Monday, September 23, 2013

My Wife's Portfolio Is Up 32%

By Michael Hooper
My wife is a better investor than me.
My wife added nothing to her individual retirement account this year yet it's up 32.1% year-to-date, outperforming the S&P 500 index's 21% year-to-date return through Sept. 18. She beat my IRA's 23.4% year-to-date performance.
Stocks like Berkshire Hathaway (NYSE: BRK-B), PepsiCo. (NYSE: PEP), Johnson & Johnson (NYSE: JNJ), and Boston Beer (NYSE: SAM)  have made outstanding returns for her portfolio this year.
She opened her IRA 20 years ago. Some stocks like Berkshire have been in the portfolio for more than 10 years. The portfolio was modified in 2009-2010. Disclosure:  I picked most of the stocks in her IRA; she bought them.
Her portfolio proves that it is possible for six-to-12 stocks to outperform the S&P 500. I believe such portfolios require winning stocks only. My wife's portfolio has no losers.
The female mystique
Studies show women take fewer risks than men. They buy and hold and use self-control in a market correction. Men tend to trade more often and sometimes borrow money to leverage their returns.
One thing that impressed me about my wife was her vigilance in holding and even buying more stock during the financial crisis of 2008-2009. Some investors panicked and sold out -- missing out on huge gains since then.
The following chart shows my wife's IRA holdings, their percentage of the portfolio, their year-to-date returns, plus dividend yield.
Name% of PortfolioYTD Return to 9/18/13Dividend Yield
Berkshire Hathaway55.15%30.10%n/a
Boston Beer10.74%82.58%n/a
Canadian National Railway2.97%11.91%1.7%
Dominion Resources9.24%22.37%3.7%
Johnson & Johnson7.86%28.26%3%
Source: Charles Schwab Research and Yahoo! Finance
The heavyweights
Berkshire Hathaway is clearly the big heavyweight, representing 55% of her portfolio. There are good reasons. My wife is from Nebraska, she grew up admiring Warren Buffett, and she wanted to buy his stock. Berkshire Hathaway remains a great investment today because it owns more than 80 companies that are generating larger amounts of cash annually.
Living in Kansas now, we see trucks of corn, potatoes, and wheat go into PepsiCo's Frito-Lay plant in Topeka, Kan. and haul out Doritos, Lays and SunChips. After reading PepsiCo's annual reports, we bought stock in PepsiCo for both of our IRAs at $48 per share several years ago. Frito-Lay North America represents about 20% of PepsiCo's total revenue; it's one of PepsiCo's top profit centers, adding diversity away from its beverage business.
Johnson & Johnson is a dominant leader in the health care industry, selling products like Band-Aid, Tylenol and Listerine. The stock's 28.3% year-to-date return is exceptional. The stock remained flat in some years. I expect Johnson & Johnson to continue advancing its health care business to meet the needs of a growing world population.
Dividends are held in a money market fund until they build up to $1,000 for a trade. One time, she bought 10 more shares of Boston Beer at $98 per share. That stock's 82.6% year-to-date return really boosted my wife's portfolio. Boston Beer is a highly priced stock right now. But I would not sell it. Boston Beer is growing sales 15% to 20% annually and has no debt.
Women have a great disposition for investing. They don't take too many risks. They buy top-quality stocks and hold onto them. They use self-control in a downturn. All of these qualities are worth emulating if you want to become a successful long-term investor.

Sunday, September 15, 2013

A Conviction Buy is a Rare Thing

A conviction buy is a rare thing. This is a moment when the investor is absolutely convinced he is correct on his analysis of a stock. He knows he won't lose on this trade and possibly make an outstanding return.

Reaching a conviction buy happens to the patient and thoughtful investor who watches his lists of stocks every day, sometimes for years, and reads mountains of annual reports and quarterly earnings statements. He knows his field of stocks by memory.

