Our take on newspaper stocks.

Since we posted on investing in newspapers about a month ago some companies decided to spin off their newspaper assets into separate operating companies.  One of the publicly traded newspaper stocks, and maybe two more,  offer some interesting investing opportunities.  We disagree with the experts who think investing in a newspaper stock is a bad deal. However the point here is to find companies who are heavily involved in the LOCAL newspaper business and not large metros or national editions. The larger newspapers have too much competition and too high a legacy cost to overcome to be consistently profitable.  On the other hand local newspapers in the less than 30000 circulation range have a future and can produce steady profits for their owners.  So below we will sum up newspaper stocks currently trading. 

LEE...Lee Newspapers...Still saddled with serious debt they are slowing digging their way out of over time, too long a time for us. Add in the newspaper mix contains too many large metros for our liking. 

MNI...McClatchy Newspapers...The recent sale of Cars.com will allow them to clear out a big chunk of debt, but not enough since they will still owe over a billion dollars in debt, and frankly we do not like the mix of newspapers this company owns.  Just too many big city dailies and not enough local newspapers.  A long long haul to actually clear out the remaining debt mess and we believe dead money for longer than we care to wait. 

GCI... Gannett... will be spinning off their newspaper assets next year as announced just last week.  We personally like their newspaper mix and IF Gannett does not saddle the new company with lots of debt as they have suggested there could be some money made here too.  Maybe even with a nice dividend.  Without debt this newspaper company could go strongly after some additional properties now that there is no concern for overlapping media and federal oversight. This new stock has some serious potential for upside. 

JRN/SSP...Journal Communications and EW Scripps will be following the lead and spinning off their newspaper properties soon into a separate company.  Again we do not like the newspaper mix containing too many larger dailies.  The debt portion handed over is a good bit more than we would have desired but not burdensome enough the new company can not handle the servicing of it. 

NEWM..New Media Investment Group...We just discovered this little gem with a 6% plus dividend and very little debt as well.  They are very new having been spun off from Newcastle Investments just this year.  It has a industry veteran running the operation and what we believe a solid portfolio of local newspapers in the fold.   Selling at just over $17, it has moved up $2 per share since we started following it, and we still believe this is an excellent long term entry point.  Trading publicly they have access to additional funds and have shown a willingness to be an strategic acquirer.  We believe the upside with NEWM could be significant and suggest purchase. 

                

Late Summer Trading Portfolio and Commentary

We continue to find this market fully valued, but still expect the bias to be upward. Financial engineering and stock buy backs place a floor under the market that makes going down short lived as noted in the most recent small sell off.  Placing assets in large and mega cap funds is the intelligent choice here and we believe going forward for 2 to 5 years.  There are few obvious value choice stocks left, so we continue to find safe choices to trade in case some new government policy or corporate mistake takes a toll on an individual stock choice. 

AAPL...Our largest trading position, however the price is reaching a current zenith and we lightened up a bit.  We still believe there is a floor underneath this stock with the impending new iphones and the addiction these owners have to the need for buying any upgrade.  Still a low double digit PE too.  Best wait until the stock eases back below $100 before adding back shares. 

CHL... We currently own China Mobile but will not renew our options when they expire soon.  This stock has moved up $15 in the last month and we now believe it to be fully valued and with it being domiciled in China there is now concern to future valuations. $60 per share seems rich to us now. 

HFC...Holly Frontier refining margins have shrunk and we are also considering dumping the stock at the end of our option ownership.   Refiners were hit hard by the recent federal decision to allow some oil exports. We like HFC in the low $40's. 

IBM...We still like this tech company at a low PE and some floor in the valuation.  Does not hurt that Warren Buffet owns it too.  At $190 per share it is fully valued however for current earnings. 

JPM... We continue to like this large cap bank with low PE and lots of future potential. Buying in the low $50's has been rewarding so far. 

MET... We are reassessing our ownership in this large insurance company.  But frankly the appeal of future profits in the low PE valued stock is enticing.  Once the company is past the decision of being too big to fail by the Feds it will stabilize and likely move up past our $50 strike price. 

