heart, or not willing to follow the company's operations like a hawk.
If youre looking for holiday presents, and want to advocate saving, you can buy savings bonds from your local bank. There are also accounts that can be given as gifts through some financial institutions, mainly in amounts over $5000. Give them index funds or ETFs, not a heart attack!
12-04-2007 @ 11:12AM
Sheldon L said...
JD,
Very astute comments and you are correct generally speaking so let me add a few things.
1) AHM was entirely in home mortgages while NCT is not in the residential market.
2) I have not recommended it yet, it is under consideration for the 8 for 2008.
3) as a part of 8 stock portfolio the risk is reduced even if it does collapse. I do not think that will happen but I am prepared to have one failure. The upside vs downside risk is worth consideration.
12-06-2007 @ 9:16PM
Liz said...
Okay, Dan...I'll give you a little credit there; however, when have you seen many companies using the holidays you mentioned in their advertising? Aimed at Christmas, perhaps?
The point is with the fact that many companies target a Christian holiday, and that's obvious. Many, such as Best Buy, refuse to use the word "Christmas" in ads; however, they sure aren't refusing the profits, or success in the stock market as a result, now are they?
This is a no-brainer, Dan. If you would like to use that argument, fine, but it's not the point.
Took some of your advice...I'm not opposed to including other holidays. Maybe using all holidays in advertising would be nice; however, the mainstream advertising "Powers that Be" see Christmas as their biggest time of the year in sales (which reflects in the stock market, hello?) and see dollar signs stuffed in their "stockings" (no pun intended, but it sure is a good one)!
One last example...look at the response Wal-Mart got when they refused to use "Christmas." It backfired! They got scared, and it sure wasn't b/c they were afraid they offended anyone.
Capitalism is what it is, and the market reflects that. So, no "Merry Christmas" from them, means no money from me. Money talks, and that's the only thing that will make these companies understand. Stop using "Christmas" if you're opposed to what it stands for!
Merry Christmas, Dan, and anything else you may wish to celebrate!
12-07-2007 @ 12:47PM
Adrian said...
They refuse to use the word "Christmas," yet they fill their ads with Christmas songs and people gathered around Christmas trees. They're trying to have it both ways.
People don't shop for "the holidays" to get "holiday gifts." They shop for Christmas to get Christmas gifts.
Kwanzaa is actually anti-commercial in nature. Hanukkah is a minor Jewish holiday, not the Jewish equivalent of Christmas. People don't go out and spend hundreds and thousands of dollars shopping for Hanukkah and Kwanzaa. They do it for Christmas, which, last I saw, about 95% of Americans, including non-Christians, celebrate.
These companies should be bending over backwards to thank all the Christmas shoppers they get this time of year. But their ads show that they continue to want it both ways ... they use Christmas imagery, but never utter the word. It's OK, Best Buy, Lowe's, and the rest of you. You can say the word.