A hot stock tip?

Looking for a bargain?  Got those animal spirits?  Want to make some quick money?  Well all of you wanting a hot stock tip that likely is as good as it gets over the next month or so I got one.  American Realty Capital Properties has sold down over the last week significantly.  The triple net REIT is trading today at $11.85 per share.  The net asset value is just north of $12.  The shares have traded as high as almost $15 within the last three months.   We believe a fair price for ARCP is around $13 per share.  The stock is yielding 8.4% which is as far as we can see is safe and even better pays out monthly.  At a $13 price it would still be yielding 7.6%.  

We have been pushing purchase of this security since the first of 2014.  Yes we know the story has changed a bit since then due to the large move by management to exit some shopping center assets and take a big bet on the Red Lobster lease purchase.  We expect the purchase of Red Lobster and the uncertainty there has got investors spooked.  Some financial services firms have downgraded ARCP to hold lately as well.   But go take a look at recent purchases by insiders and all we see is buy, buy, buy, so either these insiders want to throw good money after bad or they think the stock is a buy. We will not be foolish here, yes there is some risk, but we think the risk is worth taking and once all the selling settles out in the next week ARCP will move back up to where it should be trading. 

So if you are looking for an opportunity to make some quick bucks here it is for you.  One other note if you decide to buy watch those monthly ex-dividend dates.  

We hold 4800 options on ARCP. 

Just another Scholarship Sunday?

One would think that after doing what we call "Scholarship Sunday" for the third time in our life it would become more routine. Well it has not and in fact we find that being on the giving end of these few short moments that it is indeed more blessed to be giving than to receiving.  Maybe it is the joy of listening to young people who are focused and ready to move on in life or maybe as it was like yesterday when a sermon that hit home with us during the worship hour, but either way these scholarships my wife and I endowed now some three years ago are making us a better Christian. 

The whole idea behind these scholarships was to honor our parents for passing on their Christian based life to us for those many years and setting an example of how to live such a life.  The Bonner H. Jones and Wilma D. Jones "Leadership" Scholarship was exactly that to find young Christian leaders and honor them for their hard work and more so their willingness to begin a walk with God early in their lives.  Ragan Deal the youth minister at First Baptist Church Richlands preached on that very point yesterday in his sermon when he talked about having a "Walk Worthy" of God during your life. His point was brought home to us by some comments made by Pastor Gary McAbee at the church some time ago during a presentation by the youth one evening.  The point was that in today's secular driven world a young person attempting to be a Christian and live Christian values has it much tougher than they did when we were growing up.  We fully believe that to be true and surely most people can agree on that point too. 

So on this third Scholarship Sunday we get to meet several young people graduating from various schools and discussing their futures.  We get to listen to parents who consider Christian values an important bedrock of their children's lives going forward.  We had the blessing of one of our oldest friends Rita mention to us that the young lady who was honored with the scholarship this year was a good choice.  We get to experience the unique joy of coming home to a congregation where we found Christ and have the fellowship of kindred minds. All while still doing the one thing we wanted to do all along and that is honor our parents for their Christian service.

This brings us to a point my wife makes regularly that doing something for someone who has no chance or opportunity to pay you back in any way is most blessed for the giver and certainly one of the highest Christian values.  Somewhere along the way we will get old enough that making these pilgrimages to our home church the second Sunday in June to present the award will not be possible for either health reasons or just having passed on.  Hopefully that will be well past ten or maybe 15 such Sundays and this scholarship will be fully embedded in the culture of the institution.  The endowment will live on as planned and 100 Sundays from now some Christian young person having just graduated from Richlands High School will be blessed with the scholarship and my parents honored by something named after them and their Christian walk worthy of God.  

                

June 2014 Trading Portfolio.

Our current trading portfolio.  We continue to be very careful about buys and option sells with the market at all time highs.  Times like these are when doing nothing is the best move in many cases.  However our strike prices should offer good entry points for long term holders. 

APPL...We have three positions in this stock.  $490, $500, and $550, all seem safe, but we do not want any more with Apple selling at $633 plus.   We will wait for a sell off before buying more or even renewing any options we own. 

AFL...Strike price of $57.50 with this solid insurer.  We will continue to trade this single digit PE stock.  Safe for long term we believe. 

ARCP...Large sell off recently have put us modestly below our strike price of $12.50. We continue to like this triple net REIT, but the deal with Red Lobster does cause us to pause. Investors should consider a position here for a 8% dividend and capital gains. 

BP...Strike price of $45.  Good stock, good price, and lowest PE in the industry. Still undervalued due to Gulf spill issues. 

