On January 3rd, I wrote an article titled “Pandora Is A Fundamentally Flawed Stock.” Between that date and yesterday, the stock fell 31.5%. The specifics of the one-month decline were not something I could foresee–I have no idea when the market participants will correctly reflect the true value of a security–but I could predict that Pandora shareholders faced two long-term problems. Pandora shareholders are perpetually suffering from dilution, as the company makes secondary offerings to receive cash to keep operations ongoing. Also, there is significant stock-based compensation for Pandora executives.
Clorox (CLX) has one of the most popular dollar cost averaging plans among blue chips in the country, with a very shareholder friendly plan. After a one-time set-up fee of $15, those investors seeking to regularly accumulate Clorox shares only have to pay $0.03 per share in transaction fees. If you invest $250 per month into Clorox stock, your annual transaction costs are only around $0.72. It’s as close to free something can get without actually being free.
If someone had to commit to only owning 20 stocks for the rest of his life, the diversified and well-branded collection of cleaning/housing goods would be a persuasive candidate for consideration. Everyone has heard of Clorox. The brand dominated the bleach industry over the 20th century and still owns a market-leading position.
I know most people don’t like it when the price of stocks fall, but I find it provides clarity when searching profitable large-caps that are selling at obviously cheap valuations. Bank of America fell almost 5% in Monday’s trading as there have been increased fears over the commercial lending to upstream oil firms on the bank’s books.
Specifically, Bank of America disclosed that it would lose around $700 million from its upstream oil portfolio this year if oil stays around $30 per barrel through the third quarter of 2016. Bank of America is running a $890 billion loan portfolio, and $21 billion consists of loans to firms in the oil and natural gas exploration fields.
What’s the great joy of poring through annual reports of individual investments? Knowing that United Technologies exists, and being able to immediately recognize that the stock is a good deal at $86 per share. It’s never really entered the popular imagination of the investing public as it is a large industrial that doesn’t have many products on the consumer side. If you have encountered United Technologies in day-to-day life, it is probably through the Otis subsidiary that makes the Otis elevators, walkways, and escalators which has a true 100% of business monopoly in some areas.
Since about November, I have received a significant amount of e-mail correspondence from readers asking how to approach oil stock investment against the overall desire to maintain adequate cash reserves that act as “dry powder” for attractive opportunities. I haven’t responded to any of those e-mails, but I want to address the question in its broadest form right now: How should the zeal of picking up attractively priced assets be balanced against the desire to maintain proper cash balances for the next opportunity?