Monday, September 2, 2013

A Nebraska Portfolio for Creating Wealth

http://beta.fool.com/scoophoop/2013/07/02/a-nebraska-portfolio-for-creating-wealth/39069/

http://www.insidermonkey.com/blog/the-buckle-inc-bke-union-pacific-corporation-unp-a-nebraska-portfolio-for-creating-wealth-186921/

A Nebraska Portfolio for Creating Wealth

By Michael Hooper - July 2, 2013 | Tickers: BRK-B, CAG, BKE, UNP, VMI | 1 Comment

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

If you want to get rich, invest in Nebraska. Nebraska is home to five great publicly-traded companies. These companies have long histories of profitability and creating shareholder value.

Living in Nebraska for 19 years, I gained a keen insight into its business, an understanding of its politics and a love for Big Red Football. With only 1.8 million people, Nebraska relies on ingenuity, hard work and efficiency to cover the needs of its people. Nebraska has the only unicameral legislature in the country, meaning bills must go through only one house, not two, before going to the governor for signature – a sign of efficiency.

Nebraska is a state of entrepreneurs. Several years ago, The Omaha World-Herald published an article showing at least 100 families in Omaha were worth $100 million or more. Some of them got rich investing with Warren Buffett, but many of them made their fortunes by starting businesses that grew into substantial enterprises, such as Peter Kiewit (construction) Willy Theisen (Godfather’s Pizza) and Roy Dinsdale (banking and agriculture.)

The Nebraska portfolio

Based in Omaha, Berkshire Hathaway's (NYSE: BRK-B) stock is up 24.77% year-to-date through June 30, up 34.31% over the past year and up 39.48% over the past five years. Buffett, the chairman and CEO, has said it will be difficult to achieve the 20% average annual returns that he has earned since he took over the company because the company is so large now. He aims to continue beating the S&P 500, however. Critics are worried about the company after Buffett dies, but advocates know that Buffett has spent much of the past 10 years preparing the company for his departure. Berkshire Hathaway owns over 80 great companies, including Burlington Northern Santa Fe Railroad.

The Buckle (NYSE: BKE), based in Kearney, has seen its stock climb 16.53% year-to-date through June 30, up 31.46% over the past 12 months and up 70.63% over the past five years. The clothing retailer specializes in the sale of jeans, shirts and accessories in 443 stores, mostly in malls in the Midwest. The Buckle has $144 million in cash and no debt and pays a 1.54% dividend. In addition, the company has paid a special dividend every year for the past five years in the fall. Last fall the special dividend was a 10% of the stock price.

Union Pacific Corp. (NYSE: UNP) has seen its stock climb 22.72% year-to-date through June 30, up 29.31% over the past 12 months and up 104.34% over the past five years. Based in Omaha, Union Pacific is the largest railroad in the United States. The company saw declines in shipments of coal and grain over the past year, but has made it up in the movement of crude and intermodal shipments. It would be virtually impossible for another company to build a 32,000-mile network of rail to compete against Union Pacific. Acquiring the land alone would be cost prohibitive. Union Pacific is a stock to own for a lifetime. Union Pacific pays a 1.79% dividend.

ConAgra Foods (NYSE: CAG) is a food giant based in Omaha. Its stock has climbed 18.41% year-to-date through June 30, up 34.71% over the past 12 months and up 81.17% over the past five years. ConAgra sells packaged food products such as Chef Boyardee and Orville Redenbacher popcorn. ConAgra pays a 2.86% dividend.

Valmont Industries (NYSE: VMI) is an Omaha-based manufacturer of irrigation equipment, utility poles and engineered-structures for traffic. The company has seen tremendous growth in irrigation equipment sales due to drought in 2012. The company also has seen a lot of sales growth in utility poles as utilities upgrade their electric networks. Valmont stock was up 4.79% year-to-date through June 30, up 18.29% over the past 12 months and up 37.2% over the past five years.

The Foolish bottom line

I started buying Nebraska-based publicly traded companies in the mid-1990s and have been richly rewarded for holding onto them. I did not sell out when the recession struck in 2008, but instead bought more of these stocks, especially Union Pacific and The Buckle. I now live in Kansas, but I still have a lot of investments in Nebraska.

Nebraska is home to some of the greatest companies in the world. Warren Buffett has taught many Nebraskans how to create profits in business. If you buy these companies, hold onto them through good times and bad times. The long-term outlook for all five of these companies is excellent.