HFC... This well run oil refiner which we own at $42 continue to make us money and give us comfort.  The lack of oil pipelines makes for cheap oil to refine and sell at a large crack price.  Obama's recent decision makes this refiner a safe bet for several more years. 

IBM...We are in at $175.  Warren Buffet is in higher than we are so sleep is good at night.  Could be a value trap too. 

JPM...We still believe this big bank is not being given it's just place in the valuation game and we still own it at $50.  Forward earnings make it a single digit PE. 

O...Steady eddie triple net REIT.  Might be one of the safest stocks to own right now. Great list of properties bought at the right price and with cheap mortgage rates too.  Our strike price is $40. 

PFE..We continue to look for openings to move into this security.  We are looking at $27 with this single digit PE drug producer.  Much of the drug expiration issues are behind it now.  With Obamacare the opportunity to make money is significant. 

PM...We have it at $75 and still like it despite the recent move up to around $90. 

SF...We are liking Stifel Nicolaus more and more as a smart acquirer of bolt on financial businesses.  At $40 our strike price we would buy a boat load. 

SHLD...Sears at $34 is good for us right now. But we remain careful about how we trade SHLD.  The deal here is for real estate and not retail. 

T...Solid dependable telecom that continues to make us money month after month. 

VZ...See our comments on T above. 

NNC...We now have our largest net long position in this municipal bond fund of any security we have owned in years.  Our current return from our original purchase in January of 2014 has been in double digit percentage.  We just bought another  large block and if there is a small sell off will buy some more.   The fund is still selling at over ten percent plus less than net asset value.  With continued low interest rates this buy is a no brainer. 

Newspapers now in the Sweet Spot.

As someone who spend over three decades making a living and building a retirement in the newspaper industry we believe we have some credibility regarding the future of the newspaper industry.  So when we say that we believe newspapers are in the sweet spot economically we should have some cred.  There are some exceptions here we will explain, but for the most part owning a small daily in a small to medium sized town is future wise and profit wise as good as it gets now. 

There is a reason billionaires like Warren Buffet are buying small daily newspapers. Groups such as Halifax, Cooke, Civitas, Boone, and others are active in the market adding dailies to their already good sized portfolios of newspapers.  Also note on the reverse side groups such as McClatchy, Lee, and Gannett are looking for buyers and selling some of their properties in large dailies.  Let's deal with the selling side first. Many of these groups got way over leveraged in debt buying newspapers earlier when returns were high due to the economic environment and buying at a premium price made sense.  Now they are selling those same properties at a net loss to lower the debt load to make management of their remaining properties less burdened by that cost.  Also large dailies in population centers frankly are being hit hard by competition from other media.  Television, radio, other targeted print media, and yes web based advertising is cutting into their business.  With a declining business base and higher legacy cost structure selling large daily newspapers is needed by these chains, but plainly quite hard since most buyers do not want a large circulation daily unless the newspaper is in a city where a wealthy buyer is willing to do it knowing at best they will operate a break even operation while taking some pride in owning the local daily. Pride must have some benefits we guess. 

There was a time when owning a newspaper could net the owner a 25% plus return on their money.  We personally have known newspapers that returned 40% plus in turnover ratio operating in the 1980's.  Those days are gone.  Newspaper owners and newspaper chains took their semi-monopoly status for granted for too long and when the internet hit and the monopolies ended in the early 2000's these owners got hit with the real economic world.  In our opinion owners then did not position their properties to compete well and operate in the real world as many of us kept suggesting and when the real world hit they were hit hard.  Huge debt loads severely hurt many of the chains and McClatchy is the poster boy for that situation. Right before the bottom fell out in the newspaper industry McClatchy took on several billion dollars in debt from the purchase of Knight Ridder. Many of their newspapers were in large metros too and the present ownership of those newspapers by McClatchy is in some cases not a very profitable situation.  Lee had similar issues with some of the late in the cycle newspaper large daily buys. 

