Tuesday, June 25, 2013
The Light At The End Of The Tunnel
One of the stocks my father left me in his portfolio is Duke Energy (DUK). Every strong portfolio needs a foundation and after doing my due diligence I decided I would keep the DUK shares I received and in fact continue to add more of them to my portfolio. Since my shares of DUK are held by DUK and not in my trading portfolio, I opted to leave them there instead of moving them over. I also elected to have the company re-invest the dividends and I add a little bit of money each month to the account through direct withdrawal from my checking account. Re-investing dividends is a nice benefit if you are planning on holding shares for an extended length of time. By extended time I mean years if not decades. (And in the For-What-It's-Worth Column, I am adding VERY little every month. Have you seen a teacher's pay check lately?)
So on that note, I am going to add 100 shares of DUK to the Magic Money Portfolio.
This move may seem incredibly out of character for me since I typically select my stock purchases and sales based on my tried and true model. My model really does work and has always out performed the SP 500 in the long run. Right now my model rates DUK as Hold/Accumulate but not an outright buy. I'm not second guessing my model here but I am using DUK as the backbone of my portfolio and while over the short run it may not perform as well as the rest of my portfolio in the long run it will do just fine particularly in the light of total return. (Side note here: Total return is the future value of the investment taking into account both share price growth and dividends. My model is a growth model only and does not take dividends into account.)
Okay, so what do I like about Duke Energy?
First and foremost DUK is one of the largest regulated utilities in the country. Big is not always better but in this case it is. If you add to the size of DUK, the fact that it serves the Middle Atlantic States which in terms of the rest of the country is a growth region DUK has an expanding customer base. They recently acquired Progressive Energy to meet that regional growth and the synergies of the two companies should start to become evident later this year. On the political scene, DUK asked and received permission from the regulatory agency for a 5% rate increase within the last month.
Going by the numbers. . .
DUK is paying an annual $3.06 dividend paid quarter. That is roughly 4.7% annually which is a nice return on the current price per share, $65.58 per share.
DUK has a long track record of both consistent dividend payments and increases.
The current book value per share is about $34.25 making the price less 2x the BV and that does not appear to factor in the acquisition of Progressive.
DUK earnings growth is projected between 4 & 6% for the upcoming 12 months.
The recent correction in the stock market has presented an opportunity to pick shares of DUK at a very reasonable price.
6-Month Chart of Duke Energy (DUK)
07 June 13 - 1000 shrs IAG @ $5.29 per share. (BUY)
13 June 13 - 500 shrs AA @ $8.20 per share. (BUY)
21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)
Magic Money Machine Portfolio (21 June 13)
Cash: $ 34,062.00
1000 shares IAG- $4.36 $ 4,360.00
500 shares AA - $7.98 $ 3,990.00
100 share DUK - $65.58 $ 6,558.00
Total $ 48,970.00
(2.06%)
Yes, I know that after two weeks the portfolio is down 2.06%. You have to remember the stock market went through some wild gyrations last week. I really expect that to continue for a little while longer as the market shakes itself out. In the same time frame, this how the major indices have faired...
NASDAQ - down 3.23%
SP 500 - down 3.10%
Dow Jones Ind. - down 2.94%
So while the portfolio is down it has faired a lot better than the market as a whole. Of course, that is because the bulk of the portfolio is in cash. I will preach patience right now because this is not a get rich quick game. The portfolio still is cash heavy but I want to pick and choose quality companies not go all in right away.
Thursday, June 13, 2013
Aluminum Foil Ain't Just Baked Potatoes
Precious metals aren't the only metals out of favor on the trading floor these days. Two cyclical metals manufactures have taken a beating over the last couple of years, US Steel (X) and Alcoa Aluminum (AA). Both stocks are not too far above their lows and both are selling at a nice discount to their book value. Given enough financial resources I might seriously consider including both in my portfolio but with only limited resources the one I want is Alcoa.
