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Fannie Mae – Return > Risk

This week has shown quite a lot of volatility in US’s main housing mortgage companies Fannie Mae and Freddie Mac.  I, in particular, look at Fannie Mae as it is a bigger of the two companies but both have been taking big swings to the upside and downside recently.  FNMA, Federal National Mortgage Association, recently this month almost as high as $4.50 but this week recently dived as low $2.50.  The recent drop was from a court case that showed the appeals court upheld a decision to deny hedge funds the right to challenge government-sponsored enterprises’ (GSEs) net worth sweep.

There is still a lot of work going into this case.  FNMA sits at $3.07.  If this ends up being bullish, it could bring FNMA at least 5x the current levels.  You also have the risk of losing all $3.07 as well.  There is plenty of risk in this one but you will have lots of angry people if the government does not do this one correctly.  FNMA is a major part of the 30 year mortgage that would essentially go away if the company wasn’t recapitalized properly.

I wouldn’t put too much in this trade but I do think you can put a little here and end up with a nice capital gain or a small capital loss at the end.

Is Deutsche Bank the start of the bear?

First, we have the fake accounts from Wells Fargo.  Now, we are looking at Deutsche Bank dropping to 52 week lows.  DB has been having issues for quite a while but today it has made news across the world after hitting an all-time record low on shares.  Investors that have had money or investments with Deutsche Bank are quickly moving away which is also bringing their stock price down.  Only time will tell but I still think there is a lot of time to go before we see a bear market.

What’s to buy these days? Dividend Healthcare REIT?

With the stock market reaching new highs, its tough finding good deals.  I haven’t bought anything recently but I still hold stocks that I bought cheap and continue with buy and hold.  For those that are looking to invest money on the sideline, I would recommend you stick with dividend stocks for your retirement funds since you are not paying any tax on that.

HCP, a healthcare REIT,  currently yields over a 6% dividend that has a stock price that has remained fairly steady for half a decade.  Even though the stock price didn’t move much, you had a nice dividend that is much better than a savings account getting less than 1%.  This stock has underperformed in analysts books and it even went as low as $26 earlier this year.

HCP is planning to spinoff part of its real estate portfolio into another REIT.  Shareholders of HCP will get shares in the new spinoff that will consist of senior housing and post-acute real estate.  HCP will become a stronger more stable REIT after the spinoff since the new REIT SpinCo is considered more risky.

The baby boomers are reaching senior age.  The percentage of senior population is expected to rapidly increase in the following years.  With the advances in healthcare, you can expect people to be living longer which means more demand for senior housing.  This should help HCP in the long-term.

In the short term, HCP has had bad management and it has poorly used shareholder capital.  The SpinCo REIT will get rid of its bad assets.  Many investors thing that HCP might be worth looking into investing after the spinoff which is another play on the stock pick.

I personally think that the spinoff would help both companies.  The SpinCo REIT would be more interesting to investors with a stronger aptitude for risk and gains.  It would also mean a cash infusion to HCP.  I do expect that HCP’s stock price will eventually start moving up again which would mean you would continue to get the dividend and a nice appreciation on the stock price.

Ford – The American Muscle Becomes International Muscle

Ford has been a very good stock for the past year.  It has almost given a 100% return and there’s no doubt that it will hit this mark in the next few months.  The stock currently has been trending up and down for the past 6 months.  It’s time for it to make it’s move up again.  Technically, you can see that it really hasn’t moved much but by all means it is on an up-trend still.

Fundamentally, Ford has been making great strides to grow it’s market share internationally.  It already has taken back the North American market by storm.  Their car sales are off-the-charts and they are continually breaking new highs.  In China, they are growing rapidly.  Their Ford Fusion fits the bill for many of the chinese population as it’s affordable and it gets great mileage.  In Europe, they are just starting out.  They are building factories and increasing their growth into the market.

They are not as big as Toyota or Honda but that gives them more room to grow.  First, their PE ratio is lower than these car giants; however, they also have such a small share of the market in international countries that they can rapidly make their footprint bigger.  This means better stock prices and better growth ahead for them.

