city magazine october 2009 vince stanzione

8/14/2019 City Magazine October 2009 Vince Stanzione

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october 2009 issue 24

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better game?

FIT TO TRAVEL?the evolution of the

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ISLAND ADVENTUREexplore the tranquil

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HITTING THE SLOPESluxury ski chalets

HOT PROPERTIESuk & international


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Happy days are here again, the

skies above are clear again, so

lets sing a song of cheer again,

happy days are here again By J

Yellen and M Ager (1929)Whilst most of us were not around in

1929, the song is fairly familiar, though

many may not realise that it was first

released in October 1929 just before the

stock market crash which started the great

depression. It was used in 1932 by Franklin

D. Roosevelt and became a theme song for

the Democratic Party to symbolise better

times ahead.

Whilst the recent global stockmarket

bounce since March is impressive I dont

buy into the happy days are here againtheory, mainly because its just happened too

quickly and true bottoms dont form in a

few months they take years, if not decades,

to form.

Now before I sound like a perma bear, I

am not. I see plenty of trading opportunities

both on buying and selling, as financial

traders I honestly think we are blessed to

live in these interesting times. Lets put

this into perspective, it took investors over

three years to make 30% in Bank of America

between 2004 and 2007. It took traders fourmonths to make 210% on the same stock

between March and July 2009. Now is the

time to start getting out of higher risk stocks

and taking less risk, do you really think that

Bank of America will go up another 200% in

the next five months?

Recent moves up in the stock market are

nothing more than manufactured short term

gains, with much of the summer trading

volume coming from zombie penny stocks,

such as Fannie Mae (FNM), Freddie Mac

(FRE), CIT Group (CIT) and Sirius XM

Radio (SIRI) being flipped like coins. Theseare not the type of companies that lead a

new bull market and these are certainly not

being bought by long term investors.

So as we go into the darker winter nights

my basic theme is to get out of anything that

has gone up 100%+ in five months, and

switch to dividend paying stocks with solid

earnings and demand. One such stock being

Altria (NYSE: MO) which I have owned

since 2003.

Altria is the US side of the former Philip

Morris with the International higher growthside being spun out into Philip Morris

International (NYSE:PMI). Whilst I also still

hold PMI and Kraft I topped up on Altria as

its currently paying a 7.48% dividend and

continues to be a steady earner. As well as

Tobacco Altria also own a 28% stake in beer

company SAB Miller (LSE: SAB) which

is also doing well and is not far off an all

time high. Altria also recently took over

UST the worlds leading smokeless tobacco

manufacturer. At $18 its the type of stock

you want to hold in the coming months.In the commodities market I dont like the

look of Crude Oil and have built up a short

position from $73 a barrel. A premium

has been built in for higher demand and for

possible hurricanes, so far I see neither and

I am looking for $55 to $60 before the end

of November. You can back the fall in oil

prices using a Covered Warrant, Spread Bet

or Inverse ETF. Longer term I see higher oil

prices but certainly for the next few months

I see a glut of oil which will bring the near

term prices down. I am also looking for a

fall in Unleaded Gasoline (Petrol) and youcan look to back this by buying the inverse

Exchange Traded Fund (LSE: SGAS); or

you can spread bet RBOB gasoline, but it

is volatile so the ETF is easier. From the

current $1.75 a gallon level we could see a

fall back to $1.30 with a lower demand for

driving and too much refinery capacity.

Pharmacy stocks

One of the few bright spots in the retail

sector is pharmacy stocks. The followingcompanies are based in the US. The first is

Walgreens (NYSE WAG) which operates

6,996 drugstores (chemists) throughout the

US. They also operate care clinics and wellness

centers inside large companies. The stock is

currently trading at $33 on a P/E 16.

