Quarterly Positions Review

I recommend a number of stocks that I have bought or hold.  I believe in putting your money where your mouth is. This is a partial review of stocks that you might acquire, add to, or hold:

Add:

ABT – Abbott Laboratories – With a fair value around 68/share it’s a bargain at 47.99. I’m increasing my position.

CTAS – Cintas Corp – Picked up at a 5.35% yield, the stock is up in price but still lagging. They are the dominant provider in the uniform business, and they execute well. As business improves, so will theirs. Hold, and increase if the stock hits the mid-twenties in any of the many upcoming market resets that I’m expecting as earthquakes and political plates shifting in the Middle East consume the news cycles.

DBLEP – Double Eagle Petroleum – A relatively stable mid-twenties stock over the last five years that mirrored the market down in 2008-2009, it pays out a 8.84% dividend at its trading range around 26.10. Worth acquiring for the dividend as long as it stays in the 7s to 8s.

EXC – Exelon – The nuclear power chatter from the Japan quake is already dying down as surveys show that the public isn’t getting terribly alarmed. Exelon remains one of the highest-rated operators for safety, and has taken over troubled operations and turned them around in the past.  Pun modestly intended, but if there is fallout from the Japanese reactors, the government will be looking favorably at operators with a track record who want to acquire plants that may be problematic for other operators.  Dividend yield at 5.0 to 6.0% is good.

SNY – Sanofi Aventis ADR – Sanofi-Aventis sells a wide variety of drugs and vaccines primarily in the oncology, cardiovascular, central nervous system, and diabetes. They are absorbing drug maker Genzyme, and issuing some debt at relatively attractive levels (2.1%) that can easily be absorbed in the coming few years as they are a high cash-flow operation. Paying at 3.3% dividend is an added plus.

KBH – KB Home – This home builder has been “beleaguered” for years, but is still one of the best in the sector. They are a very product-oriented firm that delivers a high end-user experience of the home purchase. As the housing market turns, they will be positioned well to prosper again. They have a $200M lawsuit in a Las Vegas deal gone sour, but they have Grab the stock at a price that produces a 2.1% yield or better on the dividend.

HBC – HSBC Holdings – With a yield that we locked in at the 7% range, currently at 4.7%, the  largest global bank in the world has both economies of scale and reach that no other bank can reproduce. Their subprime exposure appears to be behind them, and once the stink of 2008-2009 passes away from banks, they will probably be one of the leaders in the next generation of growth.  I’m buying a bit more at this price, which will drop my yield a bit but I think is now ready to look for growth in the next few years.

JNJ – Johnson & Johnson – Banks aren’t banks, but J&J seems to be. It was a life raft in 2008-2009, and it’s doing all right now, up a few ticks from where we bought it, with a price that currently seems to be a buy again. I will pick up a bit more. Pays a 3.68% dividend or so.

KIROY – Kumba Iron Ore LTD ADR – With a dividend on the rise at 9.14% and share price that has appreciated well over the last few years, if opportunity presents itself between 60-62.00 share snap a little of this up.  It’s just a nice vehicle to park some money while you wait for the market reset or resets in motion.

MAS – Masco – Masco operates one of the largest housing-related manufacturing and service businesses in the United States.  The firm makes plumbing products, cabinets, paint, windows, and other home products under familiar brand names like Delta Faucet, KraftMaid Cabinetry, Behr paint, and Milgard Windows. The company also operates internationally, primarily in Europe, under nameplates like Hansgrohe plumbing and Cambrian Windows.  The company was sacked pretty badly by the 2008-2009 downturn and the continuing slump in housing. They are well poised for a breakout, and meet my pretty high criteria for cash flow and discount to fair market value.  Growth plus a 2.1% dividend which will help take the sting out of inflationary pressures.

Hold:

AA – Alcoa – Industry fundamentals will improve. The dividend is paltry, but the tracking cycle-to-cycle may improve as the level of devastation world-wide from earthquakes alone will pump about a trillion dollars into the construction economy that uses a lot of materials that are lighter and more efficient. Aluminum gets a big lift in that modern building world through a whole host of products that use it. Analysts only look at a lot of micro and mid-macro factors immediately in front of their face and often forget to step back and see the forest for the trees.  This is one of those stocks.

