Tuesday, May 18, 2010

Low Beta and Stable Dividend Issues

When Mother Nature throws a tantrum, she doesn't fool around.  Take your standard volcano.  They shake the earth to it's core, tumbling weak buildings, cracking the earth.  Eruptions of black smoke cloud visibility across miles and countries.  Spewing hot lava sends wildlife scattering for cover.  All mankind can do is stand back, watch, cope, and let Mother Nature do her thing.

Mother Nature and Mr. Market aren't much different.  When Mr. Market throws a tantrum, the weaker holdings in your portfolio get shaken down, and in the heat of the moment, it's very difficult to see what your next steps should be.  Oftentimes the best thing to do when Mr. Market melts down is to run for the cover.  

But what should that cover be?  Stick with declining holdings and hope for the best?  Or go all cash, which yields 0% return?

I would propose that one need not do either in entirety.  There are potentially safer issues out there that may help stabilize and grow a portfolio.

I have been seeking out issues with the following criteria:
     ** No more than 10% historical depreciation from current price point (using last 2 years)
     ** Higher than 5% yield
     ** Low beta score, or volatility score (all are under "1")


I have already highlighted in previous posts two clear winners:


MHRpC - Magnum Resources, an oil and gas company, preferred shares.  Has never depreciated from its current price point more than 2%.  It is right at call, priced at $25.00, and yields 10.24% in tax-advantaged (15% tax rate) dividends.

SYBTP - S.Y. Bancorp Cumulative Trust Preferred shares.  It closed at its lowest point in 2 years in March 2009 at $10.60 per share.  Financial shares are taking a beating, and this stable performer dropped Tuesday to $11.52 per share, bringing the price point well into the 10% window of appreciation.  The yield on this non-tax advantaged issue is 8.40%.

Today I am adding a few more low beta point winners:


GDLpA - Gabelli Global Deal tax-advantages (15% tax rate) preferred shares.  This issue traded at its lowest point in February at $50.79, which also happened to be when the fund was introduced.  Since then it has climbed to, and maintained, a fairly stable price point between $53 - $54 dollars.  Click Here to read more about the fund.  Current dividend is 7.94%.

EIFZF - Exchange Income Corporation, a Canadian investment company.  This little known issue pays monthly dividends in the strong Canadian dollar.  It traded at its lowest point close to issuance, at $13.45.  With a current price point of $14.16, this issue has a 5% variance from its lowest point, and sports a 10.70% dividend.  According to its website, EIFZF will maintain its 15% tax advantaged status after 2011.  For more information, Click Here


CHSCP - Cenex Harvest States Cooperative Cumulative Redeemable preferred, offering tax-advantaged divdends (15% tax rate), currently yielding 7.23%.  This agricultural stock bottomed out at its lowest point in early November 2008 to $24.50.  At its current price point it is right at our 10% potential depreciation cutoff.


Honorable mention:


TLT - I-Shares Barclays 20+ Year Treasury Fund.  This issues plays upon bear market fears and the flight to the safety of treasuries.  This could be an alternate to shorting ETFs, few if any which pay dividends.  This fund rises in bear markets, sometimes spiking wildy in panics, creating opportunities for reaping capital appreciation if you're nimble.  This one started the 2007 bear market at about $83 per share.  The recommended jump-in price is $90.00 and under, when the yield gets into the 5% range, although if you are truly fearful you could jump in now.  The current yield is 4% - not exciting, but reliable.


STDpE - Santander Finance preferreds, profiled in a previous post.  The market shakedown has brought this to historical lows right now.  Whether or not you view this as a buy depends on your view of Spain and the euro.  There is probably more downside to come, but when the situation in Europe stabilizes, this normally stable issue is likely to rise accordingly, thanks to exposure to Latin America markets.  Keep it on your watch list.


Disclosure:  long MHRpC, GDLpA, CHSCP and EIFZF.



Friday, May 14, 2010

More Technical Considerations for Buy / Sell Decisions

The last two entries of my blog profiled easy technical analysis and free websites that I use to make buy and sell decisions.  Today I will tie the bow on the package with some final thoughts.

Watch the Market - Is the market going up, or down?  This is a key question in buy / sell decisions, as 70% of stocks follow the market.  Determining market direction can be as easy as plugging the SPY or DIA into Finviz.  Plugging these ETFs into Finviz shows the market is still channeling up, and a good time to buy long was last week, when the market hit the support line.

Sell (or Buy) on Bad News - BP was a holding of mine until the oil spill.  I sold within 3 days of the news at a 9% profit.  It has since plummeted below my sell price and shows no sign of a bottom.  Determining whether you want to buy or sell into bad news depends on your time frame and your goals.  Want a quick profit or quickly cut your losses?  Then sell.  Is this a core holding?  Then buy when the news bottoms the stock out.

