I am retired and take educated guesses on all things financial.

July 31, 2008

July 31, 2008: Vulcan Materials: A Good Buy/Takeover

Vulcan is an interesting company that has more or less returned to its roots by focusing on cornerstone building materials. Founded in 1909,VMC, based in Birmingham, AL with strategic locations nationwide and in Mexico (serving Houston, New Orleans and Tampa) provides infrastructure materials that are required by the American economy. Vulcan is the nation's largest producer of construction aggregates, a major producer of other construction materials including asphalt and ready-mixed concrete and a leading producer of cement in Florida.

VMC produces aggregates, primarily crushed stone and gravel, that are used in nearly all forms of construction. In particular, large quantities of aggregates are used to build roads and nonresidential properties.

Vulcan has had a trading range of $49.39-$100.71 over the past fifty two weeks. Presently it sits at $64.19. Sporting a dividend of 3.05%, this $7b company has been trading more heavily in recent weeks. The stock has become a more price fluctuating security since joining the S&P500 - and since foreign companies have been buying aggregate companies in the U.S. due to the cheap dollar and national infrastructure needs that must be addressed. High commodity costs have hurt the stock price. Cutbacks in state and local spending on infrastructure-especially roads- have also taken its toll.

It is my belief that Vulcan shares are significantly under priced going into the upcoming tax and spend cycle. This is certainly not going unnoticed across the ponds (west and east). VMC could find itself receiving a hefty offer from foreign buyers with a keen eye for value.I price a takeover of Vulcan at approximately $85-90/share based upon the outstanding business model and the reputation of Vulcan for delivering vital materials in a timely, cost effective manner. Yes, there is value in "them thar" rocks.

Vulcan is a company that has compiled a rich history as an American success story, founded by an attorney from Ohio who saw value in southern slag. VMC should be receiving your attention as an addition to the materials sector of your portfolio, perhaps before they receive an offer that cannot be refused.

July 27, 2008

July 28, 2008: ETFs That Are Trading At A Discount With Hope.

Just for grins, I set up an ETF screen that used the following criteria for the current one and three month time frames. Of all the ETFs, seven made this list.

Above average market return.
Top 20% of net asset value within its category.
Highest discount to net asset value
Performance vs. benchmark (whatever it is) >10%

Here they are - with surprises:

(DNL) Wisdom Tree Japan High Yield trading at $48.68 with a market cap of $29.1m.
The ETF invests in Japanese securities that have a high yield compared to the paltry yields of most Japanese securities.

(JSC) SPDR Index SHS RUSS NOM SEC JP trading at $40.89 with a market cap of $90m.
The ETF attempts to replicate the Russell/Nomura Japan Small Cap Index, which consists of the smallest 15% of stocks in terms of float-adjusted market capitalization in Japan.

(EWU) iShares MSCI United Kingdom trading at $19.88 with a market cap of $970.6m.
The ETF attempts to replicate the MSCI United Kingdom Index, 95% of assets being in securities of that index and in ADRs based upon securities in the index.

(HHB) HealthShares Patient Care Services trading at $21.63 with a market cap of $5m.
This ETF attempts to track the price and yield of the HealthCare Patient Care Services Index. The index consists of companies engaged in providing direct treatment of patients in hospitals, outpatient clinics, nursing homes, assisted living centers, treatment facilities or home health providers and the companies involved in providing supplies and services to these facilities. Quite a big chunk of ETF applications for a not quite $5m ETF.

(HRW) HealthShares Dermatology and Wound Care trading at $19.24 with a market cap of $1.9m.
This ETF tracks the HealthShares Dermatology and Wound Care Index. At least 90% of the ETF assets will be invested in companies that are involved in the research, clinical development and/or commercialization of therapeutic agents for the treatment of a variety of skin disorders by topical and systemic means. Not much of an itch to buy with a market cap of $1.9m.

