Smart Investing

2006-08-17T10:09:00.000-07:00

Usually I focus on a specific company but, since I like most (not all) stocks in the electric utility business I decided to profile the entire industry (or at least most of it). There is no competition and generally high dividends. While utility stock will not rise as fast as my other picks they will not fall as fast either. Utilities are generally one of the safest investments a person can make, a utility stock is also one of the first investments a new investor makes.

The first stock I'll look at is Hawaiian Electric Industries Inc. (symbol: HE). Hawaiian Electric Industries (I'll refer to it by its symbol: HE) supplies 93% of Hawaii's electric needs as well as owning American Savings Bank, one of Hawaii's largest banks.

HE's position as both a power provider and bank in the Hawaiian islands puts it in a good position to benefit from Hawaii's booming population and tourist industry. The stock is not expensive either, it trades at just seventeen times trailing earnings and it throws off a 4.5% dividend.

The stock's biggest long term advantage will definitely be its unique location. Hawaii is becoming an increasingly popular retirement destination among wealthy individuals. This influx of wealth will push up real-estate values and benefit the company's bank and the influx of population will add new customers to the ever growing utility. HE also has a lot to offer for those who are more concerned with short term result. To start with 8% of all outstanding shares where sold short, unfortunately (for the shorts who will eventually have to cover) the average daily volume is less than 3% of the shares short. That means that even if just a few shorts decide to cover their positions it could cause a big increase in price and set off a chain reaction.

For those of you who are interested in buying stock direct I suggest you check out this stock's DSP plan on the company's website by clicking here.

One utility that I'm not as optimistic about is Duquesne Light Holdings Inc. (I'll refer to is by its symbol, DQE). With a p/e of 18 the stock is overpriced compared to the rest of the industry. But, the problem with investing in this company goes far deeper than the price. The company has its main operations in Pittsburgh, a city who's population has been declining since the 1960's. This means a declining customer base for DQE and who really wants to invest in a company with a declining customer base? Especially when the company is paying out over 80% of its profits in dividends instead of trying to diversify and its 5% yield isn't even very tempting. This stock may fair all right in the short term but, in the moderate to long term it will this company is not going to be a profitable investment unless Pittsburgh's population trend reverse, which is not likely.

2006-08-13T06:58:00.000-07:00

I think that it is time for a summary of my recommendation's performance.
Click on each company's name to view my recommendation.

Company recommendation Price Current Price Gain (or loss)

Extendicare Inc.* $15.10 $21.41 41.79%

Westar Energy Inc.* $22.31 $21.00 (10.35%)

Petsmart Inc.* $25.29 $27.50 8.74%

TC Pipelines LP* $33.05 $33.77 2.18%

Google Inc.** -$422.25 -$406.16 n/a

Telecom Corp. $32.39 $28.54 (11.89%)
of New Zealand*

Amazon.com $49.41 $37.09 (24.93%)

Integrated Alarm $3.64 $3.64 0.00%
Services Gro up

Krispy Kream $6.01 $8.82 46.76%

Overall Average n/a n/a 6.54%

Anulized overall return (including dividends and profit from shorting Google) 18.60%

S&P 500 annulized return for same period (including dividends) 13.67%

If you are interested in another winner from my portfolio that I did not recommend here check out Dover Downs Gaming and Entertainment Inc. (symbol: DDE), it was up over 150% from January when I sold it, it has since floated back down but it could hold some future promise.

* This company paid a dividend during this period that was not included in the individual results.

** I recommended selling Google short when it was at $422.25.

2006-02-19T18:59:00.000-08:00

I am working on an analysis of the entire utility industry. In the mean time if you would like a report on a specific company send me an email and I will have it done in a day or so. numismatist18@yahoo.com

2006-01-07T09:48:00.000-08:00

2006-01-07T04:35:00.000-08:00

Most investors are at least some what concerned about the bulk of the baby boomers retiring and selling off their stock, but there is one industry that is sure to benefit from the baby boomers retiring, nursing homes. My personal favorite is Extendicare Inc (EXE 15).