PRU...We continue to like this insurance stock.  It is righted it's ship and is showing significant upside going forward.  Priced right at a single PE too.  We got it at $80.

SF...We continue to make significant money in this little known but fast growing financial company.  No reason to sell it now.  Strike price for us is $40.

SHLD.. Only the brave need to continue to trade Sears.  We continue to be brave all be it with a good wide trade and on a short month long lease.  But the profits are so enticing.  We have traded it down to the low $30's and will continue to do so. 

SO..As we watch the market move to full value we like to go back and pick up steady eddie's like Southern Company and will do so at $41. 

T...AT&T has sold off a good bit and that makes it more interesting here near $34 for long term profits and most importantly have little downside from this price. 

VZ...The largest telecom in the US make for good trades, good price action, and good night's sleep as well. 

NNC...Our longest long position currently.  We added another 10% plus in August. 

             

Blood in the Streets

Warren Buffet is famous for suggesting you buy when others are running for the exits in fear.  The Rothchilds and Rockefellars suggested you buy when there is blood in the streets.  Famous investors all say buy when prices are low and value high.  Yes it is much easier to say you will do the buying than actually DO the buying when there is fear and worry all around.   People being who they are when buying stocks always allow emotion to guide their purchases and not their thinking. So it is almost a surety that most people buy when the market is high and sell when it is low. 

However if you can consider value and willing to deal with uncertainty there are high value securities with lots of blood dripping out there to buy.  The stocks I am referring to here are...wait for it...Russian stocks.  Yep that country that is quickly becoming the pariah of the world.  That country getting hit almost daily with bans and imports and sanctioned by almost everyone.  Their stocks are taking hit after hit and many of the good ones are trading at PE's of 3 or 4, which is lower than low.   Many of the oil stocks are still paying out dividends with high yields and they are frankly the cream of the crop.  Seriously oil in the ground is going nowhere and is high in demand. 

Russia is a country that is really nothing more than a gas station parading around as a country.  Gasprom and Lukoil are huge producers or energy and pay out dividends. But past those two there are other companies getting the same low PE treatment. Even the cell phone operator in Russia is trading at years low prices.  So how does one take advantage of this low PE environment and get to make some money when Russia rebounds?  

First off let's be honest no one knows when or if Russia will rebound since Putin is in charge and will remain in charge for some years.  But if time goes on as it normally does sooner rather than later events will normalize and Russian stock prices will recover.  Your best bet in our opinion is to buy the ETF symbol RSX which is trading at almost a 50% discount to what was it's all time high.  Buy now at around $24 and it should rebound to the mid $30's or above once the geopolitical battles die down.  While waiting you get a reasonably safe 3% plus dividend too.  Now do not run out and put all your assets in this security,but certainly some assets would be smart to be here.  Be advised they pay an annual dividend in December. 

                 

Playing the hand you were dealt.

This posting continues a topic we have pursued this month regarding what we call the "political economy."  As in those posts we pointed out the simple fact that Obama and liberals are in charge of the economy now period.  Accept this fact. Thus as we have noted in the two earlier post like it or not the rich get richer and the poor get poorer under this regime.  If you have assets to invest smart investors find ways to ride the tide and make money.  This leads to the fact that many investors do not like not only the Obama economy approach, but really do not like the free money low rate environment that comes from the huge intervention of the federal reserve.  

If you have this opinion of the current economic environment here is something you will not want to hear.  That is the appointments Obama has made to the federal reserve since becoming president have his economic ideas as well and they now hold sway over that board and will do so for many years hence.  Therefore this free money environment will continue for the foreseeable future.  Maybe not so much the extra low interest rates since the markets have some sway there and the increased demand for loans will tend to temper those low rates, but nothing radical like anything above say a 5% handle home loans for example. 

Add in that Hillary Clinton will most likely be your next president and you get some of the same economic policies. Under a Hillary regime truth is you will not only see the rich get richer, but frankly the rich get much richer more quickly to be honest. Her contacts and attachments to Wall Street and money financial interests mean that pace will quicken. So like it or not only fools fight the Fed.  Let's also say only fools fight the political economic environment as well. 

