Yesterday's announcement by Freddie Mac (NYSE: FRE) to cut but not eliminate its dividend payment got me wondering if there were other companies out there with absurdly high dividend yields that hadn't cut their payments. High-dividend yields are an old-fashioned way to look at companies and one that's fallen out of fashion as tech companies plowed their profits into research. But a 10% yield -- hey even a 7% yield -- is something we'd all be happy to find these days.
Traditionally, companies with high-dividend yields were those with low-growth potential, like utilities. Like Freddie, many of the current high-yield companies were created by a falling stock price. And like Freddie, they could always cut the dividend to keep the yield from getting out of whack. But, if they think the stock will rebound, maybe they won't cut it for fear the dividend cut would be yet another thing to drive off investors.
The highest yielding big company I found was Biovail (NYSE: BVF), Canada's biggest drug maker. The company was hit with an SEC complaint that key executives were lying about earnings. The company and the founder just settled a fight over the future direction of the company -- with the founder stepping aside. The stock, at about $10, has been cut in half in the last year. In May the company declared a quarterly dividend of 37.5 cents a share, which gives it a 15% yield at the current price.
Take it Private! is a series looking at one company each week that, in my opinion, has no reason for being public. To find these companies, I screen for the following:
high insider ownership
a history of solid profitability
a paltry Price/Earnings and/or Price/Cash Flow multiple
a stagnant stock price accompanied by low volume indicating a lack of interest in the stock.
My purpose in highlighting these companies? This screen can be a good way to find deep value stocks, especially companies that may be attractive to a strategic buyer, private equity firm or management-led buyout at a premium to the current share price. However these profiles should not be interpreted as a recommendation to buy a certain stock. Let's take a look at Rex Stores (NASDAQ: RSC), a stock that I've followed with interest since 2004. Rex Stores owns and operates 111 electronics retail stores in 34 states, a business that has struggled in the face of lower-priced competitors from Best Buy (NASDAQ: BBY) to Wal-Mart (NYSE: WMT)
MicrocapTrader made a compelling and difficult to refute argument about the stock's value in this post from April of 2007: "In any event, assigning a proper valuation to RSC's property brings its tangible book value up to ~ $15 per share without even considering its inventory, worth another $6 per share at its carrying value."
After seeing the interest in yesterday's Serious Money: Five stable stocks for troubled times, I decided to track the stocks on a quarterly basis to see how they hold up over time (otherwise, what would be the purpose of discussing them in the first place?).
I said that all five have shrewd, conservative management teams and have been in the right place, at the right time -- and prepared. The standard for comparison will be the Standard & Poors 500 Index which closed on June 30, 2008 at 1,280.00. Although my original story was published yesterday, I will be using the second quarter end point for my five stocks as well.
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically short-selling trader like me! But before I tell you the name of this stock that despite the obvious economic problems -- strong oil, weak housing and the dollar, mounting foreclosure, etc -- is sitting right near all-time highs, looking to break out, let's do a quick rundown of its competitors in the apparel retail space.
Every once in a while I run a stock screen to see if anything passes some very stringent criteria, only to find nothing passes through. Yesterday something did come up: Gramercy Capital Corp. (NYSE: GKK). Here was my criteria on the screen, along with Gramercy's numbers:
One year sales growth had to be at least 20% (65%)
Minimum profit margin of 20% (49%)
Maximum Price-to-sales ratio under 3 (2)
Stock price between $10 ad $25 ($17)
Market capitalization under $1 billion ($900 million)
I could have added more criteria because to my pleasant surprise Gramercy is paying over a 14% yield, has a very low trailing P/E of of 3.34 and forward looking guess of 5.7. Furthermore, it has Return on Equity (ROE) Per Share of 29.84% and a Price-to-book of 1.26. So everything is looking good, but is it a value or value trap?
Forget about overwhelmingly random stock market noise and small daily percentage moves exemplified by the likes of all the most popular names such as Yahoo! Inc (Nasdaq: YHOO), Citigroup Inc (NYSE: C), Pfizer Inc (NYSE: PFE), Google Inc (Nasdaq: GOOG) and Apple Inc (Nasdaq: AAPL). Don't be fooled by the all-too-frequent daily commentary-those stocks are really only good for long-term investors and the few truly professional traders out there.
If you're neither, focus more on market inefficiencies because not only are they more predictable, but they're ideal for smaller investors and traders thanks to their illiquidity. Meaning the market offers up these high profit probability opportunities that the big boys can't and won't take advantage of-they're strictly for us little guys.
