Barrett Business services stock has been cropped by Wall St. from $27 last summer all away down to a new 52 week low today at under $12/share. This was apparently in response to the Q1 2008 conference call describing a dramatic drop in earnings compared to Q1 2007 $0.15--> $0.01/share fully diluted and guidance that the Q2 EPS will be about 50% of the comparable value from 2007 Q2.
Despite this, BBSI's balance sheet is extremely strong with no bank debt, 30% insider ownership and recent insider buying. Fundamentals are very compelling P/E 9 P/B 1.2 Dividend 2.7% with a payout ratio of only 23%, great free cash flow of $13 million/year and double digit ROE.
The management is well respected, in particular the CEO Bill Sheretz, who has a lot of "skin in the game". He is the largest shareholder (3.6 Million shares).
The major vunerability of this pick is that it is maximally exposed to the area of the USA hardest hit by the recession economics: California.
If the management can control costs and maintain scalability of their business plan, I expect that they will survive this downturn even if it is prolonged by several years and go on to reward the long term investor.
I have bought small increments at $16, $15 and $12.
Motley Fool's view
l
Tuesday, April 29, 2008
Monday, April 28, 2008
Kenyon v.s. analysts
Time to Upgrade Wal-Mart (the first 35% doesn't count)
April-26-2008
While scanning my daily emails from several brokerage houses this morning, I came across another example Wall Street analytical rigor. It seems Merrill's retail "analyst" decided it was time to upgrade Wal-Mart (ever heard of them?) to a BUY rating today.
Now THAT my friends is some Grade-A Wall Street Value-add! If by chance you have been following Wal-Mart's (WMT) stock price recently, you will see that it is at a 4-year HIGH, and that this analyst missed the 35% gain since August 2007 - but better late than never I guess, so today it's a BUY!
Let me see - is it "buy high sell low"... ? Or maybe it's "sell low, ignore higher, buy high"! That's what Merrill's crack "analyst"seems to think. If you take a peak at the chart in the back of the report, the one required now in the back of every analyst report, you can see a history of the analyst's ratings on the stock. Here is how this analyst did:
Dec. 6 2005 - ratings upgrade from Neutral to Buy, stock price 47.62
18 July 2006 - rating downgrade to Neutral, stock price 43.17, stock LOST 9.3% while rated buy vs. S&P500 loss of 2.1%
16 March 2007 - upgrade to Buy, stock price 46.21, a GAIN of 7% while rated neutral vs. S&P500 gain of 12.1%%
14 August 2007 - downgrade to Neutral, stock price 43.82, a LOSS of 5.2% while rated buy vs. S&P500 loss of 2.9%
30 August 2007 - downgrade to Sell, stock price 43.32, loss of 1.1% while rated neutral vs. S&P500 gain of 2%
26 Oct 2007 - Upgrade to Neutral, stock price 44.64, gain of 3% while rated sell vs. S&P500 gain of 5.3%
April 25 2008 - upgrade to Buy, stock price 57.45, GAIN of 28.7% while rated neutral vs. S&P500 loss of 9.4%
Summary:
While rated BUY, the stock LOST 9.3% and 5.2%
While rated NEUTRAL, the stock gained 7%, lost 1.1%, and gained 28.7%
While rated SELL the stock GAINED 3%
One heck of a record! The fact that she just upgraded to BUY is making me take a closer look at my WMT holdings. I trimmed a little recently in a managed account that was overweight, but continue to hold in other accounts. I think it is nearing fair value at current levels, so I am considering trimming further.
What this points out however is that much of Wall Street's ratings "upgrades" and "downgrades" are nothing more that backward looking momentum calls or shallow extrapolation of recent trends. The only value they create is for themselves in the form of commissions generated from speculative trading activity.
Just another example of why we should avoid the noise, and simply buy good companies when they look cheap and sell them when they look expensive.
Sunday, April 27, 2008
Tuesday, April 22, 2008
Marty Whitman's first principles of value investing
April-22-2008
Marty Whitman's "Strategy"by Todd Sullivan
Regular readers kow I am a fan of Whitman and hold a position in his Third Avenue Value Fund (TAVFX). Considering the funds 15% annual return since 1990, it just may pay to listen to what he has to say. In a shareholder letter, Whitman disclosed the five elements he says are the key to his success.
They are: buy cheap, buy quality, buy to hold, buy with minimal expenses, and buy without leverage (margin).
*Buy to hold: Stick with the stock and do not sell just because the price drops. Unless, “there has occurred a permanent impairment in underlying value" of a stock.
*Buy with minimal expenses: Reduce taxes and trading costs by having the patience and confidence to hold. One of the largest drains on investments not considered by investors are commissions and taxes. For example: An investor has a stock that goes from $10 to $20 and sells. His return is $10, correct? No. Assuming he is in the 28% tax bracket his actual return on the sale is $7.20 ($10 - 28%) after taxes and even less when commissions are factored in. If he decides to buy the stock back he must wait for an in excess of $2.80 a share drop in order for the trading to be worth it.
*Buy without leverage: Means do not use margin. “While leverage can increase your returns in good times,” he says , “it will dramatically increase your losses in bad times.” Much of the recent angst of investors at Bear Sterns (BSC), Merrill Lynch (MER) and other banks has been due to excessive leverage. Too much leads to forced selling into depressed markets and destroys returns.
*Buying cheap: Cheap, or, “issues at prices that reflect substantial discounts from readily ascertainable NAVs (net asset values) … (and whose) NAVs will increase by not less than 10% per year compounded".
*Buying quality: Whitman defines it as a strong financial position, competent management, and a business that is “understandable … plus lots of cash and a high level of insider ownership … with some type of competitive advantage”. A very Buffett like strategy and a very simple one filled with common sense. For more on Whitman's thinking, visit the Fund's site here.
Marty Whitman's "Strategy"by Todd Sullivan
Regular readers kow I am a fan of Whitman and hold a position in his Third Avenue Value Fund (TAVFX). Considering the funds 15% annual return since 1990, it just may pay to listen to what he has to say. In a shareholder letter, Whitman disclosed the five elements he says are the key to his success.
They are: buy cheap, buy quality, buy to hold, buy with minimal expenses, and buy without leverage (margin).
*Buy to hold: Stick with the stock and do not sell just because the price drops. Unless, “there has occurred a permanent impairment in underlying value" of a stock.
*Buy with minimal expenses: Reduce taxes and trading costs by having the patience and confidence to hold. One of the largest drains on investments not considered by investors are commissions and taxes. For example: An investor has a stock that goes from $10 to $20 and sells. His return is $10, correct? No. Assuming he is in the 28% tax bracket his actual return on the sale is $7.20 ($10 - 28%) after taxes and even less when commissions are factored in. If he decides to buy the stock back he must wait for an in excess of $2.80 a share drop in order for the trading to be worth it.
