Friday, September 19, 2014


How does $4 a share sound?

Whether you're building a nest egg for retirement or are already retired, you need income now. But it's tough finding high-quality, long-term income investments, what with interest rates scraping the bottom of the barrel. Here's good news…

I've discovered a new, secret weapon for pinpointing low-risk, high-income investments. It's like a secret blueprint for nabbing big dividends. How does a 10.32% dividend sound? That's just one of them – I have 4 more!

Here's what you need to know to get in NOW.

Building the Future

Benjamin Shepherd

If you're in the construction industry, odds are you were twiddling your thumbs for the better part of five years as new construction starts collapsed like a shoddily built storage shed. But residential construction has recovered to post-recession highs for a few months now, despite a slight drop in August, as an improving jobs market and low mortgage rates are allowing many Americans to take the plunge and buy a home.

The continuing real estate rebound will do wonders for Masco (NYSE: MAS), which manufactures a variety of materials used in new home construction such as plumbing fixtures, windows, architectural coatings and cabinets. If you've built a home recently or embarked on any home improvement projects, you'll probably recognize its brand names such as Delta plumbing fixtures, Behr paint products and KraftMaid and Merilatt cabinetry.

In fact, the company announced that in the second quarter revenue was up by 5.1% on a year-over-year basis, hitting $2.26 billion. Revenue in its plumbing products division grew 6% year-over-year, architectural product sales were up 5% while sales of specialty products shot up by 11%. Earnings per share also jumped an impressive 39%, hitting 32 cents per share thanks to lower costs and margin improvement.

That's a stunning turnaround for a company that many thought wouldn't make it through the recession. Masco underwent a massive restructuring to survive the lean years, making $600 million of fixed costs reductions that including laying off about half of its workforce between 2006 and 2012, while it suspended work at or closed 33 facilities.

Masco has largely maintained its productive capacity despite its drastic reductions in staffing numbers and facilities, becoming a much more efficient operator. As a result, its adjusted operating margin jumped by 140 basis points year-over-year to hit 11%. The most significant improvement came in its plumbing products division, which saw margins surge up by 270 basis points to 16.4%.

While new construction is an important market for Masco, perhaps even more significant is the strong recovery in existing home sales, which hit a 10-month high in July. If you've ever purchased an existing home before, you know that very rarely is your new purchase exactly to your taste; perhaps it still has the avocado green tile popular in the 1970s or a deck that needs to be refinished. About 72% of the company's products are sold by retailers such as Home Depot (NYSE: HD), rather than directly to installers and contractors. That's largely thanks to the rise of the do-it-yourselfer and the wave of remodels that inevitably follow rising existing home sales.

Masco also offers impressive geographic diversification in its sales as about 20% of its revenue comes from outside the US. About 40% of that international revenue comes from Central and Eastern Europe, which has been showing impressive economic growth over the past few years. At the same time, residential construction in countries such as Poland and Hungary has been growing by more than 10% over the past few years.

Even as rebounding construction markets and home sales are driving renewed growth at Masco, it remains attractively valued. It is currently trading at just 24.2 times trailing earnings, only about half of the industry average of 45.9. On a forward-looking basis, it is trading at just 18.8 times forecast 1-year earnings, compared the average 30 times multiple most of its competitors get.

Masco's price-to-earnings-growth ratio, which is essentially its PE ratio divided by annual earnings per share growth, is also just 0.9. Any reading below 1 implies that the stock is undervalued, which is interesting in the case because it is finding increasing favor among analysts. The consensus estimate looks for full-year EPS to reach $1.12 this year, a marked increase over last year's earnings of 76 cents. Furthermore, they expect another better-than-15% gain in 2015 as they predict EPS to reach $1.29. Overall, they look for growth of better than 20% over the next five years.

