wearmanyhats

Jim Cramer, the wildly popular performer of “Lightening Round,” recently recommended Visa.  Will Visa continue to climb?  Probably.  But Cramer, a respected financial guru, seems to overlook the P/E ratio of Visa, which sits in the nose bleed area of 69.  While he is right that the credit card processing is completely entrenched in the monetary system, and it will always be lucrative.  He is also right that Visa doesn’t have the credit issues that affect credit card companies.

It’s that overly high P/E ratio that makes no sense, and begs a more dramatic question.  When is it ethical for a financial guru to back off on a recommendation?  Wouldn’t an overly high P/E ratio be one of the first yellow lights?

If Cramer can not look at simple fundamentals and make sound recommendations, what is his line in the sand?  When will it be “too expensive?”  Merely because Visa’s business is sound, will always grow, and is not in a sector that will get pounded from credit losses doesn’t change the fact that it is expensive.  If widely respected financial “rock stars” can not encourage responsible investing, what chance does the stock market have in maintaining any sensible stability?

Stock pickers of all kinds are often the first line of defense for the common investor.  People like Stephen Leeb, Larry Edelson, and Sean Broderick have the trust of the common investors. It is difficult to give advice to begin with, but its worse when the stock goes down.  If a stock already suffers from basic fundamental problems and the guru knows that, why on earth would they encourage people to put their hard earned money on the line for it? The majority of the above mentioned advisers only recommend those stocks as an agressive growth, the highest risk out there.

There are so many excellent stocks out there, but Cramer’s lack of caution makes no sense.  Performance has value, and his on “The Lightening Round” is entertaining.  But anyone following his advice needs to be put on notice. Be sure to understand the fundamentals before buying his recommendations.  That way you go into those stocks with your eyes wide open.

There is no doubt that the delisting of GM and the planned addition of Cisco in its place is a mile marker.  Goodbye King Auto, Hello King Computer.   Sputnik changed the views of the American culture from looking at the past and its fascination with the cowboy.  Now the nation’s complete dominance of the automobile has been changed to domination of the computer, ironically the very thing that helped make the Sputnik flight possible.

It’s not that America has lost its fascination with the car. It’s more that the marriage of the American consumer has mellowed with age.  We expect to hop in and go.  We expect to use it to get to work.  And now, after years of inexpensive fuel, the time has come to move to the next generation of cars, one that is fuel efficient.

GM’s demise was not that it had provided too much for the workers and retirees.  There was some of that as an issue, too, yes.  But it was because it lost its ability to look ahead, something Toyota did well.  When oil prices were climbing, it was putting out a vehicle that got 9 miles to the gallon and swooning the owners with lavish parties.  Their demise was not preparing for a different future.

One senior GM executive said that Tesla woke up GM to the fact that an engine could be fuel efficient.  Tesla showed that if their car could run 150 miles to the gallon, so could many others. And where is Tesla made?  On the west coast.

Europeans can, in no way, understand the American citizen’s need and desire about the automobile.  Yesterday an acquaintance mentioned that people in Norway bike everywhere. That’s great!  But here in the United States, we have so much space that in two of our states, you can’t even drive from one end to the other in 24 hours.  Our roads are not set up to accommodate bikers all that well; something that hopefully can be remedied. The U.S. is a car country, and changing that will not be easy.  Only in some cities is biking encouraged by the traffic patterns and laws.  And now since fuel became more expensive, mass transit is looking more inviting, too.

American needs a new car to fall in love with; one that doesn’t look like a jelly bean, is cool and economical, too.  We want the vroom of an engine, without using gas.  We want the cool look of the 50’s with a new look, something a new millennium can call its own.  We want the glamour of having a new car without looking like we spend ridiculous amounts of money at a time when people are struggling.  Basically, in order to fall in love with the car again, we want the same feeling we got in the 50’s when we bought one; it wouldn’t break our banks, it didn’t look like an old lady was going to drive it, but it wasn’t a car to pick up chicks, either.  The cars of the fifties were cool, even for  middle age folks, and affordable.  GM may have a lot of making up to do, but it better know what it is going to do before it just jumps into the same old cooking pot.

