The following two-part article puts forth ten stock ideas that I believe would be better off in your investment portfolio than one comprised primarily of Certificates of Deposits (CDs) or bonds, or even government treasuries. This is not to say that CD's do not have value or offer some level of security, but they are long term losers.
A basket of high yielding-high quality stocks can offer a higher return, better tax advantages, and the potential of significant appreciation for those with a long time horizon. Five year CD earning 4%, or a utility stock? I pick the utility every time.
My wife sent me the following quote from Ambrose Redman that I thought would be worth sharing with readers: "Courage is not the absence of fear but rather the judgment that something else is more important than one's fear."
It seems that might be extended to one's view on investing as well. What is really important, the short term or the long term, growth or value, the promise of riches or the hope for stability? In each case I would favor the latter over the former and this brings to mind one of my pal Warren's lessons: Do not buy a stock unless you would be happy to own it even if the market was closed for ten years.
Over the summer, my twelve-year-old son proclaimed that he was going to be the world's first zillionaire! I had to explain to him that if he achieved that lofty goal he would be the only one because that is more capital than exists today; unless he meant Zimbabwean dollars. I suggested that long before he owned the whole planet there might be a few objections here and there.
This got me thinking about my pal Warren, a frequent topic of conversation in business and investment circles, and how he amassed such a great fortune over the past five decades.
He is a long way from owning the world but he has started to expand his horizons to the international scene. He has bought and sold PetroChina (NYSE: PTR) for a tidy $4 billion dollar profit and he has been hedging against the dollar for the last few years with mixed results. He bought an Israeli metal fabricator and he has splashed about in Europe and Asia.
If you read Berkshire Hathaway's (NYSE: BRK.B) annual reports you will find the chairmans letters, where Buffett discusses both his successes and his failures. It is his failures and the fact that he does not make the right call every time that I wish to draw attention today. BloggingStocks promotes much debate, sometimes name calling, and sometimes worse. However, it is important to understand that even the best investors make mistakes.
The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
Six of the eight did well and two did not, and of course one of those two was a disaster. Among the losers, I do not think anyone is fretting about UPS, which is still one of the few triple-A rated companies along with Berkshire Hathaway. It has been well reported that the slowing economy and higher fuel prices have been the major culprits affecting UPS's earnings. In the case of WaMu, it's demise has also been well reported, but at the time I recommended it WaMu had a stellar reputation of growth and high yield for over two decades. There is no hiding, it turned out to be a lousy pick and an ANTI-SAFE Haven
Washington Mutual(NYSE: WM) closed Monday at $4.21 down from $45.50; a 98% loss.
Fortunately the remaining six picks have done very, very well. If you had bought the pool, the average gain over the last two years would have been 7.14%. Adding the dividends over the two years would have raised this to 13.14%.
After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and Berkshire Hathaway (NYSE: BRK.B) to being humbled by the market. However difficult it is to display your failings, once again I will share all. This is the low point since I posted the original story Chasing Value: Final list -- 8 stocks for 2008.
Only Reliance Steel & Aluminum (NYSE: RS) remained in positive territory, down from five stocks that were up in the last report. Sometimes, the reasons for the downslide were more obvious than they were in the cases for my picks. The cutting in half of Valero Energy Corporation (NYSE: VLO) has been reported often, as the largest independent oil refiner in North America has had its profit margins squeezed.
Loews Corporation (NYSE: L) has been hurt by its insurance interests and helped by its holdings -- 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.
Today the Dow Jones Industrial Average bounced back from yesterday's poor showing. It ended the trading day at 11,397.56, that's plus 266.48(+2.39%) returning more than it had lost only 24 hours ago.
There are plenty of prognosticators explaining why this happened and so I am not going to join the crowd this afternoon with my own version. Leave it to say we are in a period of uncertainty where investors and traders alike are a bit jumpy. We did have a 5.4 magnitude earthquake today in Southern California, only fitting for this type of market.
In the meantime I have been wondering how to take advantage of the lousy situation in the financial sector of the market. How can I maximize my gains and control risk at the same time? I guess we are all trying to do this, but few will appreciate my contrarian, 'no guts no glory' approach.
