Stocks to Invest in 2008

January 22, 2008

Investors are scared, people are trying to figure out if we’re really in a recession, and even President Bush is doing his part to help stimulate the economy. Instead of getting scared and jumping off the investing boat, just make sure that you have a diversified portfolio that can perform as well as possible because past recessions have not lasted longer than about a year and stocks are still going to do well in the long run. Five years from now, we will not be scared of subprime mortgages, credit crunch, or oil prices hindering consumer spending. Ten stocks that I am trying to buy or have already bought (every stock with exception of Aluminum Corp and Schlumberger) that I believe will do well in the long term are as follows (in no particular order):

1. Las Vegas Sands (LVS)
2. Wynn Casinos (WYNN)
3. Aluminum Corp of China (ACH)
4. Schlumberger (SLB)
5. Cemex (CX)
6. Wachovia (WB)
7. Trinity Industries (TRN)
8. Sandisk (SNDK)
9. Broadcomm (BRCM)
10. Valero (VLO)

With the list above, I believe I have a good combination of large cap companies, companies in various sectors, and most importantly, companies that have the capability to weather rough times. A truly diversified portfolio would require at least 25 different stocks (mutual funds must have 20 different companies in their investments according to the SEC) but not all of us have enough money to purchase that many different companies.

Also foreign revenue on average accounts for 30% of companies revenue and a good number of the above companies have healthy international exposure. It’s never a guarantee that they will all make money from this point in time, but I think it’s a portfolio with a lot of upside. At this point in time, Wachovia is the riskiest investment, but assuming they don’t cut their dividend, I’ll take their 8.3% dividend. Also I prefer Las Vegas Sands and Wynn Casinos over MGM because I believe their casinos are stronger and the growth in other countries are much better for the former two.

Speculation play: If Wynn Casinos is able to acquire a gambling license to build a mega casino hotel in Tokyo, it’s going to blow through the roof.


Application of Stock Picking Basics (2)

November 2, 2007

It is very easy to get carried away and buy stocks when the market is up to ride the positive upward momentum. But it is much more difficult to invest in declining markets. Declining markets provide opportunities to buy stocks that are oversold or undervalued. Investors need to realize the following points when investing in declining markets:

a) Make sure you have the cash available to invest in new options. This is why it is always a good idea to keep a share of your stock portfolio liquid on the sideline for major drops in stock prices.

b) Selling a stock at a loss may be necessary to get into another investment opportunity with more potential. If you think the stock you currently own can only go back up 20%, but another company has the potential for 30% gain, write down the loss for the year and make a better investment choice.

c) Keep your head up and don’t get discouraged by all the negative news because people will panic and it’s your job to find stocks that don’t deserve to be at their current valuations. Think of down markets as discounts the market is offering you.

d) Don’t just buy whatever has dropped the most, but still concentrate on what businesses have the best future growth prospects. Remember, some sectors are not very attractive markets to buy whether you’re in a bull or bear market. Right now, I feel that way about home builders and mortgage companies. Maybe a company like Home Depot (HD) would be a safer bet if you want a company that has some direct correlation with the housing market.

e) Mentioned in the Application of Stock Picking Basics (1), make sure you only invest in companies that you understand. If you don’t understand how the company makes money and will be able to increase profits domestically and globally, it doesn’t matter how much they are down.

The NYSE was down 2.6% (more than 360 points) and will probably feel some negative effects tomorrow with much uncertainty in the market. Stocks from all sectors got pummeled, and some stocks of note to take a look at that were down at least 4% are:

  1. Las Vegas Sands (LVS): -5.6% in regular session and -15.1% after hours to 106.402
  2. Peabody Energy (BTU): -11.3% to 49.47
  3. Wynn Resorts (WYNN): -4.0% in regular session and -8.3% after hours to 142.084
  4. Aluminum Corp of China (ACH): -7.1% to 68.02
  5. KB Homes (KBH): -6.4% to 25.88
  6. Merrill Lynch (MER): -5.8% to 62.19
  7. Flotek Industries (FTK): -28.3% to 36.45
  8. Aéropostale (ARO): -7.2% to 21.26
  9. Nucor Corporation (NUE): -6.6% to 57.91

There are so many stocks down over 4% today that it’s hard to pick and choose the “best” ones, but there are a lot of opportunities for investors who have the right mind set while others start to panic. Invest wisely!!

