The Oprah Effect

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.

While this is a significant demerit, it can be overcome if the business model is strong enough. I have expressed doubts about Pandora because of the high cost structure of playing music. The cost of the raw material is $0.0017 per song before taking into account any of ongoing costs of hosting and streaming plus paying employees to … Read the rest of this article!

When To Pause A Dollar Cost Averaging Program

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.

The net profit margins are crazy high at 10.7%. Although the dividend is occasionally frozen–see the $0.84 payout of 2001 … Read the rest of this article!

Bank of America Stock: Getting Dirt Cheap

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.

The stock is now at $12 per share, a price it saw back in 2010 when it was losing $2.2 billion per year. Now, the beaten down valuation of the stock is almost entirely a … Read the rest of this article!

United Technologies: A Great Long-Term Dividend Investment

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.

Usually, there are three ways for an investment to catch someone’s attention. It can be a business
that is immediately obvious to the public (Facebook, Twitter, Google, Amazon); it can be a business with an unusually high dividend yield; or it can be a firm with a very high projected growth rate that earns it … Read the rest of this article!

Investing The Cash Portion Of An Investment Portfolio

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?

First, I think people should avoid fear-of-missing-out syndrome. Benjamin Graham wrote in The Intelligent Investor that “there is always something intelligent to do.” Sure, some environments are easier for finding stocks that will produce outsized future wealth than others, but even the most bubbly of stock markets contain opportunities that deliver attractive returns.

Take the summer of 1999, for example. The P/E ratios of most stocks at … Read the rest of this article!