Connect with us

market

5 Stocks To Consider Upon Retirement

Published

on

5 Stocks To Consider Upon Retirement

Into Retirement You Go, Savvy Investment Practice You’ll Know, Diversify Portfolio, And Watch Those Dividends Grow!

5 Stocks To Consider

When it comes to deciding what your retirement investment portfolio will look like, the two D’s reign supreme: diversity and dividend-growth.

The former ensures flexibility and security in the face of volatile global markets, while the latter ensures long-term gains.

Read on for five investments that you should consider for ensuring happy days in the sun.

The high five!

Five is a great number.

We’ve got (most of us) five fingers on each hand; the classical family unit consists of around five people, and religious texts seem to have an affinity with having five sections.

So in this spirit, this investment portfolio is made of five robust and respected investment options.

The stocks you should definitely consider are General Motors, Target, Pfizer, Edison International, and Phillip Morris.

With these five, you’ll have your investor fingers in five lucrative and secure industry pies, as illustrated by the following pie chart:p4.4

The great thing about these industries is that they don’t tend to experience growth or decline in performance at the same time as each other as they are as independent from one another as industries of their size can be.

In practice, this diversification means that you can take those profits from the out performers and use them to reinforce your holdings in the sluggish sector.

Thus, you are sheltered from the impacts of each industry’s performance, while gaining from their cumulative strength in the long run.

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/58-billion-stock-steal/index” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

Diversification is great; dividend growth is better

All these five companies have a tradition of paying dividends and increasing those dividends over time, in effect rewarding loyalty for holding stock. With an average yield of 3.5% each and no long-term business worries in sight, these are what most would call a sure thing.

The following graph demonstrates this:

p4.5

General Motors is the strongest performer, and also has one of the lowest price-to-earnings ratios, effectively representing the best value for money on offer.

This is partly thanks to its stock falling in price to the $30 it is at now (see graph below).

p4.6

Although its stock has fallen, there is absolutely no reason to fear for its long-term performance.

Revenue grew 4.3% last year, and its cash growth was a whopping 19% the same year.

One of the ways General Motors allows itself to pay high dividends is by repurchasing stock in itself, which in turn means less outstanding shares and so less stock and investors to pay dividends on and to.

Target, another of our stocks in focus, does the same thing.

Last year it announced it would be buying 25% of the currently outstanding shares for a total of $10 billion.

This allowed it to boost dividends by 7.7% last year, and a similar amount this year, according to a recent announcement.

This will be the 49th consecutive year of dividend increases for Target.

49 years of constant dividend increase should tell you all you need to know about the long-term viability of this investment.

All other stocks in focus have good track records of increasing dividends to reward shareholders.

Price to Earnings Ratio

p4.7

As we can see, GM’s PE ratio is absurdly low.

Pfizer’s is the highest on our list and the only one with a ratio higher than the S&P 500 average (24).

Regardless, these five represent a great value for money package.

Even Pfizer’s higher than average ratio is understandable when you consider its business is pharmaceuticals, an industry growing each year hugely. Future profits and dividend growth are virtually guaranteed.

Its earnings-per-share has also grown gradually recently, while GM’s has ballooned:

p4.8

Even Phillip Morris, a company in a supposedly declining industry, has a high PE ratio.

While fewer people are smoking in the West, Phillip Morris has made an effort to isolate itself from any drastic effects on long-term viability, by investing in things like e-cigarettes.

Markets with growing middle-classes, which are bucking the trend of less smoking seen in the West are also providing a buffer against falling revenues.

Phillip Morris, like General Motors and Target, buys stock in itself as a way to ensure dividend growth.

From 2012 to 2015 it purchased $12.7 billion worth of stock.

And, with a $7.8 billion cash flow, its $1.6 billion dividend requirements were comfortable covered, with plenty scope to increase growth in the future.

Recession and Recovery

p4.9

As the graphic above shows, these stocks bounced back solidly after the initial plunges they and everyone else experienced due to the 2008 financial crash.

Not only did they recover quickly, but their growth has been very well sustained since then.

Many investors might have panicked and sold so as not to lose further, but those that stuck to their guns were rewarded with more stock, higher dividends and more capital gains.

Were another crisis to arise in the next few years, one could expect the same robust bounce back.

Final Word

General Motors name is synonymous with quality and the American auto industry.

Target is world-famous for its embodiment of the discount superstore.

Pfizer is a firmly entrenched big pharma player, an industry that will grow in importance in the decades to come, as markets become more accessible, and healthcare expenditure increases throughout the globe.

Edison International’s brand name exudes reliability and commands respect.

Phillip Morris, while less, might be buying its primary consumer, has demonstrated a refusal to accept its fate by diversifying its investment portfolio.

