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The next big energy play: 06-01-10

Short-Term Key: Neutral
Long-Term Key: -19 (Neutral)
 
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Inside this Memorial Day update...
***** A bit of good news.
***** How the oil spill could ignite natural gas.
***** 2 stocks leveraged to one of today's biggest opportunities.
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Market news has been exceedingly grim for the past month or so. Europe is being torn apart by sovereign debt. Oil keeps spilling uncontrollably into the Gulf. Manufacturing surveys – especially on foreign shores - show a slowing world economy. Nonetheless, there are a couple of bright spots in all this which you should take note of.
 
Good market observers pay a lot of attention to divergences – statistics that seem to be out of whack with one another. These divergences often hold the key to market changes.
Read more...
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Sector Update: From Minds to Mines

A look back at how our picks have performed and where they are headed

 
Each issue in Sector Sense we zero in on a particular geographical area or investment segment, make a general case for it, and present a handful of enticing stocks for your consideration. Some of them belong to or eventually join one of our regular portfolios. It might seem as if the others, though, vanish from our radar screen. Thus we decided it would be useful to revisit our recommendations from time to time, and below we offer updates on a range of stocks previously presented in this column. Note, too, you’re always welcome to call us with questions about any stocks we recommend in TCI.
 
Education stocks (February 04: “No Brainers”): The case for online and adult education—one of the economy’s fastestgrowing sectors—is as strong as ever, starting with the massive discrepancy between the salaries earned by individuals with a college degree and those without such credentials. Our favorite stock in this area remains Growth Portfolio holding Washington Post, thanks to its subsidiary Kaplan, the leader in test preparation and online law education.
Read more...

WHAT THEY’RE THINKING

Warren Buffett: He’s No Donald Trump

 
Berkshire Hathaway—a longstanding member of our Growth Portfolio—recently released its latest annual report. It’s written in plain, straightforward prose and clearly reflects the thinking of Berkshire chairman Warren Buffett. Buffett, of course, is widely acknowledged to be the greatest investor of our time, and it always pays to listen to his thinking on the market. But what caught our attention this time around were some perhaps unexpected personal attributes that may help account for at least some of his success and that all of us could benefit from emulating.
 
First, a lack of arrogance. Here’s one of the richest, most fawned upon, men in the world, and he has no problem admitting he’s made mistakes. For instance, he bemoaned that he didn’t reduce his positions in his consumer franchises in the 1990s, wondering what in the world he was thinking. If only politicians would be equally forthcoming!
 
A willingness to give credit to others.
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The Big Bank Theory

Citigroup and Wells Fargo are largely immune to rising mortgage rates

 
Dividend-paying stocks, basking in their shiny new tax status, stole the income-investing limelight last year. Look for a repeat performance in 2004. With the S&P 500 yielding 1.2 percent and 10-year Treasuries 4.3 percent, stocks with any sort of reasonable payout and attractive fundamentals are the income investor’s best bet.
 
Specifically, we are focusing on stocks with solid growth prospects and a yield at least double the S&P’s—i.e., 3 percent or better—a combination offering potential total real returns of 8 to 10 percent. Two top-notch financial stocks fit the bill.
 
Don’t let Citigroup’s strong stock performance in 2003—up more than 35 percent – scare you off. At 13 times earnings, this financial top dog is available at nearly the same valuation as more run-of-the-mill competitors.
Read more...

What’s in Warren’s Wallet?

If it’s not a cash generator with an iron grip on the market, it won’t tempt Buffett

 
Editor’s Note: In our lead article this issue, we look at “market dominators”—companies with an overwhelmingly strong grip on their market—and argue they offer one of the surest paths to investment success. What better proof than the record of the legendary Warren Buffett? Buffett rose to fame and fortune by identifying companies that rule fast-growing economic niches, from publishing to financial services to consumer products. He accumulated his investments through Berkshire Hathaway, a Growth Portfolio stalwart. Today Berkshire, thanks to Buffett’s 1998 acquisition of reinsurer General Re, is itself a dominant company in the insurance industry. But prior to 1998, Berkshire’s extraordinary record (see chart) stemmed from Buffett’s genius at picking market dominators. If there is one stock that can be considered an entire sector unto itself, it’s Berkshire, which continues to hold a 24-carat array of stellar companies that rule their roosts. In our lead article we already have reviewed Coca-Cola, Berkshire’s largest holding. Below Toby looks at some of Berkshire’s other major holdings.
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Inflation-Proofing Your Income

One key: look beyond current yields

 
If you’re primarily an income investor, you’re not obsessed with making a killing in the market. You just want to know your investments will generate enough income to meet your needs year after year. Our Income Portfolio is for you.
 
But building a top-performing income portfolio is more than simply amassing a group of high-yielding investments. Rather it involves buying instruments that both maximize your income and let you dodge a handful of risks. Here are four key principles of income-oriented investing:
 
Outsmarting inflation: When you depend on income from securities, inflation can play havoc with your ability to maintain your standard of living. Prices go up, your income doesn’t.
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Financial Services' Prospects Remain Dim: 06-18-09

President Barack Obama this week proposed a major overhaul in financial-industry regulation. If approved by Congress, the many proposals would affect virtually every aspect of the financial system.

 

But the plan likely faces opposition both from those who say it would hamper free markets and others who say it doesn't go far enough. The White House hopes Congress will pass a comprehensive law by year end.

 

The plan may well be the most important financial-services legislation of the last 50 years. President Obama called it “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

 Read more...

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Yes, the Market Is Improving: 05-07-09

This week’s news—news leaks actually—of the government stress test results for the banks shows just how much the investment environment has changed in two months.

 

In early March, news that Bank of America, Citigroup and Wells Fargo and others need $67 billion of new capital would have sent the shares of those banks tumbling—and the broad market with them.

 

This time, shares of the banks jumped across the board yesterday, regardless of whether they have been judged to need new capital. And the broad market climbed to a four-month high. Stocks were down today.

 

At least six financial institutions—J.P. Morgan Chase, Goldman Sachs, MetLife, American Express, Bank of New York Mellon and Capital One Financial—apparently won’t be forced to raise additional capital. Results for several other institutions aren’t available yet. Official results are due after today’s close.Read more...

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A Day at a Time: 04-09-09

During the stock market's rally over the last four weeks from 12-year lows, we've increasingly focused on the next major test: how well the stock market deals with bad news and news that's not only bad but worse than expected.

 

We're taking it a day at a time while looking and hoping for a generally flat-to-rising trend.

 

The stock market was weak on Monday and Tuesday as investors fretted about upcoming reports on first-quarter earnings. But then stocks stabilized yesterday and jumped today. As of now, there's little doubt that the reported earnings will be generally dismal. But there's reason to hope that stocks already have discounted that and will stand their ground if the news is merely bad, and even climb if it's not as bad as expected.

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Hope and Fear Dominate the Headlines: 01-22-09

President Barack Obama's presidency will mark a dramatic shift from the last eight years. For now the national mood seems to be one of optimism tempered with patience.

 

By contrast, the mood is grim in the financial markets. The U.S. stock market greeted the new president with the biggest inauguration-day decline in the history of the Dow Industrial Average. Among the problems: the banking system (see below), jobs, home prices and corporate earnings.

 

We agree there are many problems right now. We believe strongly in heeding the message of the markets rather than saying the markets are wrong. This is why we have consistently advised you to maintain a conservative asset allocation, with a primary focus on high-quality, income-producing vehicles.

 

That said, the current situation seems ridiculous in terms of excessive fear and low valuations. So we continue to urge you to invest selectively and very gradually, on market weakness only.  Read more...

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