The second stock is CVS Caremark

(NYSE: CVS) which also has around 6900

drugstores in the US with over four million

customers each day. 500 stores have retail-

based health clinics for quick check ups

and offer vaccinations. CVS are currentlytrading at around $37 with a P/E of 15

with a market cap of 57 billion against

Walgreens 33 billion. Whatever happens

with the Obama health care bill, this area is

safe and both stocks offer good predictable

earnings pattern and will benefit from what

could be a very busy season ahead for flues

and other viruses. n

Vince Stanzione has produced a home study course to teach private investors how to

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Happy Days are Here again?

108 business


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Dr David Kuo, Dict t t ppu fci wbit T Mt F F.c.u

WhaT Brokers really Mean

Have you ever watched stock

markets reports on television?

Not those easy-to-understand

ones on the BBC, but the ones

shown on specialist business channels such as

Bloomberg and CNBC that are dedicated to

hard-core investors.

Often, market experts and brokers will

offer insights into shares, sectors and markets.

But its almost as though they are speaking

in a foreign tongue. Or as Spock of Star

Trek might say: Its English, but not as we

understand it!

And even though I have been involved

in shares for many years, I still find their

language baffling.

As a simple person, I can comfortablygrasp the concept of buy and sell

recommendations. A buy means the

shares probably look cheap, so its time to

wade in. The opposite of a buy is a sell.

This usually means the shares may look

overvalued, so it may be sensible to pile out

and take some profit.

At a push I can even understand a hold

recommendation. It means hang on to the

shares if you already own some. Mind you,

if you dont already own any shares then it

may be a good idea to sit on your hands. Itprobably means something may happen to the

shares but it is not entirely clear whether it

will be good or bad.

However, other broker-inspired babble can

sometimes cause eyes to glaze over.

Thing is, brokers have a tendency to speak

in mysterious tongues. For instance, what

does it mean when a broker recommends a

firm hold? It sounds more serious than a

weak hold. But isnt a hold just a hold? And

how does a hold differ from neutral, which

is another popular broker recommendation?Another fashionable reference by brokers

is equal weight, which I assume is related

by marriage to a hold or neutral. That

said, it does feel less forceful than a firm

hold but carries more conviction than a

weak hold. That is unless you dont have

any shares at all, in which case you may need

to buy some to bulk up your holdings. But

heaven forbid if you overweight or indeed

underweight in the shares!

Accumulate and add are two other

recommendations that need further

qualification. Do they mean you need to buy

more if you already have a few shares, but

dont buy any if you dont already own any?

In which case, should you avoid, which is

another common broker recommendation.

Underperform and outperform are

two more curious recommendations. In the

case of underperforming, does it suggest

the shares will underperform the sector or

the entire market? But if a share is expectedto underperform, then shouldnt a sell

recommendation be more appropriate? After

all, why would you own a share that is going

to fare worse than other stocks?

Truth is, brokers are often reluctant to issue

sell recommendations for fear of upsetting

corporate clients by issuing unfavourable

reports. Consequently, there are more buy

recommendations than advice by brokers

to sell shares. That may also help explain

why recommendations not to buy shares are

dressed up in fancy euphemisms that to allintents and purposes mean a sell.

Another thing to bear in mind is that a

lot of the recommendations that we read in

newspapers and magazines or hear on telly

are already quite old. So by the time you and

I hear about them, their tips already have

whiskers on.

As I see it, broker recommendations

are meaningless unless you spending time

reading the accompanying notes that detail

the analysts research. To simply act on a one-

word recommendation is dangerous. It may bea short cut, but a short cut to losing money.

Participating in online forums such as

discussion boards and blogs are a good

alternative if you want to learn more about

investing in specific companies. They are

usually populated with both fans and foes

of a company whose collective knowledge

is staggering. Its also a good way to get a

balanced view from which you can draw

your own conclusions as to whether to buy

or sell a share.n

For guidance on specifc shares or sectors, visit

The Motley Fool discussion boards at Fool.co.uk

city magazine october 2009 vince stanzione

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