Model Portfolio eugeneg:EMF

One of the more underappreciated stocks in the market today is General Electric. I have heard a multitude of reasons as to why investors don't like GE today. From, "It's just not a good idea" to, "GE is going bankrupt". In my opinion, GE is a solid long-term play for a few reasons.

In the past 6 months, GE has been getting contact after contract. On April 6, GE Energy lands $200 million UAE contract with Emirates Aluminum. Then on May 13, GE said it will build a $100 million plant near Albany, NY., that will employ 350 people to make batteries for hybrid locomotives and other applications. Just recently, GE signed a $500 million contract with Kazakhstan's state-owned railway and will invest in a locomotive-assembly plant in the Asian country.  Additionally, the Joint Strike Fighter being developed by GE Aviation and Rolls Royce just had its funding restored by the House of Representatives. These are all lucrative deals, which should keep GE profitable in the years to come.

Taking a look at the technical side of the stock. Back on July 3, 2000 the stock closed at $57.81, and since had been on a downward track due to the Internet bubble bursting and pushing the broad market down. The stock bottomed out at $24.35 in October 2002. After the market began recovering, so did GE. The stock pushed through $30 and then $40, finally topping out at $41.40 in July 2007. Then this latest market down turn hit and GE's price along with pretty much every other large cap fell, and fell hard. Finally bottoming out at $6.66 in March of this year.  However, the stock has recovered, and anyone who happened to buy near the bottom has seen a nice return on his or her investment.  The stock is way off its high from 2000, but even looking back one year, the stock was at $30.39, and compared to what its price is today, about $11.75, there is still a large upside to be made.  Even if GE only splits the difference about $10, you are looking at a possible 100% return, and that by any measure would be solid.

It is true GE has cut its dividend to about $.40 per share, and yes it is off it high of about $1.40 per share, but one must understand the market economy. GE cut its dividend to preserve some capital, and I believe that once this recession starts coming to an end it will resume the higher dividends.  The yield may be at 3.4%, but why not get a company that pays you back, so even if the stock does nothing all year, you are getting some sort of return. Also, if the stock loses, the dividend provides some downside protection.

The old investing ideas are long gone, and one needs to look for something that will around for a long time. GE would be a good long-term play for people needing to generate income, because why take capital gains, and who knows what will happen with those tax rates, and use the dividends instead. The yield may be lower, but in this economy and market, if you can find a stock that has good possibility of growth, off its 52 week high, not to mention 9 year high, and has a solid dividend, with the possibility of the dividend going even higher.

Posted by Ken Kam at 3:27 PM | Permalink

When one thinks of banks, the first gut reaction would be to run for the hills. Who in their rite mind would buy stock in any banks today, right? Well you would be wrong. There are many banks that are solid players in the financial recovery we are seeing. One of them is US Bancorp, which has been solid through-out the entire banking fiasco. It's true they took TARP money, but have paid off their TARP funds' equaling about $6.6 Billion and the company has never failed to pay a dividend to stock holders. US Bancorp is considered a spend thrift type of Company, they rarely spend money other than to acquire other banks or to pay stock holders.

It is true US Bancorp took TARP monies equaling $6.6 Billion in November 2008, but on the 22nd of the same month US Bancorp was able to purchase two small regional banks in Arizona and California, Downey Financial Corp, and PFF Bank &Trust. These acquisitions helped increase market share for US Bancorp in those two states. The ability to acquire new assets during these sets of circumstances shows that the company is being run in the stock holder's best long-term interests.

The stock price its self is looking more and more attractive. The 52 week trading range for this stock is from $8.06 to $42.23. That is large trading range, nearly 500%. In my opinion the only reason why the stock even got that low was due in most part to the over-all financial debacle. The current price is right around $18, and has been pretty steady in a nice trading range in the last month peaking at about $19 and bottoming at $17. The highs and lows for this stock are getting tighter and tighter and I for see a breakout into the high twenties, and by the 1stQ of next year it could break into the mid thirties.

