Sunday, August 21, 2011

"Just because the US government owns 26% of the stock, it doesn't mean that General Motors is a bad investment! In fact, it is a great buy here."

Dow Jones Industrial Average  10,818  (Down) Week ending 08-19-2011

Some people call it " GM - Government Motors" because the US government provided financing to General Motors (Symbol GM, $22.16) , to help it reorganize and is a holder of 26% of the shares of the stock. I guess the fear hangs out there that the government will liquidate in shares and bring the stock price down. They may as well hold on to the shares at this point. The book value on GM shares right now is $24.86 , higher than the trading price. Revenues through June 30th , 2011 are $112,449. Sales are increasing quarter over quarter for GM.

Earnings for the 2011 year ending December 31 are projected at $4.21 per share. For 2012 they are projecting $4.54 per share.  That is a forward PE of 4.88 for 2012 for a company which huge revenues and good earnings. Other typical industrial companies with this type of revenues and earnings trade in the 60-80 a share range! This stock is at $22.16. So what gives?  The share price is down 40% YTD.  Even a blind monkey throwing a dart could get this one right. This company has almost 33 Billion in cash and short term investments.  BUY GM,  with a capital B.

Some other names I like here are Union Pacific Corp. (Symbol UNP, $85.69). When all else fails you can always buy a railroad that runs east-west and transports coal for electricity. UNP has a one year earnings growth rate of over 20%.  Nothing but earnings upside surprises here. The stock is up 15% year to date.

Don't forget about Mastercard (Symbol MA, $300.16). It was one of my Top ten picks at the beginning of the year. Even after the large sell off we have had the stock is still up 45.45% Year to date. I like it and Warren Buffett likes it and owns it too.

I also started looking at the stocks related to real estate this week which I believe could provide some good value picks here. One stock that got my attention in that area is Annaly Capital Management (Symbol NLY, $17.79). This stock is showing  a 14.61% dividend right now and have decent earnings of $2.86 a share and a PE of 6. This is a "pay you while you wait" for the real estate market to make a slight turn. You will need to be patient with this one.                                                                                                                                                                 
Whatever you do, move slowly in smaller increments in whatever you purchase here, because it may be at an even better price next week.

If Chicken Little is right, and the "Sky is Falling", that will be a better strategy in the long run for you.

 Lets see if 10,800 on the Dow holds support here and turns around this week.

Freewilly

 

Saturday, August 13, 2011

" Let's look at this thing from a... um, from a standpoint of status. What do we got on the spacecraft that's good? " Best to look at the Capital Goods stocks.

Dow Jones Industrial Average    11,269  Week ending 08-12-2011

2:13 p.m. EST, April 11, 1970, Apollo 13 launches from pad 39A at the Kennedy Space Center.  
"Spacecraft systems performance was nominal until the fans in cryogenic oxygen tank 2 were turned on at 55:53:18 ground elapsed time (GET). About 2 seconds after energizing the fan circuit, a short was indicated in the current from fuel cell 3, which was supplying power to cryogenic oxygen tank 2 fans. Within several additional seconds, two other shorted conditions occurred.

Electrical shorts in the fan circuit ignited the wire insulation, causing temperature and pressure to increase within cryogenic oxygen tank 2. When pressure reached the cryogenic oxygen tank 2 relief valve full-flow conditions of 1008 psi, the pressure began decreasing for about 9 seconds, at which time the relief valve probably reseated, causing the pressure to rise again momentarily. About a quarter of a second later, a vibration disturbance was noted on the command module accelerometers.
The next series of events occurred within a fraction of a second between the accelerometer disturbances and the data loss. A tank line burst, because of heat, in the vacuum jacket pressurizing the annulus and, in turn, causing the blow-out plug on the vacuum jacket to rupture. Some mechanism in bay 4 combined with the oxygen buildup in that bay to cause a rapid pressure rise which resulted in separation of the outer panel. The panel struck one of the dishes of the high-gain antenna. The panel separation shock closed the fuel cell 1 and 3 oxygen reactant shut-off valves and several propellant and helium isolation valves in the reaction control system. Data were lost for about 1.8 seconds as the high-gain antenna switched from narrow beam to wide beam, because of the antenna being hit and damaged."

At this point, NASA Flight director, Eugene Francis "Gene" Kranz asks his team, "Let's look at this thing from a... um, from a standpoint of status. What do we got on the spacecraft that's good?" One of his many famous quotes during the Apollo 13 mission. Of course his most famous is : "Failure is not an option",  which leads us directly into the discussion about your retirement and stock investment mission.

