Archive for category Selling

Sells: Peak of Cycle Hitting – Time to Look at Selling Targets

The peak of a cycle is about to hit in the American stock market. My research “window” that determines which stocks to invest in is telling me that the DOW at this level is not sustainable, and that there will be a moderate correction.

The Great Recession started right after my window hit 4 equities. Following the GR, it was nearly 330.

Currently the tally of high quality equities selling at a discount to fair market value that also pay a small or better dividend is down to 14 stocks, most of which I already have a stake in.

Most stocks will get held.  You want some cash to invest into a correction, though, so you look to stocks with either a murky future in the middle of a correction, or that the correction will directly impact.

So, what to sell?

MSFT – Microsoft – Their Windows 8 roll out will sell millions of copies, but it isn’t slowing the slide they’re in with both Google and Apple. Their phones might be a bit of a bright spot, but XBox is GAME OVER until they deliver something new for Christmas, which had best be 2013.  It may be that Microsoft gets its act together, but if there is a correction, investors will probably short it down for a while.  We have a slight profit in it, about 5-6% plus dividends. We’ll get out after three years and watch to see if there is another entry point. SELL

NUE – Nucor – We’d happily get into Nucor again at discount to fair market value. We’re holding a nice 23% profit in it, plus the dividends locked in around 5.235%, so it’s been a nice ride. Steel will feel a pinch if the wingnuts in Congress let the sequester roll in.   SELL.

BT – British Telecom – We’re only up about 5.3% on the stock, but we made a killing on the 8%+ dividends over the last few years.  We’d buy it again, but the credit downgrade of the British is going to push it down, and we’d rather re-buy it at a discount to fair market value and lock in the profit. SELL.

LOW – Lowe’s had a very nice 28% run up since we bought it, but if there is a correction where the automatic sequester kicks in, the fear of it might affect the price for a time. The forward outlook isn’t as rosy as our other holdings. We’d rather hold our profit.  Great company. Again, no problem getting back into it if the circumstances are good.  SELL.

EV – Eaton Vance – We’ve done very nicely by Eaton Vance over the years, but their forward outlook isn’t great, the profit is there, and the market is likely to correct, possibly aggravating Eaton Vance’s issues. We probably won’t be back into this stock/sector in the near future. SELL.

ABBV – AbbVie Inc –  We might revisit this pharma company that makes Humira, but the profit was good, the forward outlook a bit murky, and the dividend just not good enough to lose the gain on the equity side of this investment.  SELL.

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SELL: Kaufman-Broad Homes KBHome (KBH)

KB HOME (KBH)

We’ve owned KBH a few times over the years.  Our current investment in KBH is up 14.92% since our purchase in the spring, but forward forecasting at least for the next 12-18 months does not look promising. In addition, problems with KBH’s mortgage lender, and some bad choices as to streamlining costs are not putting the company in a competitive frame relative to other volume builders.  Its debt remains too high, and is not trending well. The divided was also recently cut.  So we’ll take the gain and the small dividend (1%) and call it a day. If KBH can put itself back on track, and the price is right, we’d revisit them as a buy, as much of their model still works.  SELL.

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TheValueGenius Sell: Lockheed Martin (LMT)

LOCKHEED MARTIN CORP (LMT)

We’ve been selling Lockheed Martin (LMT) – It has been entirely profitable, and the business is very sound, but with about a 25.75% gain to be had, plus locking in some great dividends, our real return total has been about 38%.  Not bad for a year or two’s ownership.

After the November elections, it is possible that the Congress might actually return to doing the people’s business, and, with that, consider how to get the vast overspending of the Reagan/Bush years behind us.  Defense has been a cash cow for a long time. The move towards drones and other more effective/less costly projects will impact LMT, as will what will be certain to be significant cutbacks in U.S. defense spending, even with the industry’s heavy lobbying.  The closer you get to election time, the more this will start weighing on analysts. SELL.

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Value Genius Summer Equities Review – 2012 – Sells

It’s been a while since I reviewed the portfolio. I have had a few people tell me that Armageddon in the financial world is imminent, and that we won’t see a 12,000 DOW again ever. Take the profit and run.

My model assumes that there are apt to be a few shocks relative to the situation in Europe, not another melt-down.  The downgrade of the 15 banks last week was already priced in. Corporate profits remain at all-time highs.  I do not see a lot of cash-strapped companies, or a market near as over-heated as we had in 2008/2009.

As we approached the Great Recession, you may recall that I wrote to you that my “window” on the stock world had hit an amazing new low. Stocks were so overvalued that only a small handful, three or four, were in view. After the sharp correction there were nearly 300.  Today’s “window” features an average number of companies, about 39-49 suggesting that the market is not greatly over or under valued.

We’ve profited on discipline and patience. This is not a time to change that course, in my opinion. This is the way of value investing. If you buy a stock at a 17% or better discount to fair valuem you watch the tree, not the forest of the DOW.  We make money in up markets, down markets, and every one in between because companies with intrinsic value may sink for days, weeks, months or even years, as has been the case with the banks, but these dogs have their day.  We will always have “crops” growing and those ready to harvest.