I think you have to be buying banks and investment companies and I have decided that ten is the right number. Sir John Templeton (RIP) is the catalyst for this notion. I am already on record (Serious Money: More signs the market has bottomed) that this is the time to be selectively buying and 'my pal Warren' said as much at the Berkshire Hathaway (NYSE: BRK.A) annual meeting when he suggested the financials have seen the worst of the storm.
The exchange rate between the dollar and Euro gives InBev a 30% to 35% discount making the acquisition price seem like a great deal for BUD shareholders but an even better one for InBev shareholders. And if the the currency exchange rates shift back over time then all the shareholders win.
This means that Americans will be answering to the Dutch Belgians. If the dollar had gained against the Euro instead of becoming weaker is it possible that Anheuser-Busch (BUD) would have bought out InBev (NV)? If the dollar stays down or drifts lower as seems likely right now look for more M&A activity from abroad.
In the mean time, since 'my pal Warren', is the largest shareholder of BUD through Berkshire Hathaway (NYSE: BRK.A) and supports the deal, will he remain a shareholder of the new company? No doubt this increases the value of Berkshire, but does this set the stage for Buffett to enter the European market in a big way?
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 BRK.B.
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees.
Many of them were the stocks we might have looked to in the past for stability, so you can be sure I put forward my five candidates with a little trepidation, but forward I go anyway. First a little review is in order.
Citigroup Inc. (NYSE: C) dropped from around $53 per share last year to around $30 in January and we can buy it today for around $17. Even at that price Goldman Sachs (NYSE: GS) has downgraded it to a sell and thinks there is more bad news to come. Citigroup was the largest bank in the world. Not any more.
General Motors (NYSE: GM) was the largest car maker in the world. That was before the stock tumbled from $43 to its current $11 range. A crushing blow to long time investors hoping that someone in the company could stop the ship from sinking.
The stock market was down today and the financial sector was hit as hard as anything else. These are the days you want to have your watch-list ready or perhaps your stock alerts triggered. I have been watching Wells Fargo (NYSE: WFC) for quite some time. Today at $27.00 I received an alert and decided to buy some.
As a value investor I am seeking not to just make a profit but to have as large a margin of safety as possible. That means I do not want to just buy a discounted stock but I want to "steal it". Patience is always in order, and usually is rewarded. That was the case when we watched Tiffany & Co. (NYSE: TIF) go from the low $40's to $57 per share and think we had missed the train, only to keep our eyes open as it fell back down to $36 where we pulled the trigger.
Last week TIF did us proud (see: Chasing Value: Tiffany's -- all that glitters) and although I am wrong way too often, I would be greatly surprised to see TIF anywhere near $36 ever again. It has reached $50 since we purchased it in April. The following chart illustrates the recent path of Wells Fargo.
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.
A story yesterday in Business Week, A Mideast Valley of Peace discussed how the development of a $3 billion canal from the Red Sea to the Dead Sea is gaining some traction. There is both Arab and Israeli support for the idea which would bring industry, tourism, and most importantly water through desalination plants to a very thirsty location.
According to the report the ambitious project is being energized by 60-year-old billionaire Itzhak Tshuva, who was born into a poor family of 11 who crammed into a single room after immigrating to Israel from Libya in the 1940s. He went on to build a global real estate empire that includes New York's Plaza Hotel, as well as a recently announced $8 billion luxury hotel, retail, residential, and casino complex on the Las Vegas Strip.
Equally important, the project is getting a warm reception in parts of the Arab world. This so-called Valley of Peace is part of a 520-kilometer (323-mile) corridor being proposed by Israeli President Shimon Peres for regional economic development. Peres says he has received letters of support from both Palestinian President Mahmoud Abbas and Jordan's King Abdullah II. And according to Israeli press reports, Saudi Prince Alwaleed bin Talal -- known for his investments in Western icons such as Apple (NASDAQ: AAPL) -- recently told Tshuva that he will support the project through Jordan.
