I Eat Bear

I have been watching individual stocks, and the market as a whole. My findings concern me.

Mostly,my concerns stem from P/E values. They are, by most any standard, pretty high right now. Considering we are recovering from a questionable return from a serious market downturn, that is a BIG issue right now. I can find very , very few stocks, that are CHEAP. In fact, I could give cause for another round of blows, for those who did not learn in the last downturn.

Ok, a P/E is a hard thing to give a number to. It depends on the company, and the sector. A P/Eof 15 is HIGH, and should be considered so, for MOST stocks. Yet, the tech sector thinks a P/E of 30 is a low-grade stock. Some of those have P/E values well over 50. In my book, that is too over-priced.

P/E, price to earnings. Put another way, it is how long it will take your stock to pay back your initial investment,, in years. Now, when I look at tech stocks, I start to believe that high PE ratio. Face it, they are risky, and they are boom and bust industries. You have to have some, or you miss the boom, and you can't have much or you WILL bust.

So, let's just stick with the BASICS. Let's avoid some sectors, for now, with out of line P/E ratios. If we can not find stocks, that follow the RULES of investing, then let's ignore them,, for now.

Rules of P/E. Highly profitable companies will head to the north end of the 15 P/E. They will provide CONSISTENT returns, albeit, not always market beating ones. Stable, but more risky stocks, offer a payback in less time. Face it, if you buy a stock, you want it to pay for itself before you grow OLD. Beyond 8-15 years, you will change your mind and move on to greener pastures. As well, you should. Yes, 500% or more percentage returns are possible, in shorter time frames, but for the MOST part, that comes from years of investing, and getting it RIGHT, in a single stock. Neither of those is easy to do.

So, play some odds. Use good sense about it.

Ordinarily, I would recommend a diversified portfolio. But, I am SERIOUSLY beginning to wonder, if this is the time for that. OK, mergers, aquisitions on the rise, stocks up 35% from bottom, all signs the bull is out of the bag. Shorters are running scared. GOOD. Inflation is so likely, it is not funny. All positive signs for stocks. EXCEPT, P/E's are too high. And, I am willing to bet dollars to donuts that will have to come down. For a WHOLE LOT of them.

First, my late BLUNDERS. Two stocks, I should have been buying, and let it slip, until,,, ALMOST too late. And, to tell the truth, I am still deliberating, but I KNOW my conscience is WRONG on this. Both happen to be in the shipping industry. The problem right now, with this industry is OVER-SUPPLY? Too many ships, too little market. Just over one year ago, the market worked quite differently. Supply, could not meet demand. And, it paid a PREMIUM for newer ships. Now, if you listen to the media, there is little market for anything. The question is, can this sector "stay afloat"? Well, coming quickly to the chase, there are TWO in this sector, that stand out. DSX, Diana Shipping, and TBSI, TBS Industries. I missed DSX at $12.00 and change lately and I have been kicking myself ever since. They did cut the dividend, which used to be decent, at about 3+%. I want to believe they will go back to that at some point. With a 3% dividend, and stock price growth, they make a fine stock to own. Even so, at $12, I MISSED, the much of the growth potential for that stock to rise again to $16, $24, and higher. I believe it will, and it will return to dividends, but likely in the 1% range. It is still a good stock, and will explain BRIEFLY later.

Why invest in TBSI? Because less than 3 years ago, the stock appreciated 800%. Same industry as DSX. What happened? Well, we had a little thing called a GLOBAL FINANCIAL CRISIS. Anybody with debt, was considered the worst sinner of all time. SHIPS, cost money to build and maintain.

Why I like shipping. Barriers to entry are substantial. Oceans get bigger, not smaller. Better players will get more market share.

WARNING, WARNING, DANGER Will Robinson. These are MARVELOUS day trades, but like me, you are likely to lose your shirt if you miss-judge even slightly. HIGHLY volitile. Not for the squeamish. But, good long term plays.

OK, what have I been doing right? DIVIDEND plays.Two stand out immediately, and a third is showing tons of promise. Well, my first theory in investing is do not LOSE money. I did ride the last downturn, to not lose market share. That may have been a poor move on my part, but it too had benefit. I did not have to decide after the fact, where to put money. I knew. Dividend plays.

So, I give you these two up front. TNH, Terra Nitrogen. Dividend over 8%. Not cheap stock, not big company. Concerns me the company is so small, but it is stout enough, to fend off some would be buyers. Sooner or later, the BIG bucks will win, but in the mean time, this is a stock, hard to over-look.

Second on my "buy' list is BP. It is a petroleum player, with a 6%+ dividend. It is hard to deny the sector will do good over time. It is not the biggest, and maybe not the best, in volume, but I like the management.

Third on my success list is BHP. I like the fact it is a commodities player right now, and one of the biggest. It is a producer of "all" natural resources. Pick one. Gold, they mine it. Silver, got that too. Iron ore, likely the biggest. Rubies, that too. Diamonds, no thumbs down there either.
Reasonable stock price, and a stock buy-back plan for years to come. To be aquired? Who are you kidding? This company will acquire others.

Those convictions I feel good about. If I had to put my whole portfolio, in the hands of those, I could sleep well at night.

Then I do have some, that resemble FLEAS. And these, keep me up.

Natural gas, SHOULD be thriving right now, but it is not. Some of that does not make me sleep well too.

The CEO of Chesapeake Energy should be FIRED. He is over-payed, and under-delivers. None the less, he owns (CEO), the largest natural gas producer in the world. A poorly owed and run company, but how do you ignore that in a time of "green is better"? This sorry SOB will still likely profit. But, when he does, can I?

MAYBE, but it is RISKY!

Bet on AXAS, Abraxas Energy. Pitifully, in debt. partners are consolidating LOSING companies to make a last stand. But, it is a negative P/E (rightfully so). If they can get their head out of their (ARSE?) the company could be profitable, or an acquistion target worth having?. Both make money for stockholders.

It has been tempting, to consolidate into a few that I KNOW will produce returns. And, before I leave this I mention TWO more. Diamond Offshore (DO) and Noble Energy(NE). Both offshore oil
drillers, but the other forgetten thing about investments is bet on MANAGEMENT. These are some of the best.

It is TEMPTING, for me to consolidate into just THESE, and I will bet dollars to donuts I beat the market SOUNDLY.

But, I know, you DO have to be diversified.

Bet on a bank?,,,,,,, I do love a good joke. It it right up there with the US CONGRESS. A hall filled with court jesters.

Then again, who says I am right? Two facts you should know BEFORE you judge me. Before the econmy collapsed, I was beating the market, by about 7-10%. Since it has collapsed, I have been beating it by 5-35%, depending on the day you check. 20% is a ballpark.

I did not fall off the hay-wagon just yesterday. Short term plan, find dividends, while they still exist. Growth will follow. Then , be patient, and re-invest.

Comments: View Comments |  Wednesday October 7, 2009