3 Rocking Stocks to Buy Before Christmas 2008
My mission was to find five consumer-based stocks that are largely undervalued and will do well in the next 9-18 months. Although many analysts have knocked down companies' stocks because they expect weak 2008 holiday sales, the magnitude of these drops in stock prices has been greatly overstated.
When the market rebounds, so will these stocks. Also, when the individual companies begin to beat earnings estimates again, the stocks will go even higher. This process will take a long time, but if you have patience, investing in these stocks will make your portfolio shine.
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3 Rocking Stocks to Buy Before Christmas 2008:
- Bare Escentuals (BARE)- This natural cosmetic and skin care company has all of the right stuff. They are well positioned in a number of cosmetic stores like Sephora; they also have their own retail and catalog sales. Being natural gives them the eco-friendly and healthy image that so many consumers are looking for. Since they only have a market cap (market value) of $412 million, they have a lot of room to grow compared to Estee-Lauder (EL) with a $5.6 billion market cap. At $4.50 a share, BARE's stock has an extremely low P/E of 4.2x earnings. Once the economy picks up again, this company is poised to take some serious market share.
- Harry Winston Diamonds (HWD)- The famous, ultra-luxurious jeweler has suffered recently because even the wealthy are feeling the pinch. The name of this company carries a certain prestige that I believe will last forever. At $4.02 per share, this stock has a P/E of 1.3x earnings! That's almost as cheap as stocks can get. To make the stock a little more attractive, HWD has a nice dividend as well.
- Macy's (M)- Macy's has struggled with this market like most department stores, but this 150-year-old store is still in excellent financial shape. They are not riding on tons of debt like many of its peers do. Macy's stock price has a P/E of 4.2x earnings at $7.03 per share. They will come out of this economic crisis just like it did in the past.
It's hard to lose when you buy stocks that are priced at rock-bottom prices and have great potential in the future. Remember that you must be willing to wait out the storm with these stocks, and you can thank yourself later.
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Current Merger Arbitrage Spreads, M&A Deals
The area you can make money in is the difference between the current stock price and the buyer's purchase price (if cash deal). It must be paid in cash, because in this market if a buyer offers a stock for stock deal, then the buyer's stock price is likely to fluctuate. That can eliminate the premium if the buyer's stock price drops significantly.
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Here's a
list of likely Mergers /
Acquisitions:
>Constellation
Energy Group (CEG
)-
in September this energy giant accepted an
offer from Warren Buffett's MidAmerican
Energy Holdings for $4.73 billion.
Constellation filed for a shareholder proxy to
vote in favor of the acquisition.
Premium
offered: 13.2% or $3.10
Cash offered per share: $26.50
CEG current price: $23.40
Expected closing: within 7 months
>Rohm
& Haas Co. (ROH)-
to be bought by Dow
Chemical Company (DOW).
Premium
offered: 9% or $6.45
Cash offered per share: $78.00
ROH current price: $71.55
Expected closing: Jan. 2009/ Very early 2009
>Foundry Networks Inc. (FDRY)-
to be acquired by Brocade
Communications Systems Inc. (BRCD)
for $2.6
billion.
Premium offered: 10.59% or $1.58
Cash offered per share: $16.50 cash
FDRY current price: $14.92
Expected closing: Fourth quarter 2008
>Puget Energy Inc. (PSD)-
this deal is pending Macquarie
Bank's ability to borrow $7.4
billion, which is not easy in these rough
economic times.
Premium
offered: 15.25% or $3.97
Cash offered per share: $30.00
PSD current price: $26.03
Expected Closing: End of Dec. 2008
I will be
following more mergers and acquisitions, so
stay tuned for more money making
opportunities. There are chances that
these acquisition deals might not go through,
so these gains are not guaranteed, but
likely.
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Make Money on Mergers and Acquisitions
What happens in a typical acquisition is the buyer (acquirer/bidder) makes an offer to buy a company (seller/target) for more than the seller's stock price currently is (premium). This provides an incentive for the target company to accept the offer. As long as the offer is in cash and the deal is successfully executed, there are guaranteed gains for the target company's shareholders.
For example, the popular InBev acquisition of Anheuser-Busch presented a huge profit opportunity. InBev offered $70 in cash for each share of (BUD) stock. If you bought shares of Anheuser-Busch (BUD) on Oct. 29, 2008 (long after the acquisition announcement) at $59.83, you would be almost guaranteed a profit of 17%, or $10.17 a share. Now, with the stock at $68.50 as of Nov. 14, the merger presents only a 2.2% return. Annualized, that return is 13%, so it's still not a bad deal.