With these combined stocks, you will set yourself up for a fantastically secure and remunerative investment portfolio.

Of course, this will require patience and the need to tolerate bad times.

You will need to stay the course when everyone around you is shouting ‘sell’, and keeping an eye on your portfolio will become a necessity.

Of course, one should diversify further and not simply rely on a retirement portfolio such as the ones outlined in this piece.

Bonds and high-risk investment strategies could also be worth looking into, but both are more difficult and require more effort and attention.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Commodities

U.S. Equities Are More Dangerous Today Than The Dotcom Bubble

Published

on

The dot-com bubble has ended. 

This end came with one of the sharpest selloffs in a major index of all time.

The following chart demonstrates the NASDAQ composite lifecycle from its March 2010 intraday high to its low 30 months later:

Looking back, the era of dot com was the perfect example of a bubble. 

These years saw growing optimism, high valuations, and extrapolated growth rates for years on companies without making sales.

Surprisingly, the second-longest bull market does not show the same bubble signs. 

However, it did see a growth recession for four quarters straight for the S&P 500 index. 

This resulted in narrow profit margins and valuations that continuously escalated across the board.

The combination of the two is making people anxious over the next bear market and whether or not it is going to be closer than with what they are comfortable. 

The S&P 500’s price-to-earnings ratio (or P/E ratio) on June 17, 2016, was 23.85. 

When you compare the valuations of the last two bear markets with those that came before it, the number on June 17 was lower than the P/E ratio that was seen in 2000, and higher than the one in 2007.

Markets have the potential to keep expensive valuations for an extended period. 

The truth is that the current bull market coming to end might be more hazardous for investors than what happened in the aftermath of the dot-com bubble.

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/58-billion-stock-steal/index” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

Investors Shunned Tech

The dot com bubble was a tech-heavy NASDAQ Composite.

While it somewhat lifted all boats, it also bore the full impact of falling equity prices when investors began to steer clear of technology companies. 

At the time, the NASDAQ had the following losses, a descent that resulted in a total loss of 78% over a 30-month period.

  • 8% in 2000
  • 7% in 2001
  • 6% in 2002

At the same time, the Dow Jones Industrial Average was being called a dinosaur because it lacked the tech exposure and the NASDAQ was feeling its highs.

The Dow Jones Industrial average saw the following drops:

  • 18% in 2000
  • 1% in 2001
  • 76% in 2002

Up or Down?

The low yields found in the bond market have played a significant role in causing investors to push stock valuations higher across the board. 

This includes utilities, consumer staples, and other defensive sectors. 

In the following chart, XLU is an ETF, or exchange traded fund, which is made up of 29 different utilities listed within the S&P 500 known as the Utilities Select Sector Fund. 

XLP is the Consumer Staples Select Sector Fund, which contains a portfolio made up of 36 consumer stocks that are non-cyclical.

As you can see in the above chart, both sectors are vulnerable to a sharp pullback if a market drawdown occurs due to their high valuations.

Low-volatility stocks have also seen their valuations be pushed higher since the year 2014. 

This has been because of smart beta funds that are made up of companies with betas that are lower-than-market increasing in popularity.

The following list is an example of this:

iShares Edge MSCI Minimum Volatility USA ETF

  • $4.7 billion made them have the second highest YTD inflows of any ETF through April 30th of this year.
  • P/E Ratio for the fund is 25.53
  • This is significantly higher than average

As a direct result of the above list, more volatility may be seen in reaction to a sustained drawdown than what is historically considered normal.

Rays of Sunshine, Please?

In March 2000, the NASDAQ fell from its highs. 

When it did, investors moved on over to the bond market. 

Over at the bond market, over 6% was being paid for ten-year Treasury notes.

May to August saw a brief recovery rally take place. 

After this recovery period, the market went into a sort of freefall due to the escalation of demand for ten-year notes. 

Then the end of the year came.

By the time the end of the year arrived, the yield for a ten-year note had dropped all the way to 5.12%. 

This factored into the total return for the year at 16.66%.

Demands for bonds by investors were still high through the entire recession. 

In the end, an average ten-year note saw a total return from 2000 all the way through 2002 of 12.45%

In English, Please?

The dotcom bubble came with more optimism than the current bull market has. 

However, if the market is unable to hold it current move upward, it could come with costs.

When the dot-com bubble deflated, investors moved from technology and went over to enjoy the safety of investing in defensive stocks and treasuries. 

Investors may begin to seek an alternative haven once again, but have nowhere to go, if this bull market ends up changes direction.

Investors will start finding safe places due to the escalation of valuations within low-volatility and defensive stocks together with low-interest rates history has shown us is sure to follow.