Book Review: The Standard & Poor’s Guide to Selecting Stocks

October 4, 2007

The Standard & Poor’s Guide to Selecting Stocks by Michael Kaye is a very solid book that focuses on the basics of stock screening. Various stock screen will yield various type of investing options depending on what one is looking for (ie growth, value, dividends, momentum, etc). Be aware that stock screening allows investors to find a list of stocks based on various financial parameters (forward P/E ratio, cash flow, market capitalization, return on equity, etc) input by the user, but does not mean that every stock returned from the screen is a winning investment option. Kaye emphasizes that screening for stocks is the first step in the investment process and should be used as a tool to keep investors informed on what options they have.

One thing I found really interesting in his screens is that in his investment screen for GARP, growth at reasonable price, many of the companies that were derived were housing stocks like Hovanian (HOV), Toll Brothers (TOL), The Ryland Group (RYL), Pulte Homes (PHM), and Centex Corporation (CTX). Some of the screening parameters included a PEG ratio of between 0 and .75 with a return on equity of at least 20%. These housing companies are nowhere near their highs from years back and still are looking for a bottom so this is an example that stock screens need to be properly evaluated even if they look like good investments at the time. Another interesting screen looked for value stocks that have a high rate of insider purchasing. One of the ten stocks returned from that screen was Las Vegas Sands (LVS) and the price was at 42.85 at the time. Holding until today would have yielded a 300% gain so sometimes it really is worth taking a gamble but using a stock screener can help allow you to take a calculated gamble while lowering your risk.

Amateur investors or experienced investors can get a lot from this book.
a) Beginners: They will find a way to learn about companies that meet their investment themes, and decide whether the company is worth researching more about.

b) Experienced: These people will already have stock investments in mind and stock screening can allow one to find out if there are better investments available. Screening needs to be done continuously, whether it’s on a weekly or month basis, because stocks that are returned from a screen will always be changing.

Things to try on your own after getting this book:
1) Based on Kaye’s stock screens in late 2004, see how the stocks returned from the screens are doing currently
2) If you like a particular stock screen, put some of the financial inputs from his stock screen to see what companies would turn out today

Overall grade: A-
I didn’t read through chapter 11 (screening for mutual funds) or chapter 12 (screening for bonds) as my main focus was to learn about screening for stocks. The first 100 pages of this 229 page book gives a very comprehensive overview of various stocks screen with many examples of each type. Again, use this book as a tool for investing and not as a magic list of stocks.

1st Year Stock Portfolio

September 28, 2007

It has been just over a year since I’ve been investing seriously in stocks; and I’d like to recap how the market has treated me and what I’ve learned over the last year.

1) Know When to Take a Loss
Every informed investor should be aware of the overwhelming problem in the subprime mortgage market that has tumbled over into the prime mortgage sector, homebuilders, and consumer spending. For a little over 2-months, I owned Accredited Home Lenders Holding Company (LEND). LEND melted down to a low around $6/share but is currently still far from their 52-week high of $36.95. Luckily I saw the negative signs early and took a minor 10% loss. If I had held until today, I would have realized a 60% loss. Some people will not want to write down a loss, but sometimes you have to figure out why a stock is down and understand if it has the fundamentals to rebound or not. In the case of Accredited Home Lenders, I didn’t see any kind of foreseeable stabilization in the housing market and I got out.

2) Ride Momentum For Big Gains
In my Las Vegas Sands investment, I got a 72% gain in just under three months and I rode the stock to new yearly highs. Instead of pulling out with a 10-20% gain, I saw the positive signs of their Venetian Macau opening, Singapore hotel casino in the works, and other investment options. Of course, I would have been up 90% if I had held it, but another thing you have to do to be a good investor is be happy with your gains, and don’t let it affect other investments. Even when LVS dropped 20 points in mid August, I knew they had good fundamentals and global growth opportunities and I wasn’t in any rush to sell.

3) It’s Hard to go Wrong With Oil/Energy
I made a lot of trades with oil and coal companies, and those companies would have provided me with even better overall gains if I had held them longer. With oil at an all time high and staying in the $80/barrel range, it is only time that is standing in the way of $100/barrel oil. Unlike technology that can get outdated, oil is not being replaced soon by any other commodity.

4) Diversity is Difficult
I truly believe that it’s extremely difficult to have a completely diversified portfolio of stocks unless you have at least $30,000 to invest. That way, you can invest in $3,000 blocks and have no more than 10% of your portfolio in any one stock. If you only have $2,000, that can buy you 2 shares of Google and 7 shares of Apple. On top of that, each stock represents 50% of your investments. Never put all your eggs in one basket so even if you have less than $30,000, at least try to invest in different sectors. As you can see in my stock investments below, I had investments in oil, coal, retail, housing, casinos, ethanol, and technology.

