CAIM, LLC Newsletter Sign Up


ABOUT THE AUTHOR


POSTS BY CATEGORY

bonds (8)

ARCHIVES


DISCLAIMER

No content published as part of the CAIM LLC blog constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. To the extent any of the content published as part of the blog may be deemed to be investment advice, such information is impersonal and may not necessarily meet the objectives or needs of any specific individual or account, or be suitable advice for any particular reader. Each reader agrees and acknowledges that any specific advice or investment discussed in the blog must be independently evaluated by the reader and his or her adviser in view of the reader's investment needs and objectives.

Bond Holders Beware

August 6, 2010

 

Good news for International Business Machine (IBM), bad news for investors. On August 2nd, IBM sold $1.5 billion of 3 year debt at a 1% interest rate. This rate is a mere .3% higher than government debt with a 3 year maturity and 50% less than the dividend yield on the common stock.

The Wall Street Journal had a great article talking about IBM’s remarkable track record of being able to issue low rates on bonds right before the Federal Reserve raises rates (link to article: http://blogs.wsj.com/marketbeat/2010/08/05/is-big-blue-flashing-a-bond-warning/?mod=wsjcrmain).

Pretty smart for IBM. If they used the proceeds to buy back their own stock, they are borrowing at 1% to get 2% on their dividend so even if the stock went nowhere they are still ahead of the game. If their track record holds true, this is bad news for bond holders. Higher rates will mean losses for bond investors.
Our advice? Buy the stock with a 2% dividend yield and put it away for the next 5 years.





2nd Quarter and Year-to-Date Performance

July 13, 2010

 

Since the beginning of the year we have been talking about having a bumpy stock market this year. Year to date, the S&P 500 is down 7.6% In the second quarter, we hit a pretty hard bump with the S&P 500 down 11.9%. The combination of health care reform, Greece (and the other PIIGS countries) and financial services reform sent people running from the stock market to the safety of treasuries. So much so, that the 10 year bond is now yielding 2.95% and the 2 year note is at .62%. Compare this to a 2.8% dividend yield on the Dow. We also had some hiccups in the weekly unemployment claims. It has always been our belief that the economic recovery would be driven by capital spending with a sluggish consumer. We still believe that to be true. Our philosophy of buying high quality large cap dividend paying stocks is even more appropriate in this environment. As long term investors we recognize that these stocks offer great value when compared to bonds and cash. The next few years we expect a slow growing economy and these stocks have the financial strength and flexibility to thrive in that environment.

CAIM LLC’s 2nd quarter performance was -9.66% versus -11.9% for the S&P 500. Year to date we are -4.16% versus -7.6% for the S&P 500. Our overall stock selection has been better than the market and we are continuing to hold a 6% average cash position.





Where’s the Faith?

June 30, 2010

 

It’s not in the equity markets, that’s for sure. Yesterday’s lack of confidence drove the 10 year bond yields to 2.96%. It’s hard to believe that anyone would lend the debt laden government money for that price.

22 names in our portfolio yield 3% or higher. All of these companies are high cash flow generators and have low levels of debt. You have to believe that 10 years from now that we, as a country have the determination to turn around this economic malaise. If that’s the case, these stocks are cheap and will reward investors over the long term. Let’s not forget that with all that cash on the balance sheet, some of it will be going to increase the dividend. Does anyone think the government will raise your interest payment on the 10 year bond?





Missed Opportunity in the Equity Markets?

June 14, 2010

 

Not according to Jeremy Siegel. Professor Siegel spoke to financial advisers at Pershing LLC’s national conference in Florida and delivered the following message:

“The S&P 500, now at just under 1,100, would have to rise to 1,500 – a roughly 35% increase – to return to its long-term trend line going back to 1935. From any historical standpoint, you’re not too late. You still have an excellent market to give you extraordinary returns going forward.”