AIGYX – Alpine Realty Income & Growth – This fund was doing very well for itself prior to 2008-2009, when the correction sent Real Estate Investment Trusts (REITs) that were highly leveraged into the sewer, and dragged a lot of the quality companies like Simon with them. The fund also had a relatively new manager, who did not act quickly enough to stem the massive outflows that hit a lot of mutual funds in those years. Alpine is digging its way out of the hole that its sector has been in, and it is largely invested in some quality companies due a turnaround, but it produces very anemic results still, and may for some time. If it does not improve production pace soon, it may be worth taking a smaller hit on it and moving into a better opportunity, but for now I am going to let it roll a bit farther. As banks heal, so will real estate and the REITs will have their day.

APU – Amerigas Partners – Purchased in one of those bounces down in 2008, it is up 87% and based upon the price that we paid for it, it yields a tidy 9.37% dividend.  If the stock ever clears 60, sell it immediately, but, for the immediate time, it’s only trading above fair market value.  Natural gas has a high switching cost, and stable rates.  The spot market for the commodity does not appear to affect their business model.

BMS – Bemis Co. – This totally unsexy company that makes paper boxes and packaging products was picked up a few months ago. It’s up 9.54% and pays about a 3.1% dividend.

BT – British Telecom – At the prices we picked it up over 2008-2009 the yield on its dividend was up to 8.15% average. The share price is still not at full recovery, but you are being paid well for your patience. The company has done a lot to turn the corner on its many problems, and has also cleaned up its balance sheet. It is on its way to a nice recovery once the business marketplace gets into full recovery mode, and, even if that was delayed, there are equipment and service contracts which they hold that have to upgrade and overhaul.  The world will move to broadband Wi-FI in the coming years, and they will be positioned well to deal with this next generation of the technology.  Many smaller providers use their network and pay them fees for that service. This is still a work in progress in my opinion.

BGEIX – American Century Global Gold Fund – Uncertainty around the world usually sends these funds up. It’s up a bit from a recent purchase, but I would not add at this time. Wait until there is some clear indication that the market is growing again to warrant a DOW over 12,000 on a regular basis. Right now stocks are over-valued, based on my calculations, although it has edged back a bit from the highs of a few weeks ago.  Well managed fund. Wait for an opportunity to buy in if you missed it.  It would have to come down a few percent for that opportunity.

CSE – Capitalsource Inc – A company that lent capital to start-ups in the mid-sized range, it became a bank in the 2008-2009 drop to avoid disaster. It dodged that bullet, and it posted a 79.85% return trouncing the sector’s -0.91% and meeting the S&P’s credit services target of 80%. This was tagged as a more speculative investment vehicle.  I need to see another year of data before it becomes clearer whether their plan has a longer range success projection.  Right now the stock is considered a dog with fleas. If the projections improve, it will take the analysts another year or two to start responding to it. At that point I might revisit it.

CX – Cemex – This is a play on all kinds of construction, from new highways and bridges to housing in almost a dozen countries in North and Latin America. Cement is a very closed-end business with a very high barrier to entry. They are also, as a Mexican-based cement company, well poised for the growth in a lot of Latin countries that are emerging markets. That’s the good news. Energy costs, which are the bulk of the cement biz, might be a problem, but they have a sweetheart deal with Mexican oil producer PEMEX for a  petroleum shale that should control that one variable well. The bad news is that their acquisition of several companies, including Rinker, which happened right at the edge of the bubble in 2007, put a lot of debt load on the company. Earthquakes and improvements in their balance sheet are making modest improvements.  They are trying to issue more equity to reduce the debt. This will water down share prices temporarily.  As with most companies that are rearranging the deck chairs after 2008-2009, most of the executives will have their assets diluted by this.  As we’re seeing, though, the shares you sell you can buy back much easier than holding on to debt which can be crushing.  I’m still holding as they have a wide moat and the expected recovery in construction as the economies around the continents in which they operate.  It would appear that they will work out their problems. HOLD.

