Wednesday, March 31, 2010

Record Revenues Are a Good Thing (Especially Now)!

As this article from SmartMoney points out, record levels of revenue really shouldn't be that big of a deal, but in the current economic climate they are.

The reason is that given steady economic growth, a given company should be able to increase its revenue year over year. The rate of increase may not be a new record, but even a tepid 2% growth year over year would create "record levels or revenue" for a company.

When you have periods like we've had in the past 2 years - where revenues have taken double digit hits in some cases - record levels of revenue is indeed something to be celebrated. In fact, the S&P 500 index is still down around 18% less than its 2008 peak.

All of this makes the 3 companies covered in the article that much more notable. Besides, these companies have two other factors that make them worth watching:

  1. They've been profitable during the recession.

  2. They pay dividends and trade at a discount.


So who are these winners?

Baxter International


Dividend yield: 2.2%
Sales growth last quarter: 11%

Baxter International is in the healthcare industry and makes: treatments for immune disorders and blood-related diseases, vaccines and wound-care products; intravenous systems and pre-mixed drugs; products to treat irreversible kidney disease.

Hasbro


Dividend yield: 2.6%
Sales growth last quarter: 12%

Hasbro is the toy company you've grown up with, and has enjoyed a boost in sales due to the seemingly endless supply of action figure based movies coming out of Hollywood these days - G. I. Joe, Transformers , and Iron Man to name a few.

Raytheon


Dividend yield: 2.6%
Sales growth last quarter: 10%

Raytheon is in the defense industry and makes radar equipment, missile systems, spy systems and more. It would seem a solid play in the current environment of global threats.

Read more: 3 Stocks With Record Revenues at SmartMoney.com

Thursday, March 18, 2010

Finally, an Income For Life Model That's Real!

The investment media is awash in various income for life scams that guarantee you can invest in their system and never lose another penny. Obviously, such claims fall into the "to good to be true" basket of the investment scam smell test.

But back in November 2, 2009, Kiplinger's offered a real-life investment model for lifelong income. In fact, it's even called the "income for life" model, and it works by tipping traditional investment advice on it's head. Well, actually, on its side.

Here's a comparison :


(compliments of kiplinger/Yahoo! Finance)


[caption id="attachment_642" align="alignleft" width="156" caption="Classic retirement income model."]Classic retirement income model.[/caption]

In the traditional, or classic approach to retirement investing, all of your assets are diversified but they are also all at risk at the same time. Just ask anyone newly retired or about to retire in the fall of 2008. In the traditional model, your retirement funds were nicely diversified across various asset classes and their implied associated risk. But when the market tanked in 2008, it took most asset classes with it: stocks - across the board from small cap to blue chip, bonds, real estate... in fact just about everything except cash and commodities.






[caption id="attachment_643" align="alignleft" width="300" caption="Income For Life model."]Income For Life model.[/caption]


In this new income for life strategy, your income and growth are separated. You get guaranteed income from the immediate cash you have stashed in CDs, savings, annuities and bonds, but you also get growth potential in the amount you have stashed in the riskier investments, to the right of the income for life strategy triangle in the chart above.




How it works.


Instead of the traditional retirement model which recommends taking 4% per year of your savings as your income, the income for life model has the retiree taking his income from the Fixed segment of the sidelong pyramid. As the savings in the fixed portion runs down, it is replenished with money from the growth portion on the right - the money in the retirement fund is moved from the right to the left over time. If the fixed portion has grown so that no money transfer from the growth portion is required to replenish it, then the growth portion is free to continue growing.

Why I like it.


Although it really just seems like a different way of looking at the same old situation (i.e. generating income from your retirement savings), I think it's an important shift in the way we view retirement income. Too many people view retirement as the end of the road for their retirement savings. They have this idea in their heads that what they have when they retire is all that they will have for the rest of retirement. But that simply isn't true.

The sideways pyramid makes people realize that you need some portion of your savings allocated to growth. After all, it's not unheard of for people to living 20-30 years in retirement and most people simply cannot amass the savings retired to live off of for 20 years or more without some growth to keep ahead of inflation.

Wednesday, March 17, 2010

So much for Minyanville and the Ides of March?

Last week I wrote a post hi lighting an article at Minyanville that asks if March 2010 was going to be October 1987 all over again.

The premise was that there were major indicators that were signaling much in common with that fateful period 23 years ago, and there was some speculation that it could happen again.