The during the bleakest moments of the this latest market fall and with its price falling to all time lows, US Bancorp continued to pay $1.40 per share. For a company to be able to do that means that they have spare cash laying about after all is said and done. After they took the TARP monies, they decided to slash dividends for the time being to preserve capital so they would be able to pay off TARP sooner than later. This measure proved prudent, because as of the beginning of June, US Bancorp was able to repay the $6.6 Billion they received from the Fed. With TARP repaid, it looks like US Bancorp will be the first large bank to meaningfully boost its dividend. However, it might not hit the high notes just yet, but with recovery comes a brighter out look for dividends.

This stock is poised for a solid run in the next couple of years. With sound judgments by management, stock growth and the likelihood of meaningful dividend increases, makes this stock a solid long-term play. Anytime you can pickup a solid company trading off its high by 42% heading into a recovery, with the sites set on higher dividends, it would be wise to buy. 

Posted by Ken Kam at 6:03 PM | Permalink

For anyone out there who has not heard about this company it has been a top performer in my book. Yes in the past 6 months it has fallen, however it still has a very attractive div/yield. At $1.36 or 7.4% makes this look very attractive. In the land of volitility having a position paying high dividends makes it easier to take a day were the market falls 2-3%. The 52-week trading range for this is from 9.12 - 41.00. Most analysts are putting this one on the back burner since Nov-08, but the stock has had quite the rally. The stock has nearly doubled in price since its low of $9.17 in Nov 20, 2008. Its current trading price is at $19.14 as of Jan 06, 2009.

I believe that the reasons why this has bounced back so hard is that copper is still being used on a daily basis and countries like India and China are buying tons and tons fo it for their economic expansions. Its true copper prices have fallen, but since this such a reusable material and that as prices fall more of the product is bought, Southern Copper still makes a profit. How else do you explain 7.4% yield?!

I believe that this is still attractive, if not for the upside, then for the dividend.

Posted by Eugene Groysman at 6:13 PM | Permalink | TrackBacks (0)

The falling/failing economy falls at the feet of this current administration. No one can argue that prior to the massive tax break Bush signed into law in 2001 and the constant interest rate cuts, cumulating in 2005 at 1% caused this current situation. This administration should have gone the hard course of higher interest rates and tougher scrutiny of loans, but instead it decided to play Russian roulette with our country and its citizens and it has lost big time.

What this administration should have done in 2001 after the initial market down turn, was to let the market correct its self, and not interfere. So in their infinite insanity they did the complete opposite. They lowered short term rates consecutively until it reached 1%. Then they decided to cut taxes and give back to the country 1.2 trillion dollars. That broke down too about $600 per person. Most of that money went into paying off debt and not into spending. They believed that these measures would stimulate the economy, it didn't have that effect, but in their shortsightedness they failed to see the ramification s of people to taking out loans against their house for the purchase of new cars and TV’s. This spurred on the real estate bubble to the point that it had grown soo obese that it could no longer sustain its own enormity. People began buying homes they could never afford and not putting a penny down to do it. This forced homes prices every higher into a world never seen before. People cashed out money from their equity to finance trips, cars, TV’s, you name it and all the while sinking further into credit debt, but all the while the Government failing in its duty over see the housing market making sure people were not getting over jubilant, like the housing prices will never fall.

When the Fed finally saw that this economy was slowing they started raising interest rates again. However, most people refinanced their loans many times for lower and lower rates, but these rates were starting to readjust based on the 10 year T-Bill. That yield kept creeping up and up, and the Fed began raising the short term rates. So by 2007 there was a perfect storm brewing. Shady lending practices by the likes of Country Wide, and the packaging of CMOs, caused the first ding in the amour of this bubble back in October 2007. Country Wide reported losses due to bad loans and that was the first kink in the armor, but that was enough to start the balling rolling. By January, 2008 the end was in site. One after another, Banks and Financial Institutions began reporting their numbers for 4th Q 2007. One by one they all were reporting large write off’s and large losses.

Investors began selling and selling. The market tumbled from a high of 14,300 in October to about 12,000 in June. Then came even worse news, housing prices had begun falling and only then had housing prices and housing start numbers had been reported. Investors took that as another sign of a weak economy and began selling. By the end of the summer 2008 the market was hovering around 10,500 and prospect of higher inflation, higher unemployment numbers, the near failure of Freddy and Fanny Mae, AIG and the collapse of Lehman Brothers caused the market to fall 2000 points in 9 straight trading days. By October 9, 2008 the Government decided to step in and help out the banks by authorizing the purchase of all the bad mortgage debt to the sum of 700 billion dollars. However, even at the most critical time in this current market the Government could not agree on what or how or if it was even necessary.

