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Monthly Archives: June 2010

How you can you financially benefit from owning a home

Posted on by Posted in Inflation, Interest Rates, Investing, Real Estate Leave a comment

How you can financially benefit from owning your own home…

Home ownership is often referred to as the “American Dream.”  Whether or not it’s your dream or your reality, it’s important to understand the financial benefits of owning your own home.  You must live some where and when it comes to renting or owning, there are a number of advantages to owning.

The most obvious advantage is in terms of taxes.  Your mortgage interest is deductible from your Federal income tax.  Therefore, if you can deduct a 100% of your mortgage’s interest, then you essentially have an interest free loan.  This is a huge advantage over renting.

With property values at their lowest levels in many years in many regions, your home is likely to appreciate in price in the near and distant future.  This could mean you will actually profit the day that you decide to sell your home.

Property is also a good hedge against inflation.  Consider this, your house has value because provides an area in which to live.  If you translate this into a rental fee per month, you house can bring in $X per month.  If you assume that inflation causes rents to rise, then your house has a greater earnings potential and thus a greater value to an investor/buyer.

Lastly, if you’re hesitant to buy a home because it may tie you down to certain location, you can always rent out your house.  Nothing says that you must live in X location after your house is bought.

Screening for Lucrative Investments

Posted on by Posted in Dividends, Investing, Ratios, Risk, Stock Ownership, Strategy 3 Comments

Screening for Lucrative Investments

Using a stock screener can be an effective way to screen for specific investment characteristics you desire or to simply identify new companies that you are unfamiliar with.  To illustrate my point, I’ve used a screen to identify a number of stocks that are less volatile than the market, have shown constant earnings growth and have healthy dividend payouts.  Below you will see the criteria I used.  Click on the images below to see the results.

Stock Screen (via Scottrade on 6/27/10):

  • Beta less than S&P 500
  • Earnings Per Share (EPS) Annual Growth
    • Current fiscal year – positive
    • Next fiscal year – positive
  • Earnings – Greater than 4 consecutive non-negative quarters.
  • Positive dividend growth rate over the past 5 years.
  • Current dividend yield is between 6%-8%

To use Yahoo!’s screener click here.

Results

Results – Additional performance data…

Vacation Property

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Vacation Property

Property Price: $200,000
Down Payment: $40,000
Loan Needed: $140,000
Interest Rate: 6%
Period: 30 year loan
Estimated Monthly Payment: $840
Estimate Annual Loan Payments:  $10,080

Let’s assume you rent the house out at $200 a night for 50% of the weekends of the year.

52 weeks / 2 = 26 weekends * average stay of 2 nights = 52 days a year the property is occupied by paying customers.

$200 per night * 52 = $10,400 * 20% property management and small incidentals = $2,080

Take home = $10,400 – $2,080 = $8,320

Annual Take Home – Annual Loan = Annual Gain(Loss)
8,320 – 10,080  = ($1,760)

What you see above is pretty conservative in my opinion and we still have not added in other expenses like insurance and any set fees the property management company would charge.  Clearly, the occupancy rate is going to be a huge factor in deciding if you’re going to come out profitable or unprofitable.

Keep in mind that most popular destinations provide a variety of choices of where visitors can stay.  Therefore, being in a popular spot doesn’t mean you’re going to have a great annual occupancy rate.  For instance, I mention Lake Tahoe in the video, which is a very popular destination, but has an excess of places to stay.  It’s not the location, but the fact that vacation property inventory is very high in that area.   This fact diminishes your anticipated annual occupancy rate of the property.

I don’t mean to discourage vacation property as a possible investment option, but you need to be realistic in your projections.  Make sure you don’t overestimate what you might receive.  Also, if you really enjoy a location, it might make more sense just to rent a house or a hotel room.

Stocks Aren’t For Everyone

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(The next episode should not have the lighting issue you see above. )

Stock’s Aren’t For Everyone

Yes, as much as it pains me to say this, stocks are not for everyone.  I don’t mean in the sense of one’s proximity to retirement or their risk tolerance.  No, what I mean is that some people have certain predispositions that make stocks a disaster as an investment.