So while Masco faces several tough competitors in its markets, not the least of which is Fortune Brands Home & Security (NYSE: FBHS), few are as well positioned for growth and margin improvement. As the US economy continues growing and driving improvement in the real estate market, Masco should continue to see earnings growth outpace revenue growth, thanks to strong improvements in efficiency.


Invest in the Strongest Market on the Planet

For over a century, Australian stocks have been the #1 performers in the world. I know that may seem hard to believe. But a Credit Suisse report backs me up. It found Australian companies delivered the highest investment returns of any country since 1900. If you've been looking for a safe and dependable place to insulate some of your portfolio from the overheated domestic market…

read on for the lucrative details.

The Great Rate Debate

David Dittman

There's something for everyone in this month's message from the Federal Open Market Committee (FOMC), the policymaking body of the US Federal Reserve.

Hawks, doves and neutrals (flightless penguins?) will surely find sufficient language in the two statements the FOMC released on Sept. 17, 2014, following its regularly scheduled two-day meeting to support their respective cases.

(The FOMC released its regular policy statement as well as a statement on policy normalization principles and plans.)

On one hand we have those who expect a rate increase sooner rather than later and of greater magnitude than currently anticipated by market participants.

On another we have investors accustomed to this long-term period of historically low and accommodative monetary policy who can't see it ending anytime soon.

And then there are those who recognize the data-dependent nature of the FOMC's decision-making process.

The bottom line is investors should be wary of making portfolio decisions based on their or anyone else's prognostications about the direction of interest rates.

The FOMC will release its next policy statement on Oct. 31, 2014.

There are many factors at work influencing ups and downs for market rates.

Foreign investors, including Europeans and Japanese, are attracted to risk-free rates of return in the US because official paper in their home countries are below 1 percent. A 1.7-percentage-point yield advantage for benchmark Treasuries over German bunds is the highest since before the euro, in 1998.

The Fed has indeed staked out a policy position tending more toward tightening relative to its European and Japanese peers. The currency impact adds to gains for German and Japanese investors when they repatriate gains on US Treasuries.

This demand will push prices up and pull rates down.

Investors are also seeking the relative safety of fixed-income vehicles backed by the full faith and credit of the US government because of geopolitical uncertainty. Events in East-Central Europe and the Middle East have driven cautious money to Treasuries despite underwhelming economic fundamentals.

Just about all the published speculation leading up to this week's meeting of the Federal Open Market Committee (FOMC) centered on the phrase "considerable time."

Is Janet Yellen's estimate of six months following the end of "quantitative easing" an operative definition? Or would the Fed drop it entirely from its policy statement?

It seems highly likely that the US central bank will end its bond-buying program at its next meeting after announcing another taper to $15 billion in purchases for the month of October. And that's the logical conclusion of a more hawkish stance first enunciated in May 2013.

But the FOMC again used "considerable time" to describe the period between the end of quantitative easing and the first hike to the fed funds target rate since June 30, 2006. It's an open-ended phrasing that leaves hope for an extension of this period of extremely easy money.

At the same time, the FOMC statement reiterated the view that "there remains significant underutilization of labor resources." There was a slight change to the wording on inflation, which now "has been running below the Committee's longer-run objective" versus the view that it had "moved somewhat closer to" target as of July 31, 2014.

These are the data that form part of a broader picture, a longer-term reality of slower growth and lower rates undergirded by powerful demographic factors.

Although the unemployment rate came down to 6.1 percent in August from Great Financial Crisis/Global Recession peak of 10 percent in October 2009, the US added 142,000 new jobs last month, breaking a streak of six straight months of payroll growth of more than 200,000.

The decline in the jobless rate was due to a 64,000-person drop in the labor force to a seasonally adjusted 62.8 percent from 62.9 percent. The participation rate once again tied the lowest level since the late 1970s.

The aging of the Baby Boomers will keep putting downward pressure on the participation rate.

Meanwhile, a globalized labor market is defined by excess capacity, with supply of workers outstripping demand for their services. And real wages have stagnated.

