November 30, 2008: ETF Stocking Stuffers

A few weeks ago, I wrote a piece listing securities that funds were likely to sell, cleansing their books to avoid criticism of holding such by their investors. So far, my list has shown promise. Now, it is time to look ahead to what ETFs individual investors may want to include as stocking stuffers for 2009.

The following short list allows you to invest in part with government bail out cash on your side, and/or contain securities that have been oversold. In a global recession, ETFs will provide safety in numbers of securities without hosing the investor on costs.

PowerShares Financial Preferred Portfolio (PGF): Trading at $11.68, this ETF has had an annual trading range of $24.81/$11.40. Currently yielding 12.88% with a $400m market cap, PGF declares a monthly dividend and is a beneficiary of U.S. government handouts to stabilize the banking system. I like Uncle Sam as a partner to mitigate downside risk.

IShares iBoxx Investment Grade Corporate Bonds (LQD): Trading at $87.50, this ETF has had an annual trading range of $108.26/$76.05. Currently yielding 6.11% with a $5.9b market cap, LQD declares a monthly dividend and contains high grade corporate bonds that upon review have a much greater chance to significantly appreciate than drop in value.

IShares Dow Jones EPAC Select Dividend Fund (IDV): A bit riskier than the two ETFs above, I like IDV because it contains ex-US large cap value securities that pay dividends. The dividends are likely to be secure, with share prices trending modestly higher from present bargain levels. Trading at a paltry $18.08, this ETF has had an annual trading range of $49.80/$16.44. Sporting a 13.36% yield, IDV had a surge of redemption's over the past six months and now has assets of $37m. Still, it is an effective way to gain modest foreign currency exposure and a nifty total return. Not for those who are storing food, moving to the mountains and taking target practice in anticipation of an imminent world economic collapse.

IShares S$P Preferred Stock Index Fund (PFF): Currently yielding 11.38%, PFF has had an annual trading range of $47.21/$19.00.Heavy into financials, which is not a bad thing as per my comments above, this ETF has a market cap of $812m and declares a monthly dividend. PFF measures the performance of a selected group of preferred stocks listed on the NYSE, AMEX and NASDAQ. While some companies will be cutting dividends during this economic period, preferred stock generally is immune. Add a modest appreciation as confidence in securities is restored, and a 20% total return is not only likely, but probable for PFF.

With government printing presses running white hot to produce billions and trillions of loot to soldify favor with voter constituents and selected corporations, I believe that inflation will begin to rear its head sometime in early to mid-2010. Study Paul Volcker, the re-tread financial guru from the Carter and early Regan years to see the future. The market will begin to price this into account by the summer of 2009. In anticipation, I recommend three funds to anticipate this distinct possibility:

PowerShares Autonomic Growth Fund Global Asset Portfolio (PTO): This mini-ETF with assets of only $8.3m has been hammered from its 52 week high of $16.94 on September 19th. An ETF or ETFs, I like the general blend of the portfolio with major holdings being TJF,PWV,VGK,RWR and PCY. Yielding 2.82%, PTO is poised to do well during an inflationary environment.

Svensk Exportkredit AB (RJI); Let's assume Jimmy Rogers is correct. Commodities will rise with inflation and the needs of the world population. Trading at $6.85 after reaching a high of $15.00 months ago, RJI has the most attractive basket of commodities for investment purposes - i.e., it is not completely dominated by oil and natural gas. No yield, but a lot more upside than downside when inflation presents itself.

IShares TIPS Bond Fund (TIP): The obvious choice for inflation-minded investors and already beginning to rise in cost. Trading at $92.47 with a 52-week range of $112.11/$84.14, TIP has a 8.08% yield with a declared monthly dividend. An $8.0b cap indicates that money is coming and staying in this ETF. With an annual expense rate of only 0.2%, TIP should be strongly considered anytime money comes from government to something in large quantities.

Money can also be made using appropriate ProShares,etc. enhanced short and long ETF portfolios if chosen wisely. Others have written extensively on them and offer considerations that you may wish to act upon.

November 16, 2008: The Axis of Revival

Launching bets on a worldwide recovery is not something I would recommend at this time. I have placed selective bets on a few stocks with generous dividends that are well-covered by profits in stable industries and the ETFs of various non-junk bond portfolios such as BSV, LQD,PFF, PGF, SHY, TIP and BWX. As mentioned in a previous blog, I also like Fidelity's Strategic Income Fund (FSICX).

I also am gradually - very gradually- adding to ETFs in three countries that are likely to be leaders in the eventual recovery. These are the iShares MSCI Switzerland Index Fund ETF (EWL), iShares MSCI Singapore Index Fund (EWS) and the iShares Morningstar Large Value Index Fund (JKF) of U.S. companies.