(WSI) FocusShares Wal-Mart Supplier Index trading at $46.50 with a market cap of $5m.
This ETF attempts to replicate the USE-Revere Wal-Mart Supplier Index. The ETF invests in companies that do a substantial part of their business with you know who.

(EFG) iShares MSCI Growth Index trading at $68.13 with a market cap of $1.3b.
This ETF attempts to replicate the MSCI EAFE Growth Index which consists of large cap foreign securities.

This rather eclectic ETF stew is not an endorsement and a pan from me to you. It states my screening results. If I was pressed, I would be reluctant to purchase any of them. One might use the roster to invigorate the thought process for ETF purchases and investigate ETFs using more sophisticated measures and diversification techniques as tools prior to purchase. The exercise was interesting and the ETFs that popped up were unexpected.

July 13, 2008

July 13, 2008: Driving A Better Deal On Energy With An SUV and Hedged Investments

I was having a silent conversation with myself on the way back from a delightful East European-centric picnic late this afternoon. As with many folks - and I am confident that includes readers of this article - there is a quandary on what to do to mitigate the cost of fuel in the tank of your vehicle(s).

All of the automotive vehicle manufacturers claim that hybrid vehicles are sold out, and that production for 2009 looks to under serve demand as well. Not being stupid, dealers will likely not give a penny off the MSRP. Plan on paying a modest premium over the MSRP to get your hands on one of these gas misers.

I have another plan to ponder since the retail and used vehicle markets for SUV's have collapsed. Don't pay $28g or more for a hybrid. Purchase an almost new SUV for about half the cost and invest the remaining $13g or more. Hedge against your comfort car!

For instance, I looked at a few Hybrids that would not contort my body into a pretzel and leave the family playing musical chairs for seats. The 2009 Ford Escape Hybrid starts at about $29g with 28/30 mpg. The 2009 Toyota Camry Hybrid starts at about $26g with 33/34 mpg. The 2008 Toyota Highlander Hybrid starts at about $34.3g with 25/27 mpg.

Used SUV's are I located within twenty miles from my home were plentiful. Lots are over run with them, in fact. Prices I found and verified were as follows: 2007 Jeep Grand Cherokee Laredo 4x4 with 10,500 miles at $17.4 with 15/19 mpg. 2006 Jeep Grand Cherokee Laredo 4x4 with 18,100 miles at $15.4 with 15/19 mpg. 2005 GMC Envoy 4x4 with 41,000 miles at $16.2 with 15/20 mpg. 2006 GMC Envoy 4x4 with 26,000 miles at $16.1 with 15/20 mpg. Deals as good or better on other SUVs are all over the place. It looks like a Priceline "name your price" moment out there in used SUV land.

Look at the numbers if you drive a used almost new, confortable SUV:
15,000/year divided by 16mpg times $4.00/gallon gas=$3750.00 fuel per year

Look at the numbers if you drive a hybrid that (importantly) you can fit into:
15,000/year divided by 30mpg times $4.00/gallon gas=$2000.00 fuel per year

It will take years of driving to recoup the cost of the hybrid. Astute capitalists investing the initial cost savings should more than earn the cost of fuel differential through dividends and capital appreciation. Depreciation of the hybrid vs. SUV is a wash since SUVS are discounted for extinction already.

Take the estimated $13,000.00 plus in savings from buying a large, comfortable almost new SUV and invest it in an energy fund, such as PowerShares' DB Oil Fund (DBO), ProShares' Dynamic Oil and Gas Services Portfolio (PXJ), ProShares' Ultra Oil and Gas Fund (DIG), or for the contrarian, the ProShares' Short Oil and Gas Fund (DDG). For that matter, any well-selected energy ETF or small basket of income MLPs in the oil and gas transmission business or in Canadian energy trusts with a large dividend will pay for potential increases at the pump through capital appreciation and/or dividends. I predict you will be better off financially using this method than with purchasing a fully priced hybrid.

I believe the deals will get only better with the almost-new SUV giveaways in progress at a dealer near you. Do your math and discover if it adds up.

