Archive for category Buying
EXPEDITORS INTERNATIONAL OF WASHINGTON (EXPD) – This is one of the few forward growth stock plays that we’re issuing, largely because of the unique parameters of EXPD’s high cash flow, low debt business model.
Expeditors International of Washington is a non-asset-based freight-forwarding and third-party logistics, or 3PL, provider. It is the best and nearly the biggest in its business. It has been profitable, and is a long-run-focused firm sitting on a mountain of cash. It owes no debt, and produces strong cash flows of 17+% while deploying nearly no assets. Expeditors’ has had a record of steady growth, high margins, and high returns on invested capital.
We see it as a long term holding. With prices affected by sluggish demand for shipping, it is still trading near the bottom of its range. Morningstar gives it a fair market value of $61.00, so current price is about a 38% discount to FMV. The 1.7% dividend is nothing to write home about comparatively to our other holdings, but it does keep inflation out of the picture and allows time for a growth upswing in transportation which should start within a few months after the November elections here, and some improvements in Asia’s economy that are trending toward increased shipping.
It’s trading flat to down slightly (4% from our original position), but we’re adding shares as opportunities around $38.00 or less present themselves. BUY/ACQUIRE.
The economic plates are shifting. While we sit and argue about abortion and immigrants, our GDP has remained flat for a decade. China’s has soared to now rival the United States. That is not to say that America is finished. If progressive politics can replace the internationalist gridlock that corporate America has on the Congress, we might see new opportunities ahead. The next Google. The next Space X. Solar power. The modern power grid. Wind and water energy. Newer more efficient cars and trains. All of this has been held up in a political climate where narrow social agendae are grinding the wheels of government to a halt. Where to invest in this climate?
A portfolio should be holding more American Depository Receipt (Foreign) stocks (ADR)s. Even with taxes and fees, there are opportunities and yields on dividends that position portfolios well to
Right now there are good value opportunities in Europe, Latin America, Australia, and Asia.
Out of Australia comes Alumina LTD ADRs (AWC) – A linked aluminum supplier to giant Alcoa (AA), which we also hold and like, Alumina Limited’s sole interest is a 40% stake in Alcoa World Alumina and Chemicals, or AWAC, the world’s largest alumina producer. Alcoa Inc. owns the 60% balance. The stock, trading at lows in the high 2’s right now, is worth a fair market $10/share, and puts out an 8.6% dividend. The pricing is in response to the processed metal’s falling price, but reports continue to show that aluminum forward growth generally looks good as new technologies need more lighter materials with which they can be built. Alcoa posted a loss for the quarter, but still beat analyst numbers. Remembering that we buy big companies on bad news this is an area where there is some profit to be made by adding stock to the dog pound with good yields, good management, and sound balance sheets that survive turbulent times.
Europe’s bad news continues to put pressure on even the best companies. Utilities and telephone companies and other large, necessary, stabile entities with good cash flow and reasonable debt tend to be safe havens during turbulent times. They pay good dividends. They have predictable revenue streams in that regulation by governments usually provides operating parameters.
We’ve seen a nice turnaround in British Telecom (BT) over the last few years, and locked in double-digit yield on our dividend based upon the purchase price. We’ve bought France Telecom (FTE) and continue to acquire it here and there as its 12.1 to 13.5% dividend is appealing, and there isn’t any particularly compelling bad news in the company’s news itself to suggest any danger to the dividend at this time. Even if they cut it in half, though, 6.5% would still be a far better return than we can find in bonds or (stop laughing) at the banks.
We’re looking at a smaller presence in Telefonica SA (TEF) for much the same reason. The Spanish telephone company hold telephone companies in Latin America and Europe.Telefonica has more debt than the others, and will be divesting some of its non-core assets over the coming months, but we expect that to help, not hurt the bottom line on debt retirement.
Both are posting yields in the 11-13% range, which far outstrips a bond, with far better liquidity and the likelihood that both operators will do reasonably well enough as the economies of Europe recover over the next 5-6 years to at least warrant the pickup of our minimum 17% discount to the fair market value of the stock in appreciation, possibly better, plus the dividend. Dividends can be cut, but at the moment it still looks secure.
The other avenue to look down are in any company which own raw materials and precious metals or minerals. Most are highly undervalued right now, but as the recovery rolls out, they will all do well. BHP Billiton (BHP), Alcoa (AA), and even more obscure oil or resources trusts.
Cross Timbers Royalty Trust (CRT), pays a monthly dividend in the 8.8% range. It has virtually no liabilities. Other than the oil drying up in their various lease lands, the risks are relatively borne by the company doing the drilling and the pumping. Their stocks cycle in price as optimism and pessimism about oil prices surge like the tides. CRT is a domestic trust that pulls in money from lands it leases to others. A downward move in the long term would be based on decaying proven reserves. If you invest, make sure you read their reports to see what their forward projections on proven reserves are. If they have less than 15 years, the stock should already be in price decay. Great Northern Iron Ore (GNI) which we bought as a temporary refuge last year, has started its decay as the trust winds down. The interest rates are spectacular to the price, but its a comet not worth chasing as the principle will be impacted.
Alcoa (AA) – We’ve bought Alcoa in its slide down, and we’re continuing to buy as opportunities present themselves. It hit its 52 week low and at 8.39 we find it very attractive. Aerospace use is picking up, and the aluminum giant has either temporarily or permanently shuttered locations to bring production into line. With even modest improvement in usage by the auto industry, already up, which is gearing up for lighter hybrids. China and ultimately Africa represent growth opportunities, along with the retool of North America, as that slowly unfolds. Alcoa’s fortunes will advance. Analysts are being particularly hard on Alcoa and we think it a bit unwarranted.
