UV Market Blogs

Monday, April 30, 2007

A quick look back at the oil picks

In my March 9th and 13th postings Oil is Hot and The Other Oilers I outlined a few companies that I thought would hit it big during the summer driving season. 

Its only April right now and I plan to do another follow up around June and then into late summer as oil prices peak each year.  Over the last few years, disregarding disasters like Katrina, June has been the true peak for oil prices on the commodity markest.

Nonetheless, increased prices and favorable company positioning has led my three picks, DO, NE and RDC up 14, 16, and 24% respectively.  Not a bad return for just 45 days.

This is just a short follow-up to the picks. I am still holding onto all three. My options are up considerably but I think these stocks will continue the surge up until the summer demand ceases in June.  I’d look to hold on throughout the summer, you won’t find a better yield anywhere else.

Wednesday, April 25, 2007

I knew I liked Washington Mutual

Besides the recent upward movement to $43 per share from a recommended price of $39.50 I have a new reason for liking WM. 

The contact less card!

First I should start this blog by saying I am a huge fan of consumer credit cards.  I have many cards which give me 2% on everything I buy.  Plus, for using plastic I get essentially a 55 day, interest free loan while the billing cycle is calculated.  Along with the credit also comes 0% offers that add up to the tune of hundreds of dollars in free interest on their money.  That said, I am a huge fan of credit if used correctly.  Poor use can get you into trouble and that’s never a good thing.  I would highly encourage stores to accept this new form of payment because I think it’s a gateway into the future.

This new card offered by both Visa and Mastercard has the ability to change the credit scene forever.  The contact less card offers consumers a way to pay for goods via credit or debit accounts without ever handing the card over to a sales associate.  The card which has been shown attached to car keys or in places such as Europe, imbedded in cell phones, offers more security than traditional cards.  The card is simply “swiped” or “placed” within two inches of the high tech payment terminal which reads the information wirelessly then records a transaction on an account.  The sales associate never handles the card nor needs to see ID for the transaction.  While the sales terminal will be completely wireless, it will be just as, if not more, secured than tradition Point Of Sale machines.

I expect the terminals to become a new favorite of high volume, high trafficked businesses such as large retailers and even gas stations.  Due to the card remaining in the customers hand at all times, a few seconds can be taken off each transaction just for the handling of money.  Figure also that the machine requires no changed to be tendered back to the consumer and no signature is needed for purchases under $25 this machine should be a great timesaver.

Even today we have machines such as automatic change counters that deliver change to the customer while the clerk administers the bills.  This interface alone saves time for the companies employing such machines and I can foresee this new payment system shaving even more time off each transaction.  The time may only amount to a few seconds, but for businesses such as WalMart, that is valuable time. 

Washington Mutual is the first bank I have seen to work with the new payment type which I think will make it a market leader.  Eventually, all cards will probably go contact less which puts WaMu in an outstanding position to capitalize in the beginning. 

Washington Mutual has no small credit base either.  The company reports $23.5 Billion dollars in bank card assets which makes it the fifth largest in the nation.  WaMu serves over 11 million accounts with generally decent credit.  In the consumer credit scene, WaMu is considered a prime lender. 

Not just added security will make this program a success.  I think the largest selling point is the time savings in tendering the cards and change to consumers.  Ideally, WaMu should pick up many more credit accounts from its acceptance of the new terminals.  I would expect that if Washington Mutual does follow through with the program that it probably doubles the amount of current cardholders it holds now. 

WaMu is a buy here.

Merger Mania

It eats corporations whole!  It’s the new trend.  The new pet rock, the new chia pet or the new coach purse for all the female readers.  What is it?

It’s the merger. 

The last two years have been, on the Chinese Calendar, the year of the merger.  Its not over yet, and it really is benefiting you as an investor and as a consumer.  First though we’ll cover the best part of mergers from an investment standpoint, its more important to us.

Mergers, as defined by Webster’s Dictionary are: a statutory combination of two or more corporations by the transfer of the properties to one surviving corporation.  The combination creates one remaining corporation with the assets of all the previous corporations included.

How does this help your portfolio?

First, mergers generate a lot of money on the street.  When one company buys out another, often a high premium is paid for the assets of the corporation.  Typically the purchaser gives you 10-20% added to the current value of the stock but sometimes the cuts can go up to 50%.  In one day you could make what most portfolios make in years.

After the companies fuse together, the new company can cut jobs in the production of its product.  A cut in expenses drives down the PE multiple you initially paid for the company, even with its inflated price.  The new corporation can create products more cheaply, expanding its market presence.