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Michael Hooper owns shares of Berkshire Hathaway, Union Pacific, The Buckle and ConAgra. The Motley Fool recommends Berkshire Hathaway and The Buckle. The Motley Fool owns shares of Berkshire Hathaway and The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

Avoid Investor Regret: Invest With Buffett

http://www.fool.com/investing/general/2013/09/10/avoid-investor-regret-invest-with-buffett.aspx

Looking For The Sure Thing

There is no sure thing in the stock market, but there is a way to invest with a margin of safety.

A sure thing is something that is going to happen no matter what. One sure thing is that five years is going to pass regardless of what we do with our lives.

If we know X company will likely be bigger, stronger and more profitable five years from now, then we should own shares in it and let time work for us.

The surest and safest form of investing is picking a company that owns a near-monopoly market share in its industry, has a strong balance sheet and is trading at a discount to its true worth. The company's earnings must continuously grow over time. The company must have the ability to raise prices. The stock must not be overvalued on a fundamental basis compared to its peers. And the downside risks must be minimal and manageable. Very few stocks meet all this criteria.

I'm not a market timer. However, extreme levels of fear or greed will give opportunities for investors. Panic-driven selling in 2008 and 2009 gave me a lot of opportunities. With stocks trading at or near historic highs in 2013, investors are wise to be patient and wait for an opportunity. I believe it is better to do one good deal in a year than to do 12 marginal deals that lead to losses.

I am not a day trader. Day trading is a fool's game. It takes a lot of skill to trade with any success at all. I've met several traders who lost money trading stocks.

By the time retail investors hear about a stock, it's often too late, the stock has already run up. The retail investor will buy the stock at a high, watch it fall 7%, panic and sell out.

I favor buy-and-hold long-term investing.

I never short stocks. Shorting stocks is much riskier than what I am willing to take on for myself. A person who shorts a stock at a price of 150 must deliver the stock at a future price; what if the stock goes to 220? That person takes a huge loss of $70 per share to acquire and deliver the stock. Never short a stock that is growing sales and earnings at double-digit growth rates. If you have to short a stock, short a bad company getting worse.

If I truly believe a company is going to execute its business plan, reach and exceed sales and earnings goals, and reward shareholders along the way, then I am going to hold onto that stock. When stocks reach new highs, I rarely sell. I accept that there will be downturns and try to buy more on the dips.

I never borrow money to buy stocks. What if my investment thesis is wrong? I would hate to owe money on a trade that went south.

I know several successful investors who made decent stock investments many years ago, held onto those stocks through thick and thin and today those stocks are worth quite a bit of money. The key to their success? Low trading. They held on and added to their positions over time.

There is no sure thing, but I know these techniques work for the Careful, Patient and Thoughtful Investor. I used these techniques to acquire Union Pacific Corp. (NYSE: UNP).

The Railroad Play

In September 2011, CNN and other news outlets published stories saying a "double-dip recession is imminent."

http://money.cnn.com/2011/09/30/news/economy/double_dip_recession/index.htm

Economically sensitive stocks such as transportation stocks fell 10% to 15% on such news. But I checked stats with the Association of American Railroads that showed U.S. rail traffic growing at about 1.1% week ended Sept. 24, 2011, compared with traffic in the same week the year before.

https://www.aar.org/newsandevents/Freight-Rail-Traffic/Pages/2011-09-29-railtraffic.aspx#.UiYUP-DXc04

The economy isn't going backwards if railroads are hauling more freight, I thought. Union Pacific was trading at the time around 12 forward P/E, but was growing earnings at a double-digit pace annually. The company has a domineering position in transportation. It would be virtually impossible to create a competing railroad through the same geographies as Union Pacific. The company's financials were solid and it could afford to pay and even raise its dividend. So I loaded up Union Pacific at $85 and $88 declaring this a "Conviction Buy."

Shortly thereafter, fears of a double dip recession receded. Transportation stocks went back up.

http://www.ft.com/intl/cms/s/0/bb4fe0c0-eddd-11e0-a491-00144feab49a.html#axzz2dqi9ZV37

It's rare that I feel a "conviction buy" about any stock, but UNP was a fantastic investment and remains a hold today.

The Bottom Line

The patient and thoughtful investor watches and waits for the right opportunity. He focuses on executing one good deal at a time. This may take months of patient observation, reading and analysis. The investor knows he may be wrong, but invests with a margin of safety, just in case his original thesis doesn't work.

Three Stocks That Won't Be Replaced by the iPhone

http://beta.fool.com/scoophoop/2013/08/06/three-stocks-that-wont-be-replaced-by-the-iphone/42562/

Three Stocks That Won’t Be Replaced by the iPhone

By Michael Hooper - August 6, 2013 | Tickers: KO, HSY, UNP | 3 Comments

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

Every so often a big company with a powerful brand goes bankrupt because of changing technology in its industry. Eastman Kodak Company, once a powerful brand in the film business, went bankrupt in 2012. Kodak used to sell canisters of film by the thousands daily. But those days are long gone as consumers turned to digital cameras to make photographs.

