I have not decided who I am voting for yet. Or maybe it would be more accurate to say I have decided on multiple occasions only to become undecided again. While some will see me as fickle, or worse, others may be in the same boat.
I am also continuing to think about what difference any of the candidates can make on the economy, and based on these musings, where to invest. My current belief is that none of them will have a profound impact on our economy.
There are no financial wizards among them. Here is the shocker though: I like all three candidates, or at least can find some good in each of them. Each of them is a fighter, and I believe each one of them brings certain skill sets to the job. There are also things about each candidate that are inescapably negative. Clinton has so much baggage, Zsa Zsa Gabor would be jealous. Obama does not have the experience and he has a degree of arrogance (right sweetie); McCain is an old stick-in-the-mud who, as a long-time senator, has spent more hours with lobbyists than almost anybody, though he is pretending otherwise.
Where does this leave me from an investment perspective? My first choice, for stability with moderate growth and dividends, remains the defense sector. I wrote Defense sector rolls over S&P 500 for 8th straight year a while back and I still think that it is the most secure. Here's why:
A) None of the candidates will want to appear soft on defense when we are at war, and all three have made threatening remarks in some country's direction to make sure the electorate knows that.
B) The War in Afghanistan and Iraq rages on, and even the most optimist view is that a draw-down will take years.
Duke Energy (NYSE: DUK) shares are trading higher after the company reported a first-quarter profit of $465 million, or 37 cents per share. DUK's adjusted profit came in at 30 cents per share, in line with Wall Street estimates, while the company pulled in revenue of $3.34 billion during the quarter. above analysts' expected revenue of $3.25 billion. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on DUK.
After hitting a one-year high of $20.97 last May, the stock hit a one-year low of $16.91 in August. DUK opened this morning at $19.00. So far today the stock has hit a low of $18.80 and a high of $19.20. As of 12:20, DUK is trading at $19.01, up 34 cents (1.9%), which is a huge move for this stock. The chart for DUK looks neutral and deteriorating slightly, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
With the markets still in a choppy/consolidation mode (or perhaps worse), it's best to consider including a few defensive stocks in your portfolio, and with the above in mind Duke Energy is worth an evaluation.
If you're looking for a balanced, longer-term utilities play, consider Duke Energy (NYSE: DUK).
Duke is that rare type of utility that offers investors an ample amount of safety, an adequate dividend, and the potential for capital gain upside via growth.
In general, analysts expect DUK to register solid revenue results in 2008-2009. Duke has exited several higher-risk businesses, and what's left is impressive, particularly in a choppy, uncertain stock environment: 3.9 million utilities customers in the South and Midwest, 8,700 MW of unregulated generating capacity in the U.S., 4,200 MW of generating capacity in Latin America, and 500,000 natural gas customers. Further, given current population projections in the South, the long-term trends look good for a considerable portion of Duke's operations.
Other positives: Look for Duke to better-utilize its Midwest gas-fired plants and maintain cost-control discipline, in the years ahead. Finally, DUK's 88 cent annual dividend adds to the mix. The Reuters F2008/F2009 EPS consensus estimates for DUK are $1.27/$1.35.
The risks? Duke's revenue could be hurt if a generally-favorable regulatory stance in its regions changes. An unusually cool summer could also keep revenue below analysts' expectations. Don't look for a major upside revenue surprise with Duke, but everything else, from a utilities investment standpoint, lines up.
The First Call mean rating for DUK is: Hold. [18 firms.] Mean 2008 target: $20 [high: $23, low: $18.] Stock Analysis: Duke Energy is a moderate-risk stock not suitable for low-risk investors. Consider buying Duke's shares if your portfolio does not contain a utilities stock. Investors with an investment horizon longer than 2 years should be rewarded from DUK's shares. Sell / Stop Loss if you were to purchase shares in this company: $13.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"Like most electric utilities, Duke Energy faces a capital spending challenge in coming years, as it ramps up output to meet exploding future demand and meets new regulations on carbon dioxide. Unlike most, however, it's well positioned not only to meet the new rules but to profit from them.
"Duke's nuclear power plants have long been among the best-run in the industry. To them, the company has added a wind developer this year as well. But the real opportunity could well be in coal. In November, Duke won Indiana regulators' approval to build a 630 megawatt integrated gasification combined cycle plant (IGCC).