*Buy without leverage: Means do not use margin. “While leverage can increase your returns in good times,” he says , “it will dramatically increase your losses in bad times.” Much of the recent angst of investors at Bear Sterns (BSC), Merrill Lynch (MER) and other banks has been due to excessive leverage. Too much leads to forced selling into depressed markets and destroys returns.
*Buying cheap: Cheap, or, “issues at prices that reflect substantial discounts from readily ascertainable NAVs (net asset values) … (and whose) NAVs will increase by not less than 10% per year compounded".
*Buying quality: Whitman defines it as a strong financial position, competent management, and a business that is “understandable … plus lots of cash and a high level of insider ownership … with some type of competitive advantage”. A very Buffett like strategy and a very simple one filled with common sense. For more on Whitman's thinking, visit the Fund's site here.
Saturday, April 19, 2008
Insider trading and Home Depot HD
Insider buying (particularly BIG time buying) is just one of several important factors you need to take into account before investing in a company.
What caught my interest today is an SEC registration of an officer of Home Depot who purchased 1.2 MILLION shares ($30 Million worth) at a share price of $25/share March 17, 2008. Now that would be a big bet for almost anybody.
HD's valuations are very attractive i.e. P/E of only 7 and its dividend yield is decent at about 3%. Debt:Equity is a little high at 0.7 and I'd like to see a better current ratio than 1.1.
Definitely worth watching particularly if the share price sinks again. The recent stock price rally in both the USA and Canada will most likely collapse yet again as the underpinnings of this recession continue to unwind over the next 6-18 months. This will provide the best entry point for quality companies like HD or perhaps even more so for its much more rapidly growing competitor Lowes (LOW is just as cheap as HD but has a better balance sheet).
l
What caught my interest today is an SEC registration of an officer of Home Depot who purchased 1.2 MILLION shares ($30 Million worth) at a share price of $25/share March 17, 2008. Now that would be a big bet for almost anybody.
HD's valuations are very attractive i.e. P/E of only 7 and its dividend yield is decent at about 3%. Debt:Equity is a little high at 0.7 and I'd like to see a better current ratio than 1.1.
Definitely worth watching particularly if the share price sinks again. The recent stock price rally in both the USA and Canada will most likely collapse yet again as the underpinnings of this recession continue to unwind over the next 6-18 months. This will provide the best entry point for quality companies like HD or perhaps even more so for its much more rapidly growing competitor Lowes (LOW is just as cheap as HD but has a better balance sheet).
l
Friday, April 18, 2008
More on Cemex
A multinational infrastructure company covered in detail previously on this blog. It's weathering the North American recession well as a result of overseas growth.
It remains an excellent long term buy.
A well reasoned recent analysis here: half priced stocks
It remains an excellent long term buy.
A well reasoned recent analysis here: half priced stocks
RSC nixed and a new one to consider...
RSC's case is a perfect example of Peter Lynch's "Di-worse-ification"-- a company delving into a new business that it does NOT understand in a desperate attempt to achieve more growth rather than improving on their existing businesses. Although the valuation of this company is compelling, the business plan frankly sucks and I wouldn't buy it.
On the other hand, American Eagle Outfitters AEO has definitely caught my eye. It's at 52 week low share price and 5 year low P/E of 9, no debt, a strong brand and strong management.
Joe Pozio's analysis is here Note it starts in July 2007 but follow the comments section all the way to the bottom for more recent interpretations.
Another detailed perspective.
l
On the other hand, American Eagle Outfitters AEO has definitely caught my eye. It's at 52 week low share price and 5 year low P/E of 9, no debt, a strong brand and strong management.
Joe Pozio's analysis is here Note it starts in July 2007 but follow the comments section all the way to the bottom for more recent interpretations.
Another detailed perspective.
l
Sunday, April 13, 2008
Guru Bill Nygren's recent comments about the current market conditions
Another much admired and successful investor:
| Commentary on The Oakmark and Oakmark Select Funds 3/31/2008 |  |
| “More than any time in history, mankind faces a crossroads. One path leads to total despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.” |
|
I guess Woody Allen wouldn’t be an uplifting commencement speaker. But his view of the world, almost thirty years later, seems to be the dominant view in today’s commodity and credit markets. If prices in those markets reflect fundamentals, then we are facing a future of materials shortages and unprecedented bankruptcies. If one looks at Main Street instead of Wall Street, the picture, though far from perfect, looks much brighter. Businesses are profitable, unemployment is low and consumer spending remains at reasonable levels. Is it possible that market forecasts could be that far off the mark?
As large shareholders in JP Morgan, we took more than a passing interest in its agreement to purchase Bear Stearns. Bear opened its doors in 1923, survived the Great Depression and grew into one of the world’s leading securities firms. Like many other financial services firms, Bear had heavy exposure to home mortgages because those securities historically had very low default rates. Like many of its peers, Bear’s 2007 earnings were nearly erased by mortgage losses, and its stock price was cut in half, closing the year at $88. By Thursday, March 13, Bear stock had fallen to $57. Up to that point, you could have substituted quite a few financial company names for “Bear Stearns,” and the story would have hardly changed. On Friday, March 14, however, Bear’s story sharply diverged from the others. Rumors that Bear had a liquidity problem caused customers to search for safety and move their funds to other firms. The stock price was again cut in half to $30. In that one day, Bear’s liquidity problems sharply increased as it needed to sell assets to fund withdrawals. The downward spiral had gone too far to be reversed. On Sunday, JP Morgan agreed to rescue Bear Stearns for $2 per share. A run on the bank had virtually wiped out the stockholders. Did the short sellers profit from being quick to identify a fire raging out of control, or had they spotted a spark and thrown gasoline on it? The answer to that question will be an important one to those calling for more regulation. To the stockholders, whether or not Bear was insolvent on Thursday had become irrelevant. On Sunday it was. Fearful investors had forced the outcome. At least it was one of our companies, JP Morgan, that was positioned to take advantage of an amazing bargain (even at the revised price of $10 per share).
There is a tremendous amount of fear in today’s markets. Some portion is due to real economic events. The future for home prices is clearly not the straight upward march it used to be. With average home prices already down 10% from their peak and many homeowners having borrowed as much as their banks would allow, credit losses are certainly increasing. But are loss rates really going to be as high as the bond market is predicting? We normally like to use market prices as estimates for macro variables such as bond default rates, future inflation rates, or energy costs. We assume that those markets incorporate their specific experts’ best thinking and that our time would be more productively spent analyzing individual companies. However, the magnitude of gaps we now see between price and value across many markets has made it imprudent to simply use current market prices for our forecasts.
