Trading Portfolio June 2015

We trade options and sometimes hold stocks for capital gains in rare situations.  Our current trading portfolio selections are based on mostly mega and large cap stocks that are valued based.  We look for stocks that have small downside risk and upside opportunity.  Therefore as an individual investor who might be looking to buy individual stocks one can use this list for selecting individual issues that are good for capital gains.  We also remain convinced that financial engineering that consists of low Federal Reserve rates into 2016 and huge stock buybacks support the stock market.  As we have opined in the past large cap stocks such as these selections are supported by the current political economy of the Obama administration and likely future Clinton administration who favor huge corporations who fund the Democratic party and thus get favorable regulatory and tax treatment in return.  We also believe a correction if it comes will be short lived and bounce back rather quickly.  

              

AAPL..Are largest position since we believe Apple has very low risk.   We currently think the price has stalled out due to the recent upgrade cycle has matured.  However Apple runs in stages so holding it is the best choice.  Still undervalued. 

AGN..This drug maker Allergan has continue to ramp up with good acquisitions and a long line of branded and generic drugs. They are widely held in hedge funds and most holders believe there is significant upside here at around a 13 PE

C..Citigroup is a excellent long term holding for a bank stock.  The big four banks control the assets in this country as preferred by the Obama and soon Clinton administration and are protected politically.  A single digit PE. 

CHL..Chinese mobile phone carrier China Mobile is the largest such company on earth with several hundred million subscribers.  A low PE of about 13 makes us sleep well at night. 

CSCO..Cisco controls much of the switches and gears of the web and onsite business technology and again with a low PE they are a solid long term holding. 

FB..Despite a higher PE in the upper teens we like Facebook as the future of the social media atmosphere.  Any sell off will likely result in significant buying by funds and large holders placing a floor underneath the moderately high valued shares. 

GILD..Still at only a 10 PE this drug maker Gilead is a powerhouse of bio drugs. 

GS..Large investment bank Goldman Sachs is the top dog when companies need mergers and advice. A low PE of 10 makes for solid opportunity. 

IBM..We consider this low PE stock one of more risky selections, but as long as Warren Buffet owns shares we will too. 

JPM..Largest bank in the country and one of the big four.  JP Morgan is politically connected and will do quite well with Hillary Clinton in charge.  Best valued of the large banks. 

MET..Large insurer Met Life is selling under a 10 PE which is cheap. 

NEWM..Our most aggressive selection.  New Media Investments has been sold off way oversold now and we believe presents a significant opportunity for long term capital gains and a 7% dividend at current prices.  We have significant share numbers here. 

NNC..Our largest long position for some time is taking some lumps due to concerns over interest rate increases.  Nuveen North Carolina Fund is still yielding over 4.5% tax free and we believe is a bit oversold right now. 

ORCL..Large software company that offers software packages to businesses.  We are considering dropping Oracle due to valuation concerns.  Not high valuation, just not cheap anymore. 

PM..Large tobacco company that we will be dropping this month.  Good stock and safe dividend, just does not fit our trading profile at this time.  

PRU..Prudential has been on our list for some time as a single digit PE large insurance company and remains so for now. 

QCOM..A new selection for us Qualcomm is inside every mobile phone and has patents on most of those tech pieces.  That includes the phones in China as well.  The stock has been sold down too low and we believe it is safe at this low PE and lower price. 

T..Second largest phone carrier in the US AT&T is a solid choice for dividends and capital gains with almost no downside risk. 

TCAP..We like this stock and company, but will exit our position this month due to interest rate concerns.  We still believe it is a good long term holding and the significant dividend is safe. 

VZ...Largest mobile phone carrier in the US Verizon is a solid choice for dividends and capital gains with almost no downside risk. 

Eastern North Carolina Electricity Power Deal.

One our first postings on this blog some four years ago discussed the situation with the Eastern North Carolina towns getting crushed by extra high electricity rates and how to resolve this issue. Seems that issue has been put to rest effective mid year 2015.  Or has it? 

