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

January 29, 2010

January 30, 2010: Dividend Hungry? A Buffet Of Higher Yields

For investors tired of miserly yields with minuscule annual increases from common stock,let alone trying to squeeze out another 1/8 percent on a cd or money market fund, the selected purchase of preferred stock may be a much better alternative at this time.

My criteria for initially screening preferreds is simple. The call price (if applicable) is $25.00, buy at a discount from that price, a company rating that is in the investment grade realm with solvent prospects and the security being researched is liquid(trading over 20,000 shares per day). Those investors with a more liberal screen will find a large number of investment-grade preferreds with yields over those listed below, though they are generally trading over the $25.00 call price.

Investors reluctant to purchase individual securities are encouraged to look at the SPDR Barclay's Capital Convertible Bond ETF (CWB), trading at $36.26 and yielding 6.30%, or the IShares' US Preferred Stock ETF (PFF), trading at $37.03 and yielding 7.45%.

The following individual issues illustrate what the investor can harvest from the preferred security roster using my standard:

Barclays Bank Preferred C (BCSpC): $23.92, yielding 8.05%.

Comcast 6.625% Notes (CCS): $24.13, yielding 6.90%.

CBS (CPV): $21.85, yielding 7.71%.

J P Morgan Chase Preferred P (JPMpP): $23.65, yielding 6.61%

Deutsche Bank Capital Trust II (DXB): $21.98, yielding 7.39%.

National City Preferred A (NCCpA): $22.70,yielding 7.26%

HRPT Property Trust Preferred (HRPN): $19.00. yielding 6.98%

General Electric Credit (GEJ): $24.28, yielding 6.20%

Bank of America Preferred J (BACpJ): $22.70, yielding 7.98%

Zions Bancorporation Preferred C (ZBpC): $24.15, yielding 9.96%
This is my recent favorite, with ZB appartently on the road to a solid recovery.

Archer Daniels Midland Preferred A (ADMpA): $42.90, yielding 7.27%
Another favorite, this security has an interesting convertible feature.

Investors should be aware that some preferreds do not qualify for 15% tax treatment, and that companies may suspend quarterly payments if compelled which may induce adverse tax consequences. No security is without risk. Use due diligence.

That stated, I believe that trust preferred and preferred securities represent an excellent vehicle to obtain solid income with the potential for modest capital appreciation if the %25.00 call provision is exercised (on those with that feature).

For your initial research, use the resources of Seeking Alpha. Quantumonline also presents a very commendable starting point to inventory a list of preferred securities.

January 26, 2010

January 27, 2010: Big Banks' New Money Pit

If you thought the recent tax juggernaut against Big Banks was huge, how about this?

According to a New York Times article, e-mailed to me in part:

The IRS is set to claim that "equity swaps" are in effect tax avoidance tactics leading to tax evasion schemes.

The feds are scrutinizing financial derivatives they claim Wall Street banks have been using to avoid collecting scores of billions of dollars in withholding taxes on stock dividends. These equity swaps mimic ordinary shares and give investors such as hedge funds the benefits of stock ownership without actually owning the shares. Big Banks also benefit from the swaps because, under federal tax rules, the banks may avoid paying a 30 percent tax that is normally present on stock trades.

The IRS is closely examining whether banks are using the swaps to mask who really owns the shares underlying the instruments, thereby clouding the reporting and collection of dividend withholding taxes.

IRS field auditors have been given marching orders on how to aggressively pursue these type of equity transactions. In part,the IRS directive states that audit guidelines reflect suspicion that ALL cross-border equity swaps are tax avoidance transactions, even though IRS regulations had previously treated these transactions favorably.

Tax lawyers regard the IRS pursuit at this time as significant because it concerns a vast, unregulated market and could lead to hundreds of billions of dollars in tax disputes between the IRS and Wall Street banks.

Four types of swaps are in for an IRS cleansing: cross in-cross out, cross in-interbroker dealer out, cross in-foreign affiliate out, and synthetic equity transactions.

The assault on Big Banks continues. Is it not of humor, then, that the more publicized Financial Crisis Responsibility Fee is now affectionately called the F_C_ _R Fee by some clever potential victims in the world of Big Banks?

I believe that investing in the common stock of Big Banks, even such stalwarts as J.P. Morgan (JPM) and Goldman Sachs (GS) at this time is a mistake. However, the preferreds, especially trust preferred securities from Big Banks,should remain a hefty and safe dividend play in this troubled investment sector.

Thanks to a tax attorney who provided the inspiration for this article.

January 25, 2010

January 26, 2010:Thoughts On D.C., China and Investing

Sometimes it is useful to get away from routine. Since I am at a stage in life where I can kiss any routine goodbye, I know it is easier for me than others. Still, I do recall relishing outlets during my years of steady work endeavors, perhaps more so than today.