In the meantime, there is one more thing to consider.  Replacing GM with Cisco shows the movement of innovation and a new era to the west coast.  No longer are the repetitive manufacturing jobs the enviable ones.  The future is in secondary education; not in a manufacturing plant. And what an exciting future it will be.

Metals are once again on the move.  People who have owned gold and silver are enjoying the climbing price of metals in the past few months.  This blog encouraged all people to buy, buy, buy last February.  Now it’s time for those who listened to enjoy their investments.

Mining stocks have been bouncing back the same as most other stocks.  However, mining stocks may be next to  truly sparkle.  Here are two stocks to watch in the mining sector.

Cameco  (CCI)-  Ever since Cigar lake mine filled with water, Cameco has struggled with getting the mine up to speed. Water is still an issue there.  The result:  a stock price that is slightly overinflated, with a P/E ratio of 24.  Cameco is also the world’s largest uranium producer in the world. Uranium is lower in price right now than several years ago, and the charts indicate that the prices are on a downward trend.  This is surprising; China is putting over 120 nuclear plants into production in the next three years.  With the world’s most populated country using more uranium, it would be logical that the price would rise.

It’s not bad enough that Cameco is over the comfortable P/E level of 20.  Insiders are not buying either, and that’s never a good sign when considering jumping into a stock.  For now, it might be best to leave Cameco by the wayside.

Rio Tinto, (RTP) is blitzing upward at a frenetic pace.  It’s up to over $181 since it’s ridiculous drop to $59 earlier this year.  That deep discount was the perfect time to buy into Rio, but now is not a bad time, either.  The stock fell late last year from a high of $495, and with a current P/E at 15, there is obviously room for the stock to grow.  High metal prices will juice up the stock prices even further.

Rio seems to mine everything that can make money.  Diamonds, uranium, gold and silver are all part of its production.  In addition to that, Rio’s name is not often associated with some of the less ethical shenanigans that have sometimes dogged Freeport-McMoran.  Rio is huge and a “Steady Eddy.”

No insiders are buying Rio Tinto, so nothing in the way of mergers are on the horizon.   However, as gold continues to climb in price, so shall Rio enjoy the benefits of its luster.  When comparing Cameco over Rio, RTP is probably the better buy at this time.

Earlier this week, we looked at some value stocks in the ranges of under $10, between $10 and $20, and today at stocks between $20 and $50.  Why should you care about stock price?  There could be several reasons.  First, you can buy more shares of lower priced stocks, which can grow if it is a good business.  Second,  perhaps you don’t have a lot of money with which to invest.  You will want to get as many stocks as possible.

Mid range stocks are different.  Often they have good range to grow, but have been valued by both analysts and buyers and sellers to be in the perfect range for which they are offered.  Sometimes these are priced because of a recent stock market drop.  That’s a great time to buy.  They are usually solid companies that ebb and flow with the market or their cyclical clients.

The criteria for these stocks was a P/E under 20, revenues over 20%, then narrowed down to having had a recent earnings surprises.

There were a number of banks that came up on this list.  But since the foreclosure market is still tentative, they are not included.  Neither are retail stocks because as people have to pay more for fuel, they will have less money in their pocket to spend on apparel and so forth.  Also, insider activity was a factor.  If insiders aren’t buying, why should others?  The results came down to only two companies.

First, Fluor Corp, (FLR) This company has been in engineering for the petroleum business for 100 years.  Its revenues are solid, insiders are buying after the big drop in the share price.  The share price dropped all the way down to 28 and now is in the mid 40s.  The P/E is under 11 and it has a solid small dividend yield.  As the price of oil revs up, so should this stock price.