Extendicare Inc (I'll refer to it by its symbol: EXE) and the industry in general have several benefits (1) because of the experience and initial investment needed to start a nursing home there will likely be only a handful of new competitors over the next few years (2) there are only about a dozen major U.S companies involved in this industry, at first glance that may seem like a crowded field but when you consider that most of these companies stay within their "territory" and there are tens of thousands of customers for every company it doesn't look so tight after all.
With an enterprise value of 1.71B EXE is one of the biggest providers of long term care in the country (EXE also has major operations in Canada). The company also provides in home services to individuals who are not ready to move into a nursing home but do need some kind of outside care. That gives the company a strategic advantage over its competitors since it will start feeling the impact of baby boomers retiring about five years before its competitors, this will also give the company an advantage when those customers who recieve in home assistance are ready to move into a nursing home.
Even if you don't think about the industry this is still a great stock to own! The management is growth oriented, despite its 18% rise this year the stock is still cheap trading at just nine times trailing earnings, the stock throws off a small 1% dividend, the insiders own 6% of the company, and that's not to mention the occasional stock buy back. This company has the cash model of a utility with the growth plan of a major corporation. I suspect the price of this stock will advance by about 20% every year and than rise significantly about 5 years after the bulk of the baby boomers start to retire. Anyone who likes the low risk high reward combination (and who doesn't?) should consider buying shares of EXE.

disclosure: the author owns stock in EXE.

If you would like an analysis report on a specific company send me an email! numismatist18@yahoo.com

2005-12-28T18:18:00.000-08:00

This is the index of my past stock picks. You can view the article by clicking on the company's name.

Krispy Kream (Buy)
Integrated Alarm Services Group (Buy)
Amazon.com (Buy)
Telecom Corp. of New Zealand (Buy)
Google.com (Sell)
TC Pipelines LP (Buy)
Pet's Mart (Buy)
Westar Energy (Buy)
Extenicare (Buy)
The Utilities Industry
Summary

2005-12-16T15:22:00.000-08:00

If I told you there was an electric utility with a 4% yield and a plan to reduce its debt would you be interested? If you would then you'd be happy to note that there is such a stock, Westar Energy Inc. (symbol: wr). The company is a regulated electric utility in Kansas.

Westar Energy (I will refer to it by its symbol, WR) has a large debt load but a plan to reduce it drastically, it also has a nice dividend of 4% despite its low payout ratio of 35%. Once the debt is eliminated I suspect that this company will raise the dividend and start expanding. This stock combines the generous dividends and low P/E of a utility with the growth strategy of a large corporation.

The reason the stock is so low is because two former executives embezzled money from the company, but it wasn't enough to do any serious damage and charges were brought a while ago (click here for a link to the full story). Smart investors will look to the future and not the past, the price of this stock will not remain low for long I expect $32 by the end of 2006.

disclosure: the author owns stock in WR

2005-12-16T14:08:00.000-08:00

Pet Smart (symbol: petm) has taken a big dip recently but still has a P/E in the 20's. To the cautious investor Pet Smart (I'll refer to it by its symbol, PETM) may seem overpriced but if you look at the long term prospects of this stock it is a bargain.

Petm has the enviable position as the only large retailer of pet supplies, one of the fastest growing industries in America. The company is also activity engaged in share buy backs and throws off a small dividend. This is an undervalued stock in a fast growing sector. Just think if this where a technology company in the same position investors would have already driven the price up three times higher than it is right now. This stock is a hidden gem among companies with a lot of growth potential. If you have a low risk tolerance and your strategy is buy and hold this is a winner for your portfolio. This stock won't go unnoticed for long, buy a few shares today, you'll thank yourself for it later.

disclosure: The author owns stock in Petsmart

2005-12-15T15:20:00.000-08:00

TC Pipelines LP (symbol: TCLP) is a rare breed in today's market: an undervalued oil stock.

The company owns and operates pipelines and owns stakes in a multitude of other pipeline companies. The company has a forward P/E of 12 and a secure yield of 7%. The stock has a payout ratio of 81% but still has a large amount of income because depreciation is a major expense but is only a paper loss and since the company is a partnership it pays no taxes (the investors pay the taxes based on how large their stake is). It has a confusing tax code but TCLP is a good oil investment for the play it safe investor.

disclosure: the author owns stock in TCLP

2005-12-15T14:00:00.000-08:00

Google (symbol: goog) started seven years ago with a computer and a good idea, now it is a $120 billion company. But don't get too rosy with the stock yet. I don't think it would be a bad idea to short the stock

Google itself is a good company with good management but, the stock is overpriced. The market expects a lot from Google and frankly, I don't think that the company can deliver. Because Google has a dominant market share of the online search business it can't grow much faster than the industry. Google has a forward P/E of about 70, that means investors expect the company to more than double its profitability next year and while Google is growing fast it is not growing that fast. If the company does not adjust the P/E the market will. The stock is a bubble waiting to crash. In the short term Google may go far bayond its current price of $422.53 but, in the long term it will go far beneath this price.