"By converting that state's coal to clean-burning gas, the plant will produce four times the electricity of the Edwardsville coal plant it will replace and 45% less carbon dioxide (CO2) per megawatt hour. That's not including the potential addition of CO2 capture technology.
Berkshire Hathaway Inc. (NYSE: BRK.B) is a strong candidate. It meets two of the three criteria in a big way. Although it does not pay a dividend, most of its stock holdings do and Warren Buffett has been the gold standard for creating shareholder equity. If 2008 proves to be a shaky year on Wall Street, you will want to own this stock. BRK.A/B has been appreciating but given all the uncertainty in the market I will stick with this solid company.
Intuitive Surgical, Inc. (NASDAQ: ISRG) is also a strong candidate that I have written about many times. It does not pay a dividend, but this one has beat everybody and everything every year since I bought it, and is likely to do it again. It has hardly penetrated its potential market. It is significantly off its all-time high, and may look like a bargain by December 28. My regular readers know I love this stock but it has gone back up from about $280 to $320 and by the 28th may not be much of a value.
Huaneng Power International, Inc. (ADR) (NYSE: HNP) does pay a sizable dividend and has plenty of room to run. It has come down a lot with the rest of the inflated Chinese stock market, but this one is not threatened by competition and is a good long-term value. The largest potential downside might be costs associated with environmental clean-up. China is addressing these issues but has a long way to go. This is a must own and with all the stories about electric cars and more devices requiring power all the time plus its recently soft price I still favor HNP. It still has a 3.6% yield, and is increasing equity every day.
The Dow Chemical Company (NYSE: DOW) has done well this year but not spectacular. It meets my criteria for consideration on all counts and has a lot going for it. In partnership with Corning, it is developing materials for the solar energy industry. It will probably continue to be mentioned in merger and acquisition rumors, and it has historically been an innovator willing to spend on R&D. If oil goes down in price, the primary ingredient in many of DOW's products will create improved margins. A P/E of 10 and a 4% yield, need I say more?
Duke Energy Corporation (NYSE: DUK) (NYSE: SE) will remain on the possibility list for now. It pays a handsome dividend and might see some growth next year as investors look for stability. This year it was flat. That might be good enough if the market ends in turmoil next year. Yes there is room for two power companies on my list and this one is paying a solid 4% yield.
The Home Depot, Inc. (NYSE: HD) was one of my dogs this year (and continued to report poor earnings) but there is value here and this year going forward it is greater than last year. There are a number of latent problems at HD, but at current prices there is also deep value. I still think HD is a buyout candidate now more than ever, but whether the stock recovers in 2008 or deep into 2009 remains a question.
Valero Energy Corporation (NYSE: VLO) was one of my favorites last year, remains one of my favorites now and is a very strong candidate to stay in favor next year. Its margins have been squeezed lately by high crude prices and stable pump prices, but that could change, and the stock may appreciate significantly in 2008. I have no idea what Wall Street is thinking but it still seems too cheap with a P/E just over 7, a P/S of 0.34 and still no one seems to be building any new refineries.
Northrop Grumman Corporation (NYSE: NOC) sports an even lower P/S of 0.81 and a lower P/E too, of 15.25. It has a higher dividend yield than General Dymanics and a P/B of 1.57, which seems to low. Another defense contractor adding new contracts every week.
Anadarko Petroleum Corporation (NYSE: APC) is one of my favorite stocks. It is in the right business at the right time, and it has substantial proven reserves in North America. I see APC as a perpetual takeover target, but it has been successful as a stand-alone and can remain so. The stock price is about 5% off its 52 week high but the P/E is still under 7 so I am bewildered as to why some larger fish has not swallowed this one whole just for it's North Amercian reserves.
Anglo American plc (ADR) (NASDAQ: AAUK) is another stock that could end up in M&A discussions. Let's see, it's a global player in diamonds, gold, silver, platinum, coal and more. This is a currency play, a commodities play, a global play, and an inflation hedge - got to love that if you can get it at the right price.Unlike oil prices which may be affected by the weather, new technologies, or alternative sources these commodities will remain in demand. Gold may be used instead of silver, platinum instead of gold but except for locating new supplies the demand for these precious metals and commodities can only grow with the growth of the new economies and the wealth of their citizens.
