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

August 28, 2009

August 28. 2009: Tax Credit Schemes For Green, Both Ways

Tax Credits for a greener America are in fashion. In each case, we may as well admit up front that these type of programs amount to taking money from all taxpayers to fund pet environmental whimsy of the environmental crowd. The State of Florida, amongst others, had rebate programs to save the planet in place until it ran out of money. The solution? Use federal stimulus money to front it. Astute investors and consumers will take advantage of these programs to a certain degree, hopefully after reading the fine print (such as the up to $4500 of TAXABLE income that was credited to those who transacted in the recent vehicle "clunker" program).

The Miami Herald recently ran a story highlighting several of these programs.

So your car isn't a clunker? And you're not a first-time new home buyer? Maybe your air conditioner is a on it's last legs.

The price for a new Ruud air conditioner is, say, $6295.00. Because of a combination of a rebate from Florida Power and Light, the manufacturer and a $1500.00 credit on his taxes next year means the cost will be $3520. Any air conditioner that qualifies as an Energy Star appliance will qualify for these incentives, in Florida and in other states proffering similar programs.

Federal stimulus laws allow home buyers to receive a tax credit of 30% of the cost of energy efficient windows, water heaters, air conditioners and furnaces, up to a maximum of $1500.00. If you max out your credit this year, you can buy a qualifying item and claim the credit again next year so long as the item is installed by December 31, 2010.

Another tax credit allows homeowners to get up to 30% of the cost of solar energy systems, such as a solar water heater and solar power, small wind systems and geothermal heat pumps if they are installed by December 31, 2016. It's a separate credit from windows, air conditioners, etc., so homeowners can use them both. And there is no cap on the amount of this credit. One fellow from Miami Shores, FL spent $54000.00 to install solar panels and a battery back-up system for his home. He received about $20000.00 from a state solar energy rebate program and will receive a further $10200.00 as a credit on his taxes.

Water heaters are also a hot item because water heaters might also qualify for more money back than just the tax credit.In Florida, a natural tankless water that costs between $1600-$2000.00 would net a $450.00 rebate from the gas company TECO and a 30%tax credit on the purchase price.

A rather obscure tax break allows businesses to claim a bigger deduction for new equipment such as furniture. Land, buildings and items like a new central air conditioner don't count. Section 179 of the tax code, around for a while, doubled the amount deductible to a maximum of $250000. and the 2009 law extended the deductions through the end of 2010. Businesses can claim the entire deduction each year, according to the IRS.

More? Absolutely. Upcoming for everyone is the cash for "clunker" appliances which are rebates to buyers for the right kinds of dishwashers, washing machines, refrigerators, dryers, air conditioners and other items.

What companies may see a rise in their stock price as a result of these type of programs? Here are a few well-worn and new names that will not only sell product or merchandise, but have good fundamentals as well:

Broadwind Energy (BWEN) $7.72/$746m market cap

Helix Wind (HLX) $2.86/$110m market cap

Whirpool (WHR) $65.05/$4.6b market cap/2.67% yield

Herman Miller (MLHR) $16.15/$920m market cap/0.53% yield

Steelcase (SCS) $6.42/$853m market cap/2.38% yield

HNI (HNI) $21.44/$968m market cap/3.27% yield

Home Depot (HD) $27.65/$47B market cap/3.89% yield

First Solar (FSLR) $125.00/$10.7b market cap (beware solar stocks=price war coming)

Lowe's (LOW)$21.67/$32b market cap/1.66% yield

Rinnai (RINIF) $46.75/$2.5b market cap (pink sheets, but a great energy-saving appliance company)

August 23, 2009

August 23, 2009: Food Processors, A Nutritious Meal

Many investors, including myself, feel that the market is due for a correction. Some predict with the increased national debt, weaker dollar and a Congress unwilling to grasp both, even worse things may occur that will effect our standard of living now and, especially, in the future.

One sector that may withstand a negative outlook are food processors. I used a computer screen to isolate those with anticipated growth of 10-25% next year. All appear stable and quite a few are international in scope. I must admit to having several obscure companies grace my computer screen. I did investigate all of them to a certain degree and without exception they look quite acceptable for investment consideration.

You may decide to explore the companies on this roster for further study and, perhaps, inclusion within the defensive elements of your portfolio. I am.

Lifeway Foods (LWAY) $13.77/ $231m market cap

Inventura Group (SNAK) $2.87/$53m market cap

Maui Land and Pineapple Company (MLP) $6.50/ $53m market cap

Zhongpin, Inc. (HOGS) $11.37/$331m market cap

J&J Snack Foods Corp. (JJSF) $43.81/$809m market cap

Peet's Coffee and Tea (PEET) $27.27/$354m market cap

United Natural Foods, Inc. (UNFI) $26.61/$1.15b market cap

Yuhe International, Inc. (YUII) $5.40/$85m market cap

Flowers Foods, Inc. (FLO) $23.57/$2.2b market cap

Del Monte Foods Company (DLM) $10.36/$2.1b market cap

Kellogg Comnpany (K) $47.35/$18.2b market cap

Archer Daniels Midland (ADM) $28.67/$18b market cap

Sanderson Farms (SAFM) $39.71/$808m market cap

Food processing is not a sexy sector, but it is a great place to hide as others lose their lunch during the next downturn.