Second,  MTS Systems (MTSC) is a company that operates on two legs.  One is in mechanical testing, the other in making sensitive measuring equipment.  At first glance, this company’s profit look boring.  Just a steady rise in revenue, no great leaps.  However, slow and steady wins the race, too.  And the P/E is under 9, so there is a lot of room for stock growth.  It is at a low right now, and what is most encouraging, is that insiders are buying like crazy.  There has been a departure of one of the directors, however, it is obviously not a concern to the rest of the top dogs there; perhaps their acquisitions bode a sign that the departure will be all right for the company.  It is trading near enough to the bottom to make this one a “throw in the box and forget about it trade.”  Just put in a sell at the high $30 to low $40 price range for a 100% profit.

These two bargain-bin stocks will benefit from the upturn in the market as it grows.  And you can go into the sale with the confidence that the people who work there are also taking on the same risk in their portfolios as are you.

Despite the warnings of well-meaning and cautious financial advisers, long term investors need to always keep finding good deals to add to their portfolios. This week we’ll look at a few lower priced stocks that diversity a portfolio and give a chance to build a good portfolio over time.

1.  Aqua America (WTR)  Water is referred to as “blue gold” by financial gurus.  It is thought that water problems in the future will make this commodity expensive and valuable.  Those companies who have the water rights of various water tables and reservoirs The slow, upward profitability of this stock and the fact that insiders grabbed into it when it had corrected downward a bit.  Aqua America (WTR) is one such company.

Right now WTR is close to being too expensive because the P/E is over 20. However, on the technical charts, it is trading almost at a low.  A good buy would be under 16.  Sell if it were to trade over 21.

2.DCP Midstream Partners LP (DPM):  It’s rare that a stock can triple in six months and still be an excellent value.  This is one such instance.  DPM is a pipeline company that provides a 13% dividend and  and a ridiculously low P/E of 4.  This company’s energy assets are involved with pipelines and propane.  As natural resources continue to propel upward, this company should do quite well.

3.  Caterpillar, Inc. (CAT)- It may seem counter intuitive  to purchase a company that depends on sales in big equipment in a world that is struggling financially. In fact, when this list was being put together, real estate, banks and other stocks which could be hurt significantly by the market was excluded.  However, CAT is different because it has worldwide recognition for its large equipment.  Plus it is in the perfect position to blitz upward whenever a recovery in this sector takes off.  It is still fairly close to the fifty-two week low.   CAT fell from 83 all the way down to 29. Slowly it is creeping back. This may be the riskiest stock on the list, but with a P/E under 9, and insiders buying confidently, this stock is probably a fine long term keeper.   So many emerging markets need heavy equipment and CAT has an aggressive world wide presence.

4.Targa Resources, LP (NGLS):  This pipeline maker has the one thing going for it that make stock pickers excited:  insider buying.  Insiders like this like crazy.  The last dividend was over 17% and although it is trading at twice its 52 week low of five, it still is $10 under its high of 26.  The P/E is under 9 and the future is bright as the price of oil creeps up.  If you have to lose money at the pumps, you might as well put some in your pocket through your investments.

When looking to pick a stock, researchers such as me and other advanced investors look for some basics:

1. P/E:  preferably under 20

2.  Profits:  Look at the net numbers:  is it in the black?  If it is not a profitable company, why bother investing in it?  Does it have good financial backing while its new product make it to the market?

3.   Are insiders trading?  If the answer is “yes”, this is a great confidence builder.

4.  What does the stock pricing charts look like?  Is it on an upward trend?  Do other investors want to buy it?

5.  What kind of publicity and coverage is it getting?  Is the news positive?  Are other people looking at buying into it, too?

Ironically, one stock actually fits these characteristics:  Ford (F).  If you do the research,  insiders are buying.  A new product, the Fusion,  is fuel sipping, rather than fuel guzzling, and stands to be an alternative, viable car product for this upcoming year.

