Saturday, February 28, 2009

Another Rough Week

The longs got killed again. Down goes Citi and BofA with Wells to follow. I'm still a believer in the insurers, but it may take a while. By the way, when I say insurers, I mean P&C and life insurers. See my previous post. For those who can stick with it, 3 to 5 years from now will see significant returns. For those who believed so called experts who told them to buy and hold and forget about it, well if you did that 12 years ago, guess what, you're back at Go, aka, the starting line. Hope you've got at least another 12 years before you retire.

Alert, Bristol-Myers is at about $18 with a safe 6.5% yield! Payout ratio under 50% and they generate a ton of cash.

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Tuesday, February 24, 2009

2011

Keeping with my previous theme of getting set up for 2011, commodity names should be near the top of every list. Unlike some, I don't think commodities will reach the stratosphere in record time, as hedge funds helped fuel the last commodity boom and I don't see them playing as significant a role this time around. Even without all the hedgie money, commodities will move up significantly over the next few years.

Consider this, 1) infrastructure projects of all types will be in the pipeline soon, per the current administration 2) money is cheap, although banks aren't passing it along, yet 3) commodity stocks are trading at dirt cheap prices, as they were beaten down when hedge funds were forced to de-leverage.

Types of companies I like include coal, oil, and yes fertilizers names. Coal is critical to just about all type of real investment in infrastructure and energy, as coal is used by steel companies and energy companies world wide. In fact, coal represents a majority of world wide energy production. Oil was run up by speculators, even though they deny it and now has been knocked down by speculators and let's not forget the connection between oil and the value of the dollar (another conversation for another day).

Oil is a limited resource and the world has an unquenchable thirst for it. Many oil producing countries can't make a profit with oil at these levels, so expect some of them to make further cuts in production. Also, when things get turned around next year and I do mean next year, for get all this talk about Summer 2009, we'll go back to driving our SUVs and demanding our share of the world's production of oil and our share is more than any other country's share.

As far as the fertilizers, they actually make money, are growing profits, have traded at ridiculous valuations over the past few months, and the only reason growth has slowed is because foreign farmers can't get the loans they need to buy product (I heard this from the CEO of Mosaic). Also, in case any isn't paying attention, the price that China will pay for potash next year will be significantly higher than last year, maybe 30%! That would be similar to the increase in price for Korea and Japan. By the way, potash is like oil, there's only so much of it, it's not made in some lab.

Enough said. Here are some of the names, BTU, ACI, PBR, RIG, SLB, POT, MOS. Actually, that's some of the symbols.

One more thing, you know people have no idea where we are in the cycle when the say, "second half" recovery. That's just a guess. These are the same people who said the recession would be short, a year and 2 months later, the depression is still on us. We're getting set up for 2011.

Disclosure, long ACI, PBR. Closed out MOS and POT, but looking to re-acquire at lower levels soon.

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Saturday, February 21, 2009

Insurers

Like many people, I believe we're presented with the buying opportunity of our generation, that being the 25-50 crowd. There are so many opportunities to buy great companies with great growth prospects and great (safe) yields.

Had you told me 2 years ago I could have bought companies like Intel (INTC), Bristol-Myers (BMY), Verizon (VZ) and collect dividends yielding 4.4%, 6%, and 6.6% respectively, I would have laughed.

I have to believe the best opportunity around are the insurers, like Aflac (AFL), Hartford (HIG), Prudential (PRU) and others. They've been taken down with the banks, but their business is different and so are their balance sheets. Don't be fooled and group them with AIG, as AIG was just as much bank as it was insurer.

Something to consider when conducting your due diligence, banks have many long term assets and many short term liabilities, while insurers have many long term assets and long term liabilities. For banks, this increases the volatility in assets, raises liquidity questions, and increases the credit risk and is rightfully so reflected in the stock price.

While insurers have been taken down with banks, I believe this to be short term. An insurers liabilities are long term, as the typical insurer takes no short term deposits and pays out when there is a claim (long term). In addition, funding is typically long term. Insurers should be a part of any long term portfolio allocation strategy. Don't fall for this talk of variable annuities or equity index annuities taking them down, as again, this volatility is short term.

I'm a buyer of insurers. Disclosure - long HIG, AFL.

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Thursday, February 19, 2009

Value

Here's one of the more undervalued companies I've found and worth taking a closer look. It's in a growing industry - wireless broadband devices, forward P/S=.26, mrq P/B=.3, cash per share=2.6, cash per share including short term investments=6. For the past 5 years this company has grown at 20% and should continue, post recession/depression. Did I mention ZERO debt and even in this environment they actually continue to generate cash from operating activities. Forget about short term volatility, get set up for 2011! Sierra Wireless SWIR trading at about $3.5 per share today. (disclosure - long)

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The Vix

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Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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