According to Investment News, Jeremy Siegel thinks the current period is similar to the post-World War II era, when people expected a recession and avoided stocks. Investors then flocked to government bonds at low yields and got slaughtered over the next 30 years.

Looks to me like history will once again repeat itself. The individual investor will unfortunately wait until interest rates rise to sell their bonds at lower prices. Not to mention the issue that municipalities will face in the coming years will many individual investors who have not properly diversified their portfolios thinking that they were safe!





Bulk Up on Dividends

May 21, 2010

 

Boomers should buy dividend paying stocks to stay ahead of inflation. As stock prices rise over time, compared to a bond, high quality dividend paying stocks also have the ability to increase dividends (yield) over time, versus a bond which has a fixed interest rate and can be called. Even in a down market, investors will collect a stream of income from the equities, so why not get paid while you wait?





T. Row Price Group (TROW)

April 12, 2010

 

Cost controls + new products is the theme for this financial sector stock. The financial sector has been a difficult place for us to find companies we are comfortable with. Given the government involvement and lack of dividend security, we are underweight this sector. However, one company we like in this group is TROW. They recently raised their dividend in the 1st quarter 2010 from .25/quarter to .27/quarter. What we truly like is the future outlook for this stock. This weekend, Barron’s highlighted this company and spoke about their expansion into international mutual funds. In addition, they are adding ETFs and managemment has done a great job of containing costs. Earnings for 2010 are expected to rise 48% and then 16% into 2011. We believe this company will be a beneficiary of investors shifting out of bond funds into equity funds.





Are We in the Sweet Spot?

April 7, 2010

 

That was the question posed to Leon Cooperman yesterday morning on CNBC. His response was a strong yes! The sweet spot he is referring to is the perfect time to be moving out of bonds into stocks. Low interest rates, a fairly valued stock market at 15x and signs of economic growth make the timing right. So why are individual investors still hunkering down in bond funds??? Bond yields have all ready started to rise and as the yield rises, prices go down and then they are left in the same situation as when they were invested in stocks at the height of the market. The real risk now is in bonds, not stocks! I have seen it over and over in my years as a mutual fund manager. The individual investor notoriously buys at the top and sells at the bottom. I’m with Leon. I think we are in the sweet spot.
Check out this week’s newsletter abut Joe and Moe. Comes out this Friday.
Have a great day!





Our thoughts today on maximizing your investments…

March 18, 2010

 

We at CAIM LLC hope you enjoy hearing our views about the markets and dividend paying stocks. Our first blog starts with our overall view of the economy, markets and investing. We look forward to hearing your comments!

Economy
We believe the worst of the recession is behind us and we have started to move into a recovery phase. Throughout the year we expect to get conflicting data causing us to question whether we double dip or move into the expansion phase. Just last week we had great retail sales numbers , up .3% (up >8% ex autos) and unemployment claims dropped 6,000. This week the trend continued for another drop in unemployment claims, marking 3 weeks in a row of improving numbers. So, what’s the flip side? Consumer sentiment and confidence numbers continue to lag.

Markets
Can the markets continue to go up without the participation of the individual investor? Our expectations are for a choppy market in 2010. This will be caused by conflicting economic data, risk in overseas markets (like Greece) and the outcomes of political reform in Washington. Our target for the S&P 500 is 1280 based on an eps estimate $77.50 (First Call) and a p/e of 16.5x. This earnings estimate is 20% higher than last year. We expect corporate profits to do well and believe the individual investor will start to slowly move into the market this year due to the lack of returns in bonds and cash.


Investing
At Caim LLC, we favor dividend paying stocks that also have growth potential. Our discipline is based on companies that have low levels of debt and positive free cash flow. For example, we like companies such as Intel (INTC) and Coca-Cola (KO). Both companies pay dividends 50% higher than that of the S&P 500 and almost 300% more than money market funds!

More on stocks in our next blog!





 
Home | Contact Us | Privacy Policy | Sitemap

© 2017 CAIM LLC, All Rights Reserved.