Why these three? Simply, they are excellent tracking indexes of three countries that contain excellent diversity of locale in a global recovery, which will spread from region to region (such as the current deep recession). All three countries value free trade, open commerce and maintain a legacy of being a safe haven for one's hard-earned (or not so hard earned, or stolen, extorted or bribed) money. These ETFs are overweight on financials, which may be the first sector to show signs of life worldwide. All three are engines of investment energy which will spread from Switzerland, the U.S. and Switzerland elsewhere. There is less downside risk with the three ETFs than others in their regions, so with a rise from the depths of recession these is a mitigation of potential loss in case the current economic turmoil lasts longer and is more severe than a typical recession.

I do not wish to create the impression that I am stuck on stupid holding dogmatically screaming BUY, BUY, BUY only the above securities. What I am saying in this piece is that the investor should remain income oriented, dividend oriented and begin to stake out positions in securities that will show promise and results in a recovery, but will not be nearly as speculative as BRIC-type investments banking on the hope that China, Russia, India, Brazil and their ilk refrain from confiscating capital once its purpose has been served, or tax just about everything out the ying-yang unless sufficient bribes are gifted to those in authority.

November 14, 2008: What The Old Master, John Rockefeller, Thought

Tired of listening to talking heads, experts-for-the-day, politicians on the prowl and the "Oracle of Omaha"? I thought some timely quotes by the Grand Master of hedging, management and business acumen of his period in history had to say about things. John D. Rockefeller, through cunning, ruthlessness and vision established the original Big Oil, the Standard Oil Company. In volatile times, his quotes are timeless.

"A friendship founded on business is better than a business founded on friendship."

"Charity is injurious unless it helps the recipient to become independent of it."

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

"Don't be afraid to give up the good to go for the great."

"Don't blame the marketing department. The buck stops with the chief executive."

"Every right implies a responsibility; Every opportunity, an obligation, Every possession, a duty."

"Good leadership consists of showing average people how to do the work of superior people."

"I always try to turn every disaster into an opportunity."

"I believe in the dignity of labor, whether with head or hand; that the world owes no man a living but that it owes every man an opportunity to make a living."

"I believe that thrift is essential to well-ordered living."

"I can think of nothing less pleasurable than a life devoted to pleasure."

"I have ways of making money that you know nothing of."

"If your only goal is to become rich, you will never achieve it."

"Next to doing the right thing, the most important thing is to let people know you are doing the right thing."

"The ability to deal with people is as purchasable a commodity as sugar or coffee and I will pay more for that ability than for any other under the sun."

"The most important thing for a young man is to establish a credit..a reputation, a character."

"I would rather earn 1% off a 100 people's efforts that 100% of my own efforts."

"The way to make money is to buy when blood is running in the streets."

"Singleness of purpose is one of the chief essentials for success in life, no matter what may be one's aim."

I wonder how John would perceive what his endowment has funded in recent years, and if his offspring two and three generations removed have upheld his values?

November 11, 2008: Take Stock In Education

As the old maxim goes,"Those who can't do, teach." In public schools, perhaps. But the private Educational Services sector has quietly become a good place to invest vs. almost all of the rest of the lousy market sectors worldwide.

After about two years of sharp business pullback, the operating performance of many for-profit educational institutions have started to recover. The slowing growth in the mid-30s age demographic, greater competition and closer regulatory scrutiny had caused a cleansing of less worthy institutions the past few years. Now, with higher unemployment translating into more time to re-tool and retrain, mature students (many with families and/or underemployed with set hours) enrolling in for-profit schools are beginning to translate into higher and more stable online clients gravitating towards student-friendly higher learning ports. Many for-profit institutions are placing greater emphasis on specific trades and other occupations, associate degrees and executive-friendly seminars. Although for-profit schools were having difficulty removing their teats from the nipple of sub-prime student loans, the above mentioned cleansing effect has forced schools to make curriculum relevant, flexible and distance-learning friendly. One instructor can teach a number of classes via computer, and auto-industry type unions that hamper public education are not a factor with the stocks that will be mentioned below. In addition, foreign for-profit schools, especially in China, have a bright future and achieve a high level of profit margin that has yet to be realised by investors.

Here are some stocks to explore in this sector:

EDU New Oriental and Technical Group/China (ADR)
STRA Strayer Education
NED Noah Education Holdings, LTD.
ESI ITT Educational Services
APOL Apollo Group
DV DeVry
LTRE Learning Tree International
CPLA Capella Education Company
LINC Lincoln Educational Services Corporation
CECO Career Education Corporation
COCO Corinthian Colleges
FC Franklin Covey
NLCI Noble Learning Communities
UTI Universal Technical Institute
REVU The Princeton Review
EDMC Educational Management Corporation
CEDU ChinaEdu Corporation (ADR)

Rarely are for-profit institutions at the top of an investment list. I am not recommending that you overweight your diversified portfolio with these or other education-centered securities. But you deserve a dunce cap for not doing your homework on for-profit schools. One or two may be appealing to even the average student.