First off very soon as we understand it Duke Power is going to effectively deposit into Electricities account, the company that manages the eastern NC power system and towns that are members, about $1.2 billion dollars. Now that is a lot of money however it does NOT payoff the entire debt of the power system.  There will still be remaining about $500 million dollars or so to be paid off.  Talk about a serious capital loss this one is a doosie, but that is the lousy deal politicians made for taxpayers back in 1981 buying some power plants.  The debt remaining past the buyout amount for the power agency is in municipal bonds and those mature on a set schedule, up to about 10 years out. Some of those bonds are what is known as callable now and we expect, and hope, the agency will call those bonds and redeem them quite soon after they get the Duke funds. Then for those which come due along the way over the next few years we assume that Electricities and the member towns will redeem them and use the funds still in the bank to slowly eliminate the debt.  We hope. 

Electricities and the member towns have NOT been good custodians of power revenues over the years. When money piled up in accounts waiting for bonds to mature known as a sinking fund the politicians in the towns and bureaucracy at Electricities could not help themselves and spent the money.  Seriously would you expect anything else, they are who they are.  That is one of the reasons why the bonds originally planned to mature in total in 2011 are still another ten years plus out.  As we noted in our original post on this subject that money was spent on other "power" needs and frankly some of those "power" needs where in our opinion real sketchy. So the bonds not having the needed funds to pay them off where rolled over into longer dated bonds and the Electricities crew and politicians in the member towns just kept on keeping on with nary a worry in the world.  The problems  arose when the higher power rates came into conflict with no new residents, no population growth, and the lack of economic development.  That lack of the aforementioned growth was and is BECAUSE the lack of growth meant that those higher rates could no longer be spread over an expanding base of ratepayers.  So the ugly cycle of higher rates and higher rates kept going since not only was their no growth but in some cases there was declining numbers of ratepayers to shoulder the burden.  Of course if the powers that be would be minded their knitting and paid off the bonds in the timely manner planned then they would be completely free of the bonds and their cost now.  But what would that crowd at Electricities do and where would their operating funds originate? Those agencies need a reason to exist.  They want to keep their cushy high paid positions.  So the longer the debt and power agency game can be kept going the better.  Talk about the ultimate middle man job well these are it. 

So now they will soon sit with several hundred million dollars of new Duke money in the bank and frankly we do not trust them with it and we think with good reason.  If the bonds could be paid off immediately we would rest easy. The smart move would be to find some trustee say an insurance company that would love to have a cool billion dollars or so and deposit it with them, collect some negotiated high interest,  and make a deal to get funds as needed to pay off the bonds. Hey Warren Buffett's little operation might be a good place, how about someone placing the call for starters? Anyway here we sit with all that money and wonder if the towns and Electricities will find some more "power" needs for the money?  And of course remember there is still that $500 million or so hanging out there that needs to be paid off, wonder if they can just let those bonds mature on schedule and rid us of all this debt.   The past being prologue and as a ratepayer I am worried and you should be to if you live in a member town.  Yes we know that the bonds left will likely be put into what might be called pre-refunding mode backed by US treasuries, but we still do not trust them as US Treasuries can be sold and money spent. 