There's growing evidence that the developed-world economies moved into an era of slower growth some time ago. The Global Financial Crisis/Great Recession, a dramatic, relatively short-term event that happens about once a century, obscured this phenomenon.

But the broader context is of an aging and wealthy world, with slowing technology growth and growing income inequality.

The developed world is much older today than in any time in modern economic history due to advances in medicine. People are living longer, raising incentives to save rather than spend, as older folks tend to live off their savings rather than income.

Similar trends are happening across the wealthy world, creating a lot of demand for safe assets like US government debt and pushing down interest rates over time.

But it's not just the aging of the population that we have to contend with, but slowing population growth overall. The slowing of population growth must be considered by companies making investment decisions based on future demand. This dynamic also feeds into lower overall interest rates.

"Slower" is not necessarily bad. In this context it could also mean "steadier," though only time will prove or disprove this point.

But this context is also supports the case for the persistence of historically low nominal and real bond yields.

The point is not that yields won't rise. They will. But ample evidence suggests they won't move all that far all that fast.

But making wholesale portfolio changes based on when and how far interest rates will move is not a sound strategy.

We advocate a certain discipline when it comes to allocating investment funds: Focus on companies with Safety Ratings that fit with your risk tolerance, pay attention to buy under targets, exercise patience, both before establishing positions and after you've bought a business.

The strategy we advocate is to build wealth over time by collecting dividends, benefiting as well from dividend growth and concomitant capital appreciation.

Tactically, we focus on high-quality, easily understood businesses, primarily in essential-service industries, with clearly identifiable cash flows.

When we buy a company we intend to stick with it for the long term, conceiving of ourselves as small business owners, with the type of commitment to stick it out through cycles.

We use the Safety Rating System to establish quality, buy-under targets to establish value.

From time to time we'll take profits off the top of positions, maintaining our original investment, in order to generate funds to establish new positions for diversification purposes or for other uses that suit your particular needs.

It's a "broad front" approach, as opposed to quick, concentrated methods such as day trading, seeking out hot momentum stocks or piling into initial public offerings.

This is no sprint, but a marathon.

This article originally appeared in the Utility & Income column. Never miss an issue. Sign up to receive Utility & Income by email.


6 "Bedrock" Stocks to Own Today

Stocks need three things to perform well: Revenue growth, low debt and rising dividends. Check your poor performers. Then check out these 6 "bedrock" stocks. They meet all these criteria… but they also have one more very important thing that could see triple-digit returns.

Details here.

This Week's Triple Play

Philip Springer

Three events dominated the investment world this week: (1) the Federal Reserve's latest meeting, (2) the initial public offering of Alibaba and (3) Scotland's vote on whether to secede from the United Kingdom.

The Fed said it will continue its economic-stimulus, easy-money program even as it moves gradually toward winding it down. As expected, the Fed will end its quantitative easing program in October, when it buys $15 billion of Treasury and mortgage-backed securities. But the Fed also continued to say that "it will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends."Supporting that statement, inflation continues to run below the Fed's 2% goal. The consumer price index was up just 1.7% in the 12 months through August.

Fed chairwoman Janet Yellen said that the "considerable time" pledge is highly conditional and depends on future readings of economic data.The Fed acknowledged that the economy continues to improve. But Yellen added: "There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work, and too many who are not searching for a job but would be if the labor market were stronger."

What's more, the Fed lowered its projections for economic growth yet again, just as it has in the five previous years of the current economic recovery. The Fed now says it expects the economy to grow 2%-2.2% in 2014, 2.6%-3% in 2015, 2.6%- 2.9% in 2016 and 2.3%-2.5% in 2017. The projections were reduced from the previous ones in June.

Also this week, the U.S. Labor Dept. said that the number of new applications for unemployment benefits dropped last week to the second-lowest level in 14 years. Initial claims fell by 36,000 to a seasonally adjusted 280,000. The four-week moving average of claims fell to 299,500, a new seven-year low. And the number of people continuing to draw unemployment benefits declined by 63,000 to 2,429,000 for the week ended Sept. 6, a new post-recession low.

