Our Financial Uproar Stock Picks

January 6, 2012

See cube, eat cube

 

One of the few personal finance bloggers who remains on speaking terms with us is Nelson Smith at Financial Uproar, who’s hosting a stock-picking contest. We were told to submit 4 stocks by December 30. We’ll regroup 359 days from now, assuming we can stave off nuclear war with Iran, and see who gained the most.

We had to pick stocks, as opposed to other investments, otherwise we’d have loaded up on “Mitt Romney will be elected” futures at InTrade. They currently pay 8-to-5.

Of course, entering a stock-picking contest is different than investing. As any poker player knows, the game changes drastically when there’s real money on the line. So knowing that finishing dead last will hurt nothing more than our egos, we were fairly aggressive. With a couple of caveats:

1. We’re not going to win this thing. 

Seriously, we won’t. Not that we don’t believe in ourselves, but intelligence and discretion will only take us so far here. Luck is a huge variable, both as a noun and an adjective. Again, if we could buy futures as part of this contest, we’d look long and hard at buying one called “The winner will have chosen 4 penny mining stocks on the TSX Venture Exchange”. 

But that depends on how many entrants Nelson gets. (12, including himself.) The more entrants, the greater the chance of luck being the biggest determining factor (and rendering our research worthless.) If the objective is to make money, then you don’t have to win this contest to win, if you catch our drift.

2. We’re not looking for long-term investments. We’re not even necessarily looking for stocks that we think will instantly skyrocket. The window is specific: 1 year. A stock whose acceleration will top out in 2 months, or 24 months, won’t do us much good. Heck, if we can get a 25% return out of this contest, we’ll consider ourselves winners. Nelson probably won’t, but we will.

That’s enough qualifying, don’t you think? On with our picks. Our strategy is the same as it is in our real lives: look for temporarily wounded value. A stock with good fundamentals but bad (in the short run) publicity is ideal. A low price-earnings ratio, and either negative or non-existent headlines.

NETFLIX

This fits our criteria almost perfectly. The company took a public relations hit this past summer when it told customers they were going to have to suffer through the barbaric ordeal of having to hold separate accounts for renting DVDs and for streaming videos online. Customers swore they’d never return, and a movement took hold.

We don’t patronize Netflix, never have and never will, but couldn’t understand why customers decried a company that seems to offer selection, speed, and value.

The stock traded at $304.79 in July and is now at $79.30. Cash flow is positive, and profit increases by 50% or so annually. That can’t last forever, but all the indicators are good. Netflix is one of those companies that does better the less it charges. In its early days, memberships cost 4 times what they do today. A company that succeeds on both high markups and low markups will get our attention every time, especially when it’s the undisputed market leader.

FORD

A strikingly low price/earnings ratio, barely over 6. A stock price at an 18-month nadir. And an implicit guarantee that the taxpayers will be there with billions to prop up the company if necessary. Which it won’t be, but investors like to keep these things in mind.

The industry itself is as close to a staple as we have in this society. Ford’s competitors remain in even worse shape than it.

Ford’s worst days are behind it. Yes, its liabilities are greater than its assets, but the numbers are going in the right direction. And the company is profitable. There’s no way we’d invest in Ford until its financials improve a little more, but to enter a stock-picking contest with no downside? Sure.

(NOTE: Not to hedge our bets, but the two of us had to flip a coin on this one. Ford vs. Toyota. If it turns out that a Toyota pick would have ended up winning the contest for us, blood will be shed.)

SEACUBE

This is one of those under-the-radar companies that you never heard of until 2 seconds ago, yet that impacts your life greatly. As the name implies, and as its NYSE ticker symbol (BOX) reinforces, SeaCube deals in shipping containers. The company is on every continent, and just about every freighter.

SeaCube doesn’t even make the containers. It only buys and leases them. Revenue is stable, with a couple of anomalous items distorting the 2009 numbers. Profit margins are enormous, 22%. The company paid out a dividend last month, with a dividend yield of 6.3%.