Nucor Corporation (NYSE: NUE) is one of the world leaders in the idea of mini-mills. This smallish steel producer prides itself on running a tight ship, pays a dividend, and has a P/E around 10. Once again, it could be a takeover target as the industry continues to consolidate. It is 25% off its high, and is a strong candidate to make the final cut. Still looks like a winner but not as much so given it's recent rise. Maybe someone is actually reading my rants?
Reliance Steel & Aluminum (NYSE: RS) processes and distributes more than 100,000 products made of carbon, alloy, stainless, and specialty steel, as well as aluminum, brass, copper, and titanium. It serves more than 125,000 customers. For reasons that I will explore in future stories, the entire steel industry seems to be on sale and perhaps priced for a recession. Reliance has a P/E of 9.6 and a PEG ratio of 0.71, so unless there is something here that is well concealed, it seems way too low. My opinion has not changed but I wish RS would raise it's meager dividend of .63%. That might affect my decision if it becomes a close call.
The more questions you have these days about the investment world, and the more concerned you are about economy over the next few years, the more you should have some of your assets in electric utilities. Regardless if our nation makes a push toward nuclear, solar, or wind power or does nothing at all, electric utilities will remain the big players. Year in and year out they have a stable customer base, pay a higher dividend yield and have a much higher level of predictability than almost any other investment class.
Another factor that is likely to contribute to the growth of electric utilities is the push toward electric "plug-in" cars. I have not done any analysis as to how this will affect global warming, the price of gas, the quality of air, or total national energy consumption, but those issues aside, if we change even 25% of the nation's automobiles to all-electric over the next ten years, that is a lot of growth.
Historically, the Dow Jones Utilities Average has beaten the pants off the Dow Jones Industrial Average for total return. There are short periods of time when the Industrials jump past the Utilities, but over the long haul, investors have done much better with what seems like the less attention-grabbing, boring old utilities. Choosing boring stocks remind you of anyone? Yes, "My Pal Warren" has been buying these boring stocks over the last decade (adding to his others in chocolate, underwear, ice cream and insurance) and you can see the results in the five-year chart comparing the two Dow indices.
If you're looking for a balanced, longer-term utilities play, consider Duke Energy Corporation (NYSE: DUK). Duke is that rare type of utility that offers investors an ample amount of safety, an adequate dividend, and the potential for a decent capital gain upside via growth.
In general, analysts expect DUK to register adequate revenue results in 2007-2008 following the integration of Cinergy, acquired in 2006. Duke has exited several higher-risk businesses, and what's left is impressive: 3.9 million utilities customers in the South and Midwest, 8,700 MW of unregulated generating capacity in the U.S., and 4,200 MW of generating capacity in Latin America. Further, given current population, household formation, and economic projections in the South U.S., the long-term trends look good for a considerable portion of Duke's operations.
Other positives: Look for Duke to better-utilize its Midwest gas-fired plants, and maintain cost-control discipline, in the years ahead. Further, DUK's 4.6% dividend and a reasonable p/e of 15 adds to the favorable mix. The Reuters F2007/F2008 EPS consensus estimates for DUK are: $1.23 to $1.26.
The downside? Duke's revenue could be hurt if a generally-favorable regulatory stance in its regions changes; an unusually cool summer could also keep revenue below analysts expectations. Don't look for a major upside revenue surprise with Duke, but everything else, from a utilities investment standpoint, lines up.
The First Call mean rating for DUK is: Hold. [18 firms.] Mean 2007 target: $19.90. [high: $23, low: $16.]
Stock Analysis: Duke Energy is a moderate-risk stock not suitable for low-risk investors. Consider buying Duke's shares if your portfolio does not contain a utilities stock. Investors with an investment horizon longer than 1 year should be rewarded from DUK's shares. Sell / Stop Loss if you were to purchase this stock: $12.
This year has been a stock picker's market extraordinaire! This month's review provides ample evidence of this, as you'll note that Google (NASDAQ: GOOG), which I included for fun because of its popularity, beat all else as a portfolio of one. The average of my seven picks came in second, beating James Cramer's average based on his nine picks. Both Cramer and I beat each of the three indices I am tracking, and therefore beat the average as well, with the largest and most stable, the Standard & Poor's 500 coming in last.
