by Barron Maestro on December 20, 2011
This is the time of year when many investment publications create lists of stocks they foresee as being superior bets in the coming year.
I’ve compiled several of the selections below with my opinion on the validity of the choices.
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by Barron Maestro on July 20, 2011
As the financial stocks show absolutely no signs of strength amid all the hoopla of Apple, Chipotle and Netflix, I recall an old post by Barry Ritholtz regarding the inability of our esteemed money changing institutions to be profitable over time. Ritholtz cited a column by the curmudgeonly and verbose Alan Abelson of Barrons, who was in turn citing research by an individual named Dennis Butler of Centre Street Cambridge Corporation.
Ritholtz quoted this from Abelson’s column:
“[Butler] duly notes the key role banks had in the financial collapse and cites “one amazing statistic,” namely that “in the aggregate, banks have never made money over time.” Instead, “like the airlines, banks historically have seemingly made money hand over fist during good times, but they give it all back when the cycle turns.”But he asks, “How many bankers suffer the same fate when it comes to their own personal financial affairs?” And the answer to that question, Dennis believes, was a major factor in setting the stage for the encompassing financial crisis we’ve recently suffered through.
More specifically, he points to what he calls “a fundamental flaw in the corporate form of business organization—the lack of personal liability on the part of the people in charge.” The absence of personal liability is why individual bankers, whose feckless pursuit of loan volumes at the expense of loan quality caused “huge losses and public burdens,” were able to “walk away virtually unscathed” and loaded with loot.
The new reforms enacted by Congress may have a salutary effect for a spell. But he thinks that in the fullness of time, they’ll be diluted by lobbying and corruption of the regulatory oversight process. “As long as the incentives for personal gain and corporate risk-taking remain in place,” Dennis dourly concludes, “we fear that episodes of over-reaching will inevitably recur.”
There was some question whether this could actually be true as it doesn’t appear anyone has actually verified (i.e. run the numbers) the assertion that banks haven’t made money over time. It doesn’t seem outlandish, especially after the recent episode where just about every one of them would have been wiped out without government intervention.
As an aside, I initiated a position in my personal account in the Vanguard Financials ETF (VFH) this week since it appears that investor sentiment towards the sector can’t get much worse. The money printing going on worldwide should give the big banks a decent run of profitability until the next serious crisis strikes and they require another bailout.
by Barron Maestro on May 16, 2011
This week’s Barron’s magazine features an interview with Joel Greenblatt, the author of several investing books. The most interesting takeaway from this interview is Greenblatt’s research into value-weighted indexes.
Greenblatt states an index focused on the cheapest sub-set of equities has outperformed market cap weighted indexes by 6-7 percentage points per year over the past 20 years. This a substantial improvement over equally weighted or fundamental indexes, which have been demonstrated to beat regular index funds by 2-3 percentage points per year. Greenblatt claims the value weighted index has the same beta, or risk, as the S&P 500.
Greenblatt admits he doesn’t know if value weighted indexes will be as successful in the future.
SMA Comment: Since the bull market of the 90′s ended in the year 2000, value stocks have vastly outperformed growth stocks. It may be for this reason that Greenblatt’s value index has shown such good performance. As Greenblatt honestly admits, it is unknown if the value based index will outperform in the future. In fact, many companies that used to be considered growth companies have underperformed for so long that they can be lumped in with value stocks (i.e., Johnson & Johnson, Wal-Mart, Procter & Gamble and Pepsico).
by Barron Maestro on January 18, 2011
Barron’s features an article by Dimitra Defotis who points out the attractiveness of North American oil stocks in a rising oil price environment. Oil is one of my favorite groups since it’s a resource that is in great demand and the supply is slowly being depleted.
Regarding Exxon Mobil, held in the SMA portfolio, Defotis writes:
Exxon has about half its reserves tethered to oil, even with XTO Energy, a natural-gas producer it bought in 2009. The shares have underperformed in the past year, up only 10%. Investors aren’t paying much for Exxon’s reserves, given its significant chemical and refining businesses. At a recent $76.71, Exxon was trading at 11.6 times projected 2011 earnings of $6.62 per share. Predicting the shares could hit 90 in 2011,Barron’s has placed Exxon among its 10 favorite equities for the year (“Hear, Hear!—Our Favorite Stocks for 2011,” Jan. 3). Exxon’s $1.76 annual dividend produces a 2.3% yield.
Defotis also mentions Marathon Oil, another holding in the SMA portfolio:
Also backing away from refining is Marathon Oil (MRO). On Thursday, it agreed to spin off its refining operations, which have been a drag on earnings. The stock rose 6% on the news, to near 43. Bulls think it will be more focused on exploration and thus more profitable. Based on expected 2011 net, the combined operations trade at a multiple below 10.
Source: Barron’s
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by Barron Maestro on November 8, 2010
It’s no secret that the equity market has been screaming to the upside. Mike Santoli of Barron’s points out how we’re getting into nosebleed territory historically (at least short term):
Another bout of European fiscal and banking fears could drive a bounce in the dollar versus the euro. Equities here could withstand a rising dollar if it were for the “right” reasons—stronger economic growth—but if it were a reflexive risk-aversion response, it’s hard to see how equities would absorb it with aplomb.
It’s just an educated gut feel, not a prediction. But when a market is ahead nearly 16% without so much as a 2% reversal, with the Wilshire 5000 index having recorded 10 straight-up weeks for the first time since late 1992 (the record streak is 12 weeks, in 1985), it wouldn’t take too much to cause the market to take a breather, or worse, to relieve some of that sense that it really is that easy.
Babak, at Trader’s Narrative, highlights the number of new highs being achieved in a recent post, but doesn’t see danger in these numbers yet given the relation between the number of new highs and new lows:
On the Nasdaq there were 12.5 times as many new 52 week highs as lows. That may seem like a lot but in January and April 2010 this indicator spiked to 100+. The last time we saw this many stocks making new 52-week highs was in April 2010:
Obviously we do need to see 52 week highs in order to have a bull market. Having said that, spikes that produce an exaggerated number of new highs usually indicates an exhaustion (top). But relative to the number of new lows, the new highs are still not at critical levels.
“Chart of the Day” puts the rally in historical perspective with the following chart showing the rally off the bottom thus far is below average in magnitude and duration. A typical election cycle rally should put it closer to the average.
Sources: Barron’s, Trader’s Narrative, Chart of the Day
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by Barron Maestro on October 20, 2010
Michael Kahn at Barron’s reports on the Chinese stock market which has made a significant move up.
After a week long holiday break, the Chinese market soared over 11% in seven days before ending its winning streak on Monday (see Chart 1). It was a decisive technical breakout from a two-month trading range and was accompanied by a significantly heavier volume.
Source: Barron’s
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Top 10 Stocks for 2012
by Barron Maestro on December 20, 2011
This is the time of year when many investment publications create lists of stocks they foresee as being superior bets in the coming year.
I’ve compiled several of the selections below with my opinion on the validity of the choices.
Click To Continue →
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