I returned from a useful and exhilarating trip to Washington, D.C. Five days of observation, touring, culture and culinary excess overcame the cold weather and sometimes biting rain.

Perhaps my most interesting conversation was a chance encounter with a thirty-something portfolio manager on business from Seattle. We were both scheduled for a Senator-scheduled tour of the White House at the same time, so we had almost two hours to exchange pleasantries and thoughts. Our conversation, of course, centered on investment strategy, the political challenges of the time in which we live and possible solutions. She was an admitted Libertarian, which was no issue for me to contest. She told me that she has to keep up with the committee hearings and political winds in Washington to validate her investment instincts and protect her clients, worldwide. I respect that, as so many money managers hibernate in their home or office with the triple screen computer, dependent on old news to formulate an investment strategy. No, not this pro - she was in the thick of things! I never ask an investment pro for inside picks, but it was evident we shared a smilier investment philosophy and love of "the game". She is well known in the investment community, having worked previously at Merrill Lynch and Salomon, but will be a nameless Seattle money honey for this post.

Outside of some personal business there, three things impressed me: the mammoth Right To Life march (what a wonderful, huge, polite and sincere army for good), the fantastic tapas at Veracan, a Spanish restaurant near the Verizon Center (the paella, seafood, sangria, steak, wonderfully prepared veggies, Spanish olives couples with fresh breads and fresh infused olive oil dips - the best) and the Pentagon, where the professionalism of everyone protecting our country is quietly and superbly crafted.

I received many e-mails regarding a post I did on China's industrial and other cyber warfare espionage - several very supportive from from Taiwan and Japan. It appears as though I "hit" on something, as my own computer was a victim of an attempted series of hacks that were identified as coming from Asia the day after I posted.
I stand by my post on the seriousness of China's grand plan of conquest using our technology against us.

And don't forget GLDD -- this little dredging company is picking up contracts along our coasts left and right. I now own stock in the company at a cost basis of $6.21.

January 18, 2010

January 19, 2010: A Conglomeration of Conglomerates

There used to be lots of conglomerates. Back in the "go-go" days of the early 1960s, conglomerates as a species were the equivalent of tech stocks in the 1990s. Just about every investment guru had their favorites to recommend. All good things must come to and end, and almost all conglomerates fell out of favor (and profits), sinking mightily into the abyss of the Investment Sea. Truth is, most conglomerate managements had no idea how to run disparate companies - many CEOs simply tried to diversify their way out of incompetence. So what's going on now?

There is a small stable of conglomerates to research. Some are well known, others not. In some cases, management has performed quite well creating slow but steady company value that should benefit the long term investor. A few are just getting started (more so in 2009 than in recent years). I omitted several from the list below because they were, under any criteria, dogs. You may find one or more of the stocks I list below to be of value within a diversified portfolio.

3M (MMM)- trading at $83.37 with a yield of 2.45%. 52-week trading range of $40.87-84.60.

7 Days Group Holdings (SVN) - trading at $14.70. 52-week trading range of $10.80-15.25. SVN owns seven hotels in China and operates other hospitality service offshoots.

General Electric (GE)- trading at $16.44 with a yield of 2.43%. 52-week trading range of $5.73-17.52. Reinventing itself,some say not for the better, after the legendary Jack Welch built this into a "best in class" conglomerate.

Leucadia National (LUK)- trading at $24.81. 52-week trading range of $10.26-26.47. LUK has operations in real estate, property management services, the gaming industry, telecommunications, manufacturing and medical product development.

Pampa Energia SA (PAM)- trading at $11.03 with a yield of 0.69%.52-week trading range of $9.33-13.83. This Argentine energy conglomerate is not widely known in the U.S., but was the big winner when it was more heavily weighted in the Buenos Aires Merval Index. PAM has many facets to its energy businesses.

Seahawk Drilling (HAWK) - trading at $23.53. A recent spin off from Pride. Focuses on drilling in the Gulf of Mexico environs.Some say this spin off did not create long-term value for newly-minted HAWK shareholders.

Starwood Property Trust (STWD)- trading at $19.88 with a yield of 2.01%. 52-week trading range of $18.26-21.71. STWD has operations within the real estate industry.

Textron (TXT)- trading at $21.88. 52-week trading range of $3.57-23.06. TXT has operations in commercial jets, defense, aerospace, general aviation and manufacturing entities such as Kantex, Greelee and E-Z-Go. Textron also has interests in the financial sector.

Tyco (TYC)- trading at $37.54. 52-week trading range of $17.25-37.66. TYC has operations in the security system industry, flow control systems (pipes, valves, etc.), heat sensing products, fire protection services, fire detection systems and many other products to promote and remediate safety. The center of controversy under a former CEO, Tyco appears to be poised to provide continued growth for long-term investors, although it may be pricey at this moment.