I'm talking about price moves created by the quirks of the finance industry itself-namely the media circus, stock promoters and hype that influence the great derided microcap market. For example, when a CNBC reporter inadvertently suckers amateurs by pumping a penny stock (good short selling opportunity as the stock is now down 50% in a month) or when a stock promoter is paid to hype a stock (another one down 50%+ in one month since).
It is always interesting to see the changes in short interest, particularly when you are right in the middle of earnings season. It seems the short sellers have gotten a little less confident on the "digital four" of the NASDAQ. In fact, the only one of the four that saw an increase was only a tiny increase.
As you will see below, the major components of the NASDAQ top digital companies saw real short covering ahead of earnings. Keeping conviction against stocks is frequent, but the lessons of eternal pessimism have historically shown to not be a winning strategy.
Microsoft Corp. (NASDAQ: MSFT) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 109,056,265 (7.88%) 48,450,376 2.25 03/31/2008 118,383,897 (3.82%) 57,762,166 2.05
Google Inc. (NASDAQ: GOOG) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 4,905,775 (5.84%) 5,368,787 1.00 03/31/2008 5,210,156 7.07% 6,382,427 1.00
Yahoo! Inc. (NASDAQ: YHOO) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 36,104,797 (12.54%) 22,789,737 1.58 03/31/2008 41,280,401 (17.13%) 25,874,919 1.60
Oracle Corp. (NASDAQ: ORCL) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 42,655,256 2.94% 34,868,017 1.22 03/31/2008 41,436,043 6.57% 51,966,613 1.00
As Oracle's earnings are still a ways out, the need for traders to cover there probably wasn't as critical as it was otherwise.
Jon Ogg is an editor and producer of the "10 Stocks Under $10" weekly newsletter for 247WallSt.com.
"A once in a lifetime super bull market in commodities is underway," note resource experts Mary Anne and Pamela Aden. Here, the advisors look at some favorite commodity stocks in their The Aden Forecast.
"Commodities are in a mega super rise is because of the dramatic changes in the global economy. The rise that started in commodities in 2001 has continued to expand over the years and we believe the upmove is just warming up and it has years to run.
"There are several reasons for this. The weakening dollar and low interest rates have certainly helped push up the whole sector while investment demand grew as an inflation hedge. But the key reason why the commodities are in a mega super rise is because of the dramatic changes in the global economy.
Back on March 24, I made some very rudimentary predictions on BloggingStocks based on the chart patterns of some popular technology names. Let's see how I fared:
Apple (NASDAQ: AAPL) performed just as its chart implied it would -- a clear path from $140 to $160, but no more. Score one for technical analysis!
I noted that while Research in Motion Ltd (NASDAQ: RIMM) had a solid base, a ton of overhead resistance would prevent a big breakout-bingo, another perfect call -- no matter that it wasn't actionable -- the stock's barely higher now, just like the Nasdaq market as a whole.
The very day my original article came out, Priceline.com Inc (NASDAQ: PCLN) did indeed breakout to a new high, but ever since it's done exactly squat. Hmm, was this a self-fulfilling prophecy -- somehow I can't quite claim victory here, although its definitely not a defeat.
I'm glad all these "blue chip stocks" are blowing up. No, I don't enjoy seeing investors suffer, but as I've written about here, here and here, investors need to learn not trust any company or anybody in this business. Investors don't even have to remain invested all the time! Contrary to the advice of fee-earnings-professionals, the majority of whom continually fail to match the S&P 500's returns, you don't have to manage your money like a $500 million mutual fund. Diversification is for widows and orphans!
While it'll probably take me a few years to truly get through to all of you, if you've been invested for any length of time in any company listed below-considering what you've been through-you're probably more likely to believe me:
The New York Times reports that General Electric Co. (NYSE: GE) sponsored a webcast yesterday with its CEO, Jeff Immelt, to answer questions submitted by the general public. Immelt denied that its NBC Universal unit was for sale while answering questions from Carl Quintanilla and a co-host of the Squawk Box program on CNBC, and Chrystia Freedland, the United States managing editor of The Financial Times.
A few disclosures are in order: GE invited me to participate in this webcast but I had a prior commitment. I met last July with GE's CFO -- where he said that NBC Universal was worth between $40 billion and $45 billion. I've appeared on CNBC with Quintanilla, most recently as guest host of Squawk Box. And I own GE stock and am not a happy camper since it's trading 13% below where it was on September 10, 2001 when Immelt took over. The S&P 500 has risen 21% since then.