Of course, I need the obligatory disclaimer . . . I AM NOT ADVOCATING THAT YOU BUY THIS STOCK. I AM WRITING ABOUT MY VIEWS AND OPINIONS OF THIS STOCK. I HAVE NO BUSINESS CONNECTIONS WITH THE COMPANY AND NO ONE GAVE ME ANY COMPENSATION FOR WRITING ABOUT THE COMPANY. I DO HAVE A LONG POSITION FOR THIS COMPANY IN MY PORTFOLIO.
First things first, aluminum like steel is incredibly dependent on the economy and the country's demand for infrastructure and durable goods. In more easily understood terms, as the economy improves and there is more construction and more purchasing of cars and other big ticket items increases then profits of aluminum and steel companies gets better.
Second thing, there is a world glut of aluminum right now, primarily due excess production China over roughly the last two years. The excess aluminum has forced the price of aluminum lower. With lower sales due to the economic conditions of the last few years and lower sale prices due to excess availability, Alcoa has had to fight remain profitable over the long run.
Okay, so that doesn't sound so great, right. Economically speaking, it isn't so great but what Alcoa did in the face of the adversity is second to none. Alcoa has become the master of efficient low cost production. The bottom line, there are very few companies in the position to take advantage of the economic turning around in the way that Alcoa is.
So lets look at the numbers . . .
52-week price range $7.90-$9.93 ($8.20 close June 13, 2013)
Book Value - $12.50
Dividend - $.12 per year (~1.45%)
2013 Earnings are projected at 4x compared to 2012
The rest of the fundamentals for Alcoa really show just how well management runs the company.
Technically speaking there is no exact way to determine when Alcoa share prices will start to recover their lost ground. My model suggest two critical price levels for the stock. The first level is $9.00 per share. Once the share price hits this level, I am confident we will see the real signs of an economic recovery starting in earnest. At the second level, $10.00 per share, the economy will have regained its foothold. When is all of this supposed to happen? I don't have a clue but I strongly suspect it will be within the next 6 months but please don't hold me that fact.
Anyway, the wizards of Wall Street have Alcoa rated as anywhere from a strong buy to hold with a 12-month target price of anywhere from $11.00 to $20.00 per share. My model gave my a false buy signal earlier this year but such is the nature of mathematical models. In my various scenario simulations, it appears it will give me another buy signal at $8.75. In anticipation of that buy point, I am actually jumping the gun on my model and have already started accumulating shares. My projections give Alcoa a 12-month target price of roughly $16.00. Maybe I shouldn't be jumping the gun on my model but I am really impressed with what the company has done over the last couple years and at current price levels, I'm buying assets at a 33% discount.
So, I am going to jump the gun here as well and make Alcoa the next addition to the Magic Money Machine Portfolio.
07 June 13 - 1000 shrs IAG @ $5.29 per share. (BUY)
13 June 13 - 500 shrs AA @ $8.20 per share. (BUY)
Magic Money Machine Portfolio (13 June 13)
Cash: $40,620.00
1000 shares IAG- $5.25 $ 5,250.00
500 shares AA - $8.20 $ 4,100.00
Total $49,970.00
Change (0.06%)
Of course, I need the obligatory disclaimer . . . I AM NOT ADVOCATING THAT YOU BUY THIS STOCK. I AM WRITING ABOUT MY VIEWS AND OPINIONS OF THIS STOCK. I HAVE NO BUSINESS CONNECTIONS WITH THE COMPANY AND NO ONE GAVE ME ANY COMPENSATION FOR WRITING ABOUT THE COMPANY. I DO HAVE A LONG POSITION FOR THIS COMPANY IN MY PORTFOLIO.
First things first, aluminum like steel is incredibly dependent on the economy and the country's demand for infrastructure and durable goods. In more easily understood terms, as the economy improves and there is more construction and more purchasing of cars and other big ticket items increases then profits of aluminum and steel companies gets better.
Second thing, there is a world glut of aluminum right now, primarily due excess production China over roughly the last two years. The excess aluminum has forced the price of aluminum lower. With lower sales due to the economic conditions of the last few years and lower sale prices due to excess availability, Alcoa has had to fight remain profitable over the long run.