There is one other issue that concerns us too and this is totally a town governance one.  Let's go back to those higher than high electric rates.   With those bonds being paid off and the debt going down the cost of electricity should follow.  Maybe even a nice double digit drop shortly after mid year 2015 since the rate decrease should be around 18%, oh wait maybe it is 16% since we gotta pay those folks at Electricities their cut . Well do not count on it yet, remember we are dealing with some bureaucrats and politicians here. The savings will be large as in over $200 million annually in interest costs alone plus several million more annually in related costs of being part owners of power plants. Of course politicians see all that lovely cash flow they have had all along and they think special projects and other such government expenditures and we best be worried as they may well not cut rates or cut rates much to keep more of the cash flow for their favored interests.  They might even lower the rates for large businesses or even new industry sweetener than allow residents to see a cut in rates.  Yeah I do not trust them.  The smart move would be for each town to dump the entire power structure on Duke, like make a call and make a deal, and be done with all this mess.  Yes we are talking power poles, power employees, and power bills for good, get out of what should be a private business all along. But do not expect that to happen either since we still got those pesky people at Electricities to pay and some politicians who like that cash flow and we all know nothing succeeds in keeping itself employed like agency bureaucrats and government employees. So we expect they will sign another 20 year deal with Duke and we all will be some better off, but not as much as other power buyers in other towns. 

So keep a sharp eye out and keep up with what is going on here in your power agency member towns as we are not out of the woods yet and frankly I expect this is far from over. Yeah I will say it again I do not trust them. 

Bojangles as a stock

We like Bojangles...for food.  Their biscuits are unbeatable, their chicken we understand is lights out compared to other offerings, and yes they know how to brew some seriously good iced tea.  We even know some Yankees, and even some damn Yankees, who came south and can be found regularly at their restaurants.  Most of their customers literally crave this food. Heck we love their food and really like our local Bojangles and their crew.  With that said we are not so sure about their stock. 

Do not get us wrong here the company is well managed, maybe as well managed as any fast food business out there.  We love their concept and the business model.  We honestly think some of their restaurants are the best run and most pleasant places to dine we know, with the exception of some of those Down East NC. (Are you listening Mr. McRae?)  Absolutely love the use of what we consider a best business practice of selling at the price that generates the most sales possible and not at the price that is trying to make the most profit per sale. KFC is being pushed hard by Bojangles to reorganize their business to compete.  Those that think Popeyes will a better operator are wrong too, even though we really really think Popeyes is running a darn fine company too. With that said we are not so sure about their stock. 

The stock is selling around $26 as we speak and that is our best guess around a 35 PE, which is rich even for a good growing business.  The price ran up higher earlier on this month after the IPO and that was expected as those who hold stock in index funds who must buy this stock bought in.  Lately it has settled down a bit and we are waiting for the first ever earnings report which should come in about one week.  Now most new IPO's make sure, make real sure, that first post IPO earnings report is a sweet one.  You know cut expenses, shift costs, and push forward some revenue to hold up that stock price sooner rather than later. We spent a good bit of time reading their IPO and liked what we read, we will likely spend some time reading their earning report too.  But we believe this will be a show me stock in the ultra competitive world of the food business. Remember it is not what YOU think or even how the business does with stocks like these, it is how Wall Street thinks that could cause a buying of the shares and push up the price for the first few cycles. 

Also note that Bojangles did not get any proceeds form their IPO, it was a selling of some of the internal shareholders wanting some cash from their current holdings.  That is good that there was no dilution of the shares, but is is bad that Bos did not get any cash to expand store footprint.  I would not be surprised to see something like a secondary offering soon to do just that and that might come shortly after a good earnings report at some point. That will likely depress the shares and that might offer an opportunity to get in cheaper.  We would like it under $25 and would much prefer under say $22 or so.  But this is a speculative stock, not a swing for the fences stock. 

So be careful, and be patient here with BOJA.  Risk happens fast. 

Best Eats at Emerald Isle.

After three plus years having a home on Emerald Isle NC we believe we now know the best places to dine out. Maybe we can save you time hunting for a good one and save you some money as well. So without further ado here goes. 