Wasatch Food Services (WTFS)- trading at $4.05, this company went public in early January of 2010. With a market cap of $125m, shares have edge up for a double digit percentage gain since trading commenced. Trading volume for this new entry average about 14,000/day.

Some investors, with good reason, have labeled conglomerates a poor man's mutual fund. I do not know where the winners will be in this sector. However, they deserve to be researched and followed, as diamonds sometime appear in the most unlikely places.

January 13, 2010

January 13, 2010: Investors Should See "Red" Over Massive Corporate Espionage

Enough is enough.

Corporate espionage emanating from China has reached too far. It is high time that investors recognize that western business in China, and in most democratic industrial societies, is under relentless attack by computer hackers and other agents under the watchful, deliberate eye of mainland China's government apparatus. Tens of thousands of times a day, corporate data systems are hacked. Proprietary information worth billions of dollars is stolen as a routine matter, sanctioned by the Chinese government. A recent German finding concluded that Germany loses over $50b annually in product and 30,000 jobs due to industrial espionage coming from "over a million" worldwide Chinese data mining assets. German intelligence reports that many companies are reluctant to report Chinese espionage due to fear of losing markets in China. In the United States, the estimate is almost incalculable. Do a google search on Chinese Industrial Espionage and you receive 110,000 hits. Within the US military, it is well known that Chinese hackers and other intelligence assets are probing everything from infrastructure to our space defense program. At one secret US base, Chinese computer intrusions number over 13,000 per day (yes, per day, at one facility). We are spending billions to keep ahead of China while losing hundreds of billions to them in product and proprietary information. As one business leader stated recently, any Chinese national or Chinese-related individual almost should be assumed to be mining data for the mother country. Yes,it is that bad.

Russia is on par with China gathering data. A Google search indicates over 72,000 hits on this scourge. Computer networks tied to Russian Intelligence are sophisticated and relentless, obtaining hundreds of billions of dollars worth of information and military data. Russian hackers number an estimated 100,000, based in Russia and elsewhere, feeding mined information to improve Russian technology on the cheap at western company's expense. Even more brazen, Russia ignores contract law, inviting companies into the country to, say, explore for natural resources. When these companies build infrastructure and provide technology to finally make a profit, they are often mysteriously thrown out and their assets gulped up by a Russian court, then given to an oligarch-run entity under the watchful eye of Moscow with profits propping up the Russia regime.

Neither China or Russia deserve to be held in esteem or as equal trading partners on the world stage. They are predatory, criminal operations that hark back to their formative, communist years. Both want to be the dominant players on the world stage by 2020 (generally the date estimated by major western intelligence agencies), overwhelming "corrupt" western democracies by using our technology against us. Meekly ignoring or trying to negotiate an end to their grotesque espionage tactics is done at our peril. Western companies that continue to exercise business as usual with these two dictator-centric nations are foolish and expressly complicit promoting illegal and dangerous power-politic designs.

Those that witnessed the pleasure Baidu employees expressed with massive street demonstrations and fireworks celebrating Google's threat to leave the country because of a rash of industrial espionage directed against their company (Wednesday) are seeing but one manifestation of the joy Russia and China take at ripping off other nation's best and brightest technologies and in the case of Africa, natural resources through bribes and payoffs to African state leaders.

They are winning. We are losing. It is time to stop the insanity. As many companies and almost all investors pulled out of Hitler's Germany, so should we contemplate doing as such to Russia and China. Make no mistake, they are our enemies and wish to do us harm.

January 08, 2010

January 9, 2010: Seven Ideas For 2010, So Says The Screen

Occasionally I will prepare a screen with parameters that bring far-fetched criteria into play to create a list of stocks for potential inclusion within my portfolio. Most stocks that turn up on this type of list are discarded. But, like my visual scanning years ago of Barrons and the Wall Street Journal in the 1970s and 1980s, a great (some may call lucky) stock pops up and proves a winner.

Again on the hunt for uncommon stocks to investigate, I established the following parameters for all domestic mid-cap stocks (market cap of US$2-10b). For 2009, their price performance was 20-40% below the S&P 500 Index. They had to have a current Four-Star S&P Rating, have a current PE below their sector average, be rated a Long (Buy) via Market Edge nad have a positive revenue growth projection. Here are the seven that appeared:

Cephalon, Inc, (CEPH), biotechnology and drug, trading at $63.01/share.

Continental Airlines, Inc. (CAL), airline, trading at $19.95/share.

Hudson City Bancorp, Inc. (HCBX), regional savings bank, trading at $14.33/share.

NASDAQ OMX Group, Inc. (NDAQ), investment services, trading at $20.23/share.

Pulte Homes, Inc. (PHM), construction services, trading at $11.03/share.

SAIC, Inc. (SAI), software and programming, trading at $19.06/ share.