Okay, so that doesn't sound so great, right. Economically speaking, it isn't so great but what Alcoa did in the face of the adversity is second to none. Alcoa has become the master of efficient low cost production. The bottom line, there are very few companies in the position to take advantage of the economic turning around in the way that Alcoa is.
So lets look at the numbers . . .
52-week price range $7.90-$9.93 ($8.20 close June 13, 2013)
Book Value - $12.50
Dividend - $.12 per year (~1.45%)
2013 Earnings are projected at 4x compared to 2012
The rest of the fundamentals for Alcoa really show just how well management runs the company.
Technically speaking there is no exact way to determine when Alcoa share prices will start to recover their lost ground. My model suggest two critical price levels for the stock. The first level is $9.00 per share. Once the share price hits this level, I am confident we will see the real signs of an economic recovery starting in earnest. At the second level, $10.00 per share, the economy will have regained its foothold. When is all of this supposed to happen? I don't have a clue but I strongly suspect it will be within the next 6 months but please don't hold me that fact.
Anyway, the wizards of Wall Street have Alcoa rated as anywhere from a strong buy to hold with a 12-month target price of anywhere from $11.00 to $20.00 per share. My model gave my a false buy signal earlier this year but such is the nature of mathematical models. In my various scenario simulations, it appears it will give me another buy signal at $8.75. In anticipation of that buy point, I am actually jumping the gun on my model and have already started accumulating shares. My projections give Alcoa a 12-month target price of roughly $16.00. Maybe I shouldn't be jumping the gun on my model but I am really impressed with what the company has done over the last couple years and at current price levels, I'm buying assets at a 33% discount.
Price Chart: AA 1-year w/ 50-day and 200-day SMA
So, I am going to jump the gun here as well and make Alcoa the next addition to the Magic Money Machine Portfolio.
07 June 13 - 1000 shrs IAG @ $5.29 per share. (BUY)
13 June 13 - 500 shrs AA @ $8.20 per share. (BUY)
Magic Money Machine Portfolio (13 June 13)
Cash: $40,620.00
1000 shares IAG- $5.25 $ 5,250.00
500 shares AA - $8.20 $ 4,100.00
Total $49,970.00
Change (0.06%)
Friday, June 7, 2013
Mary, Mary Quite Contrary
If you know me, then you know I can be rather contrary at times. (For the record, that is the correct form of a math If-Then Statement. The hypothesis is true therefore the conclusion must also be true.) There are times that taking a contrarian approach to investing can prove to be profitable despite the prevailing market sentiment. In a nutshell, contrarian investing says buy when everyone else is selling and sell when everyone else is buying. Okay, so you don't want to do it in a haphazard style, you need to look for value and then do your buying as close rock bottom prices as you can. This is referred to as bottom fishing. If I was trying to explain to my darling wife, I would tell her it's like buying name brands at Filene's Bargain Basement since she understands neither the stock market nor fishing.
Even if you are not an active investor, you most likely are aware of the plummeting price of gold. A few summers ago, gold was selling for close to $2000 a Troy ounce. Lately, it has been selling for closer to $1400 a Troy ounce. Despite my father's insistence that I keep the gold coins he had given over the years, I sold them into the feeding frenzy of 2010 and did not buy any to replace them. All of the coins I sold were were modern coins, minted after 1990. Today, I can repurchase the same coins for a fraction of the price at which I sold them. You see gold is now out of favor with investors. In fact, after the last six months or so all precious metals are out of vogue and with them the companies that mine and refine those precious metals. (Yea, I know it was a roundabout way to get to the stock market but it made for a good story.)
Now, before I go any further,
There, disclaimer out if the way so I guess my butt is covered.)
The point of the story is a contrary stock pick that has some real short term profit potential. With gold and other precious metals having been hammered of late, metal stocks also have been hammered and are hovering near their 52-week lows. There are a couple I really like but IAMGOLD Corp. (IAG) really caught my attention recently.