November 10, 2008: The Neural Fair Value 25 Portfolio

Back from a rigorous real estate trip to the Wilmington, NC environs. I am finding excellent opportunities to Lease-Option and Land Contract new homes which we build at a reasonable price and market to buyers who are not quite ready for prime time bank financing even though they have good income and very good credit scores. The three bedroom/two bath ranch homes are a receiving excellent reviews for quality and livability. Even in a crappy market, business is approaching the brisk stage. I also like multi-family housing, as the supply of renters keeps growing and growing.

On to stocks. Standard and Poors regularly publishes a list of undervalued stocks that, in their opinion, have superior upward price potential. The stocks inhabiting this list, called the Neural Fair Value 25 Portfolio, have traditionally performed better than the S&P 500, which now means they lose less - but I digress.

Here is the latest list for review, a few which may be right for your diversified portfolio:

ACN Accenture, Ltd. ($30.02)
ADCT ADC Telecommunications ($6.65)
ARW Arrow Electronics ($16.19(
BIG Big Lots ($16.58)
BMC BMC Software ($24.87)
CHKP Check Point Software Technologies ($19.91)
CRDN Ceradyne ($23.92)
FTI FMC Technologies ($30.19)
GD General Dynamics ($60.93)
GPN Global Payments ($40.01)
HLF Herbalife ($19.76)
HPQ Hewlett-Packard ($34.17)
LIZ Liz Claiborne ($6.46)
LMT Lockheed-Martin ($77.51)
M Macy's ($9.94)
MHK Mohawk Industries ($36.19)
NOK Nokia ($14.85)
NTAP NetApp ($12.44)
OXY Occidental Petroleum ($52.99)
RNR RenaissanceRe Holdings ($43.33)
SYMC Symantec ($12.90)
THG Hanover Insurance ($36.39)
URBN Urban Outfitters ($15.98)
USTR United Stationers ($34.61)
WXS Wright Express ($14.94)

Regular readers know that I have been prone to blog targeted lists of potential stock candidates to readers. Giving specific "buy" recommendations in this market, ETF basic portfolio ideas excepted, during the past several months has not been on my agenda. Ideas for selected security purchases, designed to encourage the individual investor to research rather than point in a specific direction, may be the best service one can render in these times.
Assemble your favorite candidates to buy when the time is right and your temperament permits.

November 5, 2008: Clean Up When Funds Clear Out

Money managers clean up portfolio holdings before the end of their tax year. Over 48%of US mutual funds close their books between late October and December. Managers sell stocks with large losses to avoid reporting them on their year-end report to shareholders. This causes downward pressure on stocks trading within their portfolio(s)that are at or near 52-week lows. Once the selling subsides, these stocks have historically experienced a price reversal. That said, investors should exercise due diligence before buying any of the companies listed below by analyzing any potential shift in a company's fundamentals and other factors such as sector weight and risk tolerance.

Here are the screen parameters used to select the following "sells" from funds:

Large-cap and mid-cap stocks trading at or below 30% of their 52-week high and have not bounced above 15% from their 52-week low,and have above-average valuation on both an absolute and relative basis.

Small-cap stocks trading at or below 40% of their 52-week high and have not bounced above 10% from their 52-week low, and have above-average valuation on both an absolute and relative basis.

Here are the stocks as of November 4th that met the screen:

Large-Cap Reversal Candidates:

ABC AmerisourceBergen
AET Aetna
AIZ Assurant
CAH Cardinal Health
CTL Century Telephone
EQ Enbarq
EXPE Expedia
GE General Electric
GLW Corning
IFF International Flavors and Fragrances
IP International Paper
JAVA Sun Microsystems
JDSU JDS Uniphase
LXK Lexmark
MCK McKesson
MOLX Molex
S Sprint Nextel
SEE Sealed Air
STZ Constellation Brands
SVU SUPERVALU
SWY Safeway
SYMC Symantec
TAP Molson
TE Teco Energy
WFMI Whole Foods
WYE Wyeth

Mid-Cap Reversal Candidates:

ACXM Acxiom
AFFX Affymetrix
ANN AnnTaylor
BLC Belo
CAKE Cheesecake Factory
CHRS Charming Shoppes
CTV CommScope
IMN Imation
LEA Lear
MDU MSU Resources
PKG Packaging Company of North America
PL Protective Life
RGS Regis
RPM RPM International
SPW SPX Corpp.
TECD Tech Data
TRN Trinity Industries
UVV Universal
WSM Williams-Sonoma

Small-Cap Reversal Candidates:

AIN Albany International
BMR BioMed Realty Trust
COO Cooper Cos.
CV Central Vermont Public Service
ETH Ethan Allen
GFG Guarantee Financial Group
IFC Irwin Financial
ITG Investment Technology
JBT John Bean Technologies
NPO EnPro Industries
RTEC Rudolph Technologies
SSP E.W. Scripps
TTWO Take-Two Interactive


The excellent research department of Credit Suisse First Boston has produced excellent institutional investor work on this theme for several years.