Wednesday, September 11, 2013

Canadian Pipeline Firm Sees Exceptional Growth

Canadian Pipeline Firm Sees Exceptional Growth

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Pipeline construction for the energy sector is growing worldwide. Companies that provide pipeline and pipe services are receiving contracts in Europe, Asia-Pacific, the Middle East, and North and South America. An undervalued stock in this sector is ShawCor (TSX: SCL)a Toronto-based company with a record $875 million backlog of business. ShawCor has positioned itself as a global leader in pipe coating, with manufacturing facilities in 15 countries worldwide. First-quarter net earnings more than doubled from a year ago. Second-quarter income will be exceptional, too.
Another positive for ShawCor is its recent reorganization to buy out family and eliminate dual class ownership of shares.

Two Condom Stocks for Health and Profit

Two Condom Stocks for Health and Profit

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A growing awareness of the health benefits of using condoms during sex is driving the sales of female and male condoms worldwide, creating profits for companies in North America and Europe.
The vast majority of condom sales are traditional latex condoms for men. In recent years, however, women have sought ways to protect themselves against sexually-transmitted diseases and unwanted pregnancy. To that end, many are now using female condoms.

Are Railroad Stocks Overbought?

Are Railroad Stocks Overpriced?

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some investors have plunged into railroad stocks, believing they will benefit from a stronger North American economy in 2013. But are they overly optimistic?
Transportation stocks, as measured by the Dow Jones Transportation Average, gained 13% in the first two months of 2013, double the gain made in all of 2012.
Railroads reflect the health of their economies. For 2012, the US economy grew 2.2%, up from the 1.8% growth of 2011. And the Canadian economy in 2012 expanded 1.8%, down from the 2.6% growth in 2011. Both economies had sluggish fourth quarters, but this has been a slow recovery with choppy ups and downs.

Meet the Merchandising Queen: The Buckle

Meet the Merchandising Queen: The Buckle

The merchandising queen of teen fashion is a Nebraska retailer that uses stylish displays, on-trend fashion and top-notch sales staff to sell entire outfits to customers.
The core business of The Buckle (NYSE: BKE) is selling denim, but over the years, has expanded into an assortment of high-quality active-wear, accessories and footwear. With careful merchandising, the company is able to capture a larger share of customers' wardrobes.

Drought Benefits Two Irrigation Companies

Drought Benefits Two Irrigation Companies

Drought is a major concern in the Midwest, but the natural disaster is actually your friend if you own irrigation equipment makers.
Farmland is still thirsting for more moisture, despite winter snowstorms in the Great Plains states. The most severe drought conditions are in South Dakota, Nebraska, Kansas, Oklahoma and Texas, according to the U.S. Drought Monitor at the University of Nebraska-Lincoln.
Sales for mechanized irrigation equipment were strong in 2012 for Lindsay Corporation(NYSE: LNN) and Valmont Industries (NYSE: VMI), both based in Omaha, Neb. I expect sales in 2013 to grow even more. Farmers are flush with cash from strong income in recent years. They have been buying land and upgrading equipment for their operations.

Midwest Banks Profit From Rebounding Housing Market

Midwest Banks Profit From Rebounding Housing Market

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Regional banks that cater to single-family homeowners will benefit from a rebounding housing market.
Banks like Capitol Federal Financial (NASDAQ: CFFN)UMB Financial Corp(NASDAQ:UMBF) and Commerce Bancshares (NASDAQ: CBSH) will benefit as Midwest consumers take advantage of low-interest rates to upgrade their housing situation.
All three banks operate in the Midwest, where unemployment rates are lower than the national average, and housing markets have seen improvement from a year ago.

Monday, September 9, 2013

Railroad Traffic Heats Up, Expect Big Third Quarter

The North American economy is picking up speed. Traffic on railroads in Canada, Mexico and the United States increased 1.4% year-to-date through Aug. 31. U.S. GDP grew 2.5% in the second quarter. Railroad traffic numbers in August indicate third-quarter economic activity may be accelerating.

U.S. intermodal traffic in August 2013 totaled 1,031,179 containers and trailers, up 4.4 percent (43,398 units) compared with August 2012, The Association of American Railroads reported on Sept. 5. The weekly average of 257,795 units in August 2013 was the highest weekly average for any month in history, AAR said.