Nowadays those large metro dailies continue to suffer nationwide.  One constantly hears other media and even newspapers themselves lament the problems with business in their industry and how the future is not very bright.  Indeed in our opinion it is not very bright.  We personally would not want to own a newspaper with a circulation above 50000 and not sure we would want one above 30000.  The economics do not work and the business competition too intense.  On the other hand like Buffet and the billionaires who own Cooke Communications and Halifax Media we would love to own some of their properties. In our state of North Carolina newspapers in towns such as Jacksonville, Greenville, Concord, and Hickory, just to name a few, look like darn fine newspapers to own.  They exist in medium sized towns where their products are needed and desired.  They operate in markets where competition is not intense. They have employees who are not unionized.  All they need to do is stick to their knitting and business profits will do fine. Most importantly the owners are not over leveraged with debt and can accept 15% to 18% returns on their investments.  Think about that again, 15% to 18% returns,  that sounds pretty good to anyone who understands investing. Let's be honest here, that percentage is what newspapers should have been earning all along too.  Newspaper chains were their own worst enemies taking on high debt with maximum exposure to a downturn in the markets. If they had bought wisely we expect many now would not be as bad off as they are even with some of the poorly operating large metro dailies.  Boone Newspapers looks to us to have been one of the smarter operators keeping to their knitting and buying opportunistic as they came along. 

All this talk about newspapers being in trouble is seeping down into employee issues as well.  Many young people are forgoing excellent employment opportunities and careers in the newspaper field after listening to all this doom and gloom.  We find that the large number of job openings in the small to medium daily field to be a great entry point for long term employment.  Most of these jobs offer good pay with excellent benefits and the pleasure of working with and getting to know local merchants. They also offer the opportunity to be a part of small town life which in most cases is pretty good and cheap living too compared to larger cities.  We highly suggest young people take a look at these jobs. We would if we were younger. 

The operating model we noted earlier for small to medium dailies offers long term ownership benefits and long term employment benefits.  That is to us a true sweet spot for newspapers.  Unfortunately for investors seeking some exposure to this field there are few opportunities.  Lee, symbol LEE, has some promise, but again we have concerns about the debt load.  Warren Buffet owns some of Lee's stock, but has unloaded some recently.  McClatchy, symbol MNI, has for us too high a debt load as well as a list of large city properties we do not like.  Gannett, symbol GCI, has done a good job a cleaning up it's balance sheet and has some good properties and bad properties, but has moved into television more and more in the last year.  So if you have interest do some due diligence and consider. One other company to consider is Media General, not a newspaper company but a former holder of newspaper properties.  They sold off their portfolio to Warren Buffet and now own a nice portfolio of profitable television stations.  Note that Mr. Buffet also owns some debt in this company that he has the option to convert to ownership down the line. 

We have no ownership in any of the securities mentioned here.

              

Risk Happens Fast.

Right on time and right on target the small investor and part time stock picker crowd has shown up to buy stocks just when the market has reached a value top and looks to be teetering towards falling.  We have been watching, trading, and investing in this market for now over three and a half decades and it is always the same.  Human nature being what it is the crowd comes in when confidence is at a top and animal spirits feeling good.  This for us is a clear sign of a market top.  If this also is a economic top remains to be seen. We expect the economy is reaching a point where the slow slow growth of the new normal is setting in and with it a new frugality even among the younger set.  Check out how tough the economy right now is on Walmart for example and how mortgage rates can not push past the upper 4 per cent range every time it gets there.  In either case buying when stocks are at their highest price is foolish, but unlike people who search for bargains when buying other retail merchandise the retail investor thinks that since stocks have been going up for a while now they will keep doing so forever.  Risk like today happens fast and you can be sure judgement day cometh and that be quite soon. 

We have tried to several decades now to persuade part time investors to NOT try and pick stocks for the quick buck or to make the lottery million, but to just buy a basket of stocks and let the market drive your wealth creation.  But to no avail in the past two weeks we have been asked at least a dozen times which stock we believe will make them millionaires and if the stock they got a tip on and are going to buy will do so as well. Trust me they WILL be buying that stock pick no matter what we suggest. The temptation is just to strong and the greed to great.  They will soon find out it was not smart and/or run out of patience and sell later .

For several months now we have been suggesting buying municipal bonds and even went so far as to suggest our favorite was NNC a municipal bond fund for North Carolina investors to make money in this market.  NNC ended yesterday at $13.14 right at a full dollar over our purchase prices in January of this year.  Basically a 10% gain in four months including interest payments, that an annualized 30% gain with some of that gain tax free.  Not bad for a safe stodgy bond fund huh?  Stocks too have been going up, but right now bet many of you are worried about your pick and maybe wanting to sell it?   The best choice all along for stocks is a index fund,  make that the Vanguard 500 index fund, to keep your money in the big boys and safely producing gains and those lovely reinvested dividends.  Not the sure fire stock picks. 

