Is It The Right Time for Mid-Cap?
Interesting WSJ article that pitches domestic mid-cap stocks for its timeliness. However, the PEG ratio comparison is quite misleading. Given that the economy has more downside risks than upside ones, it is prudent to assume the growth potential implied in these growing P/Es will not materialize.
Disclosure: I'm still in favor of large-caps. There are still quite a few value plays.
"Investment professionals define midcap stocks in varying ways. But the definition used by Standard & Poor's -- stocks with market capitalization, or total stock-market value, of $1 billion to $5 billion -- is one measure that is fairly widely used. So far this year, the firm's S&P MidCap 400 index is up 10.2%, surpassing the 7.1% climb of the S&P SmallCap 600 and the 5.3% rise of the large-cap S&P 500-stock index. ... Midcaps have been getting more expensive than large caps by some measures. The S&P MidCap 400 is trading at about 18.2 times expected 2007 earnings, while the corresponding price-earnings ratio, or P/E, for the S&P 500 is 15.9, and that of the small-cap index is 19. However, Standard & Poor's Mr. Young ..." Full StoryVonage: IPO to Bankruptcy in One Year?
I'm so glad I didn't take Vonage's invitation to partcipate in its IPO. Less than one year after, the VOIP company is seriously looking at bankruptcy as an option.
"Vonage Holdings Corp. says bankruptcy is among the potential risks from its continuing patent litigation with phone giant Verizon Communications Inc., as the Internet calling start-up's problems deepen. Vonage made the statement in its annual report to the Securities and Exchange Commission yesterday. The case pits the second-largest U.S. telecommunications company, Verizon, against a start-up that once promised to revolutionize the phone world by offering discounted Web-based calls. Instead, Vonage's existence is now in question as competition from cable and phone companies mounts and its legal woes have worsened. A federal jury in Virginia ruled last month the company had infringed on Verizon's patents, and a judge ordered an injunction on its service. Vonage is contesting the decision; its service has been unaffected so far ..." Full StoryForeign Markets Provide Better Diversifaction Now
WSJ reports that the correlation between US market and other developed markets is becoming weaker, suggesting exposure in foreign markets can achieve better diversification now.
"Textbook theory suggests that investing abroad helps to diversify a portfolio because overseas stocks are influenced, at least in part, by local economic conditions and interest rates. Therefore, they shouldn't necessarily move the same way as U.S. stocks. Correlation is measured on a scale of 1 to minus 1. When markets are moving in perfect unison, they have a correlation of "1" and when they move in exact opposite directions, it is "minus 1." (At "0" there is no relationship.) During the two-year period that ended in February, correlation between U.S. and other developed markets was 0.63, according to ING Asset Management. That is a big decline from 2003 to 2005, when they practically moved in lockstep, at 0.93. (The figures are based on monthly ..." Full StoryFinance Market Commentary, The UK Flavor
Facing the turmoil of recent global financial market slowdown, it is probably helpful to get some perspective from outside the U.S. One can certainly count on Financial Times for some good editorial content from the Europe, but how about some grassroot content? Finance Markets is one site you can get some fresh content of what's happening in London, another capital of financial capitals. Elaine Frei, the sole author of the site, regularly delivers 3-5 posts a day on various financial market topics since 2005. For example, recently she provided a day-by-day account of the volatile global markets, and shed light on many UK-specific financial events, like the transition away from salary pension scheme, the UK real estate market fever, the public worker pay raise stalemate ... Full Story
10 Tips for Value Investors
In 2002, Fool.com recommended some of Bob Olstein's wisdom on value investing. I am a huge fan of value investing and do believe in the right hands, it can be used to consistently beat the market. Despite the passage of five years, it is still worth reading:
"1. Buying companies with excess cash flow (more cash coming in than going out) is the best defensive maneuver against financial risk. 2. Volatility does not represent risk but creates opportunity. 3. Risk is defined by financial strength, predictability of cash flow, and quality of earnings; as opposed to the size of company, number of years in business, and the volatility of the stock. 4. We would rather spend one night with a company's financial statement looking behind the numbers via an inferential analysis, rather than one day with management. Management is not the answer to error avoidance and defensive investing. 5. Waiting for the catalyst to appear before buying an undervalued stock will result in the purchase of a fully valued stock. 6. The ..." Full StoryManaged-Futures Funds Available To Small Investors Soon
Want to play in the future market? Mutual fund innovator Rydex is going to launch an open-end managed futures fund next month, enabling anyone with at least $2,500 to have access to the future market.