It's that time again! Time to refocus on "my pal Warren's" life's work, Berkshire Hathaway (NYSE: BRK.B), which closed yesterday at $4,119.50 and is trading lower, currently at $4,080. That is enough to get my attention after staying on the sidelines for months since I followed it up from our last buy-in around $3,600.
BRK.B shares reached a 52 week high of $5,059 last December and it has been bouncing around ever since with a trend downward.
This is not the time to pounce on the stock. This is the time to prepare yourself to pounce on the stock.
The current Price-to-Earnings (P/E) ratio is 16.4. which is slightly under the current market average, but this is no average company. It actually is rated AAA (for real!) and has been for a long time. Most investors would consider Berkshire a safe haven, unless of course they decided to buy it at the all time high.
Apple Inc. (NASDAQ: AAPL) was the big winner among only four that had appreciated. The following indicates commonly used metrics for tracking and comparing stocks.
Reviewing the stocks in order of lowest to highest P/E ratio (TTM):
It is interesting to note that only two of the eight have a below market P/E ratio, while only two are average. On the other hand, four are double the average and beyond, which leads me to believe the overall market consensus is that it is still very early in the game for these stocks and their futures are yet to be determined. The P/E ratios of the four are also the most volatile as are the stock prices.
Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) reported a 64% drop in quarterly profit late Friday. At the company's annual meeting this past weekend, the legendary investor said that while a Berkshire unit has bought portfolios of subprime mortgages (and has frozen resets that were due to send interest rates on those loans higher) he warned investors that housing-market weakness isn't over yet and predicted more losses for banks. At the same time, Buffett said Sunday he will consider investing in the insurance business of U.K. banking giant Royal Bank of Scotland (NYSE: RBS) and is close to buying a medium-sized company in the country.
Hovnanian Enterprises Inc. (NYSE: HOV) estimated on Monday it would take $225 million to $275 million of land-related charges for the that fiscal second-quarter and said that home deliveries dropped 21% to 2,494 homes in the period. The company also turned cash-flow positive faster than it expected and tripled its full-year estimate of cash flow.
After being rejected by Continental Airlines Inc. (NYSE: CAL) last month, United Airlines parent UAL Corp. (NYSE: UAUA) is intensifying merger talks with US Airways Group Inc. (NYSE: LCC), according to The Wall Street Journal. A deal is said could emerge in as soon as 10 days. In light of rising fuel costs, the more than $1.5 billion in potential cost savings and revenue enhancements the companies see from joining forces is no doubt appealing more and more.
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.
Hershey (NYSE: HSY) has a market cap of $7.9 billion with long term debt of $1.5 billion.
HSY reported Q1 consolidated net sales of $1.6 billion on April 24. The Hershey Trust Co. holds the largest stake in HSY.
The WSJ reported Mars and Warren Buffett's Berkshire Hathaway (NYSE: BRK.B) were close to a pact to acquire WM. Wrigley Jr.Co (NYSE: WWY) for more than $22 billion according to people familiar with the situation.
HSY May option implied volatility of 25 is below its 26-week average of 27 according to Track Data, suggesting slightly less price uncertainty.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
The following two-part article puts forth ten stock ideas that I believe would be better off in your investment portfolio than one comprised primarily of Certificates of Deposits (CDs) or bonds, or even government treasuries. This is not to say that CD's do not have value or offer some level of security, but they are long term losers.
Over the summer, my twelve-year-old son proclaimed that he was going to be the world's first zillionaire! I had to explain to him that if he achieved that lofty goal he would be the only one because that is more capital than exists today; unless he meant Zimbabwean dollars. I suggested that long before he owned the whole planet there might be a few objections here and there.
The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and 
Today the 
We have posted numerous articles about the acquisition of 
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees. 
After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and 
It's that time again! Time to refocus on "my pal Warren's" life's work, 
About a month ago I posted 
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.
Hershey
Serious Money: How 'Stable' after 345 DJIA drop? -- CB, DIS, JNJ, TEVA & XEL
Closing Bell: Dow plunges amid grim economic news; AIG, CIEN, LM, TEX decline, WMT gains
Is BT's offer to save Britain's red phone boxes for £500 fair?
