Tuesday, October 27, 2009

BAGAKOAA Oct 27 2009 A Balanced Portfolio


Oct 27 2009 A Balanced Portfolio

I recently gave some ideas to one of our readers about their portfolio.  This is a retired couple, relatively conservative and an experienced investor.  Ideally the ideas were to protect capital, earn some dividends and hoepfully enjoy some growth.  (5-12% is what I was shooting for.) 

20% in GLD

20% divided in CVX and in RIG

20%  divided in BA and in GD and inFord

20% split in VZ and in AMT 

20% split in HBAN and in WFC  in STD

GLD is a gold commodity based ETF. It actually buys gold bullion and issues baskets of 100,000 blocks of shares as demands warrants it. It closely tracks the performance of the commodity itself. There are no fundamental to worry about, it is a pure play on GOLD. I suspect there is at least another 17-20% upside on gold for the next 6 to 12 months. My argument is based upon the weakling dollar, a recovering world economy, demand for the commodity especially in the BRIC nations (Brazil, Russia, India and China). The ETF is trading at 103, I would buy in blocks of XX shares at a rate of XX shares a week until that holding gets to about XX thousand. This will allow you to balance any positive or negative volatility in the ETF over a months period of time. Once at that level, put in an 8% stop and look for a 20% swing upwards and then reset your stop protecting and guaranteeing a 12% gain.

I am sure you know what Chevron is so I won’t bore you. Fundamentally it has a pleasant PE ratio and throws a mean dividend yield of about 3.5%. It has a healthy profit margin, being better than the industry and almost at its 5 year average. Their revenue growth is good, their 5 year NIBT is strong, cash flow is good, and their debt is very manageable. I would look to get it the current price of 75-76. I am looking for oil to go up profits to go up and their PE to go up. Look for 95 to 100 by Q1 2010 and a possible double by this time next year. Set a stop at 69 to protect your back end.

RIG is the world leader in deep sea ocean oil drilling platforms. They have a back log of contracts going out 5 years. Their price is tied to oil. Fundamentals are very solid. I rate them an 84 on my list. Look to get in over the next month buying in blocks to an average price of 91-93. I am looking for 125-130 by Q1 2010. Set a stop at 83.75 to protect your back end.

BA has a nice yield, acceptable and improving fundamental and nice blend of industrial tech aerospace and military products. They will complete the dreamliner some day and it will make them money. Look to get in using blocks of buys over a month period and look for the 50-52 price point. Set a stop around 46 and look for 65-70 by Q1 2010. If travel and the economy picks up and unemployment improves in the second half of 2010, this is a 100-120 dollar stock. Note there are a lot of “ifs” in that sentence.

GD is one of the most solid military contractors. I have not looked at their fundamentals in a while but back in may their margins we good and income and cans flow were good. Its EPS should improve and this has the makings of a 75-80 dollar stock assuming we get more assets into Afghanistan and Washing keeps its commitments to homeland security. There is a rule in DC right now. If you want to get re-elected support homeland security. Stop the stock at 60 ish and look to get out mid year 2010 at the 80-90 range.

Ford is the best of breed of American Cars. The stock is at 7. New car sales in 2010 is expected to be up by 8-15% depending upon who you talk to. Ford is well positioned for that growth and the new Taurus is getting a lot of attention. Fundamentals still suck. A true value invetor would not buy this dog, but I think it has an upside. I do not own it but may be getting in it with you. Put a stop around 4.5 or 5.00. Lets get this up to 10-12 by Q1 2010. This could be a double by this time next year.

VZ is the countries largest cell service provider. They are doing their best to compete with iPhone by AT&T. Rumor has it they might get the iPhone next year. It makes sense for VZ and Apple. The only one who won’t like will be T. It has a nice 6% yield as I mentioned yesterday. Buy it in blocks and get your average price around the 29 bucks it is at now. In other words start buying and buy into any weakness over the next month. This will be a slow steady climber. Look for 32-33 by Q1 2010 and 40 if they get the iPhone next year. Put a stop in to cover your backside around 26.

AMT is a player in the Cell tower business. The explosion of the 3G and 4G cell phones requires good coverage in all areas. American Tower is the best of breed in that category. At 38-40 a share it looks expensive. Its PE is a whopping 65. What you are seeing there is the analysts long term growth rates of 16-40% which I feel are conservative. Get in at and average price of 40ish. Set a stop at 36.50. look for a Q1 2010 of about 48-50. I don’t think this throws a dividend, but should do well as just a growth stock.

Banks are squishy, get into HBAN at the 4 and change mark. Keep an eye on as it’s a little to small and volatile to stop. If you want a stop, put it in at 3.00. Get in to STD at the 17 and change mark. Put a stop in at 14.50. Look for 20 by Q1, 2010. It has a nice dividend and should be able to pay it and improve it.

Salve Lucrum


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