XOM – Exxon Mobil – Up 39% since acquisition, with a 2.1% Dividend, the company is highly efficient and continuing to grow. This is one of those core businesses, until someone comes up with a replacement for gasoline.

FWRD – Forward Air – An exceptional shipping company, the stock is heavily traded. A logistics firm that work for other big shippers like Fedex, UPS and the airlines, they have established a business model that is hard to repeat, and return 25% on invested capital.

HD – Home Depot – As the economy recovers, and housing prices ease, HD will be a good bet. It’s a $67B company solely focused on its box stores and supply chain, which has no parallel, even at Lowe’s  (LOWE) which is also a good buy at times.

LMT – Lockheed Martin – A timely buy in December when it hit a dip, the stock is up 18% right now, and looks to do well as we entangle ourselves in another Middle-Eastern conflict where shooting means product sales for Lockheed.  Stock pays a 3.7% dividend.

DCM – NTT DoCoMo – Japanese cellular wing of NTT, the Ma Bell of Japan, hit a nice road bump during the reopening of the stock market after the earthquake.  It’s gone up about 10% since then, back to about the levels it was at prior to the earthquake. Cellular will continue to be big in Japan, and still bigger in areas recovering where it may be some time before land-lines are fully restored.

PVX – Provident Energy Trust – Canadian energy trust with upstream production of oil and natural gas, as well as an integrated natural gas midstream business. At year-end, the reported reserves of 59,600 barrels of oil equivalent, weighted 54% to natural gas. Similarly, production is weighted just over 50% to natural gas. The midstream business includes extraction plants, pipelines, fractionation facilities, storage, and a marketing group. It pays a 9.5% dividend at the price where we picked it up. 6.1% now, which isn’t slouchy, but it is trading over FMV so I would not buy more at this time.

RTN – Raytheon – Another defense contractor, up 15.71% since our purchase. It should also benefit from all of the missle firings, as many of the ship to shore missiles are produced by Raytheon. Our yield is about 5.8% dividend, so enjoy.

O – Realty Income Corp REIT – Reality Income, up 51%,  pays out a whopping 12.35% dividend yield based on our purchase price. One of the few Real Estate Investment Trusts (REITs) not only to come out of the dip smelling like a rose, but with a lot of cash for future acquisitions.

SCG – Scana Corp – SCANA is a registered holding company engaged primarily in generating, transmitting, and distributing electricity in South Carolina. It also purchases, transmits, distributes, and sells natural gas in portions of North Carolina and South Carolina. Through a wholly owned subsidiary, SCANA markets natural gas to retail customers in Georgia. It’s trading about flat to our acquisition price and pays out a 5% dividend.

SE – Spectra Energy Corp –  Up 28% from our acquisition price, with a 5.7% dividend yield at that price, we’re enjoying the ride. This is the spin-off of Duke’s natural gas gathering, processing, transmission, storage, and distribution assets. Spectra is one of the largest midstream companies in North America, with a favorably positioned asset footprint that should continue to foster attractive internal growth opportunities for years to come.

SYY – Sysco Corp – Off 4% to 5% right now, mostly on the fears by investors that food costs will hurt profits, which, based on their model, would seem a bit unfounded.  SYY pays a 3.5% dividend at our acquisition price, Sysco is the leading food-service distributor in the United States and Canada, with around 17% share of this estimated $210 billion market. Sysco has  a wide distribution network which spreads high fixed costs in a way that other competitors have been unable to duplicate.

TGT- Target – Paying a 2% dividend, Target has been largely on Target, with special note to its improvement in stemming losses in credit cards that added a lot of green to the bottom line.  Any corrections that take it temporarily down into the 40s would get my attention for further acquisition.

UPS – United Parcel Service – UPS will probably be generating industry best profits and some growth for years to come. We have a 2.9% yield on the dividend now. Hold. No reason to change.

WMT – WalMart – Walmart is flat from our acquisition point with a 3.5% dividend yield. Wal-Mart has benefited more than others from consumers who belt tightened, but they are also capable of capitalizing on a mild economic recovery and international growth is in its early stage.

WM – Waste Management – is up 18.23% and pays out a 5.2% dividend yield based on our price. A great company to hold and it’s not at a sale price or out of gas for growth.

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