All this financial engineering can not last forever as eventually the piper has to be paid and the house of cards will come down in some form.  We have no idea presently what that scenario will look like when it happens and more importantly we have no idea when it will happen.  We will say we believe that time of reckoning is awhile off due to this political economy being a very very slow growth kind of expansion, if you can call it an "expansion"  when few new jobs are being created.  Slow growth means not much pressure on rates or the money supply. Therefore we believe this stock market move will persist longer than many believe now and could stretch out for another five years. What we do know is right now the current economic environment is the hand we have been dealt to play and you play the hand you are dealt.   The only other choice is sit on the sidelines and wait and frankly lose out on the gains going forward.  Some have done just that for the last 6 years and some will continue that approach.  We prefer to play this hand and take profits when it becomes time to do so. That time is when your securities become fully valued.  

Taking profits now when your picks are fully valued requires patience and close monitoring.  It also requires you do not take a non emotional approach to buying or selling stocks or bonds.  We in the past year have done something we have never done before and that is to selectively sell highly appreciated municipal bonds to harvest gains and then reinvest in other munis for the same gains.  We have already discussed our going to large cap even mega cap stocks for trading to take advantage of this political economy.  Obama, Hillary, and the federal reserve are dealing the cards now.  Use your assets to take advantage of this new environment, not fight it.  

Widows and Orphans.

Years ago stocks that could be counted on period to pay out dividends, be completely safe in preserving capital, keep up with inflation,  and frankly keep widows and orphans comfortable at night were called "widows and orphans stock".   We do not know if there really exists such stocks now, but we do believe there are some very safe picks out there that could allow you to sleep well at night.  One could place equal amounts in the 6 stocks below and forget about them and just collect the dividends and capital gains as needed and not invest in another company period. (Note the absence of electric utilities, until Obama leaves office with his global warming religion and EPA attacks in those companies they remain under pressure.)  

BCE...This steady eddie company, Bell Canada,  is the largest telecom operator in Canada.  They are simply the AT&T in that country.  It pays out a 5% plus dividend and increases the payout regularly.  The stock bounces around between $40 and $45 and rarely moves much at all.  With the broad services such as wireless and wire line this company has a steady revenue and slowly increasing profits.   Telecom services are as safe as one can find now. 

BRK.B...Berkshire Hathaway does not pay a dividend, but the huge cash flow that comes into this company day after day year after year with or without Warren Buffet it is a safe haven for capital gains and selling stock as you need the money to live.  

NNN...Might be the safest stock on the planet right now.  Dividend just under 5% and stock price hangs around $35 and not much more or less period.  The real estate assets this company holds are the safest around with mostly AAA rated renters. They rent triple net which means the renter pays any increases in taxes and upkeep.  Most rents have a built in increase year after year.  They have increased their dividend annually for some two decades.  Take a look at the stock chart and you will see even during the financial meltdown NNN barely moved down. 

O...Realty Income is almost a clone of NNN.  Stock price bounces between $40 and $45. Same triple net approach. Same rental increases.  Same increases in dividend on a regular basis for about two decades.  Payout now is just over 5% and it is paid monthly not quarterly.  Only difference with NNN is that Realty Income has a little more diversified rental base and some less rated renters.  But in the end I could buy this stock for my grandmother and never lose a moment's sleep. 

T..AT&T is the second largest telecom company in the US with a stranglehold on the business with the largest telecom in the US Verizon.  We remain convinced that young people in this country would give up food to keep their cellphones and that makes for a solid safe stock.  Almost a 5.25% dividend that increases every year with a stock price that stays around $34.  

VZ...Verizon is the largest telecom company in the US and just like AT&T it is safe, safe, safe.  Stock price around $50 and a 4.25% dividend that increases year after year. 