Is Immelt right that GE is undervalued? I took a look at that question and concluded that it was slightly overvalued on February 27th. Specifically, I calculated a range of breakup values for GE which were between 11.1% and 1.5% less below GE's current market capitalization. I could be wrong about that analysis since I was compounding assumptions on assumptions and had no guidance on the analysis from GE.
Each quarter brings a new batch of earnings plays, so which ones should you trade?
I've had my fair share of successful calls, but I've also been burned badly before. One time, I put in a solid week's worth of research (pdf) to pick Vasco Data Systems (NASDAQ: VDSI) right before earnings, and what happened, they totally blew it. A 30% drop. It still stings. This is just the latest reminder that you can't trust companies, analysts or really anyone on Wall Street.
Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT) and Broadcom (NASDAQ: BRCM) all had very solid quarters, but where did it get investors? Nowhere -- all three stocks are flat since then.
Every investor I know is hurting. Doesn't matter how great they were in years past. They're all stunned at the hammering in their portfolios. The smart ones are doing two things now: they're moaning, along with the rest of us, and they're doing research to find bargains they haven't seen in decades.
We all know about stock bargains: they look great when you buy them. Some of them do well and bounce back. Others get to be even better bargains, then hit the clearance bin before they become totally worthless. The bargains I'm suggesting here are the ones that have the best chance of bouncing back. How can you tell?
After nailing the top in Apple (NASDAQ: AAPL) and warning investors this would be a painful year, I've been getting hundreds of emails from people asking me what to do next? As if suddenly after two correct predictions, I'm Nostradamus or David Blaine!
Make no mistake, I'm neither a forecaster nor a magician, I'm just a trader who bases his decisions around these key elements: a distrust of everyone and every company on Wall Street (made easier by the likes of MBIA (NYSE: MBI), E*Trade (NASDAQ: ETFC) and Countrywide Financial (NYSE: CFC); a respect, bordering on religion, for charts and a quick trigger finger if the charts turn against me. I know people want longer term predictions, but I believe those to be 100% guessing games and potentially hazard to your investment health. Pregnant women should avoid them at all costs. Just kidding, it's fine for some people, but I like to make my predictions and cash out, so I can enjoy stress-free weekends if you catch my drift.
So, here's what I see right now: two weeks in and we're already halfway to my 10%-down market prediction, and Apple is down 15% (take that you stereotypical cheerleaders, go date some football players)! The markets are definitely rolling over, and while it's usually a long, drawn-out process, the charts seem to have little concern for what's normal as all the major indices have formed perfect head-and-shoulders patterns (a very bearish sign) and investors are rightfully freaking out.
With stocks beaten up, those courageous investors looking for cheap stocks should take a look at Dow Chemical (NYSE: DOW). With the recent announcement of its 50/50 joint venture with Kuwait's Petrochemical Industries Company (PIC), to form a market-leading, global petrochemicals company, Dow stands to become the world's leading petrochemical company. Look for growth in China to help propel earnings over the next decade.
"We're creating a petrochemicals company that will be a global leader from its first day of operation, an $11 billion company that is well positioned to grow profitably across the industry cycle," said Andrew N. Liveris, Dow chairman and CEO. "For Dow, this marks an important milestone in our transformational strategy: growing our Basics businesses through joint ventures; reducing our capital intensity; and, freeing up cash to invest in our portfolio of Performance and Market Facing businesses."
The stock is off 20% from its high, and it's now sporting a juicy yield of 4.5%. That's not all; the stock has a P/E of about 10.60 and more importantly, a PEG of just 0.86. So what you have is a company with nice growth, paying a handsome dividend, that has gotten pounded down. Dow Chemical looks like a winner for investors over the next few years.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no position long or short in any stock mentioned as of 1/8/08.
Take it Private! is a series looking at one company each week that, in my opinion, has no reason for being public. To find these companies, I screen for the following:
After seeing the interest in yesterday's 
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically 
Forget about overwhelmingly random stock market noise and small daily percentage moves exemplified by the likes of all the most popular names such as 
I'm glad all these "blue chip stocks" are blowing up. No, I don't enjoy seeing investors suffer, but as I've written about 
The 
Ted Allrich is the founder of 
After 
Apple (AAPL) iTunes loses artists - an antitrust problem?
U.S. Q2 GDP of 3.3% likely to be fleeting
Cramer on BloggingStocks: Don't bother with the private-equity chatter 