Well, it's now 2 days past the ides and here's one of the lead articles from MarketWatch on Yahoo! finance:

Stocks Rally on Extended Low Rate Cheer; Dow Sees Best Run Since August


U.S. stocks finished ahead on Wednesday, propelling the Dow Jones Industrial Average to its longest winning streak since August 2009, as Wall Street rejoiced over the Federal Reserve's prior-session decision to hold rates steady, which should keep banks' borrowing costs at record lows for much of the year.

So much for the Ides of March, 2010 eh?

Tuesday, March 16, 2010

Does Anyone Use StockTwits.com, And Is It Any Good?

StockTwits is a social networking and micro-blogging site much like Twitter, but exclusively for stocks.

The website advertises:
"Discover & Share Real-Time Investment Ideas."

They plug themselves as a "financial community with thousands of active, daily contributors" all eager to share their real-time trading ideas, and claim to have a world-wide audience of more than 100,000 investors and traders.

Sounds impressive. But is it any good?

It obviously has a sizeable user base so when I say, "does anyone use StockTwits?", I mean anyone reading this blog. ;-)

I'm serious. I have no idea whether the service is worthwhile. I'm more of a long term investor than a short term trader, so my gut reaction to StockTwits is that there would be too much short term noise for me to tune out to be of any use. But I can see where the concept could really be boon for traders.

Of course, I could also see where it could become so large and influential that it could start impacting the markets for small and micro cap stocks in the short term. It could become the tail that wags the small cap dog, if you will.

Michael Arrington, over at TechCrunch.com, writes StockTwits Evolves, Becomes Must Use Site For Traders, and I tend to think that's a fair assessment for the moment. It will likely service the traders niche and any new technology that brings people and ideas together is bound to be a "must use" kind of site, but I think time will tell if it will be useful over the long term.

Thursday, March 11, 2010

Beware the Ides of March?

Technically speaking, the Ides of March is nothing more than a date on the Roman calendar. March 15th, to be exact. But it has sinister implications because it just so happens that the Roman emperor, Julius Caesar, was stabbed to death on March 15th 44 BC by the very senators who were supposed to serve him. It was in his play, Julius Caesar, that William Shakespeare wrote "beware the Ides of March."

[caption id="attachment_660" align="alignright" width="300" caption="The Death of Caesar"]The Death of Caesar[/caption]

So, what does any of this have to do with investing and the stock market?

I'm glad you asked.

Minyanville has an article that asks if March 2010 is going to be October 1987 all over again. For those of you who weren't investing in 1987, let me share why this is a watershed moment in recent stock market history:

Monday, October 19, 1987 is known as "Black Monday" because it was the largest single-day crash in the post-Depression era.

So, according to the Minyanville article, hedge fund managers see a crash coming....

Jon Markman of Markman Capital Insight has been talking to a lot of fund managers, and they see a lot of similarities in the way the market (S&P 500) is behaving these days and how it behaved in the run up to the '87 crash.
"Now these managers think the next set of steps would be a sharp decline on Thursday or Friday, a series of 0.5% to 1% single-day declines next week, followed by a plunge, let's say, next Friday and a crash around March 15,” Markman writes.

They have a scary looking chart to go along with this speculation.

But the managers that Markman has spoken with see many fundamental and economic similarities between then and now, so it's more than just an eerie chart they say.

Here's a list of those similarities:

  • legislation that could cause investors to dramatically lower their estimates of stock values



  • a lack of liquidity



  • a sense of overvaluation after a steady recent advance



  • revelations of a massive budget deficit



  • expectations of a sharp fall in the value of the dollar and an expectation of higher interest rates


They also interviewed Mike O’Rourke, chief market strategist at BTIG, and he sees things differently.
"He doesn’t see any indications that this stock market is ready to take such an awesome tumble.

“I see the market as in a recovery rally,” the strategist tells us. “Liquidity has slowed down and dried up, but that’s because we had a nice rally and now we’re consolidating and building a base.”

Who's to say who is right? Even Markman admits “There isn’t enough data.

Time will tell who's view is the correct one, but it's never a bad idea to nudge your stop losses up a little to act as a safety net.

