The stock market is in turmoil today and the reasons can be found elsewhere (including in some peoples' imaginations). But if you are a bottom line investor, then here is where you should be looking. Food and energy exploration are the places to be.
Things can change rapidly, but as of right now food related stocks like Bunge Ltd. (NYSE: BG), the largest company involved with soy based products, and Potash Corp. of Saskatchewan (NYSE: POT), the largest fertilizer company, are up.
In the exploration sector, Anadarko Petroleum (NYSE: APC), the oil, gas and exploration company, Loews Corporation (NYSE: LTR), which is the majority shareholder in Diamond Offshore Drilling and is separating from its tobacco interests, and Precision Drilling TR (NYSE: PDS), the Canadian contract driller that is expanding into the lower 48 states, are all up.
All five stocks have out performed the market this year and that trend does not seem to be in jeopardy yet.
I will update this post with final results after the market close to see how the story ends.
UPDATE: four of the five closed in positive territory when all the major indices were in the red.
APC finished down to $77.69,-0.54 (-0.69%)
BG finished up to $122.40, +0.47 (+0.39%)
LTR finished up to $48.95, +0.45 (+0.93%)
PDS finished up to $26.95, +0.49 (+1.85%)
POT finished up to $223.10 +2.54 (+1.15%)
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of APC and PDS.
The transaction will close as of trading on Tuesday, June 10. Lorillard is being distributed to the public via a two-tier process involving: 1) the retirement of the tracking stock Carolina Group (NYSE: CG), in exchange for which approximately 62% of Lorillard's common stock will be issued, and 2) an offer in which shares of S&P 500 constituent Loews Corp. can be exchanged for the remaining shares of Lorillard
It was a smart move by Loews company management to separate the tobacco company from its other interests in hospitality, oil exploration, real estate and insurance.
After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and Berkshire Hathaway (NYSE: BRK.B) too. It has been painful to have to report each month that I was being bested. However, since I have not seen anything contradicting my original rationale for my eight picks I stood my ground.
Moving into positive territory by pennies was Loews Corporation (NYSE: LTR). Among its holdings is a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.
Bunge Limited (NYSE: BG) was the other stock to cross the line into the black, while Valero Energy Corp. (NYSE: VLO), although improving, remains my worst performer. It is still down almost 28% after five months.
This month saw great improvement after last month's disaster. Having to conclude my findings on a specific month end day, or any day, depending on the news, sometimes distorts results. For example news on March 31 sent the market down and on April first my picks shot up an unusual amount; hopefully the trend will continue.
My riskiest stock pick Newcastle Investment Corp (NYSE: NCT) was down the most in March but recovered about 35% of the loss in April leaving Valero Energy Corp. (NYSE: VLO) the dubious honor of being my worst performer, down over 30% in the first four months of the year.
April showed improvement as many companies reported positive earnings reports or beat expectations.
Most of my picks improved. Higher food prices no doubt helped Bunge Limited (NYSE: BG) which recaptured losses moving up 23% from its recent bottom. My two winners Raytheon Co. (NYSE: RTN), the high tech defense contractor, and Reliance Steel & Aluminum (NYSE: RS) were joined by a third, Anglo American plc (ADR) (NASDAQ: AAUK) which had a 10% swing entering positive territory.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
My riskiest stock pick Newcastle Investment Corp (NYSE:NCT) is down almost 37% this year, and the energy stocks did almost as poorly even though fuel prices are near all-time highs. The downers were not offset by this months' repeat winners.
March was a seesaw battle, but in the end there was not much to show for it. However, unlike the last day of January (down 370 points in the Dow) and February's last trading day (down 315 points), March had a final day of plus 46.49, which is not very meaningful.
Most of my picks sagged a little more, while two remain in positive territory. Raytheon Co. (NYSE: RTN), the high tech defense contractor is up and Reliance Steel & Aluminum (NYSE: RS) is way up.
Two months into the year and investors' true 'metal' was tested, and mine more than most. February showed signs of improvement over January, but the last week ended hopes of any rally. The last day of January saw a 370 point drop in the Dow and February's last trading day closed with similar results, down 315 points.