What do I mean?  Have you met someone that thinks they know everything?  Overconfidence can destroy y0ur account balance.  How about a person that takes something at face value and runs with it to its logical conclusion?  Again, with the amount of news headlines, such inclinations can ruin you.

I think it’s very important for an investor to have a good sense of his or her short coming and be able to understand what he or she doesn’t know.

Being a successful stock selector is not akin to the post-Thanksgiving Day dash you see happening as stores open to kick off the Christmas season.  Grabbing a stock here and a stock there is probably going to lead to a loss everywhere.  To succeed you need to have a decent degree of self-restraint and the ability to keep your head, even as the rest around you have lost their head.

It’s just my opinion from my experience.

Finding stocks on the path less traveled

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(Please forgive the horrible lighting.  I lost (had stolen?) my regular camera and I’m using one that likes LOTS of light).

Finding stocks on the path less traveled

In this video blog I use an analogy of picking berries on a path that’s heavily traveled verses one that is less traveled.  When you have a lot of people aware of a good berry bush, it’s going to become less and less of a source of berries for you.  What does this mean for you as an investor?

When people know of a good company or good news the favorable perception will be priced into the stock.  If everyone runs to buy Intel (example) because of a specific piece of news or a foreseen trend, then is Intel really a good investment?  No, the opportunity has passed (at least for the short-term) since everyone has acted on the news.

If you’re looking for significant investment returns, you need to look beyond headlines and popular investment shows for your stock/investment ideas.  Stocks that do not have the spotlight on them or are not well understood can be a great source for cultivating investment success.  If a company or an industry/sector is good and/or breaking new ground, then it will be a valuable investment.  The caveat here is that you might have to wait longer for more investors to understand the industry/company or simply for the company to gain more exposure in investment circles.

Bottom line – Identify a few not so mainstream sources of investment information and see what trends, industries or stocks are being touched on.  From there, see if any of the  information you’re obtaining is leading you to new worthwhile investments.

The Shield & Sword – Investments that can play offense & defense

Posted on by Posted in Dividends, Investing, Risk, Stock Ownership, Strategy 9 Comments

As frequent visitors to this site will know, lately I have been touching on the idea of selecting companies to invest in that have both value and growth characteristics.  This is a strategy that I not only preach, but also practice.  While scouring the Internet for new investing ideas, an analogy came to me that accurately depicts this strategy – a shield and a sword.

As an investor, you want your portfolio to grow; you seek chart patterns with lines cutting upwards to new heights.  Yet, though your quest is for new stock price heights, you realize that the environment is not always a dreamland where prosperity flourishes.  Therefore, you also want an investment that has some form of defense mechanism that helps protect itself against a market that stumbles and falls backwards.

A number of investment ideas can provide you with both components.  One area where I see a number of investments that are positioned to be offensive in growth and defensive in risk is with emerging market companies that provide basic services.  As an investor you are betting on emerging market growth, while relying on the defensive nature of the company’s service(s) to reduce volatility (risk).

Latin America is filled with a number of emerging markets, which by their nature have a population growing at a fast pace.  As these markets ‘emerge,’ a greater number of its occupants will seek more services we in the ‘West’ regard as basic.  If you hold this assumption to be true, then I would take a look at some basic utility providers found in the Latin countries south of the U.S. border.

Companhia de Saneamento Basico (SBS) – This company is Brazil’s largest water utility.  Water treatment and distribution are a pivotal component of any developed economy.  As a country’s economy develops and more wealth is created, clean water and wastewater disposal will become one of the first services demanded by those ‘moving up the ladder.’

SBS has 197 water treatment facilities, 438 sewage treatment facilities and about 25 million customers.  The current PE ratio is 5.8x.