Today hand-held devices such as the iPhone have replaced so many products. An all-in-one device, you have the clock, GPS system, phone, digital music player, Internet, camera and movie-making technology. On top of that, there are thousands of new applications for the iPhone. So how do you buy stocks that can’t be replaced by a new app or new technology? In this article we examine three stocks that can’t be replaced by the iPhone.

Consumer non-cyclical stocks are a great sector in which to hunt for companies with strong loyal customers. Consumers buy chocolate, peanut butter and cleaning products regardless of how the economy is doing. Two of my favorites in this sector are Coca-Cola (NYSE: KO)and Hershey (NYSE: HSY).

Both have deeply entrenched name-brand recognition and distribution channels worldwide. Both have long histories of creating shareholder value through growing sales and raising dividends. Both sell products that loyal customers buy and consume again and again and again.

Hershey’s penetration into the chocolate confectionary market is mammoth. Babies grow up learning the names of Hershey’s Milk Chocolate bar, Kit Kat and Reese’s Peanut Butter Cups. One risk is a bad cocoa crop. Supplies of cocoa beans, grown in certain regions near the equator, have been decent in the 2012-13 season.

Last month, Hershey raised its quarterly dividend 15.5% to $0.485 per share. Annualized, this dividend adds up to $1.94 per share or a 2% yield on a $96.59 stock.

Cherry Coke: A Buffett favorite

Coca-Cola has been one of Warren Buffett’s largest holdings for more than 20 years. Buffett has been known to drink several Cherry Cokes during his annual meetings.

In 2011, Buffett noted Coca-Cola paid about $376 million in dividends to Berkshire Hathaway, up $24 million from the previous year. “Within 10 years, I would expect that $376 million to double," he wrote.

Coke, over a 10-year period, can incrementally raise prices of its products while trying to sell additional volumes in the 200 countries where it does business. The rising prices and growing volume allow the company to raise its dividend.

A year ago, Coke split its stock 2-for-1 at $80 a share. The stock has been trading at or near the after-split price ever since. Net income in the second quarter dipped to $2.68 billion, or $0.59 cents per share, from $2.79 billion, or $0.61 cents per share, a year earlier. Revenue in the quarter dropped 3% to $12.75 billion. The company blamed weather as partly responsible for Coke's decline in revenue, earnings and volumes in the second quarter. Europe has been a tough market for Coke lately. But over time I expect Coke to rebound with growing revenue and earnings. Coke stock at $40.37 per share yields a 2.8% annual dividend.

Another sector

Industrial manufacturing and transportation are affected by changing technology. Technology, in theory, is used to enhance the service, desirability, efficiency and safety of planes, trains and automobiles. My favorite in this sector is Union Pacific Railroad (NYSE: UNP).

Union Pacific has several core advantages including free land from the government when the railroad was founded. UP’s real estate -- some was acquired through acquisitions -- covers 32,000 route miles in 23 states in the western two-thirds of the United States. It is virtually impossible for someone to acquire the land and build a competitor with faster route miles through the same geography.

There are other railroad competitors, but UP is the superior railroad with a healthy mix of freight -- merchandise, chemicals, grains and raw materials -- being moved daily. The crude-by-rail play continues to benefit UP.

With strong earnings so far this year, UP was able to raise its third-quarter dividend to $0.79 per share, or 14.5% more than the $0.69-per-share payout to investors made last quarter. The regular dividend payment equates to a $3.16-per-share annual dividend, yielding 1.9% on a $162 stock.

The railroad’s three biggest risks are the economy, accidents and flooding, which can destroy track and bridges. A declining economy forces the railroad to cut expenses. During the Great Depression of the 1930s, several railroads put workers on part-time status to survive. Some railroad workers were laid off during the recession of 2008-09, but most have been called back and railroads are hiring again.

Foolish bottom line

If you are worried about your stock being replaced by a new form of technology, buy stocks in companies that are virtually impossible to duplicate and will likely be around many years from now. Hershey, Coca-Cola and Union Pacific each have been around over 100 years and will likely be around another 100 years. All three have been able to raise prices without losing customers. All three stocks have long histories of raising dividends. Buy and hold these stocks for life. They probably will outlive you.

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Michael Hooper owns shares of Coca-Cola, Union Pacific, and The Hershey Company. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!