Rucker Johns...Hands down the best place for overall dining out on the island.  Quality food, top of line taste, first rate wait staff, and most importantly at a fair price. You can pay more for dining out food, but we honestly do not believe you can find better quality food.  The prime rib and steaks are always excellent and they are Certified Angus Beef.  Be sure to try their salads and the house made hot bacon honey mustard dressing.  We find little here that is not excellent from the Tuscan Turkey Sandwich, one of our favorites, to the Crab Cakes which everyone seems to like.  The Cajun Shrimp Wrap is to die for according to my wife, oh and use the aforementioned honey mustard hot bacon dressing there as well.  If you like a steak salad, it is not on the menu, but ask for it and I can personally say it is mighty good. They bring a honey croissant with the salad which I could make a meal out of myself and you can order a basket of these babies.  Simply put you can not go wrong with a meal from RJ's as the locals call it.  They like children too.  Prepare for a wait during the summer season, but the kids can be entertained outside with the turtles in the canal behind the restaurant.  Worth the wait. Located behind Food Lion on the island so go find it. Open lunch and dinner. 

Mikes Restaurant...Locally owned place that can fool you when you ride, which we did for over a year,  by the sorta hole in wall looking place. Excellent cheap fast served breakfast for your mornings, go with the home fries.  The wait staff is fast and friendly.  We have yet to try their lunch menu, since we remain hooked on breakfast, but we understand that is right good as well and again not budget busting. They have a Sunday Buffet breakfast with is about $10 and offers up plenty of good eating. Prepare for a wait during summer season since lots of people already know about the place, but the line moves quickly. Located across from BB&T Bank on the island.  Open only for breakfast and lunch. 

Circle Pizza...We admit we rode by this place dozens of times without stopping even though we had heard their pizza was top notch.  We tried it about three months ago and will never go anywhere here for pizza pie.  The pies are loaded and got lots of cheese.  The wait staff is good too and told us the first time we went we would be hooked and they were right.  We understand the burgers, which are said to be huge, are might good too.  Located down the island a ways from the bridge in a strip center, but right on the main drag sound side so easy to find. 

Village Market...We like this place for the friendly people there and their very good food.  We get their Boarshead Turkey for sandwiches at home and I personally like the potato salad.  They have a good breakfast and a regular lunch special that is good and could be considered healthy food.  They of late have begun to offer take home suppers too.  Located on the main drag down from the third light on sound side. 

Sweet Spot...Despite several places on the island offering ice cream we still find Sweet Spot our favorite.  The owner is usually there and keeps the place running like a Swiss watch when lines appear.  The girls who serve up the ice cream are well trained and personable.   Lastly they serve Hersheys brand which we find to be better than other brands we have tried. There is other novelties in the store you might consider and a big selection of fine chocolate and candies.  Oh, and if your timing is right you get to sit in the rocking chairs out front and watch the world go by and converse with others enjoying their delight. Located almost directly across from Mikes Restaurant. 

T&W Oyster Bar...Yes we know this restaurant is not on the island, but it is worth the less than 10 minute trip right across the EI bridge and straight on up NC 58 on the right.  Excellent seafood restaurant with a full selection of Eastern NC seafood and all of it very good.  Be prepared to restrain yourself on the excellent hushpuppies.  I like mine even more by dipping them in the butter offered at the table. Weight gains beware.  This place is a legend around here and frankly had some bad years after Earl sold it.  He bought it back some years ago and the quality is back and so is Earl who will most likely visit your table personally to make sure you are getting what you desire. 

There are other restaurants on the island and some are good and some we have not tried, but the ones above we can personally tell you that you most likely will go away happy. 

Walmart coming to town.

Been there, done that as they say.  We personally have lived in and managed a business in 4 Eastern North Carolina towns where Walmart located a Super Center while we were there.   So when this Onslow County raised boy posts what we is about to post about the coming of Walmart to two Onslow County towns we know of what we speak and frankly we know many of you will not like nor accept what is about to be written here.  So here goes.

Richlands has a new Super Walmart and Swansboro is about to get one, both towns are in Onslow County.  Like it or not the when Walmart comes to town it is a good thing.  Let's just look at some examples where we have actually done business, before and after Walmart's arrival. 