"A fast-growing but risky investment strategy is opening up to small investors: managed-futures funds. These funds, which typically invest in futures contracts tied to currencies, bonds, commodities and other investments, have traditionally come with high fees and minimum net-worth requirements that kept them off limits to many investors. Now, fund companies are planning new products that will give small investors relatively low-cost, easy access to the strategy. And some financial advisers say they're increasingly recommending managed-futures funds to individual investors. Rydex Investments, Rockville, Md., is set to launch a retail, open-end managed-futures mutual fund in March. With a minimum investment of $2,500 and no income or net-worth requirements, the Rydex Managed Futures Fund is more accessible than most traditional funds of its kind. The fund ..." Full StoryWhat Is Mortgage REIT?
Morningstar's analyst Erin Swanson masterfully explained what is Mortgage REIT, and why it is not a timely bet in today's market. I invested in one of the Mortgage REIT before (which later merged with an investment firm to today's Friedman, Billings, Ramsey Group - FBR) with some good gains, but that's back in 2003.
"Generally speaking, a REIT is a company that invests in income-producing real estate assets--at least 75% of total assets--and distributes a minimum of 90% of its income as dividends. In fact, many REITs distribute 100% of income to avoid corporate taxes. Despite not being taxed at the corporate level, the majority of the dividend paid to shareholders is taxed as ordinary income, which is higher than the normal rate for dividend income. To understand the tax consequences of investing in REITs, we would suggest contacting your tax advisor. More specifically, mortgage REITs represent a special segment of the REIT universe, owning little or no operating real estate. Instead, their assets are almost entirely real estate debt investments. Mortgage REITs profit on the spread between the ..." Full StoryExxon Mobile Is Minting Money
$39.5 billion annual profit! That's more than $100 million a day and $1,252 per second. It will be hard to exceed, even by Exxon itself.
"The world's largest publicly traded energy producer and the largest public U.S. company by market value racked up a $39.5 billion full-year profit -- about $108 million a day, and the latest in a string of record Exxon profit reports. But its fourth-quarter net income dropped 4% from a year earlier, underscoring the industrywide challenges that rising costs and lower commodity prices present to matching previous fat profit reports. ... For Exxon, Wall Street is hoping its reach and breadth will help it continue to draw out new supplies of oil and natural gas and eke out fatter margins than its rivals on its so-called downstream business, which makes and sells refined products like gasoline. So even though Exxon might not break its own record ..." Full StoryThe China Stock Market Is Red Hot
The China stock market is obviously a bubble that will surely burst. Two good examples:
1) More brokerage accounts were opened in one week in 2007 than the whole 2004.
2) China Life, a local life insurer, is trading at 200 times of P/E
Since November, I have gradually downsized my exposure in the China market from a peak of $40,000 to about $5,000 now. It is always good to know when to call the stop.
"As China's stock market continues its record-breaking rally, regulators are increasingly expressing concern that the country's growing ranks of investors are doing everything from mortgaging their homes to borrowing against their credit cards to get in on the action. China's stock-market benchmark, the Shanghai Composite Index, rose 130% in 2006 and has continued to soar this year, placing Chinese stocks among the world's top performers. Yesterday, the index gained 2.2% to 2945.26. In a frenzy that recalls the late-1990s dot-com boom in the U.S., the rally has drawn in a new generation of investors. Online trading is spreading rapidly, and in recent weeks individuals have been opening stock-trading accounts at the rate of about 90,000 per day, 35 times the pace of a year earlier ..." Full StoryCommon Misunderstandings of Stock Market
Here is a list of some of the biggest misconceptions that the average trader believes. 1. There is a such thing as a perfect system. I assure you there is no perfect system. You may feel you need to convince yourself that technical analysis, trend following, fundamentals, options hedging, or any other system does not work, but there is always somebody somewhere making a lot of money using those very things. Simply find an approach that fits your personality and develop it. 2. Day trading does not work. Day trading absolutely works. Though I would not recommend it for most traders, those with the time, the resources, and a high level of discipline do very well. 3. You are using the proper time frame in ... Full Story
Bank of America Surpassed Citigroup in Market Cap
Bank of America (BAC) finally reached this milestone. I have both horses in my portfolio since last November and I cannot complain the performance so far: 22.5% return on BofA and 12.7% on Citigroup (C).