Of course, this could easily change given recent market volatility. A sharp downturn in the market could reverse our fortunes. A lot can happen in the remaining two months -- I take nothing for granted.
While Google shined brightly this year, Cramer and I have each made one pick that shined brighter. Cramer's best, Apple (NASDAQ: AAPL) has gone into orbit this year on the wings of the iPhone, iPod, and growing Mac sales. Benefiting from rising oil prices, shortages in China and the Chinese government allowing a 10% price hike, my PetroChina ADR (NYSE: PTR) has rocketed, becoming the second-largest capitalized company in the world. PTR has done this even in the shadow of Berkshire Hathaway (NYSE: BRK.A)selling its shares and Warren Buffett questioning the huge appreciation of the Chinese stock market and stocks overall.
No surprise the volatile James Cramer of TheStreet.com carries the burden of having made the best and worst picks for the year among those I've been tracking monthly. Apple Inc. (NASDAQ: AAPL), the best performer among all the stocks and indices in this review, has saved his rear throughout the year. In general, it has been a good year for energy and tech stocks. It has been a poor year for the financial sector, and as of August, for most of the Wall Street investment firms.
Crude oil prices have been up slightly, but down at the pump even through the busy Labor Day weekend and even with continued turmoil in Iraq. All the speculation about a Dow 15,000...16,000...17,000 has come and gone and I have not read about such silliness lately.
This morning one of the nation's largest electric companies, Duke Energy Corp. (NYSE: DUK), reported its second-quarter earnings, which dropped 17% year over year, but the company was still able to beat analyst estimates.
The reason why the company saw the big drop in earnings for its most recent quarter was its spinoff earlier this year of its natural gas business, now Spectra Energy Corp. (NYSE: SE). Analysts had been expecting the company to show earnings of 20 cents per share, but the actual numbers came in at 23 cents a share, and Wall Street has pushed the stock up 1.7 percent following the news. So far on the day the stock has climbed 43 cents to $18.33.
Yesterday, Spectra announced its second-quarter numbers, which showed earnings of 31 cents per share, under the 32 cents per share that analysts had been expecting for its second-ever quarter as a stand-alone company.
Luckily for Duke, the quarter turned out with revenues climbing by 5 percent to $3.04 billion, up from $2.9 billion during its second quarter in 2006.
All in all, a strong quarter for Duke, and one that is being rewarded nicely in today's market.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
MOST NOTEWORTHY: AstraZeneca (AZN), Ametek (AME), InterNAP Network Services (INAP) and Rosetta Genomics (ROSG) were today's noteworthy initiations:
Cowen believes AstraZeneca (NYSE: AZN) faces challenges from patent expirations, patent challenges, high-risk pipeline and value creation from deals, and initiated shares with a Neutral rating.
Ametek (NYSE: AME) was initiated at Friedman Billings with an Outperform rating and $44 target, as the firm believes AME has turned into a collection of niche-oriented high-value-added manufacturers of precision instrumentation, resulting in a high-margin, high-return business with above average growth.
InterNAP (NASDAQ: INAP) was initiated at Thomas Weisel with an Overweight rating, as the firm is positive on INAP's unique service offerings, VitalSteam acquisition opportunities, high growth customers, and improving collocation and bandwidth demand fundamentals.
Cantor expects Rosetta Genomics (NASDAQ: ROSG) to launch the world's first microRNA-based cancer diagnostic in the second-half of 2008 with a market of $200 million, and initiated shares with a Buy rating and $15 target.
This is an update through April 30, 2007 after many companies have reported their first quarter earnings and the Dow Jones Industrial Average (DJAI) passed the 13,000 watermark and set new record highs. We are still in the midst of earnings season. This is my fourth follow-up report. Not enough time to prove much but plenty of time to make or lose some money. If you want to refer to the original article from December 28, 2006 see:You don't have to be 007 to find the best picks for 2007!
This month an interesting trend took hold. Even with the indices reaching new highs and many stocks doing so as well, it seems there must be some caution in the wind. This is the first month that my value approach lead the pack and Cramer's approach, whatever it is, took a back seat. Not only is Cramer lagging each of the indices, but four of his six speculative and growth picks were down while all three of his value picks were up. Google seems to be dead in the water for now, having reported tremendous growth and beating analyst's guestimates again by a wide margin, it still has not gained any traction even in an up market.