Simply put if you are in a dying market Walmart can indeed hurt the prospects of local merchants. But dying or weak markets is more a sign of bad government than it is which new retailer comes to town.  On the other hand if the market is growing or stable then Walmart actually helps the market. Walmart helps the market by drawing MORE customers into the town because they want to shop at Walmart.  In return these new customers who would likely go elsewhere will usually spend money on other items Walmart does not sell while in town like dining out, higher end clothing, insurance,banks, new cars and trucks, furniture, appliances, and use local services like dentist, doctors, carpet installers, and more you get the picture. Smart and clever merchants quickly find niches and opportunities to feed off these new people coming to the market. 

Clayton NC is a perfect example.  What was already a growing town got even stronger with Walmart locating there.  Few retailers closed and the downtown area actually picked up new traffic with the new Super Center.  Like in most new Walmart locations a dozen or more new retailers popped up right around Walmart.  Wendys, Hardees, Starbucks, Zaxbys, Lone Star, Maurices, and even Dollar Tree right beside Walmart just to name a few.  Think about that a DOLLAR TREE located right beside Walmart.  All feeding off the new traffic, all providing new jobs, all providing new property and sales tax revenue. 

Even in weak markets like Smithfield NC the coming of a Walmart Super Center helped business. Again Belks, Dollar Tree, a local optometrist, Subway, a local mexican restaurant, two local cell phone retailers, McDonalds, Taco Bell, a bank, etc all located in or near Walmart.  Again more jobs and tax revenue.  Not to mention the housing that grew up to be near shopping.  Yes some local merchants died and some have shrunk, but they were mostly those who refused to find ways to use new customers or just had a bad attitude toward the new Walmart. 

That last sentence above is important, "had a bad attitude".  One can think and want your small town to stay the same or even not have new shopping choices, but never have I seen the same people upset when new employers come to town or even new restaurants, so why be so negative regarding Walmart.  Have you actually experienced a new Walmart several times like we have or are you just taking in what you heard on television or from others. Here is a fact neither Swansboro nor Richlands is the same small town we remember as a child growing up in Onslow County and they will not be the same with or without Walmart twenty years from now.  Decades ago this same attitude costs Onslow County the big employer Dupont, which wanted to locate near Richlands and no one would sell them the land, so they eventually located north of Kinston NC where they could buy land.  I suppose many of you would have preferred the local Marine Base to have not located here too with all those jobs and spending in the local economy.  Do you think that since you have employment that someone else who lives in town should not have a job who needs one? Are you that selfish?  Are you of the mindset that you do not want your town to grow?  Have you lived in a town where there is absolutely no growth, we have, and it is not very pretty. Do you think that is fair to others to want a no growth dying town? Do you think that Walmart will bring more crime and trouble?  Seriously get real on that last one as that is foolish thinking. 

Our small towns will prosper and do well with a Walmart coming to town offering hundreds of new jobs and traffic to help existing merchants.  Besides no one puts a gun to someone's head to shop anywhere else than they do now. But as our wife says often the prices at Walmart are good and she is not going to make someone else's pocketbook her personal charity just because they do not reduce their prices.  

As for each town Swansboro will likely do well with their new Walmart since the town is close to the base and will draw military shoppers into town and will now keep more dollars from well off retirees who are located on nearby beaches and in the area who will now shop at Walmart and stay in town for other needs instead of heading off to Morehead or Jacksonville. Richlands will likely see some new traffic from towns and areas west of Richlands like Beulaville, which got some of Richlands customers some years ago when Bojangles came to that town.  I expect it will be a net plus there as well and in time Richlands will see new restaurants.  The land in front of the new Richlands Walmart across from Liberty School looks to us to be a perfect spot for a restaurant. 

In the end look at Walmart as a positive and not a negative.  

Boring, Boring, Boring. Stock Market.

When we talked with our financial advisor yesterday we both searched for words to describe this market and both came up with only one word "boring."  After thinking about it for awhile we decided that indeed that was exactly what we had with both the economy and this market. 