What gets us excited is its price/earnings ratio, currently under 8. Its peers average thrice that. Because a container lessor can’t expect gigantic growth year-over-year, the only remaining legitimate reason for SeaCube’s low P/E is simply that it’s undervalued. The price is low with regard to sales, with regard to book value…

So why isn’t it more expensive? It’s carrying a lot of debt, although that debt is relatively stable year-to-year. This is one we might buy in the real world, too.

TOYOTA

Alright, fine. We were going to go with GlaxoSmithKline but it’s trading at 40-something times earnings and pharmaceutical companies (or more specifically, reaction to and regulation of them) can be fickle.

Instead, the car manufacturer whose 2011 was as bad as anyone else’s in Japan. The Tōhoku earthquake and resultant tsunami didn’t just kill 20,000 people, they did a number on every manufacturer in the country. No hydroelectric and nuclear power meant no way to build cars, and a damaged seaport meant nowhere to send and receive shipments. Toyota’s sales numbers suffered, and the stock price tumbled accordingly. A positive, at least as far as stock-picking contests go.

Besides, Toyota already knows all about singular events hampering its stock price. In 2009 a series of Lexus owners testified on Capitol Hill that their vehicles were accelerating suddenly and without apparent impetus. What made that unusual was that it’s usually politicians lying through their teeth in D.C., not private citizens. The claims were unfounded: to keep it brief, these imbeciles all confused the brake pedal with the gas. Toyota stock sank to the point where the CEO flew over from Aichi headquarters to control the damage. The stock rebounded and then some, and Toyota maintained its healthy habits of keeping debt under control and buying back treasury stock. Which it continues to do today.

So those are our picks. We’ll keep you updated daily on what they’re doing.

No, of course we won’t. You shouldn’t look at your investments daily, either. We’ll check back on ours quarterly: enough time to see legitimate growth (or shrinkage) develop, without keeping us daily enslaved to a series of numbers beyond our control.

**This article is featured in the Baby Boomers Blog Carnival One Hundred Twenty-sixth Edition**

Filed Under: Capitalism, Education, Investments, Personal Finance Tagged With: , , , , , ,

Carnival of Wealth, Fall into Fall Edition

September 12, 2011

UPDATE: Submission form link for next week’s carnival fixed. Sorry about that.

There’s nothing more depressing than people who talk about “the end of summer” when it’s not even mid-August. Do you suck the joy out of everything else too, or just the best season of the year? We’ve still got a few days remaining before that infernal equinox. Enjoy it while you can.

That being said, this is our final CoW of the summer. Not the final CoW of the summer, just ours. Next Monday we’ll be hosting the itinerant Totally Money Blog Carnival, which means the Carnival of Wealth will stop by Financial Uproar for the briefest of respites. You’ll be in for a treat. Nelson, the guy behind Financial Uproar, has almost as little patience for stupidity as we do. Plus he’s funny, and can spell and punctuate.

Original, non-stolen artwork ©Financial Uproar 2011, all rights reserved

Next week’s CoW will work the same way it always does: just submit by midnight Saturday. And to get in on the Totally Money Carnival, submit here. Now, on with the show:

Speaking of counting summer’s chickens before they’ve hatched, Jon the Saver at Free Money Wisdom points out that “One of the best times of the year for many families is the summer.” He’s right: most families rank summer in their top 4 seasons. He suggests 12 things to do in the 9 remaining days of summer, which means you’d need to do 1.3 of his recommended activities every day from here on in to cross them all off the list. He claims that a day of crafts (“Most kids love crafts”) is something your family will remember for many years to come. And he’s right. That day my brother and I made papier–mâché death masks in 1975 is something we still talk about.

Tim Fraticelli at Faith & Finance lists 12 things you don’t want to skimp on. We would have added jackstands, bullets, pet medicine and water filters. (Aside: “skimp” and “scrimp” are pretty close to synonymous. Why would anyone add an extra letter if they didn’t have to? Seems like a waste.)