UGI Corp. (UGI), oil and gas operations, trading at $24.01/share.

From the screen, UGI appears interesting for its blend of propane business and utility assets. The yield is currently 3.3%. NASDAQ may well rise quickly once all of its moving parts in Europe are in a stronger mode. Hudson Bancorp, yielding 4.19% has an excellent franchise and may benefit if there is a move away from so-called Big Banking urged by certain politicians and progressives. None appear to be pathetic.

I encourage investors to compile your own random screens from time to time. It refreshes the portfolio palate and stimulates curiosity not to follow the latest pontifications from the experts. There may be value as an independent thinker.


January 07, 2010

January 8, 2010: Excavating A Winner: Great Lakes Dredge And Dock

What is a dredging and demolition business doing headquartered in upscale Oak Brook, Illinois? The only thing that needs dredging and demolition in that locale are some worn out restaurants and a permanent fix for the pot holes and traffic stagnation off Cermak, Wolf and Butterfield Roads. The Kingery, too, as it spurts and stops to the frustration of commuters anxious to get home to their apartment,bungalows or mansions ringing the area.

Great Lakes Dredge and Dock has a fascinating history dating from 1890, when it moved the City of Chicago water supply intakes farther into Lake Michigan to avoid the highly contaminated waters close to shore. It dredged the land where the Museum of Science and Industry now stands off Lake Shore Drive, and much more.

GLDD, trading at $6.92/share, appears poised to be the right business at the right time with a global presence in marine construction, dredging, and commercial and industrial demolition. Great Lakes Dredge and Dock provides service enhancements and/or preservation of waterways and shorelines. This company replenishes and restores beaches on the perimeters of both salt and fresh water.The dredging part of the business has foreign and domestic operations, working for general contractors, corporations, non-profits such as hospitals and universities,and governmental bodies. GLDD is fully certified with its over 218 marine assets to restore wetlands, harbors, shipping channels and mitigate storm damage caused by events such as hurricanes. This company, while true to its roots, is morphing into areas which are deemed environmentally vital in addition to their over century-old core businesses. Twety-five per cent of GLDD's operations are overseas, with most in the Middle East.

Great Lakes Dredge and Dock is a $405m company. The average share volume for a recent ten day period was approximately 325,000. GLDD yields 1%. One analyst estimates company growth at over 50% over the next five years. I do not see excessive competition for the services it provides.

I do not see a significant downside to this security. The upside potential warrants a close look. Examining the company's history is a worthwhile exercise in itself.


January 05, 2010

January 5, 2010: Faber, El-Erian and Roach on 2010

The Financial Times featured basic comments from Marc Faber, Mohamed El-Erian and Stephen Roach. Readers know all about the first two, Stephen Roach is the Chairman of Morgan Stanley Asia.

Faber state that while 2009 produced life-time buying opportunities, 2010 will be a year of capital preservation. If asset markets were to weaken again, more fiscal and monetary stimulus would be implemented. If markets were to gain another 20 per cent, fiscal and monetary restraint would probably be applied. Faber's bet for asset markets is a volatile trading range, an outperformance of Japan and the S&P 500 compared to emerging markets. 2010 should also be, in his opinion, a good year for grains.

El-Erian looks for a multi-speed global economy, resistance to the days of carefree check-writing by governments, further steps in the journey from a uni-global economy to a multi-polar one and, as advanced economies struggle with chronic high unemployment, for policies that forgo some growth promotion for income and wealth redistribution. El-Erian states that to prosper in such a world, investors should maintain dry powder for sudden "air-pockets" in equity markets, demand better compensation for the surge in industrial country sovereign debt, and to resist the deceptive comfort of positioning portfolios for the familiar pre-crisis world rather than a more complex crisis-prone world, which is reality now.

Roach maintains that a growth scare is likely to be the major investment event of 2010. Post-crisis recoveries are typically anemic and at odds with the vigorous rebound now in favor as a dominant portfolio course in world financial markets. Battered financial institutions will be unable to sustain normal credit practices for years to come. Roach states that the deleveraging of a saving-prone American consumer is likely to hobble the demand side of the global economy. 2010 world GDP will average about 2.5% over the next three years. This anemic growth will not allow the world to have the cushion it needs to shrug off additional economic shocks if (when) they occur. A failed exit strategy by monetary authorities, or an outbreak of protectionism, are especially worrisome. Thus, a double dip or multi-dip recession is on the table. Corrections would be most severe in export-led emerging markets that are not in any sense decoupled from more mature economies. Global bond markets may rally as commodity markets correct. The past nine months of 2009 could well run in reverse.

Granted these are generally thrusts and not meant to be advice for specific securities. Nonetheless. all three are worried to one degree or another, especially about poor government decisions that will pose more problems than solutions.