The soft stock market did display many points worth noting. The Dow Jones Industrial Average was about break even for the month, indicating investors were showing some signs of support for large cap stocks, prompted in part by news of increased profits at Wal-Mart (NYSE: WMT) and share buy-backs at IBM Corp (NYSE: IBM).
Some of my picks also sagged a little more, although not as much, while two turned into positive territory. In January, only Raytheon Co. (NYSE: RTN), the high tech, defense contractor, was up. In February, the weak dollar and inflation concerns boosted Anglo American plc (ADR) and Reliance Steel & Aluminum (NYSE: RS) -- two commodity plays.
Allstate Corp. (NYSE: ALL) stock is declining this morning after competitor Loews Corp. (NYSE: LTR) reported a fourth-quarter profit, excluding investments, of 81 cents per share, 26 cents below analysts' forecast of $1.07 per share. LTR blamed the disappointing earnings on a 50 percent decline in profit at its CNA Financial Corp (CNA) insurance affiliate, which could be a bad sign for ALL. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ALL.
After hitting a one-year high of $63.73 in May, the stock has hit a new one-year low today. This morning, ALL opened at $46.56. So far today the stock has hit a low of $45.30 and a high of $46.60. As of 11:05, ALL is trading at $45.89, down 68 cents (-1.5%). The chart for ALL looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
January was a wild ride and February holds the promise of more of the same after yesterday's 370 point drop in the Dow. All the major indices were down in January and so were seven of my eight picks. Only Raytheon Co. (NYSE: RTN), the high tech defense contractor, was up. My two high flyers from last year, Huaneng Power International, Inc. (ADR) (NYSE: HNP) and Valero Energy Corp. (NYSE: VLO), were the biggest losers.
Among the indices, the DJIA lost the least and the NASDAQ lost the most. The average return for my eight picks was -7.82%. This underperformed the average of the indices that was -7.58% -- but my new stalking horse Berkshire Hathaway (NYSE: BRK.B) bested both, so Buffett is still the man.
Now including dividends for my picks which average 3.91% divided by 12 for the one month allows for an additional .326%, reducing the loss to -7.494%. Using 1.8% for the average dividend of the indices divided by 12 adds 0.15%, reducing the loss to -7.43%. The dividends tighted things up. BRK.B does not pay a dividend.
The following are my eight picks with the starting share price as of December 28, 2007:
MOST NOTEWORTHY: The U.S. retail sector and Occam Networks were today's noteworthy upgrades:
Bernstein upgraded the U.S. retail sector to Overweight from Market Weight on valuation, as they believe shares now reflect any likely deterioration in earnings growth following the recent sell-off and that further downside is limited even in the event of a recession. In conjunction with the sector upgrade, Bernstein upgraded Lowe's (NYSE: LOW), Home Depot (NYSE: HD), Bed Bath & Beyond (NASDAQ: BBBY), Williams-Sonoma (NYSE: WSM), Kohl's (NYSE: KSS) and Macy's (NYSE: M) to Outperform from Market Perform.
Merriman upgraded shares of Occam Networks (NASDAQ: OCNW) to Buy from Neutral on valuation and the company's contract win with Fairpoint Communications (NYSE: FRP). They believe shares could trade back toward the 1x revenue level, or $5-7 per share.
OTHER UPGRADES:
RBC upgraded Suncor (NYSE: SU) to Outperform from Sector Perform.
The price-to-cash flow ratio has been repeatedly promoted in various publications as one of the more important metrics to consider when evaluating a stock to buy. Apparently over long periods of time it is more telling than the often quoted price-to-earnings ratio. I have read that cash flow is a key metric that "my pal Warren" looks at for Berkshire Hathaway (NYSE: BRK.B) investments.
Here are the figures for the Chasing Value: Final list -- 8 stocks for 2008 in order from highest to lowest P/CF. The 12/28/08 starting stock price, yesterday's closing price and the current P/CF for the most recent fiscal year (MRFY) are listed. Only two stocks are up, while six are down.