Buy on a Dividend Ex-Date - A popular way of reaping dividends is buying right before a dividend ex-date, then selling at or after the ex-date.  This is a non-starter.  The stock rises before the ex-date, then plummets right on or after the ex-date.  Instead, buy ON the ex-date, and early on the trading day, when the stock inevitably takes a dip.  Then hold.  Doing so insures you will get a much lower price than buying before an ex-date.  If the stock is trending up, you can reap the dividend later, WITH capital appreciation.

Buy Early on the Trend - I counseled in a previous post to buy on a support line of a channel up.  I need to add - buy early on the trend.  Preferably at the first time the stock shows an upwards trend on the support line.  This is tricky, and inevitably one will not get all the buys right.  But coupled with good news this is a good way to get in early on a stock that is trending up.

Sign up for Scottrade Elite or other Streaming Quote - A stock makes many moves in any trading day.  To insure you get the lowest price, sign up for streaming quotes.  You can then watch the intraday moves and buy on an intraday dip, or sell on an intraday high.

Keep a Watch List - I make printouts of stocks on Finviz or Scottrade, and have a giant pile of papers that I keep track of.  You may prefer keeping a digital list within your brokerage account.  However you do it, keep track of the issues you are interested in.  

Keep a "Bottom Feeding" List - These are good stocks gone bad.  The tankers.  The stinkers.  Unless a business is going bankrupt or is badly managed, in many cases eventually the stock will come back.  BP is an example - excellent company with great prospects...bad season right now.  Sometimes an issue gets unfairly punished just by being in an unpopular sector.  Be a contrarian.  Watch the unlovables.  Sometimes they get lovely again.

Watch Your Holdings - Plug all your current holdings once a week into Finviz or your brokerage account chart tools to see how they are trending.  If a holding is tanking, find out the reason why.  Make sure you have news alerts sent to your email box.  Buy and hold and never think about it is dead.  Stay on top of what you have purchased.  Sell if you need to.

Buy Increasing Dividends - Finding out about dividend history of a stock is as easy as googling your stock symbol with the words "dividend history".  If you buy a solid company with increasing dividends, it will give you more peace of mind about holding through tough times.

Keep Up with Economic News and Policy Decisions - This can be as easy as listening to Bloomberg Radio during your work day.  The economic climate will affect your holdings.  Find out what sectors will be profitable in the coming months, and what to avoid.  Read the Wall Street Journal and Investor's Business Daily.  Avoid CNBC, Jim Cramer and any television show recommending stocks.  


Determine a Stop Loss - Not just for individual stocks, but for your entire portfolio.  My stock stop loss is negative 5%; my portfolio stop loss is 10% from any portfolio top - meaning I will never lose more than 10% value in my total portfolio.  

During the crashes of November 2008 and March 2009, a had no portfolio stop loss.  I took quite a beating.  While many dividend investors say they have made up these losses, I will venture to say that most have not.  If you don't want to risk losing your capital, determine a portfolio stop loss.  When the market shows sings of tanking, sell your losers, stragglers and top off your winners.  Last week I ended up selling to 70% cash in order to prevent my portfolio from crashing beyond a 10% stop loss.  While many of my previous holdings have since risen back to close their original price, for me it was worth the risk to preserve my peace of mind.  Cash is always king, and is always the best cushion for a bad market.


NEXT WEEK - More issues that provide a margin of safety in a bad market.

 

Tuesday, May 11, 2010

Easy Free Tools for Technical Analysis

The previous day's blog looked at easy technical analysis for buy and sell decisions.  Today we are exploring the web's easy, free tools for applying these technical terms to everyday investing.

Finviz - This free website is a chartist's dream.  The free content on the website offers easy to read charts with channels and support lines.  The screener is the best-in-class for free tools on the web, allowing you to screen not only for the fundamentals, but also for technicals.  

Still don't understand channels, support and resistance?  Pull up Finviz.  Type in the stock search box, NGLS.  This will pull up the chart for Targa Resources partners.  This is the kind of chart one wants to see for a good buy.  The stock makes higher highs and higher lows, and the "channel" this makes is clearly marked.  Want to get in on this stock?  Simply wait until the price hits the bottom line of the channel - that's support.  Better yet, wait until the stock is moving back up...if it breaks support going down, that's not a good sign.

Now, pull up the chart for OTE - Hellenic Communications, a Greek telecom stock.  This stock is making lower highs and lower lows.  The combination of bad news out of Greece, and the fact this stock is channeling down, tells you to avoid or short the stock.  Even if the fundamentals of the company were strong, the technicals tell you this is not a time to buy.

Scottrade - You do not need to hold an account to use Scottrade's technical tools, just register. When you search a stock, you can click on the tab that says "chart".  Here is where you can plug in moving averages, RSI, DMI and a host of other technical devices.  Scottrade will then interpret the chart for you on the right hand side of the chart.