July 10, 2008

July 10, 2008: A CEF Warhorse: Adams Express

In the present era of micro-second computer program trading with the minute-by-minute explosions and implosions of worth,how many CEFs claim a history of over one hundred and fifty years? Adams Express (ADX) has thrived since 1854. The first seventy-five years or thereabouts, Adams Express was the nation's leading independent express company. That's stagecoach and the galloping mailman era, folks. The founder, Alvin Adams, actually began transport early in 1837 along the New England coastal areas and the hinterlands of New York State, then slightly beyond into Indian Territory. A financial panic all but wiped out his initial effort, but Mr. Adams persevered By 1850, Adams Express was thriving and expanding. A division of the Adams Express Company was serving the needs of the California Gold Rush down to South America. In 1861, the company, of necessity, split off into Adams Express and the Southern Express Company. Rumor was that they never split, as Southern Express Stock was never traded. They maintained joint offices at common points. Adams was accused of owning both companies, but nothing bad came of it. It was a true American success story, during which time the shareholders and other partners profited in equal share with the owner, more or less.

After the Civil War, ADX held a strong grip on shipping throughout the country. In 1910, it was the second largest shareholder of the Pennsylvania Railroad and the third largest of the New Haven Railroad, besides owning large blocks of stock in American Express, Norfolk and Western Railroad and many other blue chip industrial age behemoths of early 20th century American industry and transportation. A little 1920s Warren Buffett?

Allan Pinkerton, the famous detective, solved robbery issues for Adams Express common in the old west and rural areas without being hindered by Trial Lawyers. Adams Express funded his company, the Pinkerton National Detective Agency.

Adams Express amalgamated its corporate existence out of the transportation business into a closed-end investment trust for wealthy individuals in 1929 - not the best time to create a trust. Nonetheless, it has survived quite well to date. ADX has paid a dividend every year since 1936.

Where does that leave Adams Express now? This CEF is trading at a substantial discount to net asset value. Priced at $11.45 per share, ADX has about $984m in assets and trades about 125g shares per day, making it liquid. Expenses are low, averaging about 0.44%. Over many years, ADX has had lackluster performance. I believe that with the present holdings, a bounce back from the bear market will enhance this quite well diversified portfolio.

Top holdings include Petroleum and Resources (PEO) - loosely affiliated with Adams Express sharing the same office space in Baltimore, MD.,General Electric, Microsoft, Schlumberger, Bank of America, Pepsi, Proctor and Gamble, Pfizer, Conoco Phillips and AIG. Recent additions to a portfolio which has a miserly turnover rate of about 10% in an active year include Halliburton, Chevron and Hansen Natural. ADX repurchased over one million sixty-three thousand shares during the first six months of this year.

I owned this CEF many years ago, and am considering purchase again when market conditions improve. If nothing else, ADX is a fascinating conversation piece that may serve to enhance a niche portion of your portfolio.

July 08, 2008

July 8, 2008: Sir John Templeton, Genius: R.I.P.

I was a bit surprised that the death one of the giants of the investment world, Sir John Templeton who died Tuesday, was not more widely reported. He was age 95 at passing.

John Templeton was the first of the true global investors. When Jim Cramer states "there is always a bull market somewhere and I try to find it..", John Templeton actually did it, beginning in 1937. He took risks but was almost always vindicated, and his shareholders did very well.

In 1939, he borrowed money as Hitler marched through Poland, and purchased 100 shares each of companies in the U.S. selling at $1.00 or less, including thirty-four companies that were in bankruptcy. Only four turned out to be poor investments. Templeton turned large profits on the others.

In 1956, Sir John established a technology fund (yes, you read it correctly, a technology fund) whose capital skyrocketed in the late 1950s after fund management companies were allowed to go public.

He established the Templeton Growth Fund - an historic and hugely successful international fund - which he sold in 1992 to the Franklin Group for $440m. A $10g investment when the fund was created in 1954 would have grown to $2m by the time it was sold, including expenses (a substantial load, which was common at the time).