In his New York Times column last month, Ben Stein argued that today’s economy is not in such bad shape, but rather, “the new part is the hedge funds and the changing of Wall Street from a financing entity to a market manipulation entity.” In its cover story “Guess Who’s Behind the Commodities Boom,” Barron’s argued that the increase in most commodity prices had less to do with changes in supply and demand than it did with increased investment by institutions who now consider commodities an asset class deserving of a higher portfolio allocation. Barron’s states that most long positions are held by speculators and most shorts are held by suppliers. This implies that if commodity market participants were limited to producers and consumers, prices would almost certainly be much lower. A recent article in the Wall Street Journal examined the role short sellers play in stock price declines. In July of last year the short sale rules were changed to make it easier to sell short stocks that were already falling. The article quoted legendary fund manager Marty Whitman, who said “In my 58 years in the market it has never been easier to conduct bear raids.” As these articles suggest, there are numerous examples of large pools of new capital whose investment rationale is unrelated to estimates of intrinsic value. In the long run, the resulting higher price volatility should improve the opportunities for investors like us, but in the short run it requires more suspicion of the assumption that any given day's market price reflects long-term fundamental reality.
As shown by Bear Stearns, the market today is extracting a large toll from forced sellers. Though we always discourage short-term investing, we believe that such advice is especially important now. The gaps between price and value in a fearful market can become very large. If you have to sell stocks by a certain date, the risk is high that you might not get full intrinsic value for those shares. As always, we believe that equity investors, including those in mutual funds, should only invest capital that can remain invested for at least five years. We also don’t ever want an Oakmark fund to be a forced seller. That’s why we keep a percentage of each of our mutual fund’s assets in cash equivalents. Some argue that funds should invest every last dollar to prevent cash from being a drag, but we believe that by holding some cash we not only avoid the cost of forced selling, but we are positioned to benefit when other sellers become desperate.
The financial media is painting a picture that is similar to the Woody Allen quote at the beginning of this report: If the Fed acts aggressively then we are doomed to a future of hyper-inflation and a permanently declining dollar. If the Fed doesn’t act, then there is no bottom to the housing market and we are headed toward a depression. We hope they have the wisdom to choose correctly! As you might guess, our view is not so dire, and is in fact quite positive. We find it encouraging that the Fed is thinking outside the box and directly targeting the problem of financial market illiquidity. More importantly, we believe that the dividend yield of the S&P 500 now equaling the five-year Treasury yield is a significant sign of undervaluation. When the front page news is so negative, there is a high probability that the reality won’t be as bad as feared. In 1995, the financial author John Train wrote The Craft of Investing. Five years ago I cited a section from his book that described a typical market bottom. I think it is worth revisiting:
“At a major bottom, current business news is usually terrible and many authorities feel that things are likely to get even worse. There are several spectacular bankruptcies, of international importance. Unemployment is usually up. There is usually some grave unresolved national problem that is bothering everybody. The brokerage business itself is likely to be in the dumps, with many bankruptcies. Big “producers” of the up years have to cut back on their lifestyles. Wall Street’s own desperation reinforces the syndrome. When in a market collapse everything finally caves in during a few catastrophic days and weeks, there is an almost audible flushing effect. Stocks are hurled into the abyss, like the cargo of a sinking ship that the crew is desperately trying to save. Value means nothing.”
To me, the Bear Stearns collapse was “an almost audible flushing effect.” There is, of course, no guarantee that things won’t get worse, but this environment seems to closely parallel Train’s description of a bottom. Time to buy?
William C. Nygren, CFA
Portfolio Manager
oakmx@oakmark.com
oaklx@oakmark.com
New Stock to Study: RSC
Tim Plaehn's analysis here
I'm gathering information for my own take-- this usually takes a week or so.
l
I'm gathering information for my own take-- this usually takes a week or so.
l
Friday, April 11, 2008
Housing article from G&M
I think that heavy insider buying amongst the homebuilders in the US is important information. One cannot predict the market easily or consistently for the short or immediate term. I guess that if we could somehow know for certain that we were at the beginning of another Great Depression v.s. what we think is really just a Great Moderation, our cash portion of the portfolio would be a wee bit higher than it is now, right?
Read this ROB article. It may reassure you.
Read this ROB article. It may reassure you.
Time is the friend of the wonderful company, the enemy of the mediocre.
In times like these, one needs to think like an owner rather than a generic shareholder. Do you consider selling your house every time your annual assessment drops or stays flat? Do you check the market value of your house every hour, day or week and fret when it doesn't go up steadily?
One should think the same way about quality wide moat companies as the homeowner's house. Most people actually only own a small share of their home (the bank owning the balance) so the analogy to the partial ownership of a public company through common shares holds.
One such company is Onex Corporation: OCX (TSE) a company that I view as Clarke Inc. (CKI)'s big brother
Profile: Legendary value investor Gerry Schwartz is the largest shareholder as well as the CEO and Chairman of the board of directors for this diversified Canadian holding company. It has a private equity arm which utilizes leverage heavily to buy out undervalued companies and 2 others subsidiaries which own various private and public companies such as Spirit AeroSystems, Sitel and Celestica. It also has developed an asset management firm that raises third party capital through limited partnerships and generates income for the parent company (OCX) by generating management/performance fees.
Like Clarke Inc (CKI) discussed at length previously, one has to be cautious using traditional valuation metrics to assess investment holding companies like Onex.
P/E, P/B, P/S ratios can easily be distorted by realizing one time gains from a previous investment. Thus when financial holding companies sell what they feel is an overvalued investment in a bull market, the P/E ratio drops because a large capital gain shows on the balance sheet and is calculated into the earnings. OTOH, during a bear market such as we are seeing now, the company is buying undervalued assets and holding their previous investments to sell later, in better times. The P/E ratio will rise, assuming their is not a huge sell off of the company's shares at that time (unlikely because of the high % of insider ownership), making the valuation look more expensive. So unlike many secular businesses with more or less continuous cash flow, the P/E multiple is often HIGHER when the company is a good value and LOWER when it is cheap. The use of NAV (net asset value) for valuation is a more appropriate metric and for value investors, the larger the discount to NAV, the cheaper the security is.
Bull Case for Onex Corp:
1. Remarkable track record for creating shareholder's value-- see chart at the top of the page. 10 year share price growth is 422% v.s. TSX of 147%.
2. Management's interests squarely aligned with shareholders. 28 Million shares = $1.4 Billion owned by insiders market cap $4 B. Options can only be exercised if 25% strike price and 25% of the carry realized must be reinvested in Onex stock and held until retirement---> management is highly motivated to make LONG TERM, sustainable profits.
