Category Archives: Jubak

Recent MSN Money Article (Jubak)

From Jim Jubak of MSN Money, we get an article detailing 5 blue chip dividend stocks he thinks long term investors (10 Years+ time horizon) will do well by dollar cost averaging in now and reinvesting dividends. His 5 picks? DE, INTC, JNJ, PEP, PG. His goal was to find stocks by using the followin 3 guidelines:

  • They should be trading at multiyear lows. A four- or five-year low would be attractive here.
  • They should pay a 3% or better yield in order to give you the full benefit of dividend reinvestment.
  • The dividend needs to be safe, if not growing. This strategy won’t work with the stocks of companies that are cutting their dividends


Jim Jubak is Mad as Hell….

Jim Jubak is mad as hell in his 2/10 article, Why the CEO Salary Cap is a Joke. Jubak asks “Why isn’t there ever a bloodthirsty sociopath with dictatorial powers and no regard for legal niceties around when you need one?” Many of us are asking the same question. He wants heads to roll and not just CEOs but everyone responsible for our current mess:

And heads do need to roll. Not just to satisfy a widespread desire for revenge on the masters of the financial universe who got the world into this mess — although that’s certainly a plus. But because the greedy, shortsighted and, in some cases, downright crooked people must be punished this time. That includes everyone from middle-class speculators who lied to get mortgages they couldn’t afford to CEOs who took extreme risks because they thought they’d be out the door before the pyramid collapsed.

Jubak lays out his issues with the ‘salary cap’ on executive pay for bailout banks:

  • The cap won’t apply retroactively. If your bank has already received its $45 billion in taxpayer money, there’s no cap on pay.
  • The cap won’t even apply to all banks that take taxpayer money in the future. A bank that takes billions in “normal” bailout money from TARP II could get around the cap by disclosing pay and by holding a nonbinding shareholder vote on the pay. (It’s nonbinding, so why wouldn’t a company that wanted to pay more hold the vote? Because they’d be too embarrassed to pay the higher salary if they lost the vote? These companies, embarrassed? Remember the Citigroup (C, news, msgs) $50 million jet?) Only if your bank took “exceptional” assistance from taxpayers in the future would the cap be mandatory. It’s not clear how the proposal would separate “normal” from “exceptional” bailout billions, but however the term is defined, the cap clearly affects fewer companies than it seems.
  • The cap doesn’t apply to all compensation — just to salaries. Banks could still give CEOs huge bonuses, but the bonuses would have to be in the form of restricted stock that couldn’t be sold until after the company had repaid taxpayers.
  • And finally, and this is perhaps the most troubling, the cap, if finally triggered, would apply only to the top 25 or so executives at any bank. In other words, some Wall Street rocket scientist in charge of slicing and dicing subprime mortgages could make $5 million as long as he or she was far enough down the corporate ladder. Makes a lot of sense, right?

Jubak: The New Financial Bubble is Here

According to Jim Jubak, the next asset bubble is here and it’s called the US Treasury market. If one believes in his thesis, then one of the best ways to capitalize on the bubble popping would be purchasing TBT, the Proshares Ultrashort Lehman 20+ Year Treasury (it moves 2x the inverse of the 20+ year Treasury market):

What we’re seeing in the Treasury market is a bubble that has inflated government bond prices. But unlike the technology stock bubble or the real-estate bubble or the mortgage-backed-securities bubble, this one isn’t caused by greed. This is a bubble based on fear: Investors are buying Treasurys to protect themselves against the risk of government default, the risk of sinking nondollar currencies, the risk of market collapse, the risk of rising corporate defaults.

The question now is: How much longer will the fear last? For how much longer will investors be willing to take these low yields on U.S. government paper, knowing all they know about the state of U.S. finances, before they decide that 1) U.S. government debt isn’t as safe as it now seems to be versus the alternatives and that 2) the higher yields of corporate debt justify the risk?

My estimate is that the tipping point will occur later this year — but not all that much later. Moody’s (MCO, news, msgs) and Standard & Poor’s are forecasting that the default rate will peak near the end of 2009. At the same time, Credit Suisse (CS, news, msgs) projects that the yield on 10-year Treasurys will climb 4% by the end of the year, causing the prices of already issued Treasurys to fall. A Bloomberg News survey of the primary Treasury dealers who do business with the Federal Reserve projects a 3.1% decline in the price of the 10-year note in 2009.

