Stock Ideas for October 5, 2011

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.

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Buffett Buyback

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

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A Quick Word on Royalty Trusts

Some of you have shared your comments, thank you, on some of the royalty trusts mentioned as short-term holds. Great Northern Iron (GNI) ends its trust in 2015. This is true. We do not see it as a play longer than 12-18 months as we watch the market corrections settle in.  In fact, as opportunities arise to invest, we will be taking money out of those holding tanks and moving them into other things.   It is staying within its trading range, though, which does not indicate any immediate cause for alarm. Four years in investing cycles is quite long.

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Value Investing Has Returned

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.

 

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Dips Are Value Stock Shopper Days

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.

 

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U.S. Economy 101 (in Plain English, with Humor!): How the GOP and the Media Are Shucking You

 

 

Also by Brian Ross at our sister publication: U.S. Economy 101 (in Plain English, with Humor!): How the GOP and the Media Are Shucking You.

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Have a Little Oil and Global Commoditization with that $7.00 Big Mac Meal?

Have a Little Oil and Global Commoditization with that $7.00 Big Mac Meal?.

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Why The Justice Department Should Bring Charges Against Goldman Sachs

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

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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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Exelon Execution Wanes, France Telecom’s Delicious Opportunity

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.

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