“In terms of average weekly volumes, August was the best intermodal month in history for both U.S. and Canadian railroads,” said AAR Senior Vice President John T. Gray.  “Because the fall is typically the peak season for intermodal traffic, it wouldn’t be surprising to see new records set in September and October.”

Intermodal traffic is the movement of truck trailers or containers by rail and at least one other mode of transportation, usually trucks. An increase in intermodal traffic means retailers are gearing up for a big fall and Christmas.

Stocks benefiting from these trends are Union Pacific Corp. (NYSE: UNP), Kansas City Southern (NYSE: KSU), Canadian National Railway (NYSE: CNI), Canadian Pacific Railway (NYSE: CP) and Berkshire Hathaway’s Burlington Northern Santa Fe (NYSE: BRK-B).

The bottom in domestic coal shipments may have occurred in spring or summer. North American coal traffic was down 3.7% year-to-date through Aug. 31, but was up 1.8% week ended Aug. 31. 

CSX (NYSE: CSX), based in Jacksonville, Fl, is seeing coal shipments stabilize after falling for the past couple years.  Domestic coal shipments increased in second quarter for CSX -- a trend that will likely continue through the rest of the year.

Hot weather in August and early September contributed to an increase in shipments of coal to power plants that generate electricity for air-conditioning.

U.S. shipment of petroleum and petroleum products grew 40.5% year-to-date through Aug. 31 compared with same time in 2012. 

In Canada, shipment of petroleum and petroleum products was actually down 4.1% week ended Aug. 31 but was up 16% yeear-to-date through Aug. 31. 

Mexican Economy Heats Up

Mexican Rail Traffic is on fire, up 5.6% year-to-date through Aug. 31 and up 7.9% in week ended Aug. 31. Much of Mexico’s growth is from shipment of grain and auto products. Shipment of motor vehicles and parts were up 31.2% year-to-date. Shipment of grain in Mexico was up 63.8% year-to-date. The company benefiting most from these traffic patterns is Kansas CIty Southern, which moves autos and grain in and out of Mexico. Kansas City Southern is the premier North-South rail line in North America using components of the NAFTA Railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada.

Kansas City Southern owns a direct route between Mexico City and Laredo, Texas, and 50% interest in the Panama Canal Railway Co.

Kansas City Southern's second-quarter 2013 revenues grew 6%. Operating income was $179 million, 12% higher than adjusted operating income in second quarter 2012.

Based on growing trade in North America, Kansas City Southern will likely post record revenues in third-quarter 2013.

Grain shipments in the United States and Canada were down 15.3% and 3.1% respectively year-to-date, due to the 2012 drought, but I expect these numbers to improve after the grain harvest this fall.

The Dow Jones U.S.Railroads Index was up 24.1% year-to-date through Sept. 8.

The Bottom Line

August railroad traffic numbers indicate third quarter revenues for Class 1 Railroads will be higher than a year ago. Intermodal traffic in the U.S. and Canada hit records in August and will likely set more records in September and October, typically the heaviest shipment months for retailers preparing for fall and year-end sales. Domestic coal shipments -- after several years of declining numbers -- may be on the rebound after an uptick in demand. Kansas City Southern is benefiting from robust trade between the United States and Mexico. Railroad stocks have already run up 24.1% this year, yet it is possible for these stocks to climb higher if the economy heats up in the second half of 2013 and early 2014.

Monday, September 2, 2013

Cut Investment Risk: Stay Away From Gold

Some investors who bought gold in the past year are wondering if their losses will get worse.
While the price of gold itself is down about 22% this year, gold mining stocks have performed much worse, some down 50%. Gold miners spent a lot of money in the 2000s buying assets to improve gold production, but with slumping gold prices, these companies are now just trying to survive. Investors who are considering buying gold or gold stocks should be very careful. Gold can be a higher-risk play than investing in stocks. If the U.S. economy continues to grow and inflation remains tame, gold prices may remain flat for a while.