The author does not presently hold a position in the above stocks.

August 19, 2009

August 19, 2009: Another Reason NOT To Buy A GM Vehicle

Rumblings abound about a lack of spare parts for GM vehicles, especially SUVs. I had heard rumors of this and now, unfortunately, have experienced this firsthand.

I purchased a 2006 Envoy last year. Last week, the electronics on the driver's arm rest stopped functioning. With the vehicle less than four years old, I assumed having the unit repaired or replaced would not be a problem.

I was wrong.

The major clearinghouse for company manufactured GM parts in Lansing, Michigan informed the authorized Mr. Goodwrench dealer that THEY NO LONGER HAD THAT PART. Now, I can't open the window(s) and lock the vehicle.

If this pattern continues, your GM will be a throw-away vehicle soon enough.

This is how GM services customers, imagine how they will treat stakeholders in the company.

You have been warned.

August 16, 2009

August 16, 2009: Today's Playbook On Health Insurance Stocks, Post- Public Option

In an astute political move, Health and Human Services Secretary Kathleen Sibelius on Sunday said that providing citizens with the option of government-run insurance is not essential to the Obama administration's overhaul of U.S. health care. Evidently, the administration has caved on this very important issue, leaving the door open for private health insurance companies to move forward with creative products and profits for shareholders. Of course the devil will be in the details, but at fist glance Team Obama will expand health using cooperatives similar to the public/private scheme in the domestic utility industry.

Here are potential winners for investors to explore. Beware using the insurance index ETFs as your vehicle, as the health care sub-sector is in play now, not all insurance stocks.

Aetna (AET) $28.28/$12.3b market cap/ 0.14%

American Independence Corp. (AMIC) $4.75/$40.4m market cap/0%

AMERIGROUP Corp. (AGP) $23.98/$4.3b market cap/0%

Amerisafe (AMSF) $16.83/$317m market cap/0%

Assurant, Inc. (AIZ) $28.20/$3.3b market cap/2.93%

CIGNA Corp. (CI) $28.82/$7.9b market cap/.14%

Coventry Health Care, Inc. (CVH) $22.60/$3.4b market cap/0%

Health Net, Inc. (HNT) $14.67/$1.5b market cap/0%

Humana, Inc. (HUM) $34.69/$5.9b market cap/0%

Molina Healthcare, Inc. (MOH) $19.90/$508m market cap/ 0%

Triple-S Management Corp. (GTS) $16.45/$335m market cap/0%

UnitedHealth Group, Inc. (UNH) $28.06/$32.6b market cap/0.11%

Universal American Corp. (UAM) $9.10/$702m market cap/0%

WellCare Health Plans, Inc. (WCG) $24.85/$1.0b market cap/0%

Well Point, Inc. (WLP) $52.10/$475m market cap/0%

I like Molina and Health Net as they provide extensive private and government managed health care services, which may be a sweet spot to be focused upon.

As we all know, things turn on a dime in politics. The "progressives" will go nuts without a public option, but it is apparent the country just will not sanction that approach. As Democratic Senator Kent Conrad said Sunday, "There are not the votes in the Senate for the public option.....To continue to chase that rabbit, I think, is a wasted effort."

August 13, 2009

August 12, 2009: Apartment Rental Rates Set To Spike Upward

Many apartment owners can't wait until 2012. If the economy recovers, they will be looking at a perfect storm of events - a shortage of available entry-level housing units, a boom in demand driven largely by Millenials (real-estate jargon for those just about ready to strike out on their own), and the ability to push rents significantly higher due to a shortage of suitable apartments.

Tom Bozzuto, CEO of the Bozzuto Group, a Greenbelt, MD.-based multifamily manager overseeing 28,500 units in the Mid-Atlantic states, told Multifamily Executive Magazine recently that "It's not a lot of fun right now to be in the apartment business. But, you take pleasure in knowing that this is the trough in the wave."
Other pros in the field feel exactly the same way.

Ron Terwillinger, chairman of the country's largest multifamily builder, Trammell Crow Residential based in Dallas, TX expects rents to increase 5% in 2010 and another 10% in 2011. "It looks to me like there will be a rental housing shortage in 2012 and 2013", he stated. This is due in part to the number of Milleniums that will need to get a place to rent and the large decrease in the number of new apartments constructed in 2008 and 2009 (the trend continues into 2010 at the earliest). The lead time from land acquisition to finished apartment complex of scale is generally three to four years. Also, there has been a decline in household formation (marriage, other family units) which indicates less demand for homes and more demand for apartments.