TCAP

We have posted on Triangle Capital several times in our blog.  Yesterday the company, symbol TCAP, turned in a stellar quarterly earnings report where they simply outdid themselves.  We love TCAP and their business model, but this quarter they were running on all cylinders.  Our opinion of TCAP is that they are managed by the best, operate a shareholder friendly operation that feeds lots of profits to those shareholders by keeping expenses low and making smart decisions about which companies to make investments.  TCAP is a business development company that uses internal and externally borrowed capital to help enterprising established and new companies grow.  

They have not missed a beat or a increased dividend right on through the financial meltdown delivering to their shareholders. In the past few quarters they did not make as many investments as in the past and some thought they had lost their touch a bit.  The reason was perfectly TCAP as they said they did not find many good companies to invest in and they used the last year or so to harvest gains and wait with capital until opportunities arose. In the past six months they have found numerous businesses they considered worthwhile investments and have dove in strongly.  We will leave it to you to do the due diligence and go to their website and check out the latest ones, but they are impressive. 

TCAP  pays a 8% plus and growing dividend and this year added a special dividend due to the abundance of cash.  The company was founded by the current CEO Garland Tucker who is a quiet legend in the business world in which he works. We met Mr. Tucker in the past and were highly taken with his smarts, his gentlemanly grace, and ability to see the obvious when others can not.  That is why he and his team is so darn good.  Mr. Tucker is likely retiring soon, but the team he built is likely to carry on the tradition of good governance, shareholder friendly dividends and gains, and safe secure capital preservation.   TCAP selling here for around $27 is a good long term holding at this price.  TCAP will not make you rich, but it will produce income that can be counted on to grow past inflation. 

Did we say how much we love Triangle Capital?  

TPL

Investing in the little known security stands a real good chance of making someone in your family very very very rich.  Frankly if someone in your family holds it long enough it is a flat our guarantee someone, maybe you, but someone down the line will be a billionaire or somewhere near that with this one purchase.  If you go out and buy some of these shares may I highly suggest you wrap it up in a Roth IRA so as to secure these multi-millions down the line tax free too. 

Here is the deal.  Symbol TPL, or Texas Pacific Land Trust is a leftover relic from a over 125 plus years ago deal that well went bust. However the leftovers is what makes this opportunity so enticing. See this security was collateral for the long ago bankrupt Texas Pacific Railway.  The land was collateral for the railway that at one time was to pay for building the line. Leftover after the bankruptcy was millions of acres of worthless arid and frankly desert land that no one really wanted. For years it sat there being sold off to some landowners and some out of the way towns, plus some grazing rights for cattlemen to produce enough income to pay the taxes, the cost of maintaining the trust, and if any income was left over to pay out a few bucks at the end of each year.  At one point some oil was taken out of the land and the earnings increased but the oil ran out and the trust went back to earning some meager results and paying that small December dividend.  That would be it except that a something that happened just a few years ago.  

That something is the discovery of hydraulic fracking and since TPL owned lots and lots of land in the Permian Basin where billions of barrels of shale locked oil was beneath the surface BOOM the trust suddenly was stinking rich.  Like Texas Tea rich, like Jed Clampett rich.  Frankly no one knows how rich since no one knows how much oil is down there and how much the land will eventually we worth, but it is a hell of a lot for sure. 

Now here is the deal.  TPL is a self liquidating trust that over time sells off their land and mineral rights and will eventually cease to exist.  The trust pays out a very modest annual dividend and uses the rest of the earnings to pay expenses, taxes, and most importantly to buy back shares.  At some point down the line all but one of the shares will have been bought back and the last standing shareholder will be filthy billionaire rich as the holder of whatever remains of the trust oil, land, and such.  Of course over time as the shares increase in value along with buying back shares people will cash in their gains as well to take money off the table and cash in.  So when the last share will be held, or even the last few thousand shares, will be held is anyone's guess.  But with all that lovely new oil money buying back shares the pace has quickened a good bit. Four years ago you could have bought shares for $30 each that now sell for right at $180 per share.  Yes they are overpriced now according to earnings and other normal measuring sticks, but frankly no one knows how much they are really worth. 