DJIA 12,216.24; Down 416.02 (3.29%) NASDAQ 2,407.87; Down 96.65 (3.86%) S&P500 1,399.04; Down 50.33 (3.47%) 10Yr-Bond 4.5130%; Down 0.1180 NYSE-Volume 4,164,578,000 NASD-Volume 3,045,369,000 VIX 18.31 (+7.16)
This was the worst drop on the DJIA since the pre-Iraq trading, and since after the market reopened following the September 11, 2001 tragedy; all 30 DJIA components closed down on the day. The massive sell-off seen today was on record NYSE trading volume. Was writing about the VIX showing a complacency on the 'fear index' part of the reasoning of a drop? Or was it the record margin borrowing on stocks? We can blame China, we can blame a horrible Durable Goods number, we can blame ex-FOMC head Greenspan for hinting at the risks of a recession. Blame whatever you want, but the selling built and built, and when the NYSE trading curbs were lifted, the market took a bungee jump.
There have been reports that many of the stocks actually got stuck at low prices and there is also talk that the programs went unchecked and the electronic trading allowed the markets to suddenly tank. There was a flurry of trades around 3:00 PM EST where all of a sudden the programs took the market from down more than 200 points to down more than 500 points. You can probably bet there were many computing errors from the automated system on such large trading volume. This was a record day on NYSE volume and the system froze on many stocks. John Thain's argument for creating a trading floor without people [pdf link] just got hosed, and rightfully so. In a world where floor brokers work alongside electronic trading, the market is obligated to maintain a somewhat orderly function.
Here are the basic go-to stocks that holders tend to flock to when the stock market sells off heavily.
Private equity deals are now reaching levels close to $50 billion, and there has been speculation that The Home Depot (NYSE:HD) could be taken private for over $100 billion.
A look at companies in the $20 billion to $60 billion market cap range comes up with some firms that could be likely takeover candidates. To see what they might go for, each company's balance sheet, cashflow and assets were evaluated.
Nvidia (NASDQ:NVDA) This chip company is often mentioned as an M&A possibility for Intel (NASDAQ:INTC) especially after AMD (NYSE:AMD) took over ATI Technology. Break-Up Value $43 plus.
Duke Energy (NYSE:DUK) Private equity firms are finding the utilities industry more and more attractive. Duke is one of the largest and most successful companies in this sector. Break-Up Value $29.
3M (NYSE:MMM) Like other conglomerates, especially GE (NYSE:GE), 3M may well be worth more in pieces that it is as a collection of companies, some of which are not as closely related as Wall St. would like. Break-Up Value $109.
Alcoa (NYSE:AA) Alcoa has been mentioned as a target for other metals companies, especially over the last few weeks. Its balance sheet and cashflow could draw bids fairly soon. Break-Up Value $46
ADP (NYSE:ADP) The company has one division, Dealer Services, which drags down the value of the entire company because of its low margins. Spin that out, and the company might be worth more than itscurrent value. Getting rid of the unit is critical even if ADP stays independent. Break-Up Value $44.
Schering-Plough (NYSE:SGP) The pharma company has a consumer health business that hurts the value of the overall company. Push that out in an IPO or sell it off, and the parent's value goes up. Break-Up Value $29 plus.
Motorola (NYSE:MOT) Carl Icahn thinks that Motorola is worth a lot more than it trades for. Break the handset business off from the telecom equipment division, and he is right. Break-Up Value $26 plus.
Corning Inc. (NYSE:GLW) Corning may be worth over 50% more than its current share price. A litigation settlement holds it price down, but it products are critical in growing markets like LCDs. Break-Up Value $35.
I have not decided who I am voting for yet. Or maybe it would be more accurate to say I have decided on multiple occasions only to become undecided again. While some will see me as fickle, or worse, others may be in the same boat.
Here are some highlights from this past week's 
"My favorite conservative recommendation for 2008 is 
This year has been a stock picker's market extraordinaire! This month's review provides ample evidence of this, as you'll note that 
Comfort Zone Investing: Exploit volatility with constant dollar investing
Merck earnings preview: No miracles expected
Apple reports Monday -- buy AAPL before earnings?
