Today we discuss one of our favorite subjects and, in so doing, we must change the rules a bit. This blog has a disclaimer which says everything you read is fiction and not to believe a word. In writing about stocks, we shall stick entirely to the facts and there will be no funny business.
As far as the matter of disclosure goes, we do hold positions in every stock that we make note of. We do not do picks and pans.. We only tell you our picks. With no formal training in Finance and having lived by the seat of our pants for most of our years, we have found that the stock market can be equally as kind to the little person as it can to the big boys – if you make the right decisions.
One must never expect instant success. In fact, a good rule of thumb is that you will lose money on two out of every five stocks you invest in. Those losses can be used to bring down the taxable amount of your gains, so they are a known risk which is necessary. Sometimes things change, even if you do the homework or due diligence (DD).
What authority do we have, then, to write about stocks and equites? We trust Bank of America, who has a ‘performance’ tab on our brokerage account which indicates that in the first financial quarter of 2011 (Q1), we handily beat the Dow Jones Industrial Average, the S&P 500 and the Nasdaq. Our portfolio gained 13.3% while these others gained around 5-6%, as a group.
We take certain matters into consideration when buying, such as insider trading, institutional buying, the balance sheet, the profit margin, earnings and potential in the world around us. We picked these first four companies to illustrate how studying the world news will lead you to your best picks and profits.
Take Dow Chemical (DOW), which has been climbing in share price with almost no hurdles. Many think of DOW as the enemy but they are not aware of the good things that DOW is doing for the world. The share price keeps breaking news 52-week highs and is trading at around $40 a share. They have just upped their dividend to a dollar a share and are at the end of assimilating the purchase of the world’s largest chemical company, Rohm and Haas, which it bought in the last two years and opens them to far more revenues, especially from emerging markets. In their most recent yearly report, DOW showed revenues of $16 billion from their Asian operations. This is up $9 million from the previous year and China is just taking off but that is only a small part of the story.
Watching the news last night, we could not help but notice the warnings of impending droughts threatening grain crops in both China and the USA. There is only so much water in the world, right? True, however, yesterday Dow Water & Process Solutions, a division of DOW, was awarded ‘Desalination Plant of the Year’ by Global Water Intelligence for its seawater reverse osmosis facility in Kumell, Australia. This is the third largest desalination plant in the world. Not only does it produce one third of the water for the city of Sidney but ‘energy requirements for the plant are offset with 100 percent renewable energy from a 67-turbine wind farm’ and the plant also employs an extensive marine life monitoring program. DOW is bringing clean water to many parts of the free world where it is badly needed. It will be needed even more badly in the future, as natural water resources are said to last only another ten years by many scientists. That is where the money comes in.
Dow makes many other products and has been increasingly environmentally-conscious. although it is perceived as a behemoth monster that wants to kill us all. They have a very strong global presence, far ahead of the rush to invest in ’emerging markets’. Forty dollars a share is prohibitive but you must remember that you get the same percentage of profitable return on a thousand dollars as you do on a million. Take a look!
Next we have Hercules Offfshore Drilling (HERO). This one is a bit of an underdog, thanks mostly to Obama’s moritorium on drilling on American soil, even though foreign companies can drill here. The fuss over the moritorium finally got to fever pitch and Secretary of Interior Salazar lifted the ban and started to allow contracts for drilling to be issued. Right now, HERO has contracts to drill for Chevron and a few other refiners. The earnings from this activity will show on balance sheets starting at the end of Q2.
While it is selling at a discount of $6.10 a share as this is typed, this stock traded between $35-40 until the shite hit the fan in 2008. Since then, it bought the equipment of another troubled drilling company and now controlls 40% of the shallow water drills in the Gulf Coast. The book value of the stock is $7.43, based on current assets and equipment. When you consider that the failing company HERO bought the equipment from was selling for about $35 a share less than two years ago, this stock shows huge potential for upside…that means money!!!
Here is where ‘looking at the world around you’ comes into play. Our next pick is Canada’s Denison Mines Corporation (DNN). This one is a little riskier and is for people who want to make money in ten years, as opposed to today or tomorrow. This one traded between $10-15, going to a high of around $20 in 2007; as of this writing, it is down to $2.19 a share. On the balance sheets, this is currently showing a loss of four cents a share, however, this company is a miner than specializes in uranium, vanadium, silver, gold and other minerals…mostly uranium. They also recycle uranium.
You may not like uranium but it is better to have ‘safe’ uranium than ‘unsafe’ uranium and keep in mind that construction on the last nuclear reactor in the USA was started in 1976 and that these facilities are going to need to be updated, upgraded and so uranium is under-rated and hated at this point in time. In a little while, people will want uranium again and there is a shortage…unless you look at the large mine DNN just found in Mongolia, nice and close to the Asian markets which will be going nuclear. The demand for uranium is much higher than supply. Another plus is that Canadian stocks tend to do better than American stocks, in general, for various reasons we will not go into at this time.
So, if you look at the world and see the panic, interest, discussion, worry and fuss over ‘energy’, it would seem that the best way to make money is to stick with the oil producers until the alternative forms of energy notch higher growth stats. In the meantime, DOW has wind farms, solar shingles and other solutions. The future seems to be nuclear, so uranium will rise again. By having all bases covered – diversification is the term – we can make a little money on the way things are going…and why not? The big boys do it…why should money only be for the rich? We deserve some, too…
If you think I am a fool and that this stuff is all a gamble, then i suggest you take a look at Melco Crown Entertainment Ltd. (MPEL) of Macau, which is trading at $10.63 at this time. If you have ever followed gambling stocks, you may have seen how fast they shoot up in price and wish you had some. In 2006, Macau replaced Las Vegas as the gambling capital of the world. The revenues are much higher than Vegas and the owners of MPEL, the Ho family, were there long before the Sands, the MGM or WYNN got there. Take a look at a chart for the Sands (LVS) and see where it was about two or three years ago, compared to the price now. Not only does MPEL have the advantage of being on Macau’s Cotai Strip longer than the newcomers, it has a Hard Rock Cafe opening this year (which may not seem like a big deal to you but if you live in a communist country where thrills are limited, this is a big thing!). Aside from that, there will be shuttles running gamblers there from mainland China by the end of the year and it is said that the Chinese are loyal to country, so you can imagine where they would prefer to drop their cash. Remember, gamblers all know that the odds are always with the house – so why not buy part of the house, while it is cheap?
That is it for this time. These descriptions could be better but that would require a full blog for each stock. That would not be a problem but the key is timing and the markets are down right now, along with stock prices.
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