Tuesday, March 9, 2010

Forget Gold. Look To Commodities Etfs, Agriculture And Lead Instead. (VIDEO)

Famed investor and best-selling author Jim Rogers was interviewed by Yahoo!'s Tech Ticker back in October 2009, and he's still bullish on commodities, but not so much on gold. Here's the 30-second takeaway from the video:



  • Individual investors should focus on commodity ETFs, unless they have a deep understanding and interest in commodities futures trading.

  • Forget gold, and invest in other material instead like lead, zinc, copper and silver.

  • Agriculture is the next big crisis, with the Food and Agriculture Organization warning countries that the world is one disaster away from a major food shortage in much of the world.



  • "I think I'll make money in other commodities that are more useful."





Rogers owns gold, but he not very bullish on it. I think his argument against gold is a good one. He basically thinks that it has some intrinsic value, but only from a subjective point of view. It simply isn't as practical a metal as lead, zinc or silver. And because gold "is mystical to many people", it's garnered the lions share of attention, but that also means there's less upside potential than there is in more over looked, less attractive metals.



"most agricultural products are still depressed on a historic basis."



Speaking of useful commodities, Rogers is quite bullish on agricultural commodities. Rogers sees a vast lack of supply, and calls it a looming catastrophe. He thinks that the world is in for a period ahead when some parts of the globe won't be able to get food at any price.



"The story is not over, not for a while. I don't see any reason it's going to be over for a few years because no one is bringing new supply on stream."



Is Jim Rogers right?




Who knows? But he was right when he called a global commodities rally in 1999. And he presents sensible arguments to support his views on various commodities, which is more than I can say for many of the gold pushers that have been crawling out of the woodwork in the past 3-5 years.


Thursday, March 4, 2010

How Much Do Mutual Funds Really Cost?

Q. How much does it cost to own a mutual fund?

A. More than you think.

Most investors know about a fund's expense ratio, and use that attribute for comparing various funds before buying. But there are a host of hidden costs that are much more difficult to uncover for many mutual funds.

That's what this article from the Wall Street Journal is about.

These hidden costs are related to the buying and selling of the individual securities held by the mutual fund, and they can make a fund 2-3 times more costly than the expense ratio alone would imply. That can be a pretty significant amount on a fund with an expense ration in the 1-2%.

While the expense ratio is an important consideration when pricing a fund, it simple doesn't capture all the costs. The reason is that every mutual fund and its associated expenses is different. Then there's the complex nature of the costs not covered by the expense ratio, specifically: brokerage commissions, bid-ask spreads, opportunity costs and market-impact costs.

And since the SEC has yet to mandate any unified form of measurement, the individual is left to try and scrutinize the often inscrutable. Even most experts arrive at drastically different estimates of the true cost of mutual funds.

So how do you find the true cost of mutual funds?


While it is difficult to get at the information required to determine the exact cost of a mutual fund, it turns out that the fund's Annual Holdings Turnover ratio is a pretty good clue. While it is an imperfect measure, it is a standard measure. So, every fund must report this data the same way.

A fund's annual turnover ratio is the percentage of assets that were replaced over the past year. So if the fund's manager sold half its stocks and replaced them with an equal value in new stocks would have turnover of 50%. This is an imperfect measure though because in some cases, a fund can take in a lot of new money and not have to sell any assets to buy new ones. In such a case, the fund would incur additional buying costs that would not be accounted for in the expense

Wednesday, March 3, 2010

An Energy Infrastructure Stock To Watch - EPD: Enterprise Products Partners.

Enterprise Products Partners L.P. (EPD) provides services to producers and consumers of natural gas, natural gas liquids, crude oil, and petrochemicals. It's clients are in the continental United States, Canada, and Gulf of Mexico. EPD also develops pipeline and other energy infrastructure, and it's got a high yield and has been diversifying through acquisitions, which makes it worth looking into if you're looking for income and growth.









Enterprise Products Partners L.P. (EPD) Dividend History.


Here's a look at EPD's dividend history over the past five years:
































YearDividendYield
2009$2.188.15%
2008$2.098.36%
2007$1.9166.01%
2006$1.7966.2%
2005$1.666.91%

Even though the price has risen about 15.5% over the past 6 months, it still sports an attractive 6.90% yield and has a lot of upside potential if energy demand soars again like it did in the early part of 2008. After the fall in energy prices, Enterprise Products Partners saw its share price slashed with other oil and gas stocks even though it has a fairly limited exposure to commodity price changes of the underlying energy source. It is mostly an energy product transporter and facilitator, which means its costs are relatively fixed as compared with those of energy explorers.