Saturday, January 21, 2012

Review of Barron's, Dated 23 January

Barron's now has something of a captive audience, having spread out their Roundtable (in which they invite investment pros to a meeting to share their views and picks) write-up over three weeks.  Hey, it worked on me!  So after my second Italian class today I bought it without even looking at the cover, which actually is an interesting story (more below) on how companies could get their share prices up by paying more in dividends.

A contact (who is in a position to know) mentioned to me that Morningstar also covers each weekend's Barron's.  Mighty Morningstar itself.  My contact also mentioned that Morningstar's review is very long, long enough so that it has to be split into two parts!  Morningstar is a BIG financial information company that can throw lots of high quality manpower into this endeavor.  My review is different, I am "writing as if my readers might want to spring the $5.00 plus sales tax" based on my attempt to summarize what is of interest to me (and with luck to many of my readers) in time for them "to help make a buying decision" before the weekend is over.  And I have to read and write fast to do this.

Onward.

Andrew Bary writes the Cover Story ("The Magic of 4%").  US companies (S&P 500) pay only some 2% in dividends.  Japanese companies pay 2.5% and European companies pay almost 5%.  This story is very timely, in fact not long ago Barron's had another Cover Story on the search for INCOME.  It hits home in my household, we make much less in interest and dividends than just three or so years ago.  These very low interest rates are a real problem for those of us who want to SAVE.  One of the earlier solutions offered up in the other Barron's was to buy stocks of high dividend payers.  This article is little different, the author shines the light on companies who COULD pay higher dividends and easily afford it (one metric he uses is the "Payout Ratio" which is the percentage of company profit paid out in dividends to shareholders).  A Payout Ratio of 50% is (rather has been) pretty common, in Bary's article, he works with a more conservative (less financial risk for the company paying out) of 40%.  Seems reasonable to me.

There are several companies that are very strong that could start a dividend (or raise) with little harm to their business prospects.  Different companies, of course, have different needs and capital requirements, but the below table shows 10 companies that apparently ARE financially strong and could, and SHOULD pay a decent dividend (the data comes from the "Too Stingy" in Bary's article).  "Click on the image for a better view."

OK, arguments can be made that some of these companies could put such money to better use (research), but I believe that Bary is correct.  We find ourselves in a low / no growth environment.  We also find ourselves in a situation that technology companies now would find lower returns on research...

In another table, Bary lists companies that DO pay a nice dividend (including AT& T (T), Lockheed Martin (LMT), Pfizer (PFE) and Merck (MRK) and some others.

Bary then goes on to examine the other way executives can drive up share price with any extra money they have, namely bu buying back shares.  But, that has been shown in numerous cases since 2007 that companies went on to overpay for their shares (that then went down)...

Intel (INTC) now pays 3.2%, and they are capital intensive.  Bary makes a powerful case that more companies ought to be paying up.

I highly recommend this article to those interested in stocks and income.

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Alan Abelson, whom I nominate to receive "The Jim Willie CB Most Growlingest Bear At Barron's Award" opens up with hilarity on Newt Gingrich, I laughed twice.  He wrote this piece, of course, before Newt's big win in South Carolina today...  And I guess he did not see Newt tear smug John King (CNN) a new one...  After his humor (which is typical, and he IS a master...), he then goes on to write how the equity markets yawned off to news from Europe (they're still there?).  And he wonders that not so good news from Google, Apple, Amazon etc., is not a tiding of bad news to come in stocks.

Abelson finishes with a graph of the Baltic Dry Index (I believe its ticker is BDI at stockcharts.com).  The Index is an aggregation of the prices paid to ship bulk materials (iron ore, corn,  and coal for example) in special ships, a LOT going to China.  And that chart is VERY UGLY!  The Index topped out at almost 12,000 (I do not know the methodology) in 2008, dove down under 1000 in the wake the crisis in 2008, has bounced around up to 4000, but now is back under 1000.  This is, of course, a very bad signal.  China and world trade are slowing.  And the Baltic Dry Index is a very sensitive measure.

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Barron's has a transparency and honesty that I like.  In their "Follow-Up" column they looked back at their prediction in April 2011 that Carnival ((CCL), owner of the Costa Concordia that struck the reef off Italy, YOU KNOW, the ship with the Captain who was FIRST OFF, none of this Captain goes down with the ship business, I have found out from our Italian language instructors that there are T-shirts all over Italy saying awful things about him: "Capitano, Che Cazzo Fai?").  Author Miriam Gottffried sticks to a bullish view of Carnival.

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By curious timing a "Cloud' company will IPO soon (Guidewire), the column is written by Jack Willoughby.  What is curious is that the federales just took down a cloud company called Megaupload.  Megaupload apparently allowed its users to store intellectual property at their site.  An alarmed "George Washington" (who has a blog that Zero Hedge often features), and many of the comments there at his column feel that this may be the end of the "Cloud".  Naah, it's not the end of the Cloud, but we will see lots of back and forth between those of us (like me!) who want the Internet "open" and those who have buddies in Hollywood who want it "closed".  Did I just betray my stand?