Seth Klarman: Don’t Be A Yield Pig

Don’t Be A Yield Pig
By Seth Klarman, Forbes 1992
I have thoroughly reviewed the U.S. Constitution (and the Bill of Rights for good measure) and, contrary to popular belief, there is no mention of a right for savers to earn high rates of interest on government-guaranteed principal. Nevertheless, it comes as a terrible shock to a lot of people that some current short-term interest rates are only one- third of early 1980s levels. The correct response to this shock can be crucial to your financial health.

There is always a tension in the financial markets between greed and fear. During the 1980s investor greed frequently got the better of fear, with the result that yield-seeking investors, known among Wall Streeters as “yield pigs,” were susceptible to any investment product that promised a high current rate of return, the associated risk notwithstanding. Naturally, Wall Street responded by introducing a variety of new instruments–junk bonds, option-income mutual funds, international money market funds, preferred equity return certificates (PERCS)–anything that promised high current yields to investors.
Unless they are deluding themselves, investors understand that to achieve incremental yield above that available from U.S. government securities (the “risk-free” rate), they must incur increasing levels of principal risk.
There is no risk-free yield enhancement on Wall Street.
The painful result: Higher risk investments often erode one’s capital and produce lower returns–the worst of all investment worlds. Higher-returns-for-higher-risks only applies on average and over time.
Investors must carefully examine alternative investments to assess when they are being adequately compensated for bearing risk and when they are not. When the yield differential between riskless and more risky securities is sufficiently large, even a conservative investor might reasonably venture beyond U.S. government securities. Thus, for example, it made sense to buy the Federated Department Stores senior-secured bonds, Harcourt Brace debentures and Manville preferred stock when panic hit the junk bond market in late 1990 and early 1991.
These days, however, I don’t believe investors are being compensated sufficiently to venture beyond risk-free instruments. Yield spreads between government bonds and corporate credits have contracted sharply this year from levels a year ago. Some bonds of such highly leveraged issuers as Burlington Industries and Unisys now trade above par. A year ago they sold at substantial discounts from par.
Yield-starved investors also have been bidding up the bonds of such deeply troubled issuers as Chrysler, Stone Container and Marriott. The General Motors PERCS–a newly created instrument that only a yield pig could love–recently traded at a level so high that the common stock became a better buy no matter where GM common traded and no matter what action GM’s board took on its dividend.
Some investors, desperate for better yield, have been reaching not for a new Wall Street product but for a very old one–common stocks. Finding the yield on cash unacceptably low, people who have invested conservatively for years are beginning to throw money into stocks, despite the obvious high valuation of the market, its historically low dividend yield and the serious economic downturn currently under way.
How many times have we heard in recent months that stocks have always outperformed bonds in the long run? Funny, but we never hear that argument at market bottoms. In my view, it is only a matter of time before today’s yield pigs are led to the slaughterhouse. The shares of good companies and bad companies alike are vulnerable to sharp declines. Moreover, many junk bonds that have rallied will tumble again, and a number of today’s investment-grade issues will be downgraded to junk status if the economy doesn’t begin to recover soon.
What if you depend on a higher return on your money and can’t live on the income from 4% interest rates? In that case, I would advise people to ignore conventional wisdom and consume some principal for a while, if necessary, rather than to reach for yield and incur the risk of major capital loss.
Stick to short-term U.S. government securities, federally insured bank CDs, or money market funds that hold only U.S. government securities. Better to end the year with 98% of your principal intact than to risk your capital roofing around for incremental yield that is simply not attainable.
I would also counsel conservative income-oriented investors to get out of most stocks and bonds now, while the getting is good. Caution has not been a profitable investment tactic for a long time now. I strongly believe it is about to make a comeback.