A devout Christian, Templeton established the John Templeton Foundation in 1987 to fund projects that could reconcile religion and science. The fund was endowed with $1.5b and awards approximately $70m in annual grants. The Templeton Prize in this field is larger than the Nobel Prize in worth - which Templeton demanded. Grants have been awarded to studies ranging from evolutionary biology to love and forgiveness. He was knighted in 1987 for his philanthropic accomplishments.

John Templeton was a southern gentleman, born in Tennessee in 1912. He graduated from Yale and was a Rhodes Scholar, earning a master's degree in law at Oxford University. He later moved to Nassau, Bahamas and became a naturalized British citizen.

Sir John Templeton always seemed to find value amidst "maximum pessimism" (his words). Often times he chose companies that were foundering, yet his sense of value made him, his shareholders buckets of money.

Many of us will remember his appearances on the Louis Rukeyser "Wall Street Week" program. "Now, Louis..." became his trademark. He was always optimistic, analytical, devoutly religious and the consummate gentleman.

The investment world is a poorer place today in his absence.

July 06, 2008

July 6, 2008: Low Water. Barging Into American Commercial Lines

For American Commercial Lines (ACLI) it may be the worst of times.The floods in the Midwest are awful. This barge manufacturer, transporter and support services provider within the U.S. Inland Waterways System (including the Mississippi River System and Gulf Intracoastal Waterways has been around since 1915. Headquartered in Jeffersonville, Indiana, ACLI has subsidiaries in Seattle, Washington and New Orleans (Elliott Bay Design Group - EBDG)which is a leading architecture and marine engineering firm for all aspects of vessel design and Summit Contracting, based in Evansville, Indiana which provides emergency response, environmental remediation and industrial and civil construction services.

The main headquarters at Jeffersonville spans 5600 feet of frontage on the Ohio River. American Commercial Lines is the operator of Jeffboat, the main barge manufacturer on the inland rivers.

ACLI operates over 3,000 barges and 120 tow boats within their system. Repair facilities for their equipment and other inland marine craft and the contracting of construction barges and tow boats for third party clients in their dry docks is a profitable part of the company.

Flooding aside, environmental issues are working in ACLI's favor. One barge full of stuff equals fifteen rail cars or eighty truckloads of the equivalent weight materials. And barge traffic is statistically the safest mode of transport of all the major systems, including rail.

So why the 57% drop in share price since the beginning of the year? As one would assume correctly - floods. This horror story has cut deep into ACLI's profits as less grain, coal, steel and chemicals can be shipped because of uncertain channel conditions or the unavailability of product. Some of ACLI's facilities have been flooded out as well.

The current price of $10.19 per share is a far cry from the fifty-two week high of $27.30 reached July 13th of 2007. ACLI recently filed for a $200m unallocated shelf registration to protect itself against further issues.

Why buy the stock now? I believe the worst is over for the company, although grain will be an issue for the remainder of the year. Its enterprise value is 7.5 times operating income. More telling, the company is selling for less than the value of their boats.

Checking ownership, I find amongst other impressive participants in American Commercial Lines' future, Sam Zell owns approximately 25% of the company stock. Good company for the investor to keep. And a good reason for the patient investor to bottom feed on this company with more confidence than apprehension.

I am planning to barge in and purchase shares of this company after the current market downdraft abates.


July 04, 2008

July 4, 2008: Lets Forget About The Markets Today And Be Humbled And Grateful

Well, July 4th brings many memories to many Americans. In my youth, decades ago, gatherings with both sides of a large extended eastern European family meant seventy or so jovial one family income, blue collar souls in our 30x70 foot backyard located in a fairly rough area just west of Chicago. The smells of ethnic cooking inside and out of the two bedroom brick home still stir the senses. Everyone brought pies, cookies, kolackies and lawn chairs. And the sausages - homemade all- with real meat and fat tasted great even with uncles and aunts smoking their Lucky Strikes everywhere. And homemade beer - strong stuff. Slivovice, even stronger.