Opportunities like this exist more right now than in a more normal stock market because investors are fearful of stocks in general and are just protecting their money. This takes the focus away from situations in mergers as there is a "flight to safety". It is usually hard to find merger opportunities because the market is efficient enough that investors usually buy the stocks up to the offer price as soon as the announcement comes out. Now times are different, and you can take advantage of that.
Like Warren Buffett says, "Be fearful when others are greedy, and be greedy when others are fearful." Now is the time to be greedy when people are fearful.
Making money on acquisitions depends on a few main contingencies:
- The deal must be very likely to go through- research news and shareholder reactions to offers.
- A premium must be presented to the shareholders- the offer should be significantly higher than the current stock price.
- Cash offers are best and easy to value- stock deals can change value because of fluctuations in buyer's stock prices.
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Tupperware CEO Rick Goings Talks About the Company
Jim Cramer recently
interviewed Mr. Goings on CNBC's Mad Money
show. He suggested that Tupperware (TUP) is a
great buy. Tupperware shareholders enjoy a
larger dividend yield because of the lower
price, constant worldwide growth, and a
diversified portfolio of direct-selling
products. On Mad Money, Rick Goings said yes
that emerging markets are slowing for now, but
"[We] still have a lot of runway left to go [to
capitalize] on emerging markets. We're like in
the 2nd inning of this 9 inning game."
I personally know Mr. Goings, and I know I feel
confident putting money in a company that is
managed by such a great business leader.
Tupperware has made a series of successful
acquisitions and a better implementation of
operations control.
This company has held up remarkably well
through this downturn in most global economies.
The stock is now paying a 3.75% dividend yield.
Value Investing Basics for Beginners Part I
The most famous value investor in the world is Warren Buffett, who has generated over 20% average annual returns since the 1970's. He has prided himself on finding "good deals" on good businesses. This stock investing strategy was mostly created by one of Buffett's teachers, Benjamin Graham. He wrote a book on value investing called The Intelligent Investor. This 600+ page book, much like a textbook, gets into the nitty gritty details of his investing strategy and how he came up with it.
Basics of Value Investing
1. Find a Great Company- Whether it's a company you buy products from, buys products from you, employs you, or if you just love the company, check it out. Also, if it's in an industry that you know very well than you should look into it. You want to love the company you are going to own. It has to be GREAT, not just good or okay.
2. Proven Business- How long has this company been around? It's hard to value a company when it has only been in business for a year. Usually a company that has been successfully in business for 10 or 15+ years makes a good candidate. The companies must be proven, successful businesses to be considered for investment.
3. Survivability- Ask yourself, "Will this company be around in 10, 20, 30 years?" If you cannot see the company being around in ten years, you have no business investing in their stocks; after all, you are buying a piece of that company. Say you and three of your friends want to buy a new $1200 HD-TV. Would you want to pay $400 for your stake if you thought the TV was going to die in two years? I hope not.
4. Uniqueness- What is unique about this company? Do they have some kind of competitive advantage? Are they better at some aspect of the business versus the industry? Are they the first in a market? Do they have any special patents, copyrights, or trademarks? These are the kinds of questions to answer when finding out about a company.
Suggested
Reading:
This article should give you something to work
on for a little bit. Stock investing
can be
confusing and difficult. Just slow down and
think of some really great companies that
you'd be willing to OWN not just hold the
stocks of. Remember, value investing is all
about finding good, solid companies that are
priced below their true value.
Stay tuned for Part II because I will be
posting more on Value Investing Basics.
Congratulations! You now know the groundwork
that value investing in stocks is all about.
Making you a better, more informed investor is
my goal.
Bill Ackman Pushes Target to REIT Spin Off, Pershing Square Capital
LANDOV; Source
www.businessweek.com
Hedge fund manager
Bill
Ackman of Pershing
Square Capital Management proposed a deal to
Target
shareholders and
executives that would separate Target's
business operations from its currently owned
land. The land would become a Real Estate
Investment Trust (REIT) spin off, and Target
would have to sign long-term land leases with
the REIT. His fund already owns 10% of Target's
stock.
Ackman argues that his deal would create value
for Target, and in many cases spin-offs of
subsidiaries in companies can create value, but
what happens when you pull all of the most
valuable assets out from under a company?
Wouldn't that take away from Target's ability
to get credit and cause Target to become a less
valuable company? The balance sheet of Target
would show a huge depletion of assets, which is
a significant factor in the value of a company.