This is a great long term play.  Their stock is currently trading at $16.91 and this would be a good entry.

Berkshire Meeting 2010

Last year I took the mini-van provided by Berkshire to the 2009 Berkshire Hathaway Meeting. I was staying in the middle of Omaha, NE. I thought I was running late when I left the hotel but the vans did not arrive yet and there was a bunch of people waiting outside. I ended up getting to the Qwest Center like 10 minutes before the meeting started. All the seats were taken and I had to stand for the first hour.

This year I rented a car and the goal was to get to the Qwest Center by 7:00 AM. I ended up getting there around 7:30 AM but there were still plenty of seats. I’d say it was at 60-70% full. I snagged a seat in the back of the arena in the top section. I figured most of the people that entered the arena would take the seats at the beginning. Apparently those seats are reserved for managers.

The setup is the same like last year. There are two seats for Warren Buffett and Charlie Munger. There are three big screens so we don’t have to squint our eyes on them the whole time. They talk from 9:30 AM – 3:30 PM and then have a half-hour business meeting. They added 2 more screens and more overflow rooms to manage the increase in stockholders.

This year’s meeting seemed more like a good basic approach to investing, answering the questions on Goldman Sach’s, and value investing. The meeting seemed very targetted to the new stockholders of Berkshire and showing them their philosophy to buying and holding companies with good fundamentals.

To sum up a few of the main points:
– China and India will continue to prosper and work hard to have the ‘American’ culture prosperity
– Berkshire Hathaway will not grow as fast as it has in the past. Reason is they are so huge in market cap now. However, they assured us they will always bring good shareholder value even when they pass on the company to other managers.
– Goldman Sachs was only an underwriter to the actual fraud charges that happened. They took contracts from banks that would insure the mortgage securities and took investors’ bets to short these CDOs. Here’s a good interview that explains it.

Stock Market Still Dropping

The stock market has been dropping for the past week.  Gold stocks have taken quite a hit.  We are starting to see real bargains in the precious metals.  Stocks like PAL and CDE are reaching lows not seen since 2009.  I think the technicals say there is still much chance for the stocks to drop more.  The stoichastics show the weekly and daily are at lows, but we have been rising for quite some time.

For those that like to play it safe, it might be a good time to get in some conservative long-term holds.  Pfizer, PFE, and AT&T, T, offer nice dividends for those that do not need money right away and are willing to wait for the stock market and the economy to improve.  I would not be in the boat to be shorting stocks right now unless you’ve known of stocks that have risen too high as of late.

Looking at the SPY, we’ve only hit the monthly low of the stoichastics about once every two years.  It looks like the SPY might drop down to the 102 or 103, but from there on, it should be time to start buying and looking into long-term stock plays.  The market will improve.  The government has put too much cash in it for it to drop to march 2009 lows.

Electronic Arts Outlook Looking Better

Electronic Arts (ERTS) has had a terrible winter quarter.  They had massive layoffs, miserable sales during the holidays, and lowered guidance in January.  Their stock has been punished.  It’s almost at $16 which is very near its all-time 5-year lows which was hit previously in March 2009.  However, I tend to look at the long-term case especially the risk vs rewards.  The last time stocks reached these levels were in the year 2000.

Let’s take a look at it’s financials.  They have had annual losses for 2009 and 2009.  Could they be finally getting out of their cold?  The economy is picking up, but consumers are still not buying.  If you’re unemployed, I’d bet you’d still have $60 to buy a game.  Anyways, long-term wise their financials do not look that good.   They have negative cash flow and net losses for the year.  However their game lineup is strong this year.

Games influence the price.  If Electronic Arts can get a ‘Modern Warfare 2’ effect, they will be able to hit profits again.  You’ve also seen it with Rockstar Games with Grand Theft Auto.  They just released Mass Effect 2 last week.  It has already sold over 2 million copies.  Especially with their lower guidance it makes their stock much average to what it should be priced out.  We’re looking for the future though.  If the games are good, the stock price will move with it.