"There is a new biggest bank on the block. After a 30-year fight to prove that a once-sleepy southern bank in North Carolina could best the giants of Wall Street, Bank of America Corp. has overtaken Citigroup Inc. as the world's largest bank by stock market value. As of the 4 p.m. close of trading on the New York Stock Exchange, Bank of America's stock market value, also known as market cap, was $243.71 billion, 0.1% higher than Citigroup's market value of $243.52 billion. Bank of America said it was business as usual at its Charlotte, N.C., headquarters, with no champagne toasts or celebratory emails from senior management. A spokesman said the company was simply gratified the market "is recognizing the progress we're making at ..." Full StoryIs Anheuser-Busch (BUD) A Buy?
Bob Frick at Kiplinger's Personal Finance argues Anheuser-Busch is a great value now. Although I drink Bud a lot, the current P/E ratio is too rich for my taste.
"The truth is, investing in what you like isn't always the best strategy. Sometimes what makes the most sense is to invest in what's cheap. And I'm not talking about $5.24 for a six-pack of Bud versus $7.99 for one of Sam Adams at my local supermarket. At its November 15 close of $46.92, Anheuser-Busch (symbol BUD) trades at 17 times estimated 2007 earnings of $2.80 a share, according to Thomson First Call. By contrast, Boston Beer (SAM), at $35.72, sells for 26 times estimated '07 profits of $1.40 a share. True, Anheuser-Busch's sales have been torpid the past few years while Boston Beer has been growing quickly. Also, Anheuser-Busch's stock has done little, basically waffling between $40 and $50 a share the past two ..." Full StoryHow To Buy QQQQ Without Commission
QQQ Direct is NASDAQ-100's DRIP program, which allows you to buy into NASDAQ's top companies at as little as $10 a month without paying commission. Good deal for starters!
"QQQDirectSM is an affordable online investing service where you can purchase the NASDAQ 100 Tracking Stock, an exchange-traded fund (ETF) based on NASDAQ’s 100 largest non-financial companies, ticker symbol QQQQ. The QQQDirect plan makes available one Plan Purchase of QQQQ per month free of any charge of any brokerage commission. You can invest as little as $10.00 or as much as you want in QQQDirect once every month with our AutoVest Schedule. Investing in this manner allows you to take advantage of dollar-cost averaging and diversification regardless of your budget or level of investing experience. And, you don’t have to pay any brokerage commission to purchase. The QQQDirect plan makes available one FREE Plan Purchase of QQQQ per month. Each additional Plan Purchase of QQQQ ..." Full StoryKraft (KFT) Spin-Off At Altria (MO) Is Near
Today is a good day for Altria investors, myself included. Management of Altria (originally Philip-Morris) is now fully committed to spinoff the food maker Kraft Foods Inc., which will supposedly unlock lots of the value in both companies. Should I sell today, Altria will be my first double-bagger in stock investment.
"Reflecting an increased level of comfort with the U.S. tobacco-litigation situation, Altria Group Inc. (MO) Chief Executive Louis Camilleri reiterated Thursday that the company's board plans to announce the timing of its spinoff of Kraft Foods Inc. (KFT) on Jan. 31. Speaking at a Morgan Stanley investor conference, which was available over the Internet, Camilleri said the company will have 120 days from the date of that announcement to distribute its 88.6% stake in Kraft to shareholders, under Virginia law. The timing of the announcement, first revealed last month, is widely expected to be the first step of a broader corporate restructuring plan that could eventually include the spinoff of Altria's Philip Morris International unit. The company also owns Philip Morris USA. During his remarks ..." Full StoryStock Holdings By Our Congressmen
If only judged by stock holdings, I should probably be labeled as a pure Republican. I own Altria and Coca-cola outright, and also have a drug company (Pfizer, PFE) and an oil company (Conoco-Phillips, COP).