Does that mean this is a good time to buy Ford?  Consider the following:

1.  Ford had gotten alternative funding, so it will not be at the finger-shaking of the American government.

2.  Credit has loosend, and with the rise of gasoline prices in the past few weeks, people may be looking very seriously at a car with great gas mileage that is new.

3.  True, there is an awful lot of vehicles on the lots that are new to compete with Ford’s newest product, but who wants a gas guzzler now?  None of those vehicles can get the kind of gas mileage Ford’s engineers say that their car gets.  Besides, the other companies either are out of business or may be in the near future.  Ford stands to clean up all of the American business.

4. The Ford family secured private finance when they could have made the company go back to being private.  This is key,because it means that others with more money than us believe in this company. And it also means that the family, with its very deep pockets can still buy out stockholders in the future.

If ever there was a time to buy Ford, it might be now.  However, a cautious investor like me says wait.  Ford has terrible competition right around the corner.

1. Tesla is close to having a handle on their sedan model. Right now their hot rod gets 150 mph.   Of course, it is very expensive.

2.  There is a company in France that has invented a vehicle which runs on air pressure.  They are looking for a company to make the product here in the United States.

3.   Toyota’s vehicles have had good working models on the market right now that are known for being fuel efficient.  These vehicles are reasonably priced, and provide American jobs as well.

If anything, Ford has the advantage of name recognition, of having a vehicle that is on its way out the chute, and an infrastructure already to producing cars.  The unions that provide workers may even be a little more willing to work with Ford in order to keep the union jobs that they have.  However, the death knell for the unions is sounding, too, and Ford will probably not be able to compete long with super high wages on the floor.  These next few years in the car industry promise to be very exciting.

Wednesday’s drop shattered many investor’s hopes that the bull market had come back to the U.S. market.  While the last few months have seen an overall climb, days like today give investors the jitters.  And it should  The last ten months have given the American Investor the worst bull market of this generation.  Investors who have been investing for only twenty years or fewer have seen a drop in the Dow that almost defied reason.  It was a legendary drop, and not only was it unsuspected, it was purely frightening.

Having said that, many investors have been optimistic that this is now the end of such tumultuous stock declines.  And the Dow seemed to have forgotten its recent spookiness, climbing from the low of of 7,000.  Wednesday’s drop was an aftershock after a catastrophic earthquake.

Is th stock market done falling? Martin Weiss of Weiss Research points to historical precedence in his belief that the market is not done bleeding.  He points out that in times of U.S. irresponsible spending, inflation came back to haunt our very existence.  Only the intervention of some very clever leaders at the Federal Reserve  have kept us from going through another Great Depression.

Weiss’ sole goal for his subscribers is that they should not lose money.  It is his belief that in order to retain wealth, losing that money can set a person back for his entire life.  Look at the retirees who suffered at the hands of Bernie Madoff for proof of that.

There’s nothing wrong with that kind of thinking.  But many advanced investors are in the market to make money.  They aren’t interested in over caution as much as to make money.  Having said that, what can be done about a falling market and investors who want to win?

Strategy and great care when stock picking.  Never pick one that is over 20 P/E. Do the proper research. Are insiders buying?  That is a good sign.  Does it have a proprietary service or product?

Not only that, but think ahead.  What sectors are undervalued.  Which stand to gain in case of a rash of inflation?   If the market is going to fall more, then these bargains will probably not be as affected.

In the end, smart investments will win out, especially if the buyers concentrate on undervalued stocks.  In another twenty years, these days will just be a blip on the screen.

The headline on Yahoo Finance today: Party Like it’s 2007: Investors Prefer Emerging Markets Over U.S. Stocks.  Why is that?

Could it be that the growth in the emerging markets is skyrocketing.  Yes, that would be part of it.  Could it be because the banks here have had solvency issues?  Yes, that would be a part of it, too. But there are so many other reasons that emerging markets look wonderful to investors that even if the United States were not having difficult times, investors should be investing in those markets anyway.