Another reason for rental increases is that there has been a rise in the number of (usually) small volume landlords who have begun to disregard preventive maintenance and basic repairs. In essence, they have cut costs short term at the expense of their apartment unit value long term. Some have just walked away from their investments in both urban and suburban neighborhoods and banks are usually terrible landlords, without a clue as to appropriate Property Manager selection or the art of running an apartment complex. These type of apartments often become vacant lots or, creatively, condominiums after a thorough rehab.

How can the investor play this theme? Here are some interesting stocks to consider that are pure apartment plays:

Apartment Investing and Management Company (AIV) $$1.35b market cap

Avalon Bay Communities (AVB) $66.42/5.30%/$5.31b market cap

BRE Properties, Inc. (BRE) $28.13/5.30%/$1.49b market cap

Camden Property Trust (CPT) $34.92/5.20%/$2.24b market cap

Equity Residential (EQR) $27.81/7.00%/$7.63b market cap

Essex Property Trust, Inc. (ESS) $73.47/5.60%/$2.10b market cap

Home Properties (HME) $38.84/6.80%/$1.30b market cap

Mid-America Apartment Communities (MAA) $42.55/5.80%/$1.20b market cap

Post Propreties, Inc. (PPS) $16.04/5.00%/$712m market cap

UDR, Inc. (UDR) $13.25/5.50%/$2.0b market cap

All of the above have sustainable yields to entice the investor to wait for the positive apartment industry action to come.

The author does not presently have a position in any of the above securities. He does own a large position in rental real estate.

August 06, 2009

August 7, 2009: Nationwide Survey By CSFB Reveals Real Estate Agent Builder Preference

The July Credit Suisse First Boston Monthly Survey Of Real Estate Agents was made available today fir institutional clients and consultants on the survey. Presented monthly, this 60-page (or thereabouts) publication has been an extremely accurate and predictive document - my first choice when I begin pondering my monthly real estate strategy.

Almost always, I focus on the top fifty metro markets and regions, primarily interested in the pure statistics and opinions of "boots on the ground" agents and investors that make this such an excellent read. Another feature of this monthly survey lists agents recommendations for national builders. The percentage number is based upon positive less negative responses from agents. This is an important reflection on these builders, and thus their stock, as over 40% of new home sales involve a real estate agent.

Here is the list, best to least favored:

Pulte Homes (PHM) 25.2%
Toll Brothers (TOL) 24.7%
D.R. Horton (DHI) 17.6%
Meritage Homes (MTH) 16.2%
Lennar Corporation (LEN) 14.3%
Centex Corporation (CTX) 11.7%
Ryland Group (RYL) 11.4%
Standard Pacific Corporation (SPF) 11.3%
Hovanian (HOV) 6.1%
MDC Holdings (MDC) 5.7%
NVR, Inc. (NVR) 4.3%
WCI Communities (WCI) 0.1%
KB Home (KBH) -12.9% (This is a mighty poor assessment on the product)

It is stated by the CSFB report that homebuilders are increasingly relying on agents as market conditions weaken or remain soft for new product.

One thing for sure, new homebuilders had better improve the design, energy efficiency and internal efficiencies if they expert to compete with the foreclosure, short sale and resale markets.

August 6, 2009: Why We Fight - An Interesting Letter

(click on letter to enlarge)

I am not a bible-thumper. Far from it. However, the secularization and disdain for the religious aspects of our lives is being inculcated from within at our peril.

Folks need to remember that our military is generally composed of volunteers who have a strong tendency to be not only patriotic, but religious as well.

The letter above (pun addressee shows the sense of humor most servicemen possess)was given to all military personnel parting for the Pacific and European war zones of World War 2.

God is not a forgotten entity.

August 01, 2009

August 1, 2009: IRA's And Other Employer-Sponsored Retirement Plans Face Uncertain Distribution Fate

Retirement-bound investors face an uncertain future for mandatory withdrawal of funds from applicable accounts unless Congress acts on one of several pieces of legislation. The Required Minimum Distribution (RMD) will be back in effect for 2010, which means investors must begin withdrawing money from their accounts when they reach 70.5 years of age and pay appropriate taxes, if any. The RMD requirement was waived for 2009 when the Worker, Retiree and Employer Recovery Act of 2008 became law on December 23, 2008.

There have been a number of bills introduced in Congress, any of which would extend the RMD waiver past 2009, or, to increase the minimum age that triggers the RMD from 70.5 to 75 years of age.

Here are the bills to date:

S. 157: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2010.

H.R. 124: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2010.

H.R. 882: Increases the age at which RMDs are required to begin from age 70.5 to age 75.

H.R. 2021: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2012.

H.R. 2331: Increases the age at which RMDs are required to begin from age 70.5 to age 75. This bill also waives the 10% penalty on distributions from qualified retirement plans for mortgage payments on qualified residences and in situations of unemployment.

H.R. 2637: Increases the age at which RMDs are required to begin from age 70.5 to age 75, and extends the temporary waiver of RMD rules for certain retirement plans and accounts through 2010.

None of these bills have reached a terminal status of consideration, and all, some or none may gain momentum.

A friendly call or e-mail to your Representative and Senators to express your view is timely during the upcoming recess.