3. No attributable debt for parent company. Individual debt attributable to each major investment is non-recourse to Onex-- a similar setup as with BAM (see previous posts).
4. Current portfolio is well diversified: 22% cash ($770 million), 14% private companies, 20% public companies, 44% limited partnerships. Healthcare and US industrials overweighted. Onex has set up funds to invest in distressed debt and US real estate-- a contrarian move that impresses me particularly since they initiated this strategy earlier than competitors-- August 07.
5. NAV conservatively calculated to be $32.86/share (10% discount). RBC analyst calculates FMV at $44 mostly due to overlooked profits from 3rd party management fees.
6. Aggressive stock buy backs when shares trading at discount to NAV. Has bought back and cancelled 34.2 million shares at an average share price of $19/share over the last 2 years. Another buyback is occurring right now.
7. Income from recent divestures and cash flow from 3rd party management fees plus a large surplus of cash on hand positions OCX to snap up more deep values plays.
Bear case for Onex Corp:
1. Cash balance is in US$ and high degree of US equity exposure. As the US bear market unravels further, this could diminish NAV accordingly.
2. Credit for near term large private equity finance deals will be trickier to arrange.
3. A large proportion of the company's direction and prospects rely on a single individual-- the CEO Gerry Schwartz. He is the controlling shareholder and is essentially immune to activist investor influence due to the share structure of this company.
4. Possible acquisition valuations are in flux so short term NAV/book appreciation uncertain.
Onex is definitely a stock to study. I've put in a small bid for $30 and hope to add to it over the next 12 months. Target price-- $60--$70
l
Wednesday, April 9, 2008
HOG & PHG
Updates continued:
Harley Davidson HOG-- as expected, the share price volatility remains high as the short and intermediate term economic view's gloom dominates the headlines. HOG's management in the meantime has made some tangible headway including negotiating a partial tariff reduction on export to the growing middle class demand for bikes in India and settling with the North American unions contract demands without the usual animosity and negative press most companies get every 4 years. EPS and gross revenues remain flat to slightly negative in N.A. and are growing 20-30% yoy overseas. Inventories are being tightened up (finally). There is concern about rising defaults in the financial division; however, it only represents a small portion of HOG's revenues and management has taken steps to limit the fallout. The balance sheet is still superb (despite my previous concerns that HOG was using debt to finance large share buy backs) and the current ratio is just below 2------ definite margin of safety. At a share price of $37 it trades at a 30% discount to its Morningstar FMV. The economic moat remains wide and its long term potential is good. Gurus agree with me: 4 highly respected successful investors have recently bought very large quantities of stock for their portfolios. I plan to hold for the very long term (as I do with all wide moat stocks) and add to positions if there are dips into the low $30's and high $20's (hopefully). Read another analysis with lots of pretty graphs and stuff here.
Royal Phillips Electronics PHG-- this european giant is a play on clean, sustainable energy. The management has recently cleaned up its balance sheet with the huge amount of cash from the sale of Taiwan Semiconductor and made some carefully planned acquisitions including Respironics and Genlyte. It is now the biggest lighting company in the USA (ironic as it's a Dutch co.). Mgt is focusing on high margin products and the lucrative LED business-- many countries like Australia are banning incandescent light bulbs over the next 5 years and PHG is well positioned to profit from this. Phillips' medical division has been suffering as medicare reimbursements in the US have been squeezed by the gov't and the HMOs. It's difficult to know what the trend for this area will be when a new president and possibly a new party comes into power later this year.
Harley Davidson HOG-- as expected, the share price volatility remains high as the short and intermediate term economic view's gloom dominates the headlines. HOG's management in the meantime has made some tangible headway including negotiating a partial tariff reduction on export to the growing middle class demand for bikes in India and settling with the North American unions contract demands without the usual animosity and negative press most companies get every 4 years. EPS and gross revenues remain flat to slightly negative in N.A. and are growing 20-30% yoy overseas. Inventories are being tightened up (finally). There is concern about rising defaults in the financial division; however, it only represents a small portion of HOG's revenues and management has taken steps to limit the fallout. The balance sheet is still superb (despite my previous concerns that HOG was using debt to finance large share buy backs) and the current ratio is just below 2------ definite margin of safety. At a share price of $37 it trades at a 30% discount to its Morningstar FMV. The economic moat remains wide and its long term potential is good. Gurus agree with me: 4 highly respected successful investors have recently bought very large quantities of stock for their portfolios. I plan to hold for the very long term (as I do with all wide moat stocks) and add to positions if there are dips into the low $30's and high $20's (hopefully). Read another analysis with lots of pretty graphs and stuff here.
Royal Phillips Electronics PHG-- this european giant is a play on clean, sustainable energy. The management has recently cleaned up its balance sheet with the huge amount of cash from the sale of Taiwan Semiconductor and made some carefully planned acquisitions including Respironics and Genlyte. It is now the biggest lighting company in the USA (ironic as it's a Dutch co.). Mgt is focusing on high margin products and the lucrative LED business-- many countries like Australia are banning incandescent light bulbs over the next 5 years and PHG is well positioned to profit from this. Phillips' medical division has been suffering as medicare reimbursements in the US have been squeezed by the gov't and the HMOs. It's difficult to know what the trend for this area will be when a new president and possibly a new party comes into power later this year.
The list of Graham Criteria stocks in the US market is growing!
A sign of market capitulation, or close to it as most years only a couple stocks meet the extremely strict Graham way criteria. Remember that he developed this approach during the dirty 30's/Great Depression and beyond, when cheap well capitalized companies were everywhere!
I haven't seen this many opportunities since 2001.
Remember to research each stock carefully-- this involves reading the most recent annual report, at least the most recent quarterly report and transcript of the conference call as well as nosing around for as much 3rd party objective analysis you can find about the company (avoiding traders like the plague). It's boring but effective work.
I haven't seen this many opportunities since 2001.
Remember to research each stock carefully-- this involves reading the most recent annual report, at least the most recent quarterly report and transcript of the conference call as well as nosing around for as much 3rd party objective analysis you can find about the company (avoiding traders like the plague). It's boring but effective work.
35 Stocks That Ben Graham Would Like Here
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Benjamin Graham is widely regarded to be the founder of modern value investing.
Tuesday, April 8, 2008
Update on some portfolio stocks
The last 2 weeks have produced some tangible gains across the entire portfolio with the exception of DELL-- Wall St. and individual investors tire of waiting for Mr. Dell to execute his turn around and cost cutting measures.
My take on some recent information concerning stocks discussed earlier in this blog:
I have just read the Q4 BBSI conference call and the annual report for SEB and am more convinced than ever that they remain excellent long and intermediate term investments. As they have both made relatively large share price gains very recently, I hope to wait for a pull back to add to existing positions.