 For those with larger portfolios, bet you our large portfolio of NC municipals over the past four months have beaten anything you got in your portfolio or anywhere else. We will wager lunch on that, call us and let's bet lunch.  Buy bonds in a topping out interest rate market and buy stocks in a bottoming out interest rate market, simple easy investing but even the big boys and professionals miss that one too.  Louis Rukeyser would be something proud of our portfolio right now.  

Reviewing our 10 predictions back in January regarding the financial predictions  we seem to be doing well.   ARCP which we picked for a safe buy for 2014 is about $1 above our buying price, raised it's dividend, and still paying right at 8%.  Monitise, MONIF, has not performed as well, but we still got about 7 months left in the year.   Interest rates still stuck in the lower 4 per cent range offers a once in a lifetime entry point into real estate that should be considered. 

So risk happens fast and right now with fear overtaking greed as the predominant emotion in the markets we again suggest NNC which is still undervalued by about $1 per share at the current price. Otherwise prepare your cash for when the market does tumble and you get some opportunities to buy some great companies at bargain prices.  Not great companies at high prices.  Price is what you pay, value is what you get.  Stocks and bonds have made money than any other investment, business ownership, or anywhere else one could have placed their investment assets over the last hundred years and will do so over the next hundred years. The key here is patience as the best investment at many times is keeping your investing assets in cash and waiting for those opportune moments or better yet for most people stay invested and ride out the market tops and bottoms to lifelong wealth creation by great American companies.

            

Current Market Environment

We find little to like in this market unless like us you have some assets in mutual funds with exposure to some high quality corporate bonds and larger mega cap stocks.  The valuations continue to be stretched and the market has all but ignored the less than stellar earnings reports of the last month.  This market is precisely the reason smart investors do not try to pick stocks and individual bonds unless you are very experienced in doing so.  Risk happens fast. 

We continue to buy some NNC, a closed end NC muni bond fund, which is undervalued after running up over 8 percent since we bought it about 4 months ago.  With our dividends rolled in we are up a nice 30 percent annual rate on this buy we began in January of 2014.  Just hard to beat just under 5 percent tax free interest and capital gains too. Now trading at just over $13 per share NNC is still about $1 under it's net asset value so there is some room to run here.  We will buy more on any pullbacks. 

Trading in our options account has had only one small loss this year.  We believe this is due to the wide strike prices we are trading and the mega caps we tend to trade.  We also look for low PE stocks such as BP which is one of the few securities we find attractive in this market.  We also find ourselves warming back up to ARCP a triple net lease REIT we traded earlier this year before a nice run up.  It has been trading down recently due to some concerns over earnings which are to be released May 8.  Trading here just below $13 and with a nice 7.8% yield we are looking to move back in post earnings.  

One area where stocks have seen some backtracking are banks.  Banks post Dodd Frank are not a good investment.  They are battling introduction of new rules that all but make banks and many financials nothing more than highly regulated utilities like some state regulate power companies. Add in that with rates so low and no sign of them moving up any time soon there is little spread to make money on loans either. One reason most banks are not lending except to high value customers.  We currently trade JPM and C, but are extra careful not to stay too long in our rental.  Small banks still have issues with the cost of complying to new federal rules. I would completely avoid them. 

Again for most investors the best course is stay the course of regular investments in your 401-k and IRA.  If you are retired consider some municipals and NNC. 

              

May 2014 Primary Predictions.

Everyone else does it, so why not us.  So with that stated let's actually predict and comment on who we think will win, not who we hope will win or even who we voted for, some local Johnston County  and state races here in North Carolina.  With the precondition that yes we will get some of these wrong here goes... 

Johnston County Commissioner...Cookie Pope the long standing commissioner is facing Smithfield Fireman Patrick Harris.  First run for Mr. Harris.  Maybe Mr. Harris is setting himself up for when Ms. Pope retires,  but we see Ms. Pope winning by a comfortable margin. Too much history and too many voters who know Ms. Pope.   Cookie as she is known to just about everybody in the county broke the Democratic hold on the Commissioners back in 1994 and is fondly remembered for that.  Mr. Harris is doing a good job presenting himself as new blood on the county board and that is likely to get him some votes.  We know of Mr. Harris and think he has lots of credentials to be a fine commissioner but we expect his association with the Town of Smithfield and it's issues is going to drag down his chances this time.  If he ends up losing maybe the time between now and next time will offer some opportunity for the Smithfield taint to go away.  However if Mr. Harris pulls off an upset it would show that voter concerns about current county leadership is stronger than we think presently. 