I don't see one good reason why Target
would want to pay an inflated rent amount on
something they already own. This REIT that Ackman wants
to create would essentially suck the value out
of Target by driving the cost up. Also, did I
mention, the REIT is
going to force Target to pay a dividend to
it. Ackman
claims the dividend won't be that high, but
dividend claims can change from quarter to
quarter, so who knows? I think this has been
done before...
Remember the late department store
Mervyn's?
Mervyn's department store has gone bankrupt and
will be closing all of its stores and firing
all employees due to Cerberus
Capital Management's structured deal of separating
land and retail operations. They do something
called "tunneling" where they have the land
company charge the retail company an extremely
high lease price, and also forced Mervyn's to
pay a really high dividend to the land owning
company. This is what drove Mervyn's to its
end. Cerberus pulled the assets out from under
the company, sucked it dry, get to sell off the
land, and reap giant profits.
Kmart was not helped by Eddie
Lampert's
hedge fund doing a similar deal where they
separated the land and sold it off, leaving
Kmart on life-support after a bankruptcy
filing.
Both Eddie Lampert and Cerberus Capital
Management have made exorbitant amounts of
money, and they left shareholders and employees
absolutely nothing.
Bottom Line, these type of deals have proved to
destruct value of the company. Management and
Shareholders : DO NOT let Ackman's arrogance
and financial sophistication seduce you into
ruining such a great company. Ackman knows that
he can make more money off of the real estate
Target owns than he ever could on Target
itself. Once he makes anywhere from several
hundred million to a couple billion dollars, do
you think he will care about Target?
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5 Best Dividend Stocks
Even some of the best investors in the world are getting crushed over and over on their investments in this cruel, erratic stock market. Stock Investing can be very confusing, and it seems someone is suggesting one stock pick when the other says to sell that stock.
One way to ensure a return on your investment is investing in stocks that have a dividend. Some companies pay dividends that overshadow our recessionary market. My mission was to find high-yielding dividends from good companies for independent investors like you. If you want returns in this market, my stock investing advice to you is to consider dividend stocks.
After scouring the stock market for the best dividend stocks, I found:
5 Best
Stocks for Dividends:
1. Frontline Ltd. (FRO)-
this shipping
company moves oil, bulk, and metal ores and
continues its earnings growth and dividend
growth year after year. This stock currently
yields a 39%
yearly dividend (or $3.00/share quarterly)
at a price of nearly $30. Standard and
Poor's estimates the 12-month target of FRO
stock to be $59. Even though the yield in a
year may be closer to 15-20%, that is a huge
dividend! Also, if you buy stock of FRO now,
then you can enjoy the gain from $30 to
almost $60 and have the 15-20% dividend.
With a P/E of 3x (average stock P/E is
10-14x) this stock is a money making
machine.
2. SunTrust
Banks Inc. (STI)-
Suntrust's
stock dividend
yields 7.5%. This large regional bank
has held up well compared to other banks
during this stock market crisis. This stock
is well off of its 52-week high of $73.80,
so it has a lot of potential upside gains in
the future. This is a solid company with
strong growth prospects in the future.
3. Pfizer
Inc. (PFE)-
This drug
company has a household name and
7.5%
dividend yield at its current price of
$17.10. With revenues of nearly $50 billion
a year, you know this company is going to be
standing strong for a very, very long time.
Buy stock in Pfizer if you think a 7.5%
dividend and a discounted stock price looks
like a great investment.
4. AT&T
Inc. (T)-
Another stock
with a household name, At&t, has
a dividend
yield of 6.33%. Standard and Poor's gave
At&t stock the highest rating, 5 stars.
This company enjoys the exclusive right to
sell the iPhone, which has boosted its
revenues. Realize that this stock is also
priced low compared to it's historical
highs.
5. Duke
Energy Corp (DUK)-
What would a
dividend stock list be without a utilities
company? This stock yields a
5.9% yearly dividend based on the Oct. 24, 2008
price. This large utility company has a
market value of $20 billion. Duke Energy has
been paying dividends on their stock since
1926. That should tell you how reliable this
company really is.
There are still ways to make money during this
gruesome bear market. Stock dividends can be a
addition to your portfolio strategy for
stock
investing. Realize that the
dividend yields are calculated as a percent
of current stock market price and may
fluctuate. In rough times, buy stocks with
higher constant dividend payments for a
stream of income or reasonable gains.
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