Well we are here to tell you, boring is good, in fact mighty good.  We value the market as fairly priced considering the near zero interest rate environment,  near dysfunctional US Government, and near no growth economy.  The market truly reflects the environment right now.  Let's examine what it means for investors and traders. 

For traders like us we find we must work a lot harder to find trades and score profits.  But we are ahead of last year's pace by a good bit and we expect the rest of the year to be the same.  A boring market means little chance for losses and specifically large losses.  On the other hand it provides good opportunities for above average profits for those willing to do the research and take the time to wait for trades and not chase them.

For investors there is the steady drip of stock market price appreciation via the Obama spending spree/Federal Reserve low rate environment and the financial engineering of corporate stock buybacks and dividend increases. Therefore a regular monthly investment in index S&P 500 funds and letting them drip, drip, drip to gains is the obvious choice.  This certainly is not get rich quick, but it is get rich slow and that is just fine with us. 

Boring is beautiful it seems. 

Searching for Something.

Blah, blah, blah, the financial media blahs on.  Talk, Talk, Talk, the Federal Reserve weaves and turns and does nothing. Obama, Congress, and politics, nothing changes there either.  For about two months we have searching for something to post about and frankly there is nothing there since nothing, absolutely nothing, we have posted about in the last few months has changed.  

Our trading and investing portfolio has changed little.  Since January of this year we have added exactly one position China Mobile, symbol CHL, that within a week after our taking the position the stock rocked up about 10 points and we will take quick profits and go home soon.   We have not moved one iota from our mega and large cap stocks in our long portfolio and only the one change as noted in the trading portfolio.  In either case both portfolios continue they slow steady double digit move upward. The reasons are simple nothing in the economy or politics has moved period. 

The political economy of Obama and the Federal Reserve and almost zero rates is here to stay for at least 21 more months. That continues the generational theft that started in 2008 and continues apace today making those of us with assets safely getting richer day by day in our financial assets.  The financial engineering that is a result of the political economy of low rates and produces bigger than big stock share buybacks and regular increases in profits and dividends continues without any end in sight.  

The fact that here in the first few weeks of the second quarter 2015 earnings reports we get almost universally no increases in top line revenue growth, but almost universally bottom line profit growth tells anyone who has been around this game for more than a few years that few companies are seeing any new customers nor any customers spending more money with them. We indeed have reached the end of Obama and The Federal Reserve's game of tricks and ammunition to juggle figures or push the economy forward.  The bullets are all but non existent, except that if the economy dips again the Fed can restart the bond buying and add to their already $4 TRILLION dollar balance sheet with more bond purchases.  After what looks to be a dead or negative growth GDP in the first quarter 2015 they might have to dip back into that bag.  As they say a Trillion here and a trillion there and after awhile you are talking about real money. 

So where do we go from here.  We continue to stand by our prediction that nary a rate increase will be seen until after the 2016 election and if Hillary Clinton emerges as the winner maybe not anymore after that for eight more years.  Yes readers you heard it here first maybe almost a decade more of no rate increases, no interest earned on bonds, no interest earned in savings accounts, and lastly more asset appreciation for us holding assets. 

Be wise and keep your money in large cap stocks and get them out of bonds.  The only move we might see in the next twelve months is a concerted effort by banks and the feds is to push up SHORT term rates, not long term rates, in a last effort to run the very last hold outs from bonds into stocks and housing.  That is again one more move in the financial game by the politicians to get housing up and moving which is the first sign of economic growth.  Think about that we are years into a so called economic recovery and the powers that be are still trying to get the first thing that moves in an economic recovery moving and that is housing. 

As for us we will soon be heading to the beach to spend some of that lovely money you young folks and fools keep sending us out of your paychecks and future hopes for a better life.  That means we will be spending the young generations future fun money now.  We will send you a picture card young folks if you will forward an address, we already got your money for the stamp.  I believe the current President and the future female occupant of the White House call this "fairness".