The Genius Guide to Value Investing

What the Fed can’t do, Warren Buffett, whose Berkshire Hathaway is probably more sound than the Fed in many ways, particularly in investor sentiment and trust, is doing. The Omaha Billionaire who may be the last of the great American tycoons signaled that Berkshire would be buying back its stock, which it thinks is cheap, under some strict guidelines.

http://www.ft.com/intl/cms/s/0/f7b22a60-e846-11e0-9fc7-00144feab49a.html#axzz1Z8uZgbq6

While CNN and FOX News will try to terrorize you and tell you that your 401K will never come back, and idiots at the brokerages who are inculcated in the lemming theology cry of the fictional, phoenix-like “Flight to Quality” putting you in Treasury bills of very dubious quality that take your earnings up in flames, there are LOTS of ideas for value purchases when the window opens on a day like today.

We told you a few months ago that our time-tested value window of opportunities had become so small when the DOW hit the upper 12’s. The mid 11,000 range seems more appropriate to what is happening in the economy of the United States for “fair” value of the Dow.  As of yesterday, we had 42 stocks in the window, 16 of which represent more significant value opportunities.  Here are a few:

BHP Billiton PLC ADR (BBL) – Under 66 it’s a buy, currently trading at 59 and change.  BHP Billiton is a diversified miner. It supplies aluminum, coal, copper, iron ore, mineral sands, oil, gas, nickel, diamonds, uranium, and silver. That diversification allows a lot of stability to its investment platform.  A 2001 dual-listed merger of BHP Limited (now BHP Billiton Ltd.) and Billiton PLC (now BHP Billiton PLC) created the present-day BHP Billiton. The two still operate as separate firms but are overseen by the same board and management team. Shareholders in each company have equivalent economic and voting rights in BHP as a whole.  It also pays out a 3.1% dividend, which is fine.  THIS MOVES FAST on opens. You should pay no more than $62.00 for it when it drops. Do not chase it up to 66 on these dips. On a regular week that is stable, 62-66 would be a good range.

Illinois Toolworks (ITW) at around 43.00 is a nice “grimy” company that grinds out steady dividends by making innovative products in seemingly mundane markets, while supplementing its growth with a very productive serial acquisition program. They are positioned in 57 countries and are worth a look. At about a 3.4% clip, the dividend is good.

Nokia (NOK) is a good-old-fashioned value play. They shot themselves in the foot with their phone operating systems and badly misjudged the market. They are now working with Microsoft on a series of Windows 7 phones that should get them back on a better track.  At 5.00 or less, though, how can you beat it?  They pay a 9.00% dividend at the moment. That dividend may go away for a while, as the company has been in a fall for a while, but I doubt that Nokia will go away.  It may not return to former glory, but I can see it as an $11/12/share company in a couple of years if it rights itself.

In spite of the cynicism of the analysts, we think that Johnson & Johnson (JNJ), which is still trading in its mid-range around 60.00 even after the dip, not only has a bright future, but is one of those bullet-proof stocks that when people are looking for major commercial quality keep going back to.  The dip would be a good time to add to France Telecom (FT) a bit, which puts out a 9.12% dividend, has been plagued by its own bad PR and by a European market that has been on its knees as much as the American market has. The defense contractors are taking a hit on worries about cuts in defense spending, but given what is already in the pipeline, and the incredible difficulty in killing “necessary” military projects, it would be years before that effect might be felt. In the  meantime, Lockheed Martin (LMT), General Dynamics (GD), and Raytheon (RTN) are all selling in value range.

There are also high-dividend stocks that are not value plays, per se, but whose yields are bond-equivalent and far surpass the T-bill.  Based in natural resources, oil rights, and precious metals leases or development, they maintain their price because they are fixed to tangible assets of value.

Companies engaged in very fundamental things stay amazingly stable through these periods. There are not a lot of swing in them.  Right now, you’d be lucky to scratch a few points of interest out of a T-Bill, but Great Northern Iron (GNI), which has been trading between 92 and 158 over the last 52 weeks has hovered around 100 to the plus or minus a bit, and is paying out an 11.9% dividend at yesterday’s price.

Watch this interview from CNN.  Elliot Spitzer with Rolling Stone’s Matt Taibbi: