March Thoughts and Buys

As I’ve mentioned before recently, the market is highly over-valued, based on the metrics which I use to follow value stocks.  I told you about three weeks ago to take some profit out of your investments from 2008-2009 that have already hit windfall levels. Hopefully you did so. Now you have some cash to reinvest.  Where?

With a lot of stocks well off to the races, and the hustlers manipulating the market via CNBC telling you that stocks that are hugely over-valued like Apple (AAPL) can see no bottom, you should especially be worried about that kind of advice.

Counter-cyclical investors like me get out during the good times, take our profit, invest in something relatively price stable in an essential commodity or essential commodity carrier/transporter/developer.  When the correction deflates either individual stocks, or a sector, or in the case of 2008-2009, most of the stock market, many of these investments which are higher yield and based in things like oil and gold tend to be where the brokers seek some refuge to ride out the storms that they create.  At that point, we sell to them, and pick up their leftovers in the equities world and wait for them to find the value in these stocks once more.

New Directions

The market seems to be gearing up for a recovery in housing. It will be painfully slow, perhaps, and there will be some reverses as the foreclosure situation rolls out from the greed and recklessness of the first decade of the century, but overall, this may be a good time to start looking for opportunities in the inevitable return of the housing market to at least late 1990s values.

Right now, a few gold funds have been running to the negative this year, which is a good time to get in.  There are also a number of equities that interest me.

Buying

I continue to acquire a bit of First Eagle Global Fund Class A (SGENX/SGE1Z) as my original investment has done very well, and they hold a number of stocks that I do not. It is a loaded fund, but the more you buy, the lower the load.  Loaded funds, particularly with a 60 day exit load for selling early, are good instruments, though, and this team at First Eagle has done a stellar job of navigating through very turbulent times.

To that end, I invested in First Eagle Gold Class A (SGGDX). It has a pretty impressive track record of 26.23% over the 10 year, 16.99% over the 5, and 38.72% for 1 year. It owns about 13% of its assets in gold at the moment. The rest are mining stocks and other instruments. Again, it carries a load, but the load is a good firewall against a run on the fund by speculators and in tough times.  I also put some money into American Century Global Gold Fund (BGEIX) because it is well managed and has performed well.

Gold or precious metals related funds, stocks or the actual metal should be around 10% of your portfolio mix.

Movement in housing prices, some moderation of the foreclosure problems in mortgages, and the rise in price of housing-related stocks in the last few weeks set me off to look at housing plays again. I like two:

MASCO Corp (MAS) had a disappointing quarter and is paying for it with investors, but it is poised to benefit in the long run by the housing sector recovery.  KB Home (KBH) is being hit with the added good news of a $200M judgement against them in Nevada after a deal in the Las Vegas area went sour. They have about a billion in the bank, though, and they’re one of the smartest players in new home construction. The bad news with the suit is depressing the stock a bit. It makes me smile.

I’m also combing the preferreds to see if there are opportunities. A higher-risk investment that yields well is Double Eagle Petroleum Co. Preferred Series A. It pays 8.58% to 9% on a 9.25% Preferred that trades in a relatively stable range when the market isn’t in freefall. Even in the dark days of 2008-2009, it held about 50% value, which, relative to other oil and gas drillers is pretty admirable (I would have bought more at 12-13). Double Eagle is a small oil and gas exploration and production company with a market capitalization of approximately $116 million. The company’s reserves and production are almost entirely natural gas which in the current pricing environment for natural gas is not a positive. Nearly all of the production and reserves are located in the Atlantic Rim and Pinedale Anticline plays located in the state of Wyoming. However, the common stock price has soared recently, more than doubling since the first of the year. This may be the result of the Niobrara acreage the company owns where investors are betting the company strikes oil. The company has 70,000 net acres and has plans to begin drilling in 2011. The company also owns 12 miles of underutilized pipeline assets as well as interests in other oil and gas plays that include Madden Deep in Wyoming, Whiskey Buttes in Wyoming, and the Table Top Unit in Utah.  Word of Warning: The preferred shares have a liquidation preference of $25.00 with no maturity date, which is the good news, but they can be redeemed at any time, at the company’s option, on or after June 30, 2012 for $25.00 cash plus accrued and unpaid dividends.  I don’t see this as a long-term investment, though, so it fits the profile of parking lot for the correction.  This should be a smaller investment.

I am still buying Master Limited Partnerships, Royalty income and Real Estate Trusts with heavy mineral or timber assets as a temporary shelter until we see a correction or corrections that bleed the market down into the 11,000 range or take it lower.

Cross Timbers Realty (CRT) (5.8% DIV) was up about 4% so I’m holding on my incremental buys, but Cherokee (CHKE) (4.66% DIV) which licenses brand clothing largely for Target was down a bit, so I will try to grab a little more. Likewise Dorchester Minerals LP (DMLP) (5.28% DIV)

In terms of longer investments keep an eye on ENI SPA (E). It has a Libyan oil operation which has dinged the stock about 5% over the last two weeks. It might be hit a bit more, at which time it may return to value range for a short time. Current dividend yield is 5.7%, but when it’s in a more ideal range, that yield pops up into the 7%.  ENI is one of the biggest producers in the world, right up there with Shell and ExxonMobil.

Great Northern Iron Ore (GNI)(12.3% DIV)  is up 10-12% since I recommended it, so if you’re incrementally buying you want to wait a bit, or maybe give up on it.  The 12.3% dividend though is hard to turn down.

Marine Petroleum Trust (MARPS) is in trading range with a 6.79% dividend yield. Getty Realty (GTY) (8.52% DIV) which leases oil stations and other petroleum-based stations is flat right now and can be acquired, Tidelands Realty Trust (TIRTZ) (9.39% DIV) is also in a good acquisition target range.

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