Many were war veterans, but no one spoke of that in our family in the 1950s and early 60s when the family events of this type were at their height. Being a vet was a duty. Most were drafted, some enlisted. I discovered later that more than a few served with high distinction (usually stated at their funerals for the first time).

Another reason July 4th remains special to me is that it is my birthday, at least until the hospital switched it to July 3rd because they did not recognize daylight savings time.Regardless, it was celebrated with gusto on the fourth back then, less so now.

Today, I celebrate my children who number five serving as military officers, counting two spouses and my 98 year old mother who waves the red, white and blue flag better than most. Unfortunately, almost all the others of the family are deceased or long separated by time, distance or issues.

I am humble for having been lucky to live a life that included public service, and for the blessings of family. These, and the freedom to live your life as you wish spells A-M-E-R-I-C-A to me. God, home, family, honor and country.

Try to put your economic problems in perspective. What our ancestors had to endure on a daily basis makes our problems today appear petty. Very petty. The next time one winces at the stock market, or the cost of fuel, think of the tens of thousands of service personnel who have given their lives defending much more adverse daily circumstances. Think of the courage of the founding fathers. Think of beating the odds to form a democratic nation in a world of tyrants and savage tradition.

And remember that we honor all those patriots before us, warts and all. God love 'em, and God continue to bless America.

July 01, 2008

July 1, 2008: USPS, Riviera Beach Style

Still on vacation/business/family gathering here at Palm Beach Shores.

I had to mail a few documents today, and decided to make the trek over the Blue Heron Bridge to the United States Post Office of Riviera Beach.

Those of middle age remember when the Postal Service was anything but...service. It became a laughing stock and poster child for lazy employees, gross inefficiency and slow or non-existent service. Then, during the Reagan administration, the postal system became quasi-privatized and things improved.

Over the past few years, I have noticed a steady deterioration of service and error-prone results again creeping into the system. Of course, stamp and postal rates continue to go upwards regardless.

Which leads me to the Riviera Beach Post Office, a soviet-looking structure outside and from within. I parked my car in the poorly maintained lot, off a poorly designed entrance on a busy highway and, dodging a downpour of rain, dashed into the huge and exceedingly cold foyer area. No stamp machines were to be seen, anywhere. To my left, a sea of mailboxes and the faint odor of poorly washed bodies. To the right, a long line of customers ("victims", if you are of that mindset) with three - no, make that two postal service employees, as one proudly announced she was done for the day - moving in glue to annoy themselves by having to deal with the public. I joined the line, which was guided by wooden rails to keep the masses in some order. All important forms and mailing essentials were kept in the far rear of this area, so if a customer had to get a specific form, they had to leave the postal service employee station and go all the way to the rear of the office area, find the form with no assistance and then go back to the station, to the chagrin of the twenty or so customers waiting for service.

After waiting a long time, shuffling in concentration camp-like fashion towards one of the two open postal stations, I remarked to the gentlemen in front of me that this is what the old Soviet Union would have been like. He understood, laughed and said he had not thought of it in those terms but that it was a good analogy. A Haitian lady just in back of me apparently did not find my commentary funny. She chided us to "move along" as the line had crept up another foot or two.

Finally, it was my turn. Beckoned by a wave that Queen Elizabeth would have been proud of, I came face to face with my superior. Just as I was about to do my business, a voice with a heavy Caribbean accent yelled from the back of the room that he wanted to add a name to his postal mailbox, and that he wanted an employee to leave their customer and service him. My look at the postal employee who was pondering the request must have triggered memories of postal employees gone berserk, with me being in the shoes of the insane one. She chose wisely, and serviced me instead of the yeller.

I understand that serving the public is challenging, and that many postal employees are there by the Grace of God -or a political connection. However, poor service, inefficient processes and attitudes serve as a reminder that all businesses need to be vigilant in their best practices, before mediocrity and stagnation set in.