Continue Reading

bank

Oil And The Economy: A Sticky Marriage

Published

on

Oil And The Economy: A Sticky Marriage

It is no accident that gas stations are the only outlet to advertise their prices to the fraction of a cent, using decimals to show you the exact price.

Some believe this is purely down to pricing psychology and maximizing profit, but it is not that simple.

The price of a barrel of oil is of interest to many people, as it has huge knock-on effects for the wider economy.

Here we will analyze said effects.

First, how it all started

In January of this year, oil was at its lowest price since 2001, going for $30 a barrel.

In comparison, in July 2014, it was around $100 a barrel.

p3.1

In 2005, it was made legal, and since then, oil production has ballooned domestically, thus reducing the need for crude oil imports, as shown in the graph below, courtesy of the Energy Information Administration:

p3.2

Since the US is the largest consumer of oil in the world, it only makes sense for oil-producing nations like Saudi Arabia and Russia to be forced to reduce the price of oil as the United States’ demand decreased.

The main oil-producing countries produce 80% of oil and make up the OPEC countries: Iraq, Iran, Kuwait, Algeria, Libya, Nigeria, Angola, Qatar, Saudi Arabia, the United Arab Emirates, Ecuador and Venezuela.

Out of a fear of losing market share, they refused to decrease production, continuing to drill and sometimes even increasing operations.

This inevitably compounded the effect on the market and drove the price even lower.

They chose to ensure continued size of operations and maintenance of market share above profitability.

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/58-billion-stock-steal/index” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

The following chart shows the prices these oil-dependent economies need to break even.

Consider oil is now near $30 a barrel, the commitment to maintaining market share is clear.

p3.3

GDP growth stalling

Many economists fear that low prices for oil, while great for the motorist consumer and oil-sensitive industries, are having a detrimental effect on the economy.

The reasoning is the size of the US oil industry.

The shale oil industry has also taken a huge hit, having needed to reduce prices to around $60 to stay competitive.

This is touted by some to be no more than a break-even price.

There is also the possibility that the low price of oil has hit consumer confidence.

While people may be happily guzzling all this cheap gas, they could be slightly more conservative with the rest of their money, fearing that things could take a turn for the worse.

Or it could simply be that they spend less on other things since they started taking advantage of all the cheap gas on offer.

This graph indicates that the price of oil is somewhat negatively correlated with the state of the economy, seeing high prices when the economy was in recession:

p3.4

Jobs, Jobs, Jobs

A recent jobs report showed lower than expected job creation, and revised previous figures, showing the US economy is in a much weaker position than previously believed.

The fall in revenue from big oil has certainly had some part to play in this.

Many oil companies are now scaling back production and laying off workers.

There is a huge conversation to be had now about the massive costs of removing and bringing back the oil rigs which are to be found in seas all over the globe.

These will be estimated to cost in the billions of dollars.

The size of these industries and their reduced investment activity in the capital they need to operate – human labor, pipes, ladders, tanks, vehicles, and research – have strong negative ripple effects to the wider economy.

These industries grew alongside big oil, and so any weaknesses it experiences will be felt by those around it.

Stock Market turmoil

The S&P 500 is often interpreted as an indication of the state of the wider economy.

If that is anything to go by, oil is hugely affecting its current well-being.

Big oil represents a big chunk of the companies on that list.

The price of crude oil dragged down the oil shares of the S&P 500 by 13% at the beginning of this year, which in turn dragged the index as a whole down 9%.

Of the 20 biggest losers in the S&W 500, 13 are oil companies.

The most notable of these are Exxon Mobil and Chevron, who are also part of the 30-member Dow Jones Industrial Average.

The Winners

As was mentioned before, it isn’t only motorists that love a bargain barrel of oil.

Oil-sensitive industries also gain big, thanks to cheaper oil meaning lower overheads and thus higher profits.

As reported by the NY Times, the four big Airlines, American, Southwest, Delta, and United, reported combined profits of $22 billion, a huge bounce back after decades of losses.

However, this hasn’t translated into lower prices for consumers, as many airlines have a virtual monopoly over certain routes.

The need for improved competition is demonstrated remarkably in this case.

The auto industry is also seeing record growth thanks to the cheaper cost of driving.

Last year it saw all-time record sales.

Pickup trucks, which guzzle a lot of oil, saw the largest increase in sales, but there was strong growth across all companies and models.

Deflation?

In September 2015, the Federal Reserve raised interest rates for the first time since the financial crisis: a message that the economy was healthy, and the dog of borrowing didn’t need the bone of low charges to wag its proverbial tale.

At least, this is what it is meant to do.

However, with inflation hovering around two percent, the Fed is still nervous.

Oil undoubtedly has had a part to play in the lack of growth and lack of inflation that comes with it.