If you avoid high flash stocks like GOOGLE, Apple or Facebook, which are darlings one minute and run out of the next, you can find profitable, reliable, and more shock-proof securities in grungy, “must have” lines of work.  Pipelines and big staple companies like Proctor & Gamble were places of refuge for many an investor not wanting to get hosed on the sale of flash stocks and then run into an equal screwing in near-zero Treasury instruments.

Here are my review of certain stocks, with an eye towards having cash to buy as the micro-corrections of Europe’s Greece mess roll out.

SELL:

Home Depot (HD) – I’ve run about a 64.98% profit plus dividends to a 73% gain, which factors to about 14.72% per year.  In another year or two, it could be more, if the housing market picks up. On the other hand, we can’t complain about the gain, and the possible bounces of the market could jeopardize a tidy profit. If it runs away, it was a constructive relationship. If it drops again, we might pick it up on the next rebuild.

Raytheon (RTN)  & Lockheed Martin (LMT) – Up 21% to 23% there is a bit more ride in these, and a very nice dividend, but once reality hopefully seeps into the Congress, and a holistic approach to the budget takes hold, defense contractors can expect to see some contraction in their business forecasts.  The Pentagon isn’t pushing for things that their paid spokespeople on Capitol Hill are pushing for, and that is going to be the wedge that limits upside, in my opinion.  Wars are on the decline, and governments are cash-strapped as it is. Sell.

Pembina Pipeline (PBA) – Me, sell a pipeline?  Pembina pays a 6.1% dividend, but we made a 37.52% gain on it, and indications were that it will slide down a bit for a while.  It’s Canadian, so we don’t pick up the tax benefits of a Kinder Morgan (KMP).  It’s small, so it doesn’t have the scale of larger carriers like Trans-Canada (TCP).  It also had a spill in Alberta, which is causing Canadian regulators to look at them again.  Nothing has been done to them yet, but I’d rather watch this from the sidelines. When it drops again we may revisit it and take the ride again.

American Express (AXP) – American Express has a great model, but its rep with small and medium merchants has risen to fairly awful levels.  They’re trying to repair that damage, but their pricey merchant fees have stunted forward growth.  It’s slightly above where we bought it a couple of years ago. The pale dividend of 3% at the price we purchased it was not enticing enough to wait it out. It’s also in the financial services sector, for better or worse, which also could add extra anchor to its growth potential. SELL.

DIAGEO (DEO) – The spirit maker moved into an intoxicating 15% average gain.  I see it as slightly overvalued, about $8.00 over fair market. The 2.1% dividend isn’t enough to hold it in an over-valued situation. We toast its benefits.  If there was a sharp correction, I’d be back for another round.

Analog Devices (ADI) – An 18.21% profit on this chipmaker and a 5.6% dividend based on the price that we acquired it were pretty good. The company is well run, and I might have held on to it save the fact that chips are vulnerable to macro economic conditions like large market corrections. Europe’s potential gridlock put it on the sidelines until we see how things play out.  I’d definitely be back into this stock if the price and the market conditions are right for long-term opportunities.

Illinois Toolworks (ITW) – A 27% gain and a 4.2% dividend at time of purchase made this an unusually short love affair.  It’s fair market value has become more of a question mark. I get a lot of disagreement from the different services I research.  We’ll take the lock on the gain, and see if there is another opportunity for it again later.

Double Eagle Petroleum (DBLEP) – A small preferred with a 9%+ dividend, I bought it to hold through some bumpy months last year as a cash cow. It was about flat where we bought it in terms of the share price last year, but it still returned about 8.8% on our money for a year, which sure beats the bank, a CD or a savings account.  We’ll keep it in mind in future if we need parking space again.

 

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Over-Value Alert

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.

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Sell Affirmed

If you look at Morningstar’s article on Warren Buffett this morning, the Oracle of Omaha is doing what I’m doing as well: Seeing the oversaturated market, taking profit, and waiting for the correction.  With oil unrest taking center stage, the pretense for correction exists. Add to that my recent recommends in oil and mineral rights stocks that pay 7-10% dividends are all up 3-22% over the last two weeks and you have the signs of a shift.

If you made some money on it, and you don’t want to ride the ride another cycle, get it gone.

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Time To Harvest Your Stocks

According to my time-tested indicators, the market is very, very overvalued right now. That is not to suggest that a large or sharp correction is imminent, but certainly there is little doubt that, with prices as high as they are, a little bad news or some collective profit-taking by mutual and hedge funds could cause a reset of at least 3%-5%.

If you have followed my column that was formerly on Morningstar.com, as value vultures, we were engaged in buying stocks of companies that would benefit from the calamities in the market which had found themselves wedged in the circumstances of fear and credit crunches.

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