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Part Two of the Roundtable meet-fest is chronicled in this issue.  Mario Gabelli, who I must say has a very wide perspective recommended auto & truck parts companies like Dana (DAN) and Genuine Parts (GPC) as well as Navistar International (NAV), the maker of heavy trucks here in the USA.  I mentioned in one of my Peru articles that the International brand seems to be making a comeback in Peru, a strong market a long time ago.  Gabelli also likes some companies that have been spun-off or are otherwise in special situations, like Beam (BEAM), yes, the booze-maker.  He also likes Xylem, a water products company, that will likely benefit in coming years as the world's needs for more & cleaner water become greater.

Bill Gross reminded me again of how we savers are getting "el Zippo" ("el Zirpo"?), all my words not his) re interest and dividends.  So he recommends a utility fund and muni-bond funds (one of which is, surprise! a Pimco one).

I have noticed in the past that Meryl Witmer often finds companies in interesting businesses that I have never heard of.  She picks two companies involved in chemical-related businesses: Tronox (TROX) and Rockwood Holdings (ROC), both involved in titanium dioxide (think paint, TiO2 is used to make paint more opaque, that makes the color bolder).  ROC is also in the lithium business.  Was Meryl Witmer a chemistry major?

Finally, Felix Zulauf discussed with the others the perilous world we live in and offers his picks as well.  He LIKES 10-Year US Treasuries and gold (physical Au, hey, now you're talking Felix!).  He does NOT LIKE the Turkish Lira (huge deficits and need for foreign capital) nor emerging markets in general.  Felix also has a matched trade that I do not understand re Australian 3-Year Bond future (long) vs. shorting the Australian dollar against the US$.  He is short the Aussie dollar because of a slowing China.

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Leslie P. Norton (one of their writers whom I have followed ever since her great road trip to TEXAS some years ago with another of Barron's women writers) wrote a somewhat negative piece on J C Penney, in that the company is not turning around as had been hoped.  Change is planned soon.

I LIKE J C Penney's stuff, but I am 55...

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I am starting to like Jim McTague's "D. C. Current" column more and more.  Seems Obama is playin' politics with the proposed Keystone XL pipeline from Canada to the Gulf Coast.  Apparently we would really benefit if this pipeline were to be built, as our current pipeline network would then have the capacity to serve more markets (domestic and export) and more jobs and profits would then result.

+ 1

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Tiernan Ray ("Technology Week") for the 3rd week in a row writes positively about Microsoft and Intel.  I guess he uses "Wintel" computers...

He also writes that Apple is partnering up with textbook publishers, he believes Apple may jazz up the textbooks-on-computers business.

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Murray Coleman ("ETF Focus") writes that municipal bonds have much to offer.  Apparently muni-bond funds and ETFs have performed very well over the past year.  Munis offer fairly high yields, even with pretax yields higher than treasuries.  He then makes some picks.

Once again, the whole issue of INCOME arises...  I am going to have to address this one soon...

A year ago, I would never have had the guts or the knowledge to think that munis would do so well.

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Jonathan Buck wrote an interesting article on the upcoming Davos Forum.  All of these Important People will be showing up and talking...  There's a lot to talk about in Davos, but it does not look like they will even make  much progress on Europe's woes alone, let alone the whole world's woes...

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Editor Thomas Donlan wrote a great (and most cynical) piece on a cozy deal between some companies, some lobbyists and our dear .gov.  Hiring lobbyists can yield returns of up to 22,000%!


Wow, where do I sign up?!

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Because of all the interesting material in the main section of Barron's, I will short-shrift the Market Week section.

Vito J. Racanelli describes the Lazarus Rally we have lately seen on Wall St.

"Economic Beat" author Gene Epstein notes that the government is monkeying around with the CPI (really?).  This is no surprise to those who follow zerohedge.com and fans of Shadowstats.

"Commodities Corner" author Ian Berry notes than corn is down for the count because of a larger supply that most had expected.

Again the Classifieds are interesting, including another ad (in case you missed the one two weeks or so ago) for "The Most Luxurious Residence in the Caribbean", take a look at onesandylane.com.  Another ad is from a law firm looking for $45 billion in damages from the financial crisis.  If interested email James Mitchell at: jmitchell@abbingtonpartners.com.

Money Matters:

-- Total Fed up almost $21 bn (0.7%, kind of a lot for one week).
-- Monetary Base up 2% (seems like a lot)
-- M1 up 1.1%
-- M2 up 0.2% (once again, if I understand this, credit is "underperforming" money...)

And the mighty Peruvian Sol strikes again!  Up (but just barely 0.02%) against the US$!  I am going to have to ask my in-laws WTF (Che cazzo fa, in Italian, I think I am going to LIKE Italian...) is going on down there in Peru...  I did read that new President Humala might NOT be the Chavez clone we had feared, he has changed his cabinet, putting in more military types and some technocrats...

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Verdict: Yes, buy this issue!

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