The logic behind this is because emerging markets are poised to outshine all markets in the world.  Emerging markets have not been saddled with the banking woes with which mature markets have had to contend.  So while European and American markets have been falling, investors in emerging markets have seen great returns.

Consider that while the real estate bust has left a virtually dead landscape on the American scene, building and expanding in places such as China, Tiawan, Dubai, and Singapore is bursting forth.  Cranes help the skyscrapers go up, up, up and with it, the promise of business going on in a brisk manner.  This is the fundamental difference in the emerging markets versus the American landscape.  Here unemployment has been at record highs. Not true overseas in some countries.

There are dozens of excellent emerging market funds.  Choose the ones that fit your tolerance for risk, have solid returns and read over the prospectus.  In there you should find the countries in which the particular fund you are analyzing is investing.  That’s critical as some countries such as Russia have serious political difficulties that can lead to the squelching of good, sparkling businesses.

Why not invest in an ETF of Emerging markets?  Because ETFs do not discriminate about which stocks are in their portfolios.  That is fine if the market is moving in the upward direction.  However, a bump in one stock can really hinder the general movement of the whole sector, especially considering political instability.  You want a smart fund manager to pick these stocks for the overall fund.  

Like many sector funds, emerging market successes come and go. However, until the banking industry shrugs off this black cloud hanging over it, some other investment vehicle is going to take the star.  Emerging markets stand to benefit handsomely as the world rushes to join the western hemisphere in all of the bounty this world has to offer.

Fans of Denison Mines were ecstatic in early December when they could pick up this little known silver mining company for $.54 a share.  The smart ones loaded up their portfolio with as many shares as fast as they could.  The result was a fast recovery and big profits for investors.  Today the stock has been hovering between $2.00 and $2.50.

But financial gurus still encourage people to load up on the stock.  Why?  The price of silver has been slowly edging upward, and Dennison stands to become a takeover target or have a stock rise over time due to profitability.  Even though the stock has skyrocketed, it still is considered a grab.

To understand that thinking, it would be worth noting that the stock used to be stable at $7 /share and had at one time climbed all the way to $13/share.  This was before the company had even made a profit.  Now that it is profitable, the company should look even more exciting to investors.

There are always concerns.  Morningstar still has the stock listed with a negative P/E ratio.  So even though the company showed a profit for the first time a couple of years ago, the drop in value of silver during the last quarter of 2008 made profitability sink.  Now that the price of silver has gone back up, profitability should hopefully retain back in.

Insiders are not trading right now, so it might be worth buying on dips if this is a stock you want to add to your portfolio.  Howard Ruff, the long time financial analyst, urges people to buy silver stocks to hyperspeed their portfolio.  Denison is one of many good small stocks to help beef up a solid portfolio.

During the worst of the bear market, Warren Buffet was approached by investment firm after investment firm asking him to buy them out.  There was only one that he bought:  Goldman Sachs (GS).  Now that the market has rebounded a bit, the question for the slow-to-act investor is, “Is GS still a good buy?”

There are several litmus tests of investing.  First is the P/E ratio.  Currently the P/E is at 31, which is much higher than the desired 20.  Another investor’s welcoming sign is when insider trading is taking place.  Right now, Goldman Sach’s executives are not buying.  Most are exercising their options, or giving stock as gifts.  There are no records or recent stock buy. a desirable activity when looking to invest in a stock.

A final thing to note, Goldman Sachs recently reported a loss of profit in the last year.   There is still a profit, but it is not as huge as it used to be.  Morningstar has rated its financial health as a “D.”

If GS takes a dip in stock price, it might be worth grabbing.  Buffet’s analysis of the basic books probably revealed good bookkeeping, as the guru from Omaha is notorious for not buying investment vehicles he doesn’t understand.   If another market correction takes place and the profitability looks better, then GS would be a buy.  But for now, let it pass to find other stocks on sale.