Monday, November 29, 2010

29 November 2010 Back at the Game


29 November 2010 Back at the Game

I hope you had a great holiday week. The overall market scooted down about one percent last week, but it could have been worse. One interesting new item Salvay and Luecrum did not mention was the misplacing of spent nuclear rods by Fedex. With the advent of that event, I wonder if a popular gift this year will be a Geiger Counter. That way you could see if your gifts shared warehouse space with some used plutonium.

Anyway we finally made it home and I came from out of the cold. That did not work so well for James Arness in the 1951 version of the “The Thing”.

Is the Time Rite for Reits

As you know we get a mountain of investment e-mails newsletters, blog feeds magazines etc. Lately we have seen a lot of pimping of real estate, mortgage originators and REITs. In all of our reading we may have to agree we are coming close to a bottom in real estate. I know there are a few of you who would say I am crazy. As Billy Joel said, “You maybe right! I maybe crazy. But it just might be a lunatic you’re looking for.” But alas, Barron’s had a decent article about a Newport Beach California research firm that analyses almost 100 REITs.

(For the new players in the game an REIT is a real estate investment trust. In order for a company to qualify as an REIT, it must meets some specific standards as set forth by the IRS. In brief, they buy and manage income bearing real estate properties. Think malls, professional buildings, large apartment complexes. For a detailed explanation of an REIT CLICK HERE.)

Anyway, Green Street Advisors are bullish about REITs, but not overly enthusiastic. They imply that the best may be behinds us but there is still some upside. We encourage you to read the entire article, but taking a few liberties, they are saying there are some good REIT values such as AVB Avalon Bay Communities, Inc. engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. As of January 31, 2009, the company owned or held a direct or indirect ownership interest in 164 operating apartment communities comprising 45,728 apartment homes in 10 states and the District of Columbia. And SPG Simon Property Group, Inc. is a real estate investment trust. The firm engages in investment, ownership, and management of properties. It invests in the real estate markets across the globe. The firm's portfolio includes regional malls, premium outlet centers, the mills, community / lifestyle centers, and international properties. Simon Property Group was founded in 1960 and is based in Indianapolis, Indiana.

We do not own either of these or any other REITs at the moment. Here are some interesting data points to consider. The S & P Case Shiller price index is showing growth in 16 of the 20 key market areas. The top 10 city index is up 4.1%.

Also the Mortgage Bankers Association (MBA) recently said the delinquencies rate have declined of late. Most of those drops were due to the fact that banks are getting aggressive in closing out foreclosed properties. (I am sure we all have friends who have talked about the number of short sales being executed now.) The MBA press release said:

“Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90+ day delinquency rate. The number of loans in foreclosure also dropped, bringing the serious delinquency rate to its lowest level since the second quarter of 2009.”

We will be looking at REITs to help diversify our portfolios and you might want to start doing some homework on this type of investment. The Barron’s article would be a great start. Ironically, tonight while I was writing this segment, we got a newsletter from Kiplinger which was very bullish on commercial real estate and REITs. Do you believe in coincidence?

A Long Long Time Ago

I can still remember how the music used to make me smile. . . Don Mclean said and sang it. It was a long, long time ago that several of our current readers got a hot stock tip on a company called NFLX Netflix from yours truly. Several of us got in at 7-9 dollars a share. The stock went to about 22 when I heard about Cox Cable expanding its On Demand offering and lowering its price to customers. I had a feeling this would do to Netflix what Netflix had done to Blockbuster. I suggested we all get out of NFLX. A few did and were happy with the double at 17-22 a share. One stayed in to 28. One stayed in to 64, but stayed in for the ride back down to 20. (They actually forgot they had it.)

Why do I take this trip down memory lane? Just to let you know just how good I are. Well not really, I wanted to bring your attention to how well the stock is doing and how they have taken on demand and almost all other video streaming options out of play. Their on line streaming and recent price schemes to get the month DVD renters into on line streaming will truly enhance their bottom line. They are at a record high of 191 a share and change. Their trending is beautiful. Do Your Homework, but beware this is not a cheap stock. I do not mean cheap as in the price of the stock, I mean its forward looking PE ratio is 51.8. Here is the reason. You are buying a very large competitive moat with Netflix. (For any new readers, that means it would be hard-but not impossible- to directly compete against Netflix offering a like product or service). You are also buying into growth and an expanding gross operating margin. When the stars align like that you have to give it some serious thought. It is scary to by a stock near its 52 week high, but there was a time when 15 dollars was Netflix’s 52 week high.

Increase Your Yield with Fertilizer

If you even remotely keep an eye on the news or the market we all know about the battle to take over POT Potash Corporation of Saskatchewan Inc. produces and sells fertilizers and related industrial and feed products worldwide. The company offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acid, which is used in food products and industrial processes. It also produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. The stock went crazy when BHP of Australia attempted a buyout of POT. The thesis behind the bid was solid. Global shifts to a protein based diet along with smaller grain yields in the US and a drought and fire in Russia was driving the price of phosphates and potash (Major ingredients in fertilizers.). The margin of safety at the moment for POT is about 11%, but its not the only game in town. The other one is MOS The Mosaic Company engages in the production and marketing of concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company produces phosphate crop nutrients for use in crop nutrients and feed phosphate for animal feed ingredients.

We have to acknowledge this bit of linkage came right out of today’s IBD. This is becoming a more important periodical in our trading and investing schemes. If you have an iPad there is an affordable IBD app you can download. I highly recommend it. The article points out the very bullish 12-24 window for global fertilizer demand and POTs and MOSs positioning to take advantage of the need for fertilizer. Here is a little insight. In 07 and 08 demand and prices for grain were not as hot as they are now. Farmers in industrialized countries cut bask their fertilizer intensity to drop their acreage yield. With increased demand and escalating prices we are now seeing the exact opposite. Farmers are doing their best to increase acreage yield and as a result driving the prices up for phosphates and potash. It is a vicious circle and should continue for 12- 24 months. Both POT and MOS should do well. Do your homework and consider long term options for the play.

The market resisted resistance today

Ireland debt issued continued to keep our happy holiday shoppers from moving the market up. Despite an Irish settlement whose details we still don’t grasp, the willy nillies through Spain and Italy into the mix to make an ugly mid day today. As the S & P neared the 1,174 level (remember last week we talked about the resistance level at 1,174 the 50 day moving average.) buyers got in the market and brought the market of its midday low.

Itty Bitty Stock Tips

Here is a cool site that acts like Twitter. You actually use it through or with Twitter. Check it out. Be sure to read the posts. Check out the authors profiles. There actually is some great stuff.

We have come a long way baby

Salve Lucrum


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