5) Just Make Money
For young investors, go ahead and take those short-term capital gains. Don’t worry about saving taxes by holding your stocks for more than a year because who knows if you’ll even have a positive return later. If you make a 10-20% gain in a few months, I would take those gains so you have a cushion before dipping into another investment. It is also a very good psychological boost to know that you are making profit.

My investments dating back to as far as September 2006 are shown below. I have provided information on the short term capital gain or loss that I incurred. I also included the current gain or loss I would have if I had held the stock until today.

Company Ticker Symbol Actual Gain/Loss Current Gain/Loss
Hot Topic HOTT 04.23% -25.15%
Sandisk SNDK 02.10% -07.17%
Peabody Energy Corporation BTU 03.93% 35.80%
Peabody Energy Corporation BTU 09.05% 42.48%
Statoil STO 08.34% 41.66%
Statoil STO 14.75% 50.05%
Peabody Energy Corporation BTU 09.19% 38.91%
Qualcomm QCOM 00.89% 13.61%
SAIC SAI 03.20% 02.77%
Halliburton HAL 08.37% 32.91%
BJ Services Company BJS 00.55% -10.48%
Qualcomm QCOM 00.89% 13.61%
Finisar FNSR 06.27% -22.89%
Accredited Home Lenders LEND -10.17% -60.34%
BJ Services Company BJS 12.13% 00.90%
Las Vegas Sands LVS 71.81% 90.07%
Archer Daniel Midlands ADM 03.79% 03.79%

Take a Gamble on Las Vegas Sands (LVS)

August 2, 2007

If you want a volatile stock with a lot of potential upside, then you should take a look at Las Vegas Sands (LVS), operator of the Venetian Hotel Casino and Sands Expo Center in Las Vegas. Las Vegas Sands also takes pride in being the first U.S.-owned casino in the Macau. Macau is the popular Chinese gaming island off the southeast coast of China.

Macau, China and Beyond

Venetian Macau, the first of seven Cotai Strip Las Vegas Sand’s properties, will open in late August. LVS President William Weidner predicted recently that the average stay in the $2.5-billion dollar Macau casino hotel will be 3-4 days compared to the current average rate of stay in Macau resorts at 2 days. Longer stays equate to more demand for rooms and more gambling revenue. After all seven casino resorts are completed and opened, Cotai Strip properties will feature approximately 2,900 table games, 16,000 slot machines, and approximately 20,000 hotel rooms. LVS also opens the Palazzo on the Las Vegas Strip later this year, a 5,000 slot casino opening 2008 in Bethlehem, Pa., and the Marina Bay Sands opening 2009 in Singapore.

Occupancy rates

In 2006, the Venetian had an daily average occupancy rate of 98.7%. People love to gamble and Texas hold ’em is becoming a staple on ESPN and other cable channels so I can’t see those occupancy rates dropping drastically anytime soon. Occupancy at the new Venetian hotel casino in Macau is expected to reach close to 100% one month after opening.

Global Gambling Increasing

According to a PricewaterhouseCoopers LLP report in late June, global gambling revenue is expected to hit $144-billion in 2011 from 2006 global revenue of $106-billion. Most importantly for Las Vegas Sands, the Asia Pacific revenue is expected to grow 15.7% annually to $30.3-billion from $14.6-billion, making the Asia Pacific gambling market the second largest in the world. U.S. Revenue is expected to grow 6.7% a year to $79.6-billion from $57.5-billion.

Faith in Company
Before investing in LVS, it is interesting to note that CEO/Chairman Sheldon Adelson owns about 70% of the outstanding shares.

I did buy shares in late June, and I can’t say that the current price is a true bargain to buy Las Vegas Sands. The stock even made an upward spike today after favorable earnings. The big news was that net revenue rose 18.6% to $612.9 million, beating the average analyst estimate of $571.6 million. But based on the positive aspects of the global gambling market and the high potential of Las Vegas Sands brand casinos in both the U.S. and Macau, it’s definitely worth taking a look. Sometimes when you gamble, you have to think “Do I feel lucky?”

Other Casino Options

If LVS isn’t something you’d like to take a chance with, take a look at MGM Mirage (MGM), down 15% since early July, or Boyd Gaming Corporation (BYD), down 20% since mid July. Boyd Gaming Corporation owns and runs 16 casinos in the U.S., while MGM operates 23 casino resorts including Bellagio, Mandalay Bay, The Mirage, Luxor, Treasure Island, New York-New York, Excalibur, and Monte Carlo. MGM also will jointly operate a casino resort in Macau with Pansy Ho Chiu-king.