The idea here is buy a share or maybe 100 shares and put them in a Roth IRA and truthfully forget about them.  The more shares you buy the better chance you got to being the last standing shareholder.  Talk about winning the lottery!  The chance of losing value over a extended period of time is absolutely nil.  Think about that you can not LOSE money in this stock if held long enough.  The end game is to have the final shares bought back sooner rather than later so as to cash out sooner.  However this final buyback might happen in your lifetime, your child's lifetime, or who knows several generations hence.  If your family has enough fortitude to hang on someone will be unbelievably rich and if kept in a Roth IRA and passed on down the line tax free billionaire rich. 

Now go out there and make someone in your family filthy rich but I would suggest wrapping this buy in some trust that allows for selling only when it reaches a certain value or is the last one standing.  Wanna think that someone else has not considered that idea too? 

Banks as Utilities

We have written on this issue before, but wanted to post in it another time with some updated ideas for investing.  Banks are now nothing more than utilities which are fully regulated by the federal government.  One can add in some insurance giants and a few other large financial institutions, but for the most part large banks are now considered too big to fail and therefore on the regulatory road for the foreseeable future.  That is until we get enough years behind us to forget what just transpired in the late 1990's and early 2000's.  We give it until about 2080 when everyone who witnessed the financial meltdown will be dead and wonder why we are regulating banks so much.  It will be about that time that the strings will be undone and they will have their own version of 1929 and 2008. 

Anyway enough with why and how and who to blame, what does one expect from investing in banks going forward.  First off let's be real clear here we would not touch small banks since they are paying the same hefty price of high regulation  and have fewer customers to spread the costs across.  That is why so many local banks and small banks are fast merging. That and the federal regulators find large banks easier to regulate and may we say intimidate.  Banks being backed by the taxpayers all along got what they deserved for being unsafe with funds and thus we now deal with the aftermath as investors. 

Large banks are getting taken to the cleaners right now by AG Eric Holder and we believe now are being punished well beyond what is needed but for political purposes.  Someday and at some point the AG and his trial lawyer buddies will have wrung out all the money they can and the banks will again become profitable lending money via cheaper deposits as they should have all along.  We need a strong banking sector and we need profitable banks to make loans and finance business growth and the new jobs that come along with those loans.  Credit unions can not do that and are such treated differently by the federal reserve too.  Banks soon will be past the point where they need constant babysitting and political payback costs so here are the ones I see doing well going forward. 

Understand you will NOT get rich owning bank stock.  You WILL make some decent returns and eventually some good dividends.  In the early years here the capital gains can be nicer than the dividends since the federal regulatory agencies are going to restrict dividends until the banks show the ability to pay them consistently and the bank has built up sufficient reserves for safety. 

JPM...We like and continue to own personally JP Morgan.  This is the best run bank and has the most suppressed stock price due to many political issues.  Once they get past the graveyard rock stage the stock price will move up nicely and the already decent dividend will as well.  Maybe the best risk bank stock for the return. 

WF..Wells Fargo is all but in the clear safety wise and will likely ramp up the dividend payout more, but the capital gains portion might be past the slow rabbit stage. 

C...Citigroup has the most risk and most reward situation. Almost no dividend, but the stock trades significantly below book value.   The capital gains upside is significant therefore, but be prepared for some stock price movement up and down, We have owned this bank and will likely do so again in the future. 

BAC...Bank of America has both good opportunities for a rise in dividends and stock price, just in our opinion not as much as the others.  If the economy however were to take off, which is unlikely under current political leadership, this stock could move up a good bit due the large customer base. 

We see no other US banks we would invest in currently.  These four banks are head and shoulders above every other bank in the country. In fact they are the only banks with over $1 trillion dollars plus in assets, with the smallest Wells Fargo being 5 times the number 5 bank in size.  Remember the bigger you are as a bank the more customers and assets you can spread costs over reducing your cost per customer and enhancing your opportunity to make money for your shareholder.  If you need a job and can do regulatory work trust me the banks are hiring so consider the job opportunities there as well.