CPFL Energia SA (CPL) – A Brazilian power company with a hefty dividend.  As of today, the dividend stands at 6.81%.  CPL distributes and generates electricity to approximately 6.6 million customers (about a 13% market share).  The company is also involved in ‘green’ power generation with the construction of a hydroelectric, two biomass, thermoelectric and wind farm facilities.  As Brazil grows the demand for electricity will grow.  Growth with a heavy dividend…It’s what I’m looking for.

Banco Bradesco S.A. (BBD) – When people start to get money what do they then need?  A place to hold their money.  Banking on banking in Brazil is what BBD is all about.   This company is in the top 10 most profitable companies and is one of the largest private-sector banks in Brazil.

Remember, this is a small sample…It’s a starting point.  Don’t forget that foreign stocks bring currency risk with them.  It’s something to consider.

I hold no current position in any company mentioned above.

Nevada Geothermal – Big News for a Growth Stock

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It seems that I have misplaced/lost my wonderful digital camera that I used to produce the videos on this site.  Therefore, until further notice, I will be blogging via the keyboard, not the camera.

If you are an observer of my “Trading Log,” you will know that I have been accumulating shares of Nevada Geothermal (NGLPF.OB) for a number of months.  Actually, I’ve been a shareholder for a year now and have been following the stock for about a year and a half.  It’s my most speculative holding and my most closely watched holding.

Today some very good news came.  NGLPF.OB has been giving a conditional loan guarantee by the Department of Energy.  This is huge because it is a one very large step towards ensuring a lower interest rate for a large part of their financing.  Right now they have a substantial loan (the exact figure doesn’t come to mind right now) that has a 14% interest rate.  The rate they must pay on the loan’s principle is so great that it’s preventing them from potentially being a profitably company.

Nevada Geothermal, though being quite speculative, is an actual producer of energy via a geothermal source below the earth in Nevada.  They have a plan built by Ormat (ORA) that nets over 40MW and it expected to jump up to around 50MW when another injection site comes online.

The company owns other prospective sites and has plans for expansion.  They are with out a doubt a growth stock, but could very well be a value stock after they have expanded.  Who knows how long that will be.

Upon the news being released today, the stock jumped over 16%.  If you’re looking for a growth stock, I would give NGLPF a look.  I own the stock and a number of other stocks and, if you are a regular to the site, I typically do not talk directly about stocks I own.  This one I am talking about because I believe it’s an opportunity and because it’s not listed on a major US exchange, not everyone in the world knows about the stock.

Do your research and make your own decision.

http://www.nevadageothermal.com

http://finance.yahoo.com/q?s=NGLPF.OB

http://finance.yahoo.com/news/Nevada-Geothermal-Powers-bw-2367640235.html?x=0&.v=1

Investing – Run with the herd, just not over the cliff…

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Running with the herd can lead you over the cliff.

Consider this…When the ‘market’ (the collection of all investors) is the most bullish, you should be bearish.  When the market is the most bearish, you should be the most bullish.  Sounds simple, but marketing timing is a very difficult task.  Nevertheless, taking this simple truth into consideration can help you take a step back from a extremely exuberant or dire situation and assess whether or not you should stick with or go against the current market perception of the majority.

Following momentum in the market is not a bad thing by itself, but when the momentum drops, you want to have made your exit.  In the market, a good thing can turn into a bad thing within a few moments.  Make sure you have a disciplined strategy to protect yourself from the thought of perpetual bliss.

Remember as an investor, the market is driven by those with the most ‘skin in the game,’ not those with the biggest mouths.  How many different sources of market opinion are you exposed to daily?  How many of those opinion givers have the power to move the market?  Probably few, if any.

The difficulty is that those with the sway will not speak as loud as a talking head or other opinion maker.  Secondly, we’re not talking about finding the oracle of the stock market to drive your guidance for foresight.  No one person controls the market, but a number of people exist with more experience and knowledge than most offering up their interpretation of the future.

Finding good sources of information on a macro level is very important as an investor.  You don’t want investment news that’s the equivalent of reading a tabloid.  That will lead you off a cliff of financial disaster.