Typically in a merger you will receive stock of the newly combined company, but sometimes you may receive cash for your investment.  Post-merger I would suggest selling your shares that you have received regardless of the percentage gain you have collected.  Generally the stock drops off after the news of the merger settles and business goes on as usual.  Granted you now own shares of a better positioned company, but your returns will most likely lag the overall market, and as we’ve learned earlier, lagging the market is the best way to work until your 85 and wrinkly. 

The consumer ultimately benefits the most from decreased costs of the product due to lower production expenses.  After a merger, a layoff usually occurs of a significant amount of laborers which is terrible for the employed.  Those costs are usually sent to the consumer to gain a greater market share so all is not lost.

Mergers are good, not bad news.  They boost your returns, lower prices of goods and make shopping decisions easier.  Mergers aren’t corporation monsters. 

Monday, April 16, 2007

Value play

I’m not much for fundamentals when looking for stocks to buy but I just can resist this play for all the buy and holder’s out there.  The stock is Washington Mutual or the ticker symbol WM.  The stock price has been toasted by the recent “sub-prime” fallout that is expected to ruin the markets forever.  Whatever.

There are many reasons why I think WM should be a part of your long term/retirement portfolio:

First:  Dividends
The current dividend yield is 5.6%.  This is reason enough to buy a company like this.  For a company with the status of Washington Mutual I would expect a 2-3% dividend yield at the most.  Luckily the current yield is 5.6%, a couple decimals higher than you could get with a Washington Mutual CD.  And like a CD, I’d say that a large bank is a relatively safe investment.  Not foolproof but the possible returns on stock are much greater than Cds.  I’ll take the stock at these levels.

Second:  Price to Earnings
Compared to earnings, this stock is dirt cheap.  The stock trades at just 9.25 times 2008 expected earnings and 10.83 times the expected 2007 earnings.  I think WM is worth 12 times the earnings, or $48 per share. 

Third: Sub Prime isn’t happening
Washington Mutual, because of its status as a lender, fell with all of the truly junk corporations who made bad loans to people who couldn’t pay them.  WM has very little, if anything, to do with the subprime industry.  Because of the unrelated news, investors discounted WM stock even more, now to $39.50 per share. 

In my opinion, WM is a stock to hold for a long time to come.  The 5.6% dividend yield, if reinvested is a great way to boost your returns instantly.  The 5.6% essentially negates taxes and inflation while the remainder of the stock gain exists as pure profit.  Don’t miss this one, its too cheap to ignore.

Tuesday, April 10, 2007

Dow, this is Earth calling

The last two months of trading has been noted by turmoil.  Absolute fear in the sub-prime market.  A sneeze in China sent US securities for a spin.  The carry trade was ruined!  It could have been the end.

But it wasn’t.

We’re coming back to earth.  The Dow was an extreme out-performer in 2006 and I think 2007 will be the year the Dow gets back to its bearings.  I hate to be a downer, but 11400 might not be out of range. 

The chart below may help you understand where I am coming from.  Prior to the amazing year we experienced last year, the Dow followed a moderate advancement upward in a near perfect channel.  In 2006 we saw a touch of the top of the channel then a notable drop to the bottom of the channel where it would later double touch and send the index out of the channel all together.  Now I believe the index is headed back into its previous path. 

As you can see, the index had a perfectly carved path.  In 2006 with the May sell off, the index hit a low for the year and then later touched the same low again.  I think it was this double bottom that sent us to some of the best 6 months in the last half of the year.  As a technical analyst, anything I see outside of the “norm” is bogus.  The part of the graph outside of the channel is unjustified territory and unsafe ground for your investment dollars.  The volatility inside the channel is nothing compared to what could happen outside. 

Ideally, the Dow would come to rest again at the bottom of the trend only to continue in its usual path.  I hate to say that 2007 is going to be a consolidation year and be a drag but I think it is actually what is best for today’s market.  A consolidation to 11400 would be best for the market to continue moving forward.  This would leave 2008 and onward to bring financial prosperity in the markets.  I think the change of presidency could also have an effect.

More evidence that suggests a consolidation is the breakdown of the smaller trend I have outlined.  The 500 point drop day cuts clear through that trend.  When there is a huge movement through a trend, the movement confirms the trend was recognized as support/resistance. 

Don’t go crazy over all the sub-prime news, let that storm blow by.  If we experience some kind of drop this year in the Dow, its not the reasons you hear on TV, its just a consolidation or rebuilding year.