As such, the raising of interest rates is viewed very cautiously, as this can reduce inflation.

Too much inflation is obviously disastrous, but two to three percent is ideal, and any less is risky.

It can lead to cutbacks, defaulting, and financial insecurity.

Final Word

Well, there you have it.

Whether it’s reduced jobs in interconnected industries, weak stock market performance, or huge airline and auto industry profits, and happy motorists, oil’s influences stretch far and wide in the economy.

Of course, this low price in oil could stop being a shift but rather could become a long-term fact of life.

With new technologies allowing both alternatives to oil and more efficient extraction in home countries, we could have a permanently low price of oil.

Should this be the case, the effects of the course of the world political economy will be enormously bigger than anything in this article.

Continue Reading

Business

Nine Tips For A Wise Covered Calls Writing

Published

on

The covered call is typically considered a conservative option.  However, writing one correctly can be complicated.  Here’s a brief summary of what a covered call is, followed by nine tips for writing and handling one wisely.

What is a Covered Call?

A covered call is when a stockholder sells an option—for a premium that he keeps no matter what the outcome.  This option is to buy a hundred or more shares from him of a certain stock, at a certain price (known as the strike price), within a certain time frame.

It is the stockholder’s hope that the price of the stock does not reach or exceed the strike price before the contract expires, as the buyer will generally then let the contract go and the stockholder will pocket the premium and keep the shares.  It is the buyer’s hope that the price does go over the strike price, and that he or she can exercise their option to buy the stock at below-market prices.

In essence, a covered call is a form of a investment between a seller and a buyer which is ultimately decided by the stock market itself.

While Simple in Theory, a Covered Call Can Get Complicated in Execution

markettamer.com

There are certain risks, as the graph above illustrates.  If the stock you choose to write a covered call for goes through the roof, you will be obligated to sell at a much lower price than the market would currently have borne.  If it drops too far, even the cushion afforded you by the premium will not protect you from completely from loss.

Following are nine tips to follow when handling covered calls:

Tip One: Choose stocks with medium implied volatility

Implied volatility is a fancy way of discussing a stock’s likelihood of changing its price.  For covered calls, you preferably want a stock which is in a sweet spot where it’s volatile enough to bring a decent premium but not so volatile that you will win or lose big when it moves.

Many stockholders make use of volatility charts like the example below when making these judgments:

investorplace

In the above chart, the implied volatility is in gold and the historical volatility is in blue.  Remember that implied volatility is by nature a prediction and may turn out to be wrong.

Tip Two:  Being called is no reason to panic

Provided the shares belong to the agreed-upon stock, you can offer up any of them that you choose upon being called.  You can also choose to purchase new ones from the open market and offer them up instead.  This can have an effect on any taxes you will have to pay on capital gains, so consult your tax advisor to be sure which ones are best to offer up.

Tip Three:  Have plans for the stock declining

Generally, investors write covered calls for bull stocks, but sometimes these stocks go bear without warning.  If your stock drops, you always have the option of buying the call back at a lower price than you sold it for.

If you do this, you will both make a profit on the position and be able to sell off the stock.

Tip Four:  Buy-writes may be the way to go

  • A buy-write is when you simultaneously write the covered call and buy the stock it is for.
  • Buy-writes guarantee that a stock is where you think it is price-wise at the time of the write-up and reduce market risk.
  • However, they may complicate fees and taxes, so do your research ahead of time.

Tip Five:  Be aware of the value of both “static” and “if-called” returns

A static return on a covered call is when the stock is never called.  If-called returns are the opposite, where you are required to sell the stock at the strike price.

Before writing a covered call, it is imperative that you work out the value of both outcomes and make sure you will be happy with either.

Tip Six: Diversify 

  • Don’t make any position larger than 10% of your portfolio.
  • Remember to diversify sectors.
  • You may also wish to consider writing covered calls for ETFs instead, as they come pre-diversified.

Tip Seven:  Choose stocks with high-yield dividends

Why limit yourself to making money off the covered-call premium?  Choose stocks that will pay you for owning them.

Tip Eight:  If a Call Has a Really, Really Good Premium, Find Out Why Before You Invest

Like all other things in life and finance, if it sounds too good to be true, it may well be.  Look into why the great premium is being offered before you commit to anything.

Tip Nine:  You May End Up Owning this Stock

Do you want to own stock that looks like this?

FinViz

Be careful when you choose stock for a covered call—after all, it may not get called away.

Conclusion

Writing covered calls intelligently takes effort—but is totally worth it when it works.  The advice outlined above is a good starting point, and it can never hurt to do your research as well.  Learn all you can, consult experts, and you may just find the ability to make money off of stocks that you never thought you could.

Continue Reading

Trending

Copyright © 2019 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.