Macro/Big picture guidance is VERY important when investing.  When the market turns bearish or bullish, the majority of stocks/funds are either brought in or taken out with the current.  It’s very hard to have a portfolio that can fight the tide.  If you have a good sense of the way the market is or will move, then you can position yourself to benefit from the tide’s (market’s) movement and not be in a position where you must defy the odds to come out on top.

Clean Energy with a +5% Dividend Yield

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Clean Energy that pays a dividend and has opportunity for growth...

Southern Company (SO) and Exelon (EXC) are both two energy producers with nuclear energy production capacity.  Both companies currently pay a +5% annual dividend and have room to grow.

Consider the current state of our economy; it is slowly coming back, but has taken a big hit over the last 2 years.  As a result many businesses have scaled back or gone out of business.  Households have tightened their spending because of more restricted budgets.  This impacts the consumption of energy.  Therefore, as the economy rebounds, energy usage should too.

Secondly, the EPA is increasing its squeeze on coal power producers with increased emissions controls.  Thus, producers of stable and clean power stand to benefit as some coal plants are taken offline.

This past February the Obama administration approved an $8.3 billion loan guarantee for Southern Company’s construction of two nuclear reactors in Georgia.  Consider this and the fact that a large percentage of the power in the south is derived from coal power plants and you can see how SO might be finding themselves in a pretty sweet spot.

Two other clean energy companies to consider…

Chemical & Mining Co. of Chile (SQM) – The company mainly deals with agricultural fertilizers, but they also mine lithium.  Actually, they hold about 1/3rd of the worlds known supply of lithium.  This matters because many battery powered devices used lithium batteries.  Think of all the cars coming online that are electric or some type of hybrid.  They will run on batteries and many of them will be lithium batteries.  SQM could cash in huge if a significant up-tick in the demand for lithium occurs.

Ormat Technologies (ORA) – A producer of geothermal power and developer of geothermal extraction technologies.  As the push for clean energy continues one area that is seeing an increasing amount of interest is geothermal power.  Ormat is the largest pure play on geothermal.  They own a number of properties that are potential sites of geothermal power generation, they operate their own geothermal power plants and they plan and build geothermal power plants for other companies.  If geothermal catches on in the US or outside of the US, they are going to be part of the action. (I own ORA)

As always, use this blog as a starting point and then go out and do your own research.

Gas Prices Down This Summer? Here’s an investment strategy.

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Lower Summer Gas Prices?  Here’s an investment strategy…

If we do experience lower summer prices at the pump, we will also see the price for a barrel of oil fall as well.  Thus, we’ll hear about an oversupply of oil, lack of demand and all sorts of other quips about the demise of high-priced oil.

I am of the opinion that lower oil prices will be a temporary condition and certainly will dissipate once the economy gains speed in its recovery.  Ultimately, we’ll see prices creep back up.

If weakness in the oil market is temporary, then use patches of weakness as an opportunity to get into certain positions at a low price.  The spot price of oil will impact the per share price of many stocks and funds that are in the oil business.

Here’s one strategy…I’ve spoken before about MLP (Master Limited Partnerships).  Most of these companies are in the business of the transport and extraction of energy (primarily oil and natural gas).  Since this is the case, a weaker oil market will make their future profitability look less bright and thus drive down their share price.  If this does happen, you may be able to get a good per share price and a higher dividend yield on the MLP you’re dreaming of.  Use the weakness in energy to get the MLP you’ve always wanted at a discount price.

Once you nab your MLP you can hang on to it and cash in on its high dividend yield or wait till oil prices rebound and sell the stock at a higher per share price.  Of course risks exists, but opportunity does as well!

Don’t want an individual MLP?  No problem!   ETFs exist that hold a diversified set of MLPs.  One that I watch is

A few other MLPs that I keep my eye on are:

  • ETP – Energy Transfer Partners
  • LINE – Linn Energy
  • EPD – Enterprise Products Partners
  • AMJ – (ETF) JPMorgan Alerian MLP Index

This is just one of many ways to play a weak oil market this summer.