Johnston County Clerk of Court...This is the race that will bring out the voters this round in Johnston County.  In our opinion this race has changed some in the last month.  A month ago we would have said either David Ford or Michelle Ball would win with the 40% needed to avoid a run off.  However Keith Branch from what we hear is closing fast.  How fast remains to be seen.  So now we expect a runoff,  most likely between the aforementioned Mr. Ford and Ms. Ball.  Note that there is no old establishment Republican candidate in this race.  We find that interesting due to the long tenure of power in the Republican Party that political machine has had in the county and this post is one of the top county office posts.  Note that District Attorney Susan Doyle did not draw a challenger either after several attempts to unseat the current DA by the old establishment.  Add in that Sheriff Steve Bizzell who was a Republican before it was cool to be such in Johnston County did not draw a challenger either.  All that to say that the old line county power base has slowly eroded with the huge population gains in Northern Johnston and for now the Sheriff and DA posts are likely set until someone retires or quits. 

Johnston County Commissioner...This one is the race we are watching most closely in Johnston County.  Chad Stewart is from the old line county Republicans, Keith Brinson is from mostly the new county Republicans.  Both must reach Clayton/Cleveland/Archers Lodge voters to win.  We have no idea who win will as this one is going to be close in our opinion.  Mr. Stewart is using his connections to help with his vote and after what appears to us to be a late start is working hard to retain his appointed seat.  Mr. Brinson is working quite hard too and seems to be everywhere in the county and has used the new social media in a way no other county level candidate has used in the past.  Gun to head prediction is Mr. Brinson pulls off a squeaker, which would say the county power structure has shifted for good.   If Mr. Brinson wins his use of the social media could transform how future local campaigns are run in this county. Full disclosure here we serve on a board with Mr. Brinson and have donated a few bucks due to the friendship, but that in no way clouds our opinion as we want to get these predictions right. 

Congressional District Seven...Woody White surprised a lot of people with a vigorous campaign.  David Rouzer having just missed last time is now widely known in the district.  Mr. Rouzer seems to be everywhere, either attending a gathering near Wilmington, speaking in Bruinswick County, or back home in Johnston County.  This race will be closer than expected, but we believe Mr. Rouzer will win and part of that win will come from a higher turnout from the highly contested Johnston County Clerk of Court open position.  Those same extra numbers should vote for the county favorite son and give him enough votes in Johnston County to win the district in what is normally a slow turnout primary vote.  We also think that the last week's hard hitting ads that Mr. Rouzer has been running has helped boost his lead in this race a good bit. Full disclosure we have contributed more than a few bucks to David Rouzer's campaign. 

Congressional District Two..We will review both parties primaries here.  Republican Congresswoman Ellmers versus challenger Frank Roche.   Despite the desire on the more "conservative" side of the party here, Cong. Ellmers should win the primary.   Cong. Ellmers seems to be everywhere like the Energizer Bunny all over her district and it shows she is not taking anything for granted.   As for the Democratic side of this race we think Clay Aiken had the lead early on, but now believe Keith Crisco has done some hard work and exercised his huge party connections and will in the end win the primary.   Full disclosure we contributed some bucks to a joint fundraiser that involved Cong. Ellmers. 

House District 26...Leo Daughtry has held this post for as long as most can remember, we see no reason at this election to say he will lose now.  This seat is his until he decides to retire or gets caught...well you know that rule. 

US Senate Republican Primary...If there ever was a race that displayed the split in the state Republican conservative and moderate wings this one is it.  First off we believe Ms. Grant has little chance to win this race, but after watching her in several debates find her most appealing politically and would strongly encourage her to run for some other positions.  A state council run we believe would be a place to start in 2016 or how about the Governor getting smart and appointing her to a position where her skills could be used.  Mr. Harris might be the most likable of the candidates, but we expect many Republicans in the state will sense his closeness to a church will hurt him in a statewide race against sitting Senator Hagan and he will come up short here.  However how many voters he pulls will make a significant impact on IF Mr. Tillis, who is the frontrunner, can pull off the 40% threshold to avoid a run off.  Dr. Brannon appeals to the conservative base of the party and if there is a run off will be the one who ends up running off with Mr. Tillis.  A runoff would likely not be good for the Republican party in November. However Dr. Brannon has hurt his chances with a civil lawsuit of late that he has not cleared up to many Republicans liking and frankly came across as sorta hard edged in a couple of debates with the other Republicans.  Thom Tillis, the so called establishment candidate seems to be pulling away in the last week, but some of his latest endorsements such as Jeb Bush and John McCain is not a plus in our opinion.  In the end we believe Mr. Tillis will avoid a run off with just over 40% of the vote, but it could have been higher if not for some of these latest endorsements.