We have had a bit of an explosion here ourselves in the market these past two weeks to our retirement equity values for us Boomers in our 50's and 60's who will retire sooner then other folks. We still need to get back from the moon and have our splashdown of retirement, so we have a ways to go yet here.  Just like Gene said, "Failure is not an option". So what is the plan of action?

Two things you should not do here is sell your stocks and invest in Gold, which is at an all time high price. Second, you should not sell your stocks while they are down and move into yield-less, no risk cash positions.  What you should do is continue to invest in stocks. Although all the government entities have their balance sheets in a wreck, and the labor markets are all out of whack, the saving grace may be that companies are actually in quite good shape on their balance sheets for the most part.

 One area I would look at is the Capital Goods stocks. Some of those names would be:

Boeing Co. (Symbol BA, $61.75)
Parker Hannifin Corp. (Symbol PH, $69.58)
Roper Industries Inc. (Symbol ROP, $72.63)
Rockwell Automation Corp. (Symbol ROK, $64.93)
Ingersoll-Rand Co. Ltd. (Symbol IR, $30.39)
and my favorite is,
Cummins Inc. ( Symbol CMI, $94.47) which I mentioned 2 weeks ago in my blog.

as a bonus I will give you one outside of this group that is rock solid, Qualcomm Inc. (Symbol QCOM, $50.50). The stocks in this group may be down temporarily but rest assured they will move back up.

So the computer "war games", (investment buy and sell programs that have dominated the market), should start to slow down here and bring the VIX down into a more civil range. The above stocks should fare well going forward.
Nothing is going to get settled here quickly, so stay patient and move strategically into small positions, so you can make adjustments quickly to your portfolio.

                                                              Freewilly






Saturday, August 6, 2011

"I leave you guys on your own for a week, and you lose 1,400 points on the Dow Jones Industrial Average, what's up with that?" ...... Blog #100!

Dow Jones Industrial Average 11,445  (Way,Way down!) Week ending 08-05-2011

Federal Reserve Bank

 Aug. 5, 2011, 8:46 p.m. EDT -

 U.S. loses triple-A credit rating from S&P -
 
"The United States late Friday lost its triple-A debt rating from Standard & Poor’s for the first time in its history, with the credit-rating agency saying the political system of the world’s top economy has become less stable and that budget cutting announced earlier this week didn’t go far enough."
 
 I take one weekend off from writing my blog, with the DJIA at 12,800 heading towards 13,000, and I come back and the place is a wreck. I can't leave you guys on your own for a second. Now Standard and Poors has downgraded the credit rating of the US for the first time in history. I can't believe I am writing those words. That's going to be just a great help for the market this Monday morning.
 
Somehow, I don't think Ronald Reagan would have let this happen. He would have taken action ahead of time.  Our current president needs to get rid of his current Treasury Secretary Geithner, and get himself some advisers that would have had the insight to forewarn him of the percentages of something like this happening. Worry about the debt, not about the debt ceiling.
 
Because we are still the "best of the worst", worldwide investors will still flock to our treasury bills for safety in a rattled global economy. So what to do with stocks here? I'm reminded of the line from many Laurel and Hardy films, "Well, here's another nice mess you've gotten me into".   
 
 
Well of course every genius is going to be out there to buy dividend stocks that are yielding higher than the treasury bills and that have some growth to kick in along with that. I would first put aside a pile of cash, kind of boost up your own personal reserve requirements, like the banks do in times of financial crisis. You never know what can happen. Of course do not attempt to use leverage here to load up in a down market, because things could get worse causing you financial ruin, not a good thing. (I looked at those Clearwire 2013 Call options too!, sitting out there like chocolate ice cream on a hot summer day, very tempting!) 

So lets garner a list of a dozen of these stocks:

HON    Honeywell     2.77% dividend yield
VZ        Verizon Communications    5.56% dividend yield
NOK    Nokia Corp. ADS    10.88% dividend yield
FTR      Frontier Communications Corp.  11.09% dividend yield
SPH      Suburban Propane Partners L.P.  7.77 % dividend yield
BWP     Boardwalk Pipeline Partners L.P.   7.91 % dividend yield
MO       Altria Group Inc. 5.87 % dividend yield
EXC       Exelon Corp.   5.00% dividend yield
T            AT&T Inc.   5.95% dividend yield
PAY       Paychex Inc.  4.58% dividend yield
GIS        General Mills Inc.  3.34% dividend yield
DD         E.I. DuPont de Nemours & Co. 3.47% dividend yield

 So the watch-word is Margin of Safety and dividend yield, and of course enjoy your summer where the same safety rules should apply to your activities.



Freewilly