That may not seem like much, but with the 10-year note yielding just 2.52%, a drop like that is enough to produce a negative total return from holding a 10-year Treasury.

The combination of the two — the prospect that the default rate on corporate bonds is near a peak and that the prices of Treasurys are about to fall — would send money from Treasurys into corporate bonds. That would, of course, accelerate the fall in Treasury prices and the climb in corporate bond prices. Investors who have been through the past two bubbles should recognize this kind of negative feedback as “lower prices produce still-lower prices.”

Jubak: 6 Stocks to Watch Now, Buy Later

A recent article from Jim Jubak detailing 6 stocks to keep an eye on and look to buy later. He gives us 4 potential characteristics to look for in a company during a recession, and while they are overly general, they can serve as good starting points:

But investors can see indications of which companies will come out of this recession stronger than they went in. The signs aren’t visible — yet — in quarterly earnings reports; the economy is still too weak for that. The evidence that a company is “wheat” and will come out of this recession a winner is to be found around the edges:

News of dividends increased.
Reports of hiring.
Capital spending maintained.
Acquisitions made.

Jubak gives us 6 stocks that fall into these categories, and in my opinion MON is the most promising for the first part of 2009:

Rising Dividends – Monsanto (MON)
Hiring – Teva Pharmaceuticals (TEVA)
Capital Spending Maintained – Intel (INTC), BNSF Railway (BNI)
Acquisitions – US Bancorp (USB)
The sixth stock is Ericsson (ERIC), and while it doesn’t meet any of the above qualifications (unless it acquires some of the pieces of Nortel), it appears to be one of the few telecom equipment makers who could be left standing after this depression, er, recession.

Disclosure: Long USB

US Bank Quarterly Earnings and Jubak’s Take

Disclosure: I am long USB (yes, I own a financial…)

USB announced quarterly earnings last week, earning $.15/share, $.07 below estimates. The stock is trading at around a 12% yield, which tells us the market is anticipating a dividend cut. The company did not announce a cut, and anticipates earnings for 2009 will cover the dividend. However, if they expect at any point that earnings will not cover the dividend, then it will lead to a dividend cut. I like USB long term since it is one of the best capitalized banks and they have seen growth in deposits, loans, and interest income and should be one of a few large banks to emerge for the depths of our financial crisis. However, given the state of financials in general and the overall economy any purchase of USB would probably best be accompanied by purchasing an out of the money put and/or writing a covered call to limit one’s risk. Here is Jim Jubak’s take on USB:

Will US Bancorp (USB, news, msgs) follow the lead of so many of its peers in the banking industry and cut its dividend? The question isn’t academic to me: I had added this stock to Jubak’s Picks in April 2008 because it then paid better than 5%.

Since the company’s Jan. 21 announcement on fourth-quarter earnings, a majority of investors on Wall Street have been thinking the dividend is headed for a cut. A stock-price drop of 12.5% on Jan. 22 left the yield on the shares at 12.1%. You don’t see that kind of a yield on a bank stock unless the market is convinced the company will cut its payout.

I can certainly see why investors think that. The bank didn’t exactly give a ringing defense of the dividend in its earnings conference call. Executives said the company believes it will be able to cover the dividend from earnings in 2009 but noted that it reviews the dividend every 90 days — which puts the next review in March — and that the bank has no intention of continuing the current dividend if earnings don’t cover the payout.

The real issue then, as the company said in its statement, is earnings for the rest of 2009. On Jan. 21, US Bancorp reported earnings of 15 cents a share. That’s a profit — unusual for a bank these days — but still 7 cents a share below what Wall Street had expected. The problems? There were $253 million in losses on securities and a $635 million increase in provision for credit losses. All in all, charges and losses chopped 34 cents a share out of earnings.

It’s also clear that the bank’s business, like that of all banks I know of, is still getting worse. Nonperforming assets climbed to 1.14% in December, and the bank said it anticipated that nonperforming assets — that is, loans that the bank can’t collect on in a timely fashion — will continue to climb in 2009. It’s cold comfort to investors that the bank’s performance continues to be so much better than other banks’. The increase in nonperforming assets to 1.14% in December is only a modest increase from the 0.88% in September. That indicates the bank’s lending standards continue to hold up to a very difficult economy.