HOG, PHG, SPLS, COV commentary to come soon.
l
My take on some recent information concerning stocks discussed earlier in this blog:
- DELL-- worth waiting for as its balance sheet only improves from a previously strong position and it grows overseas. I intend to double my stake at $19 or below and it's hanging just above that now.
- COLM-- was downgraded by a Citi analyst a few days ago on speculation that back orders have fallen off. Fundamentals and balance sheet are both extremely strong as is the opportunities in Europe and Asia. A senior officer (the COO) resigned recently and it's difficult to attach significance to this, but it always gets my attention. Very strong insider buying going on. Holding for 18 months+
- Schering-Plough SGP-- has spiked up from $14 (my entry point) to just under $17 after the market realized that the huge 26% sell off reaction to the cardiology panelists' comments on Vytorin was not justified. Several analysts (including Morningstar, my favourite) models suggest that SGP is worth $30/share with Zetia and Vytorin sales dropping to zero-- which they will not. What academic cardiologists/pharmacologists don't seem to realize is that adverse drug affects are much more important to patients than they are to doctors and many patients are prepared to pay more in order to avoid even nuisance side effects like cough and swollen ankles, particularly when these drugs need to be taken life-long. Many patients cannot tolerate statins, the cheaper and possibly slightly more effective competitive drug class. I doubled my stake at $14 and will hold for the long term in my RRSP.
- Legg-Mason LM--- despite Bill Miller having the worst quarter in 26 years in his Value Trust fund, LM has rebounded from $50 to $60. The new CEO recently bought $1000000 worth of common shares out-of-pocket and the gurus are buying LM aggressively. I have a fairly large stake in my RRSP and intend to hold for the long term.
- Brookfield BAM-- just completed a billion dollar share buy back. It continues to make careful acquisitions. It has increased slightly from a support level of $26 to $28 currently. I will happily buy more if and when it drops to $24 or less. This is also a very long term hold.
- Georgia Gulf GGC-- the Royal acquisition debt weighs heavily on the company's balance sheet and with many of its plants idled, cash flow is an issue. The share price has rallied on a hope and a dream that the US recession has peaked-- from $4 at its nadir to just under $8. It wouldn't take much bad news for the banks to call in their covenants/loans. I am hoping that the share price will come up to $10 (Morningstar's FMV) and then I will sell one third of my stake. After another quarter, I'll reassess whether to hold on to the remainder. If the economy turns around, I suspect that GGC will be acquired.
- Popular BPOP-- has rallied from it's nadir at $8 up to close to $12 and has continued to pay a generous dividend, while divesting itself of its underperforming mainland assets to pay down debt. It is still trading at below book value and has a "forward" P/E of 11 (estimates are duly pessimistic. Reasons to hold on to this one include the 5.65% dividend and the fact the bank is essentially a monopoly in its region (Puerto Rico). If it can survive the downturn, and it looks like it will as it is extremely well capitalized, one can expect the stock to increase by 50% or so to its FMV. I will hold for 18 months to 3 years. If the bank has not learned its lesson and starts to make stupid and expensive acquisitions on the mainland again, I will sell before that.
I have just read the Q4 BBSI conference call and the annual report for SEB and am more convinced than ever that they remain excellent long and intermediate term investments. As they have both made relatively large share price gains very recently, I hope to wait for a pull back to add to existing positions.
HOG, PHG, SPLS, COV commentary to come soon.
l
Monday, April 7, 2008
Moody's Revisited
I've done a full analysis of MCO previously and it is a core holding in my portfolio.
I found this clever and more recent assessment done by Mr. Ketul on his own blog. I believe that his calculations are sound and that MCO continues to be a classic contrarian play at $34/share and below.
See Mr. Ketul's blog post on Moody's here.
l
I found this clever and more recent assessment done by Mr. Ketul on his own blog. I believe that his calculations are sound and that MCO continues to be a classic contrarian play at $34/share and below.
See Mr. Ketul's blog post on Moody's here.
l
Sunday, April 6, 2008
Article from Financial Post about Benjamin Graham's principles
If you are interested in a higher risk commodity play, Sherritt may be interesting to you. Too much uncertainty for me. I think that the reward:risk ratio is favourable at any rate.
Stock selection narrows field to Sherritt Int.
Richard Morrison, Financial Post
Published: Friday, April 04, 2008
Bloomberg News, Kagan Mcleod, National Post
Each Friday, Richard Morrison, an editor at Financial Post and a longtime active trader, takes you through a variety of screening tools to help the individual investor find great stocks.
---
Benjamin Graham, the father of modern security analysis, was a professor at Columbia University, taught Warren Buffett and wrote the most famous -- and arguably the best -- book on investing, The Intelligent Investor, first published in 1949. In a chapter on stock selection for defensive investors, he said they should look for large, dividend-paying companies with little debt and a consistent record of profitability, whose shares trade at low multiples to earnings and book value.
We applied Graham's criteria to the Canadian market, using the FP Corporate Analyzer program to identify companies Graham would likely find attractive. We found nothing. To-day's markets are much loftier than they were in Graham's day, so those seeking established companies with undervalued share prices have to loosen his requirements a bit to find any U.S.-listed bargains. Rules have to be bent even further to find a Canadian candidate.
Large-cap stocks Graham said defensive investors should avoid small companies -- something that's easier to do in the United States than in Canada. For example, there are about 1,100 companies with a market capitalization of more than $1-billion on the New York Stock Exchange, but only about 250 common stocks and income trusts larger than $1-billion on the Toronto Stock Exchange (30 of which are interlisted on the NYSE). We placed the minimum market capitalization at the $500-million mark, giving us a universe of 323 stocks.
Current ratio Graham's candidate companies had to be able to easily handle their debt payments. To that end, the current ratio--current assets to current liabilities -- had to be at least two. Long-term debt should not exceed net current assets, or working capital. We plugged that criteria into the FP Corporate Analyzer and our field of candidates dropped to 92.
Earnings growth Graham insisted his candidate companies have some earnings in each of the past 10 years and have increased their earnings by at least one-third over the same period. The requirement was too strict and turned up nothing, so we modified the search to ask for those companies whose earnings had increased by at least 1% in each of the past five years. The result was only 19 names.
Graham's further requirement that candidates have uninterrupted dividend payments for at least the past 20 years also would have left us with nothing, so we asked only that our candidate paid a dividend.
Finally, we applied two more Graham criteria to our list: a price-to-earnings ratio of no more than 15, which knocked our candidates down to seven, and a price-to-book ratio of no more than 1.5. The result? One company, Sherritt International Corp. (S/TSX).