The price of Google as I said is a bubble and right now the stock bears a lot of resemblence to the pre October 1929 market. People are buying only because other people are buying, the share price has become independent of the company and few investors are looking past the immediate future. These are all the warning signs of an impending crash. It is doubtful that a stock supported in large part by margin accounts and herd mentality can defy logic for much longer.

disclosure: the author owns no stock in Google but does use Google's advertising services

2005-12-15T05:59:00.000-08:00

Telecom Corp. of New Zealand (symbol: nzt) is a high yield winner that will be headed north as income investors trade in their bonds in favor of high yield stocks.

With a yield 0f more than 6% and a stable price this stock would fall into the high yield category. In addition this company has taken a recent slump, and it should rise by about 10% over the next few months, and an additional 8% before 2006 is over, and that doesn't even include the div. that is extremely stable. This stock is just like a bond but the yield is higher the risk is less and there is a big chance for appreciation. If you like high yield stocks or would like a safe foreign play this stock is for you. It trades as an ADR on the NYSE under the symbol "NZT".

disclosure: the author owns stock in NZT

2005-12-14T17:32:00.000-08:00

Amazon.com (symbol: amzn) is a big company that has been up a lot and has high P/E. These factors may scare some growth investors away but Amazon (I'll call it "amzn" from now on) has a lot of potential. Amzn may be a big company but it is a rapidly growing company. If you look at were it will be in ten years this stock looks incredibly cheap.

As the world becomes more tech savvy and more price oriented they will use amzn increasingly, in fact amzn is a major threat to some big booksellers and video game stores. Consumers don't always trust Ebay but on amzn fraud is rare and the consumers feel secure. In addition since amzn offers fixed prices and quick shipping consumers don't have to spend hours bidding and months waiting. Amzn has a lot of potential for growth and little chance for failure. This company is rapidly growing and shows no sign of stopping any time soon. Short Ebay and buy amzn. A long term play: this stock is sure to beat the S&P 500. Plus as an added bonous 10% of the floating shares were sold short, that will give this stock an extra boost.

disclosure: the author owns stock in amzn

2005-12-14T17:09:00.000-08:00

Integrated Alarm Services Group Inc. (symbol: iasg) has seen a recent jump in price of more than 50% and it doesn't look like stopping any time soon.

Integrated Alarm Services Group (I will refer to it as iasg from now on) appeared to many investors as a bad investment, the IPO was overpriced and the company was losing money. The IPO was a bit expensive at $9.00 a share but the stock has already been punished for that. The company is in a unique industry that not many investors understand, it is an alarm company. These companies pay about $1,200 to install an alarm company that they charge a customer a few hundred dollars for, as part of the installation agreement the customer agrees to pay the company to monitor the system for a set period of time. While this makes it seem like the company is poorly managed all that it really means is that the company is growing.

Those investors who don't understand the company have shorted it, now they are about one share short for every five shares outstanding. These shorts are beginning to cover and that is sending the stock on a rampage. In addition to this there has been a lot of insider buying that has pushed the stock higher and higher, plus regular investors like you and me are catching on to this stock. The stock closed at $3.64 today and it appears it may hit $5 before new year's day but even $5 would be a discount to the company's book value of $5.23 a share. I bought two weeks ago at $3.29 and I won't sell any time soon.

disclosure: the author owns shares of iasg

Krispy Cream, a long term loser a short term winner

2005-12-14T16:12:00.000-08:00

Krispy Kream (symbol: kkd) has had some rough water lately, the stock price has plummeted and the number of shares short is about half of the total shares but don't write it off as a bad company yet.

While Krispy Kream (I'll call it KKD) has taken a big dip in the share price it has been up considerably lately. This recent rise will convince shorts to start covering, this in turn will drive the price higher convincing more investors to jump on the band wagon and more shorts to cover. The stock closed at $6.01 a share today and I can see it hitting $10 in the near future.

Aside from that piece of herd mentality there is another factor in the stock price. It is undervalued! The company has made a revival and at the moment is only losing 9 cents a share every year. This company may be profitable in the next quarter and since it is trading below book value it should make a significant jump. While I don't think this stock will hit its prior levels of $50 a share in the near future it has a good chance of hitting and surpassing the $10 mark.

Disclosure: At the time of publishing the author owns no shares of KKD and has no affiliation with the company.