The bank’s operating results, in fact, were quite impressive. Loans grew 17% (12.7% excluding acquisitions) and deposits 15.2% (9.6% excluding acquisitions) from the fourth quarter of 2007. (In November 2008, the company acquired Downey Savings and Loan and PFF Bank and Trust from the Federal Deposit Insurance Corp.) Net interest income grew 22.6%. Tier 1 capital remained at a strong 10.6%.

So will US Bancorp cut the dividend or not? Unfortunately, it’s a danger and, also unfortunately, uncertain. It depends on how long the economy struggles and how big the losses get on the bank’s portfolio of loans. I still think US Bancorp will be a winner in the current crisis, and this quarter’s results are evidence that the bank is picking up loan and deposit volume as customers opt for the bank’s relative safety.

I’d certainly be disappointed at a dividend cut, but I think the potential from here outweighs the damage that even a dividend cut would temporarily inflict. As of Jan. 23, I’m cutting my target price to $35 a share, from a prior $44 a share, and stretching out the schedule to March 2010 from December 2009. (Full disclosure: I own shares of US Bancorp in my personal account.)

Jubak: 5 Stocks for Even-Gloomier Times

A bit of a reality check in Jubak’s 1/13/09 article. He reviews the Congressional Budget Office’s Jan. 8 report on the state of the nation’s finances, and the scary part that I haven’t heard a lot people discussing is that they are projecting a recovery in 2015. That’s correct – not early 2010 like every finance ‘expert’ seems to currently believe is all but a foregone conclusion. And even in 2015, the recovery will be weaker then expected. Jubak breaks it down and concludes with 5 stocks that could weather such low growth prospects (MCD, XOM, JNJ, PEP, PG):

That projected schedule for a recovery lags well behind the already gloomy timeline from the Federal Reserve at its Dec. 15-16 meeting that called for GDP “to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010.” And the 2.3% trend growth that the budget office projects is well below the 2.5%-to-3% speed limit the Fed projected for the economy before the crisis. At 2.3% a year, growth in 2015 would be significantly below the 2.8% growth turned in by the economy in 2006 or the annual average of 3.1% from 2004 to 2006. If that projection turns out to be correct, it would be a huge negative for the stock market. Right now, investors and traders from Wall Street to Main Street, whether optimists or pessimists, are assuming an economic recovery that’s much faster and much more robust than that…A period of lower-than-average economic growth would lead to lower-than-average earnings growth. In that kind of environment, I’d expect-lower-than average price-to-earnings ratios, too. If that’s what we’re looking at, the market as a whole certainly isn’t cheap yet.

Three Recent MSN Money Articles

Three recent MSN money articles, one each from Jim Jubak, Bill Fleckenstein, and Jon Markman, are worth reading.

The theme from Fleckenstein’s article is to remain liquid and flexible while we see how the coming wave of fiscal stimulus will take shape, some excerpts:

In any case, the fear of what all of that leads to, combined with the damage already done, continues to prod governments to come up with ever-larger stimulus packages as these two forces continue to thrash it out. My opinion — and I have my biases — is that at some point it will be clearer which force gains the upper hand, and that will make it easier to decide whether to be long or short, and how aggressively.

I firmly believe there will be at least one very good shorting opportunity by midyear, and I suspect that later this year there will be a very good investment opportunity on the long side.

But at this juncture, it’s difficult to ferret out how and when those opportunities will set themselves up. Thus, this is one of those moments when it may really pay to be more liquid and flexible. In essence, I prefer to react more and predict less this year until the road map becomes clearer….

On the long side (other than precious-metals names), I would say the names to focus on would be the obvious infrastructure companies. (I’m sure folks can come up with their own lists. I don’t have a solid one yet.)

I also happen to think the energy patch may be a worthwhile place to research….Going with software names also makes some sense….I’ll sum up with these watchwords: Be patient and be flexible.

From Markman’s article, he analyzes the ‘smart consensus’ to see where money managers think markets are headed:

So the smart consensus now believes so much bad news has been priced into stocks that the market is susceptible to positive surprises and that stocks will rally with a vengeance once fear abates. [Ned] Davis conjectures that once the dam breaks and hope replaces alarm, the top performers will be the volatile sectors and regions that are now the most oversold. He sees potential for small-capitalization stocks, commodities and emerging markets to lead...