Pricing Power Play

Cut Investment Risk: Stay Away From Gold

Some investors who bought gold in the past year are wondering if their losses will get worse.
While the price of gold itself is down about 22% this year, gold mining stocks have performed much worse, some down 50%. Gold miners spent a lot of money in the 2000s buying assets to improve gold production, but with slumping gold prices, these companies are now just trying to survive. Investors who are considering buying gold or gold stocks should be very careful. Gold can be a higher-risk play than investing in stocks. If the U.S. economy continues to grow and inflation remains tame, gold prices may remain flat for a while.
Shares of Barrick Gold  (NYSE: ABX  ) fell 6% Friday after announcing that it is going to dilute shareholders by selling $3.45 billion of shares for $18.35 each.
The stock drop came after a 5% drop on Thursday, when Barrick announced it would suspend its Pascua-Lama gold mine located in the high-altitude Andes on the Argentina-Chile border.
Barrick Gold shares were down 48.53% year to date through Nov. 1. Its quarterly dividend was cut to $0.05 cents on Aug 8, down from $0.20 cents on May 29.
Gold is considered a hedge against inflation, but inflation is fairly tame right now, and other assets, such as the S&P 500, have provided much higher returns.
Gold, like oil, is a commodity. Commodities are subject to the whims of supply and demand in worldwide markets. India, which consumes 20% of the world's gold, is not expected to consume as much gold in the fourth quarter as in the past, according to CNBC's Seema Mody. She says rising inflation, a depreciating rupee and a high import tax on gold contributed to India's gold slump.
A popular gold ETF, SPDR Gold Shares (NYSEMKT: GLD) was down 22% year to date through Nov. 1 compared with the 23% return of the S&P 500. The ETF does not pay a dividend.
Billionaire hedge fund manager Seth Klarman disclosed holding gold stocks Yamana Gold(NYSE: AUY  ) and Kinross Gold Corporation (NYSE: KGC  )  in his Baupost Group holdings on June 30. Perhaps Klarman sees a bottom in gold stocks and a margin of safety if he is wrong. Yamana Gold was down 20% over the past six months and down 44% year to date. Kinross is down 10% in the past six months and down 50% year to date. It will be interesting to see how Klarman's holdings change in his next quarterly report called a 13F.
Yamana Gold reported a 28% decline in third-quarter profit, due to lower realized commodity prices and lower earnings from the company's stake in the Alumbrera mine in Argentina. The gold miner reported a net profit of $43.5 million, or 6 cents a share, compared with $60.0 million, or 8 cents a share, in the year-ago period.
Kinross Gold will report third-quarter results on Nov. 13.
The alternativeI would hate to be dependent on the price of gold going up in order to make money. Bad economic and political news can raise the price of gold, but not always.
Warren Buffett doesn't like gold because it is a non-productive asset. He prefers to own businesses like See's Candies and Coca-Cola, which buy commodities and turn them into edible products that are sold around the world. He believes stocks are a safer investment than gold.
When I was a boy, my grandfather, a businessman who lived through the Great Depression, took me out to coffee with him occasionally. When we walked by the commodity broker's office, grandpa would always say, "stay away from commodities." 
My grandfather's advice has served me well. Commodities for investment purposes are a higher-risk play than I'm willing to accept. Money not lost is money ahead.
The bottom lineInvestors may want to be cautious about investing in gold. If the U.S. economy continues growing at 2% annually and inflation remains tame, the price of gold may remain flat. Take the uncertainty out of the gold trade by staying away from it. Consider buying stocks that have a history of returning value to shareholders in the form of dividends, share buybacks, and possible stock appreciation.

The Best Crude Rail Play

The Best Crude Rail Play

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Four North American railroads are seeing explosive growth in shipment of crude due to a lack of pipeline capacity in the United States and Canada. But only one railroad, Canadian National Railway (NYSE: CNI), owns a rail to the massive Athabasca Oil Sands in Alberta, the largest known reservoir of crude bitumen in the world.
In 2007, CN acquired 201 miles of track from the Athabasca Northern Railway for $25 million and began $135 million in upgrades. 
With TransCanada’s (NYSE: TRP) Keystone XL pipeline stuck in political turmoil in the United States, CN is best poised to grow crude shipments by rail from the Athabasca Oil Sands in Alberta to refiners. The Athabasca deposit is the largest known reservoir of crude bitumen in the world and the largest of three major oil sands deposits in Alberta, along with the nearby Peace River and Cold Lake deposits. The Alberta sands deposits contain about 169 billion barrels of oil, according to the Canadian Association of Petroleum Producers.