Joshua Lipton, data from Marketocracy 03.18.08, 1:12 PM ET
The March Federal Open Market Committee meeting is finally here, and central bankers are deciding how best to respond to choppy financial markets and eroding credit conditions. The Federal Reserve is expected to lower its federal-funds rate target Tuesday as policymakers try and contain this ongoing credit crunch.
But in this weakened economy and spooked stock market, a lot of investors aren’t looking for a home run; they just want a smart, defensive play that can deliver dependable results and steady income. One answer for a lot of investors is to move to high-dividend-yielding stocks.
That’s one way the best-performing online investors, Marketocracy’s M100, chose to play the market last week. Their pick: Consolidated Edison, which they like for its meaty, 5.7% yield (well above industry average), solid balance sheet and A credit rating from Standard & Poor’s.
Con Ed is a holding company for two regulated utilities that deliver steam, natural gas and electricity to customers in New York and parts of New Jersey and Pennsylvania. The company has a market capitalization of about $11 billion.
Analysts covering the stock write that reliable earnings and dividends make this utility a dependable income-producing investment. In fact, market pros note that the company has increased dividends consecutively each year for more than three decades.
Investors like Con Ed as a go-to defensive play. Utilities, like consumer staple and health care stocks, are considered generally recession-proof investments. After all, regardless of what happens in the broader economy, you’ll still need to turn your lights on.
There are risks here for investors to think about, including any kind of serious economic weakening in the markets that Con Ed serves or the emergence of an unfavorable regulatory environment, analysts say.
But, right now, the M100 thought this company looked like a smart place to commit capital. Compared with its industry peers, Con Ed is run more efficiently and is cheaper, based on last year’s earnings. The M100 moved in.
Another company the gurus piled into last week was the Bank of the Ozarks of Little Rock, Ark.
In 2007, the bank, which has a market cap of about $350 million, reported a net income of $31.75 million, a 0.2% increase from the net income of 2006. Earnings per share were $1.89 for both 2007 and 2006. That’s a pretty decent performance during a time when many banks are reporting scary, headline-making losses.
The M100 know that regional banks tend to perform better when the Fed is cutting rates, because that allows them to borrow lower and lend a bit higher. Also, their profits and losses aren’t determined by trading desks but by the day-to-day regular mechanics of tried-and-true banking, lending money to folks looking for a new car or home.
The Bank of Ozarks’ stock is down about 25% in the past 12 months, but that’s less than the fall most regional banks have suffered. Also, the Bank of Ozarks is run much more efficiently than its industry peers are, and it’s nice and cheap, with a price-to-earnings-growth ratio of just 0.55.
The M100 were also busy last week parachuting out of some investments, including SiRF Technology Holdings, H & R Block and a company that made history for all the wrong reasons: Bear Stearns.
Last week, the M100 completely unwound their positions in Bear Stearns after JPMorgan Chase threw a lifeline to the troubled company, which was reeling from a customer run on its money.
On Sunday, JPMorgan bought Bear Stearns at the fire-sale price of $2 a share, or $236.2 million. At the end of last week’s trading, Bear was worth $3.5 billion; one day earlier, it was $6.7 billion. (See “Bear Throws In Towel.”)
The news about Bear Stearns scared a lot of investors, who might now be worried that the problems plaguing the U.S. economy are deeper and more serious than they thought. That concern, coupled with the desire of investors to take some profit from a record run, sent oil prices lower Monday morning.
Oil has continued a relentless climb as investors are trying to find a safe haven in oil as the dollar falls to new lows and speculation continues that central bankers are going to keep cutting interest rates. (See “Oil and Gas Both Hit New Records.”)
Over the past year, the chart of the United States Oil Fund (USO), an exchange-traded fund that tracks the price of crude, screams from lower left to upper right. The stock price has surged nearly 80% in the past 12 months, about 14% in just the past four weeks.
The M100 expected to see some pullback from that heady climb, which was a smart move. On Monday morning, the USO did slip, as investors decided it was time to take cash off the trading table.
Guru Buys
Consolidated Edison
Bank of Ozarks
Baxter International
Associated Banc-Corp
Movado Group
Guru Sells
SiRF Technology Holdings
H & R Block
Bear Stearns
QUALCOM
International Game Technology
Marketocracy.com tracks more than 60,000 online stock portfolios. Of those, the top 100 performing portfolios, the M100, are used to create a real-life mutual fund, the Masters 100 Fund, which is managed by founder Ken Kam. Each week, Guru Picks analyzes the buys and sells of the M100. Click here for more information about Marketocracy.com and its money management services.
– Forbes
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