Among all emerging markets, they see China and South America as the most likely to move a lot higher

So what about the U.S. market? The smart consensus believes we’re still in a long-term bear market but overdue for a cyclical bull rally — pretty much what I have been arguing for the past two months.this new cyclical rally would need to continue to motor higher with a big jump all this month, last until midsummer and amount to a 60% to 73% advance from the low. Davis’ target, like mine, is the 1,200 area of the S&P 500 (it closed Wednesday at 907).

Finally, Jubak’ article, No Crisis for the US Dollar — Yet, he analyzes the dollar’s current rally and projects the dollar will continue its long term slide in 2010:

These two factors — a global flight to safety while the financial crisis rages and an anemic and lagging response to the economic slowdown by the countries of the European Union — will push the dollar higher in 2009. As long as the financial crisis is alive and well, investors will flock to the dollar and the Treasury market, the world’s most liquid. As long as the U.S. economy’s turnaround seems closer than the European economy’s recovery or a resumption of 5% to 11% growth in Brazil, India and China, then investors will buy dollar-denominated assets because — in the near term — they offer a better potential return.

But these factors take the U.S. dollar only so far. When the crisis has passed, investors who have conquered their fears will notice that Brazil’s fiscal house is in much better order than the United States’. They’ll see the good side of the European Central Bank’s conservative policies and return to their belief that its inflation-fighting credentials are better than the Federal Reserve’s. And once investors have their bounce, as the U.S. shifts from recession to sluggish growth, they’ll start to move money to European and developing economies to collect profits from the same, if later, acceleration in growth.

That means, paradoxically, that the greatest danger to the dollar will come once the world’s financial system and economy are no longer in acute crisis….

This scenario — a dollar rally in 2009 and a long-term dollar decline after that — presents quite a puzzle to investors. The investments you’ll want to own to hedge or profit from the long-term decline of the dollar are likely to lose money in the short term if I’m right and the dollar rallies in 2009. As we know from 2008, a rallying dollar can kill an investment in a weak dollar hedge such as gold.

That leaves us with two choices. First, you can decide you’ll just ignore the short-term pain, focusing on the long-term gain and stocking up on the investments that will win in 2010 and beyond from a weak dollar. Or second, you can decide to wait to build your weak-dollar positions in gold and overseas stocks until the second half of the year.

Jubak: Why Russia’s woes should worry you

Jubak’s 1/6/09 article, Why Russia’s woes should worry you , an excerpt:

“The good news is that Russia is in much better shape than it was the last time it shuddered into crisis, in 1998. The bad news is that Russia’s current problems bear an eerie resemblance to those that took the country into default, led to the fall of a once-popular political leader and forced the U.S. Federal Reserve to organize a bailout in order to prevent a panic in the global financial markets.

Ending Russia’s crisis doesn’t require a 180-degree turn in the economy, the Russian stock market or the ruble. What’s important is the pace of the fall. If the ruble declines in a slow and measured fashion, if the economy looks like it’s headed for a recession instead of a deep plunge into panic, and if stocks fall slowly enough that the stock market can stay open, the crisis will be manageable. And Russia will remain one of a very large group of countries coping with a global economic and financial crisis rather than becoming a wild card with problems big enough to threaten the global economy.

Because the speed of the decline is critical, the first quarter of 2009 poses the greatest risk. If the crisis in Russian financial markets, Russian banks and the ruble turns into a rout in the first quarter, then Russia’s problems are on the way to becoming the world’s problems. Watch the ruble: Some currency experts think there’s a chance it could fall 20% to 30% in the first quarter of this year. That would constitute a rout.

I don’t think that will happen. Russia’s reserves, though not infinite, remain hefty. The country may not be making as much at energy and mining as it did when oil was $147 a barrel, but the country continues to run a trade surplus that adds to reserves. And Prime Minister Vladimir Putin went into this crisis with a far stronger grip on power than Yeltsin had in 1998.”

Jubak: 10 key trends for investors in ’09

Jim Jubak’s year-end article highlights 10 key trends for 2009 and notes that knowing the hot sectors in 2009 should help the investor beat the market. From the article:

10 macro trends

Take a look at my 10 macro trends, and afterward I’ll explain which are hot and which are not for 2009. In my book, you’ll find a chapter devoted to each:

  1. Go where the growth is, and that means putting some money into the developing economies of China, India and Brazil.
  2. The rise of the global blue chips. These companies are emerging from the world’s developing economies to challenge Coca-Cola (KO, news, msgs), IBM (IBM, news, msgs) and Wal-Mart Stores (WMT, news, msgs) on the global stage.
  3. The world is getting wealthier and older at the same time. So who’s going to manage all that retirement money?
  4. Inflation is beginning a new era. After 20 years of low inflation, the world is headed for a decade of rising prices.
  5. The world may not be running out of oil — then again, it might be — but it sure has run out of cheap oil. You can make back in the stock market what you pay at the pump — and more.
  6. The commodity crunch. Developing economies are demanding more iron, more copper, more nickel, more coal — and that has set off a boom for mining companies and the companies that equip them.
  7. Food is the new oil. It’s turning out to be as hard to increase food supplies as it is to find new oil. We’re looking at a decade of higher food prices driven by competition with biofuels and the fact that people in the developing world will eat more pigs, chickens and other sources of protein as their incomes rise.
  8. We’ve dragged our feet, but environmental problems have become so pressing that it’s time to save the world and make a buck.
  9. The technology sector doesn’t look anything like it used to, but fortunately the same rules still apply to what I call “hidden tech” stocks.
  10. It used to be that stocks and bonds from the United States got a premium in the financial markets just for showing up. Investors were willing to pay more because the U.S. markets were so stable. They’re still among the world’s best in that category, but now they’ve got company from Canada, Australia and, of all places, Brazil.

What’s hot for 2009? You can see the news moving toward three of these trends and setting up stocks in these sectors for better-than-market gains.

The hot trends for 2009 are:

  • Inflation. Gold has started to move up. The U.S. dollar has started to move down. Overseas investors are cutting back on their purchases of dollar-denominated debt. And the faithful news consumer can see the beginnings of a tidal wave of articles and editorials worrying about the inevitability of inflation now that the Federal Reserve has decided to pay overtime to the crew that prints paper money.
  • Food. Yes, food commodity stocks collapsed in 2008. And, yes, prices for food commodities went into a retreat that turned into a rout; the prices of major grains are down 50% from their 2008 peaks. But don’t count on food getting cheaper still in 2009. All the signs point the other way. The United Nations’ Food and Agriculture Organization has warned that because of the global credit crunch, many farmers lack capital to buy seed and fertilizer for the 2009-10 growing season. That’s likely to show up in commodity prices, via the futures market, by mid-2009.
  • Stability. Companies able to deliver solid revenue and earnings at or maybe even a little above expectations are rare as hens’ teeth at this stage of the recession. Companies with those kinds of results are also in a position to use the current global slowdown to attack weaker competitors, buy market share and aggressively develop new products. That’s a combination investors particularly prize in the current uncertainty.

I’d give those three trends green lights right now. You can start building positions in these trends in the first half of 2009.

In contrast, I’d say the following trends are stone-cold for 2009: the commodity crunch, a world running out of cheap oil, and a world that’s getting older and wealthier. Those trends are still likely to pay off big in the long term — say, five to 10 years — but in 2009, commodity, energy and financial stocks have suffered too much damage for a quick recovery. We’re still looking at six months or more of crisis in these sectors as companies with big debt loads struggle to roll them over in a debt market with a severe shortage of buyers.

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Exxon Mobil to profit from the pain

Jubak’s 12/19 article highlights Exxon Mobil’s potential in the coming months and years. Some excerpts:

For the relatively short term — the next five years or so — Exxon Mobil has won its bet. By hoarding its cash, by refusing to pay top dollar for expensive sources of oil and by not getting panicked into projects that made sense only with oil at $120 a barrel, Exxon Mobil is in a position to pick up a bushel of the most attractive pieces that the shakeout in the energy sector will make available over the next 18 months.

Cash in hand of $37 billion. A massive 2.4 billion shares of stock in the treasury. And a collapse in the price of energy company equities around the world.

It sure looks like this is Exxon Mobil’s time, whatever the problems on the production front facing the company 10 years down the road.

Buy Exxon Mobil (XOM, news, msgs): Why buy Exxon Mobil when oil prices are collapsing and as I’m selling oil and gas exploration and production companies such as Devon Energy and Ultra Petroleum? First, because as an integrated oil company, Exxon Mobil makes money refining oil and then selling gasoline and other refined products. That dampens the effect of falling crude oil prices on Exxon Mobil’s revenue and earnings. (The company often makes a bigger refining profit as crude oil prices fall, for example.)

As of Dec. 19, I’m adding shares of Exxon Mobil to Jubak’s Picks with a target price of $91 a share by December 2009.