France Telecom (FTE) – Sure it hasn’t grown much in the last few years, but with a dividend yield of 13.1% and pretty decent cash flow, we’re not crying in our beer while we wait for them to work through the sluggish European economy. Huge cash flow. We pick up a bit here and there on the dips.
American Capital (ACAS) – I originally bought into ACAS to ride the tide of the capital companies buying and developing mid-path start-ups into profit generators. It paid a tidy cash dividend. Along came 2008 and 2009 and ACAS squeaked through. Dividend suspended. I bought it down into the floor of 3.21 when it had been in the high 40’s. They’ve weathered the storm. Their debt is 20% of equity, fairly low, and they’ve turned out a 53% annualized return for the quarter alone. I hope to see them restore the dividend one day soon. At its current price, with the numbers that it generates we think its $9.60 price point is a pretty good bargain for the portfolio of companies which they hold. I cautiously acquire a bit more, and advise caution, because this business, even with a much stronger balance sheet than it had in 2009, is still at greater risk of loss or delay in returning to profitability in any major correction. Between 5 and $9, though, a good chunk of that risk is factored in.
Berkshire Hathaway (BRK.B) – Right now it is out of buy territory just slightly. If it drops into the low to mid seventies, BUY. A highly diversified company which follows a lot of strict value rules and has returned stellarly for all involved. The concerns that its leadership, Warren Buffet and Charlie Munger, are old is unwarranted. They’ve been grooming the team that runs the place for decades.
The market has been seesawing up and down. As I have mentioned in previous columns, this is apt to happen for a while. People are nervous, and when they panic it rains carnage that is the carrion of a good value investor’s diet. Here are some ideas:
MBT – Mobile Telesystems (Mobil’nye TeleSistemy OAO) – I’m not taking a huge stake in this Russian telephone company that is as big there as AT&T or Verizon is here. The uncertainties of government always loom in post-Soviet Russia. This company not only has great growth potential, it is also turning out an 8.8% dividend on yesterday’s closing price. It also was trading at over double its current price within the last 52 weeks. The rest of the world economies drag on price more than anything organic to MBT’s marketplace.
EXPD – I like logistics companies. High cash flow, low overhead, and very low debt. They don’t own anything. They broker the deals to get freight moved at better prices. We held on to Forward Air for years, until it hit a peak before the last roller coaster and we sold it. Expeditors International of Washington is the performance leader among non-asset-based freight-forwarding and third-party logistics providers. This blue chip logistics firm, which pays a sub-inflation 1.3%, looks like a good buy as long as it stays below 41.00 a share.
We go in and out of 3M (MMM) as prices dictate. The company is on the bottom of a cycle pushed down only by larger economic forces. It’s a good buy below $80.00.
France Telecom (FTE) is still a great acquisition. They own a huge chunk of Europe, and are making other international inroads Their stock pays out a 10.10% dividend at yesterday’s close. Not bad.
With a long time horizon in mind, two of the larger housing builders with the legs to ride out the current recession I acquire when they hit bottom-feeder prices. KB Home (KBH) and Toll Brothers (TOL) are lean, mean, and well run. Banks don’t want foreclosed properties, so they’re pushing short sales hard. There will be a bubble of these that will soak up much of the housing demand for a year or two. After that, as inventories in over-extended properties dry up, building can begin back on the road to normal. These two builders look to profit the most from the recovery. KB Home pays a 4.5% dividend that warrants your patience and is a bargain today at about 5.55. It’s a deal under 9.80. Toll Brothers does not, but also has a great footprint once we end this long, gloomy part of the cycle.
Remember that all of these stocks are suggestions and based on actual purchases made. You should research further on your own, ask your stock guru, investment advisor, priest, rabbi, mystic or whomever else gives you investment guidance.
The air has been let out of the last run up in the market. Currently 41 stocks appear in our value window, a significant increase from the handful that were there when I recommended for you to sell anything which may be unable to turn a bigger profit in the next 24 months while the stocks were at the top of the market.
Of them, seven are in high value territory, with one, Avon Products, an avoid at the moment until we see more about what they do to navigate through their troubles. Several have already been recommended. Credit Suisse is a possibility, but we are still studying it.
Buy of the day is PayChex Inc, (PAYX). About a 4.75% dividend on a stock trading at 26.00-26.10 today which is a great buy for a company with a wide moat, great growth prospects and a leader in its industry.
The market has again hit overheated levels. Our valuation tool, which, in a pricey market will sport 20 stocks, about 8 of which are in good value range is down by 50%. Only 10 stocks make our “window” and of them, only two, Abbott Labs (ABT) and France Telecom (FTE) are still in an attractive range, although they were far more so earlier in the year.
We have already positioned stock portfolios to some of the high yield companies that were discussed here previously.
If you have made good money, particularly in a stock that would be market sensitive to a correction or two, now may be a good time to sell it and take your profits. CDs trade at below-inflation rates after taxes. Money markets have had troubles in severe corrections cashing out quickly. We feel that high yield stocks are your best bet for return and relative stability (They’re still stocks, though, and subject to some level of correction along with the market. Use the charts from 2008-2009 as your guide to see how well these companies do in a downturn.)
If you see a stock, however, that can ride through a few oil-driven corrections (The likely thing to be blamed for a correction), then you should just consider sticking with it and riding out this latest wave on your stock surfboard.
When the wave crashes, it will be time to buy again.
Three opportunities continue in the market, with little else looking particularly well priced for a value play of the kind that I seek out with high cash flow and something of a dividend to pay for your patience. Exelon, France Telecom and Abbott Labs have all been acquisition targets, and if you bought them earlier you are seeing the float upward with the market right now, with a small spike for Exelon’s merger news.
You are currently browsing the archives for the Buying category.