Bunge Limited (NYSE: BG) BG was $119.03, up to $133.00, P/CF 15.99
Raytheon Co. (NYSE: RTN) RTN was $61.51, up to $61.58, P/CF 13.64
Some companies seem to always be just outside my grasp. They sit on my watch-list for long periods and often never present an opportunity to acquire the stock. Adobe Systems (NASDAQ: ADBE), which closed at $42.93 on December 28, 2007, fits the bill. I almost included it in my Chasing Value: Final list -- 8 stocks for 2008, but alas, I decided I felt more confident in stocks like Loews Corp. (NYSE: LTR), which was the last stock added.
I asked one of the advertising company officers in town how important Adobe software was to their business and he replied, "They could not function without it, they would be out of business." I'm sure he was exaggerating, but only a little.
Adobe is not a monopoly because you can work around it with less robust programs, but no company offers the integrated suite of graphics products that Adobe does, including Photoshop, InDesign, Illustrator, Acrobat and if you're online much, you must receive multiple PDF files per day.
I recently posted Chasing Value: Final list -- 8 stocks for 2008 and mentioned that all of them pay a dividend. If this year is going to be as gloomy as some would have you believe, then stocks that pay dividends, as a group, will outshine those that do not.
The following are my eight picks, with the closing stock price as of my start date December 28, 2007 and the dividend yield. Last year, there were more stocks among my picks that paid a dividend higher than the S&P 500 Index average of 1.8% . This year there are only two.
A few days behind schedule, but here is my list of eight stocks. Included in the list there are two holdovers from the 2007 list of seven stocks. I do not see any value in creating an entirely new list when I have done well over the years riding the winners. This is particularly true if the reasons you bought the stock in the first place remain valid.
These eight picks for the year will be tracked monthly with updated results. The initial share prices are from December 28, 2007. They are focused on defense, energy, food, gold, metals, mining, oil, power, and every one pays a dividends. The following are my "Quick Takes" in alphabetical order with links to the complete stories.
Anglo American plc (ADR) (NASDAQ: AAUK) is a world-class player in precious metals, diamonds, and commodities, which are all growing in demand. When the world economy is booming, all of its mining products are sought after, and when the market runs scared, gold goes up. It pays a dividend yield of 1.9% and is trading almost 25% off its 52-week high. For full story: Chasing Value: Anglo American diamonds and gold are your best friend. The closing price on December 28, 2007, for AAUK was $30.79.
This was one of my last to make the list of 8 for 2008, and did not show up in previous stories, but investors should take note. Everything we read and hear about the investment climate in 2008 makes one rather tepid about the stock market. One of my friends even suggested to me a few days ago that he was considering going to all cash. That is a bad idea. A better idea is to find investments that will do well in this environment. Loews Corp. (NYSE: LTR) might very well be that company. The stock closed on December 28, 2007, at $49.35.
In a recent news release, Loews announced a plan to spin-off Lorillard. By mid-summer LTR should be separated from this tobacco company and maker of the Newport brand of cigarettes. This will free up some cash for stock buybacks, according to the article, and also from some liability. This might be good news to many but is not the reason I like Loews so much.
The real reason is that in searching out investment opportunities I took an interest in Diamond Offshore (NYSE: DO) as a major player in the search for oil offshore. Well it turns out that Loews is a major shareholder. When I was reviewing insurance companies, which were way down in 2007, and I think oversold now, I came across CNA Financial (NYSE: CNA), which has fallen on hard times and may be a comeback story. Then I learn that Loews owns a major stake in CNA too.
The stock market is in turmoil today and the reasons can be found elsewhere (including in some peoples' imaginations). But if you are a bottom line investor, then here is where you should be looking. Food and energy exploration are the places to be.
After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and 
This month saw great improvement after last month's disaster. Having to conclude my findings on a specific month end day, or any day, depending on the news, sometimes distorts results. For example news on March 31 sent the market down and on April first my picks shot up an unusual amount; hopefully the trend will continue.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
Dow. All the major indices were down in January and so were seven of my eight picks. Only .gif){kind=logo}
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