Here are a few of the specifics about IAG:
Book Value per Share - $9.90
Current Price per Share (Close: 06/07/13) - $5.29
IAG has more cash than long term debt
52-week price range $16.88-$4.60
There are some other details relative to IAG's financial performance at which you want to look but as a contrary investment choice the risk versus return ratio is strongly in favor of return.
You can see the price performance of IAG in the chart above (December 2012 to present). Technically speaking, you are looking at a bearish technical pattern with the stock meeting resistance with the 50-day SMA (simple moving average).
Even if you are not an active investor, you most likely are aware of the plummeting price of gold. A few summers ago, gold was selling for close to $2000 a Troy ounce. Lately, it has been selling for closer to $1400 a Troy ounce. Despite my father's insistence that I keep the gold coins he had given over the years, I sold them into the feeding frenzy of 2010 and did not buy any to replace them. All of the coins I sold were were modern coins, minted after 1990. Today, I can repurchase the same coins for a fraction of the price at which I sold them. You see gold is now out of favor with investors. In fact, after the last six months or so all precious metals are out of vogue and with them the companies that mine and refine those precious metals. (Yea, I know it was a roundabout way to get to the stock market but it made for a good story.)
Now, before I go any further,
I AM NOT ADVOCATING THAT YOU BUY THIS STOCK. I AM WRITING ABOUT MY VIEWS AND OPINIONS OF THIS STOCK. I HAVE NO BUSINESS CONNECTIONS WITH THE COMPANY AND NO ONE GAVE ME ANY COMPENSATION FOR WRITING ABOUT THE COMPANY. I DO HAVE A LONG POSITION FOR THIS COMPANY IN MY PORTFOLIO.
There, disclaimer out if the way so I guess my butt is covered.)
The point of the story is a contrary stock pick that has some real short term profit potential. With gold and other precious metals having been hammered of late, metal stocks also have been hammered and are hovering near their 52-week lows. There are a couple I really like but IAMGOLD Corp. (IAG) really caught my attention recently.
Here are a few of the specifics about IAG:
Book Value per Share - $9.90
Current Price per Share (Close: 06/07/13) - $5.29
IAG has more cash than long term debt
52-week price range $16.88-$4.60
There are some other details relative to IAG's financial performance at which you want to look but as a contrary investment choice the risk versus return ratio is strongly in favor of return.
07 June 13 - 1000 shrs IAG @ $5.29 per share.
I will use closing prices for the sake of consistency.
Magic Money Machine Portfolio (07 June 13)
Cash: $44,710.00
1000 shares IAG- $5.29 $ 5,290.00
Total $50,000.00
Tuesday, June 4, 2013
What a Math Teacher Does With Spare Time!
Entry #001:
It seems like I've been watching the stock market as long as I can remember.
When most kids wanted the funny pages I wanted the financial section of the
newspaper. Unfortunately, I never had the means to do much more let my brain
process the numbers, looking for ways to turn a profit. I did manage a little
foray into the world of investing in the early 1980's. I managed to pull most of
my money into cash so I could pay off debt before the crash of 1987 but I never
did much in the way of real investing after that until just recently. Over the
years, I have competed in various portfolio competitions with some pretty darn
good success. Sadly, my father passed away last year. He left my sisters and me
each with a part of a small portfolio. It was money I had not counted on having
so it was time to put all of my theories and the model for investing I'd
developed over the years into action.
The first thing I had to do was figure out what my father had it mind when he
put his portfolio together. Fortunately, that was not difficult. My father had a
very low tolerance for risk and the portfolio reflected that with a mix of
stable blue-chip stocks and high yielding utility stocks. While this type of
portfolio is very good if you want a steady albeit modest cash flow with only
limited growth potential, a more diversified portfolio with significantly more
growth potential better fits my investment philosophy.