Sherritt, best known for its activities in Cuba, has interests in nickel, cobalt, coal, and oil and gas production, is the closest we got to a company that meets Graham's criteria.
Norman Rothery, founder of the Stingy Investor Web site (stingyinvestor.com) and the Rothery Report, a newsletter that focuses on value stocks, said he would have been shocked had any Canadian company met Graham's original qualifications. "You have to make approximations to Graham's original rules to get anything at all."
Sherritt has turned up on several of his screens, Rothery said, noting the company appears in an "all-star" list of best potential investments he compiled in MoneySense magazine. Sherritt scored an A for value and a B for growth.
Despite its deep value characteristics, stock screens won't turn up such things as political risk, which must be factored into Sherritt. Sherritt has a 50% interest with the Cuban government in the Moa nickel-cobalt open pit mine in Moa Bay in eastern Cuba. Originally owned by Freeport-McMorRan Copper & Gold Inc.,Moa was confiscated by the Cuban regime in the late 1950s. Moa's sulphides are shipped to the Fort Saskatchewan nickel-cobalt refinery north of Edmonton, providing most of its nickel feed.
Sherritt is a 40% owner and operator of the US$3.3-billion Ambatovy nickel laterite project in Madagascar, where production is expected in 2010. It also has oil and gas interests in Cuba, Spain and Pakistan.
Last month, Sherritt announced a plan to acquire the 59% of the Royal Utilities Income Fund it didn't already own. The fund controls Prairie Mines & Royalty Ltd., whose eight mines in Alberta and Saskatchewan supply coal to nearby generating plants. The company also announced plans raise $400-million in capital through a bought deal.
Eight analysts follow Sherritt -- six say buy, two say hold -- but most were lukewarm to the Royal deal, and many lowered their 12-month target prices, but even the most pessimistic expect the stock to reach $17 in 12 months. One, Ray Goldie of Salman Partners, has a $27.20 target.
Company specifics aside, Graham's criteria is still worthwhile, Rothery said.
"I've been running similar defensive-type screens for the Canadian MoneySaver magazine for several years, and it's worked very well."
Graham's metrics still apply
Stock selection narrows field to Sherritt Int.
Richard Morrison, Financial Post
Published: Friday, April 04, 2008
Bloomberg News, Kagan Mcleod, National Post
Each Friday, Richard Morrison, an editor at Financial Post and a longtime active trader, takes you through a variety of screening tools to help the individual investor find great stocks.
---
Benjamin Graham, the father of modern security analysis, was a professor at Columbia University, taught Warren Buffett and wrote the most famous -- and arguably the best -- book on investing, The Intelligent Investor, first published in 1949. In a chapter on stock selection for defensive investors, he said they should look for large, dividend-paying companies with little debt and a consistent record of profitability, whose shares trade at low multiples to earnings and book value.
We applied Graham's criteria to the Canadian market, using the FP Corporate Analyzer program to identify companies Graham would likely find attractive. We found nothing. To-day's markets are much loftier than they were in Graham's day, so those seeking established companies with undervalued share prices have to loosen his requirements a bit to find any U.S.-listed bargains. Rules have to be bent even further to find a Canadian candidate.
Large-cap stocks Graham said defensive investors should avoid small companies -- something that's easier to do in the United States than in Canada. For example, there are about 1,100 companies with a market capitalization of more than $1-billion on the New York Stock Exchange, but only about 250 common stocks and income trusts larger than $1-billion on the Toronto Stock Exchange (30 of which are interlisted on the NYSE). We placed the minimum market capitalization at the $500-million mark, giving us a universe of 323 stocks.
Current ratio Graham's candidate companies had to be able to easily handle their debt payments. To that end, the current ratio--current assets to current liabilities -- had to be at least two. Long-term debt should not exceed net current assets, or working capital. We plugged that criteria into the FP Corporate Analyzer and our field of candidates dropped to 92.
Earnings growth Graham insisted his candidate companies have some earnings in each of the past 10 years and have increased their earnings by at least one-third over the same period. The requirement was too strict and turned up nothing, so we modified the search to ask for those companies whose earnings had increased by at least 1% in each of the past five years. The result was only 19 names.
Graham's further requirement that candidates have uninterrupted dividend payments for at least the past 20 years also would have left us with nothing, so we asked only that our candidate paid a dividend.
Finally, we applied two more Graham criteria to our list: a price-to-earnings ratio of no more than 15, which knocked our candidates down to seven, and a price-to-book ratio of no more than 1.5. The result? One company, Sherritt International Corp. (S/TSX).
Sherritt, best known for its activities in Cuba, has interests in nickel, cobalt, coal, and oil and gas production, is the closest we got to a company that meets Graham's criteria.
Norman Rothery, founder of the Stingy Investor Web site (stingyinvestor.com) and the Rothery Report, a newsletter that focuses on value stocks, said he would have been shocked had any Canadian company met Graham's original qualifications. "You have to make approximations to Graham's original rules to get anything at all."
Sherritt has turned up on several of his screens, Rothery said, noting the company appears in an "all-star" list of best potential investments he compiled in MoneySense magazine. Sherritt scored an A for value and a B for growth.
Despite its deep value characteristics, stock screens won't turn up such things as political risk, which must be factored into Sherritt. Sherritt has a 50% interest with the Cuban government in the Moa nickel-cobalt open pit mine in Moa Bay in eastern Cuba. Originally owned by Freeport-McMorRan Copper & Gold Inc.,Moa was confiscated by the Cuban regime in the late 1950s. Moa's sulphides are shipped to the Fort Saskatchewan nickel-cobalt refinery north of Edmonton, providing most of its nickel feed.
Sherritt is a 40% owner and operator of the US$3.3-billion Ambatovy nickel laterite project in Madagascar, where production is expected in 2010. It also has oil and gas interests in Cuba, Spain and Pakistan.
Last month, Sherritt announced a plan to acquire the 59% of the Royal Utilities Income Fund it didn't already own. The fund controls Prairie Mines & Royalty Ltd., whose eight mines in Alberta and Saskatchewan supply coal to nearby generating plants. The company also announced plans raise $400-million in capital through a bought deal.
Eight analysts follow Sherritt -- six say buy, two say hold -- but most were lukewarm to the Royal deal, and many lowered their 12-month target prices, but even the most pessimistic expect the stock to reach $17 in 12 months. One, Ray Goldie of Salman Partners, has a $27.20 target.
Company specifics aside, Graham's criteria is still worthwhile, Rothery said.
"I've been running similar defensive-type screens for the Canadian MoneySaver magazine for several years, and it's worked very well."