Company layoffs have dropped because the economy is growing. But hiring hasn't been robust enough to return employment to levels seen during previous economic expansions.Most Fed officials continue to expect the central bank to first increase its key short-term interest rate, now at zero-0.25%, sometime next year. As a group, they now project the fed funds rate to be at 1.25%-1.5% in late 2015 and 2.75%-3% in late 2016. These numbers are higher than previous projections.

The Alibaba Frenzy

Today's initial public offering by Alibaba Group Holding Ltd. (NYSE: BABA) was priced at $68 per share, giving the company an initial market value of $168 billion. This put Alibaba among the 40 biggest public companies worldwide, and third in value among Internet companies after Google and Facebook.

The IPO demonstrates the increasing importance of Asia. Four of the world's 10 largest publicly traded Internet companies are based there. Alibaba,Tencent Holdings, Baidu and JD.com are worth about $430 billion. The four biggest U.S.-based Internet companies --- Google, Facebook, Amazon and eBay---have a combined value of about $800 billion.

Because of strong investor demand, Alibaba shares were expected to jump, at least initially. But an unusual feature of this IPO is that some longtime investors who collectively hold more than $8 billion of Alibaba shares can sell at any time. They're not subject to a "lockup," the typical arrangement that restricts stock sales for specified time periods following an IPO.

Alibaba is China's largest e-commerce company. An estimated 45% of the world's supposedly 3 billion Internet users are in Asia. In China alone, more than 500 million people go online using smartphones. The number of users in Asia is expected to approach 1 billion by year-end, almost five times the total in North America, says research firm Webcertain Group Ltd.

Like Amazon, Alibaba gets most of its revenue from online sales, handling 80% of China's e-commerce. Alibaba.com connects Chinese manufacturers with small businesses. Taobao, Alibaba's consumer-to-consumer platform similar to eBay, offers a virtual marketplace. Tmall, its business-to-consumer platform, provides a virtual shopping center giving international companies access to Chinese buyers. Alipay, its online payment processor (similar to eBay's PayPal), guarantees every transaction.

In 2013, Alibaba had annual revenue of $8.5 billion on $300 billion worth of goods sold.Second-quarter 2014 revenues grew 46% year over year, primarily because of strong sales growth through mobile devices. The company views international expansion, including in the US, as a major future growth area.

Scotland Says No

Yesterday, voters in Scotland decisively chose to stay in the United Kingdom. Despite polls suggesting a close vote, 55% voted no in the referendum over whether to break up the 307-year union.It was clear that Scotland's economy would suffer if its voters chose independence, with many political complications for the UK and likely continued weakness for its financial and currency markets. Before the vote, nervous investors had voted by selling UK-listed investments. IShares MSCI United Kingdom, the largest UK-related exchange-traded fund, had declined as much as 6.5%.

The referendum's outcome undoubtedly stemmed partly from significant concessions made by the British government concerning Scotland's self rule, including new powers of taxation and spending.

This article originally appeared in the Mind Over Markets column. Never miss an issue. Sign up to receive Mind Over Markets by email.


You're Beating the Market Right Out of the Gate With This 10.6%-Yielder

Considering that stocks historically return 9% a year, you're beating the market right out of the gate with this gem – in dividends alone. What's more, we're projecting a five-year gain of 709% for investors who buy

this stock now.

You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch,
published by Investing Daily. To ensure delivery directly to your inbox, please add
postoffice@investingdaily.com to your address book today.

Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy

Copyright 2014 Investing Daily. All rights reserved.
Investing Daily, a division of Capitol Information Group, Inc.

7600A Leesburg Pike
West Building, Suite 300
Falls Church, VA 22043-2004
U.S.A.

0 comments:

Post a Comment

Subscribe to RSS Feed Follow me on Twitter!