Okay, so how did I end up here with this blog. As a high school math teacher,
the stock market comes in very handy as a teaching tool particularly for
interpreting and analyzing graphs. Fortunately, a key element for identifying
when I buy and when I sell any particular stock is technical analysis based. My
kids in class always think they can do a better job at picking stocks than I can
and ultimately realize they are wrong. This semester my kids in class did come
up with a couple of good ideas I thought had potential. The first idea was to
write a blog about my adventures in investing so people could follow my ups and
downs. So here I am writing this blog. The second idea they had was to teach a
course about and with the mathematics needed to understand, analyze and invest
in the stock market. This one is going to take a little time. I have to write
the curriculum and then get it approved by the county. Imagine that an honors
level math elective that has a very high level of critical analysis and depends
on a students ability to use 21st century life skills.
Anyway, I'm not real sure in which direction this blog will go. Let's face it,
I'm just a high school math teacher that loves the way you can use numbers to
understand the stock market. I am not an investment guru nor do I want to be. I
do believe though with a little common sense, an understanding of how corporate
America works and a good analysis and evaluation of the numbers anybody can
build a nice nest egg in the stock market. Actually, the same rules apply to the
bond, currency, options and future markets. Since I only have a limited
understand of those markets, I will most likely limit myself to talking about
the equity markets.
And with that, I think I will leave it there for the time being. I guess this is
as good of starting point as any and Warren Buffet if you are reading this, my
goal is not to dethrone you.
A specail thanks to www.stockcharts.com. This is where I made today's chart. The sight has tons of free stuff from charting tools to definitions tutorial videos.
When most kids wanted the funny pages I wanted the financial section of the
newspaper. Unfortunately, I never had the means to do much more let my brain
process the numbers, looking for ways to turn a profit. I did manage a little
foray into the world of investing in the early 1980's. I managed to pull most of
my money into cash so I could pay off debt before the crash of 1987 but I never
did much in the way of real investing after that until just recently. Over the
years, I have competed in various portfolio competitions with some pretty darn
good success. Sadly, my father passed away last year. He left my sisters and me
each with a part of a small portfolio. It was money I had not counted on having
so it was time to put all of my theories and the model for investing I'd
developed over the years into action.
The first thing I had to do was figure out what my father had it mind when he
put his portfolio together. Fortunately, that was not difficult. My father had a
very low tolerance for risk and the portfolio reflected that with a mix of
stable blue-chip stocks and high yielding utility stocks. While this type of
portfolio is very good if you want a steady albeit modest cash flow with only
limited growth potential, a more diversified portfolio with significantly more
growth potential better fits my investment philosophy.
Okay, so how did I end up here with this blog. As a high school math teacher,
the stock market comes in very handy as a teaching tool particularly for
interpreting and analyzing graphs. Fortunately, a key element for identifying
when I buy and when I sell any particular stock is technical analysis based. My
kids in class always think they can do a better job at picking stocks than I can
and ultimately realize they are wrong. This semester my kids in class did come
up with a couple of good ideas I thought had potential. The first idea was to
write a blog about my adventures in investing so people could follow my ups and
downs. So here I am writing this blog. The second idea they had was to teach a
course about and with the mathematics needed to understand, analyze and invest
in the stock market. This one is going to take a little time. I have to write
the curriculum and then get it approved by the county. Imagine that an honors
level math elective that has a very high level of critical analysis and depends
on a students ability to use 21st century life skills.
Anyway, I'm not real sure in which direction this blog will go. Let's face it,
I'm just a high school math teacher that loves the way you can use numbers to
understand the stock market. I am not an investment guru nor do I want to be. I
do believe though with a little common sense, an understanding of how corporate
America works and a good analysis and evaluation of the numbers anybody can
build a nice nest egg in the stock market. Actually, the same rules apply to the
bond, currency, options and future markets. Since I only have a limited
understand of those markets, I will most likely limit myself to talking about
the equity markets.
And with that, I think I will leave it there for the time being. I guess this is
as good of starting point as any and Warren Buffet if you are reading this, my
goal is not to dethrone you.
 |
| The last 3 months of the S&P 500 ending 04 June 13 |
A specail thanks to www.stockcharts.com. This is where I made today's chart. The sight has tons of free stuff from charting tools to definitions tutorial videos.
Subscribe to:
Posts (Atom)