Great Ideas from Businessweek: buy the deep value investors
Have a read of the article below. Not only can you be a deep value investor, but you can also buy shares of holding companies (usually also involved in insurance, much like WB's Berkshire) that specialize in buying discounted gems and holding them for the long term. Since they have considerably more resources and experience than most of us do, they often have an edge. Look for the following:
BAM is well covered in my other posts and a core holding of mine.
I am doing further research in to PICO (where I see there is big time insider buying, short term misery and long term good prospects being water suppliers in the US Southwest) and Y where there is no debt, respected conservative management, attractive fundamentals and a Morningstar endorsement that says, "For the long-term investor, we endorse buying this stock any time it settles into 5-star territory". Y is solidly 5 star-- trading at $349 and FMV at $518.
PICO HOLDINGS
- a long term track record of double digit ROIC and at least 10% insider ownership in the small to mid caps
- low to no debt and leverage that is on the low end for the industry
- trading at or near book value (current bargain)
BAM is well covered in my other posts and a core holding of mine.
I am doing further research in to PICO (where I see there is big time insider buying, short term misery and long term good prospects being water suppliers in the US Southwest) and Y where there is no debt, respected conservative management, attractive fundamentals and a Morningstar endorsement that says, "For the long-term investor, we endorse buying this stock any time it settles into 5-star territory". Y is solidly 5 star-- trading at $349 and FMV at $518.
How to Feast with the Vultures
A credit crisis. A volatile stock market. A projected wave of corporate bankruptcies. To most people it sounds like hell. But for investors who specialize in distressed assets it's just the opposite. "Bear markets are often when these guys plant the seeds for their next big winners," says Chris Mayer, editor of Capital & Crisis, a newsletter that focuses on contrarian investments.
Such scavengers scour the market for stocks, bonds, or whole companies to buy on the cheap, paying less than they think the company's assets are worth. A subspecies, known as vulture investors, aims even lower. These investors pick at carcasses of companies in or approaching bankruptcy, often amassing sizable stakes in order to wield influence in a restructuring or liquidation.
While some of these high-risk investments fail, others can be "monster home runs," says Mayer. His favorite "deep value" players—chiefs of little-known companies such as Leucadia National (LUK) and Brookfield Asset Management (BAM)—boast average annual returns of 15% or more over the past 10 years.
The most obvious way to get into the action is to buy a value-oriented mutual fund (tables). A more rewarding approach may be to invest in companies such as Leucadia. Like Berkshire Hathaway, these are publicly traded holding companies run by managers with histories of sniffing out value. Yes, the risks are more concentrated. But returns, on average, exceed those of the typical value fund over the past decade. Patience is crucial, since returns can fluctuate unpredictably, rising in years when managers sell profitable investments and stagnating when they hold a lot of cash.
Because of the stock market sell-off, share prices of many of these players are cheap vs. historic norms. And after largely sitting on the sidelines during the bull market, many of the companies are flush with cash. They are positioned to take advantage of lower stock prices as well as a projected spike in the default rate for U.S. speculative grade bonds. BusinessWeek's guide to leading publicly traded value players is a good place to start your research.
LEUCADIA NATIONAL
New York-based Leucadia owns everything from a biopharmaceutical company to wineries to a 38% stake in Light & Power Holdings of Barbados. Once weighted toward insurance, the company's portfolio now tilts toward natural resources, including Australian iron ore producer Fortescue Metals Group and Goober Drilling, a Stillwater (Okla.) oil-and-gas concern.
Chairman Ian Cumming and President Joseph Steinberg practice "the epitome of distressed investing," says Steven Rogé, whose Rogé Partners (ROGEX) and Rogé Select Opportunities (RSOFX) funds are shareholders. After Hurricane Katrina nearly destroyed the Hard Rock Hotel & Casino Biloxi, Miss., in 2005, for example, Leucadia bought about half of parent Premier Entertainment Biloxi. In 2001, with Berkshire Hathaway (BRK), it purchased half of bankrupt financial-services company Finova Group. More recently it bought some 25% of subprime auto lender AmeriCredit.
Cumming and Steinberg are often compared to Warren Buffett—and not just for their strict value approach to investing. Like the Oracle of Omaha, the two write engaging letters to investors. "Shareholders who gamble are encouraged to come visit the [Hard Rock Hotel & Casino Biloxi] and leave some money behind!" the most recent one reads. "As always, the odds favor the house, but in this case you own the house." Also like Buffett, Cumming and Steinberg tend to be shareholder-friendly. In 2006 each earned a relatively modest $678,362, in addition to stock-based compensation linked to Leucadia's performance. Between the two, they own some 25% of outstanding shares.
Leucadia trades at 46, and Morningstar analyst Ryan Lentell is in the process of revising his fair-value estimate of 39 upward. "If you're going to buy and hold for a long time, you'll do well," he says. Since 1979 the stock price has appreciated a compounded 25% a year, on average.
WHITE MOUNTAINS INSURANCE
White Mountains Insurance Group (WMT) in Hanover, N.H., buys troubled insurers and then engineers turnarounds. The insurance properties throw off cash White Mountains can use to finance acquisitions. But when markets get frothy, management hoards cash rather than risk overpaying. "Intellectually, we really don't care much about leaving our capital lying fallow for years," the company says on its Web site. "Better to...wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we just all went to play golf."
With insurance experts, including Buffett, predicting an industrywide profit decline this year, White Mountains's stock is down 6% since Jan. 1. It trades at 476, a hair above its per-share book value (assets minus liabilities), a measure often used to value financial-services firms. Consistent with Buffett's outlook on insurance, Berkshire Hathaway recently sold its 16% stake in the company. CEO Raymond Barrette cited the growing rivalry between the firms. Other value investors see an upside: Shareholders include Mutual Beacon Fund. Morningstar analyst Jim Ryan estimates fair value at 625.
ALLEGHANY
Like many in the deep-value camp, Alleghany (Y) shuns publicity. It doesn't hold quarterly conference calls. Wall Street coverage of the New York company is virtually nonexistent, in part because with lots of cash and little debt, it doesn't often hire investment bankers. Alleghany, which focuses on insurance, also has seen its shares beaten down. That has attracted bargain hunters at fund companies Franklin Mutual Advisers and Royce & Associates. At 342 a share, the stock, up an average 20% a year over five years, trades at a hefty discount to its 518 fair value, Ryan figures.
Alleghany, founded as a railroad holding company in 1929, also owns a portfolio of stocks and bonds. A big winner: Burlington Northern Santa Fe Railway (BNI), on which it has earned over 500% since 1994. Recently, Alleghany bet successfully on energy stocks, which comprise 32% of its equity portfolio.