In 2009, we saw a pretty mediocre lineup: Madden NFL, Battlefield, Fight Night, Dead Space, Tiger Woods Gold, Godfather Part 2, My Sim Party, Nascar Kart Racing, Skate 2, Lord of the Rings, and Mirror’s Edge.  These games did mildly well, some did bad, but none of them were blockbusters.  Here’s what is coming out in March 2010: Command & Conquer 4 (PC), Battlefield: Bad Company 2 (PC, PS3, XBOX).  These are two very strong games.  I’d say for the short-term 6 months there’s money to be made with ERTS.

I’ll be taking a further look into ERTS in the future.  If the market continues dropping, it might be better to wait it out before buying.  The stoichastics have already hit the lows for the daily and weekly.  The RSI(2) is weak also.  There could be continued downside for this stock as the video game industry continues to drop, but the long-term perspective continues to get better.

AT&T and Verizon at Bargain Prices!

You are looking at two big bell companies that will continue to thrive through the recession.  Both give a dividend of 6+% and both have EPS.  I consider them to be Warren Buffet-like stocks.  Looking at the results, they have both increased the EPS as the years have progressed.  AT&T has increased net income year-after-year.  Even though their stock prices have barely moved for the past 5 years their dividend has increased and they continue to be profitable.

I consider them both to be safe bets.  Why hold a bunch of cash in the bank when you can be getting a safe 6% dividend?  You also help stimulate the economy 😉

Short-term things to consider: AT&T has continued to get deals with Apple.  They will be the exclusive provider of 3G for the iPad.  This is a big win as the iPad is a GSM made table.  In the 3rd quarter 2010, Verizon and other phone networks should be getting the iPhone.  This is not for sure as their has been a good relationship of AT&T and Apple.

AT&T’s 10 Year Summary

Verizon’s 10 Year Summary

Bank Stocks Ready to Rise

Bank of America (BAC) and Citigroup (C) are both repaying their TARP funds so they can reward their executives with huge salaries and bonuses.  Citigroup made a huge offering this week to sell over $30 billion dollars of common stock.  Bank of America already paid off its $45 billion TARP funds with a $19.3 billion equity offering recently.  Both stocks trade at lows that we won’t see for a long time.  Citigroup went as low as $3.20 recently this week and Bank of America reached a low it set in July at $15.  These prices are valid bargains and with the amount of money the FED is creating you can bet these stocks will go up as inflation-protected stocks.  They also will continue to make more revenue as they release more loans out which the government is encouraging to help create more businesses and jobs.

Coure de houre err.. Coeur d’Alene Mines looking cheap

I got in CDE this morning at $20.60.  However, I changed up my strategy.  I know silver will be a big money maker but I don’t know short-term where it’s headed.  So I bought puts, that’s right, naked $20 puts at 55 cents.  Once it expires on Dec 19, I make some easy dough.  If that backfires, I end up owning the stock for $20 which is a discount of 60 cents.  It ended the day at $20.80 so it looks like my naked put is already doing well.

Last week the US dollar got weak with the economic reports of better unemployment rates and job growth.  I expect even with the better economy we will have to have a weaker dollar.  You can’t justify a strong dollar when the FED is producing billions of dollars to stimulate the economy.  Once of the gold guys stated that gold could up to $8,000.  I don’t expect that to happen but you never know.  This is the first president to break the deficit within three months.  It usually takes a president at one-term (4 years) to break the deficit.

CDE, Coeur d’Alene, released the third quarter earnings earlier this november.  The numbers were not what analysts expected and the stock plummeted to below $19.  Of course, gold and silver kept rising so the stock just had a temporary dip before breaking $23.  If you read the third quarter transcript, the CEO Dennis Wheeler stated they invested the company for $900 gold.  Gold is now over $1,100.  You can bet that their next quarter will be a smashing hit.  They have more mines coming into production than any other junior mining company.  They also are highly invested into silver which will rise with gold and bring up their revenues.

Long-term great trade!

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