Apparently Janet at Credit Cards Canada read that old piece of homespun wisdom about not grocery shopping on an empty stomach, and decided to share it with us. To save money on groceries, she also suggests that you USE A LIST. Also, BUY IN BULK if you can. She also helpfully suggests that you bring trail mix along when you run errands. The number of people who didn’t bring trail mix with them on errands but now will because Janet recommended doing so? We’re guessing zero.

At the rate we’re going, by 2022 the entire internet will consist of nothing but porn and personal finance posts about how to be frugal. Unfortunately we can’t showcase the former here, but Miranda at Financial Highway is helping us choke to death on the latter. Her 45 favorite parsimony strategies include: clip coupons, drink water from the tap, brown bag it…you get the idea. Of course you do, you have a functioning cerebellum.

Time for a good one. FMF at Free Money Finance test-drove a home safe, and interviewed an industry expert (alright, it was a representative of the safe company) about the pros and cons of introducing a cuboid metallic member into your family.

A: Of course not.
Q: Teacher Man at My University Money asks “Is a liberal arts degree worth it?”

How about post about frugality? We told you they were few and far between. Shawanda Greene at You Have More Than You Think gives her take on the topic, arguing for more balance. In fact, she says she lives by the motto “Big or small, I sweat it all.”

The couple behind Sustainable Personal Finance live in Canada, and like most Canadians, are a short drive from the United States. Tired of paying outrageously high prices compared to their American counterparts, SPF did the sensible thing: jettisoned their own commitment to buying local, and crossed the border to save money.

Again with the Canadians. Boomer at Boomer and Echo talks about the cheery topic of long-term health care insurance for the old and/or decrepit. (You mean Canadian health care isn’t free for everyone? No, it’s more complex than that. Who knew?)

Fanny at Living Richly on a Budget read and reviewed a book by some guy on TV. It’s called The Wealth Cure: Putting Money in its Place, and you’ll never guess what its message is. True happiness starts inside. If you are not truly happy inside, then you won’t be happy no matter how much more money you have. Another secret of the universe, uncovered right here in the Carnival of Wealth. Swish!

You’d never guess it from his picture, but Roger Wohlner of Chicago Financial Planner is a certified financial planner. It’s great to have a professional come in to the CoW once in a while and give a little complimentary analysis. Roger might not be a live wire, but information always trumps personality. Last February he posted what his Fidelity Freedom fund invests in, and this week he updates it.

Another post on frugality? Are you detecting a pattern? timw (pronounced “timw”) at Escape the Hum Drum says you should live modestly. timw’s own scrimping includes skimping on commas, which he used only 19 of in an 1100-word post. That’s not easy to do. We don’t know much about timw, but we’re flattered that despite being from the UK, he wrote his post for a North American audience by incorporating dollar signs into the narrative (yet tipped himself off by talking about living in a flat and saying “whilst.”)

The world would be a better place if more people wrote like Neal Frankle at Wealth Pilgrim. If you’re looking for some extra retirement income, you might be intrigued by the idea of a reverse mortgage annuity. It’s a way for you to tap into the equity of your home. You’ll receive that money for as long as you’re able to live in your home, and you won’t have to repay the loan. Since many people aren’t able to find (or are interested in finding) jobs in retirement, this could be a way to go.

Paula at Afford Anything doesn’t seem to understand that $ means “dollars” (“$1 million dollars”), but she does grasp the arbitrary nature of the base-10 numerical system and its psychological effects. Read her findings in “Who Wants To Be A $402,854-aire?” (number converted by us to base-12.)

Did Hurricane Irene do a number on your house? Maybe you suffered some mental anguish and can never go out in the rain again. Back Taxes Help shows how you can minimize the damage to your tax bill.

Finally, she missed the deadline but this post was so good we had to make an exception. Sandy of Yes I Am Cheap has a radical idea: maybe, just maybe, you shouldn’t have kids if you can’t afford them.

Thanks for stopping by. See you in a fortnight.

 

Filed Under: Carnivals Tagged With: , , , , ,