Americanbulls - The ultimate in simplicity.  Plug in your stock, and it gives you a buy, sell, hold or wait.  I wouldn't use this tool ALONE to make your decisions, as it will give you buy signals for stocks that are going down.  Instead, you can use it to confirm a buy or sell AFTER you have used other tools for your decision.  


InvestorPoint - Can't find information or charts on a particular OTC, pink sheets or preferred stock?  This virtually unknown site is a wealth of knowledge and is particularly helpful for lesser known issues like pink sheets and preferreds, providing not only fundamental information but simple helpful charts.

QuantumOnline - The standard-bearer site for preferred stock information.  There are no charts here, but if you are interested in issues that fly under the radar, this is the place to go.

 

Tuesday, May 4, 2010

Easy Technical Analysis for Buy / Sell Decisions

There are all sorts of advanced techniques used by expert traders to for buy / sell decisions.  You've got your Elliott Wave, your Fibonacci series, your T2 stops, your internal dymamics, your RSI Scale-out System, and my favorite, "The Turtle".

Me?  I got K.I.S.S. - Keep It Simple, Stupid.



I follow a few simple techniques, using free tools, looking at simple patterns, to make my trades. 

Easy Trends and Patterns - Determining whether a stock is a buy or sell can be as easy as a few simple chart patterns and indicators:


     a.  Channel Up / Channel Down - When a stock is a good
          candidate for a long buy, it will have higher highs and
          higher lows.  This forms a tube-like "channel", with
          support and resistance lines, that points upward.  A
          stock that is a good candidate to short or avoid for
          longs will channel down with lower highs and lower
          lows.

     b.  Support / Resistance Lines - The top and bottom lines
          of a channel are support and resistance.  If you are
          long and want to make the best price, buy at the
          bottom line - support - on as the stock is trending back
          up.  You don't want to buy at resistance, or the top line. 
          It's like paying retail for an item then discovering it
          goes on sale next week...



     c.  Moving Averages - A moving average charts the price
         movement of a stock over a set period of time, usually
         20, 50 and 200 days.  A stock is a good buy just after
         it crosses upwards from a moving average.  If it crosses
         under, it is a candidate for an avoid or sale. 

     d.  Volume - You can tell what the market of a stock by
          volume.  It's simple.  If a stock has more buyers, the
          stock moves higher; more sellers, lower.  Don't fight
          volume.


     e.  Relative Strength Indicator (RSI) - Measures trend
          strength on a scale of 1 to 100.  The lower the number,
          the more bearish the trend.  Don't buy below 30.  Best
          time to buy is between 30 and 50.  Best time to avoid
          or sell is above 70.



     f.  Stochastics - Measures whether the stock is overbought
         or oversold.  An oversold condition is unsustainable and
         a potentially good time to buy, but I wait until the stock
         is neither oversold or overbought.  Avoid or sell when
         overbought.


     
     g.  Directional Movement Index (DMI) - Measures when a
          stock becomes bullish or bearish.  Buy early when it
          crosses the bullish line.  Crossing the bearish line is an
          avoid or sell.


        
Tomorrow's blog:  easy free tools that make technical analysis easy.



Monday, May 3, 2010

In The News and On The Ropes

A country on the verge of collapse...an oil company associated with a deadly explosion and oil spill...a financial powerhouse facing criminal indictment...

Disasters?  Or opportunities?  

Plow your money in right now, and it 's probably disaster.  But if the fundamentals of the company are basically sound, opportunity awaits the patient.



The following three entities have dividend issue that is worth placing on a watch list:


NBGpA - National Bank of Greece 15% tax-advantaged preferred.  This one is quite volatile, experiencing whipsaw 5 - 10% fluctuations within any given trading day.  The National Bank of Greece may be less exposed to it's own country's sovereign debt than other European banks, but it is still a parcipant, see:  http://www.businessweek.com/news/2010-04-27/greek-bank-ratings-cut-to-junk-at-s-p-after-downgrade-of-greece.html. The 12% dividend make this one worthy of a watch list, but extreme caution is warranted.  May have much more downside to come, and that hefty dividend may be subject to suspension.


BP - British Petroleum.  Within a few days of news of the oil spill I sold out of this one at a 9% profit.  Glad I did.  It has since dipped below support (and my own buy price), and may continue down for some time.  Commodities may be the safest place to hide during a market downturn, so I do believe investors will rush back in when the news is better.  Currently the dividend is 6+% with increases every 1 to 2 years.


GSpB - Goldman Sachs 15% tax-advantaged preferred.  This issue is still pricey compared to it's three year history and there is more drama to come with a possible criminal indictment for Goldman Sachs.  This issue also declined over 100% from May 2007 - March 2009, so I am not sure this one can be categorized as "safe".  However, it is Goldman - an earnings powerhouse - the issue carries a current 6.5% dividend, and is worthy of a watch list.