By Mid November it was reported that the big three auto makers were seeking 25 billion in a rescue package to stay afloat. Their testimony was mocked in the media, because the CEO’s all flew on private jets to ask for money from the Congress. This pushed the market down even further to a point it hasn’t seen since the mid-90s.

This entire financial debacle was set in motion by the band-aid type government that the Bush administration had been practicing. Instead of taking the harder road to economic stability, they took the easier road that built a shoddy house of cards that has fallen and caused a mini-depression in the market. Henry Paulson has infuriated many members of Congress because he has gone back on his word to buy bad debt, and instead has given the money to the banks directly. His explanation was that it was to stimulate the credit market, but these banks have been hording the money and only lending in some situations. Paulson should be charged with lying to Congress and Bush, well there is nothing we can do to him now. He will go down as the President that brought down Wall Street.

As for the economy, it will take a lot of work and time to get this thing working again. More regulation will be needed in the housing market and the bad mortgages will need to be bought by the fed and renegotiated to their current prices or maybe a total forgiveness to borrowers.

Posted by Eugene Groysman at 11:29 AM | Permalink | TrackBacks (0)

Here is a question to everyone, which candidate will have the best impact on the markets??

It seems to me that most people are split evenly as to who will have the best/most effect on the market. John McCain wants to cut taxes, but mostly to people making over 150K/year, and corporations. This is good, because these people usually have the greatest ability to invest money. However, cutting cap gains taxes really only helps the ultra wealthy. Most people making 50-100K per year do not have large cap gains issues, it is the people with more than 10million in the market that have the largest issue with cap gains. Now to cut their taxes is just backward, and against better common sense regarding taxes. McCain also wants to leave NAFTA as is, however there is a great disparity in that agreement. The US ends up importing way more good then it exports, because the countries under this agreement do not honor the entire agreement as written.

I believe Obama's stance on revisiting NAFTA and forcing other countries to import more goods based on the original agreement will have tangible effects on the market. Allowing our companies to expand its consumer base over-seas or next door will increase sales, profitability and increase in world market share. The GOP is stuck on the issues of taxes as if they were the only reasons why the market is soft, it’s really not. Most of the reason has to do with the un-regulated mortgage market that totally collapsed and is forcing financial giants like, Lehman Brothers, Bear Stearns, Fanie and Freddie to be in serious trouble.

Leaving markets out of the hands of the gov only produce issues like we are having now, and one would think that the GOP would have learned from history. Prior to 1929 the stock market was like the mortgage market, totally unregulated. It took the financial collapse of 1929 and the great depression to show us that some gov oversight is needed to keep people honest and not praying on John Q. Public.

Posted by Eugene Groysman at 1:53 PM | Permalink | TrackBacks (0)

The big question on everyone's mind is what will happen next? We are looking down the barrel of the possible failure of Fannie Mae and Freddie Mac and the complete collapse of Indy Mac Bank. Recently there have been rumors about Merrill Lynch and M&I Bank, and either their possible failure or being bought out.

M&I Bank just posted a 389.1 million dollar loss for the second quarter. M&I has a sizable presence in the Midwest and the Southwest. Unlike most a lot of the recent failures, M&I is better capitalized and can sustain large losses. However, they too were part of the sub prime mess and could take further losses before its all sorted out.

The markets still need sometime to sort themselves out and for investors to calm down. This however won't happen until Bush is gone from office. If you heard the his press conference during Ben Bernanke’s testimony to the House, these two speeches were night and day. Bush kept saying everything is ok, and he is optimistic, where Bernanke was talking about possible inflation, high gas prices, and higher unemployment.

Right now I would suggest buying into hard assets, currency, metals, energy, utilities and pulling money from US markets and investing in oversees corporations. Also, buying into South America, primarily Brazil, because that country is totally energy independent and therefore they are not bound by the rising energy prices.

Posted by Eugene Groysman at 3:18 PM | Permalink | TrackBacks (0)