"According to CRP's list, the most popular stock in Congress in 2005 (the most recent year data are available) was General Electric, which was owned by 103 Senators and House members. Rounding out the top five were Pfizer, Cisco Systems, Microsoft, and Intel—all household names and all stocks owned by countless mutual funds and large numbers of individual investors. "If you looked at any random group of investors in the country, this is probably what their portfolio would look like," says Jim Angel, an associate professor of finance at Georgetown University. The data really start to get interesting when you compare stocks and party affiliation. For example, while 46 Republicans owned ExxonMobil in 2005, only 18 Democrats owned the stock. Republicans also preferred drug company ..." Full StoryWhat Does A Democrats' Win Mean To Your Financial Life?
Great post Jeffrey! Concise and up to the point, and giving us a prediction of the ramifications of a Democrats' win in personal finance. In a nutshell:
The Winners:
1. Those who have student loans (Dem will reduce student loan rates)
2. Fannie Mae and Freddia Mac
The Losers:
1. Defense companies (Dem = less military spending)
2. Drug companies (Dem = more Medicare hard bargaining)
The Shakers:
1. Those who barely makes the national minimal wage (Dem will increase the minimal wage, but they can lose job too.)
Warren Buffett Loves Retailing
It seems Buffett is hedging his bets by investing in both Target (TGT) and Wal-Mart (WMT). We probably already missed the boat: TGT is already 20% higher than it was two months ago.
"Billionaire Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) bought nearly $268.8 million in discount retailer Target Corp. (TGT) stock, according to documents filed with the Securities and Exchange Commission on Monday. The documents are the first to mention Berkshire's holdings in Target, although Berkshire has long held stock in Target's main competitor, Wal-Mart Stores Inc. (WMT). The documents also revealed an even bigger stake in Johnson & Johnson (JNJ) than Berkshire had previously disclosed. ... Berkshire owns furniture, insurance, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co. (KO), Anheuser-Busch Cos. (BUD) and Wells Fargo & Co. (WFC). " Full StorySix Banks May Receive Triple-A Credit Rating
AAA credit rating is probably only of cosmetic value to the big banks, but I'm glad to see S&P reaffirms the financial soundness of my portfolio holdings in Bank of America Corp. (BAC), Citigroup Inc. (C) and J.P. Morgan Chase and Co. (JPM).
"The ratings agency placed Bank of America Corp. (BAC), Citigroup Inc. (C), J.P. Morgan Chase and Co. (JPM), U.S. Bancorp (USB) and Wells Fargo & Co. (WFC) on CreditWatch with positive implications, indicating that the banks' ratings could potentially be upgraded to as high as triple-A. Such consideration is based on the view "that the U.S. banking industry has become sounder on a variety of fronts over the years, so that the potential for higher ratings - including the 'AAA' level - now exists," the rating agency said in a statement. The triple-A rating is the highest on the credit-ratings ladder. S&P cited higher and more consistent profitability, diversification by product, customer and geography and better risk management as positives in the sector. ... Bank ..." Full StoryThe Cash Machine at Exxon
What a cash cow of Exxon! Can you believe a company can make 11 figure profit in a quarter? The $10.5 billion quarterly profit makes Microsoft's $10.8 billion quarterly revenue pale.
"Oil industry behemoth Exxon Mobil's earnings rose to $10.49 billion in the third quarter, the second-largest quarterly profit ever recorded by a publicly traded U.S. company. Its shares briefly rose to a 52-week high. The report Thursday comes as high crude prices this year have fueled record profits in the oil industry, triggering an outcry from consumers who were being asked to pay about $3 a gallon for gasoline in early August. The largest quarterly profit ever was Exxon Mobil Corp.'s $10.71 billion profit in the fourth quarter of 2005." Full StoryWisdom from Value Investing Legend Christopher Browne
The man behind the success of Tweedy Browne speaks up. Yes, the truth is many can understand value investing, but it is the "emotional discipline" that completes the circle.
"Though there's little, if anything, new and exciting in this book, there are several timeless gems of advice. I never tire of the first rule of investing: Do not lose money. The second rule is equally important and easy to remember: Don't forget rule number one. Because it takes a 100% gain to offset a 50% loss, curtailing mistakes is paramount to investing success. Some mistakes are unavoidable, of course, but to minimize the unpalatable results of errors, Browne suggests avoiding firms with a lot debt, reiterating Ben Graham's advice to stick with firms that own twice as much as they owe. Even though debt can boost returns, a firm will be saddled with the irksome requirement to repay the debt. Debt has a nasty ..." Full Story