PICO HOLDINGS
Small-cap PICO started out as a medical-liability insurer in 1981. Now about 70% of assets are in the rights to underground aquifers and other water resources in Southwestern states. "It's one of the better water-asset plays," says Jesse Herrick, who follows alternative-energy technologies for San Francisco institutional broker Merriman Curhan Ford (MERR). PICO also has a portfolio of big-stakes investments that enable it to play a role in management. They include 23% of Jungfraubahn Holding, a railway in the Swiss Alps.
In the 14 years that current management has been at the helm, the stock has delivered compounded average annual gains of 18%—more than twice that of the Standard & Poor's 500-stock index. But housing woes have raised concerns about water demand, sending the La Jolla (Calif.) company's shares down 7% this year, to 31, just above its book value of 27. Herrick puts fair value at 62 to 67.
BROOKFIELD ASSET MANAGEMENT
Over the past five years, Toronto's Brookfield has transformed itself from a wide-ranging conglomerate into a company largely focused on real estate, power, and infrastructure properties. Those include prime London office buildings, millions of acres of timber, and hydropower generating plants around the world. The rationale? Such assets generate steady returns and last a long time without requiring large ongoing investments.
Managing partner J. Bruce Flatt recently invited institutional investors such as pension funds to invest alongside Brookfield. In return for managing the money, Brookfield pockets a small annual fee. The stock, up an average 36% a year since Flatt took over in 2002, has pulled back, partly on concerns about real estate. At 27, it trades below Morningstar's 34 fair-value estimate. Among the shareholders betting on Flatt: vulture Martin Whitman of Third Avenue Value Funds.
Tergesen is an associate editor for BusinessWeek in New York .
Saturday, April 5, 2008
Friday, April 4, 2008
Update on Cemex CX
Venezuela's Mr. Chavez is carrying on with his thuggish ways by making good on his threat to nationalize the cement industry in that country. He blames companies like Cemex for the housing shortage--- an inevitable result of his unsustainable type of "socialism".
Cemex's assets in Venezuela represents 4.4% of the companies total. Even if Chavez offers little or no compensation, it is unlikely to make a material impact on Cemex's future cash flow.
If the market over reacts, it may be a buying opportunity. Analysts are more worried about the impact of the USA construction slow down on CX's bottom line. Global infrastructure needs are likely to compensate for this downside and more, IMHO.
l
Thursday, April 3, 2008
Hoping for more recession.... Why?
Seven Reasons to Welcome a Recession
Jeffrey Strain
04/03/08 - 10:34 AM EDT
Recessions breed fear. It's only natural. A slowdown in production at companies can result in layoffs and restructuring. People fret about their jobs and worry that it will be much more difficult to find new employment if they are let go. These are understandable concerns.
But for contrarians and bargain hunters, recessions provide a world of opportunities.
Here are seven ways that a recession can actually benefit your personal finances:
Affordable Homes
Those who bought homes looking to flip them for a quick profit and those who took out huge loans that they couldn't afford to pay will look at a recession with fear, but a recession should have little meaning for those who bought a home with the purpose of living in it for a long time.
Recessions are usually short-lived, and the housing market should recover long before most people are planning to sell their house.
For those who had been unable to afford a house because of soaring prices in the past few years, a recession is a golden opportunity. It brings housing prices down to more affordable levels. That means that many people who wanted to buy a house will be able to purchase one.
Recessions are also a good time to look for investment properties or vacation homes if either had been in consideration.
A recession gives anyone looking for quality housing a lot more bang for their buck than when the economy is flying high. Being able to purchase a quality house at an affordable price can greatly increase a person's net worth in the long run.
Low Mortgage Rates
In the attempt to ward off a recession, the Federal Reserve has made interest rates extremely low, resulting in more affordable loans for those who are in the market to purchase a house.
While these rates may not be available throughout the entire recession if inflation continues to rise, the rates will be around as long as the Fed can use them to ease the recession. Taking advantage of these low rates along with lower housing prices can truly make housing a deal.
Great Consumer Deals
As the economy sours and people buy less and less, stores need to provide better deals and discounts to attract consumers to their doors. This can mean steep discounts through sales and promotions, as well as financing that allows consumers to pay no interest over long periods of time.
These deals are not limited to the retail stores. It also means that there are great deals in the second-hand markets, since there are more people trying to sell and fewer people looking to buy. If you are an investor in collectibles and know them well, you can often buy collectibles at steep discounts during a recession that can be turned into a healthy profit when the economy recovers. For those who have saved money waiting for good deals, a recession is a great time to find those deals.
Inexpensive Stocks
While everyone is taking their money out of the market, hard economic times can be a great time to pick up stocks on the cheap when you look at them as long-term investments. Consumer stocks for large, stable companies such as Proctor & GamblePG that provide necessities such as soap and toilet paper will do well no matter what the economic conditions.
Recessions can be a great time to pick up undervalued stocks if you know what you're doing. That can greatly improve your net worth when the stock market recovers.
Great Travel Deals
During times of recession, most people don't think about traveling. For this exact reason, traveling can be a great deal when the economy is shaky. Lack of demand results in excess inventory, which forces hotels and other related travel industries to lower their prices. It also means a greater inventory to choose from and the ability to bargain for upgrades and other perks. That dream vacation that you have always wanted to take can be a lot more affordable during a recession, when travel related industries are begging for your business.
Streamline Your Finances
When things look like they are going to get a bit tougher, people begin to look at their personal finances a bit more closely and start to trim some of the fat. They look at ways that their money can be better spent and how they can get more for each dollar that they do spend. They pad their emergency fund a bit more and don't spend quite as freely as they do during times of rapid growth. This trimming of the fat is a good exercise that can help you see the important financial goals that you want to achieve and, by doing so, help you reach them more quickly.
Lower Credit-Card Rates
If you have a good credit rating, you are in a position to get extra perks from your credit-card company. Credit-card companies see higher delinquency payment rates during a recession, and it becomes even more important for them to keep their best customers. That gives you extra leverage to ask favors from them, such as having your interest rates lowered and annual fees waived.
While most people will look at a recession with fear and uneasiness, it's important to also realize that it's an opportunity to get some great deals and improve your personal finances. Taking advantage will allow you to reap greater benefits from all those dollars you have saved.
Wednesday, April 2, 2008
How to buy the "Livin' Large" index with an Exchange Traded Fund
Did you know that there are more resident millionaires in Seattle than in our entire country (Canada)?
The middle class has and will feel the bite of economic downturns but those with discretionary income are unlikely to curb their lifestyles.
Read about Claymore's relatively new ETF that buys a basket of stocks that cater to those group for an affordable price (MER = 0.7).
It trades on the NYSE--> ticker ROB.
l
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